Wed 31 August, 2016
Something is different this time. For the last few years, China has 'ensured stability' in the Yuan ahead of major geopolitical events - no matter what - only to let things slide back into turmoiling after. Ahead of this weekend's G-20, however, and amid notably deteriorating fundamentals (and an increasingly hawkish-sounding Fed), China has let the Yuan tumble in the last week... and traders are piling into bets on post-G-20 weakness to continue.
As Bloomberg notes, history shows that the Chinese currency usually strengthens ahead of major political or economic events, such as President Xi Jinping’s state visits to the U.S. and the Boao Forum.
But this time - ahead of the G-20 gathering - onshore Yuan is being allowed to weaken... back near post-Brexit lows...
Perhaps as another warning to The Fed? But as Bloomberg reports, derivative markets are pointing to renewed bets on yuan depreciation, with a measure of expected price swings poised for the biggest monthly increase since January.
Other indicators, such as the premium on options to sell the yuan over those to buy and the discount of forward contracts over the spot rate, have also climbed, indicating rising expectations for declines.
The increased pessimism comes after a period of calm that sent the measures to the lowest in at least nine months as the Federal Reserve held off on raising interest rates and investors bet that China would steady the yuan before it hosts a Group of 20 meeting in September.
Traders are probing the People’s Bank of China’s willingness to allow the yuan to fall between the G-20 gathering and the currency’s entry into the International Monetary Fund’s Special Drawing Rights on Oct. 1, especially with the chances of Fed action increasing.
"After G-20 ends next Monday, the market may want to test how much yuan depreciation the PBOC can tolerate," said Gao Qi, a strategist at Scotiabank in Singapore. "China doesn’t want the yuan to move too much during G-20 and become a topic of discussion. SDR’s impact will be smaller than G-20."
Offshore yuan bears have already started building short positions to speculate on declines after the G-20 gathering, according to Ken Cheung, a strategist at Mizuho Bank Ltd. in Hong Kong.
“The China data for July demonstrated China growth momentum has been weakening," he wrote in a note. "The PBOC might have a less strong intention to maintain yuan stability after the G-20 summit, and allow yuan depreciation again if expectations remain well-anchored."
And if the Yuan starts tumbling, then US equities will quickly follow.
SINGAPORE/TOKYO (Reuters) - Asian shares eased on Wednesday following modest losses on Wall Street, with investors awaiting U.S. jobs numbers for further clues to whether the Federal Reserve will raise rates as soon as September. MSCI's broadest index of Asia-Pacific shares outside Japan was down 0.35 percent as traders awaited August U.S. non-farm payrolls due on Friday after a run of strong economic data and hawkish comments from Fed officials. Japan's Nikkei stock index ended the day 1 percent higher, up 1.9 percent for the month, boosted by a weaker yen after upbeat U.S. data lifted the dollar overnight.
What would happen if some sort of major national emergency caused a massive transportation disruption that stopped trucks from running? The next time you talk to a trucker, please thank them for their service, because without their hard work none of our lives would be possible. In America today, very few of us live a truly independent lifestyle, and that means that we rely on the system to provide what we need. Most of us take for granted that there will always be plenty of goods at Wal-Mart and at the grocery store whenever we need more “stuff”, and most of us never give a second thought to how all of that “stuff” gets there. Well, the truth is that most of it is brought in by trucks, and if the trucks stopped running for some reason the entire country would devolve into chaos very rapidly.
Earlier today, I came across a quote from Alice Friedemann that detailed what we would be facing during a major national transportation disruption very nicely…
Within a week, in roughly this order, grocery stores would be out of dairy and other items that are delivered many times a day. And by the week, the shelves would be empty.
Hospitals, pharmacies, factories, and many other businesses also get several deliveries a day, and they’d be running out of stuff the first day.
And the second day, there’s be panic and hoarding. And restaurants, pharmacies would close. ATM’s would be out of money. Construction would stop. There’d be increasing layoffs. Increasing enormous amounts of trash not getting picked up, 685,000 tons a day. Service stations would be closed. Very few people would be working. And the livestock would start to be hungry from lack of feed deliveries.
Then within two weeks, clean water supplies would run out. Within four weeks to eight weeks, there wouldn’t be coal delivered to power plants and electricity would start shutting down. And when that happened, about a quarter of our pipelines use electricity, and so natural gas plants wouldn’t be fed natural gas and they’d start shutting down.
There is so much infrastructure that we take for granted that would suddenly become very vulnerable in this type of scenario. There are countless numbers of workers out there that never get any glory that do the hard work of maintaining our nuclear power plants, our natural gas pipelines, our electrical grid, etc. If they suddenly were not able to do their jobs, the consequences would be absolutely catastrophic. The following comes from Tess Pennington…
They rarely mention the dozens of nuclear power plants that litter the United States. If no one is there to operate them, how long before they melt down and bury millions of survivors under a radioactive cloud?
Then there are the 12,000 facilities around the country that store large quantities of toxic or flammable chemicals, and reside close to residential areas. 2,500 of these sites contain chemicals in quantities that, if a catastrophic accident were to occur, could affect 10,000 to 1 million people each. And let’s not forget the 2.5 million miles of oil and gas pipelines that can be found in every state. They suffer hundreds of leaks and ruptures every year, and are much more likely to explode when they aren’t maintained. That detail seems to be conveniently forgotten by post-apocalyptic films.
And finally, most post-apocalyptic movies will forget to mention what happens when there aren’t any functional fire departments. Aside from the obvious consequences, like whole neighborhoods routinely burning to the ground, who’s going to put out landfill fires that are occasionally radioactive?
For most Americans, a major national emergency of this magnitude may seem unimaginable right now. But the truth is that it isn’t difficult to see how this kind of scenario could happen. The Yellowstone supervolcano is becoming increasingly active, a single large asteroid could change all of our lives in a single moment, a crippling pandemic could bring normal life in America to a complete standstill, a terror attack involving weapons of mass destruction would spread panic and fear like wildfire, and a historic earthquake along the New Madrid fault, the Cascadia Subduction zone or any of the major faults in California could literally change the geography of our entire continent.
In addition, a massive EMP burst from a nuclear weapon or from the sun could fry our power grid and send us back into the stone age in a single moment. This is something that I have written about extensively, and those that want to minimize this threat simply don’t know what they are talking about.
And an electromagnetic pulse is not even required to cause very serious problems with our electrical grid. For instance, just consider what happened in Ukraine toward the end of last year…
On December 23rd, 2015, the Prykarpattyaoblenergo power distribution station in Ukraine was hit by a carefully coordinated cyber-attack that was months in the making. The technicians lost control of their cursors as they watched hackers open breakers and take circuit after circuit offline, plunging 230,000 residents into darkness.
The hackers took backup power of the stations offline, plunging the electrical workers into darkness too, and worse yet, they even rewrote the low-level firmware that controls the electrical transformers. The attack had come after months of careful infiltration and planning by a dedicated team of elite cyber-warfare specialists and the result was devastating.
