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Thursday 09.29.2016

California Suspends ‘Business Relationships’ With Wells Fargo

California, the nation’s largest issuer of municipal bonds, is barring Wells Fargo & Co. from underwriting state debt and handling its banking transactions after the company admitted to opening potentially millions of bogus customer accounts.

The suspension, in effect immediately, will remain in place for 12 months, State Treasurer John Chiang said Wednesday. "Complete and permanent severance" between his office and the bank will occur if it doesn’t change its practices, he said. The treasurer is also suspending his office’s investment in Wells Fargo securities.

"Wells Fargo’s fleecing of its customers by opening fraudulent accounts for the purpose of extracting millions in illegal fees demonstrates, at best, a reckless lack of institutional control and, at worst, a culture which actively promotes wanton greed,” the treasurer said in a statement.

The move by California is the latest to punish the bank, which is facing a national furor over the fraudulent accounts. San Francisco, the home of Wells Fargo, last week removed it from a banking program for low-income residents. Authorities including the U.S. Consumer Financial Protection Bureau fined Wells Fargo $185 million on Sept. 8 for potentially opening about 2 million deposit and credit-card accounts without authorization. Chief Executive Officer John Stumpf has forfeited $41 million in pay.

Ford CEO Calls Trump Accusations About Jobs ‘Disappointing’

Ford Motor Co.’s top executive said he’s disappointed by Republican presidential candidate Donald Trump’s accusations that the automaker is moving jobs to Mexico and reiterated that the transfer of small-car production will result in “zero” job loss in the U.S.

“Our commitment to American jobs is stronger than it ever has been,” CEO Mark Fields said in an interview at the Bloomberg Markets Most Influential Summit. “The facts are, zero jobs are going to be impacted here in the U.S.”

Ford is moving production of its slow selling Focus compact car and C-Max hybrid to Mexico, where labor costs are lower, to generate a better return for shareholders, Fields said in a follow-up interview with Bloomberg Television.

It is replacing those models in the factory in Michigan with two new products, Fields said. People familiar with Ford’s plans have said the new models will be the Ranger compact pickup and a revived Bronco sport utility vehicle. “We’re in the presidential election season and there’s lots of things said on the campaign trail,” Fields said. “It’s really disappointing when politics gets in the way of facts.”

Congressman grills Fed chief on political motives

Donald Trump isn't the only one saying that America's central bank is supporting Hillary Clinton. Republican Congressman Scott Garrett grilled Federal Reserve Chair Janet Yellen Wednesday for what he described as a conflict of interest among one of its members.

The Fed is supposed to be free of political influence. However, one of of Yellen's colleagues, Lael Brainard donated $2,700 to Hillary Clinton's campaign -- the maximum amount an individual can give.

Brainard is a governor at the Fed and holds a vote on the central bank's committee that can raise or lower interest rates. Legally, Brainard is allowed to make political donations in her position. However, Garrett argued she shouldn't be allowed to if the Fed is truly free of political influence.

There are also rumors swirling that Brainard is seeking a top position in Clinton's administration if she's elected. Yellen first replied to Garrett saying, "I don't think there's a conflict of interest," during a House committee hearing on banking regulation.

Peter Schiff-No Way Out for Fed Trapped in Monetary Roach Motel

More Than 700 Department Stores Have Closed Since 2013

With even more expected to close in 2017. You aren’t imaging things if you think a ton of department stores have shuttered in the last three years.

According to a research report RBC Capital Markets released on Wednesday, Kohl’s, Macy’s (which also owns the upscale Bloomingdale’s chain), J.C. Penney, Dillard’s, and Sears (which also owns Kmart) have closed a total of 700 stores since 2013. That’s almost 20% of those chains’ store count.

