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Friday 08.19.2016

Fed's Dudley Upbeat On U.S. Employment, Return Of Middle-Wage Jobs

Strong recent U.S. jobs growth and a long-awaited return of middle-wage employment are two positive signs for the U.S. labor market, an influential Federal Reserve policymaker said on Thursday, appearing to reinforce his more confident message on a possible interest-rate hike.

New York Fed President William Dudley said the last two months of job growth "helped allay concerns that arose earlier this year that job growth was beginning to stall (and) reinforced my view that labor market conditions continue to improve."

While Dudley had some cautionary words on Puerto Rico's struggling economy, he painted a relatively bright picture of the national labor market that prompted investors to send Treasury yields somewhat lower and, briefly, to boost the dollar.

Earlier this week, Dudley, a permanent voter on U.S. interest-rate policy and a close ally of Fed Chair Janet Yellen, said rates could possibly rise as soon as September depending on the economic data and signs of inflation. "The labor market continues to tighten," he said on Thursday, based on evidence of wage gains in the employment cost index and in average hourly earnings, two key pieces of data. The roughly 2.5-percent growth in wages "suggests we are getting closer to full employment."

Trump Economic Advisor Wants America to Go Back to the Gold Standard

Donald Trump is no policy wonk. He is pitching himself as the best man for the presidency based on his track record as businessman, and his ability to surround himself with the “best” people—not on his knack for writing white papers. This, of course, means that it is important for voters to understand whom he is surrounding himself with, and what sort of ideas they hold.

With this in mind, Fortune reached out to Dr. Judy Shelton, one of two economists recently named to Donald Trump’s economic advisory team, and the only woman to hold that title. Shelton is a senior fellow and co-director of the Atlas Sound Money Project, whose mission is to promote the principles of sound money and raise awareness of what they see as the inherent problems of our current monetary system. Dr. Shelton first rose to prominence when she predicted the economic collapse of the Soviet Union in 1989, two years before it transpired.

Fortune discussed with Dr. Shelton what sort of advice she is passing along to the Republican nominee and what she thinks about the biggest economic questions of the day. The interview has been edited for length and clarity.

How did you become involved with the Trump campaign? Dr. Shelton: I have over the years advised a number of Republican candidates, going back to Jack Kemp and more recently Marco Rubio, Ted Cruz, and Ben Carson. I’ve worked for a long time with Stephen Moore and Larry Kudlow, and Larry asked me if I had some thoughts for the Trump campaign on the issues I discuss most, namely international monetary relations, currency, and trade issues. I’ve been intermittently sending Larry my thoughts in the form of memos on these issues.

Carl Icahn Warns of Impending Economic Gloom Amid Disinvestment

Carl Icahn, a billionaire business tycoon and investor with broad interests across the tech, real estate, finance, casino, biotech and entertainment industries, said in a recent Bloomberg Markets interview that US stock market is severely overpriced due to the dysfunctional monetary policies practiced by the Federal Reserve. Subsequently, his best suggested investment strategy is minimizing market exposure ahead of the looming shifts in policy and economic structure, or a massive financial meltdown.

Carl Icahn, whose net worth is estimated at $17 bln, is primarily active in diversified investment across multiple sectors of the economy through his company, Icahn Enterprises. He also serves as Chairman for Federal-Mogul, a development and manufacturing company operating nationwide. An avid supporter of Donald Trump's bid for presidency this year, Icahn was previously cited as expressing grave concerns over the state of the US economy. On Wednesday, he gave an increasingly pessimistic view on the matter, saying that the US either stands on the edge of painful reform or a full-scale economic crisis.

"There's certainly good companies. (The market) is way overvalued at 20 times the S&P and I'll tell you why: a lot of it is a result of zero interest rates. It's just what I said. You have zero interest and a lot of buybacks. Money is not going into capital," Icahn told Bloomberg Markets.

The Federal Reserve's ultra-loose monetary policies, initially introduced in 2009 in order to boost lending and real economy investment, have produced significant risks stemming from the side effects of near-zero interest rates. The zero interest rates regime (ZIRP) was intact in the US in 2009-2015 for the Fed fund rates, determining base borrowing costs for the economy. The base rates were lifted off zero in December 2015, resulting in a visible blow to fixed-income and stock markets, with the broader economy slowing to near-1 percent growth in the three consecutive quarters between October 2015 and June 2016.

