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Tuesday 02.07.2017

Cashin on Fed rate hikes: 'I don't think they're going to be able to do 3'

Art Cashin told CNBC on Monday he is not confident the Federal Reserve will be able to implement three rate hikes this year. The UBS director of floor operations at the NYSE said the U.S. economy might be struggling more than some think.

"While the numbers look good in the payrolls on the top line ... if you look at the job composition, not the right class getting it," he said on "Squawk on the Street." The Fed has previously forecasted three interest rate hikes in 2017.

On Wednesday, at the February Federal Open Market Committee, the Fed did not raise interest rates and gave no indication of when the next hike might be.

Cashin said the rate hikes also depend on how congress prioritizes certain key issues. He said if congress focuses on Obamacare first, it could slow everything else down.

Not Everyone in Tech Cheers Visa Program for Foreign Workers

The “knowledge transfer sessions” started a few months after Jeff Tan received notice last summer that he and about 80 co-workers would be laid off by the University of California, San Francisco, at the end of February.

At daily two-hour meetings with employees from HCL Technologies, an Indian tech services company that had landed the outsourcing contract from U.C.S.F., Mr. Tan trained HCL staff members in India by videoconference and employees brought to the United States on H-1B visas how to do his job.

More than any other industry, tech companies depend on the 85,000 foreign workers allowed into the United States annually under the H-1B visa program. The H-1B is a temporary visa intended to bring in foreign professionals with college degrees and specialized skills to fill jobs when qualified Americans cannot be found. Technology giants like Microsoft and Google have pressed for increases in the annual quotas, saying there are not enough Americans with the skills they need. But for tech workers like Mr. Tan, the program has had very negative consequences.

“I thought the purpose of H-1B visas was to give America a competitive edge, not help companies ship American jobs abroad,” said Mr. Tan, who had worked for the university as an information technology systems administrator for 20 years. “This is now standard practice in the technology industry.”

Big Pharma’s Offer to Trump: Discounts When Drugs Don’t Work

President Donald Trump says drug prices are astronomical and something needs to be done. Pharmaceutical giants have an answer that doesn’t involve lowering list prices: refunding some of the money to insurers if a drug doesn’t work as expected.

The concept of pay-for-performance isn’t new in the industry. But the number of such agreements between drugmakers and insurers has grown in the past year as Big Pharma seeks to defuse criticism over the soaring prices of some brand drugs, which can cost $10,000 a month or more for cancer treatments.

“The new government in the U.S. with Trump talks about getting more value for less,” said Lars Fruergaard Jorgensen, chief executive officer of Novo Nordisk A/S, the world’s biggest maker of diabetes medicines. “Outcomes-based contracting could be one of the elements.”

The drug industry is seeking to dodge Trump’s most drastic threats to reduce costs, including forcing companies to bid for government business. In a sign of how central value-based programs have become in the pushback, the lobby group Pharmaceutical Research and Manufacturers of America plans to roll out the concept later this month to the media as part of proposals on addressing drug pricing concerns. In recent weeks, executives have touted the idea during a big investor conference and on earnings calls, and brought it up unprompted in media interviews. The topic was also discussed when a group of top pharmaceutical CEOs met Trump at the White House last week.

Will rolling back financial regulations spark economic growth?

Amazon’s Supermarket Of The Future Could Have Just 3 Employees

Amazon’s latest forays into bricks-and-mortar businesses — the recently opened Amazon Go convenience store, and “click-and-collect” locations for online shoppers to pick up purchases — are intended to be staffed by as few people as possible. But can the company actually operate a full-size grocery store with just three humans?

The New York Post, citing sources close to the matter, reports that Amazon is now looking to add to its Amazon Go convenience store concept by creating a two-story, almost fully automated grocery store. The sources caution that the project is still in prototype and may never actually come to fruition.

A rep for Amazon told the Post that it has no plans to build a store like this. The prototype stores, which would range from 10,000 square feet to 40,000 square feet, would have two distinct levels, one for customers and one for the company’s robot employees, sources tell the New York Post.

The first floor would house as many as 4,000 items customers could easily grab, including fruit, vegetables, cereal, beer, and other items, the sources says, adding that the level could eventually feature pharmacies, as well. The second floor would be dedicated to a fleet of robots working to complete the orders with a larger array of items that are not found on the lower level for customers shopping below.

Are robots coming to take investor jobs on Wall Street?

The robots are rolling forward with a full-frontal assault to capture Wall Street’s vast investment fees and commissions. More investors are warming to the cold, steely embrace of the increasingly sophisticated, low-cost automated robo-advisers. The primary reason is to save money on those fees and charges.