The closings are meant to shed poor locations; compete with Amazon; and help companies manage the migration of their own business online. Macy’s, which is grappling with its worst slump since the Great Recession, announced last month it would close 100 more stores after the holiday season to make way for incoming CEO Jeff Gennette. When he takes the reins in February, Gennette will try to repair the iconic, diminished chain. The company, which is the result of the amalgamation of many regional chains in 2005, has struggled with its fair share of decrepit stores—but it chose to close locations in one fell swoop as opposed to just a few stores at a time.

In Kohl’s case, the drop has been modest: the retailer closed 18 of its 1,150+ plus stores. But with its comparable sales on the decline after a brief turnaround, it wouldn’t be surprising to see the company shutter more locations if it doesn’t enjoy a decent holiday season.

IRS employees sentenced for stealing tax refunds

Two IRS employees are being sent to prison for defrauding taxpayers out of hundreds of thousands of dollars, according to Treasury Department inspector general reports released Wednesday.

The office said IRS employee Nakisha Hall used her position to access the personal information of hundreds of taxpayers between 2008 and 2011, creating fraudulent returns on her own computer and receiving more than $550,000 in tax refunds she requested be sent in the form of debit cards.

After Hall came up with the idea for the scheme, she asked four people to help her hide where the money was going by having the tax refund debit cards sent to a number of "drop addresses." They used the taxpayers' money to buy goods and services for themselves or turn the refunds into cash by using ATMs.

For refunds received via paper Treasury checks, they used fraudulent endorsements to cash the checks at banks. The other scammers were compensated with a portion of the money or refund debt cards she received.

Under Clinton: $26M was spent outsourcing jobs

During Hillary Clinton’s tenure as secretary of state, the State Department spent millions outsourcing tech jobs and promoted a loophole around guest-worker visas.

U.S. Agency for International Development (USAID) in 2010 spent millions of taxpayer money on outsourcing IT jobs to Armenia and Sri Lanka. A state department document states, “[USAID] is an independent federal agency that receives overall foreign policy guidance from the Secretary of State.” One 2010 USAID program spent $10 million on a program to train up to 3,000 IT specialists in Sri Lanka. It was a joint-effort with companies which also spent $26 million. USAID would train the workers in programming and the English language.

In 2004, Clinton said . “I do not think outsourcing American jobs is a new kind of trade . . . and I certainly do not believe it is a good thing.” In 2012, she spoke more highly of outsourcing to an Indian audience and said it has benefited many parts of the United States.

Clinton’s state department in 2010, a year after she became secretary of state, promoted a loophole to help foreigners get around the H-1B visa process. They have since removed the information from their India embassy website but it can be found on internet archives. The loophole allowed people with B1 or B1/B2 tourist visas to work in the United States. The requirements said they could use the tourist visa to perform H-1B level jobs (technical or highly specialized work). The requirements to be able to do this were a college degree, a claim to plan to do H-1B level work, and being paid by a foreign employer.

Yellen: Too-Big-To-Fail is Not Black and White Issue

Federal Reserve Chair Janet Yellen said on Tuesday that while the federal government has made “great progress” toward eliminating “too-big-to-fail” institutions, the issue is not black and white.

“We have a system that is much safer and sounder. It is much more resilient. It has much more capital. It has much more liquidity, and it’s better off,” she said.

Yellen’s remarks came during an appearance in front of the House Financial Services Committee, where she fielded a range of questions from members of Congress, including queries regarding the consumer-accounts scandal that recently came to light at Wells Fargo (WFC) and the stability of the U.S. financial system. Members voiced concern over whether the regulatory environment in the U.S. has become too restrictive in light of the 2008 financial crisis.

To that point, Yellen said her assessment of the country’s financial institutions, and the industry as a whole, shows that the U.S. has “a safer” banking system now than it did leading up to the crisis. Because of that, she and her colleagues at the central bank have outlined a proposal to eliminate undue burden on smaller, regional banks, that would set them apart from larger, more systemically-important financial institutions. That proposal was unveiled by Fed Governor Daniel Tarullo on Monday.