Even months later, technicians struggled to regain full capacity in the electrical grid due to the overwriting of firmware. With Ukrainian moves to nationalize power companies, it is possible that the powerful and Putin-connected Russian oligarchs who own large parts of Ukraine’s infrastructure were sending a message: we can shut down the system anytime we want.
The truth is that we are far more vulnerable than most of us would like to admit.
So what would you do if “normal life” suddenly came to an end and you no longer had access to food, water or power?
How would you and your family respond?
Hopefully you would continue to act in a civilized manner, but history has shown that many people would not.
Desperate people do desperate things, and it would only take a matter of days for some people to become violent…
Before long, getting mugged or being a victim of some type of crime is as unpredictable and as common as a car accident. You’ll realize everyone in the neighborhood has now beefed up security on their homes. All your family, friends, and coworkers have experienced a mugging, carjacking, or worse.
You’ll have no choice but to accept this new way of life and count on basic safety measures (a form of passive denial) or further learn to defend yourself and remain in a constant state of alert (a very stressful state over time). It’s difficult emotionally, mentally, and physically to remain on high alert 24/7 for any length of time. Most people will revert to a form of passive denial until the next incident happens to them or a family member.
And even though things may seem relatively stable for the moment, concern about what is coming is one of the factors that has led an increasing number of Americans to arm themselves. According to a brand new study from the Pew Research Center, 44 percent of all American homes now have a gun. Just two years ago, a different study found that number was sitting at just 31 percent.
The way that we are living our lives right now will not last indefinitely.
At some point a major national emergency will strike, and when that day arrives we could suddenly be facing major power grid and transportation disruptions.
Are you prepared for that?
San Francisco's housing market is very slowly cooling down.
The city is one of the most dire examples of the current housing crunch, in which potential homebuyers are plentiful and ready but inventory is insufficient.
On Tuesday, the S&P/Case-Shiller home price index showed that San Francisco's market may become more "normal" in the coming months, though affordability would remain a problem, according to Ralph McLaughlin, Trulia's chief economist.
For now, the pace of home-price growth is slowing. The S&P/Case-Shiller 20-city composite fell by 0.1% month-on-month in June, the third straight decline, while it rose 5.13% year-on-year.
June marked the fifth consecutive month in which the year-on-year increase was equal to or smaller than the prior month's print. One caveat here, however, is that the S&P/Case-Shiller index is more reflective of price changes for premium homes, McLaughlin said.
Here's McLaughlin, writing in a note on Tuesday (emphasis ours):
"Though Western markets dominate U.S. price growth, San Francisco continues to show a noticeable cool down. Home prices in the City by the Bay increased of 6.4%, which is the smallest annual gain since August 2012. The continued slowdown suggests the San Francisco housing market might start looking more 'normal' by the end of the year, but the market still has a long way to go before most Bay Area homebuyers would agree."
Home prices rose at a faster pace than wage growth.
That worsened affordability and made the US housing market great for sellers but not so much for buyers. But this disproportion is slowly balancing out in buyers' favor.
"In a handful of areas, including pricier markets like San Diego, inventory is starting to creep back up," Zillow chief economist Svenja Gudell said in note on Tuesday. "As conditions in more local markets begin to shift and become more balanced between buyers and sellers, the national market will follow suit."
A bunch of warning signs have bubbled up in Saudi Arabia's economy over the past few months.
The Saudi economy grew at just 1.5% in the first quarter, compared with the year before — its slowest rate since 2013.
And while the oil sector grew by 5.1% year-over-year, the non-oil sector shrank by 0.7% — the weakest reading in at least five years.
Moreover, output in the construction sector shrank by 1.9% year-over-year in July.
And, most recently, a note from Al Rajhi Capital pointed out that the Saudi Arabia Interbank Offered Rate, or Saibor, has nearly tripled — to about 2.3% from less than 0.8% — over the past year and is now facing a "liquidity squeeze in the market."
But over the last few days, a couple of other signs have emerged that economists are keeping an eye on.
Official data reported on Sunday showed that net foreign assets at the Saudi central bank dropped to $555 billion in July, down $6 billion from the previous month, according to Reuters. This was a 16% drop compared with the year before, and the lowest level since February 2012.
And that's notable because the Saudis have been dipping into reserves in light of the budget deficit and amid lower oil prices.
Furthermore, Capital Economics' GDP Tracker, which is constructed from monthly activity data, suggests that the Saudi economy shrank by an estimated 2.3% year-over-year in June. And over the second quarter, the tracker estimates that output slumped by 2% year-over-year.
"If our tracker is correct, this would be the first contraction in the Saudi economy since 2009, in the midst of the global financial crisis," said Jason Tuvey, Capital Economics' Middle East economist.
Plus, the firm's tracker suggests that the non-oil sector saw output fall by about 4.5% year-over-year in June— which would be the sharpest drop since 1986. Notably, it could be worth it to watch the Saudis' non-oil industry as the government pushes forward with its plan to differentiate away from the oil sector.
That being said, Tuvey also argued that the rest of the year could see a recovery.
"As the authorities ease the pace of austerity, a recovery should get underway in the next few years. But it is likely to be slow-going — we expect growth of just 1.5% year-over-year in 2018, whereas the consensus and the [International Monetary Fund] have penciled in growth of more than 2%," he said.
Official figures for the second-quarter GDP will be released at the end of September.
SEE ALSO: This is Saudi Arabia's "Achilles' heel"
Tue 30 August, 2016
“Free election of masters does not abolish the masters or the slaves.” ? Herbert Marcuse
The FBI is worried: foreign hackers have broken into two state election databases.
The Department of Homeland Security is worried: the nation’s voting system needs greater protection against cyberattacks.
I, on the other hand, am not overly worried: after all, the voting booths have already been hacked by a political elite comprised of Republicans and Democrats who are determined to retain power at all costs.
The outcome is a foregone conclusion: the police state will win and “we the people” will lose.
The damage has already been done.
The DHS, which has offered to help “secure” the nation’s elections, has already helped to lock down the nation.
Remember, the DHS is the agency that ushered in the domestic use of surveillance drones, expanded the reach of fusion centers, stockpiled an alarming amount of ammunition, urged Americans to become snitches through a “see something, say something” campaign, oversaw the fumbling antics of TSA agents everywhere, militarized the nation’s police, spied on activists and veterans, distributed license plate readers and cell phone trackers to law enforcement agencies, contracted to build detention camps, carried out military drills and lockdowns in American cities, conducted virtual strip searches of airline passengers, established Constitution-free border zones, funded city-wide surveillance cameras, and generally turned our republic into a police state.
So, no, I’m not falling for the government’s scare tactics about Russian hackers.
I’m not losing a night’s sleep over the thought that this election might by any more rigged than it already is.
