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Tuesday 04.19.2016

Paying Up for Being Poor

Being poor in the U.S. can be expensive. Judging from the latest inflation data, it’s becoming more so.

Overall, inflation isn’t much of a problem in the U.S. For the past several years, the Federal Reserve has been struggling to get its preferred measure of consumer-price inflation up to its target of 2 percent -- and many Fed officials think it could take a few more years to get there.

That said, individual experiences of inflation can differ, depending on what a person buys. Some spend more on Hamptons real estate and high-end art, while others are just trying to put food on the table. To get a sense of what inflation might look like for different income groups, I combined data on prices with estimates of spending on specific categories of goods and services (taken from the 2014 Consumer Expenditure Survey). The categories don’t match precisely across the data sets, but they’re close enough to draw some conclusions.

The result: The bottom two-tenths of households have experienced more inflation than most other groups. This is true over the past one, three and five years, and with or without including relatively volatile food and energy prices. The main exception is the very top tenth, which has benefited less from the sharp decline in oil prices because fuel accounts for a much smaller share of this group’s typical budget.

Nordstrom Slashing Up to 400 Jobs Amid Sales Slowdown

Nordstrom said on Monday it would cut up to 400 corporate jobs, becoming the latest company to slash jobs in order to be more agile in a tough retail environment.

The upscale department store chain said the job cuts, mostly at headquarters and in regional offices, would be done by the end of July and save the company $60 million. The move comes after a bumpy patch for Nordstrom, which has invested billions in recent years on building up its leading e-commerce business but seen sales at its physical stores suffer.

In February, Nordstrom forecast profit per share would fall 30% in the first half of the current year and announced it would pull back on tech spending growth.

Nordstrom now gets 20% of sales online, up from 8% just five years ago. That growth, spurred by investments in new distribution facilities, computerized systems and equipping stores to help fill online orders way before it became the industry standard, has come at a cost. So the retailer’s executives announced a plan to rein that it in by focusing on the most essential initiatives, rather than working on countless projects of only margin benefit.

U.S. economy looks good but Fed remains cautious: Dudley

U.S. economic conditions are "mostly favorable" yet the Federal Reserve remains cautious in raising interest rates because threats loom, New York Fed President William Dudley said on Monday.

Dudley, a permanent voter on rates and a close ally of Fed Chair Janet Yellen, repeated his views in a speech, saying "policy adjustments are likely to be gradual and cautious, as we continue to face significant uncertainties and the headwinds to growth from the financial crisis have not fully abated."

Addressing a conference at the New York Fed, he repeated he was confident that too-low inflation would rise to a 2 percent goal over the next few years, and that "economic conditions have finally warranted the start of U.S. monetary policy normalization."

The Fed raised rates modestly from near zero in December, its first policy tightening in nearly a decade. Most economists predict it will move again in June.

Why Wall Street fears Donald Trump

IT employees at EmblemHealth fight to save jobs from outsourcing

IT employees at EmblemHealth are organizing to stop the New York-based employer from outsourcing their jobs to offshore provider Cognizant.

Employees say the insurer is on the verge of signing a contract with Cognizant, an IT services firm and one of the largest users of H-1B workers. They say the contract may be signed as early as this week.

They fear what a contract with an IT services offshore firm may mean: Humiliation as part of the "knowledge transfer" process, loss of their jobs or a "rebadging" to Cognizant, which they see as little more than temporary employment. Many of the workers, about 200 they estimate, are older, with 15-plus-year tenures. This means a hard job search for them.

The IT employees have decided not go quietly. "We're organizing," said one IT employee, who requested anonymity. "We're communicating with one another. They need the knowledge that we have. They can't transition [to Cognizant] without the information that we have. That puts us in a position of strength -- they can't fire us for organizing; we're protected by the law," she said.

1 Million People Still Out of Work in California

The unemployment rate in March in California was 5.4%. However, the state’s labor force is so large that 1,020,019 people were out of work, according to the U.S. Bureau of Labor Statistics (BLS).

The figures show how numbers analysis can be misleading. For example, the unemployment rate in Louisiana was 6.1% in March. The number of unemployed people was just 131,939.

The number of unemployed people in California was 12.5% of the March national total of 7,966,000. Other states made huge contributions. New York’s was 475,433, with Florida at 477,694, Texas at 577,214, and 429,633 in Illinois. Those five states have 37% of all the unemployed people in America.