Senate Passes Stopgap Spending Bill, $1.1B to Fight Zika

The Senate Wednesday passed a bill to keep the government running through Dec. 9 and provide $1.1 billion in long-delayed funding to battle the Zika virus. The sweeping 72-26 vote came after top congressional leaders broke through a stalemate over aid to help Flint, Michigan, address its water crisis. Democratic advocates for Flint are now satisfied with Republican assurances that money for Flint will be finalized after the election.

The hybrid spending measure is the last major item on Capitol Hill's pre-election agenda and caps months of wrangling over funding to fight the mosquito-borne Zika virus. It also includes $500 million for rebuilding assistance to flood-ravaged Louisiana and other states. The House is expected to approve the measure as early as Wednesday night and send it to President Barack Obama for his signature.

The House is also set to approve a water development projects bill after a compromise late Tuesday on a $170 billion Flint aid package brokered by Speaker Paul Ryan, R-Wis., Minority Leader Nancy Pelosi, D-Calif., and other top leaders.

The deal averts a potential federal shutdown and comes just three days before the midnight deadline. It defuses a lengthy, frustrating battle over Zika spending. Democrats claimed a partial victory on Flint while the GOP-dominated Louisiana delegation won a down-payment on Obama's $2.6 billion request for their state. The politicking and power plays enormously complicated what should have been a routine measure to avoid an election-eve government shutdown.

The Fed Put A 50% Tax On Your Retirement Plan

If a politician said he thought he should tax the income from your retirement plan, right now, at 50% (no matter where you are in the retirement process, that would certainly hurt the ability of your portfolio to compound), what would you think (other than that he was completely Looney Tunes)? It has reduced the fixed-income returns in retirement plans and the broad pension plans upon which so many people are dependent to practically nothing. And the Fed has done this to prop up asset prices.

The Fed should have allowed rates to normalize years ago. Now, the Fed has unbalanced the financial system so badly that the markets will likely have another tantrum—no, make that a grand mal seizure—when rates start to rise. And that means your bond funds will get killed. So will your equity funds. It’s going to be a huge disaster for retirement and pension plans. Any right-thinking person knows that.

That’s why the Yellen Fed can’t get to the point of actually normalizing interest rates. They know the reaction from the stock market is going to be truly ugly. And because they’ve pushed the heroin of ultra-low rates, they are going to be blamed for the withdrawal. Larry Summers just went on a rant in the Washington Post. It’s instructive reading. His title is “The Fed thinks it can fight the next recession. It shouldn’t be so sure.”

He points out that despite all the happy talk from Janet Yellen at Jackson Hole, the Fed doesn’t have any ammo left. Larry and others argue that the Fed typically cuts interest rates by about 550 basis points in a recession. If a recession kicked in tomorrow, that would plunge us to the breathtaking interest rate of -5%. As I wrote last week, Janet Yellen cited a footnote in her paper. She suggested that rates should go to -6% or -9% during the next recession to be effective.

NY Fed: “Negative Growth” of Real Wages is Normal

The New York Fed published an eye-opener of an article on its blog, Liberty Street Economics, seemingly about the aging of the US labor force as one of the big economic trends of our times with “implications for the behavior of real wage growth.” Then it explained why “negative growth” – the politically correct jargon for “decline” – in real wages is going to be the new normal for an ever larger part of the labor force.

If you’re wondering why a large portion of American consumers are strung out and breathless and have trouble spending more and cranking up the economy, here’s the New York Fed with an answer. And it’s going to get worse.

The authors looked at the wages of all employed people aged 16 and older in the Current Population Survey (CPS), both monthly data from 1982 through May 2016 and annual data from 1969 through 1981. They then restricted the sample to employed individuals with wages, which boiled it down to 7.6 million statistical observations.

Then they adjusted the wages via the Consumer Price Index to 2014 dollars and divide the sample into 140 different “demographic cohorts” by decade of birth, sex, race, and education. As an illustration of the principles at work, they picked the cohort of white males born in the decade of the 1950s.

