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Tuesday 03.21.2017

Fed on track to raise U.S. rates twice more this year: Evans

The Federal Reserve is on track to raise interest rates twice more this year after a policy tightening last week, and it could be more or less aggressive depending on inflation and fiscal policies from the Trump administration, a Fed rate-setter said on Monday.

The public comments from Chicago Fed President Charles Evans were among the first since the U.S. central bank lifted its policy rate a notch last week, as expected. It also forecast roughly two more moves in 2017 in a nod to low unemployment and some inflation pressures.

"Three is entirely possible," Evans, speaking on Fox Business Network TV, said of hikes in 2017. "As I gain more confidence in the outlook I could support three total this year. If inflation began to pick up, that would certainly solidify (that expectation). It could be three, it could be two, it could be four if things really pick up."

Asked about U.S. President Donald Trump's promise to boost the economy to a 4 percent growth rate, from about 2 percent in the last few years, Evans said: "Four percent would be really an outsized number."

David Rockefeller, Banker, Philanthropist, Heir, Dies at 101

David Rockefeller, the U.S. banker, philanthropist, presidential adviser and heir to one of history’s most fabled fortunes, has died. At 101, he was the world’s oldest billionaire. He died Monday at his home in Pocantico Hills, New York, according to an emailed statement from Fraser P. Seitel, a family spokesman. The cause was congestive heart failure.

Rockefeller was the youngest and last-surviving grandson of Standard Oil founder John D. Rockefeller, the nation’s first billionaire. He was the only one of John D. Rockefeller Jr.’s five sons who spent his entire professional career in the corporate world, rising to chief executive officer of Chase Manhattan Bank during his 35 years at the company.

He was also a confidant of world leaders, from Deng Xiaoping in China to Nelson Mandela in South Africa, from the shah of Iran to Henry Kissinger. Rockefeller famously asked President Jimmy Carter to let the deposed shah come to the U.S. for medical treatment, leading to the seizure of American hostages in Tehran from 1979 to 1981.

Rockefeller was equally well known for his philanthropy. In 2006, he bequeathed $225 million to the Rockefeller Brothers Fund, which he and his brothers established in 1940 to promote social change worldwide. The year before, he donated $100 million each to two New York institutions: the Museum of Modern Art, which was co-founded by his mother, and Rockefeller University, a medical-research school started by his grandfather.

A Weak Economy And A Pension Problem Is A Bad Combination

State pension systems are drastically underfunded—even according to their own optimistic yet faulty assumptions—and this is causing problems for governors and state legislators around the country. And to make matters worse, many of the states with the worst pension systems have weak economies, which will make fixing their pension problems even harder.

Pensions are funded by employee contributions, employer contributions (which are taxpayers in the public sector) and investment returns. When investment returns don’t materialize either taxpayers or employees need to make up the difference, and often this burden falls on taxpayers. For example, taxpayer contributions are expected to increase by $50 million in Missouri and by $524 million in California in each state’s next fiscal year.

Budgeting is inherently fraught with uncertainty, and any unforeseen cost, such as a larger pension payment due to low returns, can blast a hole in a state’s budget. But the financial pain caused by an unforeseen cost can be mitigated by a growing economy that generates additional tax revenue.

The flip side is that a stagnant or shrinking economy makes filling budget holes even more difficult. Moreover, if states are ever going to fully fund their pension plans they are going to need more money, and that money will have to come from employees, taxpayers or better returns. Since states are already too optimistic about their investment returns, the source of additional money is likely to be employees or taxpayers.

Poll: Most Americans Think Participation Awards are Nonsense, Winners Should Be Rewarded

According to a recent Rasmussen poll, most Americans (56%) think that in children’s sports, it’s more important to reward winners than to recognize kids for simply participating – a practice made popular by snowflakes and their parents afraid of hurting people’s feelings.

Thirty-six percent (36%) of respondents disagree and value participation awards over rewards for first, second or third place.

Support for rewarding winners over participants has shot up 12 percent since 2014, when only 44 percent of American adults said rewarding winners is more important.

