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Wednesday 01.25.2017

The Dow Breaks 20,000: What Happens Next?

The Dow Jones Industrial Average is over 20,000! The media is lauding this feat, but should investors break out party hats and noisemakers? Is it a real accomplishment, or just a number?

Dow 20,000 makes for some nice headlines, and it's a psychological accomplishment -- but not necessarily a lasting one. What goes up does not always come down -- but past history shows that, at least recently, the Dow reaching milestones often can lead to a small market hangover.

Historically, after the Dow clears one of these hurdles, there tends to be a short-term pullback. That's happened after four of the five most recent milestones were crossed. However, there's no guarantee that will happen here because of what's fueling the rally.

In this case, stocks are rocketing higher due to optimism over what will happen when President-elect Donald Trump takes over. The market has risen since Nov. 9, after it became known that the businessman/reality-show host had won the election. Since then, Trump has signaled that he will likely ease regulation and lower business taxes. He has also named a number of Wall Street insiders and billionaires/business leaders to his cabinet, including the surprise pick of ExxonMobil CEO Rex Tillerson for Secretary of State.

Obama Gives Palestinians Millions Hours Before Trump Inauguration

In case you didn’t know (and how could you when there was an inauguration and women’s abortion rally going on?), former President Barack Obama left the country with a nice parting shot under the radar.

Mere hours before President Donald Trump took his oath of office, the outgoing Obama administration gave $221 million to the Palestinian Authority, despite repeated blocking from Republicans in Congress. According to the AP:

In addition to the $221 million for the Palestinians, the Obama administration also told Congress on Friday it was going ahead with the release of another $6 million in foreign affairs spending, including $4 million for climate change programs and $1.25 million for U.N. organizations, the congressional aides said. The aides and the State Department official weren't authorized to speak publicly on the matter and demanded anonymity.

Of course officials weren’t authorized to speak on this matter, because Obama obviously wanted this done with as little attention as possible. This move came a few weeks after the United Nations passed a resolution condemning Israeli settlements in Gaza, the West Bank or East Jerusalem.

Wells Fargo to stop giving branches advance notice of inspections

Wells Fargo & Co will eliminate its policy of notifying branches a day in advance before they are visited by internal inspectors, a bank spokeswoman said on Tuesday.

The decision comes after the Wall Street Journal reported on the advance notice, describing how it gave employees time to cover up problematic sales practices by shredding documents and forging signatures.

Mary Eshet, a spokeswoman for the third-largest U.S. bank by assets, confirmed that Wells Fargo will halt the practice. She had no immediate response to allegations outlined in the Journal, which cited unnamed current and former Wells Fargo employees and executives.

Wells Fargo is conducting a broad internal review of its sales practices after it settled charges that it created as many 2 million credit card and checking accounts without customer authorization. The US$190 million settlement, announced in September, hammered the bank's share price and led to the resignation of then-Chief Executive John Stumpf.

More Americans Worried About Prospect of Higher Interest Rates

A steadily-growing economy means higher interest rates are on the way. But the nation is split on whether that’s a good thing for the markets and their personal finances.

Forty-nine percent of Americans say they are concerned about the prospect of higher rates in 2017, according to a new survey from Bankrate.com. That number is up eight percentage points from last year as respondents worry more about the Federal Reserve’s planned rate-hike path as the economy continues to improve after the worst financial crisis since the Great Depression.

The most commonly-cited reason for concern was fear about the impact of higher rates on the stock market since asset prices have been supported by ultra-easy monetary policy since 2008. “Investors love low rates because it leaves fewer investment alternatives in the stock market,” said Greg McBride, Bankrate.com chief financial analyst. “When rates go up, not only does it increase borrowing costs, it could slow corporate profits, and it makes other investment options more attractive on a relative basis.”

After raising the short-term federal funds rate for the first time in nearly a decade back in December 2015, the Federal Reserve waited a year to raise rates for a second time last December. In the month since the 0.25 percentage point increase, Fed Chief Janet Yellen has said it is reasonable to expect “a few” rate rises this year as the economy moves more in line with the central bank’s targets of full employment and a 2% inflation rate.

Trump to revive Keystone XL, Dakota pipelines

Toyota Motor to add 400 jobs at Indiana assembly plant

Toyota Motor Corp on Tuesday said it would add 400 jobs to build more SUVs at one of its U.S. plants, highlighting its expansion plans just as U.S. President Donald Trump calls on manufacturers to build more cars in the country.

