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Friday 02.24.2017

U.S. Steel CEO says it is "totally realistic" to bring manufacturing jobs back

Mark Cuban made comments recently about how robotics and automation are the wave of the future and could cause unemployment in America.

Many believe most of the unemployment Cuban referred to would primarily affect traditional manufacturing jobs and industries. However, U.S. Steel CEO Mario Longhi said he believes it's realistic and necessary for manufacturing jobs to come back.

"It is totally realistic to bring jobs back," Longhi told CNBC's "Fast Money Halftime Report" on Thursday. "If you look at the regulatory system that we have today, it takes us years sometimes to get some approvals. We have a pipeline of projects just sitting out there to be executed on. In a fair playing field, for every great idea or innovative solution that comes to place, you need a physical device to bring it to fruition so the full value can be captured. It is totally viable, it is needed and can be done."

Among those projects Longhi may be referencing could be the Dakota Access and Keystone projects that President Trump said earlier must use pipes made from U.S. steel. Longhi reiterated comments he made earlier to CNBC that U.S. Steel is fully capable of producing for upcoming pipeline projects.

America’s utterly predictable tsunami of pension problems

Some American disasters come as bolts from the blue — the stock market crash of October 1929, Pearl Harbor, the designated hitter, 9/11. Others are predictable because they arise from arithmetic that is neither hidden nor arcane. Now comes the tsunami of pension problems that will wash over many cities and states.

Dallas has the fastest­growing economy of America’s 13 largest cities but in spite of its glistening commercial towers it represents the skull beneath the skin of American prosperity. According to its mayor, the city is “walking into the fan blades” of pension promises: The fund for retired police and firefighters is $5 billion underfunded. Prompted by projections that the fund will be exhausted within 20 years, retirees last year withdrew $230 million from it in a six­week span. In the entire year, the fund paid out $283 million and the city put in just $115 million. In November, the New York Times reported that the police and fire fund sought a $1.1 billion infusion, a sum “roughly equal to Dallas’s entire general fund budget but not even close to what the pension fund needs to be fully funded.”

Nowadays, America’s most persistent public dishonesties are the wildly optimistic but politically convenient expectations for returns on pension fund investments. Last year, when Illinois reduced its expected return on its teachers’ retirement fund from 7.5 percent to 7 percent, this meant a $400 million to $500 million addition to the taxes needed annually for the fund. And expecting 7 percent is probably imprudent.

Add to the Illinois example the problems of the 49 other states that have pension debt of at least $19,000 per household and numerous municipalities, and you will understand why many jurisdictions will be considering buyouts, whereby government workers are offered a lump sum in exchange for smaller pension benefits. Last September, in the seventh year of the recovery from the Great Recession, the vice chair of the agency in charge of Oregon’s government workers’ pension system wept when speaking about the state’s unfunded pension promises passing $22 billion.

IMF warns against pretending 'upayable debts' can be paid

In a not so subtle jab at European officials and their dealings with Greece, the IMF on Thursday (Feb 23) issued a warning against pretending that "unpayable debts" can be repaid.

In a blog written by the International Monetary Fund's chief Greece negotiator, its chief economist, and its general counsel, the fund rarely mentions the crisis-ridden country by name. But the descriptions clearly fit Greece's current negotiations with its eurozone partners, which have been a source of months of conflict with the IMF.

The IMF repeatedly has said Greece's debt is not sustainable, and the country requires debt restructuring, but European governments, especially Germany, have resisted providing more debt relief and dispute the fund's analysis, instead calling for more economic policy steps.

The blog, by chief economist Maurice Obstfeld, European chief Poul Thomsen, and Sean Hagan, head of the legal department, warn of the dangers of not facing up to the debt situation. "Pretending that unpayable debts can be repaid will only sap the effectiveness of the debtor's adjustment efforts, ultimately making all parties lose more than if they had promptly faced the facts."