The other end of the spectrum is just as telling. The March unemployment rate in Alaska was 6.6%, among the highest of all states. That represents only 23,883 people. Similarly, in New Mexico the jobless rate is a relative high 6.2%, which equals 57,356 people. The combination of a state with a small population and low unemployment yields even smaller numbers. The unemployment rate in New Hampshire was 2.6% in March, which translated to 19,297 people who were jobless. In North Dakota, the jobless rate was 3.1%, which represented 12,952 people

Why One Analyst Believes Gold Prices Could Hit $3,000 An Ounce

After finishing its best quarter in 30 years, gold extended its gains, rising more than 17.2 percent year-to-date to become the best performing asset class among other commodities, U.S. Treasury bonds and major world currencies and equity indices.

We are likely entering a new gold bull market, writes the World Gold Council (WGC). If so, it would be the first time since the previous one concluded in September 2011, when the metal reached its all-time high of $1,900 per ounce. Since 1970, we’ve seen five gold bull markets, each one lasting an average 63 months and returning an average 385 percent, according to the WGC.

Now, as reported on Mining.com, one precious metals analyst predicts gold could rise to $3,000 within the next three years. Speaking at the Dubai Precious Metals Conference this week, Dr. Diego Parrilla, coauthor of the book “The Energy World Is Flat,” stated that “a perfect storm for gold is brewing” as uncertainty over global central bank policies is deepening. We might have reached the limit of what quantitative easing (QE) programs and negative interest rate policies (NIRP) can accomplish.

Three thousand dollars might be an overstatement, but several prominent financial institutions, including HSBC, RBC Capital Markets and Credit Suisse, are currently bullish on the metal. For the 12-month period as of April 13, our Gold and Precious Metals Fund (USERX) was up 31.96 percent, while the World Precious Minerals Fund (UNWPX) returned 36.34 percent. This puts us ahead of the funds’ two benchmarks, the FTSE Gold Mines Index and NYSE Gold Miners Index.

China Killed 1 Million U.S. Jobs, But Don't Blame Trade Deals

Economists for decades have agreed that more open international trade is good for the U.S. economy. But recent research finds that while that's still true, when it comes to China, the downside for American workers has been much more painful than the experts predicted. And that's playing out on the presidential campaign trail in a big way.

'Disastrous' Trade Agreements? If you're Bernie Sanders and you want to get your supporters fired up at a rally, bashing trade deals like the North American Free Trade Agreement and the Trans-Pacific Partnership is a good way to go. Sanders recently said to huge applause that his opponent Hillary Clinton wasn't qualified to be president because she supported "every disastrous trade agreement, which has cost us millions of decent-paying jobs."

Likewise, in a Fox News debate, Donald Trump said the TPP is "a horrible deal." "It's a deal that was designed for China to come in as they always do through the back door and totally take advantage of everyone," he said.

But it's worth noting that China isn't even part of the TPP deal. The TPP is actually seen as an attempt to limit China's power and influence in trade. So Trump's criticism there is "just off-the-scales wrong," says David Autor, a labor economist at MIT. Autor has been researching trade with China for years. He says the political rhetoric is often a confused mess, but it gets loud applause at rallies and debates because it's tapping into something real. "I think what politicians are correctly responding to is the reality that the last 35 years have been bad ones for blue-collar Americans," he says.

Americans give the economy a "C" grade

Ask someone on Wall Street how the U.S. economy is doing and the response is likely to be "pretty good." Ask someone on Main Street and they will probably tell you it's crummy.

In a new CNNMoney/E*Trade survey of Americans who have at least $10,000 in an online trading account, over half (52%) gave the U.S. economy as a "C" grade. Another 15% rated the economy a "D" or "F." This gloom persists despite the fact that the stock market is on the upswing again. The Dow topped 18,000 Monday for the first time since July 2015.

There's a vast gap between how Wall Street and Main Street view America right now. Marianne Lake, chief financial officer of JPMorgan Chase (JPM), described the economy like this last week: "We have the belief that the U.S. economy is continuing to move in the right direction, that the consumer is on solid footing."

Compare that to what Jaynee Weiss who lives near Tacoma, Washington, thinks. "Who isn't worried about the economy?" Weiss told CNNMoney. "After all, prior to 2007, most of us could say that we didn't know anyone (closely, at least) who had been laid off. That all changed with the layoffs in 2008 to 2010."

