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Thursday 04.20.2017

Wages are climbing but not really boosting inflation, Beige Book report says

Tight labor markets are broadening out wage gains but price pressures remain modest, according to a report released Wednesday. The Federal Reserve’s so-called beige book found “a larger number of firms mentioned high turnover rates and more difficulty retaining workers.”

A couple of districts said that worker shortages and increased labor costs were restraining growth in manufacturing, transportation and construction. Despite these pressures, overall inflation was modest, the report said. Selling prices rose only slightly.

The beige book, a collection of anecdotes gathered before the central bank makes an interest rate decision, said the 12 districts were equally split between modest and moderate growth.

Information from contacts collected before April 10 suggested somewhat softer readings in non-auto consumer spending and an expansion in the manufacturing sector. Home building accelerated and energy-related businesses reported “improved conditions.” Uncertainty about tax-and-spending policies was one factor mentioned in several districts as a restraint on activity.

Census: More Americans 18-to-34 Now Live With Parents Than With Spouse

Four decades ago, in the mid-1970s, young American adults--in the 18-to-34 age bracket--were far more likely to be married and living with a spouse than living in their parents’ home.

But that is no longer the case, according to a new study by the U.S. Census Bureau. “There are now more young people living with their parents than in any other arrangement,” says the Census Bureau study.

“What is more,” says the study, “almost 9 in 10 young people who were living in their parents’ home a year ago are still living there today, making it the most stable living arrangement.”

The Number 1 living arrangement today for Americans in the 18-to-34 age bracket, according to the Census Bureau, is to reside without a spouse in their parents’ home. That is where you can now find 22.9 million 18-to-34 year olds—compared to the 19.9 million who are married and live with their spouse.

Fed's Rosengren: "Quite Likely" The Fed's Balance Sheet Will Be Used In The Next Recession

The Fed has not even announced the framework of what its balance sheet "normalization" would look like, and already Boston Fed president Rosengren is talking about the next Fed QE program.

In a speech titled “The Federal Reserve Balance Sheet and Monetary Policy” delivered to Bard College on Wednesday afternoon, Rosengren said that structural changes in the macroeconomy "may necessitate more frequent use of large-scale asset purchases during recessions" and he said it is "quite likely" that the use of central bank balance sheets will be necessary in future economic downturns.

The reason? A combination of low inflation, low rates of productivity growth, and slow population growth may imply an economy "where equilibrium short-term interest rates remain relatively low" by historical standards. In other words, the natural rate, or r-star, is so low, the Fed will only be able to hike rates a handful of times before it tip the economy over into contraction, requiring a new easing regime.

As a result, reductions in short-term rates to combat recessions will encounter the zero boundary and "will not be sufficient," Rosengren said – so "it is likely to be more common for central banks to engage in asset purchases to stimulate the economy by reducing longer-term rates." "So balance-sheet expansions – and exits – are likely to become more standard monetary policy tools around the world."

Why Subprime Auto Loans May Be the Next Big Short Bloomberg

Morgan Stanley’s results deepen embarrassment for Goldman

Goldman Sachs delivered an embarrassing quarter this week — and now archrival Morgan Stanley is rubbing it in. The investment bank run by James Gorman said its quarterly profits jumped 74 percent, topping analysts’ estimates, as revenue from bond trading nearly doubled following interest rate hikes by the Federal Reserve.

That stood in sharp contrast to those of chief rival Goldman Sachs, whose trading revenue inched up just 1 percent versus solid, double-digit gains at its bulge-bracket rivals. “We reported one of our strongest quarters in recent years,” Gorman said during a call with analysts.

Morgan Stanley’s shares were up 2.8 percent at $42.38 in early morning trades on Wednesday. Morgan Stanley’s was the last of the first-quarter reports from the six major US banks, painting a picture of three months when everyone except Goldman feasted on a surge in bond trading as the Federal Reserve raised rates and traders bet that inflation would return to the economy.

Morgan Stanley nearly doubled its bond-trading revenue to $1.7 billion. To some Wall Street watchers, the bonanza confirmed that its rival Goldman had made a rare — and significant — mistake in reading the markets. Goldman, headed by CEO Lloyd Blankfein, is the only major bank to have a flat quarter.

Analysts- Gold could soon reach $1,350 amid global tensions

The price of gold has risen 12 percent this year, and the surge will only continue, according to bank Intesa Sanpaolo, marked by Bloomberg as the best forecaster for the metal last quarter. Analysts at Saxo Bank agree.