“The majority of adults in most demographic groups believe in recognizing winners over participants,” Rasmussen reports. “Those under 40 are bigger supporters of recognizing participation than middle-aged adults are. Most white and other minority Americans think it’s more important to reward winners in children’s sports, while over half of black Americans say it’s more important to recognize participation by all children."

Most college-bound kids believe they will earn more than their parents: study

Contrary to widespread reports of its demise, the American dream may in fact be alive and well, at least if you go by America’s college students.

According to a survey of more than 3,300 current and prospective college students, 74 percent of them believe they will wind up better off financially than their parents.

The results are gleaned from questions to students applying for a $5,000 scholarship from Nitro, a company that offers resources to students looking to finance their educations. They also show a very fiscally oriented student population, with 90 percent choosing their majors based on salary expectations.

Mike Brown, managing director at Nitro, admits he was surprised at the extent of the optimism and financial awareness on the part of the surveyed students but he also points to a Pew Research Center study that shows college graduates’ median salaries growing from $38,800 in 1965 to $45,500 in 2013. At the same time, the median annual earnings for high school graduates fell from $31,400 to $28,000.

Credit card applications drop at Wells Fargo in February

Wells Fargo & Co (WFC.N) saw a drop in consumers opening checking and credit card accounts in February, the bank said on Monday, marking the sixth straight month of decline since a sales scandal rocked the bank last year.

Consumers opened 3 percent fewer checking accounts from January, and 43 percent, or 0.3 million, fewer compared with February 2016, according to a company statement. Requests for new credit cards saw a 4 percent monthly decline and a 55-percent drop on a yearly basis, its highest rate since illegal sales practices at its retail branches surfaced in September 2016.

"It will take time for us to work through the changes we are making in our business, but we remain focused on strengthening our relationships with existing customers and building new ones with potential customers," Mary Mack, Wells Fargo's head of community banking, said in the statement.

Wells Fargo has been reporting each month on customer activity at its branch banking unit since it reached a $185 million settlement with regulators in September over creating as many as 2.1 million accounts in customers' names without their permission.

Deutsche Bank cuts bonuses by 77% after rough 2016

Top executives at Deutsche Bank will not receive bonuses for a second straight year after a bruising 2016 that saw the firm pay billions of dollars in penalties. Germany's largest bank slashed total bonus payments for the year by 77% to just €500 million ($538 million), according to its annual report published Monday. Members of the management board will forgo payouts altogether.

CEO John Cryan was paid a base salary of €3.8 million ($4.1 million). Deutsche Bank (DB) announced plans earlier this month to raise $8.5 billion from investors to improve its financial health. Cryan, who took up the top job in 2015, had said previously that the bank could get by without turning to markets for more money.

The German bank is seeking more capital as it tries to untangle a thicket of legal cases that have hobbled it since the global financial crisis. It has agreed to pay $7.2 billion to U.S. authorities to settle claims over toxic mortgage assets, and it has been hit with more penalties over a Russian money-laundering scheme.

Deutsche Bank has also announced U-turns on two big strategic moves it made in 2015. It's no longer planning to spin off its Postbank subsidiary, which has a big retail branch network in Germany. Instead, it wants to merge Postbank with its private and commercial banking business.

Should Americans pursue happiness somewhere else?

Rising Inflation, Four Rate Hikes, Financial Repression on Menu in 2017: Fed Heads

Inflation will rise above target, and that’s OK, the Fed heads who’ve been talking since last week’s meeting said. The Fed will hike rates, maybe faster than expected, but they won’t catch up with inflation, keeping the Fed purposefully behind the curve, and inflation will overshoot, and real interest rates will be deeply negative, whether you like it or not. That’s the Fed’s message emerging since the last meeting.

Philadelphia Fed President Patrick Harker and Chicago Fed President Charles Evans echoed Fed Chair Janet Yellen who’d suggested on Wednesday that the Fed could try to push inflation above the 2% “target.”

But the Fed’s measure of inflation is the Personal Consumption Expenditure index (PCE index), which is significantly below the Consumer Price Index (CPI) which already jumped 2.74% in February, year-over-year.