Wells Fargo claws back millions from cheating executives

Uber Acquires Trucking Company, Wants To Sell Freight Services

Consumers know Uber as a replacement for short-range taxis, but the company has other transportation goals. The company recently acquired Otto, a startup that’s developing self-driving trucks. While autonomous vehicles zooming freight across the country are its long-term goal, Uber plans get into the long-haul trucking business long before self-driving trucks are the norm.

Otto is pretty small: it currently has only six trucks, and plans to expand it to fifteen under Uber. Reuters reports today that while the technology is being developed, the vehicles ride around carrying a human driver and an engineer, much like the experimental self-driving Uber passenger cars roaming the streets of Pittsburgh.

While eliminating expensive and error-prone human drivers is a long-term goal of the trucking and personal transportation industries, experts don’t think that autonomous tractor-trailers will be a thing for at least a few decades.

Instead, what Uber has its eye on is the low-margin, inefficient freight brokerage industry, perhaps routing trucks across the country in the same way that it routes cars across your city.

Microsoft, Bank of America Announce Blockchain Collaboration

Microsoft and Bank of America Merrill Lynch are collaborating on a new pilot project aimed at automating trade finance transactions using blockchain technology, the companies announced yesterday.

Blockchain is best known as the distributed database technology at the heart of cryptocurrencies like Bitcoin. It is hardened against tampering, preventing even its operators from revising or otherwise meddling with its continuously growing list of records.

In Bitcoin's case, it serves as its public ledger of transactions. Fintech (financial technology) companies and other security-conscious enterprises are keeping a close eye on the technology, hoping blockchain will usher in an era of automated, efficient and fraud-free recordkeeping and transaction systems.

Microsoft and Bank of America plan to see how blockchain can help modernize and automate trade finance transactions using Microsoft's Azure blockchain-as-a-service suite. Typically, the trade finance process involves a lot of manual work, requiring banks and other institutions to gather and verify the necessary information and guarantees involved in extending financing deals between buyers and sellers or importers and exporters.

IMF Sees Japan Inc.’s Cash Hoard as Excessive and Wages Too Low

The rich and powerful versus the weak and underpaid. That’s how the International Monetary Fund sees Japan’s relationship between employers and workers. Unless more is done to address the problems in the country’s labor market, Japan as a whole will be the loser, according to the IMF’s mission chief for the country, Luc Everaert.

"We are concerned the reduction in the wage bargaining power of labor has gone too far," Everaert said in an interview in Tokyo. "We have introduced too much flexibility in the Japanese labor market in favor of employers."

Everaert, 55, was speaking after data from the Bank of Japan on Monday showed corporate cash and deposits rose to a record 242 trillion yen ($2.4 trillion) last quarter, underscoring employers’ reluctance to heed calls for stronger wage growth and capital investment. Stagnation in salaries is undermining consumer spending in Japan and efforts to spur inflation and sustained economic expansion.

It is not the first time Everaert has waded into the wages debate since becoming the IMF’s mission chief for Japan in September last year. He has advocated using moral suasion to name and shame highly profitable companies that won’t raise salaries much, and suggested using tax incentives to promote pay hikes.

Obamacare Loses Another Provider 24 Hours After Launching a New Ad Campaign

In another ironic turn, yet another health insurance provider has withdrawn from President Obama’s federal health insurance marketplace, marking the latest in a long line of companies whose bottom line has suffered thanks to plans offered on the exchanges.

Blue Cross Blue Shield of Nebraska decided to pull its plans offered on the federal marketplace after taking major financial losses, announcing the move just hours before the deadline for insurance providers to decide whether to offer plans on the exchange. According to the World-Herald:

The decision by Blue Cross Blue Shield of Nebraska to leave the Affordable Care Act’s individual insurance marketplace may awaken officials to the need for change, the head of the state’s largest health insurer said Friday.

