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Friday 03.31.2017

Money borrowed to buy stocks hits record

Investors continue to bet big on the Wall Street bull, at a time when stocks are hovering near records but have been unable to break through to fresh peaks.

The latest data from the New York Stock Exchange show margin debt, or cash borrowed to buy shares, hit a record $528.2 billion in February, up from its prior high of $513.3 billion in January.

Borrowing money to buy stocks is a sign that investors remain optimistic the market will continue to rise. Like any form of leverage, such as a home flipper buying a house with, say, a 30% down payment in hopes of fixing it up and selling it at a higher price, there’s risk in loading up on stock after taking out a loan to fund the purchase.

Falling stock prices and a resulting drop in one’s brokerage account balance, for example, could force investors to have to put up more collateral to meet the lender’s requirement. In some cases, the investor will have to sell stocks that are falling in value to raise the cash.

American Students Moving To Europe For Free College

With the average recent college graduate leaving campus with a diploma and $30,000 in debt, it’s no surprise that would-be-students are looking for ways to get an education without taking on such a financial burden. While they could opt to live in certain cities or states, or go to work for any of a number of the companies offering free schooling, many are moving… to Europe.

CNN Money reports that the lure of free or deeply discounted tuition is enough for thousands of students to cross the pond each year to make their dreams of a higher education a reality.

While tuition in the U.S. can range from $9,000 to $32,000 each, the price tag in Europe is much less, with many programs charging under $2,500 or no more than $9,000 each year, according to college advising service Beyond the States. But that cost might even be on the high side, CNN reports, as there are at least 44 schools in Europe that don’t charge anything for students to obtain a bachelor’s degree.

In fact, all of the public colleges in Germany, Iceland, Norway, and Finland are free for residents and international students. There are also some private schools in Europe that do not charge tuition.

Mars plans $70 million reinvestment in U.S. manufacturing, new jobs

Mars Chocolate North America is upping its investments in U.S. manufacturing and creating about 250 new jobs in the process, President Tracey Massey told CNBC on Thursday.

The company plans to reinvest $70 million in existing factories across the country. The move ensures that more than 95 percent of Mars' chocolate products for the U.S. are made here, according to the company's announcement.

Specifically, Mars will be producing more of its core M&M products, which are seeing "really good growth," and will focus on creating more varieties and flavors for its new Goodness Knows product, Massey said in an interview with "Power Lunch."

"We're family owned, privately held, [which] enables us to invest for the long term," she said. "Our philosophy is domestic manufacturing." Mars' commitment comes at a time when President Donald Trump has made a push to revitalize the U.S. manufacturing industry. He has repeatedly threatened backlash for American companies that make products abroad and try and sell them at home.

Anthem May Exit Obamacare Exchanges in 2018

Analysts say the health insurance giant Anthem may exit the Affordable Care Act exchanges in 2018, Bloomberg reported.

According to Jefferies Group analysts David Windley and David Styblo, Anthem is "leaning toward" exiting many of the 144 regions where it participates. Joseph Swedish, the company's CEO, recently wrote to lawmakers saying that the company would leave in 2018 unless significant changes were made to the marketplaces.

"While we have performed better than many of our competitors, it is increasingly difficult to remain in the exchange market under its current structure," Swedish said. "As I have said publicly, without significant regulatory and statutory changes to the individual market, we will begin to ‘surgically extract' Anthem from that market beginning in 2018."

Swedish said at the time he supported the proposed Republican health care reform bill because it addressed challenges with Obamacare and offered more choices for consumers. About one-third of counties only have one insurer participating on the exchanges. That number could grow if Anthem decides to pull out from Obamacare.

Auto Loan Subprime Defaults Hit Crisis Levels

Subprime auto delinquencies are currently approaching crisis-era peak levels, bad news for finance providers and the wider consumer debt market according to a recent research booklet from the team at Morgan Stanley.