And I’m not holding my breath in the hopes that the winner of this year’s particular popularity contest will save us from government surveillance, weaponized drones, militarized police, endless wars, SWAT team raids, red light cameras, asset forfeiture schemes, overcriminalization, profit-driven private prisons, graft and corruption, or any of the other evils that masquerade as official government business these days.
What I’ve come to realize is that Americans want to engage in the reassurance ritual of voting.
They want to believe that politics matter.
They want to be persuaded that there’s a difference between the Republicans and Democrats (there’s not).
They will swear that Barack Obama has been an improvement on George W. Bush (he has not).
They are convinced that Hillary Clinton’s values are different from Donald Trump’s (with both of them, money talks).
Most of all, they want to buy into the fantasy that when we elect a president, we’re getting someone who truly represents “we the people” rather than the corporate state (in fact, in the oligarchy that is the American police state, an elite group of wealthy donors is calling the shots).
The sad truth is that it doesn’t matter who wins the White House, because they all work for the same boss: Corporate America. Understanding this, many corporations hedge their bets on who will win the White House by splitting their donations between Democratic and Republican candidates.
Politics is a game, a joke, a hustle, a con, a distraction, a spectacle, a sport, and for many devout Americans, a religion. It is a political illusion aimed at persuading the citizenry that we are free, that our vote counts, and that we actually have some control over the government when in fact, we are prisoners of a police state.
In other words, it’s a sophisticated ruse aimed at keeping us divided and fighting over two parties whose priorities are exactly the same so that we don’t join forces and do what the Declaration of Independence suggests, which is to throw the whole lot out and start over.
It’s no secret that both parties support endless war, engage in out-of-control spending, ignore the citizenry’s basic rights, have no respect for the rule of law, are bought and paid for by Big Business, care most about their own power, and have a long record of expanding government and shrinking liberty. Most of all, both parties enjoy an intimate, incestuous history with each other and with the moneyed elite that rule this country.
Despite the jabs the candidates volley at each other for the benefit of the cameras, they’re a relatively chummy bunch away from the spotlight. Moreover, despite Congress’ so-called political gridlock, our elected officials seem to have no trouble finding common ground when it’s time to collectively kowtow to the megacorporations, lobbyists, defense contractors and other special interest groups to whom they have pledged their true allegiance.
So don’t be fooled by the smear campaigns and name-calling or drawn into their politics of hate. They’re just useful tactics that have been proven to engage voters and increase voter turnout while keeping the citizenry at each other’s throats.
We’re in trouble, folks.
We are living in a fantasy world carefully crafted to resemble a representative democracy.
It used to be that the cogs, wheels and gear shifts in our government machinery worked to keep our republic running smoothly. However, without our fully realizing it, the mechanism has changed. Its purpose is no longer to keep our republic running smoothly. To the contrary, this particular contraption’s purpose is to keep the corporate police state in power. Its various parts are already a corrupt part of the whole.
Just consider how insidious, incestuous and beholden to the corporate elite the various “parts” of the mechanism have become.
Congress. Perhaps the most notorious offenders and most obvious culprits in the creation of the corporate-state, Congress has proven itself to be both inept and avaricious, oblivious champions of an authoritarian system that is systematically dismantling their constituents’ fundamental rights. Long before they’re elected, Congressmen are trained to dance to the tune of their wealthy benefactors, so much so that they spend two-thirds of their time in office raising money. As Reuters reports, “For many lawmakers, the daily routine in Washington involves fundraising as much as legislating. The culture of nonstop political campaigning shapes the rhythms of daily life in Congress, as well as the landscape around the Capitol. It also means that lawmakers often spend more time listening to the concerns of the wealthy than anyone else.”
The President. What Americans want in a president and what they need are two very different things. The making of a popular president is an exercise in branding, marketing and creating alternate realities for the consumer—a.k.a., the citizenry—that allows them to buy into a fantasy about life in America that is utterly divorced from our increasingly grim reality. Take President Obama, for instance, who now enjoys greater popularity than any previous president, including the beloved Ronald Reagan. This is a president who got elected by campaigning against war, torture, surveillance only to make them hallmarks of his presidency, and yet somehow these “indiscretions” are overlooked and forgiven as long as he presents a jocular, hip façade: slow-jamming the news with Jimmy Fallon, reading mean tweets with Jimmy Kimmel, singing, dancing and being cool. In other words, to be a successful president, it doesn’t matter whether you keep your campaign promises, sell access to the Lincoln Bedroom, or march in lockstep with the Corporate State as long as you keep the feel-good vibes flowing.
The Supreme Court. The U.S. Supreme Court—once the last refuge of justice, the one governmental body really capable of rolling back the slowly emerging tyranny enveloping America—has instead become the champion of the American police state, absolving government and corporate officials of their crimes while relentlessly punishing the average American for exercising his or her rights. Like the rest of the government, the Court has routinely prioritized profit, security, and convenience over the basic rights of the citizenry. Indeed, law professor Erwin Chemerinsky makes a compelling case that the Supreme Court, whose “justices have overwhelmingly come from positions of privilege,” almost unerringly throughout its history sides with the wealthy, the privileged, and the powerful.
The Media. Of course, this triumvirate of total control would be completely ineffective without a propaganda machine provided by the world’s largest corporations. Besides shoveling drivel down our throats at every possible moment, the so-called news agencies which are supposed to act as bulwarks against government propaganda have instead become the mouthpieces of the state. The pundits which pollute our airwaves are at best court jesters and at worst propagandists for the false reality created by the American government. When you have internet and media giants such as Google, NBC Universal, News Corporation, Turner Broadcasting, Thomson Reuters, Comcast, Time Warner, Viacom, Public Radio International and The Washington Post Company donating to the Clinton Foundation, you no longer have an independent media—what we used to refer to as the “fourth estate”—that can be trusted to hold the government accountable.
The American People. “We the people” now belong to a permanent underclass in America. It doesn’t matter what you call us—chattel, slaves, worker bees, drones, it’s all the same—what matters is that we are expected to march in lockstep with and submit to the will of the state in all matters, public and private. Through our complicity in matters large and small, we have allowed an out-of-control corporate-state apparatus to take over every element of American society.
We’re playing against a stacked deck.
The game is rigged, and “we the people” keep getting dealt the same losing hand. The people dealing the cards—the politicians, the corporations, the judges, the prosecutors, the police, the bureaucrats, the military, the media, etc.—have only one prevailing concern, and that is to maintain their power and control over the citizenry, while milking us of our money and possessions.
It really doesn’t matter what you call them—Republicans, Democrats, the 1%, the elite, the controllers, the masterminds, the shadow government, the police state, the surveillance state, the military industrial complex—so long as you understand that while they are dealing the cards, the deck will always be stacked in their favor.
As I make clear in my book, Battlefield America: The War on the American People, our failure to remain informed about what is taking place in our government, to know and exercise our rights, to vocally protest, to demand accountability on the part of our government representatives, and at a minimum to care about the plight of our fellow Americans has been our downfall.