The Japanese automaker said the jobs were part of a US$600 million upgrade of its plant in Princeton, Indiana, and were included in its plans announced earlier this month to invest US$10 billion in its U.S. operations over the next five years.

The announcement comes as Trump focuses on protectionist trade policies during his administrations' first week, including a formal withdrawal of the United States from the Trans-Pacific Partnership trade deal on Monday.

The president has previously favored a 35 percent tariff on imported vehicles and pledged to renegotiate the North American Free Trade Agreement with Mexico and Canada to promote a "buy American and hire American" policy. He has also criticized automakers including Toyota for producing cars in neighboring Mexico for export to the United States and on Tuesday will have breakfast with the chief executives of General Motors Co , Ford Motor Co and Fiat Chrysler Automobiles to discuss boosting U.S. employment.

Yellen’s potential successors deem a stringent monetary policy as the need of the day

The Federal Reserve Chair Janet Yellen term is going to end in 2018. Janet L. Yellen took office as Chair of the Board of Governors of the Federal Reserve System on February 3, 2014, for a four-year term ending February 3, 2018. She has vowed not to retire before the end of her term. Amid expectations that the president-elect would step up political pressure on the Fed after he takes office in January, there was chatter that Yellen might just step aside. “No I cannot,” she said when asked by Rep. Carolyn Maloney if there were circumstances under which she might leave before her term expires.

“I was confirmed by the Senate to a four-year term, which ends at the end of January of 2018, and it is fully my intention to serve out that term.” The three potential successors of Yellen are Glenn Hubbard, Kevin Warsh and John Taylor. All these three potential candidates for FED Chairmanship, recently criticized the monetary policy being followed by the FED terming it as an overly loose policy.

“The term “monetary policy” refers to what the Federal Reserve, the nation’s central bank, does to influence the amount of money and credit in the U.S. economy. What happens to money and credit affects interest rates (the cost of credit) and the performance of the U.S. economy. The goals of monetary policy are to promote maximum employment, stable prices and moderate long-term interest rates. By implementing effective monetary policy, the Fed can maintain stable prices, thereby supporting conditions for long-term economic growth and maximum employment.” Federal Reserve.

An effective monetary policy translates in to positive economic impacts through factors such as inflation, output and employment. U.S. monetary policy affects all kinds of economic and financial decisions. From Consumer loans to mortgages or auto loans or to establish a new start up, or to develop an established business further by undertaking capital budget decisions, and or to put savings in a bank, in bonds, or in the stock market. Moreover, since the U.S. is one of the major economies in the world, its monetary policy also has significant economic and financial implications for other countries of the world.

As Ringling Bros. Closes, Circus Workers Are Left Scrambling for New Jobs

Following decades of battles against PETA and other animal rights activists, the Ringling Bros. and Barnum & Bailey Circus has thrown their towel into the ring. On May 21, "the Greatest Show on Earth" will perform for the final time. Feld Entertainment, the circus's corporate owner, can no longer afford to run the circus. Last year, the company retired the shows' performing elephants after PETA released a 13-page expose accusing Ringling Bros. of using bullhooks and electrical prods on the animals.

Feld Entertainment denied the accusations, but ditched the elephants anyway, citing the economic cost of transporting them from city to city and acknowledging that public opinion had shifted out of their favor. Instead, ticket sales collapsed dramatically.

"The majority of people, it ends up, wanted to see the elephants," says Ringling Bros. band trombonist Megan O'Malley. PETA has celebrated the circus's demise, tweeting about what they call the end of "the Saddest Show on Earth." Regardless of the controversy surrounding performing animals, the closure has thrust Ringling Bros.' employees into economic uncertainty. About 400 people will lose their jobs come May.

"It's traumatic!" says Johnathan Lee Iverson, who became Ringling Bros.' first African-American ringmaster 18 years ago. "For artists and crew alike, it's bearing witness to the death of the penultimate icon of our industry. This decision has international ramifications. Artists, the world over, work their entire lives to get to the Greatest Show On Earth."

