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Thursday 09.22.2016

Just Plain Pathetic

We are speaking, of course, of the Fed’s decision to punt yet again, and for a reason that is not mysterious at all. To wit, our financial rulers are petrified of a stock market hissy fit, and will go to any length of dissimulation and double-talk to avoid triggering a crash of the very bubbles their policies have inflated.

So now the money market rate will be pinned to the zero bound for 96 months running—–through at least December. Indeed, hell itself could freeze over before these cowardly fools would raise rates at their next meeting a week before the elections—–and most especially not when the Donald is remonstrating loudly and correctly that the whole thing is rigged.

Not that any more evidence was needed, but today’s decision surely proves that our financial rulers have wandered so deep into their monetary puzzle palace that they have now lost touch with every vestige of the real world. That’s because there is not a shred of evidence that more free money for the Wall Street gamblers will do anything except further inflate financial asset values that are already tottering in the nosebleed section of history.

So the entirety of what they are doing is simply paving the way for an even bigger crash. Yet to hear Janet Yellen tell it, they decided to keep their Big Fat Thumb on money market rates because “there is still slack coming out of the labor market” and because the Fed is still “undershooting our inflation goals”. But so what!

Fuel-Economy Rules Threaten 1 Million-Plus U.S. Jobs, Study Says

More than 1.1 million U.S. workers would lose their jobs because of tougher fuel-economy regulations coming next decade if prices at the gasoline pump remain low in America, a new study found.

With low fuel prices, consumers won’t get the payback they are expecting from expensive fuel-saving technology as automakers strive to reach a U.S. mandate to achieve 54.5 miles per gallon by 2025, according to the study released today by the Center for Automotive Research in Ann Arbor, Michigan. The group analyzed nine scenarios with varying fuel prices and technology costs and concluded that significant job loss would result in eight cases.

Automakers and President Barack Obama agreed to double fuel economy standards from 2012 to 2025, with a projected $200 billion cost to the industry that would be made up in fuel savings to car buyers. Since 2012, fuel prices in America have plunged and consumers have returned to buying less efficient sport utility vehicles and trucks, which accounted for about 60 percent of sales this year through August. If fuel prices stay low, it be will hard to sell fuel-efficient vehicles with advanced technology, resulting in job losses at factories, suppliers, car dealers and businesses that depend on the workers’ spending, the study said.

“If the value of fuel savings to the new vehicle buyer falls short of the cost of mandated fuel economy technologies then U.S. automotive sales, production and manufacturing and retail employment will fall with serious consequences for the U.S. economy,” Sean P. McAlinden, lead author of the study, wrote in its executive summary.

Wells Fargo Employee: I Was Fired For Reporting Unauthorized Accounts

Wells Fargo CEO John Stumpf boasted to a Senate panel about the company’s ethical backbone, pointing out that the bank had fired 5,300 employees for allegedly opening nearly two million unauthorized deposit accounts. However, one former Fargo staffer says he was given the boot because he tried to alert the bank to his co-workers’ bad behavior.

Stumpf tried, fruitlessly, to reassure lawmakers during a Senate Banking Committee hearing on Tuesday that the company took its ethics and reporting of issues from employees seriously.

But former workers tell CNNMoney (warning: link has video that autoplays) that when they reported the opening and closing of unauthorized customer accounts they were promptly let go.

One employee, who worked in Pennsylvania, says he not only refused to open bogus accounts to meet sales goals, but that he also alerted the company’s ethics hotline and emailed human resources about others who were creating fake accounts. According to the man, he told HR reps that he had been repeatedly asked to send out debit cards and PINs for unauthorized accounts, or to enroll customers in online banking without their knowledge. “It ruined my life,” the man says, noting that he was fired for tardiness just eight days after sending an email to HR.

Paul Craig Roberts-Economy A Hoax & House Of Cards

Terrorists in US Will 'Get Through,' Feds Can't 'Stop Everything,' FBI Official Warns

Some radical jihadists plotting to attack inside the United States will "unfortunately get through" the nation's counterterrorism efforts, a senior FBI official warned today as he defended his agency's handling of its review two years ago looking at the prime suspect in the weekend bombing spree around New York and New Jersey.

"We will try and do as much as we can, but we will not be able to stop everything," FBI Executive Assistant Director Mike Steinbach said. Elsewhere today, a top official with the New York Police Department, which has historically butted heads with the FBI, offered his own unwavering defense of the FBI's handling of the Ahmad Rahami case two years ago.

