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Wednesday 03.08.2017

Calpers Board Set to Vote on Slashing Pension Benefits by 63%

California Public Employees’ Retirement System is set to vote next week on cutting benefits for a small group of retirees in what would be the second such move in the last four months.

The reduced benefits, which must be approved by a committee Tuesday and the full board Wednesday, was triggered by the failure of a defunct public agency, the East San Gabriel Valley Human Services Consortium, to pay Calpers the entire cost of covering the pensions of its former employees.

Most of the 191 workers of the job-training service -- of which 62 are currently receiving pensions -- would see their benefits reduced by 63 percent, the rate by which the entity fell short, according to meeting documents.

Calpers had asked the cities that formed the entity known locally as LA Works, -- Azusa, Covina, Glendora, and West Covina -- to pay the debt to the retirement plan, but they declined, pointing to the lack of a legal obligation. The consortium went out of business in 2014 after Los Angeles County severed its relationship, citing its overbilling. In January, Calpers notified the employees of the possibility of reduced benefits as a result of the unpaid bill. They are in "a panic," said Sandra Meza, who has been trying to organize fellow retirees. She had planned to publicize their plight at a meeting of the board of her former employer on March 15 -- which would occur after the Calpers vote.

Report: RadioShack In The Process Of Closing Around 200 Stores

As rumors continue to swirl that RadioShack’s parent company is preparing to file for bankruptcy, a new report backs that up, and says that the chain is in the process of closing around 200 stores. From the response we’ve gotten from readers asking about the status of their local stores, we aren’t surprised.

The Wall Street Journal cites sources familiar with the matter who echo what Bloomberg reported last week: General Wireless Operations — the company born out of the last Shack bankruptcy — is mulling over its options with partner Sprint about reducing its footprint, and could file for Chapter 11 protection in less than a week.

The sources also say the company has already started closing about 200 stores. We asked RadioShack earlier this week whether it was making a concerted effort to close stores in light of a possible bankruptcy, and have not received a comment.

However, in the 24 hours since we asked readers to let us know if their local RadioShack stores were closing, we’ve received quite a few responses — ranging from coast to coast.

If the US economy is going to grow faster, the US budget deficit has to rise: Strategist

The U.S. economy cannot grow faster without its budget deficit rising, either through increased spending or lower taxes, according to one investment strategist. But getting there won't be politically easy.

The "fiscal deficit has to widen. If it doesn't widen, growth will slow down in the second half," Krishna Memani, chief investment officer at OppenheimerFunds, told about 200 clients last Thursday at the firm's outlook event.

"Unfortunately, the people that the administration relies on to get those things passed are not enamored with fiscal spending," he said. Last Tuesday, a report showed U.S. gross domestic product grew 1.6 percent in 2016, the slowest since 2011.

President Donald Trump has said the U.S. economy will grow at least 4 percent a year under his policies, and Treasury Secretary Steven Mnuchin expects 3 percent growth. The administration also claims it can achieve that growth without boosting the U.S. budget deficit, because Washington will supposedly cut spending enough to offset reduced tax revenue.

Will taxpayers save or splurge their tax refunds?

Consumers have never felt better about housing than they do right now

Consumers’ faith in the housing market is stronger than it’s ever been before, according to a newly released survey from Fannie Mae. Fannie Mae’s latest Home Purchase Sentiment Index shows that consumer confidence in housing hit an all-time high in February, continuing a climb in confidence that began in January.

January’s version of the Home Purchase Sentiment Index showed that consumers’ confidence in housing improved for the first time in five months, and February’s survey saw consumers’ sentiments improve even more.

According to the Fannie Mae report, the Home Purchase Sentiment Index increased by 5.6 percentage points in February to 88.3, setting a new all-time high. That’s also up 5.6 percentage points from the same time period last year. Overall, five of the six components that make up the HPSI were up, with three hitting record highs.

According to the report, the net share of Americans who said that now is a good time to buy rose by 11 percentage points, and the net share of consumers who believe that now is a good time to sell also rose by 7 percentage points. Additionally, consumers also reported increased confidence about not losing their jobs, with the net share climbing by 9 percentage points.

A Third Of All U.S. Shopping Malls Are Projected To Close As ‘Space Available’ Signs Go Up All Over America

If you didn’t know better, you might be tempted to think that “Space Available” was the hottest new retail chain in the entire country. As you will see below, it is being projected that about a third of all shopping malls in the United States will soon close, and we just recently learned that the number of “distressed retailers” is the highest that it has been since the last recession. Honestly, I don’t know how anyone can possibly believe that the U.S. economy is in “good shape” after looking at the retail industry. In my recent article about the ongoing “retail apocalypse“, I discussed the fact that Sears, J.C. Penney and Macy’s have all announced that they are closing dozens of stores in 2017, and you can find a pretty comprehensive list of 19 U.S. retailers that are “on the brink of bankruptcy” right here. Needless to say, quite a bloodbath is going on out there right now.

