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Thursday 01.12.2017

160 million Americans can't afford to treat a broken arm

A lot of Americans are really struggling. The precarious personal finance situation of Americans has made news for years. It is something we've written about a lot at Business Insider.

Elevate's Center for the New Middle Class wanted to look into the issue to find when an unexpected expense becomes a crisis for ordinary Americans. And t he results were pretty depressing. Elevate carried out a study based on a 10-minute online questionnaire surveying 502 nonprime (credit score below 700) and 525 prime Americans (credit score of 700 or above).

It turns out that nonprime Americans with credit scores below 700 are likely to be hit harder, and more often, by unexpected expenses than prime Americans. 160 million Americans come under the nonprime category, according to the study.

"A bill becomes a crisis for nonprime Americans at $1,400. For Prime, it’s $2,900," the study said. "An unexpected expense becomes a significant disruption to prime Americans when it is 53% of their monthly income. Nonprime Americans can only swallow a 31% impact to their income." The study noted that many common expenses, such as covering the out-of-pocket on a broken arm, an apartment security deposit, or replacing a vehicle transmission, cost more than $1,400.

Chicago Mayor Pushes Moody’s to Rescind City’s Junk-Bond Rating

Chicago is stepping up its battle with Moody’s Investors Service ahead of a $1.2 billion bond sale next week.

Mayor Rahm Emanuel, a Democrat who pushed through a record tax increase to shore up the city’s finances, asked the company to pull its junk rating on Chicago’s debt, saying it’s exaggerating the risks to bondholders and failing to recognize steps he’s taken. Chicago has already stopped hiring Moody’s to rate new bond deals, relying instead on rivals S&P Global Ratings and Fitch Ratings that continue to consider its debt investment grade.

“It has become increasingly clear that Moody’s rating methodology and agenda are far from objective and independent,” Emanuel said in a Dec. 8 letter to Moody’s Chief Executive Officer Raymond McDaniel that was released by the city. “Your current rating does not accurately reflect the city’s credit or our ability to pay debt service when due.”

Chicago became the only major U.S. city outside of Detroit with a junk rating in 2015, when Moody’s downgraded it because of the escalating pension bills triggered by years of failing to set aside enough money to cover promised benefits.

Third of global consumers open to Google, Amazon banking: survey

Roughly one in three banking and insurance customers globally would consider switching their accounts to Google, Amazon or Facebook if the Silicon Valley giants offered financial services, according to a new survey on Wednesday.

The survey, conducted by consulting firm Accenture, found that among 32,715 people polled in 18 countries there was broad consumer demand for banks and insurance companies to use robo-advisory services, or software propelled by artificial intelligence or less human intervention.

In Brazil, 50 percent of respondents said they would be willing to switch their personal accounts. In Indonesia and Italy, 47 percent and 42 percent of respondents, respectively, said they would switch accounts. But according to the survey, if the tech titans offered those services, 31 percent of global respondents would switch to Google, Amazon or Facebook for banking, and 29 percent would switch for insurance.

Already a trend in the wealth management industry, Wall Street banks and investment firms are increasingly building or buying so-called robo-advisers to provide automated investment advice through web-based platforms at a lower cost than traditional financial advisers.

US Will Devalue Debt and Devalue Dollar

Boeing plans buyouts, layoffs for engineers in first of three cuts for 2017

Boeing announced internally on Tuesday a new round of employee buyouts for engineers companywide, and warned that layoff notices will follow later this month for engineers in Washington state.

Management did not disclose a target for the number of projected job cuts. Last month, company vice chairman Ray Conner and the new chief executive of Boeing Commercial Airplanes (BCA), Kevin McAllister, warned that further employment reductions loomed in 2017.

John Hamilton, BCA vice president of engineering, sent a memo on the job cuts shortly after noon Tuesday to all BCA engineering employees, managers and executives.

“As we enter 2017, our plan calls for us to reduce our engineering staff,” Hamilton told employees. “I realize some of this news is unpleasant. But I wanted to respect your right to know what is occurring this year.” Hamilton’s memo states that details of a buyout offer will be sent on Friday to engineering employees in eligible skill classifications. The last workday for those who accept the buyout will be April 21.

70 Years Old & $180K in Student Loan Debt: ‘Nothing to Do But Pay Until We Die’

It’s an old joke that’s quickly becoming reality for many student loan borrowers: “I’ll be paying off my student loans until I die.”

During the past decade, there’s been a stunning rise in student loan debt owed by older Americans. The number of Americans aged 60 or older with one or more student loans quadrupled from 2005 to 2015, the Consumer Financial Protection Bureau revealed last week. The average debt load on that group has swelled from $12,000 to $23,500. And there has been a near five-fold increase in the number of retired Americans who see their Social Security checks auto-deducted to pay off federal student loans in default.

