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Wednesday 01.28.2015

No Fed rate hike until March 2016, Morgan Stanley says
The U.S. economy may be looking healthy at the moment but several trends will conspire to weaken growth as the year progresses, leaving the Federal Reserve unable to hike rates until March 2016, according to an updated forecast Tuesday from economists at Morgan Stanley. “Based on our outlook, a rate hike as early as the Fed’s mid-2015 guidance looks increasingly implausible. Furthermore, we are shifting our longstanding out-of-consensus expectation for the first rate hike further out — from January 2016 to March,” said Ellen Zentner, economist at Morgan Stanley, in a research note. Most economists think the Fed will first hike rates in June but that forecast is under some doubt. Lower energy costs will boost growth in the near term but GDP growth should slow sequentially as the positive impact is absorbed up front and slower production and investment kicks in, Zentner said. Downward pressure on inflation will also be stronger than anticipated, she added.

It’s Not The Greeks Who Failed, It’s The EU
In what universe is it a good thing to have over half of the young people in entire countries without work, without prospects, without a future? And then when they stand up and complain, threaten them with worse? How can that possibly be the best we can do? And how much worse would you like to make it? If a flood of suicides and miscarriages, plummeting birth rates and doctors turning tricks is not bad enough yet, what would be? If you live in Germany or Finland, and it were indeed true that maintaining your present lifestyle depends on squeezing the population of Greece into utter misery, what would your response be? F##k ‘em? You know what, even if that were so, your nations have entered into a union with Greece (and Spain, and Portugal et al), and that means you can’t only reap the riches on your side and leave them with the bitter fruit. That would make that union pointless, even toxic. You understand that, right? Greece is still an utterly corrupt country.

Russian Central Bank Deputy Head Shoots 3 Dead In The Far East Of The Country Before Killing Himself
The deputy head of the Russian Central Bank directorate in the Amur region of the country has shot dead three people before turning the gun on himself, Russian independent news service Interfax reports. The killer, named in Russian media as Vladimir Levkin, is alleged to have shot two women and a man in an office on the first floor of the regional Central Bank in the city of Blagoveshchensk. All three died at the scene. The motive for the shootings is unclear at this time, though Russian media is speculating that the shooter may have been having problems at work. An official said: "Two women and one man are among the victims of the deputy head of the regional department of the Central Bank. One of the victims was also a deputy head of the bank, another the head of department of the bank and the third was a chief of a department of the bank." Russian media reports suggest that the shooting could have been in response to Levkin's failure to pass certification and consequent loss of his leadership...

Phony US Recovery Will Hurt Many Investors

Goldman: Job Cuts May Reach 70,000 in Energy Industry This Year
Job cuts in the energy industry are going to affect as many 70,000 workers this year following the bear market in oil, Goldman Sachs says. The investment bank raised the estimate of job losses after major oil-services companies such as Baker Hughes and Halliburton began cutting employees this month. “We estimate that energy sector employment is likely to decline by 60,000 to70,000 on a year-over-year basis,” Alec Phillips, an analyst on Goldman Sachs’s economics team led by Jan Hatzius, said in a January 23 report obtained by MoneyNews. The cuts are "compared with growth in the sector over the last year of about 30,000" The oil and gas sector has been one of the few bright spots of job growth since a recession ended in 2009 as the fracking boom spurred major hiring in Texas, North Dakota and Colorado. Those fortunes began to reverse as the price of crude traded in the U.S. plunged 60 percent from a June high of about $107 a barrel to $45 this month.

A new study argues cutting unemployment benefits created 1.8 million jobs
Just looking at the economy's overall size, you wouldn't think that the last year was much different from any of the others since the recession. The U.S. economy grew at about the same rate in 2014 as it did in the previous four years -- less than 2.4 percent, according to the Federal Reserve's most recent projection. Yet last year was different. People started going back to work. The percentage of Americans working, more or less stuck in a ditch since 2009, increased from 58.6 percent in December 2013 to 59.2 percent last month. Employers added an average of 246,000 positions a month, about 3 million jobs overall. Economists will debate what happened, but one of the more controversial theories is that Congress's decision not to extend federal unemployment benefits at the end of 2013 encouraged those out of work to settle for more poorly paid jobs, giving firms a better reason to expand and hire new workers. That's the conclusion of a new working paper from the National Bureau of Economic Research.

