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Friday 01.27.2017

Teen retailer Wet Seal is suddenly closing all of its stores

Struggling teen retailer Wet Seal is closing all 148 of its stores. In a letter dated January 20 that was obtained by The Wall Street Journal, the apparel retailer notified employees working in the company's Irvine, California headquarters that the office was permanently shutting down and laying off all of its workers.

According to the Journal, Versa Capital, which acquired the brand for $7.5 million in cash in April 2015, couldn't raise the necessary funding or find a buyer to keep the brand alive.

Wet Seal closed 338 of its then-511 stores in January 2015, shortly before the company filed for bankruptcy protection. Then, Wall Street analysts said that falling foot traffic at shopping malls played a major role in Wet Seal's death spiral.

The teen retailer isn't the only brand facing store closures as shoppers ditch malls. Earlier in January, The Limited, another apparel brand primarily based in malls, shut down all 250 of its stores and laid off 4,000 workers. Mall staples Sears and Macy's have also announced mass closures this year, with Sears planning to close 150 namesake stores and Kmart stores in 2017 and Macy's planning to shutter another 100 stores.

San Francisco is launching an experiment to give families free money

A basic income experiment is coming to San Francisco, California. Announced at a January 23 forum hosted by the city's Office of Financial Empowerment (OFE), a subsection of the Office of the Treasurer, the experiment will reportedly be a pilot program focused on families and children, Hoodline first reported.

Basic income is a wealth-distribution system that involves giving every citizen a fixed amount of money each month to cover basic living expenses. Advocate argue that by strengthening the social safety net, fewer people will be able to slip into poverty, ultimately creating healthier and happier societies.

Some early evidence in the developing world shows the model really does help people get more education and make crucial repairs to their homes. One question skeptics often pose, however, is to what extent recipients waste the money on vices like drugs and alcohol.

That's where the focus of the San Francisco pilot sets it apart from other experiments in the general population, says Sean Kline, director of the OFE. The pilot only includes families with children. "A focus on kids skirts a lot of the questions people usually have about basic income," Kline said at the forum. Specifically, the trial will compare how kids in families getting basic income fare compared to kids in families receiving other social services.

A Big Pay Day For Auto Workers As Ford, Chrysler Share The Wealth

Nearly 100,000 hourly workers at Ford Motor and Fiat Chrysler Automobiles will be pocketing thousands of dollars in profit-sharing bonuses next month, a reward for helping the companies achieve strong operating results in North America.

At Ford, which recorded a $9 billion profit in its home market last year, more than 56,000 unionized auto workers will receive profit-sharing checks averaging $9,000. FCA will pay $5,000 extra to some 40,000 unionized workers after posting a $5.1 billion profit in North America.

Profit-sharing is a benefit first negotiated by the United Auto Workers union in 1982, and the formula for calculating payouts was simplified in 2011, then revised again during 2015 contract talks. This is the first payout under the new contract. The formula is based on earnings before interest and taxes in the North American region.

Ford-UAW Vice President Jimmy Settles called the profit-sharing payout “an important indicator that Ford Motor Co. is a healthy, financially secure company which translates to job security for our members.” “Profit sharing is not a benevolent payout by the company, but something our members deserve and demand,” he said. “Both job security and financial gains for our membership have always been at the top of my priority list and today’s announcement solidifies our efforts.”

Bank of England developing blockchain proofs of concepts and exploring Central Bank Digital Currencies

The Bank of England is looking into the policy and technical issues posed by Central Bank Digital Currencies (CBDC) and developing blockchain proof-of-concepts, Bank of England Governor Mark Carney said.

Speaking at the Deutsche Bundesbank G20 conference on “Digitising finance, financial inclusion and financial literacy”, Wiesbaden, Carney discussed the promise of fintech, distributed ledger technology and much more.

“FinTech’s true promise springs from its potential to unbundle banking into its core functions of: settling payments, performing maturity transformation, sharing risk and allocating capital. This possibility is being driven by new entrants – payment service providers, aggregators and robo advisors, peer-to-peer lenders, and innovative trading platforms”, Carney said.

In wholesale banking and markets, he said that innovative technologies have the potential to transform wholesale payment, clearing and settlement infrastructure. “Emerging technologies, such as distributed ledger, could in future offer significant gains in the accuracy, efficiency and security of processes across payments, clearing and settlement as well as better regulatory compliance. In the process, tens of billions of dollars of capital may be saved and resilience could be significantly improved”, Carney added.

20 Trillion In Government Debt Means No Lifeline For Caterpillar’s Declining Revenues

The real problem for Caterpillar is that China is no longer going to build a new city every month, the commodity super cycles are over for a long time given the global debt overhang, and don`t expect Trump Infrastructure Projects to save the day for CAT, as the United States has its own debt problems to worry about which is unsustainable even at these levels.

