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Friday 04.22.2016

Pimco Economist Has A Stunning Proposal To Save The Economy: The Fed Should Monetize Gold

Back in December 2014, just before the ECB officially launched its initial phase of QE in which it would monetize government bonds, Mario Draghi was asked a very direct question: what types of assets could the ECB buy as part of its quantitative easing program. He responded, "we discussed all assets but gold." The reason for his tongue in cheek response was because over the past few weeks speculation had arisen that gold could be part of the central bank’s asset purchases after Yves Mersch, a member of the ECB executive board and former Governor of the Central Bank of Luxembourg, said on November 17 that "theoretically the ECB could purchase other assets such as gold, shares, ETFs to fulfill its promise of adopting further unconventional measures to counter a longer period of low inflation."

Mario Draghi promptly shot down that idea. But according to a provocative paper released by none other than Pimco's strategist Harley Bassman, Yves Mersch's inadvertent peek into what central bankers are thinking, may have been on to something. In "Rumpelstiltskin at the Fed", Bassman goes down the well-trodden path of proposing Fed asset purchases as the last ditch panacea for the US economy, however instead of buying bonds, or stocks, or crude oil, Bassman has a truly original idea: "the Fed should unleash a massive Fed gold purchase program that could echo a Depression-era effort that effectively boosted the U.S. economy."

He is of course, referring to FDR's 1933 Executive Order 6102, which made it illegal for a citizen to own gold bullion or coins or risk prison time. Americans promptly sold their gold to the government at the official price of $20.67, with the resulting hoard of gold was then placed in Fort Knox.

The Gold Reserve Act of 1934 raised the official price of gold to $35.00, a near 70% increase. It also resulted in an implicit devaluation of the US dollar. As Bassman points out, over the three years from January 1934 to December 1936, GDP increased by 48%, the Dow Jones stock index rose by nearly 80%, and most salient to our topic, inflation averaged a positive 2% annually, despite a national unemployment rate hovering around 18%. In short, a brief economic nirvana which was unleashed by the devaluation of the dollar confiscation of gold. In fact, we have frequently hinted in the past that another Executive Order 6102 is inevitable for precisely these reasons. However this is the first time when we see a "respected economist" openly recommend this idea as a matter of monetary policy.

Sears Plans to Close Almost 80 Stores in Bid for Profitability

Sears Holdings Corp., the struggling retailer run by hedge fund investor Eddie Lampert, will shut almost 80 stores as part of a push to make the company profitable again.

The closings will include 68 Kmarts and 10 Sears stores, the Hoffman Estates, Illinois-based company said in a statement Thursday. Most of the stores will be shuttered in late July, with two Kmarts closing in mid-September. The move will eliminate about 5 percent of the company’s locations.

Sears posted a $580 million loss in its most recently reported quarter, a wider deficit than a year earlier, as sales continue to slide. The once-mighty retailer said in February that it would be paring money-losing stores and embarked on a review of its portfolio. The timing of leases also factored into the decision over which locations to close.

“We’re focusing on our best members, our best categories and our best stores as we work to accelerate our transformation,” Lampert, who serves as Sears’s chief executive officer, said in the statement.

Boulevard of Broken Retirement Dreams

Wow. If you’re a retired Teamster, we’re glad we’re not you today. And even if you’re not a retired Teamster, you’ll want to pay heed. “More than a quarter of a million active and retired truckers and their families could soon see their pension benefits severely cut,” says The Washington Post — “even though their pension fund is still years away from running out of money.”

The move would amount to “the first cuts in earned pension benefits to current retirees in over 40 years,” writes David Dayen at The Intercept. Not all Teamster retirees would be affected, only those covered by the Central States Pension Fund. But they face an average cut of 23% come July 1. The decision isn’t final. And the decision rests with the Treasury Department.

This unfortunate state of affairs traces back to one of those last-minute budget deals in Washington aimed at averting a “partial government shutdown.” The deal was loaded with all sorts of special-interest goodies. We described one of them as it all went down in December 2014 — banks gaining the privilege of trading high-risk derivatives through their subsidiaries backed by the FDIC, potentially leaving taxpayers on the hook if those bets go bad.