According to Morgan Stanley Research, across prime and subprime loan pools, 60+ day delinquencies are currently running at 0.54% and 4.51% respectively. The crisis-era peak for sub-prime auto delinquencies was 4.69%, and if delinquency rates continue to accelerate, they will pass this vital level before the end of the year. At the same time, default rates are also picking up. Morgan calculates the default rate for prime finance is currently 1.52%, far below the crisis peak of 3.5% but sub-prime defaults are currently running at 11.96%, only just below the crisis peak of 14.6%

Put simply; the auto finance market is currently facing the same conditions as it did back in 2008/2009. However, today consumers are generally in a stronger financial position than they were a decade ago. Consumer debt-to-income ratios are at 30-year lows. That being said, even though general levels of consumer debt have collapsed since 2006, auto financing has ballooned.

Part of the reason for the recent explosion in auto financing delinquencies can be explained by the falling creditworthiness of borrowers. The median FICO score for auto loans has fallen from around 720 immediately post-crisis, to a low of 680 in 2015, only just above the low of 670 seen in 2004—06 according to Morgan’s research.

The U.S. economy just got hit with a disturbing piece of bad news

Americans actually became less productive in 2016, the first time since 2009, according to government numbers released today.

The data show that multifactor productivity — economist shorthand for overall man and machine efficiency — dipped about 0.2 percent last year. This means that the 1.7 growth in the economy last year was entirely caused by companies hiring more people and buying more machines and software, not by improvements in technology or organization or anything else that allows companies to squeeze more out of the resources they have.

In other words, everything has, on average, actually gotten less efficient. Americans made more stuff in 2016 only because we had more people working and more tools for them to use, according to Thursday’s new report from the Bureau of Labor Statistics.

It’s not news any modern economy wants to hear, especially as the United States looks at a future of declining fertility and a shrinking workforce. If the nation wants more economic growth, it will quickly need to find ways of doing more with fewer people. “Because of the aging population, we don’t have enough workers to have the economic growth we need,” said Michael Chui, a partner at the McKinsey Global Institute who studies automation and workforce trends. “To get there, we will need all the people working plus all the robots working.”

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Is a 50-Year Mortgage a Good Move?

Are you looking to afford a new mortgage? A 50-year mortgage may be an option, but here are some things to consider when looking at a long mortgage term.

These loans are not bought and sold by Fannie Mae or Freddie Mac. They are smaller banks and portfolio lenders that offer unique financing and, as a result, will charge an additional premium. You can expect your interest rate and fees to be above market. By above market, we mean at least three quarters of a discount point higher in rate than the Freddie Mac mortgage market survey. This type of loan effectively is an interest-only mortgage that is similar to the interest on the loans that were available before the financial crisis.

The 50-year mortgage is pretty much what it sounds like — your loan is amortized over 50 years, similar to the way a 30-year, fixed mortgage is amortized over 30 years. At the end of the loan term, the loan is paid in full. A 30-year, fixed-rate mortgage typically translates to paying double the amount of money you originally borrowed. With a 50-year mortgage you will pay almost four times the amount of interest on the amount originally borrowed. Yes, such a loan term would be incredibly expensive — the cost of having a lower monthly mortgage payment.

If you are comparing a 30-year mortgage to a 50-year mortgage, you might be trying to purchase more than you can handle — not a prudent move if you’re trying to take on something affordable. While the mortgage payment might be affordable, it would also be an incredibly expensive financing vehicle. For all intents and purposes, this is practically an interest-only mortgage.

Fed's Williams: Economy Shows Encouraging Signs but Housing Still Needs Work

San Francisco Fed President John Williams said even though the economy shows “consistent” and “encouraging” signs, “housing still isn’t quite back.”

“Housing construction is still quite muted,” Williams said during an interview with the FOX Business Network’s Maria Bartiromo. “We have the millennials still staying home, or not going out to buy houses, and other factors that seem to be holding back the housing market.”

While tech is “booming beyond belief” and contributing to growth in certain areas, more investment is needed in the Central Valley of California, Eastern Oregon, Washington and parts of Alaska, he added.

Williams also sees more “upside potential to the economy” and projected three rate hikes in 2017. “Three rate hikes overall for this year seems to be about right. I think there’s some upside risk to the economy, not risks, but upside potential to the economy,” he said.

