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Wednesday 04.12.2017

'The dominoes are starting to fall': Retailers are going bankrupt at a staggering rate

Retailers are filing for bankruptcy at an alarming rate that's quickly approaching recessionary levels.

It's only April, and nine retailers have already filed for bankruptcy since the start of the year — as many as all of last year.

"2017 will be the year of retail bankruptcies," Corali Lopez-Castro, a bankruptcy lawyer, told Business Insider after she attended a recent distressed-investing conference in Palm Beach, Florida. "Retailers are running out of cash, and the dominoes are starting to fall."

Payless ShoeSource, hhgregg, The Limited, RadioShack, BCBG, Wet Seal, Gormans, Eastern Outfitters, and Gander Mountain are among the retailers that have filed for bankruptcy so far this year, and most are closing hundreds of stores as a result. On top of those closures, retailers that are staying in business — at least for now — are shutting down a record number of stores. More than 3,500 stores are expected to close over the next several months. Annual retail bankruptcies peaked at a total of 20 in 2008 — a level that the US could reach by September if the current rate of filings continues, according to CNBC.

Wal-Mart is cutting hundreds of jobs to slash costs

Wal-Mart is eliminating hundreds of jobs in its latest attempt to cut costs as it invests in online. The layoffs span the company's international, technology and Sam's Club divisions. They follow Wal-Mart's decision to eliminate some 1,000 corporate positions earlier this year, including 200 in its e-commerce division.

A spokesman for the retailer confirmed the job cuts to CNBC, which had originally been reported by Dow Jones. "It's really a continuation of what we said back in January," Wal-Mart spokesman Randy Hargrove told CNBC. "It's all part of managing our costs and our capital."

Indeed, the company said earlier this year that it was looking at its corporate headcount for ways to operate more efficiently. That round of layoffs came a few months after Wal-Mart's investor day, when the retailer said it would invest more of its dollars into digital and slow its physical store growth.

In total, Wal-Mart has eliminated roughly 18,000 jobs since early last year, Hargrove confirmed. However, many of the affected employees have been reassigned, he said.

Aerojet Rocketdyne to cut 1,100 jobs

Saacramento will lose 1,100 jobs over the next 18 months as rocket engine maker Aerojet Rocketdyne plans to relocate or cut positions in that facility and move jobs to Alabama, Canoga Park and other locations.

The job changes are the next phase of a multiyear plan initiated in 2015 to reduce costs and increase operational efficiency, said Eileen Drake, Aerojet Rocketdyne’s chief executive.

She said these changes will move “common work with common facilities,” adding that much of the work done in Sacramento is related to defense. By the end of 2018, defense-related program management, engineering and related support positions in Sacramento will move to Huntsville, Ala., where the company’s defense business unit is based. Huntsville is also the final assembly site for Aerojet Rocketdyne’s new AR1 rocket engine.

Sacramento jobs in space programs will move to Canoga Park, where the company has its space headquarters and develops several different kinds of rocket engines. Aerojet Rocketdyne’s Canoga Park location also has a 100,000 square-foot manufacturing facility where several machines create parts through additive manufacturing, better known as 3-D printing.

Here's how Wells Fargo workers created fake accounts

Fed's Williams sees rate hikes

San Francisco Federal Reserve Bank President John Williams said on Tuesday the U.S. central bank should raise interest rates three or four times this year, and begin to trim the Fed's multitrillion-dollar balance sheet in late 2017.

"We need to further raise our benchmark interest rate and bring it back to a normal level over this year and next year, and we should also begin to normalize our balance sheet toward the end of this year," Williams said in an interview in the German publication Borsen Zeitung.

"Three to four interest rate hikes seem appropriate this year," he said, adding that unemployment, at 4.5 percent, has already overshot what is in his view full U.S. employment. "It certainly makes sense that we position ourselves so that we are able to either pause or further increase toward the end of the year."