The precious metal approached $1,300 per troy ounce on Tuesday before retreating to $1,283 on Wednesday. Intesa analyst Daniela Corsini told Bloomberg prices could fall in mid-year as the US Federal Reserve hikes interest rates, but they are likely to bounce back, reaching $1,350 an ounce at year-end.

“Markets will surely remain nervous about this uncertainty. And if economic data in the US remains strong, then gold will regain its role as an inflation hedge,” she told the media. India, the world's second-biggest gold market, has recovered from the government’s ban on larger banknotes, and the demand will grow there, Corsini predicted.

In India, the “impact of the demonetization scheme has run its course, and we had very strong imports in February and March,” she said. Corsini added that in Europe traders will use gold as a safe haven ahead of elections in France, Germany, and the UK.

BlackRock's Larry Fink Sees 'Darker Warning Signs' for US Economy

Laurence D. Fink, chief executive officer of BlackRock Inc. said there are indications that the U.S. economy is slowing as businesses weigh whether the Trump administration will be able to pass tax reform and an infrastructure program quickly.

“The warning signs are getting darker,” said Fink, in an interview Wednesday on Bloomberg Television.

Fink, who runs the world’s largest money manager, mentioned a pullback in car sales and a pause in merger and acquisition activity as indications that uncertainty is rising.

The stock market needs validation that U.S. corporate earnings will stay strong and that the policies of President Donald Trump will move forward in Congress in order to move higher, Fink said. BlackRock reported first-quarter results earlier Wednesday that beat analysts’ estimates on earnings while missing on revenue.

Feds knew of 700 Wells Fargo whistleblower cases in 2010

America's chief federal banking regulator admits it failed to act on numerous "red flags" at Wells Fargo that could have stopped the fake account scandal years earlier.

One particularly alarming red flag that went unheeded: In January 2010, the regulator was aware of "700 cases of whistleblower complaints" about Wells Fargo's sales tactics. An internal review published on Wednesday by the Office of the Comptroller of the Currency found that the regulator didn't live up to its responsibilities. The report found that oversight of Wells Fargo (WFC) was "untimely and ineffective" and federal examiners overseeing the bank "missed" several opportunities to uncover the problems that led to the creation of millions of fake accounts

The review painted a damning picture of the OCC's ability to spot what in retrospect should have been obvious problems at one of the nation's biggest banks.

The OCC did confront Carrie Tolstedt, then head of Wells Fargo's community bank, about the stunning number of whistleblower claims. However, there are no records that show that federal inspectors "investigated the root cause," or force Wells Fargo to probe it.

Good debt vs. bad debt

Facebook has a plan to let you type with your brain

There's mind-blowing technology, and then there's brain-computer technologies. Facebook’s “direct brain interface,” a creation of its secretive Building 8 division, could take tech-enhanced communication to the next level.

Facebook is exploring a silent speech system with a team of more than 60 scientists that would let people type 100 words per minute with their brain. "What if you could type directly from your brain... with the speed and flexibility of voice and the privacy of text?" Building 8 head Regina Dugan said at the second day of Facebook's F8 developer's conference here.

She noted the brain contains about 86 billion neurons and is capable of producing 1 terabyte of information per second. Think of a "brain mass for augmented reality," she said.

The brain-to-text project is a couple years away and would require new, non-invasive sensors to measure brain activity hundreds of times per second, Dugan told USA TODAY after the keynote. A speech prosthetic for people with communication disorders would likely be the first application. "This (project) could be as transformative as the (computer) mouse," she said.

Breach At Holiday Inn Owner InterContinental May Include More Than 1,000 Hotels, Not 12

InterContinental Hotels Group, which operates chains like Holiday Inn and Crowne Plaza, recently admitted that the payment systems in some of its restaurants and bars had been compromised, and released a list of 12 affected locations. It turns out that the list was short by well over 1,000.

We learned through Krebs on Security that InterContinental has mostly finished its investigation. In a statement, the company admitted that front desk payment systems at a large number of its franchisee hotels were compromised with malware. Transactions between Sept. 29 and Dec. 29, 2016 were compromised, and there’s no evidence that any transactions after that were affected.

The culprits harvested the information that passed through payment terminals, which included 16-digit payment card numbers, expiration dates, and verification codes, and some customers’ names.

How many hotels are we talking about here? It’s hard to count them up since InterContinental released the list in a searchable database instead of a text list, but one Twitter user counted 1,175 properties. InterContinental says that the investigation at all locations isn’t yet complete, and to keep checking back. That means they’ll keep on adding more to the list.

