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Thursday 07.21.2016

Hungry Venezuelans cry at the sight of food, as economic crisis deepens

Pregnant women, children and even elderly Venezuelans crossed into Colombia on Sunday after the border was temporarily reopened, allowing them to buy basic foods and toiletries -- rare commodities in their home country.

Tearful Venezuelans had gone weeks without basic food items like milk, flour and toilet paper. It's a sad but common part of daily life today in crisis-ridden Venezuela, a country that has the world's largest proven reserves of oil. Colombian officials estimate that about 100,000 Venezuelans crossed the border.

Venezuela is expected to dive deeper into the abyss this year, according to new projections published Wednesday by the International Monetary Fund. The IMF forecasts Venezuela's economy will shrink 10% this year, worse than its previous estimate of 8%. It also estimates that inflation in Venezuela will catapult to 700% this year, up from the earlier guess of about 480%.

"Venezuela's economic condition continues to deteriorate," says Alejandro Werner, chief Latin America economist at the IMF. The estimates for growth and inflation are the worst worldwide. The numbers are just the tip of the iceberg. Venezuela is deep into a humanitarian crisis -- people are dying in ill-equipped hospitals and many live without basic food items. Venezuela can't pay to import goods because its government is desperately strapped for cash after years of mismanagement of its funds, heavy spending on poorly-run government programs, and lack of investment on its oil fields.

The Next “Lehman Moment”… Coming in 2017?

The implosion of Bear Stearns was just the tip of the iceberg… At the time, the full extent of the damage to the housing market was unknown. No one had an accurate sense of how broken the banks really were. And no one had any idea that the global economy was about to crack under all of the pressure.

But Bear Stearns’ collapse and the market reaction made it crystal clear that all was not well. The signal that Bear Stearns was sending was not “All clear”… it was “Look out below!” But few were paying close attention.

This critical warning was ignored until it couldn’t be anymore. And then just months later, the world blew up with the collapse of Lehman Bros.

Following the Lehman bankruptcy, we saw a period of extreme volatility touching off the global financial crisis — a crisis we still feel today. Bear Stearns was the event that should have alerted us to severe problems in the financial system. But it took an event like Lehman to trigger our fall over the cliff. Today, I fear we may have another Bear Stearns-type event that investors are again ignoring at their peril… And that’s Brexit.

Massachusetts AG moves to ban sales of ‘copycat assault weapons’

Attorney Gen. Maura Healey on Wednesday put gun shops and would-be owners on notice that she is halting the sales of many types of “Massachusetts-compliant” semi-auto rifles.

Healey announced that her office was ratcheting up enforcement of the state’s assault weapon ban by targeting guns whose actions are similar to AR-15s and AK-47s but meet current cosmetic requirements such as being sold without features such as a flash suppressor, bayonet lug or telescoping stock. She contends as many as 10,000 such rifles were sold in the Commonwealth in 2015.

“That will end now,” wrote Healy in an announcement phrased as an editorial in the Boston Globe. “On Wednesday, we are sending a directive to all gun manufacturers and dealers that makes clear that the sale of these copycat assault weapons is illegal in Massachusetts. With this directive, we will ensure we get the full protection intended when lawmakers enacted our assault weapons ban, not the watered-down version of those protections offered by gun manufacturers.”

In a four-page guidance, the AG notes that any gun with an action similar to that of the Avtomat Kalashnikov (AK), UZI, Galil, Beretta AR70, AR-15, Fabrique National FN/FAL, FN/LAR and FNC; SWD M-10, M-11, M-11/9 and M-12; Steyr AUG; TEC-9 or revolving cylinder shotguns, such as the Street Sweeper and Striker 12, can no longer be sold after July 20.

Craig Hemke-Negative Interest Rates Are Here to Stay

Analyst Upgrades Papa John's Because Growing Civil Unrest Means More Pizza Deliveries

Papa John's International Inc. is poised to perform well as civil and political disruptions ahead of a contentious U.S. election prompt Americans to stay in rather than eat out, according to KeyBanc Analyst Chris O'Cull.

The analyst upgraded the stock to "overweight" from "sector weight" and upped his price target to $80, which is the highest among analysts surveyed by Bloomberg. On the heels of this upgrade, the stock is up more than 3 percent as of 11:00 a.m. New York time:

"After speaking with several large operators and industry contacts, we believe the recent decline in casual dining restaurant segment fundamentals—traffic down 3-5 percent the past several weeks—may be the result of consumers eating more at home amid the current political/social backdrop, which we believe could last through the November election," he writes.

"We do not believe the consumer has 'entrenched,' but has likely shifted more in favor of convenience, benefiting pizza delivery operators like Papa John's."