In a separate interview, published by German paper Handelsblatt, Williams took aim at the possibility that U.S. President Donald Trump could follow through on a campaign promise to impose tariffs on China and other countries that run a trade surplus with the United States.

Gymboree Said to Prepare Bankruptcy Filing as Debt Payment Looms

Gymboree Corp., the struggling children’s clothing retailer, is preparing to file for bankruptcy as it faces a June 1 interest payment on its debt, according to people with knowledge of the matter.

The Bain Capital-controlled company is seeking to reorganize its debt load and may transfer control to its lenders, including Searchlight Capital and Brigade Capital Management, said the people, who asked not to be identified because the process isn’t public.

Representatives for Bain, Gymboree, Brigade and Searchlight declined to comment. Gymboree, laboring under more than $1 billion in debt from its Bain buyout in 2010, warned last month that it’s running short on cash and may not survive if it can’t persuade creditors to refinance its debt. The June 1 interest payment applies to its 9.125 percent notes that are due 2018.

The retailer, which operates about 1,300 stores, hasn’t posted an annual profit since 2011, with losses totaling more than $800 million. Gymboree hired Rothschild & Co. to advise it on a potential restructuring this year, people with knowledge of the matter have said.

Boomers Expect to Rely Heavily on Social Security in Retirement

Thirty-eight percent of middle-income Baby Boomers—those with a household income between $30,000 and $100,000 and less than $1 million in investable assets—expect Social Security will be their primary source of income in retirement, up from 30% before the financial crisis of 2008, according to a study by the Bankers Life Center for a Secure Retirement.

In lockstep with this, 43% of middle-income Boomers planned on primarily relying on personal savings in retirement, prior to the recession. Today, that is only 34%, according to the study, “10 Years After the Crisis: Middle-Income Boomers Rebounding But Not Recovered.”

A scant 2% of middle-income Boomers think the economy has fully recovered, and 65% say they haven’t felt any personal benefit from a bounce back. Of this group, 52% say their savings are lower than they were before the recession, and 40% say they are not earning as much. Sixty-eight percent are worried they will be hit with yet another financial crisis in their lifetime.

Prior to the financial crisis, 45% expected to retire debt-free, and today, that is only 34%. Previously, 23% expected they would be able to leave an inheritance to their heirs, but today, that is only 16%. Nonetheless, 92% of Boomers still plan to retire. However, 48% plan to work either full-time or part-time in retirement—up from 35% before the crisis.

To the moon: Amazon is on track to crack $1,000, Wall Street predicts

All those TVs, books, Echos, diapers and water filters have sent Amazon stock to the stratosphere. Wall Street thinks it can go to the moon. Eleven analysts forecast this week that Amazon (AMZN) will hit $1,000 a share in 2018, with nine of them forecasting it will go even higher, according to S&P Global Market Intelligence. Among the most rosy — a prediction of $1,250 — would amount to a nearly 40% surge from Tuesday's price of $902.

The lowest predictions were for $850 and $895, but most were in the $900 to $995 range. If the stock ran up that far, Amazon would be worth a whopping $596.6 billion in market capitalization, outpacing Microsoft and Google's parent company Alphabet—but still well below Apple, currently the world's most valuable company, worth $742 billion.

It would also put Amazon CEO Jeff Bezos in spitting range of the title of world's richest person, Microsoft co-founder Bill Gates, who's ranked No. 1 on the Bloomberg Billionaire Index with personal wealth worth $86.4 billion. Bezos, estimated to be worth $78.2 billion, has said he plans to sell $1 billion a year in Amazon stock to fund his Blue Origin commercial space ventures.

The reasons Wall Street is convinced Amazon's stock will continue to shoot for the stars include the company's continued, enviable growth. Brokerage Piper Jaffray forecast Amazon will hit $1,000 in part because of the deep penetration its Amazon Prime service is making in the United States, estimating that the service added 10 million more households in the past year, a 20% year-over-year growth rate.

Is your data safe at US airports?