Now we find ourselves once again caught up in the spectacle of another presidential election, and once again the majority of Americans are acting as if this election will make a difference and bring about change. As if the new boss will be different from the old boss.
When in doubt, just remember what the astute commentator George Carlin had to say about the matter:
The politicians are put there to give you the idea that you have freedom of choice. You don’t. You have no choice. You have owners. They own you. They own everything. They own all the important land. They own and control the corporations. They’ve long since bought and paid for the Senate, the Congress, the state houses, the city halls. They got the judges in their back pockets and they own all the big media companies, so they control just about all of the news and information you get to hear. They got you by the balls. They spend billions of dollars every year lobbying. Lobbying to get what they want. Well, we know what they want. They want more for themselves and less for everybody else, but I’ll tell you what they don’t want. They don’t want a population of citizens capable of critical thinking. They don’t want well-informed, well-educated people capable of critical thinking. They’re not interested in that. That doesn’t help them. That’s against their interests.
They want obedient workers. Obedient workers, people who are just smart enough to run the machines and do the paperwork…. It’s a big club and you ain't in it. You and I are not in the big club. ...The table is tilted, folks. The game is rigged and nobody seems to notice…. Nobody seems to care. That’s what the owners count on…. It’s called the American Dream, 'cause you have to be asleep to believe it.
Have you heard of the Burj Khalifa in Dubai?
It’s the tallest skyscraper in the world at 828m (2,717 ft), and it was completed in 2009. The price tag was a whopping $1.5 billion, making it one of the most expensive buildings of all time.
As Visual Capitalist's Jeff Desjardin explains, for these bold projects to get the go ahead, global financial conditions have to be just right. Record-breaking skyscrapers can take multiple years to build, and things can change drastically from start to finish.
In this case, construction of the Burj Khalifa started in 2004. By the time it was completed, however, the financial markets were in ruins. Lehman had collapsed, and rescue efforts such as TARP and QE were in full force to try and stop the bleeding. Between October 2007 and March 2009, the Dow Jones Industrial Average lost 55% of value.
The crisis didn’t only bankrupt financial markets – it also took its toll on competing projects that aimed to unseat the Burj Khalifa as the world’s height record-holder. For example, One Dubai Tower A was supposed to be a whopping 1,008m (3,307 ft) tall – but it was shelved in March 2009 once it was clear that global financial conditions would not be improving any time soon.
DO NEWLY BUILT SKYSCRAPERS SIGNAL THE TOP OF THE STOCK MARKET?
Could record-setting skyscrapers signal economic over-expansion and a misallocation of capital?
EWN Interactive, a subscription service focused on technical analysis, thinks so. The following infographic follows the “Skyscraper Curse” through six different market tops and subsequent crashes over the past century.
It is gigantic in size, so please click here or the below image to access the legible version:
EWM Interactive sums up the infographic with these words:
In the market, extreme optimism results in price bubbles. One of the real-life manifestations of extremely positive social mood is the construction of enormous buildings. Market tops and skyscrapers often seem to emerge simultaneously, because both phenomena are the result of the illusion of infinite prosperity.
But extreme psychological conditions do not last very long. That is the reason why record-breaking buildings, whose construction starts during a market bubble, are often completed after the bubble’s collapse.
That said, there are counter-examples that show the “skyscraper theory” is not perfect.
The recession after World War I, the recession of 1937, and the recession in the early 1980s were not correlated with any record-breaking skyscraper projects. An empirical test in 2015 that looked at the theory found that record-setting skyscrapers did not correspond directly with the business cycle.
Let’s hope that they are right, since the Jeddah Tower – a 1,008m (3,307 ft) monster in Saudi Arabia – is expected to unseat the Burj Khalifa as the world’s tallest building by the year 2019.
There's a new trend in trading: going slow.
The Chicago Stock Exchange this week outlined plans to adopt what it calls a Liquidity Taking Access Delay (LATD), a 350-microsecond delay for those who trade against resting orders on the exchange.
The simple way to explain this is to think of a scenario where there are 13 different versions of eBay. Buyers and sellers are active across all 13 sites, and in theory a pair of sneakers on eBay1 should be the price as the same pair on eBay2.
Given the dynamic pricing, however, there are occasions where buyers get to an old price before the seller can change it, or vice-versa. That's kind of what is happening to the Chicago Stock Exchange.
Here's how the filing describes latency arbitrage:
"'Latency arbitrage' means the practice of exploiting disparities in the price of a security or related securities that are being traded in different markets by taking advantage of the time it takes to access and respond to market information."
The Chicago Stock Exchange said in the filing that the LTAD is designed to neutralize high-speed traders engaged in latency arbitrage. In plain English, it is trying to stop buyers taking advantage of out-of-date prices.
The filing explains:
"LTAD is designed to neutralize microsecond speed advantages exploited by low-latency market participants engaged in latency arbitrage strategies that diminish displayed liquidity and impair price discovery in national market system (“NMS”) securities."
The move is in response to a change in the trading of the SPDR S&P 500 trust exchange-traded fund. The exchange said it first noticed latency arbitrage activity in the SPDR in January, and that as a result of this market makers have "dramatically" reduced displayed liquidity. The filing said:
"The Exchange believes that the best way to minimize the effectiveness of latency arbitrage strategies on CHX with respect to resting limit orders is to implement an asymmetric delay, such as LTAD, to de-emphasize speed as a key to trading success."
Now, if all this sounds familiar, it is because it is.
IEX, the company founded by the heroes of Michael Lewis' book "Flash Boys," is famous for its "speed bump," a 350-microsecond delay. The trading venue is in the process of launching as an exchange after winning regulatory approval in July after a drawn out and oftentimes ugly consultation process.
The New York Stock Exchange and Nasdaq, two establishment exchanges that had fought against IEX's approval, have announced their own features.
NYSE has introduced what is called a discretionary pegged order, which IEX has said is a copy of an order type it created. Nasdaq in mid-August introduced what it calls an extended life order. Nasdaq CEO Bob Greifeld told Bloomberg TV that the feature is designed to reward investors willing to put in an order a minimum period of time.
"If you want to put an order in for a longer period of time, we will give you a reward. You're going to go to the front of the queue, so that means you'll get the earlier execution."
One of the articles referenced in Janet Yellen’s Jackson Hole speech last week was a piece written for the Peterson Institute for International Economics by Senior Fellow Olivier Blanchard. Dr. Blanchard has, as noted earlier today, all the “right” credentials, which is why his conjecture gets included into the speeches of Federal Reserve Chairmen. Having taught at both Harvard and MIT, becoming chair of the economics department at MIT for five years, landed Blanchard the role of research director at the IMF. Private experience is obviously missing from his resume.