Ex-Im Official Secures Millions for Indian Solar Company, Then Joins Its Board
As a controversial federal agency prepares extensive taxpayer support for green energy companies in India, one such company has hired a former top official at the agency who has helped it secure millions in taxpayer-backed financing. Diane Farrell, who served on the Board of Directors of the U.S. Export-Import Bank and was a Democratic congressional candidate in Connecticut, will join the board of Indian solar company Azure Power, according to a Thursday press release. The move came days before the Obama administration announced plans to expand U.S. support for India’s solar industry, which will include extensive U.S. taxpayer backing for companies such as Azure. “Diane’s appointment will strengthen company’s policy making and advocacy expertise,” Azure said in its statement. Chief executive Inderpreet Wadhwa cited Farrell’s “illustrious career [in] strategic policy making.” Farrell’s public sector experience, and her subsequent position at a division of the U.S. Chamber of Commerce...

Are U.S. Budget Problems Underrated or Just Complicated?
Good news on the budget deficit appears to be somewhat clashing. According to the U.S. Department of the Treasury, the deficit in Fiscal Year (FY) 2014 was down to $197 billion below FY 2013’s deficit at $483 billion. “As a percentage of Gross Domestic Product (GDP), the deficit fell to 2.8% … the lowest level since 2007 and less than the average of the last 40 years. In dollar terms, the FY 2014 deficit is the lowest since 2008,” reads the October report — which is when the federal government finishes out its fiscal year. Obama also mentioned debt improvement in his State of the Union Address, saying “We’ve seen the fastest economic growth in over a decade, our deficits cut by two-thirds, a stock market that has doubled, and health care inflation t its lowest rate in 50 years.” This statement was backed by Treasury Secretary Jacob J. Lew almost to the word, in a statement. Even Republicans admit that the national deficit level is at a better place now than it has been in the past...

Taxpayers' Tab for Obama's Saudi Arabia Visit: $267,787
Although President Barack Obama's visit to Saudi Arabia will only last for a few hours, the brief stay will cost taxpayers $267,787 in hotel and SUV rentals, reports The Washington Free Beacon. The president and first lady Michelle Obama were scheduled to arrive in Riyadh, Saudi Arabia, shortly before 7:30 a.m. Tuesday, then meet with King Salman. After their discussion, Obama is scheduled to hold a bilateral meeting, have dinner and depart by 11:30 a.m., according to the president's schedule posted on the White House website. According to records obtained by paper, the State Department will pay for the hotel rooms needed during the visit, including $25,920 for hotel rooms at the Marriott; $64,320 for rooms at the Radisson Blu; and $32,000 for rooms at the Ritz-Carlton. Transportation costs amount to just over $20,693, which also will be paid for by the State Department. The price tag for the Saudi Arabia visit is not the first time questions have been raised about presidential trips.

U.S. Shale Boom May Come To Abrupt End
U.S tight oil production from shale plays will fall more quickly than most assume. Why? High decline rates from shale reservoirs is given. The more interesting reasons are the compounding effects of pad drilling on rig count and poorer average well performance with time. Rig productivity has increased but average well productivity has decreased. Every rig used in pad drilling has approximately three times the impact on the daily production rate as a rig did before pad drilling. At the same time, average well productivity has decreased by about one-third. This means that production rates will fall at a much higher rate today than during previous periods of falling rig counts. The Eagle Ford Shale play in South Texas is one of the major contributors to increased U.S. oil production. A few charts from the Eagle Ford play will demonstrate why I believe that the shale boom will fall sooner and more sharply than many analysts predict.

Displaced Ukrainians receive planeload of EU aid, more to follow

Bernie Sanders wants to spend $1 trillion on infrastruture
For years, transportation experts have called for a massive investment to save a network of roads, bridges and transit systems that has fallen into disrepair. A bill introduced in the U.S. Senate Tuesday would meet that need, providing $1 trillion over the next five years. Given that elsewhere on Capitol Hill, members are scrambling for funds to keep annual federal transportation spending just above about $50 billion, coming up with $148 billion on top of that amount would seem problematic. “For too many years, we’ve underfunded our nation’s physical infrastructure. We have to change that and that’s what the Rebuild America Act is all about. We must modernize our infrastructure and create millions of new jobs that will put people back to work and help the economy,” said Sen. Bernie Sanders (I-Vt.), the ranking member of the Senate Budget Committee, who introduced the $1 trillion bill. Sen. Barbara Mikulski (D-Md.), the ranking member on the appropriations committee, is a co-sponsor.