Bids are rolling in for the Mexican border wall

Contractors are already submitting bids for the first step of President Donald Trump's signature promise -- a border wall with Mexico.

This first round of bids is only to design and build wall prototypes in the San Diego border area. The deadline to get them to the Department of Homeland Security is April 4. While construction of the prototypes could start within weeks, it will be months, if not years, before construction of the actual wall begins.

The prototypes will be smaller than the eventual wall will be -- only 10 feet tall and 10 feet long, enough to demonstrate what a full-size version would look like. The department will decide how many prototypes to build once it sees the various submissions, said Jenny Burke, a spokeswoman for Homeland Security.

There are some basic parameters for the wall -- while it should be 30 feet high, the department says it will accept bids for an 18-foot structure. It must run at least six feet underground to make tunneling more difficult. It must also be able to endure at least 30 minutes of attempts to bore through it with a "sledgehammer, car jack, pick axe, chisel, battery operated impact tools, battery operated cutting tools, Oxy/acetylene torch or other similar hand-held tools."

$374,793,000,000: Sales Taxes Hit Record in 2016

Americans paid a record $374,793,000,000 in general sales and gross receipt taxes to state and local governments in fiscal 2016, according to the U.S. Census Bureau.

That was up $1,535,980,000—or about 0.4 percent—from the $373,257,020,000 in general sales and gross receipt taxes (in constant 2016 dollars) that state and local governments collected in fiscal 2015.

Fiscal 2016 was the third year in a row that general sales and gross receipt taxes set a record. Prior to fiscal 2014, when general sales and gross receipt taxes hit a then-record $356,969,050,000 (in constant 2016 dollars), the peak year for general sales and gross receipt taxes had been fiscal 2007, when state and local governments collected $353,205,000,000 in these taxes.

In fiscal 2008, 2009 and 2010, sales and gross receipt tax collections declined. Then, in fiscal 2011, they started climbing again. The nationwide total for general sales and gross receipt taxes collected by state and local governments in fiscal 2016 was released last week with the Census Bureau’s “Quarterly Summary of State and Local Government Tax Revenue for 2016: Q4.”

Ford to invest $1.2-billion in Canada

Ford Motor Co. will establish a research and development centre in Ottawa as part of a $1.2-billion investment it will make in its Canadian operations over the next four years.

The auto maker made the announcement Thursday in Windsor, Ont., where its Essex Engine Plant will begin building a new V8 engine, preserving 500 jobs. The new research centre in Ottawa will hire 295 engineers, who will work on developing autonomous and connected vehicles. Ford will establish satellite engineering centres in Waterloo, Ont., and Oakville, Ont., site of a Ford assembly plant and Ford Motor Co. of Canada Ltd. headquarters.

The Ontario and federal governments will contribute $102.4-million each to help finance the projects.

“This is in a sense where our traditional auto sector meets our new economy auto sector in a really sweet spot for where you can see Ontario’s auto sector heading,” said Brad Duguid, Ontario’s Minister of Economic Development.

Justice Dept. watchdog critical of some cash seizures

A Justice Department watchdog released a report critical of the process known as "asset seizure" that enables law enforcement to take cash and property from individuals suspected of committing crimes.

The report, issued by the Justice Department inspector general, said in a sample of 100 cases from the Drug Enforcement Agency, the department responsible for most federal asset seizures, more than half included asset seizures that did not advance the prosecution of criminal charges or constitute evidence for trial.

Federal, state and local law enforcement have been empowered since the dawn of the War on Drugs in the 1980s to seize assets, sometimes without a judge's warrant, if evidence suggests the assets were obtained through illegal transactions such as drug sales or white collar crimes.

The law enforcement agencies usually use seized assets to help fund themselves. The DEA alone has seized $4.15 billion in assets since 2006, the report found. The report stated the DEA and other agencies risk losing public confidence if they are seen as taking money for their own benefit, especially when the person who is targeted hasn't been charged or convicted of a crime.