Dr. Blanchard’s article was an attempt to “explain” the yield curve in the United States. Economists like Blanchard are so indoctrinated in central bank and QE mythology that what is exceedingly simple is dismissed as impossible. Persistently low interest rates are proof of “tight” money in the real economy; but that just can’t be with QE and all the amassed central bank intellectual capacity in that area. Instead, they must make the most absurd arguments to try to square a circle of their own often circular logic or paradoxes (central bankers know everything about money but now central bankers are stumped, therefore it can’t be money?).
You can read his whole argument and decide for yourself, of course, as I will only highlight but one of three reasons he specifies as really a window into this academic divide. One of the primary correlations in this view, which isn’t necessarily consistent with actual data, is that low rates are a function of low productivity and expectations for continuing low productivity. Blanchard tries to argue that while the crash in 2008 might explain the lack of productivity in the immediate aftermath, it doesn’t do much to render understanding about why it appears to have lingered.
To have become permanent, he contends, is the partial responsibility of “gloom”; I’m not making this up. He actually writes, “I believe that this bad news about the future largely explains the relative weakness of demand today.” And that sets up what is a very good example in how economists think not about the economy in which we all live but the “economy” where models prevail.
It is useful to play with some numbers here. Suppose that you learn that your income over the next 30 years will rise at 4 percent rather than at 5 percent as you expected earlier (because income typically increases with age, individual income typically increases faster than aggregate income). This represents a roughly 20 percent decrease in the present value of your future earnings, and is likely to lead you to consume say 10 percent less. If this realization comes to you over a period of five years, you will decrease consumption by 2 percent each year relative to your income. Returning to aggregate implications, as consumers adjust their expectations the way you do, consumption growth will be weak. The same argument applies to investment. The lower the expected growth rate of profit, the lower the desired level of capital, and this in turn will lead to a period of low investment until the new lower level of capital is reached.
Nobody but an economist would think like this; and while this example is meant as a means to translate a very real phenomenon into the math-speak of regressions that academics use, he is seemingly unaware of the translation and thus the potential for error in even attempting it. In the world of high-credential universities, actual phenomenon must be converted into linear functions. That means that “gloom” has to be accounted for across several variables that can be each modeled in such a way that it makes sense to the mathematical versions of reality (and thus to economists who think I equations first).
Any non-indoctrinated non-statistician can immediately recognize the problems with thus thinking math-first. If you need to translate the real world into nonsensical linear mathematics before you can attempt to understand said world, then the bond market will really be a mystery to you.
In the world of the real, businesses don’t invest because their revenues don’t expand; end of story. Revenues aren’t expanding because businesses won’t hire no matter what the unemployment rate says; end of story. This was all, of course, one of the factors that quantitative easing was meant specifically to address – derived from the statistically modeled understanding of expectations rather than the actual conditions of them. The “wealth effect” was supposed to break the economy out of any gloom, as rising asset prices, especially the repeated and emphasized “record highs” of stocks, bonds, or anything in between, would surely negate any immediate “gloom” as it rolled over into expectations of an impeccable future.
Economic theory just does not allow for the possibility that asset prices, particularly stocks, are anything but completely efficient. But that is increasingly what we find, even in the math of orthodox construction. As noted earlier, the CBO has been keeping account of the withering failure of monetary policy in a manner that economists don’t want anyone to explore. Rewriting economic “potential” within these very mathematical functions serves to undermine the core of orthodox economics itself, especially since the CBO is not just proving the lack of recovery but rewriting most of the 21st century economy with it.
It isn’t just the CBO, however, who has been pressed by regression into an impossible reconciliation. The Fed’s own models show almost exactly the same condition as the CBO with regard to shrinking “potential.” In the latest FOMC projections, released coincident to the June FOMC meeting, the models reduced the upper bound of the central tendency for long run real GDP to 2% from 2.1%; the lower bound of 1.8% remained the same.
In late 2011, the central tendency for long run growth was believed to be between 2.5% on the low side and as much as 2.8% at the upper bound. While that may not sound like much of a difference, it is huge. The long run growth rate takes into account full business cycles, meaning that the average growth must include both recessions and their recoveries. Peak to Peak (meaning the current quarter of GDP), total growth has been equivalent to just 1.2%, a stunningly (economists are literally stunned by this) bad run that now extends almost a decade.
That is why the Fed has to mark down long run potential because not doing so would mean that at some point in the near future the economy is going to have to explode higher to bring up the average of this “cycle.” And the longer the economy persists in this mysterious “low growth trap” the greater that eventual “liftoff” will have to be get back to the normal long run tendency. Instead, economists have reduced economic potential because nobody believes any such thing will occur, note even them. Thus, they now have to come up with reasons that preserve their worldview while also accounting for the world – an increasingly impossible task. Even now the much-reduced long run tendency remains quite far out of reach, dampening enthusiasm all over again academically for both the timing and intensity of that anticipated “liftoff.”
In other words, the continued and “unexpected” lack of recovery after nine years of failure in monetary policy is forcing the math to recognize what is obvious in non-mathematical terms. No regressions are at all necessary to conclude that the bond market has, in fact, made sense this whole time and that it is economists who have no idea what is going on or why. By the mathematics of 2011, real GDP “should be” $19.3 trillion in Q2 2016; it was instead just $16.6 trillion after the third straight quarter near 1%.
To the academics, “gloom” is irrational and thus requires translation into math to become somehow backwards explanatory for why the economy that “should be” isn’t. In the actual economy, “gloom” is properly called reality. In this world, people know all-too-well that jobs disappeared during and after the Great Recession and never came back. No amount of asset price manipulation can possibly make up that difference. Economists try to convince everyone but really themselves that it didn’t matter when it is this very math that proves yet again it did; in fact, the true state of labor beyond the unemployment rate and Establishment Survey is all that matters.
Further, the people recognize that this wasn’t just a cyclical process that started in late 2007; it was, in fact, an extension of the impoverishment that has been eroding the true economic foundation for more than just the 21st century where it has become most apparent.
The math of potential and even gloom is just the frustratingly late catch-up forcing economists to come to terms with the fact they have been all wrong about all of this all along.
You need no PhD to so easily understand that you just cannot substitute jobs with debt; doing so is economic suicide.
At some point over the long run you must come to terms with that discrepancy. This math is finally welcoming economists to that long run, a place their patron saint, Keynes, said didn’t exist. It really does as the math has been recalculated far more toward the “impossible”; even the “tight” money indicated by the bond market is recognition of these plain facts.
Apparently China is taking a play from the Trump playbook by banning hotels from accepting guests from five, predominantly Muslim countries, including Pakistan, Syria, Iraq, Turkey and Afghanistan. The ban was allegedly implemented by local police in the southern city of Guangzhou and coincided with a development forum being held there. The ban is expected to remain in place until after the G20 Summit to be held in Hangzhou (620 miles away) in early September.
That said, apparently the cops are only worried about "low income" terrorists as the ban has only been implemented at Guangzhou's low-end hotels charging an average of around $25 per night. Per the Independent:
Budget hotels in the southern city of Guangzhou said they had received notices from police beginning in March, ordering them to turn away guests from Pakistan, Syria, Iraq, Turkey, and Afghanistan.
