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Friday 03.03.2017

Latest data show strengthening economy, set stage for rate hikes

The January inflation numbers are in. With Consumer Price Index (CPI) registering at 2.5 percent and the Personal Consumption Expenditure (PCE) index registering at 1.9 percent, we are now circling the Fed’s long-term target inflation rate of 2 percent.

Other macroeconomic indicators are also looking strong. The unemployment rate is 4.8 percent, which is at the median Federal Open Market Committee (FOMC) participant estimate of the longer-run normal rate of unemployment.

Manufacturing activity continues to grow. The Institute of Supply Management's Purchasing Managers’ Indexes (ISM PMI) reached 57.7 percent in February, the highest reading since August 2012. The stock market continues to climb, with the Dow, S&P 500 and Nasdaq Composite Index all reaching new all-time closing highs.

Things are also looking up globally, as well. Euro area inflation reached 1.8 percent in January and Germany’s CPI even increased to 2.2 percent in February — its highest level in four years. Manufacturing is also accelerating in the Euro area with PMI reaching 55.4 in February, increasing for six months in a row. Major Asian economies — China, Japan and South Korea — also saw manufacturing activity accelerate last month.

hhgregg Closing 88 Stores And 3 Distribution Centers

hhgregg, a retailer whose name we assure you we have capitalized correctly, is closing a quarter of its stores across the country. The company calls this a plan to “advance turnaround,” while its stock has been delisted from the New York Stock Exchange for having too low a share price, and rumors swirl that it’s planning to file for bankruptcy protection.

The cutbacks, announced today, will also include three distribution centers located in Miami, FL; Brandywine, MD; and Philadelphia, PA. The 88 stores will sell off their inventory and finally close their doors in April.

The closings leave the chain without any stores in the Washington, DC area, for example, and also include a large number of stores in Pennsylvania and in Florida.

In a statement, the chain described stores on the closing list as “underperforming” locations, or “no longer strong shopping destinations due to changes in the local retail shopping landscape.” The shopping centers where these store are located are apparently not as cool as they once were.

Fargo-based Vanity closing stores 140 in 27 states - 1,700 people affected

After nearly 60 years, Fargo-based Vanity is closing its stores across the country. In an exclusive interview with KFGO News, Board Chairman Jim Bennett said the women’s fashion retailer has filed for bankruptcy and will close 140 stores in 27 states.

Bennett says competition from internet retailers was a significant factor in the decision. “We take a lot of pride in our employees and they take a lot of pride in the Vanity brand,” said Bennett. “So, I hope that things go well for them and my family and our executive team. We really care about them it’s been a tough couple of days.”

Vanity employs as many as 1,700 people, depending on the time of year, with more than 100 at its corporate headquarters in Fargo.

The company has six stores in North Dakota, including at West Acres Mall, with 10 locations in Minnesota. This brings another hit to West Acres, losing its 12th store in a year and a half. It is expected to close by mid-March to the beginning of April.

Law enforcement searches Caterpillar facilities in Illinois

Boeing Is Cutting 1,800 Seattle-Area Factory, Engineering Jobs

Boeing Co. is shrinking its Seattle-area workforce by at least 1,800 jobs this year as the company streamlines operations in a brutally competitive commercial-aircraft market. The planemaker approved voluntary layoffs for 1,500 mechanics, according to a person familiar with the situation who asked not to be named because it hasn’t been made public. Another 305 engineers and technical workers are leaving voluntarily, Bill Dugovich, a spokesman for their union, said Thursday.

Boeing told employees in December that it would seek buyouts as part of an effort to cut costs and match employment to market requirements, company spokesman Paul Bergman said by email. Boeing also plans to cull commercial-airplane jobs by leaving open positions unfilled and through involuntary layoffs, he said. He declined to say how many buyouts have been approved.

The Chicago-based manufacturer has been winnowing employment in the Puget Sound area, its largest industrial base, over the past year as sales slowed for the jetliners, which accounted for 69 percent of total revenue last year. Boeing has trimmed its Washington state workforce by 9.2 percent to 71,036 since the start of last year even as Chief Executive Officer Dennis Muilenburg has emerged in meetings with President Donald Trump as an advocate for U.S. manufacturing.

Those earlier cuts included about 1,000 members of the International Association of Machinists and Aerospace Workers and 850 members of the Society of Professional Engineering Employees in America who applied for voluntary layoffs. Another 350 SPEEA members lost their jobs involuntarily, Dugovich said.