"It was handled to the extent that the law, the system and the guidelines that we operate under would allow," NYPD Deputy Commissioner John Miller told a House panel. The comments come one day after the FBI acknowledged it conducted a low-level review of Rahami two years ago, but found no reason to believe he posed a threat at the time.

A neighbor prompted the 2014 inquiry after a dispute at the Rahami home, telling authorities he heard the father call his son a "terrorist" and heard the father say Rahami's associates overseas may have been trying to procure explosives.

Warren Buffett to Fox Business: I'll Remain Silent on Wells Fargo for Now

Warren Buffett, Wells Fargo's largest shareholder, tells the FOX Business Network he won't be commenting 'anywhere for now' about the bank's growing scandal.

Reached late Tuesday night in Omaha, Nebraska, Buffett, who as of June owns nearly 500 million shares of the embattled financial giant, said, "If I start commenting on that or anything else, it will lead down too many paths so I will wait until November to speak about it, the election or any other subject."

Buffett's Berkshire Hathaway (BRK.B) holds a near 10% stake in Wells Fargo (WFC). The Oracle of Omaha has been a longtime fan of the company but his silence may speak more loudly after Wells Fargo CEO John Stumpf gave a rocky performance on Capitol Hill before the Senate Banking Committee Tuesday morning.

Stumpf endured two hours of withering questioning from the bi-partisan committee who accused him of "gutless leadership." Stumpf apologized for employee behavior but stopped short of saying he would pursue the claw-back of compensation for top executives who might be involved.

IRS chief tells House panel he does not deserve impeachment

IRS Commissioner John Koskinen expressed regret to Congress on Wednesday for his agency's past mistreatment of tea party groups, but said he has cooperated with congressional investigators and does not deserve to be impeached.

The IRS chief made the remarks at a House Judiciary Committee hearing on a drive by hard-line conservatives to oust Koskinen. Their impeachment resolution accuses him of lying to lawmakers, ignoring subpoenas and overseeing an agency that destroyed emails as Congress investigated how the IRS subjected tea party groups seeking tax exemptions to harsh investigations years ago.

The agency has apologized for its actions and Koskinen has said he's done nothing wrong. Government investigators have found no evidence that Koskinen or the IRS purposely destroyed evidence or that the agency's actions were politically motivated. "I did nothing to impede the operation of the Congress," Koskinen, speaking under oath, told the lawmakers.

Besides solid opposition from Democrats, the push has divided Republicans, won no backing from GOP leaders and has no chance of garnering the votes Congress would need to oust him. Committee Chairman Bob Goodlatte, R-Va., said the IRS engaged in "a political plan to silence the voices of groups representing millions of Americans." He said Koskinen is facing "very serious allegations."

President Obama: U.S. Will Accept 110,000 Refugees From Around the World

President Obama announced Tuesday the U.S. will accept 110,000 refugees from around the world in the coming year, a nearly 60% increase in the number of refugees that were welcomed over the past year.

Obama called the global refugee crisis a “test of our common humanity” during an an address at a summit on refugees during the United Nations General Assembly meeting in New York. He urged all leaders to do more to take in those who are being driven out of their homes in droves as a result of conflict in Syria and other Middle Eastern and Northern African nations. World leaders will accept 360,000 refugees from war-torn areas over the course of 2017, with Germany and Canada among the countries accepting the most. The U.S. will begin to accept the 110,000 new refugees in fiscal year 2017, which starts on Oct. 1.

The president and the Democratic nominee Hillary Clinton have faced scrutiny from Republican presidential candidate Donald Trump for their refugee policies. While Obama insists refugees are more heavily vetted than the average tourist, Trump has called refugees, particularly those from Syria, the great “Trojan Horse” of our time. Instead of welcoming them, Trump has proposed banning Muslims and people from countries where terrorism is an issue from entering the country.

The candidate’s son tweeted a provocative image comparing Syrian refugees to poisoned candy. “If I had a bowl of Skittles and I told you just three would kill you. Would you take a handful?” the image read. “That’s our Syrian refugee problem.”

World trade growth weakest in 25 years

Do we need to track pressure cooker sales?

Bomb-making materials can be so mundane, it's almost surreal. “What you’re looking for, basically, is a metal container that can be enclosed and locked down,” said James Lewis, a senior fellow at the Center for Strategic and International Studies.

Ahmad Khan Rahami has been accused of placing a series of bombs in New York City and New Jersey last weekend. One thing investigators don’t yet know — the reason behind the bombings. One thing they do: at least two of the devices were made using pressure cookers and cell phones. Similar materials have also been used in previous terrorist attacks, which means that even the pots and pans we have in our own kitchen cabinets can be suspect.