Ken Stumpf, a 70-year-old borrower from Colorado, lays out the stark reality he and his wife face. “We are both buried from our own student debt. Nothing to do but pay until we die,” he said.

Stumpf spent 33 years in the U.S. Army, mostly working in the Signal Corps as an information technology specialist. His mixture of federal and private student loans are current, but there’s no chance he’ll ever pay them off. In the mid-1990s, he went to graduate school to earn a master’s in Recreation and Park Administration. He borrowed $70,749 to pay for that degree. After a combination of deferrals and minimum payments, today his monthly student loan bill is a fairly reasonable $227. But his outstanding balance is $81,000 — more than he initially borrowed.

US Oil and Gas Jobs See First Gains in 2 Years

Rising rig counts and an uptick in drilling activity is leading to a rebound in employment in the oil and gas industry, according to recent data.

Payrolls in the oil and gas sector in the United States rose for the month of November, recent US government data shows, the first monthly gain in over two years. Employment in oil and gas extraction and support services rose by 3,300 for the month, rising to 384,300. That comes after the industry lost over 150,000 jobs during the two-and-a-half-year downturn.

While one month’s worth of statistics does not make a trend, the data suggests that the worst is over. The market is passed the low point and even as companies continue to repair balance sheets, oil trading above $50 per barrel is sparking a rebound in drilling activity and hiring. The rig count is already up by more than 200 oil rigs since the middle of last year, posting six consecutive months of gains. US shale output is also rising, up about 300,000 bpd from last summer, according to preliminary data.

The big question is whether or not spending on drilling will rise substantially this year or simply level off at these low levels. Estimates from market watchers vary. Cowen & Co., a financial services company, surveyed 25 E&Ps and found an average increase in capex by 33 percent this year compared to last. Barclay’s expects a more modest 7 percent growth in capex across a more comprehensive measure of 215 global oil and gas companies. The industry could more aggressively ratchet up spending if oil prices rise. Raymond James says spending could double if oil rises to $65 per barrel in the first quarter.

Will Automation Take Over Senior Finance Jobs?

Could the roles of senior finance executives grow obsolete, replaced by a robot or other technology? Some of them apparently think so, according to a poll by the New York chapter of Financial Executives International.

In the poll of 83 finance executives, 10% said they believed that some senior finance positions — at least, as we know them — will be replaced one day in a world of artificial intelligence, repetitive tasking, and increasing automation. A further 25% deemed such replacement “possible.”

“Presumably these executives will be working to restructure [senior finance roles] to emphasize functions that cannot be automated and to take advantage of free time that automation affords them,” said Matthew Cooley, president of FEI’s New York City chapter.

Asked when the replacement will happen, 8% of those polled said it’s happening now or will happen in two to five years. The remainder said it would happen more than five years from now (34%) or never (58%). By a 19% plurality, respondents selected the position of director/vice president of financial planning and analysis as the most likely to be eliminated, followed by corporate controller/chief accounting officer (12%) and tax director (10%). None of the respondents thought the position of CFO would be first to go.

The Real Story Behind The Latest Jobs Numbers

The government recently announced that the economy added just 156,000 jobs in December (down from 204,000 a month prior) and unemployment ticked up to 4.7%. The weakening numbers fell short of expectations, and yet they still don’t reflect the full employment picture.

The reality is, labor participation—at a historically low rate of 62.7%—remains the gaping hole in the bottom of the jobs data bucket, and the longer we ignore the problem, the worse it is getting.

The decline in labor participation throughout President Obama’s tenure in office is so staggering that it’s difficult to understand how it has escaped the notice of the press. The average person in middle America certainly knows and has felt the impact. Let’s review the facts and then analyze the situation.

First, the facts: According to the Bureau of Labor Statistics, the labor participation rate—a measurement of people who are either employed or are actively seeking work—when President Obama took office in January of 2009 was 65.7% and unemployment was at 7.8%. When the recession ended in June of that year, the labor participation rate was still unchanged at 65.7%, but by then the unemployment rate had increased to 9.5%.

Suddenly, Home Sale Agreements Are Falling Apart Across the US

Spending months to find the perfect home in your price range, only to have your mortgage application rejected, or a home inspection turn up expensive repairs, is a nightmare—one that is coming true with increasing frequency, according to a new report from real estate listings website Trulia.

A Trulia analysis of U.S. listings shows that 3.9 percent of homes that moved from for-sale to pending moved back to for-sale again, nearly double the rate in 2015. Such “failed sales” increased in 96 of the 100 biggest U.S. metros, with big swings in areas large and small, rich and poor. That includes Los Angeles and Charleston, S.C., as well as San Jose and Akron, Ohio.