The Fed Goes All-In On Stimulus

Greenspan Sees U.S. Interest Rates Rising Soon, Perhaps Rapidly

Former Federal Reserve Chairman Alan Greenspan forecast that interest rates will begin rising soon, perhaps rapidly. “I cannot perceive that we can maintain these levels of interest rates for very much longer,” he told former Securities and Exchange Commission Chairman Arthur Levitt in a Bloomberg Radio interview to be aired this weekend and next.

“They have to start to move up and when they do they could move up and surprise us with the degree of rapidity which may occur,” Greenspan added. The yield on the 10-year Treasury note stood at around 1.55 percent on Thursday, down from 2.27 percent at the start of the year.

Greenspan repeated his previously-voiced concern that the U.S. economy was headed toward a period of stagflation -- stagnant growth coupled with elevated inflation.

“The very early stages are becoming evident,” with unit labor costs beginning to rise and money supply growth starting to accelerate, he said. The former Fed chief was pessimistic about the chances of the euro zone surviving in its current form.

Central Banks Now Selling US Debt at Record Pace

In the first six months of 2016, foreign central banks sold a net $192 billion of U.S. Treasury bills, notes, and bonds. This is more than double the pace from the same time last year. China, Japan, and Brazil were the leaders in selling U.S. debt.

With the U.S. debt running at approximately $19.4 trillion, this could be problematic. A large selloff of U.S. bonds would decrease their price, or in other worlds, increase domestic interest rates in general (bond prices and interest rates always move in the opposite direction).

With the debt roughly the size of the U.S. economy, interest spending on the debt is forecasted to be the fastest growing area of federal spending in the coming years, eclipsing Medicare and Social Security. In 2015, the U.S. spent $223 billion, or 6 percent of the federal budget, despite historically low interest rates.

The question is, why is this happening? The International Monetary Fund recently downgraded its prediction of global economic growth to just 3.2 percent this year, down from roughly half from a decade ago. During times of periods of distress, U.S. Treasurys, the most liquid and safe securities in the entire world, are typically the most attractive in times of economic turbulence. Currently, China is the largest holder of U.S government debt, standing at $1.24 trillion in June, while Japan comes in at a close second with $1.148 trillion.

Fannie Mae: Economic rebound on the way for second half of 2016

Despite the disappointing economic growth in the second quarter, the remainder of the year will bring a rebound, Fannie Mae predicted in its August 2016 Economic and Housing Outlook. Business investment is struggling, therefore it will be consumer spending that drives the economic growth in the third quarter, the outlook states.

“Second quarter growth was a disappointment, but consumer spending appears solid heading into Q3, and we expect inventory investment to balance out after a surprising drawdown in Q2,” Fannie Mae Chief Economist Doug Duncan said.

“Credit expansion, combined with improving labor market conditions and strengthening household balance sheets, should continue to support consumers, who will likely be the primary driver of growth again in the second half of the year,” Duncan said.

The higher than expected July jobs report shows consumers could benefit from improvement in their incomes and the strengthening hiring trend. This will likely support a more sustainable pace of inventory accumulation and help soothe concerns over the health of businesses, which face lackluster profits and pulled back on capital expenditures, the report stated.

Mandatory “social justice” module greets freshmen at Oregon State U

Uber Riders To Be Able To Hail Self-Driving Cars For First Time

Uber passengers in Pittsburgh will be able to hail self-driving cars for the first time within the next few weeks as the taxi firm tests its future vision of transportation in the city.

The company said on Thursday that an unspecified number of autonomous Ford Fusions will be available to pick up passengers as with normal Uber vehicles. The cars won’t exactly be driverless – they will have human drivers as backup – but they are the next step towards a fully automated fleet.

Passengers will be able to opt in if they want a self-driving car, and rides will be free to those willing to do it, a spokesman said. Uber, which has a self-driving research lab in Pittsburgh and has been testing the cars around the city in recent months, has no immediate plans to deploy self-driving cars beyond the Pittsburgh experiment.