Another 60 stores on the chopping block at Abercrombie & Fitch

Abercrombie & Fitch will drop the ax on 60 more U.S. stores this fiscal year as it searches for ways to boost productivity amid ongoing sales declines, including in the holiday quarter.

The closures follow the shuttering of 53 domestic shops last year and will not be the last. Half of the company's 700-plus U.S. leases are up for renewal by the end of fiscal 2018, giving the company flexibility to exit more locations without incurring hefty charges.

"We haven't been shy about [closing stores]," CFO Joanne Crevoiserat told analysts while speaking on the company's earnings call Thursday. Indeed, Abercrombie & Fitch has closed hundreds of stores over the past five years as it tries to turn around its business. Yet those closures haven't translated into an improvement in sales at surviving locations.

The company's same-store sales fell 5 percent in the fiscal fourth quarter, with particular weakness at its namesake label. While that dip marked a slight improvement from the prior three-month period, trends decelerated from the first half of the year. In theory, a company's comparable sales should improve when it weans weaker locations from its store fleet.

Why Tesla Had to Lay Off 3,000 SolarCity Employees

Tesla's acquisition of sister company SolarCity last year was an incredibly contentious and polarizing deal. Some saw it as a bailout, while others bought into Musk's vision of a vertically integrated sustainable energy company. Independent of which side of the fence you're on, Tesla did commit itself to realizing $150 million in direct cost synergies within the first full year after closing. Those cost synergies were largely comprised of "sales and marketing efficiencies" as well as general corporate and overhead savings.

But "efficiencies" almost always translates into layoffs when it comes to mergers and synergies, which is why Tesla had to lay off 3,000 SolarCity employees last year.

Both Tesla and SolarCity filed their respective 10-Ks yesterday, and total headcount saw a 20% reduction to 12,243 employees. That represents a little over 3,000 employees that were let go, with sales and marketing receiving the most cuts.

Last year marks the first time that SolarCity's total headcount posted an annual decline. Some of this was already known, although the degree of which was previously unclear. The company had a high-profile exit from Nevada following an unfavorable regulatory ruling regarding net metering, which severely impacted the economic viability of solar systems within the state.

Mexico economy minister to meet with Ford, GM in Detroit

Mexico's economy minister will travel to Detroit on Friday to meet with executives from automakers Ford Motor Co (F.N) and General Motors Co (GM.N) as Mexico seeks to deter U.S. President Donald Trump from imposing a border tax on Mexican-made goods.

Economy Minister Ildefonso Guajardo will also meet with auto parts makers that have operations in Detroit and Mexico, the ministry said in a statement. He will discuss the state of U.S.-Mexico trade and the future of the North American Free Trade Agreement (NAFTA), the ministry said.

Trump has vowed to exit NAFTA, the 1994 accord that also includes Canada, if he cannot get better terms for the United States.

On Tuesday, Foreign Minister Luis Videgaray said Mexico would only stay in NAFTA if it suited the nation and he rejected the imposition of any tariffs or quotas. The countries have yet to start formal negotiations.

Snapchat popped in its trading debut — and it's now bigger than these 17 household names

Snap Inc's pop in its trading debut Thursday made the company larger than many established corporations. Based on the opening price of $24, the Snapchat parent's market capitalization — the total value of its outstanding shares — rose to $33 billion.

Also, Snap had a more expensive IPO than several other big recent tech IPOs, judging by the value of each dollar of revenue, or the so-called price-to-revenue ratio.

Early investors are betting that the company will be able to increase user engagement with its transient-messaging app, and lure advertisers who can choose Facebook or Instagram instead. The chart below shows 17 of the companies Snap became more valuable than on its first day based on market cap.

However, Snap is not yet profitable, and there are questions about whether its valuation is justified. None of the three analysts who had ratings on the stock on its first day advised investors to buy.

Nearly 250 Data Breaches to Date in 2017

The latest count from the Identity Theft Resource Center (ITRC) reports that there have been 248 data breaches recorded this year through February 28, 2017, and that over a million records have been exposed since the beginning of the year.

As if ransomware attacks have not been rising fast enough, Brian Krebs, who specializes in cybersecurity issues, reported on Wednesday that a ransomware package called “Philadelphia” is for sale for about $400 for “would-be cybercriminals who dream of carving out their own ransomware empires.”

Krebs noted especially a slick video advertisement for the package that showcases features like the ability to generate PDF reports and charts of victims to help crooks “track your malware campaigns,” among other things. It’s a one-time buy with free upgrades and no monthly fees.