If not, said Blue Cross CEO Steve Martin, there’s no end in sight for the losses that he said forced the Omaha-based insurance company to remove itself from the exchange for 2017, only hours before the deadline to stay or leave.

Do Interest Rates Matter to the Average Person?

Measured in Big Macs, U.S. workers are doing great

If only Big Macs could be traded for happiness. Low-wage workers in the United States still earn several times what most workers outside the country earn for exactly the same work, as measured in a novel way by Princeton economist Orley Ashenfleter, who spoke this week at the Nobel Conference at Gustavus Adolphus College.

Ashenfelter, speaking Tuesday to an audience of about 2,500, explained that he used McDonald’s Big Macs as a standard unit of consumption — the burgers are roughly the same across the globe and historic prices are available. And he used work at McDonald’s as a standard unit of labor, since the franchiser’s system is uniform across the world.

By asking students and audience members to order Big Macs in farflung places and send him the receipt with the restaurant’s wage rates scribbled on them (the professor for a while reimbursed his correspondents for their trouble), Ashenfelter developed a dataset that gave him a “measure of the amount of consumption you can earn with a certain amount of work,” or, the number of Big Macs Per Hour that McDonald’s workers earn around the world.

Despite the relatively high cost of living, there are few places where an hour of work at McDonald’s earns as much as it does in the United States. American McDonald’s workers earn about 2.4 Big Macs per hour. Only the Japanese earn more — just over 3.

More Slumping Durables In August—–The New Abnormal

Durable goods continue to suggest a weak economy that only seems to remain in that state. Year-over-year, unadjusted estimates for new orders rose slightly for the first time since May, while seasonally adjusted total orders (including the transportation sector) were fractionally lower at $226.9 billion. That amount was 2% less than January 2016 and 4.3% below August 2014. Once again we find that the seriousness of the slump is not defined by its depth but its length, especially since there aren’t any signs that it is letting up even though there is every mainstream reason to expect differently.

U.S. factories reported flat demand for big-ticket goods in August, suggesting the economy continues to be restrained by sluggish business spending. The Commerce Department said Wednesday orders for durable goods—products such as cars, tractors and refrigerators designed to last longer than three years—were unchanged from a month earlier. When excluding the volatile categories of defense and transportation products, sales declined.

As is usual, the article tries to make this continued weakness out to be a case of “woes in the energy industry” but it is much more than that, an observation obscured by the ongoing contraction’s nonconformity to cyclical patterns. Because of that the media is left with nondescript and really misleading analysis, including “though demand remains sluggish more broadly.”

There is a world of difference between “sluggish” demand and recognizing more than two years of steady contraction. That is especially true given that the two or three years preceding this contraction phase were already proving to be problematic. It is perhaps a sign of biased deference to orthodox analysis that the first appearance of renewed weakness starting in 2012 was characterized as just waiting for recovery while the current state is now mere “sluggishness.”

Do Consumers Even Want Autonomous Cars?

If Ford, volvo, GM and Uber are to be believed, self-driving cars will soon dominate our roads and car ownership will be a thing of the past. If regular consumers are to be believed, automakers need to hold their horses, because people aren't ready for a self-driving future. Those are the findings from a new survey commissioned by Kelley Blue Book, which polled 2,264 U.S. residents weighted to census figures by age, gender, ethnicity and location.

The results, published Wednesday, found that 80% of survey participants said people should "always have the option to drive themselves." Sixty-four percent of respondents said they need to be in control of their own vehicle and 62% said they enjoy driving.

When asked about fully autonomous cars -- cars that drive themselves and do not have steering wheels or pedals -- a third of respondents said they would never buy such a vehicle. That could be bad news for Google and other automakers currently at work on such products.

When asked whether they thought they would live to see a world in which all vehicles are fully autonomous, 62% of respondents answered no. Baby boomers were the most resistant (76%), followed by Gen X (64%) and millennials (60%). Gen Z (ages 12-15) respondents were the most optimistic about a future full of self-driving cars, with only 33% expressing doubt.

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