Bots are squeezing their flesh-and-blood competition and threatening the jobs of thousands of human brokers in the $20 trillion US wealth management business

Nearly one in three investors says these machines are superior at picking stocks and lessen their risk, and almost as many say the machines are better at selecting investments for retirement than human brokers, according to a new study of US investors by market research and consulting firm Spectrem Group.

Respondents had a minimum net worth of $100,000. An earlier study by Spectrem in 2015 was not as bullish, with 6 percent of affluent investors saying they’d used a pure technology-based platform to enter information for a robo-recommended portfolio.

European Central Bank head Draghi says stimulus still needed

The head of the European Central Bank says that its monetary stimulus efforts are still very much needed to support the continent's economic recovery — despite the recent spike in inflation in the countries that use the euro currency.

Mario Draghi told members of the European Parliament on Monday that the uptick in annual inflation to 1.8 percent was mainly due to higher oil prices, not to fundamental price pressures in the economy from rising wages.

The inflation figure for January was a big jump from 1.1 percent in December and on paper complies with the bank's goal of just under 2 percent. Yet the increase may not last, and when excluding volatile items like food and fuel, inflation is still only 0.9 percent.

Draghi said that the bank's strategy "prescribes that we should not react to individual data points and short-lived increases in inflation." He said "underlying inflation pressures remain very subdued" because workers' wages and business hiring remained slacker than they could be. He even held out the possibility that the stimulus could be stepped up if the outlook worsens.

Organizers of the Women’s March announce upcoming ‘general strike’

The organizers of the Jan. 21 Women’s March announced Monday that they are planning another event to highlight women’s issues. In a graphic posted to Twitter, Facebook and Instagram, the organizers said that they are planning a “general strike” they describe as “a day without a woman.”

Details about the event have not yet been made public, and the organizers said the date is still to be announced.

The Women’s March on Washington took place the day after President Donald Trump’s inauguration just over two weeks ago. So-called “sister marches” took place across the country that same day. Reports indicate that over 500,000 people attended the event in Washington.

The Women’s March made headlines not only for its size but also for denying partnerships to several pro-life feminist organizations.

What Trump Means For Gold and Why This Metal Might Outperform…

Cashless society on horizon as Aussies embrace digital transactions

A report by UK-based Juniper research predicted that digital wallets- in the form of smartphones and other devices used to make online payments- will account for $1.35 trillion in global spend by the end of 2017- a 32 per cent increase on 2016. The research comes just over a year since the Westpac Cash Free report revealed the majority of smart phone users believed Australia could become cashless as early as 2022. Smart phone users already made 53 per cent of their payments digitally and 79 per cent believed it would soon become the norm.

Westpac’s head of consumer deposits Elliot Smith said at the time that “in the last 12 months there has been a 200 per cent increase in Westpac customers using their mobile to tap and pay. Cashless technology is the way of the future.”

Digital payment providers have since jumped on board. The Hey You and Menulog apps allow customers to order and pay for food from favourite local cafes and restaurants, while one of the latest concepts to come on board is digital gift card giving, where vouchers for major stores can be bought, sent and received via mobile phone instantly. Prezzee co-founder Claire Morris said the company launched after recognising the chance to improve a growing industry in Australia.

“The gift card market in Australia is worth $4.5 billion annually,” Ms Morris said. “Digital gift cards are more personal than giving someone cash. You have them on your phone, you never lose them and if you lose your phone, we put a hold on the card.” Prezzee partnered with large retailers Myer, David Jones, JB Hi-Fi, Woolworths, Coles and others, making money by taking a percentage of the card’s value. Ms Morris believes physical gift cards may no longer exist in three to five years. “For younger users, cash will be a thing of the past,” she said. “Some already buy themselves gift cards to Coles or Woolies and use them to go shopping. It is a form of budgeting.”

An Arizona Lawmaker is Trying to Ban Blockchain Gun Tracking

An Arizona lawmaker has proposed banning the use of blockchain to track firearms. House Bill 2216, first proposed on 17th January, would make it a felony "to require a person to use or be subject to" firearm tracking, explicitly identifying blockchain tech as a platform for doing so. The bill was submitted by Representative Paul Boyer and has steadily advanced through the legislature since its introduction.

While it may sound unusual, the concept has been explored in the past by those working with the tech, perhaps most notably by way of the so-called "Glockchain" project developed as part of the Ideo coLAB initiative, as reported last year by BI. The basic premise is that a gun would be fitted with some kind of hardware sensor that could broadcast a transaction to a blockchain every time the gun is used.

The Arizona bill suggests that there’s pushback against this idea, at least in some quarters of the US. As the bill states:

"For the purposes of this section, ‘Electronic Firearm Tracking Technology’ means a platform, system or group of systems or devices that uses a shared ledger, distributed ledger or block chain technology or similar form of technology or electronic database for the purpose of storing information in a decentralized or centralized way, that is not owned or controlled by any single person or entity and that is used to locate or control the use of a firearm."