But I didn’t realize how truly horrific things were for the retail industry until I came across an article about mall closings on Time Magazine’s website…

About one-third of malls in the U.S. will shut their doors in the coming years, retail analyst Jan Kniffen told CNBC Thursday. His prediction comes in the wake of Macy’s reporting its worst consecutive same-store sales decline since the financial crisis.

Macy’s and its fellow retailers in American malls are challenged by an oversupply of retail space as customers migrate toward online shopping, as well as fast fashion retailers like H&M and off-price stores such as T.J. Maxx. As a result, about 400 of the country’s 1,100 enclosed malls will fail in the upcoming years. Of those that remain, he predicts that about 250 will thrive and the rest will continue to struggle.

Consumer borrowing for cars at record high

Economists who say there isn't much inflation in the U.S. economy probably haven't shopped for a car lately. The average transaction cost on a new car is now north of $35,000 and used car prices keep going up as well.

The latest State of the Automotive Finance Market report from Experian shows the amounts consumers are financing on new and used car purchases has hit a record high. As a result, buyers are extending the loan payback times to reduce monthly payments.

In the last quarter of last year, the average loan amount for a new vehicle rose to a record high of $30,621. For used vehicles, the average amount financed was $19,329, up from $18,850 in the same period of 2015.

To keep monthly payments within their budgets, nearly a third of new car buyers opted for loans of 73 to 84 months. In the used car segment, more than 19% of buyers went for loans that long. "With the average loan amount for new and used vehicles hitting all-time highs, we are seeing the need for affordability drive consumer purchasing behavior," said Melinda Zabritski, Experian's senior director of automotive finance. "Our latest research shows an $11,000 gap between the average loan amount on a new and used vehicle — the widest we have ever seen. This upward trend is causing many consumers to find alternative methods like extending loan terms, getting a short-term lease or opting for a used vehicle to get what they want while staying within their monthly budget."

CIA turned phones, TVs into spying devices: WikiLeaks

Amid a trove of documents released by WikiLeaks that allegedly contains “the entire hacking capacity of the CIA” is chilling evidence that everyday devices like smart TVs and cell phones have potentially become critical tools in the effort to spy on American citizens.

Documents released in the 8,761 document and file dump dubbed “Vault 7 Part 1” and titled “Year Zero” -- were obtained from an “isolated, high-security network” at the CIA’s Center for Cyber Intelligence in Langley, Va., a press release from WikiLeaks said. The trove had been “circulated among former U.S. government hackers and contractors,” one of whom allegedly turned the archive to WikiLeaks.

Among revelations still emerging from the shocking disclosure is an alleged CIA program named “Weeping Angel,” in which Samsung brand “smart” televisions were apparently being used as recording devices. “Weeping Angel places the target TV in a “Fake-Off” mode, so that the owner falsely believes the TV is off when it is on,” WikiLeaks claims. “In 'Fake-Off' mode the TV operates as a bug, recording conversations in the room and sending them over the Internet to a covert CIA server.”

Smart TVs aren’t the only commonly used devices that may have a potentially more-sinister purpose. WikiLeaks is suggesting that “Apple's iPhone, Google's Android and Microsoft's Windows” are also being “turned into covert microphones.” Infected phones, according to the release, “can be instructed to send the CIA the user's geolocation, audio and text communications as well as covertly activate the phone's camera and microphone.”

Is Fed Chair Yellen Too Aggressive on Rates?

Trade Deficit in US Widens to Largest in Almost Five Years

The U.S. chalked up its largest trade deficit since March 2012 as a jump in merchandise imports in January exceeded a smaller gain in shipments overseas.

The gap in goods and services trade increased by 9.6% to $48.5 billion, matching the median forecast in a Bloomberg survey, Commerce Department figures showed Tuesday. The deterioration in January from the previous month reflected a 2.3% gain in imports, the most since March 2015, and a 0.6% pickup in exports.

Rising imports of consumer goods, capital equipment and motor vehicles reflect steady demand from American households and companies, with help from a stronger dollar. The wider deficit indicates trade, which subtracted 1.7% from fourth-quarter growth, will weigh on the economy in early 2017.

Bloomberg survey estimates ranged from a trade deficit of $43 billion to $49.6 billion. The Commerce Department left the shortfall for December at the initially reported $44.3 billion. The data also showed the merchandise trade gap with China, the world’s second-biggest economy, widened to $31.3 billion in January from $27.8 billion on an unadjusted basis. However, the trade deficit with Mexico narrowed to $3.9 billion, the smallest since July 2015.

