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Tuesday 12.27.2016

ECB tells Monte dei Paschi it needs to raise $9.2 billion

The European Central Bank has told Monte dei Paschi it needs to plug a capital shortfall of 8.8 billion euros ($9.2 billion), higher than a previous 5 billion euro gap estimated by the bank, the lender said on Monday, confirming what sources told Reuters.

Last Friday the Italian government approved a decree to bail out Monte dei Paschi (BMPS.MI) after Italy's No. 3 lender failed to win investor backing for a desperately needed 5 billion euro capital increase.

The bank said on Monday it had officially asked the ECB last Friday for go ahead for a "precautionary recapitalization". A precautionary recapitalization is a type of state intervention in a struggling bank that is still solvent. It means only a modest bail-in of investors though the government can buy shares or bonds only on market terms endorsed by EU state aid officials in Brussels.

In its reply, the ECB said it had calculated the capital it believed the bank needed on the basis of a shortfall emerging from European stress test of large lenders earlier this year. In those tests Monte dei Paschi was the only Italian bank to come short under an adverse scenario.

The Big Theme for 2017: Global Cash Bans

The big theme for 2017 will be Cash… not a pro-deflationary “time to own cash” theme… but a “let’s ban it as quickly as possible” theme. Let’s review

In 2016: 1) Former Secretary of the Treasury, Larry Summers, called for the US to do away with the $100 bill. 2) Former Chief Economist for the IMF, Ken Rogoff, published his book The Curse of Cash. 3) The New York Times and Financial Times publicly endorse a ban on cash. 4) Fed Chair Janet Yellen, during a Q&A session said cash is “not a convenient store of value.”

Of course the above items are simply propaganda and words. But 2016 also featured major actions as far as the War on Cash is concerned…

The 7th largest country in the world by GDP (India) banned physical cash in denominations that comprise over 80% of all outstanding bills. The move was a political disaster… temporarily, but no one was forced out of office and the legislation remains in place.

New Census Data Shows Why the Job Market is Still “Terrible” (as Trump said), but the Numbers Get Hushed up

When Donald Trump campaigned on how “terrible” the jobs situation was, while the Obama Administration touted the jobs growth since the employment bottom of the Great Recession in 2010, it sounded like they were talking about two entirely different economies at different ends of the world. But they weren’t. Statistically speaking, they were both right.

Since 2011, the US economy created 14.6 million “nonfarm payrolls” as defined by the Bureau of Labor Statistics – whether or not they’re low-wage or less than full-time jobs. But for individuals, this job market, statistically speaking, looks almost as tough as it was during the Great Recession.

Obviously, a lot of people have found jobs, and some of them have found good jobs since then, and there are a ton of “job openings.” But the Census Bureau just told us why the job market is still, to use Trump’s term, “terrible” when it released its population estimates for 2016, just before clocking out for the holidays.

According to this report: From the beginning of 2010 – in terms of jobs, the darkest days of the Great Recession – through December 2016, the US “resident population” (not counting overseas-stationed military personnel) grew by 16 million people.

Venezuelan Opposition Says No Talks Without Concessions

Another Obamacare Co-Op Exits Exchanges, Leaving Only 5 Co-Ops in 2017

Evergreen Health Cooperative Inc. of Maryland announced earlier this month that it is withdrawing from the Affordable Care Act exchanges next year, leaving only five co-ops in operation. The co-op will not offer or renew individual health policies in 2017.

“After many months of working closely with Evergreen management, leadership at the Centers for Medicare and Medicaid Services, and outside investors to find a workable solution, we have run out of time to meet the deadline for a January 1 effective date,” said Maryland Insurance Commissioner Al Redmer Jr. “We remain committed to a viable, competitive insurance industry in Maryland.”

This action will force 6,000 customers serviced by the co-op to be automatically enrolled in new plans. The co-op was awarded $65.5 million in taxpayer-funded loans in 2012.

Of the 23 co-ops originally created under Obamacare, 18 have failed including Evergreen Health, as well as co-ops serving New Jersey, Illinois, Connecticut, Arizona, Colorado, Kentucky, Michigan, Nevada, New York, Ohio, South Carolina, Tennessee, Louisiana, Utah, a co-op that served both Iowa and Nebraska, and two co-ops that served Oregon.

The Real Story About Rising Home Prices

By one measure, the housing market’s lost decade is finally a thing of the past. In real terms, it is far from over.

U.S. home values in September topped their previous peak from a decade ago, according to the S&P/Case-Shiller 20-City Home Price Index. New data expected Tuesday should show more of the same in October. Prices have grown at about a 5% annual clip for much of the past two years.