Government launches probe into big banks

Sears Lays Off 130 Corporate Employees, Still Hoping To Escape Death Spiral

Sears Holdings, the parent company of Sears and Kmart, had a pretty bad year in 2016. The duo of once-mighty retailers is now locked in a death spiral, selling its real estate, its own iconic brands, and closing stores to stay afloat. And now Sears Holdings is laying off 130 corporate employees.

That news comes from Business Insider, where Hayley Peterson has her ear to the ground in Sears-land. An employee slipped her a copy of the memo where chairman and CEO Eddie Lampert gave corporate employees the sad news.

“This activity is necessary to create a more nimble operating structure capable of driving the company’s strategic transformation forward,” the CEO said in the memo.

Losing 130 employees is relatively small when you consider that the company had, as of 2016, 4,850 employees and 800 contract workers at its headquarters campus in the Chicago suburbs. Lampert explained that the corporate cuts come after layoffs on the store level and store closings, and the sale of the Craftsman tool brand. Layoffs are one piece of the company’s plan to maybe halt its death spiral.

Gold Bars Hit Post-Trump High as Fed Fears Inflation, LME 'Cuts Deal' with Bullion Trading Banks

Gold Bars traded in London's wholesale bullion bank market rose to new post-Trump victory highs on Thursday, while the Dollar fell after yesterday's notes from the Federal Reserve showed the US central bank worried about inflation at its last policy meeting, yet failed to raise interest rates in response.

"Many participants expressed the view that it might be appropriate to raise the federal funds rate again fairly soon," said minutes from the Fed meeting ending 1st February, but only "if incoming information on the labor market and inflation was in line with or stronger than their current expectations."

Consumer-price inflation rose last month to a 5-year high, reaching the Fed's 2.0% annual target for only the 7th time since 2012. Betting on US Fed interest-rate futures ended last night putting just a one-in-five chance on the central bank raising to a 0.75% ceiling at its mid-March decision.

The price of wholesale gold bars today touch $1247 per ounce as the Dollar retreated further from Wednesday's 6-week highs on the currency market. Silver bullion also jumped, matching gold's 1% gain for the week so far to touch $18.18 per ounce, also its highest price since Donald Trump was declared the winner of November 2016's US presidential election.

55% of Small Businesses Say Volume of Gov't Regs Is Biggest Problem

Half (48%) of all small business owners say regulations are a “very serious” or “somewhat serious problem,” according to new research by the National Federation of Independent Business (NFIB).

According to the survey, 25% of small employers say regulations are a “very serious problem.” Another 23% say regulations are a “somewhat serious problem.”

“Small business owners are drowning in regulations imposed by every level of government,” said NFIB President and CEO Juanita Duggan. “It’s a major problem affecting millions of businesses, and the federal government is the biggest contributor.”

Twenty-eight percent of small employers cited cost as their biggest regulatory problem. Other problems cited were: “understanding how to comply” (18%); “extra paperwork” (17%); and “time delays” caused by regulations (10%).

Buffett-backed Kraft Heinz eliminated 1,000 jobs in 2016

Kraft Heinz Co. eliminated another 1,000 jobs last year, helping to boost returns for investors including billionaire Warren Buffett. The maker of Velveeta cheese had 41,000 employees as of Dec. 31, the company said Thursday in a regulatory filing. That compares with 42,000 workers about 12 months earlier.

Kraft Heinz, under the management of 3G Capital, has sought to boost profits through both cost cuts and acquisitions. An attempt to buy Unilever was unsuccessful, however, as the maker of Dove soap rejected its unsolicited $143 billion bid this month. Buffett and 3G took H.J. Heinz private in 2013, slashed jobs and then combined the ketchup maker with Kraft in 2015.

Management is in the midst of a multiyear program to “reduce costs, streamline and simplify our operating structure as well as optimize our production and supply chain network across our businesses in the United States and Canada segments,” the company said in Thursday’s filing.

The plan is to eventually cut 5,150 positions. The company is more than halfway there, with 3,350 eliminated as of Dec. 31.