Silver Outshining Gold? Is Metal Signaling a Global Economic Turnaround

Will oil prices drop to $20 a barrel?

It was only four months ago that several prominent analysts said oil would drop as low as $20 a barrel. The recent run-up in prices had turned them into fools. However, the absence of a decision to freeze oil production at a meeting of some of the world’s largest oil-producing nations has scuttled the most promising chance to push crude prices higher.

A fight between Saudi Arabia and Iran has been blamed for the lack of a deal to freeze prices. This may open the flood gates of oil production as nations decide whether to follow Saudi Arabia and Iran. If several large oil exporters do, probably as a means to keep their global market share, supply may begin to overwhelm demand as it did early in 2016.

Other elements should press oil prices back toward their 52-week low just below $30, and then below that. The growth of China’s gross domestic product slowed to 1.1% in the fourth quarter, compared to the same quarter in 2014, on a seasonally adjusted basis. Worldwide expectations for GDP growth were cut to 3.2% by the International Monetary Fund recently, down from its 3.4% forecast in January. Economic activity in the advanced economies and China were at the core of the revision.

According to a Bloomberg report in early January: Oil could drop below $20 a barrel as the search for a level that brings supply and demand back into balance makes prices even more volatile, Goldman Sachs Group Inc. predicted. With capacity to store oil exhausted in some places, prices may need to drop low enough to halt crude output that can no longer be stockpiled, said Jeff Currie, Goldman’s head of commodities research.

California’s $15 Minimum Wage Ends Apparel Industry Revival

The first accomplishment of California’s pioneering $15 minimum wage law is killing the revival of America’s clothing industry.

American Apparel, which provided 10 percent of all apparel manufacturing jobs in Los Angeles, has terminated 500 employees in the last two weeks. Chief Executive Paula Schneider also told the Los Angeles Times that “manufacturing of more complicated pieces, such as jeans, could soon be outsourced to a third-party company.”

The company did not tie the announcement directly to California Governor Jerry Brown signing of the nation’s first statewide $15 minimum wage on April 4. But the layoffs started shortly almost immediately after Brown’s action, and were announced on April 14 as labor organizers filled Los Angeles streets with fast-food workers set to strike, supported by unionized home-care and child-care workers.

Lloyd Greif, Chief Executive of Los Angeles investment banking firm Greif & Co. told LA Times, “They’re headed out of Dodge.” He added, “They are going to outsource all garments. It’s only a matter of time.” At the turn of the 21st Century, Los Angeles County was the “rag trade” capital of America. With 4,000 active apparel-making sites employing almost 90,000 workers, the Los Angeles area was over twice the size of the rag trade in the New York region.

Institutionalized Lying — Why Central Bankers Never See Bubbles

Every day there is more confirmation that the casino is an exceedingly dangerous place and that exposure to the stock, bond and related markets is to be avoided at all hazards. In essence the whole shebang is based on institutionalized lying, meaning that prouncements of central bankers, Wall Street brokers and big company executives are a tissue of misdirection, obfuscation and outright deceit.

And they are self-reinforcing, too. As we indicated in our post over the weekend (The Keynesian House Of Denial), it’s all definitional by the lights of today’s central bankers and their Wall Street camp followers. Since the former are busy “accommodating”, massaging and “stimulating” economies all around the world—- bad things like recessions and stock market busts just can’t happen.

At the same time, the narrative from the casino always points to opportunity today and even better prospects tomorrow (i.e. in the second half and next year). Thus, S&P 500 earnings on an ex-items basis for Q4 2016 are projected to come in at $32 per share or up by 39% from the $23 posted for Q4 2015; and by year-end 2017, the patented Wall Street hockey stick points to a gain of 57%.

At today’s market close of 2094, therefore, what’s not to like about valuation levels and PEs? After all, the full-year hockey stick points to $119 per share in 2016 and $136 in 2017. The implied PE multiples are a modest 17.3X and 15.3X, respectively. Except they aren’t even remotely so. S&P 500 earnings on a GAAP basis came in at $86.47 for the LTM period just ended, and the current quarter is already conceded to be down by upwards of 10%. In fact, the stock market is now valued at 24.2X—in the nosebleed section of history—-at a time when the global growth cycle is reversing, the US business expansion at 82 months is long in the tooth and actual GAAP earnings that you don’t go to jail for reporting, are down 18.5% from the September 2014 LTM peak, and heading lower.