Now You Can Pay Someone to Play 'Pokemon Go' So You Don't Have to

Enjoy playing "Pokemon Go" but getting a little tired of all that pesky effort it requires? Well, now you can pay someone to walk for you, drive you around, play the game on your behalf, or even just sell you their entire account.

The meteoric success of the mobile critter craze has spawned a cottage industry of Pokey-preneurs, all of whom are ready to help you get farther and faster — or appear to do so — for a price.

High-level players have started to sell their accounts on eBay and Craigslist, for up to $1,000 apiece. The listings say the accounts include rare creatures and hard-to-get items. Besides the profit motive, some players claimed the week-and-a-half old game was already passé.

"Lost interest in the game," wrote one unenthused Level 18 Charizard-chaser. For those still addicted — but without the time or energy to go hunting all the time — one new site purports to do the walking for you. "Imagine a world where you had the flexibility to do what you wanted to do … and not have to move to collect Pokemon," proclaims PokeWalk on its website. The site claims its walkers will patrol the neighborhood with your phone to catch Pokemon on your behalf.

Bank of England sees no clear evidence of sharp Brexit hit yet

The Bank of England said on Wednesday it had seen no clear signs yet of a sharp economic slowdown after last month's vote to leave the European Union, raising questions over how aggressively it will act to boost the economy when it meets next month.

The BoE's regional agents, who speak regularly with companies, said business uncertainty had risen markedly but most firms did not plan to cut hiring or investment. "As yet, there was no clear evidence of a sharp general slowing in activity," the report said.

A Reuters poll on Wednesday showed economists saw an average 60 percent chance that the British economy will suffer a recession in the coming year and most expect the BoE will cut rates on Aug. 4.

With no hard data yet published on the impact of the Brexit vote on the economy, investors are taking their cue from any fresh signs of what might be going on.

HSBC currency rigging, Long on pension funding

Report puts cost of Dodd-Frank at $36 billion

Regulations from the Wall Street financial reform law have imposed more than $36 billion in costs on the economy and have created 73 million paperwork hours, according to a new report from the conservative American Action Forum.

The report, which comes a day before Dodd-Frank’s sixth anniversary, found that the law costs about $112 per person or $310 per household, and it would take 36,950 employees working full-time to complete the paperwork required by the law in a single year.

The report’s author, AAF Director of Regulatory Policy Sam Batkins, said that of the hundreds of rulemaking mandates contained in the sweeping financial reform law enacted July 21, 2010, there are at least 61 regulations remaining that could add another $3.3 billion and nearly 1 million paperwork hours to the law’s tally.

Batkins said the Federal Reserve’s Requirements for Systemically Important Financial Institutions (SIFIs) is the biggest rule still to finalize. Proposed last year, the rule aims to improve capital standards at the largest interconnected financial institutions and carries a cost of $1.5 billion annually. The final rule is due out in December 2016.

Negative Rates: We’re Gonna Need a Bigger Vault

I always liked the famous scene in the movie Jaws where the film’s hero, police Chief Brody, finally gets a close-up look at the size of his killer shark nemesis. “We’re gonna need a bigger boat,” he says, incredulous at the size of the monster fish.

These days, we have a monetary nemesis called negative rates. It’s already a reality in Japan and the European Union. But large banks, incredulous at being forced to store their digital cash at the European Central Bank (ECB) — and paying for the privilege — have a strategy to deal with this ongoing financial horror show, summed up as… “We’re gonna need a bigger vault.”

Back in March, I noted how Germany’s Munich Re, one of the largest financial institutions in the world, threatened to load up on lots and lots of physical cash (and some gold) and stuff it into the vaults it controls. Last month, another German banking giant, Commerzbank, let it be known that it too is likely to do the same if the dummkopfs at the ECB insist on maintaining negative rates.

And it’s not just those dour Deutschland bankers. Their counterparts in Japan are brewing their own revolt against negative rates.

19.4 Trillion Dollars In Debt – We Have Added 1.1 Trillion Dollars A Year To The National Debt Under Obama

In 2006, U.S. Senator Barack Obama’s voice thundered across the Senate floor as he boldly declared that “increasing America’s debt weakens us domestically and internationally. Washington is shifting the burden of bad choices today onto the backs of our children and grandchildren.” That was one of the truest things that he ever said, but just a couple of years later he won the 2008 election and he turned his back on those principles. As I write this article, the U.S. national debt is sitting at a grand total of $19,402,361,890,929.46. But when Barack Obama first entered the White House, our federal government was only 10.6 trillion dollars in debt. That means that we have added an average of 1.1 trillion dollars a year to the national debt under Obama, and we still have about six more months to go.

Even though Barack Obama is on track to be the first president in all of U.S. history to not have a single year when the U.S. economy grew by 3 percent or better, many have still been mystified by the fact that the economy has been relatively stable in recent years.