The San Francisco Minimum Wage Kills Restaurants And Thus Restaurant Jobs

We've now useful evidence that the various minimum wage rises in and around San Francisco have been leading to the closure of restaurants. That, in turn, would rather suggest that the rising minimum wage cuts the number of jobs in restaurants. Not that this is what the Fight for $15 and similar crowd want to hear but we really are gathering a lot of evidence which shows that a higher minimum wage leads to job losses.

The reason we look at the restaurant trade so closely here is not because we think it's a particularly important industry. Rather, it's because whatever effects the minimum wage does have are going to be seen here. The industry is the most intensive user of of minimum wage labour. A useful, although not wholly accurate, rule of thumb is that 50% of those making minimum wage are in resturanats, and that 50% of those working in restaurants are on minimum wage. So, whatever the employment effects of a minimum wage rise are they're going to show up in the restaurant industry. Meaning that if w want to study the minimum wage effects on employment then restaurants are a great place to go looking.

The basic finding of the paper is that: "We study the impact of the minimum wage on firm exit in the restaurant industry, exploiting recent changes in the minimum wage at the city level. The evidence suggests that higher minimum wages increase overall exit rates for restaurants. However, lower quality restaurants, which are already closer to the margin of exit, are disproportionately impacted by increases to the minimum wage. Our point estimates suggest that a one dollar increase in the minimum wage leads to a 14 percent increase in the likelihood of exit for a 3.5-star restaurant (which is the median rating), but has no discernible impact for a 5-star restaurant (on a 1 to 5 star scale).

That the impact varies isn't a huge surprise, it's rather what we would expect to see. Mediocre restaurants are generally going to be the cheaper ones after all, the ones with the narrower profit margins too.

The rise and fall of the euro

Hey banks! Survey says you’re too confident in your cybersecurity efforts

Cybersecurity experts are working in overdrive to caution the mortgage finance industry that cyber attacks are a matter of when not if, but according to a new report from Accenture, banks are still too confident about their protection efforts.

The report, “Building Confidence: Solving Banking’s Cybersecurity Conundrum”, is based on a global survey of 275 senior security executives across the banking and capital markets sectors.

For starters, banks are optimistic about their efforts so far. The report found that 78% of executives surveyed expressed confidence in their overall cybersecurity strategy. Digging further into the numbers, more than half the respondents indicated high levels of comfort in their ability to identify the cause of a breach, measure the impact of a breach and manage the financial risk due to a cybersecurity event (cited 51%, 51% and 50%, respectively).

On the other side, the survey found that on average, respondents reported that their banks had experienced 85 serious attempted cyber breaches each year. Of these, about one third (36%) were successful, meaning at least some information was obtained through the breach. In these instances, it took 59% of banks several months to detect breaches that occurred.

U.S. House banking chairman unveils Dodd-Frank replacement

The head of the U.S. House of Representatives' banking panel has unveiled the Republicans' most ambitious plan so far to loosen financial regulations, a 600-page bill to replace the Dodd-Frank financial reform law.

Representative Jeb Hensarling, who chairs the House Financial Services Committee, also set an April 26 hearing to discuss replacing the 2010 law. "Republicans are eager to work with the president to end and replace the Dodd-Frank mistake with the Financial CHOICE Act because it holds Wall Street and Washington accountable, ends taxpayer-funded bank bailouts, and unleashes America’s economic potential," the Texas Republican said in a statement.

The blueprint of Hensarling's bill has been known for some time. He first introduced a similar measure in 2016, where it passed his committee but was not considered by the full House. Representative Maxine Waters, the top Democrat on the committee, has dismissed Hensarling's bill.

“The new version, which is even worse than Chairman Hensarling’s first draft, cannot be allowed to become law. There is too much at stake for consumers and for our economy at large," she said in a statement earlier this month.

Meltdown of Houston Auto Sales Has Eerie Financial Crisis Look

New car and truck sales by franchised dealers in the Houston area plunged 22.6% in March from a year ago, to 20,934 new vehicles, with sales of cars down 30.7% and sales of trucks and SUVs down 17.7%. This is the type of plunge Houston went through during the Financial Crisis.

By comparison, in the US overall, new vehicle sales declined 1.6% in March, despite record incentives that desperate automakers threw at the market.

There are no green shoots.The first quarter, with 69,936 new vehicles sold, was the worst quarter since Q1 2011, according to TexAuto Facts, published by InfoNation, and cited today by Greater Houston Partnership. It was the 15th month in a row of year-over-year declines.

