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Thursday 05.04.2017

Fed leaves rates unchanged but signals further hikes ahead

The Federal Reserve has left interest rates unchanged while signaling that it expects a resilient U.S. economy and solid job market to justify further rate hikes later this year. A statement the Fed issued Wednesday after its latest policy meeting noted that the economy slowed sharply during the January-March quarter but that it expects that slump to be "transitory."

The Fed's pause in raising rates comes after it modestly lifted its benchmark short-term rate in December and March. Most economists expect it to do so again when it next meets in mid-June.

Nearly eight years after the Great Recession ended, the unemployment rate is a low 4.5 percent. Key gauges of the economy — from home sales to consumer confidence to the stock market — appear robust. Still, consumer spending and factory output have slowed, and inflation remains below the Fed's target rate.

The Fed is in the midst of a campaign to gradually raise interest rates from ultra-lows. One reason for it to stand pat this week is that even though the job market has shown steady strength, the economy itself is still growing in fits and starts. On Friday, the government estimated that the economy, as gauged by the gross domestic product, grew at a tepid 0.7 percent annual rate last quarter. It was the poorest quarterly performance in three years.

U.S. private hiring slows, services growth speeds up in April

U.S. companies hired workers at a slower but still-solid pace in April while the services sector grew more than expected, supporting the notion the economic expansion remains on track despite a weak first quarter, private reports released on Wednesday showed.

An improving labor market and faster activity in services industries last month also buttressed traders' expectations the Federal Reserve would raise interest rates further in the coming months. "In short, more evidence that the underlying trend in growth is not suddenly slowing, as suggested by the GDP data. If anything, the trend appears to be up, not down," High Frequency Economics Chief U.S. Economist Jim O'Sullivan wrote in a research note.

Last week, the government said gross domestic product increased 0.7 percent in the first quarter, the weakest pace in three years. Payrolls processor ADP said on Wednesday private employers added 177,000 jobs last month. It was the smallest gain since the 62,000 increase last October but slightly above the 175,000 median forecast among economists polled by Reuters.

Private payroll gains for March were revised down to 255,000 from an originally reported 263,000 increase. ADP, which jointly developed its employment report with Moody's Analytics, said private employers face increasing difficulty finding qualified workers in a tightening labor market.

U.S Gold Scrap Market Drying Up: Americans Pawned Off Their Best Asset To Go Further Into Debt

After the U.S. economy disintegrated in 2008, due to the Banking and Housing crisis, Americans pawned off a record amount of gold. How much gold? Nearly, 32 million oz (1,000 metric tons). That’s one heck of a lot of gold. Matter-a-fact, U.S. gold scrap supply at its peak of 160 metric tons (mt) in 2011, was more than any other country in the world, even India and China.

It is quite unfortunate that Americans have pawned off their best asset only to go further into debt. Thus, enabling them to buy more garbage and trinkets they really don’t need. This is quite the opposite of Americans who become being extremely frugal and financially responsible after the 1930’s Great Depression. Today, banks have made it easy for Americans to BUY NOW and PAY LATER.

The consequences of this “Buy now, pay later” economic model is explained in this recent zerohedge article, 45% Of Americans Spend Up To Half Their Income Repaying Credit Card Debts:

First, roughly 50% of Americans have debt balances, excluding mortgages mind you, of over $25,000, with the average person owing over $37,000, versus a median personal income of just over $30,000. Therefore, it’s not difficult to believe, as Northwestern Mutual points out, that 45% of Americans spend up to half of their monthly take home pay on debt service alone….which, again, excludes mortgage debt.

Ignore The Fed When It Comes To Gold, Look At The VIX - Bloomberg

Big Summer Shutdowns Loom for US Auto Plants as Sales Sputter

Auto workers may be getting some extra time off around Independence Day, but they won’t be celebrating. They’ll know it means sales are weak and that profits -- and profit-sharing checks -- could be shrinking.

Manufacturers used to shut plants for a week or two in July for maintenance and to keep inventories in check. As sales boomed in recent years, most factories cranked out cars without a break. This summer, widespread closures may be back, and for weeks longer than before. The reason: four straight months of declining sales and little expectation the trend will reverse anytime soon.

It’s probably not what President Donald Trump wants to hear. He has admonished Ford Motor Co., General Motors Co. and Toyota Motor Corp. for building factories in Mexico and demanded more U.S. jobs be created, taking credit for some new investments in the U.S. that had been long in the planning.

“You see what’s going on with the car companies,” Trump said in an interview Monday with Bloomberg News. “They’re all talking about building in the United States because of me.”

Why even full-time workers struggle with expenses

Unemployment is low, inflation is historically low and even wages are perking up, leading many observers to believe the U.S. economy is humming along nicely. So why do many Americans say they are struggling?