On paper, home-price increases may have come full circle following the worst housing bust since the Great Depression. But these nominal price gains don’t take into account the consumer price increases that inflate home values over time. In real terms, the index still is about 16% below the 2006 high. A number of factors could make further price appreciation and possibly even a new inflation-adjusted high that much tougher to come by in the new year.

The market is flashing warning signs. The homeownership rate still hovers near a five-decade low and it is tough for less-affluent buyers to obtain mortgages. Meanwhile, mortgage rates have risen substantially since Donald Trump’s election victory, which will affect affordability.

Venezuela – Bolivar lost 64%… in a month; Ten years of silver market manipulation.

The investigation of silver market manipulation is underway and Deutsche Bank shared their insider knowledge of an artificial undercutting of the price of silver. This is why DB will be hit with a penalty of only 38 million USD. If DB was not so cooperative this fine could have additional zeroes at the end.

The evidence is primarily messages sent between those participating in manipulations. The material is damning. Conversations between DB, UBS and HSBS traders organising coordinated sell-outs and keeping grins on their faces. Their actions were aimed at selling enough silver to trigger stop-loss of investors pushing silver price off the cliff.

From the materials online we can imply two major conclusions. Firstly, this investigation now includes not 4 but 8 banks. Most probably this number is going to grow higher. Secondly, mining companies could be able to claim damages from the perpetrators of the manipulations. Without these machinations profit of miners could have been 200-300% bigger.

We already have heard about problems of the socialist conundrum in Southern America but October delivered a huge blow to Venezuelan currency (VEB). On 24th October 1 USD was sold for 1221 VEB. The government in Caracas decided to increase the minimum wage by 40% and dollar jumped to 4538 VEB, pushing the inflation rate in October to 64%. Prices are rising so quickly that some businessmen now weigh their cash instead of counting it. One of them said he feels like Pablo Escobar having so much cash – reports Guardian.

Biggest corporate fails of 2016 in 60 seconds

Majority of Americans Hopeful for a Better 2017, AP's New Year's Poll Shows

A new Associated Press-Times Square Alliance poll released on Monday finds that a majority of Americans are hopeful 2017 will be a better year for them personally than 2016.

“Emotionally wrenching politics, foreign conflicts and shootings at home took a toll on Americans in 2016, but they are entering 2017 on an optimistic note,” writes AP on the results of its annual New Year's poll.

According to the results, only 18 percent of Americans said things for the country improved in 2016. Thirty-three percent said things got worse and 47 percent said things remained about the same as in 2015.

Looking to the New Year, Americans expressed more optimism about 2017, with 55 percent who said they believe things will be better in general – a 12 point jump from the poll's results in 2015.

The US government is loaning millions of dollars to jumpstart urban farming

Every year, the US Department of Agriculture devotes millions of dollars to farmers in rural areas.

The government is increasingly starting to offer assistance to urban farms, too.

In 2016, the USDA funded a dozen urban farms, the highest number in history, Val Dolicini, the administrator for the USDA Farm Services Agency, tells Business Insider.

In 2017, he expects the USDA to funnel even more money toward farms on rooftops, in greenhouses, and in warehouses. USDA Microloans, a program that offers funding up to $50,000, is specifically geared toward urban farmers. Established in 2013, the program has awarded 23,000 loans worth $518 million to farms in California, Connecticut, and Massachusetts. Though it is open to all farmers, urban farmers often apply for it because it offers the money on a smaller scale than other programs. Seventy percent (or about 16,100 of those loans) have gone to new farmers, many of them in cities.

Why Every Investor Should Own Gold

How does one value an asset that produces no income? You could ask the same thing about a dollar bill. Gold is a form of purchasing power and optionality. Think about it like a euro, a dollar bill or a yen. It can be used however the holder wants to use it; think of it in terms of purchasing power. It offers complete flexibility. You can sell gold 24 hours a day, seven days a week, anywhere in the world. It’s a form of currency.

How do you value one currency versus another? What makes gold different than any other currency is that it hasn’t lost purchasing power over centuries and centuries. That may not sound particularly exciting because nobody thinks that way. But if you’re a wealthy family, if you’re an endowment, if you’re a pension fund, gold has a role just as a way to protect capital and purchasing power over long periods of time.

Forget the day-to-day fluctuations. If you look at what gold has done since 2000, for example, it has outperformed every other asset class, whether it’s bonds or stocks. The unifying thread throughout those years, going back to 2000, is bad, radical monetary policy.

The appeal to maybe your readership is that gold represents reserved purchasing power and a form of financial wealth insurance.