The rule coincided with a development forum held in Guangzhou on 25 and 26 August, and will extend until after the G20 summit set to take place in Hangzhou, 620 miles away from Guangzhou, on 4 and 5 September.
A hotel worker told the South China Morning Post that local police had told staff they must turn away guests from the five countries until September 10, but had not explained why.
“I'm not clear of the reason. We just can't take them,” a worker in another hotel told Reuters.
The ban has not been extended to upmarket hotels, or to budget hotels that belong to international or domestic chains. Three hotels identified by Reuters were all independent and charged around $23 a night.
Foreign ministry spokesman, Lu Kang, denied that Muslims were banned from low-end hotels in Guangzhou. Instead, Kang insisted that China's official policy is to "encourage people from China and other countries to have friendly exchanges."
“I've never heard that there is this policy being followed in China,” Lu told a daily news briefing.
“Moreover, as far as China is concerned, our policy in principle is that we encourage people from China and other countries to have friendly exchanges and are willing to provide various convenient policies in this regard.”
Frankly, we've never heard of a diplomat making such gracious and welcoming comments to foreign visitors...an "official policy" supporting "friendly exchanges" is pretty serious.
The fellow in the photo above is taking a bit of a risk. If all does not go well for him, he may become a candidate for the annual Darwin Awards – an award given to those who have inadvertently taken themselves out of the gene pool.
Of course, Darwin’s premise was that, through natural selection, those who are born weaker, deformed, or otherwise less capable of survival are less likely to live long enough to procreate, thus assuring an ever-stronger, more adaptable species.
This same premise can be applied to banks that follow unsound business practices. They’re more likely to go under as a result. This invariably causes suffering for those individuals who chose to do business with the irresponsible bank, but it can also be argued that those who believe empty promises by an irresponsible bank need to learn the lesson of economic prudence. Winnowing out those banks and their clients results in the responsible banks being stronger.
Of course, when we declare any bank to be “too big to fail,” we assure that the bank in question (and other banks) will behave irresponsibly, as they are assured that they will be bailed out by the taxpayer.
And the premise applies also to governments. Any government that behaves irresponsibly (promising entitlements to the populace, waging war and increasing the size of the government itself, without any plan as to how it will all be paid for) can be expected to exit the gene pool of nations.
The problem is that, unlike the personal Darwin Awards, in which the imbecile in question is likely to meet his end soon after his error, nations tend to suffer for an extended period from poor economic and militaristic steps taken by governments before they collapse. Worse, they take their people down with them when they go.
As an example, in the twentieth century, the UK poured money into two world wars, ultimately impoverishing the country and ending their dominance as the world’s foremost empire. The UK still limps along as a nation, but is greatly diminished from what it was in the nineteenth century.
Across the pond in the U.S., the Federal Reserve was created in 1913, in part, to rob the American people, through regular inflation over an extended period of time. It worked well. Not understanding what inflation means, the American people have lost over 97% of the value of their dollar over the last one hundred years. At around the same time, the U.S. instituted income tax. It started out small (as income taxes always do), then, like Topsy, it just grew. As a result, people who receive lower wages in a no-tax jurisdiction are likely to have a far better standard of living than those in the U.S. (and other countries that have income tax).
And that’s not to say that the UK and U.S. are unique. Quite the opposite. In fact, it’s the norm for any country’s politicians to make promises of largesse to their people just prior to an election. And with each election, the promises need to become larger, to inspire the people to vote for the promisers.
Along the way, politicians use warfare as a tool to both distract the voters from political misdeeds and to convince them to give up their rights in times of war. Today, the concept of perpetual war allows a more frequent removal of rights.
Each of the above works to the advantage of the political class (regardless of whether they claim to be Tory or Labour, Democrat or Republican.) It does however mean that, at some point, economic, social and political collapse will take place when the abnormalities become so excessive that the system can no longer bear their weight.
We’re passing through an unprecedented period in history, in which quite a few of those nations that were once the most prosperous; the most free; the most forward-thinking, are all headed downward at the same time, and for the same reasons. Hence, we shall in the near future be observing the removal from the gene pool of nations many of the most powerful (and formerly most desirable) countries.
It should be stressed that this does not necessarily mean that these countries will come to an end. Their geography will remain, but they may be crisscrossed with new boundary lines, should any of them be cut up. For others, it will mean retaining the name of the country, but they will be “under new management.”
However, existence within these geographical locations will be changed dramatically. Once a country collapses economically/socially/politically, it’s likely to take a long time to recover. That means that those who are getting by in those jurisdictions (or may even be doing well) may find their well-being curtailed – possibly dramatically.
Japan is overdue for a Darwin Award, as are the countries of the EU. They represent a buffer for countries such as the U.S. and Canada. Once the first dominoes topple, the others will soon fall.
We’re taught to believe that we’re married to the country of our birth and would be “deserters” if we were to leave. But, if our country of birth doesn’t represent how we wish to live, we’re living in the wrong neighbourhood. Most people understand that, if they don’t like their neighbourhood, they’d be stupid not to leave for a better neighbourhood. But what if that “neighbourhood” is the country of your birth? Is the concept not the same?
If someone we know foolishly tempts fate by putting his head in a crocodile’s mouth, very few of us would follow his lead. Yet, people in their millions have, throughout history, watched their countries reach the point of self-destruction and have simply gone along – accepting their fate as the failing country carries them over the cliff.
Darwin was correct. Those who represent the future of the species are those who are the strongest and choose their own survival in times of crisis.
On the surface, Japan's economy should be soaring: just last night, Japan announced that its unemployment rate was 3% in July, better than expected, and the lowest rate since 1995. The number of employed women (28.3 million) and women’s labor participation rate (66.3 percent) rose to a record high in July. According to conventional economic theory, with Japan's unemployment rate below its long-run normal, the slack-free economy should have generous inflation, rising household spending, and vibrant growth. It has none of that, because aside from its unemployment rate, everything else in Japan's economy is a sheer disaster.
As Bloomberg observes, Japan’s economy is struggling to gain momentum, evidenced by slower expansion in gross domestic product than economists forecast in the second quarter. Even as the job market remains tight, the yen’s gains since the start of 2016 are hurting exports, making businesses more reluctant to invest. Meanwhile, consumers are wary of spending because wages are barely rising. This is putting pressure on the Bank of Japan to consider more monetary stimulus at its September meeting. Worse, household spending fell 0.5% in July from a year earlier, its fifth straight month, while retail sales fell 0.2% from a year earlier.
"Overall, consumer spending remains weak as wage growth is dull,” Yoshiki Shinke, an economist at Dai-ichi Life Research Institute in Tokyo, said before the reports were released. “Households have been keeping their purse strings tight since the sales-tax increase in 2014."