Harker and Evans are the first Fed heads to talk since the Fed’s policy-setting committee (FOMC) last week raised the target for the federal funds rate a quarter point to a range of 0.75% to 1.0%. Harker, a voting member this year on the FOMC, told CNBC today that three interest rate hikes for 2017 make sense, and getting one of them “out of the way” in March allows the Fed to spread them out during the year.

Cadillac subscription plan: GM tries a Netflix for cars at $1,500 a month

Ashley Sandall recently set aside the keys to her Porsche sport-utility vehicle for three months to try out a few Cadillacs. When the Caddy she was driving proved too small for her weekend plans, she ordered up a different model with her smartphone. It would arrive the next day.

Ms. Sandall, a 35-year-old fashion executive who lives in New York City, used Cadillac’s brawny Escalade SUV for trips to the Hamptons and a football game in New Jersey. “It was great to have your pick of the vehicle best suited for what you’re doing,” she said.

After participating free of charge in a three-month pilot of General Motors Co.’s new Book by Cadillac subscription plan, Ms. Sandall said she is considering becoming a full-time member when it is time for a new vehicle. For $1,500 a month, the program covers ownership costs and lets members trade in and out of Cadillac’s 10 models up to 18 times a year.

The effort is the latest experiment by a car company to test whether people are willing to treat personal transportation like a Netflix account, where temporary, on-demand access outweighs the benefits of ownership. GM has been among the industry’s chief tinkerers with the ownership model, anticipating that the century-old arrangement of consumers buying, insuring and repairing their own vehicles eventually will lose favor. In early 2016, it formed a car-sharing company called Maven and around the same time invested $500 million into ride-hailing service Lyft Inc., Uber Technologies Inc.’s main rival.

California growers still talking about the “jobs Americans won’t do”

There are a pair of articles in the Los Angeles times this week which highlight important questions regarding the ongoing debate over immigration reform and enforcement efforts. The first one has to do with the long known phenomenon of jobs being a magnet for illegal immigrants considering entering the United States. One argument we hear in response from liberals who favor open borders is that there are simply too many jobs which “Americans won’t do.” Reporters have been talking to employers in one of the largest employment sectors generally referenced in the stories, that being agriculture. They paint a depressing picture of a farm owner who travels around to places frequented by day workers and the homeless yet finds himself unable to locate anyone willing to go to work for as much as $14 or even $16 per hour.

This may sound confusing to the many people out there still looking for a job so it’s worth giving this interview a read: "Some farmers are even giving laborers benefits normally reserved for white-collar professionals, like 401(k) plans, health insurance, subsidized housing and profit-sharing bonuses. Full-timers at Silverado Farming, for example, get most of those sweeteners, plus 10 paid vacation days, eight paid holidays, and can earn their hourly rate to take English classes."

But the raises and new perks have not tempted native-born Americans to leave their day jobs for the fields. Nine in 10 agriculture workers in California are still foreign born, and more than half are undocumented, according to a federal survey. Instead, companies growing high-value crops, like Cabernet Sauvignon grapes in Napa, are luring employees from fields in places like Stockton that produce cheaper wine grapes or less profitable fruits and vegetables."

We are unfortunately dealing with an industry sector which is almost unique compared to other fields of employment. It’s absolutely true that farm labor is some of the most physically demanding work you are likely to find. (I do not make this statement in a vacuum since I grew up in a farm community and spent all my summers doing precisely that sort of stoop labor on family farms.) But it seems to me that the subject of the story is taking a rather rocky approach to finding workers. If you make it known that you have jobs which don’t even require a high school degree but are paying up to 1 1/2 times more than the minimum wage being offered at fast food outlets (or even higher), I find it difficult to believe that some young, healthy people won’t be showing up.