The advertisement is posted at the Krebs on Security website. The medical/health care sector leads them all in the number of records compromised so far in 2017. The sector posted 26.7% (64) of all data breaches. The number of records exposed in these breaches totaled tops 560,000, or about 51.7% of the 2017 total. The business sector accounts for more than 640,000 exposed records in 120 incidents. That represents 50% of the incidents and 42.2% of the exposed records so far in 2017.

Amazon broke the internet with a typo

Amazon published an explanation about Tuesday's disrupted service of S3, part of Amazon Web Services, which provides hosting for hundreds of thousands of websites and apps. Turns out, it was a typo.

In a statement on Thursday, Amazon said an employee on its S3 team was working on an issue with the billing system and meant to take a small number of servers offline -- but they incorrectly entered the command and removed a much larger set of servers.

Amazon is "making several changes" to its system to avoid a similar event in the future. Namely, "the tool used allowed too much capacity to be removed too quickly." According to Synergy Research Group, AWS owns 40% of the cloud services market, meaning it's responsible for the operability of large swaths of popular websites. So if AWS goes down, it takes a huge number of businesses, apps, and publishers with it.

That's why so many sites struggled with slow or reduced capacity during Tuesday's outage. Some news organizations couldn't publish stories, and file sharing was disabled on the enterprise chat app Slack. Other sites impacted include GitHub, Trello, and Venmo. It took Amazon almost four hours to resolve the issue.

Reality Check: One Month Down, and Coal Country's Making a Comeback

As Wendy's Is Proving, Target Has Shown, Higher Minimum Wages Lead To Job Losses

We people who know our economics keep insisting that raising the minimum wage will lead to people employing less labour. That's just what people do when the price of something rises, they buy less of it. The other name for people using less labour is that we will lose jobs, there will be unemployment. A number of theories are put forward for why this won't happen but happen it still does. As the twin stories of Target and Wendy's show us.

For example: "Wendy’s Chief Operating Officer, Bob Wright, stated the company experienced a five percent wage inflation and they expect wages to rise at least four percent in 2017. He addressed possible options to accommodate the rising costs of business and inflation, and the unfortunate answer was to eliminate 31 hours of labor each week."

Wages, the price of an hour of labour, go up, the number of hours of labour purchased goes down. That's just what people do: "Last year, the kiosks were coming. It didn't take them long to get here. Wendy's plans to install self-ordering kiosks in 1,000 of its stores — about 16 percent of its locations — by the end of the year."

Kiosks are capital expenditure rather than labour. And when you change the relative price of labour to capital then you'll change the decision people make about how much to use of either. This isn't a tough thing to understand despite the manner in which it befuddles all too many: "Who could have seen that coming? As we noted previously, minimum wage laws - while advertised under the banner of social justice - do not live up to the claims made by those who tout them. They do not lift low wage earners to a so-called “social minimum”. Indeed, minimum wage laws — imposed at the levels employed in Europe — push a considerable number of people into unemployment."

Gold Demand In This Key Market Just Surged 82%

The biggest story in gold the past year has been India. With the world’s former largest gold importer seeing a 21 percent fall in shipments during 2016, to just 676 tonnes. But news this week suggests India’s gold demand is coming back to life — for the first time in nearly a year.

Preliminary statistics on India’s February gold imports showed a major lift. With gold experts GFMS estimating that the country brought in 50 tonnes of bullion during the month — up 82% from the 27.4 tonnes Indian buyers imported during February 2016.

That’s a rare uptick for India’s imports. Which have generally been registering lows over the past several months. The return of India to the gold market makes sense. Given that many of the factors weighing on demand in 2016 were temporary — including a jewellers strike early in the year, and a cash crunch triggered by demonetization of small bank notes in November.

The demonetization effect had been weighing on India’s gold markets even into January. But the strong February import stats show that the worst may now be over, with Indian consumers making their way back to the market. The most critical point is that this increased buying is happening even as gold prices are holding relatively high — with an ounce of gold currently selling for near $1,250, not far off the $1,350 peak we saw during the past year.

Construction spending falls 1% in January

U.S. construction spending fell 1 percent in January as residential gains weren’t enough to offset drops in nonresidential and government spending.

Spending fell to a seasonally adjusted annual rate of $1.2 trillion in January but remains up 3.1 percent over the January 2016 total, according to preliminary data from the Commerce Department.