And yet, the odd unemployment rate remains a peculiar outlier; in fact some would suggest that Japan is the canary in the coalmine to what the US is going through: a plunging "official" unemployment rate even as the economy slows down year after year.
As it turns out, when one reads between the lines, Japan's 20 year low unemployment rate is merely the latest statistical farce, something we first pointed out last May in "How Japan's Unemployment Rate Dropped Even As 280,000 People Lost Their Jobs." What is really going on is that just like the US, where a major demographic shift is taking place, in Japan a growing number of men in their prime working years are joining the ranks of Japan’s long-term unemployed - unable or unwilling to adapt to a shifting labor market as opportunities continue to shrink in areas like manufacturing.
Ignoring Japan's "famously low" jobless rate of 3%, hidden in the data is the fact that long-term unemployment among men ages 25-44 has jumped five-fold since the early 1990s after Japan’s economic bubble burst. There were 14.7 million male workers in the 25-44 age group in June, the lowest level in 48 years, even amid an overall increase in the workforce, according to the statistics bureau.
For every male loser, there is a female winner, because the surging prime, male unemployment rate contrasts with increasing employment rates for Japanese women. Yet while women are showing more capacity to adapt, they are not necessarily winners either, as they are more likely than men to hold part-time jobs with relatively low pay and fewer benefits than for full-time, regular positions.
Again, this is something we first showed well over a year ago - it appears to have only gained prominence recently, as economists finally do what they are supposed to: look beneath the surface.
According to Bloomberg, though Japan’s jobless rate is the lowest since 1995, the trend of rising unemployment among men in their key working years is a disaster for Abe, who is trying to resolve a stubborn labor shortage. Well, not a labor shortage per se as that would mean at least some real wage inflation, something Japan has not had in years, but a substantially fractured job market.
Still, over a year after we first explained what is truly going on, some economists finally admit is a problem. A "hidden problem."
“This is a hidden problem in Japan’s economy,” said Akane Yamaguchi, an economist at Daiwa Institute of Research, who published a report on the issue in April. “Abe’s government has to fix it as this is the generation supposed to be in the prime of their working life.
Behind this is a further decline in the manufacturing base - the number of manufacturing jobs dropped to 10.3 million in June from 11.7 million a decade ago while the medical, health care and welfare sector added 2.7 million jobs, according to the statistics bureau. Employment in the service sector has risen to 74 percent as of 2014, according to the latest report by the Cabinet Office in December.
It is almost as if Japan is a perfect leading indicator of what lies in the US future. Incidentally, that scenario would be a tragedy for America.
“There aren’t really any training programs offered for them so once they missed the opportunity, it gets very hard for them to find a job,” Yamaguchi said. “This is a vicious cycle.” From Bloomberg:
Bank of Japan researchers wrote about the trend in a report in March, saying unemployment of more than a year is “biased heavily” toward men ages 25 to 44. Analysts found that the number of men without jobs in this age range climbed to 310,000 in 2014, about five times more than in the 1990s. Potential reasons include men’s preference to find work in their same industry and a shift of jobs from manufacturing, the BOJ report showed.
It is, indeed a vicious circle, and one limited not only to the labor market: rising unemployment among these men could exacerbate Japan’s demographic challenges - a rapidly aging population and a stubbornly low birth rate - that are weighing on economic growth. Only 39% of men in their 20s want to get married, a clear contrast with 67 percent three years ago, according to a survey by Meiji Yasuda Life Insurance released in June.
The most significant reason men gave in the survey for staying single? They don’t have enough income to support a family.
Now if only they had BTFD in the Nikkei when Abe launched his idiotic strategy of destroying the Yen and wiping out the middle class just to push equities higher.
In retrospect, perhaps to at least delay Japan's painful demographic death, the BOJ should consider paradropping money and giving every household free cash. If nothing else it may at least spur a temporary spike in births as the local residents encounter a brief glimmer of hope and optimism; without it Japan is literally doomed.
Sinking food prices, while good for the consumer, is devastating for almost everyone else in the supply chain from the farmer all the way to the grocers. Farmers suffer as their key input cost, labor, is actually increasing in many states from the rash of minimum wage hikes around the country while fuel seems to move wildly with any number of daily rumors about production freezes in the middle east. Meanwhile, grocers suffer as already thin margins get compressed even further as existing inventories get marked down.
Food prices have come under extreme pressure in 2016 due primarily to lower Chinese consumption resulting from a weak Chinese economy and a strong U.S. dollar. This slack in demand has resulted in massive supply gluts for several commodities as producers failed to adjust supply quickly enough to meet new levels of demand. In fact, the USDA recently provided a $20mm "bailout" to cheese producers and reports have surfaced that milk producers have been dumping excess milk on fields.
With the base inputs of corn, wheat and soybeans all tanking, food deflation has been pervasive with almost every commodity down substantially YoY.
Proteins, which represent nearly 20% of the typical consumer's shopping basket, are trending flat to down 8% so far in 2016.
Dairy and grains are down mid-single digits YoY while egg prices have crashed as suppliers added tons of excess egg-laying capacity in response to last year's price spike related to the avian flu outbreak in the Midwest.
Fresh fruit and vegetable prices have held up better presumably because consumption is less dependent on the export market.
Meanwhile, alcohol prices continue to be the most stable of pretty much any item in the typical shopper's basket.
Farmers are among the hardest hit when food prices decline. In fact, we recently wrote about how sinking ag commodity prices in the Midwest were resulting in substantial declines in ag land prices and farmer incomes which then translate into an increase in farmer credit defaults (see "Farmland Bubble Bursts As Ag Credit Conditions Crumble"). Within that post we noted that farmland prices in Chicago's 7th District (IL, IN, IA, MI, WI) declined in 2014 and 2015 after only dropping in 4 other years since 1965.
As the Wall Street Journal pointed out, farmers have been forced to dump "millions of pounds of excess milk on to fields" while the USDA provided a $20mm "bailout" to cheese producers.
The glut is so severe in some places that dairy farmers have been dumping millions of pounds of excess milk onto fields. The U.S. Department of Agriculture just bought $20 million worth of cheese in response to hard-hit dairy farmers’ requests. The cheese was given to food banks and others through USDA nutrition-assistance programs.
Ben Moore, a sixth-generation farmer who grows corn and soybeans on some 5,000 acres in Indiana and Ohio, said 2016 is shaping up to be his least profitable year in 20 years. Facing weak crop prices, he is making do with his current tractors and combines rather than upgrading his equipment, and is pushing for lower prices on pesticides, seeds and fertilizer.
On Monday, corn futures, which peaked in 2012 at more than $8 a bushel, closed at $3.11 ¾ a bushel, a seven-year low, on the Chicago Board of Trade.
“We cannot withstand $4 a bushel corn,” Mr. Moore said.