$3.7 billion hedge fund: There's a lot to be excited about under Trump, but nobody's talking about it

You can add the $3.7 billion hedge fund Tourbillon Capital to the list of firms wary of betting on President Donald Trump's policies.

"The next four years will be filled with a very wide range of outcomes," Jason Karp, founder of Tourbillon Capital Partners, wrote in a February investor letter reviewed by Business Insider. "We can confidently say after hundreds of man hours of research that it is highly unpredictable and unknowable."

Karp said that making trades based on conviction over policy direction could lead to disasters like the one the investment world saw last year, "where many look genius and many look stupid because of a virtual coin toss." He also quoted the French philosopher Voltaire: "Doubt is not a pleasant condition, but certainty is an absurd one."

There are causes for concern, but there are also a bunch of reasons to be optimistic, he said. Karp added: "We think there is plenty to be worried — which most people have adequately addressed — and plenty to be excited about — which few give airtime to because being optimistic is not as intellectual as being bearish, and optimism creates too much cognitive dissonance if you have issues with Trump."

Jobless claims rise by 6,000 to 244,000

The number of U.S. workers who applied for unemployment benefits in late February rose slightly to 244,000, but layoffs remained near ultralow levels last seen in the early 1970s.

Initially claims climbed by 6,000 in the seven days ended Feb. 18 from a revised 238,000 in the prior week, the government said Thursday. That was close to the 237,000 forecast of economists polled by MarketWatch.

The less volatile four-week average of initial claims, however, dropped by 4,000 to 241,000, touching the lowest mark since July 1973. The monthly average smooths out the volatility in the weekly report.

Companies are eager to hold on to experienced workers with the economy growing steadily, and good help has become harder to find as the labor pool shrinks. The unemployment rate stood at 4.8% in January.

Why millennials may never get to live alone

There’s more evidence that renters are just as likely to be struggling as homeowners. A typical renter in Miami would need to spend nearly 50% of his or her income to rent a one-bedroom apartment, but a typical millennial renter would need to spend 54% of his or her income in that city, according to a new analysis of rental listings by real estate site Trulia. In Los Angeles, millennials pay nearly 39% of their monthly rent versus 34% for the average renter. In New York, they pay as much as the average renter (34%) and pay slightly less than the average renter in San Francisco (33.5% versus for the average renter 37%).

The solution is simple, though maybe not ideal for everyone: In America’s biggest rental markets, a renter can save on average 13% of his or her income by getting a housemate. While splitting an apartment with a roommate will save money, the benefits of sharing a living space vary from city to city, home to home. In Miami, millennials save 19% of their income in a two-bedroom apartment and they can save 14% in Los Angeles and New York, but only 9.5% in Washington, D.C. In all cases, except Miami, they can pay less than 30% of their income on rent by having a roomie.

Even in markets with the lowest amount of potential savings, it’s still worth considering having a roommate, Trulia found. In Minneapolis, which has the lowest potential savings, a renter could save the equivalent of 5.3% of median household income or $310 per month; in St. Louis, the renter could save 5.7% or $260 per month; in Dallas 6% or $310 per month; and 6.6% or $400 per month in Baltimore.

Once upon a time, 30% of your income was the maximum you were supposed to spend on rent, but these days the median amount renters spend across the country is almost 40%. As MarketWatch reported last month, many renters of all ages spend north of 30%. On average, renters in the Marin County/San Francisco metro area will spend over 77% of their salary to pay rent in 2017, according to a study by Attom Data Solutions, the parent company of real-estate website RealtyTrac.

Goldman Sachs: Global Oil Inventories To Continue Dropping

Although crude oil inventories in the U.S. are expected to rise, the global oil market is showing signs of tightness and will continue to see crude stocks draw down, Goldman Sachs has said in recent note. “We do not view the recent U.S. builds as derailing our forecast for a gradual draw in inventories, with in fact the rest of the world already showing signs of tightness,” Reuters quoted Goldman analysts as saying on Tuesday.