"I was involved in discussions a long time ago about pie tins,” said Lewis, who previously worked with the Department of State. “Some people said, 'geeze we ought to find a way to control pie tins.' And it’s like, get a grip.” The bombs thought to have been planted last weekend by suspect Rahami, noted Lewis, also contained Christmas lights and cell phones. “You have to ask yourself what’s really feasible in a commercial market and pursuing everything that can do harm is really a fruitless task.”

Instead, said Lewis, government should keep an eye on people — the ones who make bombs. “You have to ask what’s the tactic, what’s the strategy that’s going to have the best payoff?" he asked. "Unfortunately, it might be surveillance. And that might have implications for privacy. But if you can surveill communications, you’re more likely to find out who’s planning an attack, as opposed to surveilling who’s buying pressure cookers.” However, if we really wanted to track the sale of pressure cookers, we could. “It’s certainly technically possible,” said William Banks, director of the Institute for National Security and Counterterrorism at Syracuse University. He says look no farther than fertilizer and Oklahoma City in 1995. Fertilizer was the key component in the massive bombing that killed 168 people.

US drug company hiked price of acne cream by 3,900% in less than 18 months

A US drug company has increased the price of an acne cream by more than 3,900% to $9,561 in less than 18 months in the latest example of drug “price gouging”, which has enraged the American public and become a central topic of debate in the presidential election campaign.

Novum Pharma, a recently formed privately held Chicago-based company, bought the rights to drug Aloquin in May 2015. The 60g cream, which contains two cheap ingredients, was sold by its previous owner, Primus Pharmaceuticals, for $241.50.

Novum almost immediately increased the price by 1,100%, and hiked the price higher still in January 2016. Figures seen by the Financial Times show the company increased the price a third time last week to take the cost to $9,561.

The revelation of the latest huge drug price hike on Wednesday comes as the US Congress prepares to grill the chief executive of Mylan, the company that increased the price of the allergic reaction treatment EpiPen by more than 500%. So-called “price gouging”, in which companies buy the rights to older drugs and then vastly increase their cost, has provoked outrage across the country and led to calls for reform of the US healthcare system.

Recession Watch: US Freight Drops to Worst Level since 2010, “Excess of Capacity” Crushes Rates

When FedEx announced its quarterly earnings today, it included some telling tidbits. In its largest segment, FedEx Express, domestic shipping volume edged up merely 1%. In its smaller FedEx Ground Segment, shipping volume jumped 10%, “driven by e-commerce and commercial package growth.”

Sales by e-commerce retailers jumped 15.8% year-over-year in the second quarter, according to the Census Bureau, and companies involved in getting the packages to consumers and businesses have seen growth in those segments. For the rest, not so much – as the goods-based economy is getting bogged down.

And this has been showing up in broader shipping data. The Cass Freight Index for August, released today, fell 1.1% from a year ago, to 1.115, the worst August since 2010! The 18th month in a row of year-over-year declines!

“Overall shipment volumes (and pricing) are persistently weak, with increased levels of volatility as all levels of the supply chain (manufacturing, wholesale, retail) continue to try and work down inventory levels,” Donald Broughton, Chief Market Strategist at Avondale Partners, wrote in the report.

Fireworks on Capitol Hill around Mylan CEO testimony

Central Bank Digital Currencies: A Revolution in Banking?

Several central banks, including the Bank of England, the People’s Bank of China, the Bank of Canada and the Federal Reserve, are exploring the concept of issuing their own digital currencies, using the blockchain technology developed for Bitcoin. Skeptical commentators suspect that their primary goal is to eliminate cash, setting us up for negative interest rates (we pay the bank to hold our deposits rather than the reverse).

But Ben Broadbent, Deputy Governor of the Bank of England, puts a more positive spin on it. He says Central Bank Digital Currencies could supplant the money now created by private banks through “fractional reserve” lending – and that means 97% of the circulating money supply. Rather than outlawing bank-created money, as money reformers have long urged, fractional reserve banking could be made obsolete simply by attrition, preempted by a better mousetrap. The need for negative interest rates could also be eliminated, by giving the central bank more direct tools for stimulating the economy.

