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Monday 09.19.2016

China Expected to Keep Its Deep Pockets Open to Boost Its Economy

China is seen keeping its deep pockets open in the second half and through 2017, despite having front-loaded spending earlier this year, as fiscal policy takes over from broad monetary easing as the major prop to growth.

The central government’s fiscal deficit will surpass the target of 3 percent of gross domestic product set for 2016, according to economists surveyed by Bloomberg News. The broader shortfall that wraps in revenues from land sales, policy banks and other channels will also sink deeper into the red.

Here’s a snapshot of what the survey of 18 economists conducted Sept. 9 to 13 shows.

17 expect this year’s budget deficit will be deeper than the government forecast, with nine forecasting 3.6 to 4 percent and four projecting above 4 percent. 16 expect the broader augmented fiscal deficit will be 10 percent of GDP or more, 16 expect a higher fiscal deficit next year too, with nine forecasting 3.5 to 3.9 percent, 6 seeing 3.1 to 3.4 percent, and one expecting 4 to 4.5 percent of GDP

What will the Fed do when recession strikes?

This week brings another chance for the Federal Reserve to tighten interest rates a notch. Will they do it? I don’t think so. Yellen and the other FOMC members are paralyzed. That’s a big problem, and here’s why.

At some point, the US economy will drop back into recession. Recessions happen every 7–10 years, and the last one ended in 2009. We’re already in the zone right now. Worse, a big part of the population will enter the next recession without having recovered from the last one.

Until recently, the response was simple: cut interest rates. Whether that actually stimulates growth or not doesn’t matter. The Fed thinks it does, so it always cuts rates. You can see it in this chart. The shaded areas indicate recessions. The Fed cuts rates when a recession starts and hikes rates when it ends.

Something new happened after the last recession. The Fed didn’t hike as in the past, even though it cut rates far more this time—down to practically zero. Why? We may never know the full answer. What we do know is that the Fed thought the economy still needed stimulating even with short-term rates near zero. Since rates couldn’t go below zero, the Fed tried “quantitative easing,” or QE. The Fed used excess bank reserves to buy trillions in Treasury bonds and mortgage-backed bonds. To hear Fed officials tell it, QE did the trick. Now unemployment is below 5%, and inflation has been mild or non-existent. By Fed standards, this is nirvana. We should all be thrilled.

U.S. Bank CEO Warns Employees: Make Fun Of Wells Fargo And You’re Fired

It’s been a (deservedly) bad month for Wells Fargo, what with the bank being ordered to pay $185 million in penalties because employees opened millions of bogus accounts, not to mention the ongoing Justice Department investigation. It would seem like a prime time for the competition to pile on the misery and steal away customers, but the CEO of U.S. Bank is demanding his staff not give into that temptation.

U.S. Bank employees were warned Thursday that under no circumstances are they to attempt to capitalize on Wells Fargo’s situation — at least publicly, The Star Tribune reports.

CEO Richard Davis told investors that the company won’t tolerate employees who publicly and overtly go after Wells Fargo customers, because that’s just not how the bank does business.

“So help me God, if I find a branch in one market with an orange flier that says ‘if you bank at Wells come to U.S. Bank,’ they’re going to be let go,” Davis said. While he didn’t completely close the door on courting Wells Fargo customers looking for another place to bank, he says he just wants the influx of new accounts to come naturally.

David Stockman-Gold Prices Will Soar When Central Banks Fail

One of the key forces behind the bubbles that led to the financial crisis is back

There are plenty of reasons why the financial crisis occurred. From subprime mortgages to lax regulation over the financial industry, there are many places to lay blame for the worst economic disaster since the Great Depression.

One of the biggest spots was the global imbalance of current accounts, according to HSBC Chief Economist Janet Henry. The imbalance from a world where some countries were hoarding and others were spending too freely led to malinvestment and ultimately bubbles, according to Henry.

The worrying issue that faces the world now, Henry said in a note to clients, is that these imbalances are growing once again. "Just under a decade ago, the global savings glut was widely blamed for the misallocation of resources that led to bubbles, busts and ultimately the global financial crisis," wrote Henry. "The fact that global imbalances widened again in 2015 and that in dollar terms they will be close to record highs this year poses risks for both debtor and creditor countries."

That doesn't mean that we are doomed, according to Henry, but things must be done to prevent the disasters of the financial crisis from repeating themselves.