In addition, Goldman Sachs expects the higher base demand growth this year – projected at 1.5 million bpd – to fully offset increased production in the U.S. However, the oil market needs to see “show me the activity:” real demand and stock drawdown, Goldman noted, as reported by CNBC.

“Markets need to see that the OPEC supply cuts generate real inventory draws and the strong manufacturing survey and Chinese credit data create real activity. In other words, ‘show me the activity:’ real demand, real stock draws and empty warehouses,” according to the analysts.

Goldman left unchanged its Brent and WTI price forecasts for this year, seeing the price of Brent rising to US$59.00 and WTI – to US$57.50 per barrel in the second quarter, and then falling to US$57 and US$55 per barrel for the remainder of the year.

American Apparel Brand Will Soon Appear on Clothes Made Elsewhere

American Apparel, a brand that developed a following by making clothes in the U.S. at a time when garment makers sought cheap labor abroad, is changing its original mission under new ownership.

Canadian manufacturer Gildan Activewear Inc., which bought American Apparel for $88 million in a bankruptcy auction this month, will continue producing some of clothes in the U.S. But it will also slap the brand on cheaper wares made elsewhere as it expands into international markets.

“We’re going to do a combination of both,” Chief Executive Officer Glenn Chamandy said on an earnings conference call with analysts Thursday, when asked about manufacturing plans for the brand. “We’re going to continue to support their core made-in-USA business, but we’re also going to offer a product where they couldn’t compete before.”

Gildan has built a global production chain ranging from yarn-spinning to clothes-stitching, which has enabled the Montreal-based company to compete with Hanesbrands Inc. and Berkshire Hathaway Inc.’s Fruit of the Loom. Gildan’s socks are the only finished goods made in the U.S., and most of the sewing is done in the Caribbeans, Central America or Bangladesh.

How European welfare benefits help fund ISIS fighters

Cash-Out Refinancing During Bubble Years Will Lead To Disaster

Nearly all analysts who write about the housing bubble have focused on the purchasing madness that occurred. While this is important, it overlooks the refinancing insanity of 2004-2007. This refinancing lunacy will devastate mortgage and housing markets for years to come. You may wonder why I choose to focus on bubble era refinancing. After all, refinancing happens all the time.

Here is why: California was the nation’s epicenter for the refinancing madness. During the bubble years, roughly five times as many refinanced first liens were originated there as were purchase loans. Millions of homeowners refinanced once, twice, even three times or more while their homes soared in value. These became known as “cash-out refis,” where the borrower refinanced for a larger amount than the previous loan. A California home that may have been purchased for $200,000 in 1997 could easily have had a $600,000 refinanced loan in 2006. When home prices began to tumble, they found themselves trapped in a badly underwater property.

There were roughly 20 million homeowners who refinanced during the bubble years. At least one-third of them also had second liens on their property. When housing markets weaken, millions of them will face significant debt burdens. This horde of refinanced homes will cause the debacle of 2008-2010 to resume.

Cash-out refinancing caused millions of homeowners to lose their property. The owner cashed out the growing value of the house by taking out a mortgage larger than the previous one and pocketing the difference. Hence, many of these borrowers ended up with mortgages much larger than their original one. Refinancing started in 2003 after the Fed began lowering interest rates. Approximately 15 million mortgages were refinanced that year for a total of $2.5 trillion. Cash-out refinances were relatively modest that year because the housing market bubble had just begun.

Where U.S. Companies Stand on the Border Adjustment Tax

A divide is emerging among American companies when it comes to the Trump administration’s proposed border adjustment tax. For some, the tax—which would shift taxation from where goods are produced to where goods are sold—could bode poorly, since prices for consumers would go up, potentially decreasing demand for their products. But for others, there may be a benefit, as the tax could increase demand American-made goods, boosting sales and jobs. On both sides, companies have potentially billions of dollars at stake.