But the explanation is rather simple, actually. Anyone can live like a millionaire if the credit card companies will lend them enough money. You could even do it yourself. Just go out and apply for as many credit cards as possible and then spend money like there is no tomorrow. In no time at all, you will be living the high life.

Of course many of you would immediately object that a day of reckoning would come eventually, and you would be right. Just like for those that abuse credit cards, a financial day of reckoning is coming for America too.

Do Parts of the Rust Belt ‘Need to Die Off’?

Many leaders of Rust Belt cities like Detroit and Dayton, Ohio, know they’re losing residents, and are looking at ways to repopulate neighborhoods and bring jobs back. They’re deploying strategies such as constructing urban gardens and luring businesses with tax breaks, which have produced moderate successes, at least in slowing the population decline.

But for most mid-sized post-industrial cities in the Midwest, the chance of growing within the next 20 years is slim, says Galen Newman, an assistant professor of landscape architecture and urban planning at Texas A&M. He and a colleague, Justin Hollander of Tufts University, are doing some of the only research on “smart decline”—a term that refers to the ways in which cities can plan around population loss and find ways to manage it (and maybe grow again one day).

I recently wrote about attempts in Youngstown, Ohio, to implement a “smart shrinkage” plan, and Newman and Hollander are developing a tool that will help cities like Youngstown predict which city blocks and neighborhoods will lose the most people in coming years, based on variables such as land value, proximity to railroads, and demographics.

alen recently talked to me about how cities can manage decreasing population numbers and why parts of the Midwest need to embrace their decline...

S&P Just Cut Turkey's Credit Rating. What's Next for Turkish Economy?

Becoming Japan: "The Threat Of A Global Recession Is Growing"

The risk of a global recession is edging up, as the global slowdown we first noted last fall continues (ICO Essentials, September 2015). This danger is heightened because longer-term trend growth is slowing in every Group of Seven (G7) economy, as dictated by simple math: growth in output per hour, i.e., labor productivity – plus growth in the potential labor force – a proxy for hours worked – adding up to real GDP growth.

As we laid out over a year ago (USCO Essentials, June 2015), this simple combination of productivity and demographic trends reveals that U.S. trend GDP growth is converging toward 1%. This is reminiscent of Japan during its “lost decades,” where average annual real GDP growth registered just ¾%, which is why we have cautioned that the U.S. is “becoming Japan” (USCO Essentials, February 2016)and (ICO, July 2013).

Expanding this analysis to the rest of the G7, we find that every economy is effectively becoming Japan, and the sharpest slowdowns are happening outside North America. Thus, as trend growth falls in the world’s largest advanced economies amid the ongoing global slowdown, the threat of a global recession is growing.

In the face of slowing U.S. trend growth, the Fed had hoped that the U.S. economy would recover to earlier levels of trend growth, provided they could find the right size and mix of quantitative easing and low interest rate policies. We dubbed this effort, a “Grand Experiment,” which has served only to pull demand forward, ultimately depleting future demand and failing to achieve the Fed’s objective. Other G7 central banks have arguably made even greater attempts at ginning up growth, but with even less to show for it.

Volkswagen will stop selling diesels in the US. For now.

Beleaguered Volkswagen says that it is done selling diesel-powered cars in the United States, at least for now. Automotive News reports that the engine's future is in doubt beyond 2019, although the automaker hasn't publicly ruled out a diesel powertrain.

“We are not stopping diesel. Wherever diesel makes sense as a package to the car, we’ll continue,” VW of America CEO Hinrich Woebcken told the trade journal. “But in reality, we have to accept that the high percentage of diesels that we had before will not come back again.”

The executive blamed increasingly difficult federal emissions standards set to go into effect in a few years, although he did acknowledge that VW has struggled in the wake of its massive emissions cheating scandal.

“The regulations from 2019-2020 are going to be so hard that we would have had to find an alternative to a certain extent anyhow,” he said. “The diesel crisis is forcing us simply to think about this earlier.”

The future of mortgage rates in a post-Brexit world

Near the end of June, Brexit came, then it went and, according to Capital Economics, that’s where the story ends. No more effect on the housing market, no more lowering the mortgage rates, according to Capital Economics.

In fact, this week, the 30-year fixed rate mortgage edged upward, and the 10-year Treasury yield rebounded sharply, according to Freddie Mac’s Primary Mortgage Market Survey released Thursday.

“The downward pressure on mortgage interest rates from Brexit already appears to be unwinding, with 30-year fixed rates increasing last week from 3.60% to 3.65%,” Capital Economics Property Economist Matthew Pointon said.

“Given we expect Brexit will have a minimal impact on the U.S. economy, we see no reason to change our forecast for mortgage rates to reach 3.85% by the end of this year, and 5.0% by the middle of 2018,” Pointon said. Previously, Capital Economics claimed that the Fed would raise rates faster than the markets currently expect. In fact, they said that by the end of next year, rates could increase at least 1.75% to 2%.