What Did Fed Chairman Yellen Tell Obama? By Ron Paul

This week, President Obama and Vice President Biden held a hastily arranged secret meeting with Federal Reserve Chairman Janet Yellen. According to the one paragraph statement released by the White House following the meeting, Yellen, Obama, and Biden simply “exchanged notes” about the economy and the progress of financial reform. Because the meeting was held behind closed doors, the American people have no way of knowing what else the three might have discussed.

Yellen’s secret meeting at the White House followed an emergency secret Federal Reserve Board meeting. The Fed then held another secret meeting to discuss bank reform. These secret meetings come on the heels of the Federal Reserve Bank of Atlanta’s estimate that first quarter GDP growth was .01 percent, dangerously close to the official definition of recession.

Thus the real reason for all these secret meetings could be a panic that the Fed’s eight year explosion of money creation has not just failed to revive the economy, but is about to cause another major market meltdown.

Establishment politicians and economists find the Fed’s failures puzzling. According to the Keynesian paradigm that still dominates the thinking of most policymakers, the Fed’s money creation should have produced such robust growth that today the Fed would be raising interest rates to prevent the economy from “overheating.”

Kashkari: We’re running out of time to solve too big to fail

We might be repeating the mistakes of the 1999 bubble and crash

The stock market may be in danger of repeating some very bad history.

The current market environment is looking a whole lot like the 1998-1999 stock market bubble, and the crash of 2000 may not be far behind, said Michael Hartnett of Bank of America Merrill Lynch.

"It could simply be 1998/99 all over again. After all, a 'speculative blow-off' in asset prices is one logical conclusion to a world dominated by central bank liquidity, technological disruption & wealth inequality," he wrote in a note Sunday. Hartnett, BAML's chief investment strategist, thinks the emerging-market problems and subsequent global response reflect a similar set of circumstances in the late 1990s.

Here's the chain of events via Hartnett: Back then, as could be the case today, a bull market & a US-led economic recovery was rudely interrupted by a crisis in Emerging Markets. The crisis threatened to hurt Main Street via Wall Street (the Nasdaq fell 33% between Jul-Oct 1998, when [Long-Term Capital Management] went under). Policy makers panicked and monetary policy was eased (with hindsight unnecessarily). Fresh liquidity combined with apocalyptic investor sentiment very quickly morphed into a violent but narrow equity bull market/bubble in 1998/99, one which ultimately took valuations & interest rates sharply higher to levels that eventually caused a “pop”.

$15 an hour? These retail and restaurant CEOs make $9,000 an hour

Restaurant and retail workers are pushing for a national minimum wage of $15 an hour, but some CEOs in the industry have landed pay packages worth $9,000 an hour or more.

The highest paid chiefs in these industries include Larry Merlo of CVS Health (CVS), who earned $13,914 an hour, Leslie Wexner of Victoria's Secret parent L Brands (LB) who brought in $13,062 an hour, Howard Schultz of Starbucks (SBUX), who made $9,659 an hour and Douglas McMillon of Wal-Mart (WMT) who received $9,323 an hour. Four retail and restaurant CEOs earned more than $9,000 an hour last fiscal year, according to a USA TODAY analysis of data from S&P Global Market Intelligence. The analysis includes the 76 restaurant and retail companies in the Standard & Poor's 1500 that have disclosed their fiscal 2015 executive pay and is based on a 40-hour work week.

These CEOs' pay packages come amid moves by states such as New York and California to boost the minimum wage to $15 a hour. The minimum wage increase will affect a large pool of workers that include retail and restaurant workers such as store clerks, cooks and waiters.

The 76 restaurant and retail company CEOs who have 2015 pay reported so far earned a median of $2,703 an hour, about $5.6 million annually. Stephen Easterbrook, CEO of McDonald's (MCD), the fast-food giant that is often associated with minimum wage, earned $3,803 an hour last fiscal year, or $7.9 million total, according to the company's proxy filed Friday. That ranks him No. 25 among the companies in this analysis.