Here’s What $20M Cash Stuffed Inside A Box Spring Looks Like

It is a rule universally acknowledged in crime writing that if you stash your ill-gotten gains under the mattress, someone is eventually going to find it. Just like the $20 million in cash hidden in a box spring that federal agents found in Massachusetts this week.

The U.S. Attorney’s Office in Massachusetts says the cash was seized on Monday, and a Brazilian man was arrested and accused of conspiring to launder proceeds of a massive alleged pyramid scheme.

He was charged with one count of conspiring to commit money laundering related to the alleged TelexFree pyramid scheme: the company purportedly sold VOIP telephone service, but prosecutors said instead it made most of its revenue from people buying into the company with promised payouts for posting online ads. Those folks were then allegedly paid with money from new recruits.

Back in April 2014, federal investigators searched TelexFree’s headquarters in Marlborough, MA. One of the founders of the company allegedly fled to his native country of Brazil and remained there, investigators say. He and the company’s co-founder were indicted in July 2014 on charges that they operated TelexFree as a massive pyramid scheme. The co-founder pleaded guilty to those charges in Oct. 2016 and is awaiting sentencing.

Ford to Sell and Finance Its Autos Online

Ford said on Monday that it would join forces with software developer AutoFi, Inc. to allow customers the freedom to purchase a Ford or a Lincoln automobile and obtain financing for it online without forcing them to endure the usual three- to five-hour long sales pitch in one of its showrooms.

The software will allow shoppers to compare models, prices as delivered, available options, and choices of financing among different lenders. Once the sale and financing are completed, the customer stops by the dealership to pick up his car. Nice and easy.

AutoFi’s CEO Kevin Singerman said he really wasn’t trying to disrupt the sales process: “Our approach from the beginning was not to be, ‘We’re a Silicon Valley disrupter that’s come to take out the manufacturers and the dealers.’” But when fully implemented across the land, online buying may in fact all but end the “showroom sales” process that used to be the norm. It will replace “the legacy sales process where [dealers] price people rather than products,” as Ian Wittig noted at his DrivingSales.com blog. Currently, wrote Wittig, “Dealers insist [that] consumers visit the dealership and endure [that process]” resulting in “inefficiency [that] is undeniable.”

The momentum appears to be unstoppable: With the lowering of the cost of information thanks to the Internet, more information can be delivered online — slowly but surely taking the salesman out of the picture. On the same day as Ford’s announcement, Walmart said it would start selling cars inside 25 of its Supercenters starting in April. Calling it its CarSaver program, buyers can sit down at a kiosk, access cars for sale through AutoNation, arrange financing through Ally, and pick up the car either at the store or at a local dealership, depending on state law.

Congressional Budget Office: Trump to Inherit $559B Deficit, Stable Economy

President Donald Trump has inherited a stable economy and a government that is on track to run a $559 billion budget deficit for the year, congressional analysts said Tuesday.

The estimates from the nonpartisan Congressional Budget Office say the economy will hold relatively steady, with economic growth rising slightly to 2.3 percent this year and unemployment averaging less than 5 percent for the duration of Trump's term. Trump is promising higher growth as his administration curbs regulations, overhauls the tax code, and repeals the Affordable Care Act, former President Barack Obama's signature accomplishment.

The latest CBO figures are in line with previous projections. The deficit continues to be an intractable problem that would steadily worsen over time and CBO continues to warn that such rising deficits and debt "would have significant consequences" and act as a drag on the economy if left unchecked.

"After declining for several years, federal budget deficits are on a path to rise during the next decade," the report says. The projections come as Trump and Republicans controlling Congress are working to repeal much of President Barack Obama's signature health care law, boost the Pentagon budget, and reform the loophole cluttered tax code.

Calexit: 33% of Californians support ‘peaceful withdrawal from the union’

With Donald Trump now serving as President of the United States, there are several movements happening around the country to make an exit from the union. A new poll suggests that a record number of California residents support secession, a movement dubbed as “Calexit.”

According to a new Reuters/Ipsos Reid poll, 33 percent of Californians support a “peaceful withdrawal from the union.” This is up from 22 percent in 2014, which was the last time the state was polled about secession.

California presently has 39 million residents and is the sixth-largest economy in the world today. If it would secede from the union then it would have the numbers to support itself as a nation. Is it likely to happen? Many in California are pessimistic that it would occur.