Delivering beers by drone

The federal debt is $20 trillion? Try $100 trillion

As the national debt grows toward $20 trillion, a financial watchdog says $100 trillion is a more realistic number when factoring in unfunded obligations. The U.S. Treasury’s “Debt to the Penny” website listed the outstanding debt as $19,846,045,559,411.81 on Monday morning and prognosticators are predicting when the amount will hit $20 trillion. Even Truth in Accounting (TIA), the Chicago-based organization that pushes governments to release accurate, easy-to-understand financial reports, has a small betting pool on which day the magical number will be hit.

But the debt clock on TIA’s home page now ticks above $99 trillion. The group argues that most of the actual federal debt is hidden off the books in the form of promised future payments to Medicare and Social Security recipients.

“The federal government doesn’t include those unfunded liabilities on its balance sheet,” said Bill Bergman, director of research for TIA. TIA estimates the federal government owes about $31.4 trillion in unfunded Social Security promises and $44.7 trillion in unfunded Medicare promises. It only owes $7.2 trillion in promised pension and other retiree benefits, a common stumbling block among many state and local budgets.

For many years, thousands of those governments didn’t include unfunded pension benefits on their balance sheets, but new standards from the Governmental Accounting Standards Board requiring state and local governments to acknowledge that debt is starting to give the public a more accurate view of the national pension crisis. The federal government doesn’t hold itself to the same standard, the argument being it has the ability to change the laws regarding Medicare and Social Security benefits at any time, Bergman said. Meanwhile, the federal government lists student loan debt as an asset on its balance sheet (as a bank would), although that debt could be forgiven at any time, which Bergman called “inconsistent.”

Some retailers might not survive until the end of the year, eBay CEO says

The 2016 holiday season may have been a historic turning point that will take down players in the retail industry, eBay CEO Devin Wenig said.

"The fourth quarter of last holiday season was a really important moment," Wenig told CNBC's "Closing Bell" from the Shoptalk Conference in Las Vegas. "I think it was an inflection point where that was the end of retail as we know it. And I do think the restructuring of this industry is going to happen faster than a lot of people think.... the fourth quarter is the moment that people will look back on and say, 'That's when the current structure of the industry was irretrievable.'"

Stores that can't keep up could be brought to reckoning by the end of this year, Wenig said. "I'm not sure all the retailers are going to even make it, in a healthy economy, to this holiday season," Wenig said. "And I do think you are going to see drastic changes in store footprints and what stores do."

Department stores J.C. Penney, Macy's and Sears have collectively announced hundreds of store closures slated for this year. Amazon, meanwhile, had its best holiday shopping season ever. Wenig said he doesn't think stores are completely going away, but that stores must be a "mini distribution center" to succeed.

Rising Demand, Falling Supplies Equals Higher Gold Prices

I consider gold a form of money. That means I investigate price movements in gold the same way I investigate moves in any other global currency — and find the best way for you to play it. To understand the gold market, you understand physical gold flows.

Visiting with some of the most knowledgeable experts and insiders in the physical gold industry has allowed me to gather extensive information on the major buyers and sellers of gold bullion in the world and the exact flows of physical gold.

This information about gold flows is critical to understanding what will happen next to the price of gold. The reason is that the price of gold is largely determined in “paper gold” markets, such as Comex gold futures and gold ETFs. These paper gold contracts represent 100 times (or more) the amount of physical gold available to settle those contracts.

As long as paper gold contracts are rolled over or settled for paper money, then the system works fine. But, as soon as paper gold contract holders demand physical gold in settlement, they will be shocked to discover there’s not nearly enough physical gold to go around. At that point, there will be panicked buying of gold. The price of gold will skyrocket by thousands of dollars per ounce. Gold mining stocks will increase in value by ten times or more. Paper gold sellers will move to shut down the futures exchange and terminate paper gold contacts because they cannot possibly honor their promises to deliver gold.

University of Arizona Instructs Students to Say ‘Ouch!’ when Offended

The University of Arizona’s College of Humanities is instructing students to say “ouch!” when they are offended by a faculty member or classmate.

The guidelines for how to response to offensive speech is outlined in a new handbook for faculty, which is entitled “Diversity and Inclusiveness in the Classroom.” Students are instructed to use “ouch” to indicate that they have been offended. Offenders are instructed to use “oops” to signify their acknowledgment that their words have offended one of their peers.