Education Secretary DeVos Withdraws Protections For Student Loan Borrowers

Relatively new federal guidelines intended to to make the student loan repayment process more accurate and transparent have all been rescinded today by Secretary of Education Betsy DeVos — a move that consumer advocates says removes accountability for debt collectors and loan servicers.

Last summer, the Department of Education, in consultation with the Consumer Financial Protection Bureau, released enhanced guidelines aimed at crafting the way in which the federal government contracts with outside companies to service federal student loans in order to ensure borrowers get the service and protection they deserve.

But today, in a memo sent to the Federal Student Aid office, Secy. DeVos withdrew two pieces of guidance from 2016 that required FSA to consider servicers’ past behavior when awarding contracts, including whether the company had misled or provided wrong information to borrowers or engaged in abusive consumer service.

In her letter, DeVos made vague claims that the previous administration’s processes lacked “consistent objectives.” The Secretary also called for the creation of a “student loan servicing environment that provides the highest quality customer service and increases accountability and transparency for all borrowers, while also limiting the cost to taxpayers.”

Prepare for the “Trump Trade” Reversal

All good things come to an end. Now, the “Trump Trade,” seems to be reaching its end. The Trump Trade, also called the reflation trade, is based on the idea that President Trump’s policies of lower taxes, less regulation, and more infrastructure spending will improve corporate earnings, stimulate consumer spending, and therefore result in higher stock prices.

Lower corporate tax rates would mean higher after-tax profits for corporations that had domestic profits. Lower individual tax rates would mean that consumers would have more discretionary income to spend on everything from new cars to eating out.

Trump’s planned repeal of Obamacare would be good for hospitals and insurers who would be relieved of mandates. Trump’s repeal of Dodd-Frank would be good for banks because of reduced compliance costs and greater ability to engage in proprietary trading. Trump’s infrastructure spending plans would be good for construction companies and manufacturers of heavy equipment.

In short, there was something for everyone in the Trump program. That’s why, from November 8, 2016, the date of Trump’s election, to March 1, 2017, the Dow Jones Industrial Average staged an historic rally from 18,332.74 to an all-time high of 21,115.55. This was a 15% gain in just 15 weeks!

Inside the War on Cash

Kim Messina, going through her normal before-work routine, stood in line at Starbucks to buy a coffee to start the day. When the barista asked her for the $4.50 for the grande latte with almond milk, Messina did what she did every other day -- she pulled out her credit card. "I didn't have my full wallet on me," said the 32-year-old, New York-based digital media producer, who added she really began noticing using her cards more than cash about 15 years ago. "I had my credit card holder, which has my MetroCard, my license and a couple of credit cards. It's just easier to bring that with me wherever I go than my big wallet."

Aside from an occasionally joining friends for a birthday dinner or getting her nails done (the salon lacks a payment infrastructure to take credit cards), cash is hardly ever an option for Messina. "I just don't think about it," she says. Messina, like most Americans, is using cash at a much less frequent pace than they did several years ago -- a trend that's not slowing down anytime soon.

According to a June 2016 Gallup poll, 24% of Americans use cash for purchases, down from 36% five years ago. One of the chief reasons is the continued increase in technological innovations, both on the payments side and the purchasing side.

"As mobile technology and e-commerce have proliferated, Americans can use their cellphones and computers to make purchases," the poll's findings read. "And, with the onset of PayPal, Google Wallet, Apple Pay and numerous other mobile payment options, Americans may find that paying for items electronically is more convenient than having to carry cash for in-person purchases."

United Airlines Stock Drops $1.4 Billion After Passenger-Removal Controversy

Even as the internet kicked up a maelstrom of outrage, investors still thought United Airlines' decision to forcibly eject a customer from an overbooked flight would have little effect on the company's profits.

But that changed Tuesday, when shares of United fell as much as 6.3% in pre-market trading, dropping $1.4 billion from the now $21 billion company by market cap. By early trading Tuesday, shares were down 4%.