In Ventura County, Calif., where the median home value is $548,000, 11.6 percent of prospective sales failed to close in 2016. That’s the highest in the U.S., up from 3.1 percent in 2015. Tucson, where the median home price is $176,000, had the second-highest rate of failed sales, at 10.8 percent, up from 3.5 percent the year before.

The problem of failed sales has been most acute for cheaper homes and older ones: Some 6.3 percent of sales of starter homes fell through last year, according to Trulia’s analysis, compared with 3.6 percent of so-called premium home sales. Homes built in the 1960s had the highest fail rates, while sales of newer and older houses were more likely to go through.

Fed Pays Banks $12 Billion on “Excess Reserves,” Taken from Taxpayer Pockets

The Federal Reserve just went through its annual ritual of disclosing its preliminary results for the year: The income it earned less its operating expenses, according to central bank accounting, and how much of these earnings it is remitting, as it does every year, to the US Treasury Department. But this statement includes another nugget.

In 2016, the Fed paid our favorite banks $12 billion in interest on their “excess reserves” held at the 12 regional Federal Reserve Banks (the New York Fed, the Boston Fed, the Dallas Fed, the San Francisco Fed, etc.). But wait… who’s actually paying that $12 billion?

Is it just a well-earned freebie for the banks, conjured up out of nothing, in Fed-style? Nope. The taxpayer paid the $12 billion to the banks. Here’s how. The Fed earns interest income from the $2.46 trillion in Treasury securities and from the $1.74 trillion in Agency mortgage-backed securities on its balance sheet. These are the securities the Fed bought from its Primary Dealers with money that it had created under the QE program. So now, it’s collecting the coupons. This is its income.

After subtracting its operating expenses ($709 million in 2016) and the interest it pays to the banks for their “excess reserves,” it remits the remainder to the Treasury Department. This is revenue for the US government, which can use every dime it gets.

More Corporate Defaults, Central Bank Desperation in 2017

Nomi Prins joined Yahoo Finance and The Final Round’s Jen Rogers to discuss the events facing 2017 – including increased corporate defaults, market volatility and the impact of oil under Rex Tillerson at the U.S State Department.

When posed the question about economic growth and the incoming Trump administration Prins did not mince words saying, “Ultimately what is going to happen is he’s not going to be able to push a “mega fiscal budget” through a Republican Congress, nor will he try. Nor will he be able to sustain the kind of growth that he has promised. There may be a PR element, but in terms of actual conversions and the practical realities of the economy, that was weak to begin with for so many people, that’s not going to be a reality. That is going to take its toll on not just our stock market, but will add uncertainty into the rest of the world that is looking at these expectations.”

Nomi Prins is the best selling author of All the Presidents’ Bankers and is currently working on her latest book, The Artisans of Money. Prins is a former Managing Director at Goldman Sachs and worked at an array of the most influential Wall Street banks. She continues to be a strong advocate for a modern Glass-Steagall Act and breaking up big bank institutions that pose a threat to the global economy.

When asked about the outlook for the Fed, growth projections, and whether the U.S central bank will have to get ahead of inflation she responded, “We have had a price inflation, in terms of the cost of living, but we haven’t had inflation in terms of the areas that the Fed actually measures. What was interesting about when the Federal Reserve raised rates in December, which had been done a year earlier in December as well, was that they projected last year (after examining what they’re looking at for forecasts based in growth and the economy) four rate hikes, we got one. This year they have only projected three. In effect the status on their own projections is actually more accommodative than it was the year before.”

Tillerson: 'I do not oppose TPP'

American Apparel is now Canadian

American Apparel has a new owner that isn’t American at all. Gildan Activewear won the Jan. 9 bankruptcy auction for the beleaguered company, once a favorite of young shoppers that over the past few years has collapsed under the weight of scandals, lawsuits, the firing of founder Dov Charney, and shifting consumer tastes.

Gildan is a Canadian wholesaling giant known for making the blank t-shirts other brands often use for printing—Kanye West’s pricey “Life of Pablo” tour t-shirts, for example. The $88 million acquisition, which is pending the approval by the bankruptcy court in New York, should be completed by early February, according to Gildan.

The deal closes a long, trying chapter for American Apparel, which has dealt with multiple changes in management and two bankruptcies in just a few years. But this isn’t the end of the brand itself, at least not entirely.

“That’s what we’re buying,” Gildan spokesman Garry Bell says. “We’re buying the brand, and some manufacturing assets.” Gildan will acquire American Apparel’s trademark, patents, and other intellectual property, as well as a good portion of the production and distribution equipment at American Apparel’s facilities in Los Angeles.