Crude Oil Prices: $70 Is the New $100

When Saudi Arabia persuaded its fellow OPEC members in December 2014 to produce more oil as a response to the falling price of crude, the idea was to drive out the high-cost producers, primarily in the U.S. shale patch. To some degree that worked, as many companies, especially those who had borrowed heavily and couldn’t make money when prices fell below $40 a barrel filed for bankruptcies.

But that oil they were chasing is still there, and in many North American shale plays, the cost to extract that oil has dropped from around $70 a barrel to below $50 a barrel. According to energy industry consultancy Wood Mackenzie, the average North American shale play’s break-even price is now below $50 a barrel, with break-even prices in some fields (the Wolfcamp formation in the Permian Basin, for example) below $30 a barrel.

Even deepwater production from the Gulf of Mexico has fallen for all but the deepest water. Wood Mac’s estimated range of break-even pricing for the Gulf’s shallow water subsalt Miocene runs from about $32 a barrel to $52 a barrel.

On top of production we need to add in overhead and interest charges and transportation costs. Overhead costs are roughly $4 a barrel no matter where in North America a barrel is produced. Transportation costs, however, are a different story.

Brexit and upcoming elections look to shape Europe

Land Rovers seen needing $17,000 price hike to offset border tax

As Washington mulls a tax on imports, an auto industry study suggests the policy would deliver the sharpest blow to Tata Motors Ltd.’s Jaguar Land Rover while giving a leg up to Tesla Inc. and Ford Motor Co.

In what it calls a “thought exercise,” industry researcher Baum & Associates LLC estimates that most automakers would need to raise vehicle prices by thousands of dollars -- more than $17,000 per vehicle in Jaguar Land Rover’s case -- to recoup higher costs incurred under the House Republican-proposed border-adjusted tax. Ford would need to mull the smallest price hike among major automakers, at about $282 per vehicle, followed by General Motors Co. at $995, according to the report.

The estimates aim to show the relative impact of the tax plan on each automaker, according to Alan Baum, the founder of West Bloomfield, Michigan-based Baum & Associates. Carmakers are unlikely to raise prices by more than a few thousand dollars per car and would also likely have to foot some of the higher tax burden.

“The plan results in a net cost for automakers,” Baum said by phone. “Each company will then make its own decisions on pricing in order to best compete and maximize its profits.” Volvo and VW vehicle prices would have to rise by about $7,600 and $6,800 on average, according to estimates by Baum & Associates, which advises suppliers. President Donald Trump is said to be warming to the border-adjusted tax after initially viewing it as too complicated.

Despite risks, public pensions put faith in long-term returns

U.S. public pension funds are cutting their expectations for investment returns over the next 30 years or more, but some do not expect to meet even the new targets over the coming decade. After a long period of low interest rates, forecasts by investment analysts show the next 10 years will probably bring slower market growth, leading to reduced expectations for the $3.7 trillion of public pension assets.

But public pensions are wary of lowering their expected return rates, or the discount rate, too quickly because doing so would drastically increase costs for state and local governments and their employees, whose contributions form the funds. Instead, the funds say they plan to make up for lower returns expected in the coming decade over the next 30 years or more.

“Pension funds are in an extraordinarily difficult political situation,” said Don Boyd, fiscal studies director at the Rockefeller Institute of Government. If they protect their portfolios by moving assets into safer, lower-return investments, he said, “they will have to drastically increase the cost for local governments. They are reluctant to do that.”

The California Public Employees' Retirement System, the largest U.S. public pension fund, anticipates annual returns of 6.2 percent over the next decade. However, CalPERS still expects its long-term return to align more closely with a discount rate that it plans to reduce to 7 percent by 2020, because it anticipates returns will jump to 7.83 percent in the decades to follow.

Dollar General Says It Will Add 10,000 Jobs This Year

Dollar General Corp. intends to create approximately 10,000 new jobs in 2017 as the result of 1,000 planned new store openings and two new distribution centers, according to a press release. The creation of these approximately 10,000 new jobs will be a roughly 9% overall increase to its workforce and mark the largest one-year employee increase through organic store and distribution center growth in the company’s 78-year history.

“Dollar General looks forward to welcoming new employees who want to grow with us as we expand throughout the states we serve,” said Todd Vasos, CEO of Dollar General. “These new jobs reflect the organization’s commitment to seize growth opportunities and further deliver Dollar General’s value proposition of everyday low prices on quality merchandise to customers in 1,000 new locations in 2017.”