Driving licences could be on phones by 2018

Motorists could be allowed to have their driving licence on their phones by 2018, according to the government agency developing the plans.

The Driver and Vehicle Licensing Agency (DVLA) said a test system would be in place by September this year and that it would develop a “quick, easy and secure” service between April and March 2018. It wants the digital service to allow people to share and validate information with “trusted” third parties, although stressed that the new system will not replace existing plastic licences.

The DVLA chief executive, Oliver Morley, revealed on Twitter in May 2016 that a prototype for a digital licence was in development. He tweeted a photo of an iPhone screen displaying the image of a licence in the Apple Pay app, with which people can use their phones to make payments and store documents such as boarding passes.

Further details on the timetable for such a service have been included in the DVLA’s business plan for the next 12 months. It states: “During 2017/18 we will be developing a quick, easy and secure service to allow customers to view a representation of their driving licence on their smartphone. The driver will be in control of their data, and this can be used to share and validate driver information with trusted third parties through a secure website.

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Evidence That Robots Are Winning the Race for American Jobs

Who is winning the race for jobs between robots and humans? Last year, two leading economists described a future in which humans come out ahead. But now they’ve declared a different winner: the robots.

The industry most affected by automation is manufacturing. For every robot per thousand workers, up to six workers lost their jobs and wages fell by as much as three-fourths of a percent, according to a new paper by the economists, Daron Acemoglu of M.I.T. and Pascual Restrepo of Boston University. It appears to be the first study to quantify large, direct, negative effects of robots.

The paper is all the more significant because the researchers, whose work is highly regarded in their field, had been more sanguine about the effect of technology on jobs. In a paper last year, they said it was likely that increased automation would create new, better jobs, so employment and wages would eventually return to their previous levels. Just as cranes replaced dockworkers but created related jobs for engineers and financiers, the theory goes, new technology has created new jobs for software developers and data analysts.

But that paper was a conceptual exercise. The new one uses real-world data — and suggests a more pessimistic future. The researchers said they were surprised to see very little employment increase in other occupations to offset the job losses in manufacturing. That increase could still happen, they said, but for now there are large numbers of people out of work, with no clear path forward — especially blue-collar men without college degrees.

California lawmakers seek protections in case of worksite raids

California lawmakers are seeking to offer legislative protection to immigrant workers to challenge potential Trump administration worksite raids.

Assembly Bill 450, also called the Immigrant Worker Protection Act, was unveiled last week by assembly member David Chiu, D-San Francisco, who described the effort as the “latest and boldest challenge yet to Trump’s hateful agenda against immigrants.”

The bill attempts to protect workers in the case of worksite enforcement actions, and “offers clarity” to employers who face uncertainty about their responsibilities when Immigration and Customs Enforcement, or ICE, agents appear at their workplace, Chiu said.

“Trump’s threats of massive deportations are spreading fear among California workers, families and employers,” said Chiu, the son of an immigrant and a former civil rights attorney, in a statement. “AB 450 declares California’s determination to protect our economy and the people who are working hard to contribute to our communities and raise their families in dignity.”

Amazon and Walmart are in an all-out price war that is terrifying America’s biggest brands

Last month, Walmart gathered some of America’s biggest household brands near its Arkansas headquarters for a tough talk. For years, Walmart had dominated the retail landscape on the back of its “Everyday Low Price” guarantee. But now, Walmart was too often getting beaten on price.

So company executives were there, in part, to reset expectations with Walmart’s suppliers — the consumer brands whose chips, sodas and diapers line the shelves of its Supercenters and its website. Walmart wants to have the lowest price on 80 percent of its sales, according to a presentation the company made at the summit, which Recode reviewed.

To accomplish that, the brands that sell their goods through Walmart would have to cut their wholesale prices or make other cost adjustments to shave at least 15 percent off. In some cases, vendors say they would lose money on each sale if they met Walmart’s demands.

Brands that agree to play ball with Walmart could expect better distribution and more strategic help from the giant retailer. And to those that didn’t? Walmart said it would limit their distribution and create its own branded products to directly challenge its own suppliers.

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