We basically have gone from 8 Trillion to 20 Trillion in Government Debt since 2008, and it is the rate of change of this debt spending that is the real elephant in the room, and we are just coming up on the entitlement`s impact curve on our government debt obligations.

I feel for Trump because he has inherited a boxed in economic situation here, he actually wants to stimulate the economy through growth projects; but the previous wars, financial crisis, bailouts, and unwise and inefficient spending programs have made borrowing anymore money at these levels impossible, and Congress knows this fact!

They may try to go down this borrow and spending road but it will backfire bigtime on the Republicans. By my calculation the Democrats are going to benefit immensely from the fact that the shit is going to hit the fan during the Trump presidency and Republican controlled Congress from past bad governmental practices of what I call “Can-Kicking” and “Short Termism.”

Mohamed El-Erian: Trump policies drive market rally

Reserve Bank of India may lift weekly cash withdrawal limit by February end

With the cash crunch situation easing, the Reserve Bank might do away with the weekly withdrawal limits from banks as well as ATMs by the end of next month, bankers said.

The RBI had recently raised the ATM withdrawal limit to Rs 10,000 a day but maintained the weekly cap at Rs 24,000 for saving account and Rs 1 lakh for current account holders.

"I think the restrictions on withdrawal by RBI should be completely lifted by February-end or by first half of March as cash situation is easing gradually," Bank of Maharashtra executive director R K Gupta told PTI. It is entirely RBI's decision and the central bank would decide after making holistic assessment of the situation, he said.

According to SBI's research report Ecowrap, "By the end of February, 78-88 per cent of the currency could be back in the system under the best case scenario in terms of an optimal currency distribution (more small denomination notes)," the report said, adding that "it seems within next 2 months things would be pretty close to normal." Another senior public sector bank official said the situation is easing and it is a matter of weeks when the curb on withdrawal gets eased.

Housing experts: December’s drop in home sales is business as usual

December’s new home sales came in a full 10% lower than November, however, experts aren’t worried. One expert who served as the CEO for Fannie Mae for more than 20 years explained that it’s not unusual to see volatility in winter months.

“Home sales are often volatile in the winter months, as weather matters a lot, and December’s decline is probably mostly a result of this volatility rather than a drop in the underlying fundamentals for housing demand, despite the rise in mortgage rates,” Nationwide Chief Economist David Berson said.

As another expert puts it, taking the long view is a more accurate picture of where the market is. “New home sales is a notoriously volatile number, so don't read too much into it,” Brent Nyitray, iServe Residential Lending director of capital markets, said in an email to clients. “The three-month moving average has been pretty steady for the past six months.”

In fact, many experts were more focused on the year as a whole, which showed a 12% increase in new home sales over 2015. “New home sales in 2016 were the best in nine years, reflecting a combination of solid demand from homebuyers and new homebuilding that has reached post-recession highs,” Trulia Chief Economist Ralph McLaughlin said.

Inflation comes skulking back

Like the proverbial frog that does not notice the rise in water temperature until it’s too late, investors seem to be experiencing a similarly stealthy rise in inflation. Changes in headline inflation measures suggest a gentle firming in prices. However, underneath the surface there is evidence that inflation may continue to rise past the steady 2% nirvana that central banks prefer. Consider the following:

Housing is a major component of core inflation, i.e. inflation without volatile food and energy prices. The main housing component in the Consumer Price Index (CPI) is Owners’ Equivalents Rent (OER). As overall housing costs make up over 40% of core inflation, this is a key metric to watch. Last December OER rose over 3.5% from the previous year, the quickest pace in nearly 10 years (see the accompanying chart).

A few years back it seemed that medical costs were finally under control. That conclusion now appears premature. CPI for medical care has been rising at roughly 4% year-over-year for the past six months. With the exception of a brief period in 2012, medical costs have not been rising at this rate since early 2008.

One of the defining aspects of this recovery has been persistently sluggish wage growth, even in the face of a strong labor market. That is slowly changing. While still muted by historical standards, average hourly earnings are rising by 2.9% year-over-year, the fastest pace since the spring of 2009. A potential bolster to the trend: 20 states raised their minimum wage rates as of the first of the year.

Kraft Heinz employees to get day off after Super Bowl

The food giant is giving salaried employees the Monday after Super Bowl LI on Feb. 5 off. Kraft Heinz has also launched a tongue-in-cheek campaign to make the day -- dubbed “Smunday” -- a national holiday.

“We can all agree that going to work the Monday after the ‘Big Game’ on Sunday is awful,” the company said in a petition on Change.org. “So as far as we’re concerned at Heinz, we as a nation should stop settling for it being the worst work day of the year.”