It’s CEO, Travis Kalanick, has said the ride-sharing company’s future and indeed the future of all transportation is driverless. “When there’s no other dude in the car, the cost of taking an Uber anywhere becomes cheaper than owning a vehicle. You basically bring the cost below the cost of ownership for everybody, and then car ownership goes away,” Kalanick said at the Code Conference in 2014, shortly after Google unveiled its self-driving car prototype.

Big Gov't, Big Payroll: Federal Civilian Workforce Balloons Out of Control

One of the key talking points of the Left revolves around the Obama administration ushering in an era of fiscal restraint, pointing to four consecutive years of shrinking deficits as evidence of federal budgetary discipline. If civilian employment is a barometer, however, the era of "big government" is not only alive and well, but the monster is growing larger by the day.

After initial restraint due to the aftereffects of 2013's budget sequestration, the federal civilian payroll is on the rise. After bottoming out in May 2014 at 2.726 million workers, the workforce has been growing, with agencies adding 41,000 to their payrolls in the last year alone. The figure now stands at 2.79 million, the highest total of the Obama presidency.

As with the private sector, the government adds employees as needed to manage growth. To be fair, government growth has been flat since 2009, with outlays hovering between $3.5 trillion and $3.7 trillion. Is fiscal restraint expected to continue?

According to the White House's own projections, it is not. The 2016 federal expenditures are estimated to surpass $3.95 trillion — a seven-percent increase — and are projected to increase between four and seven percent through 2021. Meanwhile, gross domestic product is stuck in neutral, meaning the government is all but certain to grow much more quickly than the economy into the next decade. The recipe of slower revenue growth and faster government spending portends larger budget deficits. The projected deficit for 2016 is $615.8 million, a 40-percent increase over the prior year.

You can now be friends with the Federal Reserve on Facebook

Facebook already has 1.7 billion active users but today it gained an influential new friend. The Federal Reserve has joined the 21st century and created a Facebook page where it will share “press releases, speeches, testimony, reports, educational materials, frequently asked questions, photos, and videos.” Everything you’ve been waiting for, right?

The New York Fed already has a Facebook page with more than 13,000 likes and it shares data releases and live streams press briefings. While this will give financial journalists and traders an excuse to spend even more time on social media, the Fed says its aim is to increase the availability of central bank news and educational material.

Central banks are often criticized for not communicating their plans well enough to both the finance industry and the general public. The Federal Reserve is currently in a will-they-won’t-they saga with markets about the next time they will raise interest rates.

They raised rates from a record low in December and have held back on doing so again amid an uncertain outlook for the global economy. Despite the Facebook page, investors are more likely to get guidance on monetary policy from Fed Chair Janet Yellen on Aug. 26 in a speech at the annual conference of central bankers in Jackson Hole, Wyoming.

Euro Currency Sinking Europe Says Stiglitz

Paul Singer Says "Everyone Is In The Dark"; Warns Of "Sudden, Intense Market Breakdown"

While there have been some very prominent recent entrants into the billionbear club, such as BIll Gross, Jeff Gundlach, Carl Icahn and George Soros, who only recently switched from being bullish on the market to predicting gloom, one name has been a staple when it comes to warnings about the disastrous consequences of the new normal's monetary policy: Elliott Management's Paul Singer.

And, sure enough, in his latest letter he does not disappoint, dispensing with his usual dose of what Kate Kelly calls "bleakness", warning that the bond market is "broken", and when the unprecedented central bank actions of recent years can no longer prevent a market decline - which considering that both the BOJ and ECB are running out of monetizable bonds may be sooner than many expected - "the subsequent loss of confidence could be severe."

As Singer admits in Elliott's Q2 letter to investors, what the fund, up 6% YTD, is seeing, is "the most peculiar period we have faced in 39 years." The details are familiar to those who have read Singer's previous laments (most recently here) on central planning: too much central bank power, too much monetary debasement, inevitable inflation, and "when it happens it could be swift and impossible to tamp down."