Bob Ravener, Dollar General’s executive vice president and chief people officer, added, “This year’s continued growth presents numerous opportunities for candidates looking to begin and develop their careers at one of America’s fastest-growing retailers.”

Dollar stores are in fact growing. As noted last week in the newly released NACS/Nielsen U.S. convenience industry store count, dollar stores have grown to 28,832 stores, up from 27,378 stores in 2016.

Indicators of a Chinese Collapse

I recently returned from a weeklong trip to China, specifically Shanghai and Nanjing. In Shanghai, I met with a group of forty of the top China economists, mostly from major Chinese banks and brokers, at an annual event called the China Chief Economist Forum. I was a keynote presenter at the forum to 400 invited guests made up of major institutional investors and wealth managers in China.

In Nanjing, I met with provincial government officials and economic development experts. They are building a high-tech research center of excellence called UTown on the southern outskirts of the city. I was even permitted to enter a top-secret Huawei laboratory used for testing new internet data-mining algorithms. Huawei is closely affiliated with the People’s Liberation Army — and is banned from most business in the United States because they are suspected of hacking and espionage aimed at U.S. critical infrastructure.

In addition to our proprietary models and analytic techniques — including complexity theory, causal inference, and behavioral psychology — I have always been of the view that there is no substitute for foreign travel and face-to-face contact with both experts and everyday citizens in the countries we are trying to understand.

That’s why I also took every opportunity I could find to speak with drivers, clerks, bellhops, and passersby. That’s not as difficult as it sounds. In a country like China, few citizens have traveled abroad and they are often eager to practice English conversation with a real American.

Why I Left the Left

The Fed already has a problem with its 2017 forecast

Federal Reserve officials, including central bank chair Janet Yellen, have kicked off the year by again indicating their intention to raise interest rates several times in 2017, even though the same suggestion last year turned into barely a single rate increase at the very end of the year.

But there are signs that financial markets don’t believe the central bank this time. For one, traders aren’t pricing in the next interest rate increase until June. The way things are moving in Washington these days, who knows what the economy will look like by then.

More notably, big Wall Street banks are already second-guessing the Fed’s recent guidance about the number of rate hikes that are likely this year. Jabaz Mathai, head of US rates strategy at Citigroup, and his team point out that inflation expectations as measured by the gap between inflation-protected bonds and regular Treasury notes, which are seen as a harbinger of future price rises, may not be recovering quickly enough for the central bank’s liking.

In a policy statement last week following its decision to leave rates on hold, the Fed said, "Market-based measures of inflation compensation remain low; most survey-based measures of longer-term inflation expectations are little changed, on balance."

Why Corporate America Has Conniptions about Trump’s H-1B Visa Reform

US tech companies, and other companies with large IT departments, are having conniptions about President Trump’s immigration policies, particularly the leaked draft of an executive order that includes references to reforming the H-1B visa program for foreign tech workers.

In light of the 85,000 foreign tech workers allowed to be brought into the US annually under the H-1B visa program – a limit tech companies have been clamoring to raise – here’s a stunning forecast by the Bureau of Labor Statistics:

Employment of computer and information technology occupations is projected to grow 12% from 2014 to 2024, faster than the average for all occupations. These occupations are expected to add about 488,500 new jobs, from about 3.9 million jobs to about 4.4 million jobs from 2014 to 2024, in part due to a greater emphasis on cloud computing, the collection and storage of big data, more everyday items becoming connected to the Internet in what is commonly referred to as the “Internet of things,” and the continued demand for mobile computing.

That’s exciting news. So 488,500 IT jobs are to be created over ten years, so about 44,850 a year on average, which means more jobs in good years and net job reductions in bad years. Now we’re in the good years. And more IT jobs are being created. Alas, many of them are going to be filled by the 85,000 foreign workers brought in every year with H-1B visas.

Patriots tight end won't visit Trump White House

At least one member of the New England Patriots won’t be visiting the White House if President Trump invites the team to celebrate its Super Bowl victory. Martellus Bennett, the team’s outspoken tight end, said he will not show up at 1600 Pennsylvania Ave. as a guest of Trump.

“I’m not going to go,” Bennett told reporters Sunday night after the Patriots’ historic comeback victory over the Atlanta Falcons. Asked why, he responded, “like I said, you know, it is what it is. People know how I feel about it. Just follow me on Twitter.”

The nine-year NFL veteran endorsed Hillary Clinton in the 2016 election and has repeatedly criticized Trump. He said earlier this week he likely would not show up at a White House celebration if his team won.

“I don’t support the guy that’s in the house," Bennett said when asked to explain. “America was built on inclusiveness not exclusiveness,” Bennett tweeted last month.

NEWS to Disturb the Comfortable...

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