Exclusive: Mexico cancels sugar export permits to the U.S. in 'absurd' dispute

Mexico has canceled existing sugar export permits to the United States to avoid penalties in a dispute over the pace of shipments, a document seen by Reuters said, partly blaming the issue on unfilled positions at the U.S. Department of Commerce.

It was not immediately clear what impact the cancellation would have on exports to the United States. The document, sent by Mexico's sugar chamber to mills on Monday, said existing permits would be reissued in April.

Mexico's sugar mills are currently in full swing at the height of the harvest. The amount of sugar sent to the United States varies from season to season, with the document referring to a quota of 820,000 tonnes in 2016/2017.

Ties between the United States and Mexico have frayed under Donald Trump, who sees trade skewed to favor the southern neighbor and is seeking to renegotiate the North American Free Trade agreement. The document made no suggestion that the present dispute was related to the wider politics, but described as "absurd" an interpretation by "low-level" Commerce Department officials of a clause in so-called suspension agreements, which have regulated the sugar trade between both countries since the end of 2014.

A border tax could make your next car cost $2,500 more

Proposals for a border tax to pay for a wall with Mexico and encourage increased manufacturing in the U.S. would add hundreds to thousands of dollars to the cost of every car and truck sold here, including those assembled in American factories.

There’s even a risk the tax could raise prices and reduce sales so much that the U.S. loses manufacturing jobs, according to the Motor Equipment Manufacturers Association, the umbrella group for several supplier associations representing 1,000 companies.

Analysts, associations and experts say the tax could add $2,000 to $2,500 to the average cost of a vehicle sold in the U.S. “This is a price increase, and the consumer will bear an awful lot of the burden,” said Michigan State University professor of economics Charles Ballard. “There are things you can do with a scalpel that might create jobs, but if you use a meat ax, you’re likely to do harm. I’m afraid in one or two years we’ll wake up to the recognition that this policy had many unintended consequences.”

The supply chain for parts and vehicles made in the U.S., Canada and Mexico is among the most closely integrated in the world. Some raw materials components cross borders many times in the manufacturing process, potentially being taxed repeatedly before a finished vehicle ships to the dealership, said David Andrea, vice president for research at the Center for Automotive Research.

Obamacare Lite

Fed to make sequential hikes until 'something breaks': Gundlach

Jeffrey Gundlach, chief executive officer at DoubleLine Capital, said on Tuesday he expects the Federal Reserve to begin a campaign this month of "old school" sequential interest rate hikes until "something breaks," such as a U.S. recession.

Gundlach, who oversees more than $101 billion at Los Angeles-based DoubleLine, said U.S. economic data support a rate increase as soon as the next Fed policy meeting on March 14-15, and further rises this year, after a series of false starts in 2015 and 2016.

"Confidence in the Fed has really changed a lot," Gundlach said on an investor webcast. "The Fed has gotten a lot of respect with the bond market listening to the Fed" now that economic data support the tough rhetoric from Fed officials.

New York Fed President William Dudley, whose branch of the U.S. central bank serves as its eyes and ears on Wall Street and who generally spends a couple of hours a week planning policy with Fed Chair Janet Yellen, played a key role in orchestrating the messaging of a March rate hike

Stocks in a Rebound Relationship; Trump Honeymoon Phase Close to Ending

After a short, overnight breakup last November, the US stock market has now rebounded with Donald Trump. “I’d say Donald has another month or so,” Ralph Acampora recently told Financial Sense Newshour. “I’ll give him 2 more months. And maybe this honeymoon will be a little long in the tooth.”

As the market has been accelerating here, it’s possible we’re starting to get ahead of ourselves, Acampora added. “If we accelerate, as we’re doing right now … we get into nosebleed territory,” Acampora said. “Because the charts are starting to spike up … and I get a little nervous with that. … We could get a blow-off right here. Call it the Trump Blow-off.”

Any kind of rate hike, which appears increasingly likely in March, could be the catalyst for a correction, Acampora stated. Despite these potential short-term problems with markets being overextended and extreme sentiment materializing, Acampora sees a secular bull market with room to run.

“If we look across the valley, what Trump is proposing bodes very well longer term,” he said. Though in the near-term, rising rates may be the catalyst for a sell-off, in the long-term they help banks, as the steeper yield curve allows Financials to make the difference in the spread. “What we’re planting are the seeds for a very long-term positive recovery,” Acampora said.