The Calexit initiative, which was named after Brexit last summer, was started soon after Trump was elected into office. What made the measure interesting was the fact that many on the left accused supporters of secession as racist for so many years.

Border Tax: What You Need to Know

Medical Debt Is Top Reason Consumers Hear From Collection Agencies

More people have health insurance than ever before, but many still struggle to pay for care. A recently released report says medical debt is the No. 1 reason consumers reported being contacted by a collection agency. If efforts to overhaul the Affordable Care Act result in more people losing their coverage, those numbers could rise.

The study by the federal Consumer Financial Protection Bureau found that 59 percent of people who reported they had been contacted by a debt collector said it was for medical services. Telecommunications bills were the second most common type of overdue bill for which debt collectors pursued payment, at 37 percent, and utilities were third, reported by 28 percent.

Unlike other types of debt, people with medical debt were prevalent across a range of income levels, credit scores and ages. A poll conducted in 2015 by NPR, The Robert Wood Johnson Foundation and Harvard's T.H. Chan School of Public Health, found that many people with health insurance still struggle to pay medical bills. Some 26 percent said health care expenses have taken a serious toll on family finances.

The CFPB's survey sample was drawn from the agency's consumer credit panel, a random sample of credit records from one of the three major credit reporting agencies. Conducted between December 2014 and March 2015, the survey asked respondents about their experiences over the past year with debt collectors.

Walmart to Start Selling Cars

Wal-Mart Stores Inc., the nation's largest retailer, is jumping into car sales through a partnership with CarSaver, an online automotive retail platform. CarSaver, in turn, is setting up partnerships with dealership groups, including AutoNation Inc., the nation's largest new-vehicle retailer.

CarSaver will launch the program April 1 at select Wal-Mart Supercenters in four markets: Houston, Dallas, Phoenix and Oklahoma City. Ally Financial is the program's preferred lender.

CarSaver's digital platform allows car shoppers to select, finance and insure a vehicle through its website or on a touch-screen kiosk, backed by bilingual auto advisers available by phone. Staffers at CarSaver Centers -- set up inside Wal-Mart stores across from checkout lanes and alongside other services, such as vision centers and nail salons -- will explain the car-buying program to Wal-Mart customers.

Customers will be able to select a new, used or certified pre-owned vehicle and apply for financing and auto insurance on the kiosk at the CarSaver Center, on their mobile device via CarSaver's website or by calling an 800 number. CarSaver then will connect customers with a local, certified dealer and schedule an appointment to visit the dealership. If a shopper doesn't contact the dealership, an auto adviser reconnects with that shopper.

Gold's Going Back To Basics, Just Wait & See

Trump Tells Ford, FCA, GM That Environmental Regulations Will Ease

President Donald Trump told chief executives of the three biggest U.S. automakers that environmental regulations are "out of control" and promised he would remove obstacles for manufacturers and oil companies.

Leaders of Ford Motor Co., Fiat Chrysler Automobiles NV and General Motors Co. met Trump at the White House, the most recent in a series of meetings this week aimed at bolstering the U.S. manufacturing sector. The president reiterated his desire to reduce regulations, which may indicate a willingness to scale back federal fuel-economy demands.

“I am, to a large extent, an environmentalist,” Trump told the auto executives. “I believe in it. But it’s out of control.”

Trump’s meeting with Ford CEO Mark Fields, GM CEO Mary Barra and Fiat Chrysler CEO Sergio Marchionne occurred a day after he signed a memorandum withdrawing the U.S. from the Trans-Pacific Partnership trade agreement, claiming the pact would hurt workers. He has pledged to renegotiate the North American Free Trade Agreement with Mexico and Canada.

U.S. economy expected to grow at modest pace

The U.S. economy will chug along this year at a modest growth rate of 2.3 percent, the nonpartisan Congressional Budget Office forecast on Tuesday, setting a baseline for President Donald Trump’s plans to speed the country’s expansion.

This way, Mr. Trump can be more confident that the economy is not about to tank or overheat, which would complicate his efforts to get his fiscal stimulus plan enacted. Nevertheless, the debate rages among economists about how the economy would perform under the weight of Mr. Trump’s policies.

For next year, economic growth will ratchet down a bit, to 1.9 percent, the CBO projected. The nation’s unemployment rate, 4.7 percent in December, is expected to stay below 5 percent for the rest of Mr. Trump’s four-year term. The analysis assumes no changes in current law, meaning the CBO isn’t factoring in what could happen if the president’s proposals take effect.

