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Thursday 01.05.2017

The Fed has its eyes on Trump

The Fed will continue to raise interest rates slowly and is not yet sure how fiscal policy may impact its decisions this year, according to minutes of the meeting the Federal Open Markets Committee (FOMC) held in December.

But more than half of all officials included an assumption of more fiscal policy in their forecast, according to the minutes.

"The staff's forecast for real GDP growth over the next several years was slightly higher, on balance, largely reflecting the effects of the staff's provisional assumption that fiscal policy would be more expansionary in the coming years," the minutes said.

"These effects were substantially counterbalanced by the restraint from the higher assumed paths for longer-term interest rates and the foreign exchange value of the dollar." After much insinuation, the FOMC voted unanimously to raise its benchmark interest rate at that meeting. At the same time, futures traders had priced in a 100% chance that the Fed would raise interest rates.

Most Americans Retire Too Early Despite Low Savings

We all know that there is a savings crisis in America. According to the National Institute on Retirement Security (NIRS), the median savings balance of near-retirement households is only around $12,000, while the median saving balance for all working-age households is only around $3,000.

NIRS states that some 45%, or 38 million working-age households, have no retirement savings. Based on 401(k)-type accounts and IRA balances alone, NIRS says some 92% of working households do not meet conservative retirement savings targets for their age and income. Even when counting their entire net worth, 65% still fall short.

While saving trends have started to improve over the last couple of years, we’re still facing a huge shortfall, especially among Baby Boomers of all races who are retiring in droves. No one knows the solution to this dilemma. The obvious answer is that most Americans will need to work longer before they retire.

Yet just the opposite is happening. Americans are retiring earlier and earlier. Recent data show that over half of working Americans are retiring between the ages of 61 and 65, despite their lack of savings. This doesn’t make sense.

Consumers spent a record average $35k per new car in December

Two years of relatively low gasoline prices put more money in consumers' pockets, and it's clear many chose to spend it on new cars.

For yet another month, consumers spent a record amount on new cars and trucks in December, with the average transaction price breaking the $35,000 mark.

Kelley Blue Book (KBB) estimates the average new car and truck sold in December cost the buyer $35,303, a record amount. Of course, consumers got a little help coming up with the money. "Even though transaction prices are at an all-time high, incentives have grown similarly to counterbalance the increased prices," said Tim Fleming, analyst for Kelley Blue Book.

Dealers put up thousands of dollars in cash back bonuses while manufacturers offered 0% financial deals to make payments more affordable. Fleming points out that the higher average transaction prices don't mean vehicle prices are rising, its just that consumers are buying more trucks and SUVs, which cost more than fuel efficient sedans. In many cases they are also splurging on options packages, making the vehicle more costly.

Ron Paul: Obamacare will eventually end itself

Are You Prepared for “Unencumbered” Interest Rate Policy?

In September Janet Yellen gave a speech in Jackson Hole, Wyoming titled “Designing Resilient Monetary Policy Frameworks for the Future.” That title at least suggested that some new thinking and new policies might be on display. They weren’t.

Yellen basically said that interest rate cuts, quantitative easing, interest on excess reserves and forward guidance were sufficient to pull the U.S. economy out of a future recession if needed.

In short, Yellen said the Fed’s existing toolkit is adequate, and is unwilling to consider more radical tools or remedies. The real lesson was that if you like weak growth, money printing and market manipulation, get ready for more of the same.

She dismissed the idea of negative rates. She also agreed that “helicopter money” (really fiscal policy supported by Fed bond purchases to finance deficits) could be useful, but made it clear that it was up to Congress to implement that and the Fed would not lead the charge. Investors should ignore Fed noise. But that doesn’t stop markets from overreacting to every syllable of Fedspeak. Gold investors just have to live with day-to-day volatility until the world finally realizes that central banks are impotent and can safely be ignored in favor of global macroeconomic fundamentals.

Depositors protest after Reserve Bank of India refuses to accept scrapped notes

Reserve Bank of India has ruled out any additional facility for exchange of demonetised currency of Rs 500 and Rs 1,000 denomination even as several people lined up outside the bank's office in Mumbai.

A day after TOI published a report on how the doors are permanently shut for those who missed out on depositing demonetised currency, several depositors gathered at RBI's headquarters in Mumbai and engaged in an impromptu protest after they were turned away.