The food producing giant is co-headquartered in Chicago and Pittsburgh, neither of which has a team in the Feb. 5 game. If Kraft Heinz’s petition collects enough signatures, the company said it will send the petition to Congress “in the hopes of making this dream a reality.”

The day off for employees stands whether or not the petition succeeds. The petition claims more than 16 million people call in sick or miss work the day after the game.

Morgan Stanley's top US economist says people are worried Trump optimism could be a 'house of cards'

Concern among U.S. policymakers about the reliability of fiscal policy proposals is growing as markets reach new highs on expectations of economic stimulus from the Trump administration, Morgan Stanley economist Ellen Zentner told CNBC on Thursday.

"When I'm meeting with policymakers, there's this undercurrent of discomfort," Zentner told "Squawk on the Street." "They've become more upbeat on the outlook, but they know a lot of it hinges on ... that fiscal stimulus coming through, and they're uncertain how much market sentiment may be built on a house of cards."

Zentner, Morgan Stanley's chief U.S. economist, said that if Congress is unable to deliver on fiscal policy quickly, investors may become less eager to buy, sending the market into a slump with monetary policy from the Federal Reserve being one of the few lifelines.

"Some of that risk appetite can unwind, and the Fed knows it can unwind in a disorderly way," she said. "So the Fed should maintain a tightening bias even if fiscal policy was never delivered," especially with the domestic economy growing steadily at a 2 percent rate, she said.

May-Trump the new Thatcher-Reagan?

EPA employees still ‘coming to work in tears’

ProPublica published a story yesterday on the dark mood at the Environmental Protection Agency. According to one unnamed communications official, people are coming to work in tears:

On Tuesday, the new administration’s efforts to take hold of the EPA continued, this time with a memo from EPA headquarters requiring all regional offices to submit a list of “all external meetings or presentations by employees planned through February 17.” The memo demanded the offices provide a short description of each event and a note explaining “whether it is controversial and why.”…

At EPA headquarters, the mood remains dark. A longtime career communications employee said in a phone interview Tuesday that more than a few friends were “coming to work in tears” each morning as they grappled with balancing the practical need to keep their jobs with their concerns for the issues they work on.

This is not the first time EPA bureaucrats have been caught weeping at work because of their political concerns. A week after the election E&E News published a story on the scene at the EPA and Energy Department. Supervisors were said to be telling distraught employees to take sick leave and go home, something explicitly no allowed by the rules governing sick leave.

Border Patrol Chief Asked to Resign Day After Trump Signed Immigration Orders

The chief of U.S. Border Patrol, Mark Morgan, left the agency on Thursday one day after President Trump signed an executive order paving the way for a wall to be built on the border with Mexico.

Morgan said he was asked to leave his post and resigned to avoid a fight over his job, the Associated Press reported, citing a U.S. official. The official was on a video conference with Morgan and senior Border Patrol agents when the outgoing chief said that he was going to comply with the request.

Morgan previously served as head of internal affairs with Customs and Border Protection and was as an agent in the FBI. He had frequently clashed with the Border Patrol Agents union, which strongly supported President Trump during the 2016 election, the AP reported.

The union was incensed when Morgan told a Senate hearing Dec. 1, in response to a question from Sen. Tom Carper, D-Del., that he supported a comprehensive immigration overhaul, which is often interpreted to include a path to citizenship for people who are in the country illegally. Morgan clarified his remarks in a note to Border Patrol staff the following week.

Starbucks posts disappointing sales growth

Starbucks reported disappointing quarterly sales growth Thursday for the holiday season and noted the challenging environment for restaurant retailers.

For the three months ended Jan. 1, the coffee chain said global sales rose 3% at established locations, including in the United States. Analysts had forecast growth of 3.8% globally and 4.2% domestically, according to FactSet.

The Seattle-based company said customer visits in U.S. stores fell 2% at established locations. It attributed the decline to a change in its loyalty program that stopped people from splitting orders to get more rewards. After factoring in the change, Starbucks says customer visits were flat.

The results come as Starbucks CEO Howard Schultz prepares to step down from that job in April. He will become executive chairman and focus on projects like the company’s new higher-end retail concept. Kevin Johnson, president and chief operating officer, will take over.

Keiser Report: ‘Healthcare’ Debate

U.S. Auto Supplier Jobs Are on the Rise

Automotive components manufacturing jobs have risen nearly 19% in the United States since 2012, according to a study released today by the Motor & Equipment Manufacturers Association (MEMA).

More than 871,000 Americans are directly employed by the automotive parts manufacturing industry. This number, which is up from 734,000 in 2012, represents 2.9% of total U.S. jobs and 2.4% of U.S. gross domestic product (GDP).