Absurdity: When The Con Believes The Con

There are many infamous con games that have been foisted upon the public for millennia. Probably none more enduring than that of Charles Ponzi which bears his name as its moniker. Yet, there’s also been another who was also just as “daring” when it came to finding ways as to extract monetary gains by ill-gotten means: Victor Lustig. Lustig is best known as “The man who sold the Eiffel Tower.” However, it was one of his other cons that came to mind as I was thinking about the current state of monetary policy we now find ourselves in.

Lustig’s other con was a device he slated would print $100 bills. But it had a problem. Unbeknown to his mark, this problem was also part of the deception. The problem was (as stated by Lustig) – it could only print 1 bill every 6 hours. The genius was; located within the machine it contained two genuine $100 bills. After that – blanks. You could be long gone, and quite far with that kind of head start back then. Yet, it’s once the con, ruse, or scam is finally exposed one thing is certain: You don’t want to still be around or found.

As with any con game the perpetrator knows it’s all a con. In other words, “Duh!” Yet, if you listen closely to both past as well as present Fed. members you can’t help but notice by way of their current arguments, as well as, proposals for future monetary policy. The one’s who’ve truly bought into “the con” is: themselves! Nowhere has this been on display more than the current public writings and musings of former Fed. Chair Ben Bernanke.

If you read his latest (which I’ve tried but can’t bear that much comedy in one sitting) he lays out what he thinks (or believes) should now take place involving Congress, the Administration, and the Fed. His great idea? Create and “fill” some arbitrary account which only the Fed. or its appointed designates have control of as to “empty” or “fill” as “Congress and Administration” see fit. But here’s the punchline, ready? “Importantly, the Congress and Administration would have the option to leave the funds unspent. If the funds were not used within a specified time, the Fed would be empowered to withdraw them.”

Goldman Sachs’s Bet on Low-Income Home Buyers

As the head of Goldman Sachs’s mortgage department, Daniel Sparks helped make the bank more than a billion dollars betting against the market as housing prices began to crash in 2007.

Today, he is betting on home buyers who no longer qualify for mortgages in the fallout of that housing crisis. Shelter Growth Capital Partners, an investment firm Mr. Sparks founded in 2014 with two other former Goldman Sachs executives, has been buying homes that were foreclosed on during the financial crisis and later resold to buyers under long-term installment contracts.

The firm has bought just over 200 homes from Harbour Portfolio Advisors, a Dallas investment firm that has specialized in selling homes to lower-income buyers through what is known as a contract for deed. In these deals, a seller provides the buyer with a long-term, high-interest loan, with the promise of actually owning the home at the end of it.

These contracts, a form of seller financing, have ballooned in recent years as low-income families unable to get traditional mortgages have turned to alternate ways to buy homes. The homes are often sold “as is,” in need of costly repairs and renovations, and many of the transactions end in eviction when buyers fall behind on payments.

UK Treasury warns of economic costs of Brexit

Steel Producers Will Urge China to Cut Output

Key players in the world’s struggling steel industry gathered in Brussels on Monday to try to push China to scale back overproduction blamed for causing plant closures and job losses.

The meeting by ministers and representatives from 30 countries “will discuss how governments can facilitate market-driven industry restructuring and aims to agree on steps to reduce competition-distorting policies,” according to a statement from the OECD, which organized the event.

China produces about half of the globe’s steel output and is accused of flooding the world market with oversupply sold at below cost in violation of global trade rules. Indian giant Tata Steel put its loss-making British operation up for sale last month leaving thousands of jobs at risk, in the latest example of the crisis hitting the steel industry.

The OECD, the grouping of world industrialized countries, plans to issue a joint statement at the end of the talks, but a source said divisions made any positive outcome uncertain. Britain’s business minister Sajid Javid will join counterparts from Belgium and France to make the case to China that will be represented by assistant trade minister Ji Zhang.

Waste Management to outsource Arizona jobs to India

Some employees relocated to Arizona less than two years ago, but the company will offer retention bonuses for those who remain until layoffs take effect.

The central Indian metropolis of Indore, where slum dwellers report incomes of about $78 per month and a carton of eggs costs 88 cents, is about to get some new jobs thanks to outsourcing from Phoenix.

Waste Management Inc. confirmed this week that about 120 Arizona employees are being laid off in the coming months because their billing duties are being shifted to Asia.

The move could reduce company labor costs for those positions by three-quarters. In a written statement, Waste Management of Arizona said sending jobs offshore "is about optimizing our back office processing functions" such as data entry and billing.

Tuesday 04.19.2016

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