“This document is intended to be a resource for addressing difficult or challenging topics in the classroom.” Although faculty members are not “required to utilize” the handbook, they are encouraged to utilize it so that they can best “engender the broadest possible perspectives” and “maximize free speech in the classroom,” as the handbook claims.

Some criticized the public institution for the expense at which the “ouch/oops” initiative has been introduced. Jesus Trevino, the university’s Vice Provost for Inclusive Excellence, is paid $214,000 per year to develop diversity and inclusion themed programming for the community and instructional material for the faculty.

More Consumers Seek Loan Modifications

In January 2017, an estimated 29,000 homeowners received permanent loan modifications from mortgage servicers during the month according to HOPE NOW, a non-profit alliance of mortgage servicers, investors, counselors, and other mortgage market participants. This total includes modifications completed under both proprietary programs and the government’s Home Affordable Modification Program (HAMP). Of the permanent loan modifications performed that month, approximately 20,000 were through proprietary programs while 9,521 were through HAMP. The HAMP program ended officially in December 2016, though servicers will continue to review homeowners who applied before December 31.

Loan modifications increased by 3 percent from December 2016 to January 2017. Total non-foreclosure solutions, such as total loan modifications, short sales, deed in lieu, and workout plans, for January 2017 approximated 102,000, compared to 26,000 foreclosure sales.

Additionally, foreclosure starts and sales saw an increase in those two months. Foreclosure starts jumped from 49,000 in December to 55,000 in January, while foreclosure sales jumped from 20,000 to 26,000 in that same time. HOPE NOW notes that increases in foreclosure starts and sales are typical with their historical data. Although sales and starts are up month-over-month, the year-over-year data saw decreases. Starts are down 4 percent from January 2016, and sales are down 22 percent.

Other non-foreclosure options decreased in January. Short sales dropped from 4,200 in December to 3,700 in January, while the number deed in-lieu stayed at 1,200 in that time. Serious delinquencies are down month-over-month in January, from 1.50 million in December to 1.46 million in January.

Neck-and-neck battle in French election

Almost half of Canadians want illegal border crossers deported

Nearly half of Canadians want to deport people who are illegally crossing into Canada from the United States, and a similar number disapprove of how Prime Minister Justin Trudeau is handling the influx, according to a Reuters/Ipsos opinion poll released on Monday.

A significant minority, four out of 10 respondents, said the border crossers could make Canada "less safe," underlining the potential political risk for Trudeau's Liberal government. The increasing flow of hundreds of asylum-seekers of African and Middle Eastern origin from the United States in recent months is becoming a contentious issue in Canada.

Although there has been broad bipartisan support for high levels of legal immigration for decades in Canada, Trudeau is under pressure over the flow of the illegal migrants. He is questioned about it almost every time he appears in parliament, from opponents on the left, who want more asylum-seekers to be allowed in, and critics on the right, who say the migrants pose a potential security risk.

Canadian opposition parties seized on the poll results, with both those on the left and the right saying they underscored their positions. Canadians appeared to be just as concerned about illegal immigration as American, according to the poll, which was conducted between March 8-9. Some 48 percent supported "increasing the deportation of people living in Canada illegally."

The US government has reportedly banned laptops on some international flights, and here's what we know

The US government may bar passengers from bringing any electronic device larger than a cellphone on board some flights to and from the Middle East and Africa. But no one is really sure what's going on.

On Monday, Royal Jordanian Airlines tweeted an extensive description of an electronics ban implemented by the US government. But the airline deleted the tweet a few hours later.

According to Royal Jordanian's deleted tweet, all electronic devices apart from cellphones and necessary medical equipment must be checked in to the cargo hold with luggage. That includes laptops, cameras, tablets, and DVD players. The airline indicated that the policy would go into effect on Tuesday, March 21, 2017.

The source told Ostrower that the directive is targeted at certain airports and will last for a limited time only. In an emailed statement to Business Insider, the Department of Homeland Security wrote: "We have no comment on potential security precautions, but will provide an update when appropriate."

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