Will the Fed's Janet Yellen 'take away the punch bowl' after Trump takes office?

After three years of almost single-handedly juicing up the slow-growing economy, Janet L. Yellen and the Federal Reserve should be looking at easier days ahead.

Yellen, in what will probably be her last full year as Fed chair, may finally get help from somewhere else in Washington.

Tax cuts and infrastructure spending planned by President-elect Donald Trump, if backed by the Republican-controlled Congress, would lighten the load for a Fed whose easy-money policies have been the primary economic support for the nation.

She is already breathing easier on the Fed’s employment mandate; the jobless rate has fallen to a nine-year low of 4.6%. Inflation, too, is under control and, by all accounts, creeping toward the central bank’s optimal level of 2%. And yet, Yellen may come under as much economic and political pressure as ever, on both the Fed’s policy and the independence of the institution.

IBM and the future of blockchain

IBM is heavily investing in the blockchain technology to disrupt large industries. Here we provide a few examples of how IBM is leveraging its blockchain business and provide some estimates of the economics involved.

Most investors believe that blockchain and BitCoin (the digital currency) are synonims. However, what most people don’t know, is the fact that the blockchain is an “infrastructure” and BitCoin is one of many applications. IBM is heavily investing in the blockchain to disrupt some large industries.

Blockchain is a new technology that enables businesses to work together with trust and transparency. Blockchain is a distributed shared operating system where all parties involved in an exchange have open access to an unchangeable digital record of transactions. Each participant has always an exact copy of the transactions and therefore all parties can confidently rely on this data. In theory, the blockchain, guarantees accountability and transparency while streamlining business processes.

There aren’t definitive numbers on companies using use blockchain, but The IBM Institute for Business Value released some figures a few months ago: 70% of early adopters are working with blockchain to create new business models and reach new customers; 65% of banks expect to have blockchain solutions in production in the next three years; 80% of banks identified trade finance, corporate lending and reference data as having the greatest potential to be disrupted by the blockchain technology. 15% of banks intend to implement full-scale, commercial blockchain solutions in 2017; Companies expect reference data (83%), retail payments (80%) and consumer lending (79%) to be the segments that will be impacted the most by blockchain.

Delinquency Rates Will Rise in 2017 for Auto Loans and Credit Cards, Says TransUnion

Trumponomics Gives Gold Bulls Hope

Last week I looked back at the six big market themes we discussed back in January. Today I want to talk about the final two. First, here's a review of the four themes we've discussed so far, and then I'll talk about the final two themes, gold and Japanese stocks:

Theme number 1: "Central banks are in control, be long stocks." Now we have a handoff from central banks to pro-growth fiscal policies, which creates fundamental change. And with fundamental change, we should see much higher stock prices in 2017.

Theme number 2: "China's currency manipulation would come home to roost." China reversed course on allowing its currency to strengthen in early 2014, and has since gone back to its ways of devaluing the yuan as an answer to its struggling economy. And with the incoming administration there is finally the will and credibility to fight China's cheap currency policies. The question is, will it end badly. If the global economy continued its malaise, I would say yes. If growth emerges, I think it gives China an opportunity to liberalize policies and build a more balanced economy (everyone wins).

Theme number 3: "The dollar is in a long term bull cycle—Be Long Dollars." With the Fed in a hiking cycle (rates up) and Europe and Japan still aggressively easing (QE = rates down), it's the textbook recipe for global capital to flow into the dollar, even after the dollar is in the eighth year of a bull market.

Obama Administration Nearly Doubles Number of Refugee Arrivals So Far in FY 2017

The Obama administration has accepted 25,584 refugees into the United States in the two months and 26 days since FY 2017 began on October 1, according to the Department of State interactive website. That number is nearly double the 13,791 refugees accepted during the comparable period between October 1, 2015 and December 26, 2015 of the prior fiscal year (FY 2016).

It is also more than the previous high for the Obama administration during his eight years in office, which occurred in FY 2013 when 18,228 refugees were accepted between October 1, 2012 and December 26, 2012.

The Obama administration appears to be rushing as many refugees as possible into the country before President-elect Donald Trump is inaugurated as the 45th President on January 20, 2017. On the campaign trail, Trump promised to pause the resettlement of refugees who come from Syria or other countries that have a history of hostility to the United States.

During FY 2016, 85,000 refugees were resettled in the United States. The Obama administration has asked Congress for budget authority to resettle 110,000 refugees in the country during FY 2017. Congress, however, has not authorized that level of spending under the interim budget for FY 2017 that will continue into March 2017. Authorized spending simply continues at the 85,000 annualized refugee levels.

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