Taxpayers Subsidize Junk Food

At a time when almost three-quarters of the country is overweight or obese, it comes as no surprise that junk foods are the largest source of calories in the American diet. Topping the list are grain-based desserts like cookies, doughnuts and granola bars. (Yes, granola bars are dessert.)

That’s according to data from the federal government, which says that breads, sugary drinks, pizza, pasta dishes and “dairy desserts” like ice cream are also among Americans’ top 10 sources of calories.

What do these foods have in common? They are largely the products of seven crops and farm foods — corn, soybeans, wheat, rice, sorghum, milk and meat — that are heavily subsidized by the federal government, ensuring that junk foods are cheap and plentiful, experts say. Between 1995 and 2010, the government doled out $170 billion in agricultural subsidies to finance the production of these foods, the latter two in part through subsidies on feed grains. While many of these foods are not inherently unhealthy, only a small percentage of them are eaten as is. Most are used as feed for livestock, turned into biofuels or converted to cheap products and additives like corn sweeteners, industrial oils, processed meats and refined carbohydrates.

Health advocates have long pointed out this seeming contradiction. While the federal government recommends that people fill half their plates with fruits and vegetables to help prevent obesity, only a small fraction of its subsidies actually support the production of fresh produce. The vast majority of agricultural subsidies go instead to commodity crops that are processed into many of the foods that are linked to the obesity crisis.

Sheriff Clarke: Obama has stabbed law enforcement in the back

US Credit Conditions Drop to Worst Level since Q3 2009, Markets Soar

You wouldn’t know it from the boom in stocks that hit new highs after tottering for over a year, and from the surge in junk bonds, even the riskiest ones, whose prices have soared and whose yields have plunged: At the riskiest end of the spectrum, the average yield of CCC-and-below rated junk bonds went from 21.5% on February 12 to 14.2% now, as if all credit problems, defaults, and bankruptcies had suddenly disappeared after the latest Fed flip-flop or whatever.

But in reality, companies are buckling under their load of debts in an environment of slack demand and declining sales. The Standard & Poor’s default rate has been rising relentlessly, and in June, following a number of new defaults, hit 4.3%, the highest rate since the Financial Crisis.

And now Fitch Ratings chimes in with its Fitch Fundamentals Index (FFI). “As a pattern of weakening credit quality, mostly in the corporate finance space, took its toll,” the index dropped to -3 in the second quarter, the lowest since the third quarter of 2009, when the Financial Crisis was in full swing.

The FFI, which ranges from +10 to -10, serves as a gauge of “credit fundamentals” across the US economy, as Fitch says. These include the performance of mortgages and credit cards, corporate defaults, recoveries after high-yield debt defaults, rating actions and Outlooks, forecasts of EBITDA and CapEx, the health of the banking sector, the CDS outlook, and transportation trends.

Federal immigration court backlog tops 500,000 pending cases

The backlog in the federal immigration court system has eclipsed half a million pending cases, The Associated Press has learned. The Justice Department's Executive Office for Immigration Review said Wednesday there are now 500,051 pending immigration cases in the agency's courts.

The backlog has been steadily rising in recent years as the number of unaccompanied children and people traveling as families have been caught crossing the Mexican border illegally. Since 2011 more than 200,000 cases have been added to the court's docket and backlog is likely to continue growing.

More than 51,000 people traveling as families and more than 43,000 unaccompanied children, mostly from Honduras, El Salvador or Guatemala, have been caught crossing the border illegally since the start of the budget year in October.

Cases of newly arrived immigrants facing deportation have been made a priority, but the backlog still means that many immigrants are likely to face years long delays before a judge makes a final decision on their cases. And while people are waiting to go before a judge, their case could dramatically change, for good or bad.

UnitedHealth Overcomes Another $200M In Obamacare Losses

UnitedHealth Group battered by losses providing health coverage to uninsured Americans on public exchanges under the Affordable Care Act, still saw profits and revenues surge in its second quarter thanks to its Optum health services unit.

The nation’s largest health insurer, which is scaling back its Obamacare public exchange offerings to just three markets, said second-quarter revenues rose 28% to $46.5 billion. Profits jumped 13% to nearly $3.4 billion, or $1.96 per share.

UnitedHealth chief executive officer Stephen Hemsley said the company performed well enough in the second quarter to “fully absorb” $200 million in additional 2016 losses from “ACA-compliant individual products.” Including last year’s Obamacare performance, UnitedHealth has tallied more than $1 billion in Obamacare losses over the last two years.

UnitedHealth said it now expects to be in “three or fewer exchange markets” for 2017 , Hemsley said in a 70-minute call with analysts Tuesday morning. UnitedHealth is looking at maintaining public exchange offerings in New York, Nevada and Virginia pending various approvals.

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