ObamaCare spending will balloon to nearly $2 trillion over the next decade
One of the ways the Obama administration managed to get ObamaCare through Congress was by keeping the cost of the law under $1 trillion. This was accomplished through various budget gimmicks and backloading costs in years at the end of the original budget estimates. These deceptive tactics are how the administration managed to get a score from the Congressional Budget Office purporting that ObamaCare would reduce the deficit by $124 billion. According to the CBO's latest report on the federal budget, the cost of ObamaCare's coverage provisions -- including subsidies and Medicaid expansion -- will cost nearly $2 trillion between FY 2015 and FY 2025. Tax provisions -- including the individual and employer mandates and the Cadillac tax -- will bring in $677 billion over the same timeframe. The CBO didn't update ObamaCare's effects on other areas of the federal budget, such as Medicare, that are, supposedly, going to lower the budget deficit.

Planning for the Blizzard That Wasn't
Elected officials have long gotten in trouble for not being well-prepared for snowstorms. The most famous case was probably Chicago in 1979. Two blizzards dropped more than 35 inches of snow on the city in two weeks in January. It took months to get rid of it, garbage wasn’t picked up, commuter trains couldn’t run. And at the end of February Mayor Michael Bilandic lost the Democratic primary to upstart candidate Jane Byrne. Today in New York, most of the questions were about whether officials had overreacted to what turned out to be a run-of-the-mill snowstorm. “I would rather, if there’s a lean one way or the other, lean toward safety,” Governor Andrew Cuomo said at a news briefing this morning. He also kept bringing up Long Island, where tons of snow did fall less than 50 miles east of the city. Metropolitan Transit Authority Chairman and Chief Executive Officer Thomas Prendergast chimed in with the aphorism, “You’re only as good as your last snowstorm.”

Trade protests disrupt Senate committee hearing

Corporate America is not America
In a 1953 Senate committee hearing, the Eisenhower administration’s defense secretary nominee, Charles Erwin Wilson, was asked about his role as General Motors’ president. Could he bring himself to make a decision for his country that ran counter to the interests of GM? Yes, he replied. But he added that he couldn’t conceive of such a situation arising, “because for years I thought what was good for the country was good for General Motors and vice versa.” What Wilson observed has been true during much of America’s history: The good fortunes of large corporations have indeed coincided with boom times for average Americans. But it’s not true right now. Just today, US consumer confidence, as measured by the conference board’s consumer sentiment index, hit a post-crisis high. That’s just the most recent indication that the spirits of average Americans have lifted. But meanwhile, stock markets are taking it on the chin. Why? Dour news from America’s giant companies.

Yahoo shares jump; company to spin off Alibaba
Yahoo shares rallied 6% after the Internet company said it would spin off the remaining holdings in Alibaba. Stock in the new company will be distributed to Yahoo shareholders. For the fourth quarter, Yahoo reported revenue dropped to $1.25 billion, slightly down from $1.27 billion in the year-ago quarter, while earnings were more than half of what they were--$166 million this quarter versus $348 million in 2013. Operating earnings were 30 cents a share. Analysts polled by Thomson Reuters expect fourth-quarter earnings of 29 cents a share on $1.19 billion in revenue. The company, which is still the no. 2 most visited web property after Google, has been battling declining advertising sales, as high-profile CEO Marissa Mayer is in the midst of a multi-year comeback attempt. Mayer said the results show a "stability in our core business," with a focus on mobile showing significant results. Mobile sales are up 23% from the previous quarter, with $254 million in revenues...