It didn't help that apologies from United and its CEO Oscar Munoz were deemed tone deaf and insensitive by many on social media. Or that more video footage surfaced throughout the day Monday showing the passenger bleeding from the head and clinging to a curtain on the aircraft. The incident even prompted an investigation by Department of Transportation.

And rather than blowing over after a night's rest, the outrage only grew after Munoz sent an email to employees late Monday defending his staff's action and calling the passenger "disruptive and belligerent." Soon enough, the anger became global, with some questioning the practice of overbooking flights.

Where US interest rates are heading

Toshiba Issues ‘Going Concern’ Warning

Hard on the heels of the bankruptcy filing of its U.S. nuclear power unit, Toshiba has warned that it may not be able to stay in business. The warning came as the ailing Japanese conglomerate released unaudited third-quarter results showing it lost 648 billion yen ($5.9 billion) and projected a 1.01 trillion yen ($9.2 billion) for the full year ended in March.

“There are material events and conditions that raise the substantial doubt about the company’s ability to continue as a going concern,” Toshiba said Tuesday in a financial report that had been repeatedly delayed amid disputes with its auditors.

The nuclear unit, Westinghouse Electric, filed Chapter 11 last month and Toshiba has taken a $6.3 billion stemming from the subsidiary’s cost overruns at power plant projects in Georgia and South Carolina. The company is now hoping that the sale of its core Nand memory chip business will stave off financial disaster.

“We will do what we can to avoid being delisted from the stock exchange,” Satoshi Tsunakawa, Toshiba’s chief executive, said at a news conference after apologizing to shareholders for Toshiba’s latest worrying turn. But as The New York Times reports, the refusal of Toshiba’s auditor, PwC Aarata, to certify its third-quarter earnings is “a highly unusual signal of doubt about the company’s ability to recover its financial health.”

How the Fed snuck billions of dollars into the economy

Last Thursday, I wrote about the Federal Reserve remarks that it would probably start to wind down the trillions in bond purchases it made during the quantitative easing stimulus program.

I explained that these bonds were purchased with fake money — money that was “printed” for the sole purpose of purchasing the bonds, which in turn kept interest rates exceptionally low. I also explained the dilemma that the Fed now faced in what to do with those bonds. Can’t just throw them away — or burn them in a pile with Alan Greenspan’s biography as kindling.

I suggested that the Fed would be forced to “monetize” the bonds by turning them over to the Treasury. This is seen as very inflationary by economists since it creates more money that people could spend on goods and services — which will drive up prices. But it also will allow the Treasury to pay down some of the $20 trillion in US debt — which is also inflationary.

But there was one thing I left out of that column, and a reader named Keith Ryan, senior vice president of wealth management at UBS, pointed it out. The Fed has actually already been monetizing “small” amounts of the interest income from the QE bonds by turning over its profits to the Treasury Department yearly. So billions of dollars of this fake QE money — interest on bonds bought with this newly printed money — have already flowed into the economy.

The latest Millennial moving trend: 'vacation moves'

Millennials who are considering relocating to a new city might make a temporary -- or “vacation” move -- to the city in question before permanently putting down roots there. That’s a key takeaway from a new survey conducted by moving company Mayflower.

Findings from Mayflower’s poll of 1,000 Millennials revealed that two in five have moved to a new city without the intention of staying permanently. Upon arriving in their vacation city, 74% of respondents said they had a plan to leave within a certain timeframe.

"Millennials are a generation of what I call 'adventure movers,'” said Dr. Jeffrey Arnett, Research Professor in the Department of Psychology at Clark University. “Their motivations for moving are influenced by a sense of adventure, making these moves relatively short-term.”