A new book born of meticulous, years-long research offers a fresh insight into this burning question. Month-to-month swings in income, even for those with full-time jobs, are often the cause of Americans” financial anxiety, claim the authors of The Financial Diaries: How Americans Cope in a World of Uncertainty.

For a stunning number of American households, both income and expenses swing 25% or more in either direction on a regular basis, leaving many families scrambling on a month-to-month basis, even if things don’t look so bad annually, the authors argue in their book and a Harvard Business Reviews essay.

Economic data tends to examine broad movements; even at its most micro, it tends to identify years-long trends. Researchers Jonathan Morduch and Rachel Schneider had a sense government statistics were missing things, so they went nano. They spent 12 months getting 235 families to track every single dollar going in and out — 300,000 cash flow events in all. The product of their painstaking research offers perhaps the clearest view yet of why even middle-class Americans find themselves living with deep economic anxiety. The book even offers up a new term — “precarity,” or precarious economic volatility — to describe the plight of everyday Americans.

Venezuelans are losing weight amid food shortages, skyrocketing prices

Mariana Mejias can't afford to buy a bag of rice in Venezuela. She lives in Mariche, an extremely poor neighborhood in the country's capital, Caracas, which suffers from severe food and medical shortages like the rest of the country.

If the government doesn't provide a subsidized monthly bag of food, Mejias would go hungry. Skyrocketing prices have made food at her local market prohibitive. The monthly food bag, worth 10,000 bolivares ($2.25), includes rice, milk, pasta, beans and a few other items.

A bag of rice at Mejias' local store goes for 8,000 bolivares -- out of reach for her monthly income of 219,000 bolivares or $49 on the unofficial but often used exchange rate calculated by dolartoday.com. "Things are horrible here, I don't know how people are even surviving," says Mejias, a 62-year-old house cleaner who earns minimum wage plus a government pension.

Venezuela's socialist government, led by President Nicolas Maduro, raised the minimum wage 60% on Sunday to 200,021 bolivares ($45) a month, including food stamps. But that won't buy much at the supermarket. In March, a basket of basic grocery items -- including eggs, milk and fruit -- cost 772,614 bolivares, or close to four times the monthly minimum wage, according to the Venezuela-based Center of Social Analysis and Documentation, or CENDAS in the Spanish acronym. Food shortages and soaring prices have led to troubling results. Last year, the average Venezuelan living in extreme poverty lost about 19 pounds due to the lack of food. Many of its citizens had to skip meals, according to a national poll.

Tim Cook blames iPhone sales drop on press leaks

Apple revealed a surprise drop in iPhone sales for its most recent quarter — a sore disappointment that Chief Executive Tim Cook partly blamed on press leaks about upcoming models.

The Cupertino, Calif., tech giant sold 50.8 million iPhones in its fiscal second quarter ended April 1 — down from 51.2 million a year earlier, and missing Wall Street’s forecast of 52.3 million, according to FactSet.

Apple’s stock tumbled 2.2 percent in extended trading Tuesday, despite the fact that the company’s iPhone revenue rose 1.2 percent, to $33.2 billion — a sign that Apple has had success selling pricier iPhones like the oversize Plus line.

On a conference call with analysts, Cook griped that an endless barrage of leaks about the next iPhone — branded alternately by Apple watchers as the “iPhone 8” or the “iPhone X” — appear to have curbed sales of the current iPhone 7. “We are seeing a pause in purchases of the iPhone due to earlier and much more frequent reports about future iPhones,” he said. The new models, which will mark the iPhone’s 10th anniversary, are slated for release in September or October.

Just one-third of U.S. homes are back to their values before the recession

Most American homes are worth less now than they were before the recession, according to a report out Wednesday. Fresh data from real-estate website Trulia show that just 34.2% of homes have returned to the peak levels registered before the onset of the recession in 2008. What’s more, Trulia estimates it could take until 2025 for a true national recovery in home prices.

“We are absolutely not out of the woods as far as home-value recovery is concerned,” Trulia’s chief economist, Ralph McLaughlin, told MarketWatch. “The housing-market crash was pretty monumental. The scarring of the housing market has not gone away and will be visible for the indefinite future.”

Trulia’s data are derived from actual home sales, and they are compared to the earlier peak price for the property. In contrast, the better-known Case-Shiller index is based on repeat-sales data for the same property to deduce how much prices are rising or falling. That data are then aggregated into a metro-level index and compared with earlier periods.

McLaughlin likened home-price trackers to the stock market: Saying that Case-Shiller is up or down is a little like saying the Dow Jones Industrial Average DJIA, +0.04% or the S&P 500 SPX, -0.13% is up or down — whereas considering Trulia’s data on individual properties is more like looking at single stocks. As he put it, “Aggregate measures really mask a lot of idiosyncrasies that are going on in the market.”