Also included was what’s setting up these Teamsters for a more meager retirement: The trustees of pension plans that cover more than one employer in a single industry can now apply to the Treasury to cut benefits to current retirees, supposedly to improve the plans’ solvency.

Mario Draghi defends ECB policy

Why America’s impressive 5% unemployment rate feels like a lie for so many

On Apr. 14, Bloomberg News announced that jobless claims in the US have reached their lowest level since 1973. “All other labor market data are telling us that the economy is creating a lot of jobs,” economist Patrick Newport told the outlet. “This is further confirmation that the labor market is strong.”

That same day, thousands of fast food workers, airport workers, home care workers, and adjunct professors took to the streets across the country to protest brutal labor conditions and demand a $15 minimum wage. Most of these workers make far below $15 per hour. Some make as low as $7.25 per hour, the current federal minimum wage. Most lack benefits. Some, like adjunct professors, have contingent, temporary jobs, sometimes consisting of only one poorly paid course per year. Many low-wage employees work two or even three jobs in an attempt to cobble together enough income to cover basic needs.

According to the US Bureau of Labor, all of these workers are considered “employed.” They are viewed as part of the American economy’s success story, a big part of which is our 5% unemployment rate. As president Barack Obama boasted in February: “The United States of America right now has the strongest, most durable economy in the world.”

But Obama’s claims of a strong economy ring hollow for the many thousands of workers—in professions ranging from those which require a GED to those which require a PhD—who say they cannot make enough money to survive. And these people, at least, are working. Those who cannot find work at all tell an even grimmer story. There are three main reasons the vaunted economic recovery still feels false to so many. The first is the labor participation rate, which plunged at the start of the Great Recession and discounts the millions of Americans who have been out of work for six months or more. The second is “the 1099 economy,” a term The New Republic’s David Dayen coined to refer to the soaring number of temps, contractors, freelancers, and other often involuntarily self-employed workers. The third is a surge in low-wage service jobs, coupled with a corresponding decrease in middle-class jobs.

Is Citigroup the Best-Managed Large Bank in America?

Is Citigroup, Inc. (NYSE:C) the best-managed bank in America? I'll save you the suspense: The answer is no. But it's better managed than the market believes, and for stock pickers, that's a valuable observation. Want proof? Last Wednesday, the Federal Reserve and the Federal Deposit Insurance Corporation (FDIC) jointly announced that Citi was the only bank among the top eight U.S. banks to receive a qualified approval from both regulators on its living will.

A living will -- "resolution plan" is the official term -- is a plan for winding down a too-big-to-fail institution in a manner that prevents a system-wide crisis. That "win" clearly caught investors by surprise: Citi shares rose 5.6% on the day, versus a 3.8% gain for the KBW Bank Index (DJINDICES:^BKX). (The entire sector got a lift from JPMorgan Chase's earnings that day.)

In the wake of the global financial crisis, too-big-to-fail banks have faced enormous skepticism on the part of the market, but none more so than Citi, and that's perfectly understandable. When former FDIC chairperson Sheila Bair was asked point blank in 2011 which bank was the worst, she answered:

"During the crisis I said Citigroup was a basket case, Merrill Lynch was a basket case. These thrifts, Countrywide, Golden West, WAMU [Washington Mutual], they were all in serious trouble."

Allegheny Technologies to Cut 250 Jobs

Pittsburgh specialty metals producer Allegheny Technologies (ATI) announced this week that it will cut 250 jobs--more than a third of its workforce.

The layoffs, part of the company's restructuring of its Flat Rolled Products operations, are to be complete by summer. Allegheny Technologies said in a statement that the move will save $30 million in costs annually.

“Reducing our flat-rolled products business’ dependence on unprofitable commodity products is a difficult process,” said Rich Harshman, Chairman, president and CEO, in a statement.

“We believe in U.S. manufacturing. However, it is difficult for a U.S.-based company to compete in the global commodity markets, particularly when significant global overcapacity exists for products such as commodity stainless steel sheet and grain-oriented electrical steel (GOES).

Get Ready for Huge Obamacare Premium Hikes in 2017

Amid rising drug and health care costs and roiling market dynamics, the spokesperson for the nation’s health insurers is predicting substantial increases next year in Obamacare premiums and related costs.