How blockchain works was explained by Martin Hiesboeck in an April 2016 article titled “Blockchain Is the Most Disruptive Invention Since the Internet Itself“: "The blockchain is a simple yet ingenious way of passing information from A to B in a fully automated and safe manner. One party to a transaction initiates the process by creating a block. This block is verified by thousands, perhaps millions of computers distributed around the net. The verified block is added to a chain, which is stored across the net, creating not just a unique record, but a unique record with a unique history. Falsifying a single record would mean falsifying the entire chain in millions of instances. That is virtually impossible."

In a speech at the London School of Economics in March 2016, Bank of England Deputy Governor Ben Broadbent pointed out that a Central Bank Digital Currency (CBDC) would not eliminate physical cash. Only the legislature could do that, and blockchain technology would not be needed to pull it off, since most money is already digital.

Royal Canadian Mint employee allegedly smuggled $140,000 worth of gold in his....

The alleged gold heist was an inside job — in more ways than one. The theft of about $140,000 worth of gold ($180,000 in Canadian dollars) came from within the Royal Canadian Mint, investigators said Tuesday. Leston Lawrence, a 35-year-old employee of the government mint in Ottawa, has been accused of foiling the facility’s high security through a back-end exploit:

Lawrence smuggled out gold nuggets inside his rectum, prosecutors alleged. After a trial that concluded in Ottawa on Tuesday, Lawrence faced “a number of smuggling-for-cash charges, including theft, laundering the proceeds of crime, possession of stolen property and breach of trust,” the Ottawa Citizen reported. Ontario Court of Justice Judge Peter Doody will deliver a decision by Nov. 9.

A suspicious bank teller raised the alarm in 2015. Lawrence sold 18 gold pucks — each a circular 7.4-ounce nugget worth about $6,800 — to an Ottawa Gold Buyers store between Nov. 27, 2014, and March 12, 2015, according to court records obtained by the Toronto Sun. Three observations tipped off the bank teller: Lawrence was a mint employee, he had an unusual number of deposits and he frequently requested overseas transactions.

Alerted by the teller’s red flags, the Royal Canadian Mounted Police pursued the tip. Adding to the body of evidence, inspectors said, were four more pucks in Lawrence’s safe-deposit box. Though the pucks were not stamped with identifying markings, the prosecution demonstrated that the nuggets matched a custom scoop the refinery uses to spoon molten gold. They also found a tub of Vaseline in his locker at work. Lawrence was fired in 2015.

IT workers brace for outsourcing, layoffs at Health Care Service Corporation

A major health insurer, Health Care Service Corporation (HCSC), is planning to outsource part of its information technology operation. The employees don’t have all the details about what’s in store for them, but this may be a large IT layoff.

Employees were recently informed that 70% of the positions in the IT group, in infrastructure, will be outsourced, according to two IT workers who requested anonymity. Estimates on the number of employees who would be affected varies, but the move could involve 540 people in IT. The layoffs are planned from February to April.

The jobs that would be moved to an outsourcer include monitoring and incident resolution, helpdesk support, and problem and patch management. Other areas would be partially outsourced, such as infrastructure product development, cloud and automation. HCSC will retain governance and planning. The outsourcing vendor has not been named, the employees said.

Chicago-based HCSC, which employs 22,000, would not confirm whether a layoff is being planned, but acknowledged that it is increasing use of “external business partners.” In a statement, HCSC spokesman Mark Spencer said, “We are adapting how we work to meet our members’ needs in today’s rapidly changing healthcare marketplace. We are modernizing our information technology systems, developing critical skills and capabilities within our IT workforce, and building strong collaborative partnerships with our business colleagues to rapidly deliver solutions that improve our service to members.

Student Loan Debt Hinders Economic Mobility

The Consumer Financial Protection Bureau (CFPB) hears from hundreds of borrowers everyday about the impact that student loan debt has on their daily lives, according to a recent report from the Bureau. Specifically, they cite that the debt continues to acutely affect students of color.

The Bureau states that Great Recession hit African-American and Latino communities the hardest, with many families seeing their net worth nearly cut in half. This, combined with the rising cost of tuition and fees at public colleges and universities, and the large numbers of students of color enrolled in for-profit schools, has made a big impact on the amount of debt that these students and their families have taken on to finance their higher education. The report states that recent research also further underscores the disproportionate impact of student debt on communities of color.

“Student debt has become a crushing burden for American families, and minorities in particular,” says Rep. Maxine Waters (D-California). “The fact that African-American and Latino students leave college with far more debt than their white or Asian-American peers only exacerbates the already unacceptably large racial wealth gap that exists in America today. These disparities are the result of decades-long economic barriers that make it harder for minorities to get ahead. That’s why it is so critical that we have an agency like the Consumer Financial Protection Bureau that can help identify and address these systemic problems.”