Private homebuilding rose 0.5 percent for the month to $476 billion and is now up 6 percent over the year-ago total. Single-family spending rose 1.1 percent to a rate of $254 billion and is up 2.3 percent annually. Multi-family spending rose 2.2 percent to $63 billion and is up 9 percent on the year.

Total nonresidential spending fell 2 percent to $698 billion in January. All but four nonresidential markets saw declines during the month.

Let’s Get Real: Why You Must Own Precious Metals

It can be difficult, even for dyed-in-the-wool perma-bulls to hold onto precious metals, let alone buy more. We see the Dow trading above 20,000 (placing this into perspective, is that since 2000, the Dow is up around 65% versus gold’s 300%), gold and silver currently languishing below multiple “resistance” points; suspended just above a couple of “support” lines. For long-suffering holders, it feels like the fabled Sword of Damocles dangling over their head, suspended by that proverbial single strand of hair.

If you fit the above description, the following chart should provide good cheer. You’ll notice that since 1925, a few years before the Great Depression, up until the current day, financial assets (paper) – bonds, large cap stocks, and derivatives – have never been more overvalued in relation to metals and minerals, than they are now.

What you must realize, is that if you truly desire to “insure” some of your own financial assets against a major turn of events with the potential to heavily damage their value, then it is imperative to seriously consider a position in the asset class which above all others, tends to move in direct opposition to them.

The “kicker” is that, at such undervalued rates, when – not if- the metals return to the norm, that movement, plus the almost inevitable overshoot, makes it close to a lead pipe cinch that you’ll be looking at a big profit on your purchase as well. The metaphorical rubber band stretches just so far, then reverses. And that class has at its apex, gold and silver.

Banks paid $321 billion in fines since financial crisis: BCG

Banks across the world have paid about $321 billion in fines since the 2007-2008 financial crisis as regulators stepped up scrutiny, according to a note by the Boston Consulting Group.

Almost ten years since the financial crisis, the banking industry has not completely recovered, BCG said in an industry report. North American banks accounted for nearly 63 percent of the total fines, or about $204 billion, during 2009-2016, the consultancy firm said.

While U.S. regulators have been more effective in imposing penalties and recovering fines from the banks, their counterparts in Europe and Asia are likely to step up pace, according to the BCG report.

The number of individual regulatory changes that banks must track on a global scale has more than tripled since 2011, to an average of 200 revisions per day, the report said. Even though U.S. President Donald Trump has ordered reviews for possible regulatory changes and legislations modifying the Dodd-Frank Act, the consulting group said regulatory impacts would continue to cost banks a lot going forward.

The First Baby Boomers Are About to Withdraw From Their 401(k)

As baby boomers hit the critical age of 70 ½, they will start taking from their 401(k) retirement money for the first time. They are the first generation to plan their retirements around 401(k)s, and will be the largest generation to ever withdraw those funds.

Rich and Gayle Sweda, a baby boomer couple, have been diligently putting money in their 401(k) for nearly 25 years. The couple has looked forward to a big reward after years of saving. "We work hard, we've raised our family and retirement is now our time," Rich said. "It's for us."

Having saved for so long, the Swedas believe they are in a good position, but it's still important for baby boomers to withdraw their money in smart way. This includes finding out how much money is required to be taken out on the first withdrawal, calculating the tax rate, and then considering whether to reinvest some of that money to grow the cash.

According to the National Retirement Risk Index, more than half of American households are "at risk" of running low on money during retirement. Some people may also need to use their 401(k) money before they actually retire.

Is the Affordable Care Act too big to fix?

Calpers May Cut Return Target Again, California's Brown Says

California Governor Jerry Brown said the state’s retirement system is "probably" going to lower its investment-return goal again, a move that will further pressure local governments already straining under rising pension costs.

The California Public Employees’ Retirement System decided in December to lower its assumed rate of return to 7 percent from 7.50 percent over three years, which means higher contributions to make up the difference.

"All that imposes greater costs on local and state government," Brown said during an interview in his Sacramento office. “The pressure will mount." Across the country, state and local governments have about $2 trillion less than what they need to cover retirement benefits -- the result of investment losses, inadequate contributions and perks granted in boom times. The problem is acute in California, where it helped bankrupt the cities of Stockton, San Bernardino and Vallejo.

In California, local governments are under more pressure than the state because a greater share of their budgets are consumed by payroll, Brown said. The contributions to Calpers by the state government alone have nearly doubled in five years.

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