Without venturing a specific percentage increase, Marilyn Tavenner, the president and CEO of America’s Health Insurance Plans (AHIP), said in an interview with Morning Consult that the culmination of market shifts and rising health care costs will force stark increases in health insurance rates in the coming year.

“I’ve been asked, what are the premiums going to look like?” she said. “I don’t know because it also varies by state, market, even within markets. But I think the overall trend is going to be higher than we saw previous years. That’s my big prediction.”

If Tavenner is right, Obamacare will jump dramatically—last year’s premium for the popular silver-level plan surged 11 percent on average. Although Tavenner didn’t mention deductibles, in 2016, some states saw jumps of 76 percent, while the average deductible for a 27-year-old male on a silver plan was 8 percent. The warning to consumers from Tavenner, the former administration official who headed the Center for Medicare and Medicaid Services (CMS) and oversaw the disastrous launch of HealthCare.gov, the Obamacare website, comes at a time of growing uncertainty about the evolving makeup of the Obamacare health insurance market.

Intel Lays Off 12,000 After Seeking Visas to Import 14,523 Foreign Professionals Since 2010

Technology giant Intel announced April 19 it will fire 12,000 skilled U.S.-based professionals — after already swelling its workforce with 14,523 requests in Washington D.C. since 2010 for visas to import foreign professionals through the controversial H-1B and Green Card programs.

The company said the layoffs were part of a restructuring plan to help shift its focus from desktop PCs to mobile devices. But the company is very profitable, and first-quarter 2016 profits were 14 percent above predictions.

Amid the layoffs, Intel is one of the nation’s largest users of the H-1B outsourcing program which allows companies such as Disney and Abbot Laboratories to replace white-collar American professionals with cheaper professionals from India, China, and other countries. Intel has insisted that it cannot find enough skilled American workers to fill its needs. From 2010 to 2015, it filed requests for up to 8,351 H-1B visas, plus 5,172 applications for permanent Green Cards for its foreign employees, according to MyVisasJobs.com. That data shows the company sought to hire 14,523 foreign professionals instead of many Americans eager to work at Intel.

The MyVisaJobs.com site, which presents data prepared by government agencies, also shows that the company even sought work visas for 445 people who arrived in the country as students carrying F-1 visas. The number of foreign professionals hired is uncertain. However, the MyVisaJobs.com data shows that 2,654 Green Card requests were approved in the five years between 2015 and 2011. Also many of the H-1B requests were made when the economy was stalled, and so many were likely granted. If one-third of its H-1B visa-requests were granted, then Intel was able to hire 3,000 H-1B workers from 2010 to 2015.

$91 Billion In Capex Cuts, A Serious Hangover For Oil

Forty-seven years (!) after Simon and Garfunkel released ‘The Boxer’, and the bulls and the bears are slogging it out again. After trading blows in recent days, the bulls appear to have the upper hand, as technicals trump immediately weak fundamentals. Nonetheless, we are seeing a pullback today. Hark, here are six things to consider in oil markets today:

1) Jumping straight into economic data, we’ve had disappointing retail sales out of the UK before the Eurozone interest rate decision (still stuck at 0.0 percent, deposit rate still negative at -0.4 percent). We’ve subsequently had comments from ECB President Draghi that stimulus is working – and that loose monetary policy will persist for as long as it takes. The euro initially rallied, before unwinding again.

2) On to the U.S., and weekly jobless claims came in at 247.000, astoundingly a 42-year low. The Philly Fed was a party pooper, however, with the regional manufacturing index coming in below consensus, showing deteriorating conditions.

3) There is a fair bit of focus on oil and gas investment levels at the moment, given we are in the redetermination period (aka credit-line reassessments). The IEA’s chief Fatih Birol has chimed in on the topic today, highlighting low oil prices have cut investment by about 40 percent over the past two years, and how the sharpest falls have been in the U.S., Canada, Latin America and Russia.

U.S. Leading Economic Index Rises Less Than Expected In March

With rebounding stock prices partly offset by a decline in housing permits, the Conference Board released a report on Thursday showing a smaller than expected increase by its index of leading U.S. economic indicators in March.