Most of those who turned up were carrying small lots of banknotes of below Rs 10,000. The general excuse was that these were kept aside by women in the household or senior citizens and discovered late. There was one person who had Rs 65,000 in old notes, which made him an offender following the promulgation of the ordinance on demonetisation. "We feel sorry for them but there is nothing that can be done. The government ordinance overrides everything," said RBI officials.

The central bank has not insisted on Customs receipts from NRIs as on the first two days the Customs had not issued certificates to those who were bringing in old currency. As a result those who returned to India between December 31 and January 3 are being allowed to make Rs 25,000 deposits.

UK digital-only bank Monese raises $10 million

The UK's digital challenger banks continue to attract investors' attention, with Monese the latest to raise funding in the form of a £8 million ($10 million) round. This brings the total raised by the firm to £13 million ($16 million).

A notable participant in the round is Korea Investment Partners, which is also a major investor in one of Korea's earliest digital-only banks, Kakao Bank.

Monese plans to use the money to expand its functionality and available geographies. The firm enables consumers to open an account in minutes, even if they don't have a permanent UK address or credit history, although maximum cash storage amounts, transaction volumes, and cash withdrawals are all limited for such users.

It currently offers some features of a current account, including the ability to receive salary payments, make withdrawals at ATMs, and it comes with a prepaid card that can be used to make payments in most locations. It plans to use the new funding to broaden these features to include direct debit and credit options, and to expand into mainland Europe.

Sears Borrows Another $500 Million From Its CEO Until It Can Sell More Stores

Sears Holdings, the parent company of Sears and Kmart, has lost billions of dollars in the last few years. The last time that it did turn a profit, it was because the company had just sold a few billion dollars’ worth of store buildings to its affiliated real estate investment trust. Now the company is borrowing some cash from its CEO in anticipation of raising more money the same way.

“Wait, didn’t Sears Holdings just borrow half a billion from its CEO last week?” That was a different transaction: the company announced at the end of the year that it had secured a letter of credit of at least $200 million maxing out at $500 million, which allows Sears Holdings to keep its cash flow going as it continues to pretend to operate a retail company.

This week’s loan is meant to keep the company going until it sells more real estate: specifically, $321 million secured by 46 stores that the company plans to sell. It would put up more stores if it needs to borrow the remaining $179 million.

Who will buy that real estate? It could be the publicly traded Seritage real estate investment trust, which has bought up a lot of Sears stores, retaining the right to “recapture” some or all of the space, renting it to other restaurants or retailers.

Mike Rowe responds to the naysayers of Ford’s decision to keep jobs in America

Ford Motor Co. announced Tuesday that they were cancelling plans to build a $1.6 billion plant in Mexico, and instead, they said they plan to reinvest in an existing plant in Michigan to keep jobs in the United States.

In their decision, they cited the pro-business environment that President-elect Donald Trump has ushered in since being elected last November. And while many might quibble over the details or try to downplay the fact that one more business has decided to not outsource their labor, TV host Mike Rowe is not one of those people. In fact, Rowe, who used to be a spokesperson for Ford, wrote on Facebook that Tuesday’s announcement was a “big, fat victory” for America — and it should be celebrated.

“Honestly, I don’t care what your politics are, or your opinion of NAFTA, The UAW, The New F-150, rich people, poor people, The Global Economy, or The President-Elect – this is good news, and sensible people should celebrate it,” Rowe wrote. “The company who invented mass production is once again betting on the future of America!” “What’s the worst part about that? And if I’m reading this right, it’s happening – at least in part – because of new ‘pro-growth policies, and a more positive manufacturing environment for US business,'” he added, citing a Fox News article about the announcement.

And if anyone says anything different or does anything other than celebrate the positive news, then Rowe suggested that they’re missing the point. He wrote: Now… Will Ford’s decision be politicized? Yup. Will Ford be accused of acting in their own self-interest? Yup. Will critics say Ford could do more, and criticize them for doing too little? Yup. Will the media overwhelm us with articles that explain why this is no big deal, and how Ford’s decision will ultimately result in no new jobs? Yup. Do me a favor – ignore these people. They don’t know how to feel good about anything other than feeling bad. They don’t understand the value of justifiable optimism – or it’s importance.

Social Security Depletion: What Happens When the Money Runs Dry?