For the 12-month period through March 2017, Houston area dealers sold 285,000 new vehicles, the lowest rolling 12-month total since the 12-month period through April 2012. And it’s down by a quarter from the range of 375,000 vehicles that had prevailed in 2014 and 2015.

JCPenney Closing 138 Stores Delayed After Outpouring Of Customer Support

Earlier this month JCPenney announced 138 stores across the country would be closing by June. Shoppers eager to save their local store came out in droves at multiple locations and appear to have halted, at least temporarily, the store closures. The nationwide retail chain celebrated its 115th anniversary earlier this month.

The JCPenney store closures, if all are shuttered as previously announced, will impact approximately 5,000 employees. Liquidation sales were slated to begin on April 17, but due to the outpouring of support from shoppers, the going out of business sales have been delayed until May 22, CNBC reports. JCPenney stores will now be closing at the end of July instead of in June, according to company officials.

“This is not an uncommon response when you announce a store closure,” a JCPenney representative told the media earlier this week. “Local shoppers will come out for a variety of reasons, some out of nostalgia and some who are just looking for a great deal.”

After announcing the closure of 138 stores, a statement released by JCPenney officials revealed two distribution centers would be phased out as well, Good Housekeeping reports. The planned store closures amount to approximately 14 percent of the company’s existing retail locations.

Central Grocers will close 9 Ultra Foods stores, sell 22 Strack & Van Til sites

Central Grocers, the Joliet-based parent company of Strack & Van Til and Ultra Foods grocery stores, is closing nine Ultra Foods stores, including some in the Chicago area, and intends to sell 22 Strack & Van Til stores in Illinois and Indiana, the company announced Tuesday.

The nine "underperforming" Ultra Foods stores include locations in Wheaton, Lansing, Joliet, Chicago Heights, Calumet Park and Forest Park. Central Grocers, a grocery cooperative incorporated in 1917, operates as a wholesaler to independent grocery retailers in the Chicago area that are members of the co-op.

The cooperative could be making other dramatic changes. In a lawsuit filed Tuesday in federal court in Chicago, Teamsters Local 703 allege Central Grocers signed a letter of intent to "sell its operations and/or facilities."

It's unclear what that means for Central Grocers' massive warehouse in Joliet, where about 300 members of Teamsters Local 703 work. The union filed a motion for a temporary restraining order and preliminary injunction to stop Central Grocers from selling its business, alleging that the sale would violate the collective bargaining agreements — unless the purchaser adopted the agreements, according to the lawsuit.

Jubilee Year Means Stocks, Bonds and Dollar are Toast

IBM Shares Sink on Unexpected Revenue Drop

IBM reported a bigger-than-expected drop in revenue amid the continuing weakness of its legacy hardware and software businesses and a surprising decline in its cloud infrastructure segment.

Big Blue has been reorganizing itself around a set of emerging cloud, security, and data analytics businesses that CEO Ginni Rometty has dubbed the company’s “strategic imperatives.” In the company’s first-quarter report, she hailed the “robust performance” of those businesses, singling out “IBM Cloud and our cognitive solutions.”

Revenue from “strategic imperatives” was $7.8 billion in the latest quarter, accounting for 42% of total revenue, up from 37 percent a year earlier.

But total revenue fell 2.8% to $18.16 billion, missing analysts’ estimate of $18.39 billion. It was IBM’s first miss on revenue in five quarters — with the surprising 2% decline in infrastructure services being partly to blame.

EPA Reports 6.5% of Employees 'Essential'

Inspector general reports on the Environmental Protection Agency detail multiple instances of misbehavior as well as a statement that only 6.5 percent of its employees are "essential," according to The Washington Free Beacon.

1,069 of its employees out of 16,205 were deemed essential in 2013, according to Reuters. One EPA official, a geologist, was caught watching pornography for over six hours a day. He received paid leave for nearly two years after that. Another employee was suspended for five days after saying he watched pornography regularly at work for several years.

Another employee was a convicted child molester, and was paid $55,000 to retire because he could not be fired, according to the Washington Examiner. Other employees were caught with marijuana. One was arrested after attempting to bring 3 grams and a pipe through a security checkpoint at an Internal Revenue Service facility, and another was said to have marijuana growing in her residence. She was put on administrative leave until her 2014 retirement.

In an EPA Denver office, employees defecated in the hallway, according to a Free Beacon report in 2014.

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