The War on Cash Is Still Good for Gold

Today the consumer price index (CPI), a measure of inflation, came in hotter than expected, registering 2.3 percent year-over-year in August on expectations of 2.0 percent. With the five-year Treasury yielding 1.19 percent, government bond investors are now receiving a negative real rate of return (because 2.3 minus 1.19 comes out to negative 1.11 percent).

This is highly constructive for the price of gold. As I’ve discussed many times before, the yellow metal has benefited when real rates have fallen below zero. This was the case in September 2011 when gold hit its all-time high of $1,900 per ounce. And last year around this time, the opposite was true—positive real rates were a drag on gold.

Although gold sunk to a two-week low today on a strong U.S. dollar and fears over next week’s Federal Reserve meeting, the drivers are firmly in place to push prices higher.

Maybe you’ve heard that a new book out right now is lending its propaganda voice in the war on cash. In “The Curse of Cash,” Harvard economics professor Kenneth Rogoff makes the case that nixing paper money—at the very least, larger-denominated bills—“could help more than you might think” in combating criminal activities such as drug trafficking, corruption, extortion and money laundering. It could even prevent the spread of terrorism and discourage illegal immigration, Rogoff argues.

New Obamacare Poll Suggests That Affordability Is a Growing Concern

Open enrollment for the Affordable Care Act is slated to kick off in less than two months, but based on early pricing data, it could be the most challenging year yet for Obamacare, as the ACA is more commonly known.

Since it was signed into law in March 2010, the ACA has been controversial. The Kaiser Family Foundation's Health Tracking Poll has kept tabs on public opinion surrounding Obamacare by regularly polling Americans on whether they have a "favorable" or "unfavorable" perception of the law. With just a handful of exceptions, the unfavorable view has been ahead of the favorable one over the past six-plus years.

Obamacare does appear to be fulfilling its mission of lowering the rate of uninsured people in the United States: Fresh data released last week from the Centers for Disease Control and Prevention showed that the uninsured rate had fallen to an all-time low of 8.6%, or about 27.3 million people. When the ACA was signed into law, about 48.6 million people lacked health insurance, implying that the ACA is responsible for as many as 21 million enrollments over the past couple of years.

According to a newly released poll from Gallup Opens a New Window. , an increasing number of people say that Obamacare is hurting, not helping, their family.

Stormy Seas Ahead For Shippers Following Hanjin’s Bankruptcy

The Hanjin Shipping Company bankruptcy is starting to have ripple effects for others in this transportation sector. Hanjin is in competition with dry bulk carriers such as Safe Bulkers, Inc. (SB), Diana Shipping Inc. (DSX), and Scorpio Bulkers Inc. (SALT) who all lease cargo containers like that of Hanjin. Those competitors along with container leasing firms like Textainer (TGH) are all going to see major business impacts from Hanjin’s collapse.

The shipping sector is likely to see both short-term disruption push prices higher, while in the longer term the fight for Hanjin’s previous customers could erode pricing discipline. For firms like Textainer that rely on strength in container pricing, the bankruptcy can only be interpreted as bad news. Even if Hanjin is ultimately restructured rather than liquidated, the uncertainty in the sector is going to hit container prices and demand hard.

On the basis of the Hanjin bankruptcy, Scorpio Bulkers Inc. has seen its stock soar 12 percent over the past month. Scorpio reported a financial loss for the second quarter with a drop of 48 cents per share, so any tailwind from Hanjin can’t come soon enough. The company is currently trading around $3.60 per share versus a one year ago the company’s shares were trading at prices near $20. Similarly, Safe Bulkers Inc. reported a second quarter loss which included net revenue decreasing by $9 million or 18 percent. Even traditional powerhouse Diana Shipping Inc. has recently faced falling share prices and has enlisted financial advisors to assist in negotiating loan and amortization payments.

The entire drybulk sector is largely a mess – Hanjin is simply the first domino to fall. Credit risk across most of the firms is high due to all of the refinancing work being done, and the uncertainty in the sector. Shipping requires long-term debt which is covered by relatively short-term leases – often a recipe for financial distress in times of market dislocation. If Hanjin is the first domino, it certainly won’t be the last. The industry is crucial to global trade and can’t be effectively financed without public equity, but like so many other capital intensive industries, capacity has gotten away from demand and ROIC has lagged for years now. Stocks in the sector today are at best an attractive trade rather than a good long-term investment. That will change eventually, but the industry has to be rebuilt from the ground up.