The Conference Board said its leading economic index rose by 0.2 percent in March after edging down by a revised 0.1 percent in February. Economists had expected the index to climb by 0.5 percent compared to the 0.1 percent uptick originally reported for the previous month. The modest increase by the index reflected positive contributions from six of the ten indicators that make up the index, including stock prices, the interest rate spread, and the Leading Credit Index.

However, the upside for the index was limited by negative contributions from building permits and average weekly initial jobless claims. "With the March gain, the U.S. LEI's six-month growth rate improved slightly but still points to slow, although not slowing, growth in the coming quarters," said Ataman Ozyildirim, Director of Business Cycles and Growth Research at the Conference Board.

He added, "Financial conditions, as well as expected improvements in manufacturing, should support a modest growth environment in 2016." The report also said the coincident economic index was unchanged in March after inching up by 0.1 percent in February.

WallSt Wages

Mattel may outsource some jobs at Fisher-Price

Mattel is considering outsourcing some jobs, including jobs at East Aurora-based Fisher-Price, a company spokesman said. The company stressed that no positions have been eliminated yet, and no definitive decisions have been made. Still, Mattel has been looking at ways to make the company more efficient in an effort to cut costs.

“Accordingly, I can confirm we are exploring the possibility of centralizing or outsourcing various shared services and business processes for Mattel on a global basis,” said Alex Clark, a Mattel spokesman.

The company is specifically evaluating finance and accounting personnel. Fisher-Price, which now has about 650 employees in East Aurora, had a larger presence in the region before it was bought by Mattel in 1993. Immediately after the sale, Mattel trimmed about 100 “redundant” corporate positions. In 1995, the company cut about 700 employees from its Medina factory before closing it for good in 1997.

In 2013, the company consolidated certain operations to Mattel’s North America Division in El Segundo, Calif. Some employees were terminated, others were relocated, and when all was said and done, East Aurora had lost about 100 workers. But the workforce in East Aurora had been diminishing even before the company’s sale.

How The Money Printers Enable Big Government

Sound money advocates are often hit with the charge of being “doom and gloomers.” Yes, we do warn that unsound monetary policies enable unsustainable fiscal commitments, which will lead eventually to a currency crisis.

Sound money advocates are also often portrayed as party-poopers. Yes, we do seek to take away the bottomless punch bowl of easy money and replace it with something more solid. However, we are not pessimists or killjoys by nature. To the contrary, we are quite optimistic about the ability of genuinely free markets to generate ever greater levels of prosperity for ever greater numbers of people. To advocate hard money, as in a gold and/or silver standard, is simply to be a hard-nosed realist about the dangers of giving governments the power to issue unbacked fiat currencies.

The case for hard money is based on the proposition that real wealth is generated by productive activity in the real economy. When governments and central banks assume the power to set interest rates artificially low, to expand the supply of money and credit at will, and to bail out “too big to fail” financial institutions, they are engaging in massive wealth transfers. They are stealing purchasing power away from productive workers in the real economy and transferring it to bankers and bureaucrats.

As the late economist and Nobel Laureate Friedrich A. Hayek noted, “With the exception only of the period of the gold standard, practically all governments of history have used their exclusive power to issue money to defraud and plunder the people.”

Gold Prices: This One Factor Suggests $2,000 Gold Could Be Coming

If you want to know where gold prices are headed, then pay attention to the buyers. Their actions suggest the yellow precious metal could soar in 2016. As it stands, there’s a buying frenzy in the gold market. Even those who said gold bullion isn’t worth owning are now saying it’s worth a look. Best of all, the buyers remain persistent and it doesn’t look like they will stop buying anytime soon.

Consider the gold sales at the U.S. Mint. As of April 19, the U.S. Mint sold 310,500 ounces of gold bullion in American Eagle coins in 2016. In the first four months of 2015, the U.S. Mint sold just 175,500 ounces of gold in American Eagle coins. (Source: “Bullion Sales/Mintage Figures,” U.S. Mint, last accessed April 19, 2016.) If you do the simple math, you will find this represents a year-over-year increase of close to 80% in gold bullion demand!

Here’s something more: if the U.S. Mint continues to witness the surge it has seen this year so far, it’s on pace to sell over one million ounces of gold bullion in 2016—it’s highest amount since 2011.