Aetna CEO Mark Bertolini Says Obamacare Must Be Fixed, Not Repealed

The Senate does not have the votes to repeal the Affordable Care Act, Aetna aet CEO Mark Bertolini said during Fortune's second annual Brainstorm Health conference in San Diego on Wednesday, adding that the government must instead fix the piece of legislation or it's going to "continue to deteriorate."

"I've spent enough time inside the legislative labyrinth understanding what can be done or cannot be done under reconciliation, and we cannot repeal Obamacare, ACA whatever you want to call it, without 60 votes in the Senate," he said. "What we need to do is admit that it needs to be fixed."

The Affordable Care Act (ACA) was passed eight years, ago, and Bertolini said it has not been touched since then, noting that "no piece of major social legislation has ever had that happen." He said that until the ACA, "this nation has never passed a major piece of social legislation without bipartisan support," and that legislation that has been passed in the social sphere has been updated every year.

Bertolini also discussed the ways that his personal health care crises shaped the way he looks at his business. In 2001, his 16-year-old son, Eric, was diagnosed with a cancer that had never been cured. Only 34 people had ever had it-all had died-and his doctors gave him six months to live. "The health care system viewed him as a disease rather than my son," Bertolini said. He ended up spending almost a year in the hospital with Eric, who today is 31 years old and is the only person to ever have survived the cancer.

Axel Merk-Easiest Diversifier Is Gold

The ’51st U.S. State’ Declares Bankruptcy As Corporate Insiders Sell Stocks At The Fastest Rate Since The Last Financial Crisis

Puerto Rico has collapsed financially and has “filed for the equivalent of bankruptcy protection”. When this was announced on Wednesday, it quickly made front page news all over the planet. For decades, Puerto Rico has been considered to be the territory most likely to become “the 51st U.S. state”, and there have even been rumblings that we could soon see a renewed push for statehood. But that is on the back burner for now, because at the moment Puerto Rico is dealing with a nightmarish financial crisis that is the result of an accelerating economic collapse. Unfortunately, many Americans still don’t believe that what has happened to Puerto Rico could happen to us, even though signs of major economic trouble are emerging all around us.

Almost two years ago I issued a major warning about the debt crisis in Puerto Rico, and now the day of reckoning for “America’s Greece” has finally arrived…

Saddled by mountainous debts and undermined by rapid population loss, Puerto Rico filed for the equivalent of bankruptcy protection Wednesday in a historic move that will trigger a fierce legal battle, with the fate of the island’s citizens, creditors and workers at stake.

The oversight board appointed to lead the U.S. territory back to fiscal sustainability declared in a court filing that it is “unable to provide its citizens effective services,” crushed by $74 billion in debts and $49 billion in pension liabilities.

Is the U.S. Stock Market Headed Higher — or for a Crash?

A groundswell of concern is building on Wall Street that the U.S. stock market is in dangerously high territory. This week, the Nasdaq Composite hit a new high as the Dow Jones Industrial Average and S&P 500 remained in record territory — and they are up 28%, 18% and 16% respectively from a year ago. Meanwhile, the S&P 500 is trading at 25 times trailing 12-month earnings compared with a historical average of 16. The value of the stock market is nearly 150% higher than the nation’s GDP, a level last seen around the dot-com bust in 2000, according to the World Bank. And a BofA Merrill Lynch survey showed that 81% of fund managers think U.S. stocks are overvalued.

The Fed has weighed in as well. In the minutes of its March meeting released earlier this month, it observed that equity prices are “quite high relative to standard valuation measures.” The widely followed Cyclically Adjusted Price-to-earnings Ratio (CAPE) stands at a historically high 29, according to creator Nobel laureate Robert Shiller. Last week, he told CNBC that the U.S. stock market “hasn’t been this overvalued except a couple of times around 1929 (the Great Depression) and around 2000. We’re above the 2007 valuation” right before the financial crisis, although he also said the market could still have room to run.

The euphoria flies in the face of several lackluster economic reports. In the first quarter, the U.S. economy grew the slowest in three years, with U.S. GDP up 0.7% after inflation, according to the initial estimate by the Department of Commerce. Manufacturing fell to a four-month low in April while consumer spending — which drives two-thirds of the economy — remained flat in March.

On the positive side, S&P 500 companies are reporting double-digit earnings growth for the first time in six years, according to FactSet. What also seems to be driving the market are hopes that the Trump administration will be able to cut federal corporate income tax rates to 15% from 35% and reduce the number of regulations restricting businesses.

Mississippi Dept. of Mental Health cut 650 Positions

The Mississippi Department of Mental Health plans to eliminate 650 positions, some through layoffs, over the next year because of state budget cuts. The department is announcing that it's reducing some services, while one will be handed off to community mental health centers.