Student debt though, according to the CFPB spills into other financial sectors for these borrowers, hindering their ability to be economically mobile. The Bureau states recent reports have also further confirmed what they have already reported on saying student loan debt also has the ability to drive income inequality.

Gold Can Provide Reprieve - Swiss Money Manager

Target announces $5 billion share buyback

Target Corp. continues to use its cash to buy back shares at a time when it's not opening as many stores as it once did. On Wednesday, the Minneapolis-based retailer announced that its board has approved another $5 billion share repurchase program that will commence after its current $10 billion program wraps by the end of this fiscal year.

Brian Yarbrough, an analyst with Edward Jones, said Target is one of a number of mature retailers such as Wal-Mart, Kohl's and Macy's that are increasingly using share buybacks as one of the drivers to boost their earnings per share since they're no longer opening hordes of new stores. "There's nowhere else to put the cash," he said.

Target is still opening some stores and has plans to open at least 19 new ones next year, but they are mostly smaller stores that don't require the same amount of capital as its huge big box stores. It is also planning to invest $2 to $2.5 billion on capital expenditures next year, primarily focused on improving its supply chain and technology.

Cathy Smith, Target's chief financial officer, said in a statement that Target's capital deployment priorities haven't changed. The company continues to first invest in its business, then to support the dividend, followed by share repurchases.

Trump Should Be Asking: Will Ford Pay Off Its Government Loan Before Moving Small Car Production To Mexico?

Republican presidential nominee Donald Trump tried to score some cheap political points last week when he claimed — falsely – that Ford Motor Co. plans to “fire all their employees in the United States and … move to Mexico.” Mark Fields, Ford’s chief executive, wouldn’t let him get away with such nonsense, though, telling CNN, “It’s really unfortunate when politics get in the way of the facts.”

What Ford does plan to do is shift production of small cars out of the U.S. to Mexico because it can’t make a profit on them at U.S. labor rates. Nobody’s getting fired. American workers instead will build higher-profit trucks and SUVs.

But here’s a legitimate question Trump — and every American — should be asking instead: Whatever happened to the $5.9 billion taxpayer loan Ford received from the U.S. Department of Energy in the throes of the Great Recession to build fuel-efficient cars?

Ford likes to say it “didn’t take the money” because unlike General Motors GM and Chrysler, it didn’t require a taxpayer bailout to survive the 2008-2009 credit crisis. But don’t forget: Ford tapped into a different pool of government money set aside for the auto industry during those desperate times. (And those low-cost funds were critical to Ford’s survival because no other funding sources were available.)

The latest from the Bank of Japan - Ben S. Bernanke

The Bank of Japan’s (BOJ) policy announcement today had two main parts. First, the BOJ committed itself to continue expanding the monetary base until the inflation rate “exceeds the price stability target of 2 percent and stays above the target in a stable manner.” That is, the BOJ says it wants not only to reach its 2 percent inflation target but to overshoot it. Second, in a significant change, the BOJ will begin targeting the yield on ten-year Japanese government debt (JGBs), initially at about zero percent (that is, setting a target price for bonds). However, the Bank muddled that message by indicating that it also plans to continue to buy about 80 trillion yen in JGBs annually, a quantity target.

Market reactions to the BOJ’s announcements have been mixed, likely because the announcements were about a change in policy framework, not a change in policy stance per se. In particular, the announced target for the ten-year JGB yield is close to its current market rate, and no significant changes were made to other parts of the BOJ’s program, including the negative interest rate on bank reserves, still at -0.1 percent.

Although the BOJ did not take substantial new easing measures, I think the announcements are good news overall, since they include a recommitment to the goal of ending deflation in Japan and the establishment of a new framework for pursuing that goal. As the BOJ noted explicitly, the Bank will now be able to cut either the short-term rate or its target for the longer-term JGB yield if future policy easing is needed. The follow-through will indeed be crucial: Japan has made significant progress toward ending deflation, but that progress could still be lost if the public questions the BOJ’s commitment to its inflation objective. The commitment to overshoot the inflation target will be constructive if it helps to kill market speculation that the BOJ was contemplating abandoning its fight.

The most surprising, and interesting, part of the announcement was the decision to target the ten-year JGB yield. As I noted in a previous piece on targeting longer-term rates, there is a U.S. precedent for the BOJ’s new strategy: The Federal Reserve targeted long-term yields during and immediately after World War II, in an effort to hold down the costs of war finance.

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