Why Amazon and other companies are trying 30-hour workweeks

For today's always-on, ever-connected workers, it's no surprise that the traditional 9-to-5 is dying. But what will the new normal look like? Rather than expecting employees to work more, some companies are experimenting with shorter schedules

Recently, Amazon announced that it is piloting a new 30-hour workweek for a group of technical teams within the human resources department. Employees work from 10 a.m. to 2 p.m. Monday through Thursday, and the remaining 14 hours of work for the week can be distributed whenever is convenient for the employee. In exchange for the flexible schedule, employees get 75 percent of their normal salaries and receive full benefits.

"This initiative was created with Amazon's diverse workforce in mind and the realization that the traditional full-time schedule may not be a 'one size fits all' model," the company says in an invitation to a talk about the new program. In the test program, everyone on the team will be working part-time, including managers.

Amazon is not the only company testing new schedules. An online search optimization company in Sweden, Brath, operates on a six-hour workday schedule and offers full pay and benefits. Its leadership touts its high retention and ability to be ultra-productive. "Today we get more done in six hours than comparable companies do in eight," says Magnus Brath, founder of Brath, in a post on the company's website. "We believe it comes with the high level of creativity demanded in this line of work. We believe nobody can be creative and productive in eight hours straight. Six hours is more reasonable, even though we too, of course, check Facebook or the news at times."

Michael Pento: "These Are The Most Dangerous Markets I've Ever Witnessed"

Michael Pento, fund manager and author of The Coming Bond Bubble Collapse, explains how the United States is fast approaching the end stage of the biggest asset bubble in history. He describes how the bursting of this bubble will cause a massive interest rate shock that will send the US consumer economy and the US government—pumped up by massive Treasury debt—into bankruptcy, an event that will send shockwaves throughout the global economy:

These are the most dangerous markets I have ever witnessed in my entire life, and I’ve been investing for over 25 years. Let’s go over some numbers to let you know exactly how tenuous this bubble is. Its membrane has been stretched so wide and so tight that it’s about to burst, and any semblance of even maybe a little sharp object, something even a hemophiliac wouldn’t be afraid of, sends the market careening downward.

Global central bank balance sheets are up from $6 trillion in 2007 to $21 trillion today and they are still being expanded at the pace of $200 billion each and every month. What’s happening is that the robotraders, the algorithms, the frontrunners on Wall Street and around the world are just gaming the system, looking for the next increase in central bank credit to take their collateral to the ECB or to the Bank of Japan or to the Fed and buy more stocks and bonds.

That’s the game we’re playing. Even a hint that it might someday end sends the entire investment community scampering for the door; and that door is very, very narrow and can only fit a few people through it. So let’s go through a couple of more data points to emphasize just how big this bond bubble is and why it’s so important.

Obama: ‘Very Hard To Find An Area Where We’re Not Better Off Than We Were Before’

President Barack Obama spoke to Hillary Clinton supporters at a New York City fundraiser Sunday night, espousing the improvements he made upon the country since his first term in office.

“It’s very hard to find an area where we’re not better off than we were before,” President Obama said, making no mention of Saturday’s explosion in New York’s Chelsea neighborhood, as per the White House pool report.

President Obama went on to talk about “the good race” he ran in 2008 and how “we are much better now” than at that point, citing jobs numbers and the recent report from the Census relating to the increase in household incomes.

Obama also boasted about the administration’s engagement with normalizing relations with Cuba as well as the nuclear deal with Iran and putting Osama Bin Laden “out of the battlefield”. November 8, the president said, “should not be a close election, but it will be,” calling the U.S. a “polarized society” as one of the reasons why the election will be close.

Janet Yellen’s Shame

In honest capitalism, you do what you can to get other people to voluntarily give you money. This usually involves providing goods or services they think are worth the price. You may get a little wild and crazy from time to time, but you are always called to order by your customers.

In the market economy, consumers reign supreme. There is no such thing as a “lost” vote in the marketplace; every penny spent affects production. Mises noted: “Consumers ultimately determine not only the prices of consumers’ goods, but no less the prices of all factors of production. They determine the income of every member of the market economy. The consumers, not the entrepreneurs, ultimately pay the wages earned by every worker, the glamorous movie star as well as the charwoman. With every penny spent, consumers determine the direction of all production processes and the minutest details of the organization of all business activities.”

That is true of honest banking, too. Back when such a thing existed, the job of an honest banker was to aggregate people’s savings and lend them to worthy borrowers. You make too many mistakes, your customers leave and you go broke.

Politics is a different game altogether. It produces no wealth of any sort. So the only way you can prosper in politics is to connive, cheat, and steal – manipulating your friends… sidelining your enemies… and exploiting the public.