Not surprisingly, Singer touches on a very popular topic in a world of nearly $14 trillion in negative yielding bonds, namely the scramble for safety, and surprised by the "continued stampede" to buy such bonds, he says that today's environment marks "the biggest bond bubble in world history", leading him to declare that "the global bond market is broken." Singer is stumped by the "mentality that flies to an asset class regarded as a "safe haven" even when there are low or nonexistent returns attached to it and no guarantee that current conditions will persist", and warns buyer of negative yielding debt to "hold such instruments at your own risk; danger of serious injury or death to your capital!"

US Confirms $400 Million Payment To Iran Was Linked To Release Of American Prisoners

The Obama administration said Thursday that a $400 million cash payment to Iran seven months ago was contingent on the release of a group of American prisoners. It is the first time the US has so clearly linked the two events, which critics have painted as a hostage-ransom arrangement.

State Department spokesman John Kirby repeated the administration's line that the negotiations to return the Iranian money - from a military-equipment deal with the US-backed shah in the 1970s - were conducted separately from the talks to free four US citizens in Iran. But he said the US withheld the delivery of the cash as leverage until Iran permitted the Americans to leave the country.

"We had concerns that Iran may renege on the prisoner release," Mr Kirby said, citing delays and mutual mistrust between countries that severed diplomatic relations 36 years ago. As a result, he explained, the US "of course sought to retain maximum leverage until after the American citizens were released. That was our top priority."

Both events occurred Jan 17, fueling suspicions from Republican lawmakers and accusations from GOP presidential nominee Donald Trump of a quid pro quo that undermined America's longstanding opposition to ransom payments.

Childcare Pays Poverty-Level Wage, But Arizona Still Tops Most States

Arizona childcare workers were paid less, on average, than parking lot attendants, manicurists and pedicurists in 2015, part of a national trend that saw workers in all states earning salaries that could qualify them for food stamps.

And Arizona’s median salary of $20,070 last year for childcare workers was not even the worst in the nation – in fact, it ranked ahead of 30 other states and Puerto Rico, according to the recent report by the U.S. departments of Education and Health and Human Services that provided the numbers.

The report looked at salaries of childcare workers, Head Start and preschool teachers, preschool special education teachers, kindergarten and other elementary school teachers and found them all lacking. That hinders the ability to attract educators to help children during the years that “have the greatest potential for setting a foundation for lifelong learning and health,” the report said.

The message of the June report was summed up in its title: High-Quality Early Learning Settings Depend on a High-Quality Workforce; Low Compensation Undermines Quality. That position was echoed by advocates in Arizona. “If we’re talking about people working in daycare and Head Start, they’re dealing with youth in a critical stage in their development,” said Kelly McGowan, the deputy director of the Arizona Community Action Association. “It’s a critical position.”

Oil, negative rates crushing profits

Unable To pay For Soaring Funeral Costs, Americans Donating Their Dead Bodies To Medical Schools

In the United States, the funeral industry generates approximately $20 billion a year in revenues. For the typical American, the average funeral costs between $8,000 and $10,000, which includes the casket ($2,300), ceremony ($1,000), headstone ($2,000) and the list goes on.

Now, let’s ask a simple question: who has this much money laying around for a funeral? Not too many of us. Heck, we don’t even have $500 to cover an emergency or unforeseen event. Since families are unable to afford a funeral, they’re doing the next best thing (besides throwing their dead carcasses to the wolves): donating their bodies to science.

According to the Associated Press, U.S. medical schools are seeing an increasing number of people donating their bodies to science once they have died. The report suggests that the University of Minnesota received more than 500 corpses last year, up from 170 in 2002. The University of Buffalo, meanwhile, was given 600 in 2015, up from around 300 in 2005.

“Funerals are expensive. That certainly has something to do with it,” Mark Zavoyna, operations manager for Georgetown University’s body donation program, told the newswire. “Of course, it almost has this snowball effect, where you get five people to donate, and then their families tell another 25 people.”

Germany Needs Billions To Educate Refugees: Report

More than 3 billion euros will need to go to integrating refugees into Germany's education system, a new study has found. Migration continues to be one of the most daunting challenges facing Germany for the coming year. The Cologne Institute for Economic Research released the study on Thursday, as Germany continues to grapple with the influx of migrants from war-torn parts of North Africa, the Middle East and Central Asia.