Lobbyists in the retail, energy, and auto industries have already started a campaign against the policy called Americans for Affordable Products, and the very name highlights their main argument. The group calls the border adjustment tax “outrageous,” and argues that it is a trillion-dollar tax break for some corporations that increases the price of clothing, food, and gas for American consumers. Over 100 companies have joined the opposition, including Best Buy, Macy’s, Nike, and Walmart. Brett Biggs, the CFO of Walmart, spoke out against the border adjustment tax on an earnings call this week, saying that any policy that might raise prices for their customers is a serious concern for the company.

But companies that focus on exporting American-made goods and services believe they stand to benefit from the border adjustment tax. Earlier this week, 16 CEOs from export-focused companies penned a letter to Congress supporting the new policy, which they say is “pro-growth.” The current system, they argue, provides “unfair advantage for foreign-based companies at the expense of U.S. jobs and economic growth.” The CEOs are part of the American Made Coalition, a group of businesses that includes Boeing, General Electric, Honeywell, Johnson & Johnson, and Pfizer.

Arguments that suggest the border adjustment will result in winners and losers stand in opposition to how economists and tax-policy analysts describe the policy’s actual operation. The Tax Foundation, an independent research organization on tax policy, has stated that a border adjustment is trade neutral, and that characterizing it as a tax increase on consumers is “incorrect” because they don’t anticipate an increase in prices.

Ex-IMF chief gets 4.5 years for embezzlement

Former IMF chief Rodrigo Rato has been sentenced to four-and-a-half years in jail for embezzling money from two Spanish banks he used to run. A court in Madrid found him and more than 60 other former bankers guilty of using undeclared corporate credit cards to finance lavish lifestyles.

About €12m (£10.1m; $12.7m) was spent from Caja Madrid and Bankia in 2003-12. Rato, 67, had denied any wrongdoing. Bankia was rescued in 2012 at huge public expense.

About 200,000 small-scale savers - who had been persuaded to convert their savings into shares before Bankia's flotation in 2011 - lost their money.

During the trial, Rato argued that the corporate credit cards were part of his pay package. All the card purchases during that period were not declared to the tax authorities.

Why America Must Lead

The US government deports so many immigrants each year that it runs its own air service

Since 2006, Immigration and Customs Enforcement, the agency tasked with removing individuals who have entered the US illegally, has chartered airplanes to fly deported migrants back to their home countries. And US taxpayers foot the bill for the (one-way) tickets.

ICE Air Operations says it has flown hundreds of thousands of immigrants to border crossings or to their home countries, on Boeing 737 and MD-80 airplanes. (Immigrants are also flown on commercial flights.)

It’s an industry that could boom under US president Donald Trump, who has taken a hard line against illegal immigration. One such measure would be to deport immigrants to Mexico even if they have a pending legal appeal, instead of allowing them to wait it out in the US. This week, the Trump administration announced a series of measures to make it easier to deport undocumented immigrants.

Convicted criminals that are considered violent or dangerous can be escorted back on the flight by to their countries by ICE agents, and shackled, the New York Times reported (paywall.)

Uber Driver Claims Company Keeps More Money Than It’s Supposed To

When you hail an Uber car, the driver of that vehicle is supposed to get a set percentage of the total fare you pay. However, one driver claims that Uber is breaking its agreement with drivers by basing their cut on an amount that is lower than what the passenger is charged.

According to a lawsuit filed earlier this week with a federal court in San Francisco, UberX drivers are currently supposed to be making 80% of the passenger’s total fare, minus the Booking Fee.

The plaintiff driver, a man from North Carolina, contends that Uber is actually paying drivers lower than that 80% whenever a ride is not as long as Uber had expected it would be.

He gives some examples where Uber allegedly shortchanged him, like one ride where the passenger was charged $15.38 based on the pre-ride estimate calculated by the Uber app. After deducting the local booking fee (they vary by market) of $1.80, the plaintiff says that he should have been paid 80% of $13.58 (which comes out to $10.86) for that ride.

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