World Economic Forum says capitalism needs urgent reform

Reforming the very nature of capitalism will be needed to combat the growing appeal of populist political movements around the world, the World Economic Forum said Wednesday.

Getting higher growth levels, it added, is necessary but insufficient to heal the fractures in society that were evident in the election of Donald Trump as U.S. president and Britain’s vote to leave the European Union.

In a wide-ranging report from the organizer of the annual gathering of political and business leaders in the Swiss resort of Davos, the WEF identified “rising income and wealth disparity” as potentially the biggest driver in global affairs over the next ten years.

As an example of this growing inequality, the WEF highlighted the massive increases in CEO pay at a time when many people in advanced economies have struggled to make ends meet following the global financial crisis. “This points to the need for reviving economic growth, but the growing mood of anti-establishment populism suggests we may have passed the stage where this alone would remedy fractures in society: reforming market capitalism must also be added to the agenda,” it said in its latest Global Risks Report.

Holiday Shoppers Spent More than They Had Intended

The International Council of Shopping Centers (ICSC) released its Post-Holiday Shopping Survey, finding that consumers spent an average of $711 on gifts and other holiday-related items this holiday season. This represents a 16 percent increase over 2015's post-holiday survey results ($611) and is four percent ($27) above holiday shoppers' intentions as measured in ICSC's Holiday Shopping Intentions Survey in October.

"Consumer confidence continued to improve into December and we saw this optimism reflected in the holiday spending numbers," said Tom McGee, President and CEO of ICSC. "The strong holiday shopping season suggests a positive environment for retail sales overall."

In total, consumers spent an average of $897 on gifts and related items, dining, movies and other entertainment experiences at malls and shopping centers this holiday season. Gen X spent the most averaging $1,000, followed by Baby Boomers ($875) and Millennials ($867). Experiences accounted for twenty percent of total consumer holiday expenditure, with millennials topping this spending category at $220.

More than half (51%) of all holiday shoppers waited until the days leading up to Christmas to complete their shopping, reinforcing the need for retailers to keep pace with technology as it continues to change purchasing habits and give consumers more options. Almost 70 percent of total holiday related expenditures occurred in stores with both a physical and an online presence. Further, the physical store proved paramount to the shopping experience again this year, with 91 percent of holiday shoppers spending at physical stores, the exact same percentage as 2015.

Keiser Report: Trump Tweetstorm

Trump’s Approval Rating Is Supposedly Only 37 Percent, But Small Business Optimism Just Hit The Highest Level In 12 Years

A Quinnipiac University Poll that was released on Tuesday says that Donald Trump only has an approval rating of 37 percent. Meanwhile, that same survey found that Barack Obama currently has an approval rating of 55 percent. Of course considering the fact that Quinnipiac polls showed Hillary Clinton winning the election in November easily, perhaps we should not put too much stock in these results. But other polling organizations have come up with similar results. In fact, an average of nine recent polls indicates that Trump’s approval rating is somewhere around 42 percent. So without a doubt there are a whole lot of people out there that do not like Donald Trump.

But the business community sure seems thrilled with him. We just witnessed one of the greatest post-election stock market rallies in American history, numerous corporations have already announced that they will be bringing jobs back to the United States, and Bloomberg is reporting that small business optimism has hit the highest level that we have seen since the end of 2004…

Optimism among America’s small businesses soared in December by the most since 1980 as expectations about the economy’s prospects improved dramatically in the aftermath of the presidential election.

The National Federation of Independent Business’s index jumped 7.4 points last month to 105.8, the highest since the end of 2004, from 98.4. While seven of the 10 components increased in December, 73 percent of the monthly advance was due to more upbeat views about the outlook for sales and the economy, the Washington-based group said.

European Central Bank calls for Europe-wide peer-to-peer mobile payments by end of 2017

Consumers will be able to make peer-to-peer (P2P) mobile payments across Europe using only the payee’s mobile phone number which will act as proxy for their international bank account number (IBAN) by the end of 2017, the European Central Bank (ECB) has revealed.

The Eurosystem, made up of the ECB and the national central banks of states whose currency is the euro, “expects the launch of a standardised look-up service that allows (person-to-person) mobile payments using the mobile phone number of the payee as a proxy for the IBAN,” Yves Mersch, member of the executive board of the ECB, said during a keynote speech at the French Payments Committee conference.

“This service should be launched by the end of 2017 and should not be restricted to national IBANs.”

At the same time, payment service providers are being encouraged by the Eurosystem to “make instant payment solutions in euro available to end users at a pan-European level from November 2017”.

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