If you look at gold sales at mints around the world, the figures suggest there’s another gold rush in place. But this isn’t all… Look at demand for gold out of India. Saying the very least, it continues to amaze us how much the country is buying despite the government of India attempting to curb the demand. In January alone, 93,303 kilograms of gold, or 93.3 tonnes, was imported into the country. In the same period a year ago, that number was 57,567 kilograms, or 57.5 tonnes. (Source: “Foreign Trade Statistics of India,” Directorate General of Commercial Intelligence and Statistics, last accessed April 19, 2016.) This represents an increase of 60% year-over-year.

Japan emissions cheating, German opposition to low rates

While America Debates the $20, China Moves Closer to Gold

On Wednesday, Jack Lew announced that the US Treasury was following Ben Bernanke’s advice and keeping Alexander Hamilton on the $10, instead deciding to bring Harriett Tubman to the $20. While Lew’s news left America distracted in debate over whose portrait should grace the Federal Reserve’s most popular bank note, Zerohedge was highlighting how China was taking important steps to distance themselves from the dollar.

Earlier this week, Reuters reported China taking the bold step of launching a yuan-denominated gold price. Reuters noted: As the world's top producer, importer and consumer of gold, China has baulked at having to depend on a dollar price in international transactions, and believes its market weight should entitle it to set the price of gold.

The new benchmark may not be an immediate threat to London, but industry players say over time China could set the price of the metal, especially if the yuan become fully convertible.

During an interview with Bloomberg TV Hao Hong, managing director and chief China strategist with Bocom International, one of China’s largest banks, put it more bluntly: By trading physical gold in renminbi, China is slowly chipping away at the dominance of US dollars....The gold reserve on the China balance sheet has almost doubled since 2009. By holding gold, and moving away from a US-dollar centric system, we actually require less US dollars.

FBI paid more than $1.3M to break into San Bernardino iPhone

Federal Bureau of Investigation Director James Comey said on Thursday the agency paid more to get into the iPhone of one of the San Bernardino shooters than he will make in the remaining seven years and four months he has in his job.

According to figures from the FBI and the U.S. Office of Management and Budget, Comey's annual salary as of January 2015 was $183,300. Without a raise or bonus, Comey will make $1.34 million over the remainder of his job. That suggests the FBI paid the largest ever publicized amount for a hacking technique, given the most previously paid was $1 million by U.S. information security company Zerodium to break into phones.

Speaking at the Aspen Security Forum in London, Comey was asked by a moderator how much the FBI paid for the software that eventually broke into the iPhone. "A lot. More than I will make in the remainder of this job, which is seven years and four months for sure," Comey said. "But it was, in my view, worth it."

The Justice Department said in March it had unlocked the San Bernardino shooter's iPhone with the help of an unidentified third party and dropped its case against Apple Inc, ending a high-stakes legal clash but leaving the broader fight over encryption unresolved.

Solar developer SunEdison in bankruptcy as aggressive growth plan unravels

SunEdison Inc, once the fastest-growing U.S. renewable energy company, filed for Chapter 11 bankruptcy protection on Thursday after a short-lived but aggressive binge of debt-fueled acquisitions proved unsustainable. In its bankruptcy filing, the company said it had assets of $20.7 billion and liabilities of $16.1 billion as of Sept. 30.

SunEdison's two publicly traded subsidiaries, TerraForm Power Inc and TerraForm Global Inc, are not part of the bankruptcy. In a statement, the companies, known as yieldcos, said they had sufficient liquidity to operate and that their assets are not available to satisfy the claims of SunEdison creditors.

The bankruptcy "will present challenges," however, including with financing agreements for certain projects, the yieldcos said. The Chapter 11 filing caps SunEdison Chief Executive Officer Ahmad Chatila's seven-year quest to transform a struggling maker of silicon wafers into a renewable energy giant able to capitalize on burgeoning demand for solar and wind energy amid growing concerns about climate change.

Chatila was named CEO of what was then called MEMC Electronic Materials in 2009 and almost immediately bought fledgling solar project developer SunEdison. The company changed its name four years later and embarked on a rapid expansion that included entering new businesses like wind and energy storage and taking on projects worldwide. That growth racked up billions of dollars of debt.

Friday 04.22.2016

NEWS to Disturb the Comfortable...

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