The cuts are among the highest-profile results of the austere state budget passed by lawmakers for the year beginning July 1. They come in the midst of a lawsuit filed last year by the U.S. Justice Department alleging Mississippi relies too much on psychiatric hospitals and other institutions, as opposed to community care. Under federal law and court decisions, states are supposed to help people live at home and not in institutions.

Some vacant positions will be eliminated, and some employees are expected to retire or leave on their own. Spokesman Adam Moore said the agency didn't consider closing any of its 11 institutions. Mental Health officials halted enrollment in a program that pays for care outside institutions.

Moore said that cost increases means enrollment will be frozen at 2,500 slots, and that new patients will only be added when old patients leave. The budget for the department caps spending on those slots at $28.5 million.

Pension Tension: Uncle Sam Walking Tightrope Into The Unknown

So lamented Styx lead vocalist Dennis DeYoung in a song he wrote and recorded in 1980. To listen to the lyrics, the ballad would seem inaptly titled “The Best of Times.” But then, love conquers all. That’s where the ‘best’ part comes in, as two star-crossed lovers find in each other their salvation from a world turned cruel. The song was the first release from Styx’s 1981 triple-platinum album Paradise Theatre. That first release suggests the album could just as well have been named Paradise Lost. It’s impossible to say without asking DeYoung directly but perhaps his somber tone was simply a reflection of the times.

The oil crises of the 1970s had left the country mired in stagflation and veering headlong into a double recession. Inflation and unemployment were both high leaving many so miserable an index was conceived in their name. And crime, well, it was at least perceived to be rampant and televised for good measure.

Hence the chilling lyrics, “When people lock their doors and hide inside. Rumor has it it’s the end of Paradise.” That one line in particular stopped yours truly in her tracks upon recently hearing the song for the first time in ages. Those haunting words transported me back in time to a conversation I’d had with then-Dallas Federal Reserve President Richard Fisher, who I advised back then. News of riots in the streets of Athens were flooding the airwaves. As safely removed as we were from the anger, violence and flames, he said he worried we would witness the same in our own streets if things didn’t change. Surely not. Not in our lifetimes.

While this moment in time will alleviate some of the $2 trillion in underfunding, it cannot be enough to make up for lost time given that the depth of the hole was less than $300 billion in 2007. As is plain, a whole heck of a lot of damage was exacted in the short space of a decade. Obviously, there was blood in the Street during the crisis years. But that dark chapter was followed by a magnificent rally in risky assets. The means by which pensions find themselves bound by Gordian’s knot is simple: time.

Plus-size women chain Lovesick closed its 23 stores

After one year in business, plus-size women are losing an outlet for fast fashion. The Lovesick chain closed its 23 stores this week indefinitely for rebranding. Some stores may stay open longer to liquidate stock. Originally launched by Torrid, the brand targeted young plus-size women and teens, giving them the cute clothes they want instead of unflattering stuff they've had to put up with for years. So why is the brand being abandoned when there's such an obvious demand?

It’s a pent-up demand, according to plus-size fashion blogger Jessica Torres. She said growing up, there were so few places to get clothes in her size that sometimes she would buy from the men’s section. “I would even cut T-shirts up and then make them look different because we were so tired of the few options that we had.”

So when plus-size chain Torrid launched Lovesick as its younger, hipper, more affordable sister store last year, Torres said the response was huge, noting her friends’ Facebook posts that said things like “Don’t sleep on Lovesick! They have really cute stuff!” The response in March when Lovesick announced it was closing? “That’s literally all I saw on my timeline,” said Torres.

It’s one less place for Julie Dugan, who frequents the location in West Covina, California, to try on clothes. “Having that resource cut off,” she said, “is a huge disappointment.” Dugan, 36, said one of Lovesick’s major flaws though, was inconsistent sizing, which she attributes to the brand buying its products from various private labels. She also criticized Lovesick for increasing its size range downward to size 8, instead of upward to even larger sizes.

US retailers are on pace to close more stores in 2017 than in the 2008 Great Recession

US bricks-and-mortar retailers are bleeding badly. E-commerce is gobbling up a growing share of sales, store productivity has dwindled, consumer shopping habits are shifting toward fast, cheap fashion—or away from stuff entirely—and it all seems to be coming to a head this year.

Analysts at Credit Suisse count roughly 2,880 store closings announced this year through April 6. They note that about 60% of store closure announcements historically have come in the first five months of the year, so extrapolating from there, the bank estimates the year could bring more than 8,640 store closings in total.

In other words, with about a quarter of 2017 now completed, the US retail industry is on pace to close more stores this year than the 6,200 shuttered during the Great Recession in 2008.

The wave of closures—announced by some big chains including Macy’s, Bebe, Sears, and Payless—is delivering a major blow to US workers. In just the first three months of 2017, the US retail industry lost some 60,000 jobs—that’s more than the 53,000 jobs that make up the entire US coal industry that US president Donald Trump has been so vocal about saving, as Axios recently pointed out.

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