Caterpillar Inc. Earnings and Outlook Indicate Big Trouble Ahead
In a major blow to investors' hopes, Caterpillar reported dismal fourth-quarter numbers this morning, missing Street estimates by a gaping margin. Worse yet, the company delivered a shockingly weak outlook for 2015, sending its stock crashing -- it's down 7% today. It looks like Caterpillar is in serious trouble. What's hurting Caterpillar? A sluggish mining industry isn't the only headwind Caterpillar is facing. As revenue from the company's resource industries (mining) division slipped 10% year over year during the fourth quarter, its construction industries division reported a 9% drop in sales. Except for North America, construction-equipment sales declined in every market. As CEO Doug Oberhelman explained: "While our construction sales were up in 2014, the industry is still well below prior peaks in every major region due to relatively weak economic growth for most of the world." The only bright spot was Caterpillar's energy and transportation (E&T) business...

Female terrorists finding their place in Islamic militants' ranks
From bikini-clad beachgoer to veiled jihadist fugitive, the partner of Paris gunman Amedy Coulibaly underwent a startling metamorphosis that illuminates the dangerous potential behind militant groups’ efforts to increase their recruiting of female terrorists. Although French police initially questioned Hayat Boumeddiene, 26, five years ago, they admit that she was subsequently able to make hundreds of phone calls and arrange meetings for Coulibaly through the wives of fellow assailants. She is then thought to have fled to Turkey just before the rash of killings in Paris this month and is since thought to have crossed into Syria. “Hayat’s case is just the latest example of how governments overlook and understate women’s involvement in terrorist groups,” said Jayne Huckerby, an associate professor at Duke University law school who studies the groups and advises governments in counterterrorism strategies. Female terrorists have a long history of exploiting gender stereotypes to avoid detection...

Economic Impact of Storm Expected to Be Small

Tim Hortons to Slash Jobs After Burger King Takeover
Canadian coffee and doughnut chain Tim Hortons confirmed on Tuesday it will cut jobs as it reorganizes after being acquired by U.S. fast food chain Burger King for C$12.64 billion ($10.20 billion) last year. Tim Hortons declined to provide exact figures on the number of employees to be affected, saying it is still in the process of reorganizing. The Financial Post reported last week that a "significant" number of the roughly 1,400 employees at its head office in Oakville, Ontario, and in regional offices would be let go. "We have had to make some difficult but necessary decisions today as we reorganize our company to position ourselves for the significant growth and opportunities ahead of us," said company spokeswoman Alexandra Cygal. Burger King announced its takeover of the Canadian chain in August in a deal that created the world's third-largest fast-food restaurant group. The two fast food chains are now a combined company....

FTC Requires Safeway, Albertsons To Sell 168 Stores Before Completing $9.2B Merger
Last March Albertsons supermarket owners Cerberus Capital Management and AB Acquisition LLC announced that they would acquire the Safeway chain of stores in a merger valued at more than $9 billion, but as with most deals of such magnitude, the new coupling between the second- and fifth-largest grocers in the United States had to pass regulatory muster before they could proceed down the aisle. Today, the chains announced they would sell 168 stores in eight states in order to make their matrimonial dreams a reality. The Federal Trade Commission announced the supermarket chains agreed to sell 168 stores to settle charges that their proposed $9.2 billion merger would likely be anticompetitive in Arizona, California, Montana, Nevada, Oregon, Texas, Washington, and Wyoming. According to the FTC proposal [PDF], the proposed deal between Albertsons and Safeway would lessen supermarket competition, and hurt consumers choices in 130 local markets unless the companies agreed to divest certain locations.

Meet the Extreme Super Rich – A List of the 80 People Who Own Half the World
Before I get into the meat of this post, I want to make it clear that the definition of oligarch, a term I use a lot, does not center solely around money. Late last year, in the post Inside the Mind of an Oligarch – Sheldon Adelson Proclaims “I Don’t Like Journalism,” I attempted to frame the word oligarch as I use it. I wrote the following: In a nutshell, while many oligarchs are extremely wealthy (or have access to extreme wealth), not all people with extreme wealth are oligarchs. The term oligarch is reserved for those with extreme wealth who also want to control the political process, policy levers and most other aspects of the lives of the citizenry in a top-down tyrannical and undemocratic manner. They think they know best about pretty much everything, and believe unelected technocrats who share their worldview should be empowered so that they can unilaterally make all of society’s important decisions. The unwashed masses (plebs) in their minds are unnecessary...

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