Snapchat: Silicon Valley’s ‘Sock Puppet’ 2.0 Moment

The most widely anticipated Tech IPO of the year, Snap Inc. (aka Snapchat™) made its debut last Thursday as the first in what was touted as the – and I do mean the – resurrection and return of the all but barren IPO dreams-to-riches, fairytale cash-out.

The virtual, as well as literal champagne was flowing widely as everything tech (aka “The Valley”) seemed to release its collective breath as the prices for SNAP rose ever the higher. All that seemed missing was the proverbial “Mission Accomplished” banner.

That was Thursday, but by Monday – Snapchat’s core product for augmenting the reality of photos met the cold reality of “Business 101” and all those touted profits (e.g. up 44% from its IPO price) began vanishing much like those augmented photos are claimed to do. i.e., “Poof” Now you investment dollars match the company’s product.

As of this writing: If you invested $1 in Snapchat as a public company when it opened on the NYSE™ (remember it opened to retail customers at $24 per share with great fanfare!) you have lost approximately 10% if not more, maybe, much more. And If you were one of those who purchased after the open? Say like late Thursday or Friday? All I’ll say is, “You have my condolences.”

“Retailers Are the New Oil & Gas,” Only Worse

Brick-and-mortar retailers, many of them subject to leveraged buyouts during the LBO boom before the Financial Crisis and now burdened with way too much debt, are keeling over one after the other, in a dense wave of debt restructurings and bankruptcies. And creditors are getting skinned.

The crash of brick-and-mortar retail is due to structural causes – including the shift to online retail – fueled by way too much debt. These issues will not go away. They will only get worse.

Even profitable retailers, like Macy’s are shuttering stores. They’re all doing it, profitable or in bankruptcy. This is starting to impact the loans these malls are carrying and that have been packaged into commercial mortgage backed securities.

On March 6, Fitch Ratings warned that JC Penney’s plan to close 140 stores over the coming months “will weigh” on the CMBS that are exposed to these malls, particularly since many of these malls face multiple store closings, not just by Penney’s but others as well, including anchor stores, such as Macy’s or Sears.

Caterpillar CEO: Surprised by Federal raid

The Path to $10,000 Gold - Jim Rickards

I’m very impressed with the recent gold action because it’s holding its own in the face of an impending rate hike. It’s fallen off a bit, but not dramatically. It tells you there are good fundamentals behind it, independent of the threat of a stronger dollar.

I believe the Fed is preparing to raise into weakness and will have to reverse course in April or May. What happens to gold then? It’s going to go higher again, because the Fed will cheapen the dollar, and that’s very bullish for gold. So I expect gold to take off in the spring and finish the year very strongly. It could challenge $1,300 or $1,400.

Now, as many of my readers know, my long-term forecast is for $10,000 gold. We’re obviously not there now. So how do I arrive at $10,000? I want to give the basis for that forecast. I never give any forecast without giving the analysis behind it. Anybody can pull a prediction out if a hat. If you don’t have the analysis to back it up I’m not interested.

So let’s go through the math, because there is a solid mathematical basis for $10,000 gold. It’s actually the implied non deflationary price of gold under a gold standard. The combined M1 money supply in the world is about 24 trillion dollars. That includes the United States, China, the Eurozone and Japan. Those four entities combine for over 70% of global GDP. Now, the official gold in the world is about 33,000 tons. That’s not counting private gold, because private gold is not part of the money supply. So if you wanted to restore a gold standard, how much gold do you need to back up the money supply? My estimate is about 40%.

Rasmussen: Most Americans Believe Trump Will Accomplish Some - If Not Most - of His Agenda

A new Rasmussen Reports poll reveals that a majority of Americans (75%) think President Trump is likely to accomplish at least some or most of his agenda that he proposed in his address to Congress last week – including creating more jobs, rebuilding U.S. infrastructure, and reducing illegal immigration.

Forty-three percent (43%) of likely U.S. voters say that Trump is likely to fulfill at least some of his promises to the American people and 32 percent expect him to achieve most of them. Just 20 percent doubt Trump will be able to achieve any of his proposed plans.

Rasmussen’s survey also showed that Americans view Trump’s objective of creating jobs as the most important: “Given six specific action items from the president’s speech, 26% of Likely U.S. Voters say creating more jobs is most important,” Rasmussen reports. “In second place is Trump’s proposed infrastructure plan to rebuild America’s roads, bridges and tunnels, rated most important by 19%.

“Fourteen percent (14%) think reducing illegal immigration should be the priority, followed by 11% each who rate cutting taxes and repealing and replacing Obamacare that way. For eight percent (8%), defeating radical Islamic terrorism is most important, while six percent (6%) opt for something else.”

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