It’s a common misconception that when the Social Security Trust Fund runs out, there won’t be anything left to pay for our Social Security benefits. This is incorrect. To understand why, here’s a brief backgrounder. Since the last significant tax rate reform was implemented (during Reagan’s presidency), taxes collected had always been higher than payments made for benefits. The surplus went into the Social Security Trust Fund which steadily grew as this favorable scenario continued.

In recent years, however, the circumstances started to change. Payments began exceeding the collections, and the fund started declining because it had to be used to cover the shortage. So now the question is: what happens when the fund totally runs out? At worst, complete benefits will not be given out. Why? Remember that the trust fund is only being used to cover the shortage. The main source of funds is still the taxes collected. And, the total taxes will still be enough to cover about 3/4 of Social Security benefits. In other words, without trust fund money, we can still expect to receive 75% of our benefits. That’s a relief to know, isn’t it? Better to receive something than nothing, right?

It also has to be said that this forecast is still just a forecast and isn’t set in stone. 2034 – the year when the funds are forecasted to be depleted based on the Social Security Trustees Report — is 18 years away. In between, it’s not realistic to think that the government will just let it happen. Of course, they will have to intervene. And what can they do? It will come down to a choice between who will carry the burden — the government or the public.

Redemption of special issue non-tradable government bonds is a good start. But that’s the easy part. The hard part is paying back those bonds. And if they choose to bear the brunt of the problem, they have the option to borrow funds from somewhere else, reduce government spending, or maybe redirect other funds to the Social Security Trust Fund.

Minimum wage hikes leading to the disappearance of restaurants?

Why 2017 Will See Desperate Department Stores and Anxious Apparel Chains

It was a hard year for many retailers. Amazon.com continued to run away with the e-commerce prize, and consumers, though in much better shape financially than they have been in many years, are getting increasingly bargain-hungry. The result has been declining sales at many major retailers (particularly department stores) and store closings by the hundreds.

But a new year offers the industry a clean slate, whether it be a new CEO or new initiatives to break that sales skid. Indeed, 2017 will be a decisive year for many retailers, as investors will feel many have had enough time to show they can figure out a way to update how they do business in the e-commerce era.

Target and Kohl's in particular are under pressure to show their turnarounds are still on track. Meanwhile Walmart can't let up for a second if it hopes to begin to narrow the e-commerce gap with Amazon.

Department stores up and down the price spectrum are under growing pressure to show they can still be relevant and central to the shopping experience. And apparel chains have been talking for about two years about how they plan to address fast fashion and increase the quality of their products agin. 2017 promises to be a decisive year in which retailers plow ahead in the internet era and which get left behind, possibly for good.

Obama Seized Enough Land and Water in 8 Years to Cover Texas Three Times

Last week, in one of his final moves out of the Oval Office, Obama executively designated more than 1.5 million acres of land as national monuments, preserving their untouched façade while closing them to human expansion, development, energy use, ranching or state or local jurisdiction.

In a move ignored by the liberal media last week, Obama unilaterally seized more than 1.3 million acres from Utah to establish the Bears Ears Monument, preserving it at the behest of conservationist groups and Native American tribes who claimed the land was sacred. Utah’s state legislature, however, opposed the unilateral land grab across party lines, with many speculating that Obama’s move is the latest in an attempt to limit efforts from incoming President Donald Trump to expand domestic energy production.

Obama also claimed 300,000 acres in Clark County, Nevada, as the Gold Butte National Monument, effectively closing the area off to future development for uranium mining, oil drilling or natural gas production.

While it's certainly nothing new, Obama's habit of unilaterally confiscating land has ramped up heading into the final stretch of his presidency. In the eight years he’s been in office, President Obama has seized more than 553 million acres of land and water (roughly 865,000 square miles) and placed it under federal ownership and control – enough square mileage to cover the entire state of Texas more than three times over. In fact, the self-aggrandizing conservationist-in-chief has placed more land and coastal areas under federal control than any other president in history, shutting off millions of miles of land to energy production or human settlement, along with shifting it outside the scope of local and state jurisdictions.

Kraft Heinz Set To Close Century-Old Meat Plant

The nearly century-old Oscar Mayer plant in Madison, Wis., will permanently close in March, some 14 months after Kraft Heinz first announced plans to shutter the facility and six others throughout North America. The Wisconsin State Journal reports that only 450 people worked at the plant on the city's north side as of last week, down from about 1,000 at the time of the announcement and more than 4,000 at its peak.