The annual study, called the "Bildungsmonitor," analyzes the state of integration within the country's educational system. This year's report painted a grim picture of the current situation, concluding that no progress had been made so far in 2016.

"For the first time in the study's 13-year history, the states have been found to have made no improvements over the previous year," said Hubertus Pellengahr, managing director of the organization.

The study found that in some areas Germany has even regressed. For example, the school dropout rate for foreigners rose from 10.7 percent last year to 11.9 percent this year.

The Government’s $31 Million Fix To A $10 Million Courthouse Problem

The U.S. General Services Administration has a $31 million plan to fix a $10 million federal courthouse in downtown Pensacola plagued from the start with toxic mold.

The GSA is paying $4.7 million in rent for tenants who have for more than a year been farmed out to other federal buildings and $6.25 million for their relocation.

Costs for the relocation while the government tries to reclaim its unusable building are expected to rise to $20 million over the next five years. “This is a situation where the facility itself has had problems from the very beginning. Poor design problem, poor construction, and GSA, unfortunately, has been trying to sweep the problem under the rug,” said U.S. Rep. Jeff Miller, a Republican whose district encompasses Pensacola.

“Incredibly, GSA has never answered to anyone, much less its tenants, for its failure to properly address, and competently resolve, the situation,” wrote the court’s Chief Judge M. Casey Rodgers in a letter to the Pubic Buildings Service, a division of GSA. The U.S. Courthouse for the Northern District of Florida was built in 1997, under a construction-lease arrangement. A private developer, known then as the Keating Corporation, constructed the $10 million building on land owned by the City of Pensacola.

Cardboard Coffins as Venezuelans Bear High Cost Of Dying

How The Fed Policy Is Killing the Economy and Your Retirement

The Federal Reserve’s low interest rates – the same ones that caused the credit crisis and Great Recession – are absolutely killing savers, retirees, and the economy.

A landmark report from insurance giant Swiss Re shows how the Fed’s misguided interest rate policies cost savers $470 billion in forsaken interest income between 2008 and 2013.

Based on Swiss Re’s math, by the end of 2016 savers, retirees, and pension funds will have been shortchanged by an astounding $752 billion. Swiss Re calls the Fed’s actions “financial repression.” I call it tyranny. And it’s getting worse. In fact, it’s about to feel like torture.

By the end of 2016 Americans will have lost out on $752 billion of interest income they should have banked. Not only have they not made money on their savings and fixed income investments, they’ve been cannibalizing their principal to buy food, pay rent and mortgages, utilities, and live. The population segment suffering most are folks nearing retirement and, of course, retirees.

USA Today Projects 'Big Jump' in Health Costs in 2017 on Page 1, Leaves Out Any Mention of Obama

USA Today put the latest troubling signs of private insurers bailing out of Obamacare on the top of the front page Wednesday. But something really obvious was missing from the text of the entire article – the name “Obama.” (A small blue headline did promote the daily debate on the opinion page: “Repair Obamacare, don’t repeal it: Today’s debate, page 7A.” The word "Obamacare was also avoided in the text.)

The headline for this beating-around-the-bush story was “Health care costs to rise in 2017: Aetna pullout in 11 states reflects insurance industry upheaval.” Reporter Jayne O'Donnell began:

Aetna's decision to leave the Affordable Care Act exchanges in 11 states follows dozens of similar decisions by large and small insurers across the country, moves that dramatically reduced competition in some states and contributed to increased premiums. Such a move was inevitable now that insurers have to compete on price instead of which company can attract the healthiest customers, health care experts say.

Higher premiums is exactly where the Obama promises to save Americans on health care costs should be mentioned, but no, it’s just the “ACA,” proposed by someone in Washington in recent years: Prices across insurance carriers are very likely to make a big jump for 2017, records show. Insurers are seeking approval for average national premium increases of 24%, according to calculations by Charles Gaba of ACAsignups.net. What insurers request and states approve is often quite different, but experts say it will be more difficult for states to drive harder bargains with insurers given the losses many are facing with ACA plans.

NEWS to Disturb the Comfortable...

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