Professor demonstrates how to hack a voting machine

Wells Fargo isn’t being held accountable for fake account scam

One of the creepiest things that can happen to you is to have your bank or credit card company open an account in your name without you knowing it. Well, guess what: That’s exactly what Wells Fargo did 2 million times to its customers.

The Consumer Financial Protection Bureau and the Office of the Comptroller of the Currency, in all their pride and glory, announced a $185 million settlement with the bank. For its part, Wells fired 5,300 workers — but not a single executive from the C-suite. As if these workers conspired among themselves, with no direction from above to work this fraud.

These are regular, middle-class people, probably making about $35,000 to $75,000 per year with families and bills to take care of. But Carrie Tolstedt, the head of Wells Fargo’s Community Banking division where those 5,300 people toiled, will be retiring with a $125 million compensation package. And what do we hear from Wells Fargo’s largest shareholder? Crickets.

That shareholder is Warren Buffett, who owns some 470 million shares, a 9.5 percent stake. Buffett — who often calls for transparency and accountability — has been deafeningly silent. Wells Fargo and Buffett are cut from the same cloth. Both hide behind and benefit from a folksy but fake next-door neighbor image, while they are actually sharks in the kiddie pool.

Millennials are fawning over a new credit card with a $450 annual fee

When it comes to banking, millennials are an anomaly. The Venmo generation doesn’t visit bank branches, write checks, or even use credit cards.

By one estimate, 63% of millennials don’t have credit cards, so it’s curious they’re suddenly fawning over a new, perhaps viral, card on the market. The Chase Sapphire Reserve has been a hit since it was revealed in late August. It’s taken on coveted-gadget status, complete with unboxing videos and Reddit posts with thousands of comments. The Sapphire Reserve, which is embedded with metal making it heavier than typical credit cards, proved so popular that Chase actually ran out, leading it to issue temporary plastic cards.

Banks have had a hard time courting millennials, but Chase believes it’s cracked the code by tapping into their wanderlust. The perks of the Chase Sapphire Reserve include lounge access at airports, a $300 annual travel credit, a $100 credit toward an application for TSA Global Entry or Pre-Check (both programs expedite airport screening), and three points for every dollar spent on travel and dining. For frequent travelers, these rewards might make the steep $450 annual fee (plus $75 a year for each additional cardholder) worth it.

These perks were carefully calculated by the bank to lure millennials. At a conference held by Barclays this month, JP Morgan’s head of consumer banking, Gordon Smith, gave a presentation that said “millennials spend more of their ‘wallet’ on experiences than other generations,” according to a deck obtained by Quartz. It defines “experiences” as travel, entertainment, and dining.

Investigations ongoing in weekend attacks

Exec: Most Lyft rides will be in autonomous cars in 5 years

Within five years, a majority of ride-hailing company Lyft's rides will be in self-driving cars, the company's co-founder and president predicted on Sunday.

John Zimmer also said that personal car ownership will come to an end because autonomous rides will become a cheaper way to travel than owning an automobile. He made the predictions in an essay on the future of transportation in urban areas.

Technology, auto and ride-hailing companies are moving quickly toward self-driving vehicles. San Francisco-based Lyft is testing autonomous cars on the streets of San Francisco and Phoenix in partnership with General Motors. Its main competitor Uber is starting to carry passengers around Pittsburgh in autonomous cars with a human backup driver.

Zimmer said autonomous cars will start out giving rides at low speeds, around 25 miles per hour, in limited areas with a number of restrictions. The cars also won't be able to operate in bad weather. "As technology improves, these cars will be able to drive themselves in more and more situations," Zimmer said.

'Heartless' U.S. mortgage modification scheme leads to 16-year prison term

A California man was sentenced on Thursday to 16 years in prison for his role in what prosecutors said was the largest mortgage modification scheme ever prosecuted, involving more than 30,000 homeowners defrauded out of $31 million.

Dionysius Fiumano, a former sales manager at Irvine, California-based Vortex Financial Management Inc, was sentenced by U.S. District Judge John Keenan in Manhattan, who said the harm to victims had been "enormous financially and emotionally."

"This was a callous scheme and really a heartless one," Keenan said. Fiumano, who was also ordered to pay nearly $20 million in restitution, was one of five people charged in connection with the scheme, and the only one to go to trial. A federal jury found him guilty in May on conspiracy and wire fraud charges.

In court, Fiumano, 45, blamed his employers, saying they were "deceptive from the outset," but said he nonetheless felt shame for any role he had in harming homeowners. "I apologize to anyone and everyone who was hurt," he said.

NEWS to Disturb the Comfortable...

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