While 30% of respondents moved in search of a new lifestyle or experience, other “vacation movers” had more practical motives. The survey found that 40% moved to a new city to work at a new job and 26% moved to find a new job. Twenty-somethings often feel that they have a great deal of freedom and instability, Arnett explained. “This flexibility allows millennials to make moves in search of new job opportunities or adventures, even if they don't plan to stay in the long run,” he said. So, when do Millennials plan to firm up their plans and settle down? For 78% of Millennials surveyed, age 35 was the magic number. But one in four (27%) said they plan to have a permanent home before age 30.

Canada faces risk from potential housing correction: Moody's

Moody's Investors Service has released a report that identifies Canada as one of four Aaa-rated countries that are exposed to a potential housing market correction.

In addition to Canada, the report lists New Zealand, Sweden and Australia as countries that have seen the largest increases in home prices and household debt among advanced economies over the last three years.

Moody's says a housing downturn could involve material spillovers to the broader economy for Canada and New Zealand, where residential construction accounts for approximately 7.5 per cent of GDP in both countries.

However, Moody's says that unless reversals in house prices are accompanied by other long-lasting negative shocks, they would not fundamentally undermine the sovereigns' credit profiles.

Keiser Report: What is Wrong with America? The answer is “Jamie Dimon

AAA study: Third of U.S. car owners can't afford surprise repairs

Nearly one-in-three American motorists cannot pay for vehicle repairs without taking on debt, according to a new study from AAA.

The study estimates 64 million drivers could not pay out-of-pocket for an average repair bill of $500 to $600. There are about 210 million licensed motorists in the country, according to the U.S. Department of Transportation. About 76% of men said they could afford the expense, while only 62% of women could do the same.

“We were a little shocked at the results,” said Michael Calkins, AAA manager of technical services. “That one-third of American drivers couldn’t afford the cost of a $500 auto repair is a little concerning.” AAA suggests motorists adhere to a scrupulous vehicle maintenance schedule and set aside $50 a month to build a fund for maintenance and unexpected repairs. But some motorists don’t – or can’t. About one-third of U.S. drivers delay or skip recommended car maintenance, Calkins said, a possible lingering repercussion of the 2008 recession.

Motorists pay later for putting off vehicle maintenance now, as worn-down parts increase the likelihood of costly roadside breakdowns, Calkins said. A car-care fund can help motorists stick to their maintenance schedules, but for many low-income families, $50 a month is a big ask, said Asley Orr, executive director of Good News Mountaineer Garage, a nonprofit that donates used cars to West Virginians who need transportation to work.

An iPhone 7 factory worker thinks if Apple manufacturing jobs came to the US, they’d be taken by robots

It’s now a little clearer what working in an iPhone assembly plant is like. Business Insider spoke at length with Dejian Zeng, a New York University grad student who decided to spend his summer working at a factory near Shanghai for a summer project as part of a Global Human Rights fellowship. The factory was owned by Pegatron, one of the companies Apple uses to assemble its products. Zeng told Business Insider about the rough hours, the exceedingly low pay (he received around $450 a month), and having to share a room with six other workers in Pegatron’s complex. A large portion of Zeng’s summer was spent screwing exactly one screw into iPhone casings, over and over, for about 12 hours a day.

Zeng’s interview in its entirety is definitely worth a read for a deep look on how the workers that assemble the phones on which many of you are reading this story. But one insight near the end will likely be of interest to Donald Trump, who made bringing jobs just like these back from China and other developing nations a core piece of his presidential campaign platform, and has publicly pressured Apple CEO Tim Cook to assemble the iPhone in the US. When asked whether this sort of work could be done in the US, Zeng told Business Insider:

From the labor perspective I don’t think it’s very realistic for bringing labor intensive manufacturers into the US. Why I’m saying that? Just think about wages. Chinese people are getting 2320 yuan which is about $400 per month. How much are you going to pay for the US workers in terms of base salary?

If it really happened, if factories actually really moved to the US, I won’t see it create lot of jobs. I would see workers getting replaced by a lot of machines, because a lot of the work I see in the factory can actually be done by machine. The only reason why we do it [manufacture in China] is because the labor is even cheaper than the machine.

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