During the presidential campaign, Mr. Trump said that his plans to slash individual and corporate taxes and rein in regulations would push up economic growth to 3.5 percent -- which would be the fastest pace of expansion since 2004 -- and add 25 million jobs over the coming decade. “My great economists don’t want me to say this, but I think we can do better than that,” he told the Economic Club of New York in September.

Federal Hiring Freeze is a Strong First Step to Shrink Government

While much of the media remains focused on the size of the crowd at his inauguration, President Donald Trump took a strong first step in keeping his promise to the American people to “drain the swamp.”

During his first Monday on the job, President Trump ordered a hiring freeze for impacting open positions at all federal agencies excluding military roles. President Trump proposed the freeze as part of his campaign’s Contract with the American Voter and is listed as part of his plan to “clean up corruption and special interest collusion in Washington, DC.” Part of that includes the special interests of Washington bureaucrats that often receive posh benefits that don’t match up with their work product.

The goal of the hiring freeze is to reduce the federal workforce through attrition. The federal government employs more than two million civilian federal workers and they don’t come cheap. In 2016 the wages and benefits paid to federal employers totaled $267 billion. Furthermore, taxpayer-funded federal government employees often earn significantly more than those doing similar work in the private sector. In 2015, federal government workers on average earned 76 percent more than their private sector counterparts. Is it any wonder the four richest counties by median income are all suburbs of Washington, DC?

And what have the American people bought with their billions of dollars? Unaccountable employees that are almost impossible to fire thanks to union contracts, along with billions of dollars in costly red tape. While former President Obama was in office more than 600 major regulations (those with an economic impact of more than $100 million) were imposed on the American people. They will have an economic burden of at least $743 billion on people and businesses. Broken down per person, these regulations cost $2,294. These regulations were not limited to one sector of the economy but were broad and wide ranging. New regulations were introduced on everything from how electricity is generated to how to pay for healthcare and even whether or not farmers can have a small pond in their backyards.

Obamacare architect: We need to get health care costs under control

Financialization of Rents Gets Taxpayer Guarantees

Invitation Homes, the 2012 buy-to-rent creature of private-equity firm Blackstone, and now owner of 48,431 single-family homes, thus the largest landlord of single-family homes in the US, accomplished another feat: it obtained government guarantees for $1 billion in rental-home mortgage backed securities.

The disclosure came in an amended S-11 filing with the SEC on Monday in preparation for Invitation Homes’ IPO. Invitation Homes bought these properties out of foreclosure and turned them into rental properties, concentrated in 12 urban areas. The IPO filing lists $9.7 billion in single-family properties and $7.7 billion in debt.

Some of this debt will be refinanced with the proceeds from the sale of the $1 billion of government-guaranteed rental-home mortgage backed securities. The government agency that has agreed to guarantee the “timely payment of principal and interest” of these “Guaranteed Certificates,” as they’re called, is Fannie Mae, one of the government-sponsored entities (GSE) that has been bailed out and taken over by the government during the Financial Crisis.

This is the first time ever that a government-sponsored enterprise has guaranteed single-family rental-home mortgage-backed securities, issued by a huge corporate landlord. It’s an essential step forward in financializing rents: taxpayer backing for funding the biggest landlords.

Chili’s cuts corporate and field staff in a restructuring

Chili’s Grill & Bar has laid off nearly 50 employees from its corporate staff and more than 30 people from its field director team in a restructuring, the company told employees Friday.

In a message to employees, the Dallas-based division of Brinker International Inc. said the layoffs included nine regional directors, 29 area directors and nearly 50 corporate employees.

The layoffs aim at streamlining the “above-restaurant organization” to bring the Chili’s team “closer to the restaurants,” a company spokesperson wrote in an email Monday. “This new structure ensures that we are well-organized to leverage our resources more effectively and prioritize our efforts to help reduce complexity, ensure clarity in roles, enhance collaboration and improve efficiency in decision-making,” the spokesperson said.

Brinker, which also owns the Maggiano’s Little Italy brand, is scheduled to report second-quarter earnings before the stock market opens on Wednesday. For the first quarter ended Sept. 28, Brinker said it experienced “choppy” sales at both brands.

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