Madison served as headquarters of Kraft's meats business when it merged with Heinz last year, but the company elected to shift those offices to its company headquarters in Chicago. Other operations are headed to facilities such as the Kraft Heinz plant in Kirksville, Mo.

Kraft Heinz officials confirmed to the paper that the plant would close in the first quarter of the year. “We continue to work with local officials and potential buyers on the sale of our Madison facility," a spokesman said. "We remain committed to keeping the community apprised of our progress. For now, the process remains ongoing."

Madison officials, meanwhile, hope to begin planning the future of the 72-acre complex in earnest this year. Mayor Paul Soglin told the State Journal that the property generated interest last summer, but that he hopes to draw industry — rather than housing or retail — to the site, which long served as the economic hub of the nearby, largely working-class neighborhood.

Make America Mate Again

Shortly before Christmas, the U.S. Census Bureau put some coal in the nation’s holiday stocking. It released data highlighting a worrisome trend: The population grew a subdued 0.7 percent, the lowest rate of growth since the Great Depression years of 1936 and 1937. Declines in the birthrate and the slowing pace of immigration are to blame.

Ask an economist why this matters, and you’ll get a welter of contradictory answers, as the relationship between population growth and economic expansion is a vexed and controversial subject. But if you sift through the historical data on the subject, it’s hard to deny that the demographic slowdown, should it continue, likely puts a damper on future economic growth.

Declines in the rate of population growth are nothing new. It has been in decline throughout the West for several decades. In some countries in Europe, the rate of growth is below replacement levels: The population, in other words, is set to experience a decline in absolute numbers. But the U.S. has also been on a downward trajectory since the 1990s, though the pace has been less steep. The latest figures for the rate of population growth compare with 1.4 percent in 1994 and more than 2 percent at the height of the baby boom.

If you take the really long view, these declines are nothing more than a continuation -- with some episodic, if anomalous, baby booms -- of patterns that are two centuries old and counting. After all, birthrates dropped dramatically over the course of the Industrial Revolution in Europe and the U.S. This was particularly true for the middle classes, where declines in fertility were especially pronounced. Unlike farm families, middle-class families living in cities no longer needed as many children, and the demands of industrial society encouraged them to invest more resources -- money, time, calories, education -- in fewer offspring.

Lior Gantz-Derivative War Could Bring Down Global Economy

Stein Final Recount Costs Below Estimates; Will Receive $2 Million Refund

Green Party nominee Jill Stein will receive $2 million in refunds after initial estimates were well above the final costs of the failed presidential recount attempts in three battleground states, according to officials. Stein will use the leftover funds to launch a new voter integrity group.

Stein, who pushed for recounts in Wisconsin, Pennsylvania, and Michigan, was only successful in initiating a recount in Wisconsin, an effort that ultimately netted 131 more votes for President-elect Donald Trump. Federal courts in Pennsylvania and Michigan halted Stein’s attempted recounts in the states.

Wisconsin initially estimated that the effort would cost $3.5 million. A spokesman for the Wisconsin Elections Commission told the Washington Free Beacon on Tuesday that the final costs for 70 of the 72 counties in the state was $1.8 million. With the remaining two counties, the total costs could hit $2 million, the spokesman said. Stein would be reimbursed the remaining $1.5 million.

Stein will also receive hundreds of thousands in reimbursements for the failed recount attempt in Michigan. Stein paid in full for Michigan’s 7,786 precincts at a rate of $125 per precinct, according to a spokesperson for Michigan’s Department of State. Recounts were completed in 3,050 of the state’s 7,786 precincts before being stopped by the courts. Stein will receive a refund for the remaining 4,736 precincts totaling $592,000.

Eurozone inflation climbs to three-year high

Eurozone inflation surged to the highest level in more than three years in December, climbing to a higher-than-expected 1.1 percent, after rising by just 0.6 percent in the previous month. The European Statistics Office, Eurostat, said Wednesday inflation now stood at its highest rate since September 2013, when it was also 1.1 percent.

December's consumer price data provided good news for the European Central Bank, which had struggled to push inflation back up toward its own target of an annual inflation rate of just below 2 percent.

Under the current president of the ECB, Mario Draghi, the central bank has launched a series of monetary stimulus measures in the past few years aimed at fueling growth and heading off the threat of the eurozone stumbling into a period of deflation.

Some economists were quick Wednesday to rule out an early end to the ECB's loose monetary policy, which has included cutting the bank's refinancing rate to zero and launching a controversial bond-buying program.

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