Together with indirect and employment-induced jobs, the total employment impact of the motor vehicle parts manufacturing industry is 4.26 million jobs, an increase of nearly 18% from 3.26 million in 2012. “Never before has the mobility industry had to embrace so many advances in vehicle technology so quickly and on a global scale,” said Steve Handshuch, president and CEO of MEMA, during a press event at the Washington Auto Show. These numbers show that MEMA and its member companies are driving innovation, jobs, and economic growth in the U.S. by combining manufacturing and technology.”

In addition, the motor vehicle parts manufacturing industry contributes $270 billion in total employee compensation, which is up 22 percent from $221 billion in 2012. Overall, the report shows that the economic contribution to the U.S. GDP generated by the motor vehicle parts manufacturing industry and its supported activity tops $435 billion.

Trump, Yellen and Systemic Risk

Investors are giddy now that the Dow’s broken through the mythical 20,000 mark. Many anticipate Trump’s economic agenda will spur the economy. But the most decisive factor in the implementation of the Trump economic plan is the reaction of the Federal Reserve. While a Fed rate hike in December was basically a certainty, the path of rates in 2017 following the December hike will be critical to the success or failure of Trump’s plans.

The Fed can choose to be highly accommodative in the face of Trump’s larger deficits. In effect, the Fed will not anticipate inflation, but will wait until it actually emerges. Actual inflation is still below the Fed’s target inflation rate of 2%.

Since the Fed is targeting average inflation of 2%, it could allow inflation to run above 2% for a while, which would be consistent with 2% average inflation, given today’s lower level.

The Fed also seeks negative real rates as a kind of stimulus measure. Negative real rates exist when the rate of inflation is higher than the nominal interest rate. This condition can exist at any level of nominal rates. For example, inflation of 3% with nominal rates of 2.5% produces a negative real rate of 0.5%.

Trump White House abruptly halts Obamacare ads

The Trump administration has pulled the plug on all Obamacare outreach and advertising in the crucial final days of the 2017 enrollment season, according to sources at Health and Human Services and on Capitol Hill. Even ads that had already been placed and paid for have been pulled.

The decision sends the clearest signal yet that President Donald Trump is determined to fulfill his campaign pledge to repeal Obamacare. Hours after being sworn in, Trump issued his first executive order allowing federal officials to start unwinding parts of the law.

"President Trump is signaling he's the new sheriff," said Rep. Chris Collins, (R-N.Y.), the president's top congressional ally. "He's been elected with a mandate. He's not going to tolerate his employees contradicting and undermining his mandate to get this country going in another direction."

Individuals may still sign up for Obamacare plans until the Jan. 31 deadline — but the Trump administration isn't advertising that fact any longer. It is also halting all media outreach designed to spur signups in the days leading up to the deadline. Emails are no longer being sent out to individuals who visited HealthCare.gov, the enrollment website, to encourage them to finish signing up. Those emails had proven highly successful in getting stragglers to complete enrollment before the deadline.

Economic costs of Trump's wall

Ford says scrapping auto plant in Mexico cost it $200M

Ford said it took a $200 million hit from costs related to canceling a $1.6 billion small car plant in Mexico.

The auto giant on Thursday reported a fourth-quarter loss, reflecting pension accounting and write-downs for abandoning the Mexican factory plan, and reaffirmed its forecast that profits for 2017 would be lower.

Ford spent much of 2016 at the center of a political storm over its decision to shift production of Ford Focus compact cars to Mexico from a factory in Wayne, Michigan, near Detroit.

President Donald Trump, during his election campaign, attacked the decision and vowed to have it reversed. Earlier this month, Ford said it was abandoning the planned $1.6 billion plant in Mexico, and that it would add 700 jobs in Michigan tied to production of electric and autonomous vehicles.

Blue Christmas: Mattel plunges on weak toy sales

There must have been a lot of disappointed kids this Christmas. Toy maker Mattel reported lousy sales and profits for the fourth quarter, and the CEO specifically blamed a "significant U.S. toy category slowdown in the holiday period."

Mattel's overall sales fell 4% from a year ago, largely due to the fact that the company no longer sells toys tied to the Disne (DIS)y Princess franchise. Disney opted to move that line to Mattel (MAT) rival Hasbro (HAS) in 2014. The deal took effect last year.

The strong dollar was part of the problem for Mattel too. The greenback has soared since Donald Trump's presidential victory. And multinational companies like Mattel are hurt by a strong dollar because it eats into profits from foreign sales.

But Mattel wasn't just hit by exchange rates and the loss of Cinderella, Snow White and Ariel. The company said that sales of two of its most iconic franchises, Barbie and Fisher-Price, were also lower from a year ago. That's a problem. Mattel's stock had soared last year on hopes that the company was turning things around.

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