Farmers who had built a nest egg after a robust period earlier this decade now have exhausted those reserves, said Karl Setzer, a market analyst for MaxYield Cooperative, a West Bend, Iowa, grain marketer. “The guys that are heavily leveraged and those who don’t have a plan of action will suffer for a while.”
But farmers aren't the only ones to suffer during a deflationary food environment. Grocers also suffer as tiny margins get compressed even further as existing inventories get marked down to prevailing market prices.
Falling costs are taking a toll on many food retailers. Grocery stores already have thin profit margins and deflation tends to reduce the value of their inventory. To stay competitive, they must cut prices on existing goods before lower-priced staples land on the loading dock, and have fewer opportunities to raise prices.
At least six national food retailers, including Costco Wholesale Corp. and Whole Foods Market Inc., and four of the five largest publicly traded food distributors, including Sysco Corp. and US Foods Holding Corp., have reported that their margins suffered in the last quarter because of food deflation, the first time analysts can recall so many grocers singling out deflation as a big problem.
“Deflation is kind of the elephant in the room,” Dennis Eidson, chief executive of SpartanNash Co., which operates 160 grocery stores from Colorado to Ohio and distributes food to 1,900 retailers across the country, told investors this month.
Meanwhile, consumers are the key beneficiaries of food price deflation.
With weak U.S. consumers shunning eating out more and more over the past year....
The combination of stagnant real earnings and lower retail food prices have provided the necessary incentives to drive the highest QoQ increase in real consumption of "food for home consumption" since the 80s.
- The University of North Dakota (UND) is offering students the chance to live in a specialized housing community dedicated entirely to social justice.
- The Social Justice Living-Learning Community (LLC) joins four other LLC's: Aviation, Engineering & Mines, Wellness, and Honors.
- Students in the Social Justice LLC will have the option to room with individuals of any "gender identity" as long as all parties agree to the living arrangement.
The University of North Dakota (UND) is offering students the chance to live in a specialized housing community dedicated entirely to social justice.
The Social Justice Living-Learning Community is “designed for students who are involved in promoting a more inclusive and just society,” and promises to provide such students with opportunities for “creating and leading positive social change.”
The Social Justice LLC is “for students who are involved in promoting a more inclusive and just society.”
The website for the LLC does not have a specific schedule of events for the semester, but notes that students may engage with guest speakers, film series, book clubs, and service opportunities.
Cheryl Terrance, faculty advisor of the UND Ten Percent Society (TPS), a student support group for the “GLBTQQIA community,” told Campus Reform that the LLC was developed by the school’s housing office, but predicted that social justice-oriented student groups such as TPS would likely be involved in programming efforts.
Connie Frazier, Executive Director of Housing and Dining at UND, corroborated that speculation, telling Campus Reform that while LLCs are housing initiatives, they arise out of student interest and students self-select who will live in the community.
“This is a brand new one so those students are just beginning now the discussion of how they want to define their community and what kinds of activities they would want to get involved and do,” Frazier explained.
Students who are interested in living in a community that “believe[s] that each person shares the responsibility of creating an environment in which all residents are respected and valued—regardless of one’s age, size, gender, sexual orientation, identity or identity expression, disability, race, ethnicity, color, creed, national origin, cultural background, socio-economic status, or religious affiliation or conviction,” need only indicate interest on their residence hall application in order to be considered for the Social Justice LLC.
The LLC also specifically points out that it is inclusive with respect to gender, and will allow people of all gender identities to room with whomever they feel most comfortable, although the application process does note that “gender inclusive room assignment requests must be mutual.”
UND currently has four other Living-Learning Communities—Aviation, Engineering & Mines, Wellness, and Honors—most of which primarily relate to academic interests.
The European Commission, the EU's executive arm, is ordering Apple to pay $14.5 billion in taxes to Ireland. But Ireland doesn't want the money, and Apple says it shouldn't have to pay. And the kind of tax breaks that the EU accuses Ireland of offering Apple are similar to the kind of deals common in, and legal in, the US.
This is what the EU says:
Apple Inc., which is based in California, set up two companies in Ireland: Apple Sales International and Apple Operations Europe. According to the European Commission, these companies had no employees or real offices but still realized large profits. Apple paid virtually no tax to Ireland, or to any country, on these profits because of a former law in Ireland. In the last year that the law was in effect, 2015, Apple Sales International paid just 0.005% tax, according to the commission.
The European Commission is led by Margrethe Vestager, a member of Denmark's social liberal party. The commission is not a tax authority; instead, its job is to maintain fairness between the EU member states. And that brings us to the most important part in this story: The commission says this law specifically favored Apple for special treatment.
When Apple sold iPhones, iPads, and Macs in an EU single-market nation, such as France, the commission said Apple would funnel the profits from France to Ireland and would not pay tax in either country. But this is not really about Apple's tax-avoidance strategies, which are infamous.
The European Commission's issue is really not with Apple but with Ireland.
Aid versus tax
How's this for a tricky balancing act?
EU leaders have no issue with different member nations charging different corporate-tax rates. That's why it's acceptable for Ireland to charge businesses a 12.5% income tax whereas France levies 33.3%.
This is crucial because nations want to maintain autonomy over their fiscal policies. That's part of the ongoing power struggle between individual nations and the EU (remember Brexit?). What's not acceptable is what the EU calls "state aid." This is when a country offers something special that's seen as benefiting an individual company.
It can be even more basic. If France taxed companies in the north less than those in the south, that's generally state aid in the EU's view. It's the same with trying to get a German company to move to Denmark by abating property taxes for a new headquarters.
"The view is that not levying taxes that everyone else has to pay amounts to the same result as giving money to just one company," Philipp Werner, a partner in the law firm Jones Day's Brussels office who has represented multinational companies appealing state-aid decisions, told Business Insider.
If Apple had just paid the standard 12.5% income tax in Ireland, the country wouldn't have EU leaders upset in Brussels. Instead, the commission says Ireland gave Apple "selective tax treatment" starting in 1991, with the first of two tax rulings. In effect, Ireland signed off on a plan in which Apple would move money to a stateless "head office" with no meaningful activities.
"Therefore, only a small percentage of Apple Sales International's profits were taxed in Ireland, and the rest was taxed nowhere," the commission said in a press release.
Ireland explicitly said this was fine by its standards. But the EU contends that this arrangement "gave Apple an undue advantage that is illegal under EU state aid rules."
"Apple entered into a deal with Ireland to not pay tax on all those profits," Edward Kleinbard, a professor of law and business at the USC Gould School of Law, told Business Insider. Instead, Apple paid "an arbitrarily small amount to Ireland in return for a vague promise to keep jobs in Ireland."
Apple and Ireland aren't the commission's first targets. There were similar rulings against the Starbucks' tax dealings in the Netherlands and a division of Fiat in Luxembourg.
Apple and Ireland have a different view
Apple was one of the first major tech companies to set up shop in Ireland. At the time, in 1980, Ireland was in bad economic shape. Unemployment was high, and many people left Ireland to try to find work in other countries.
Low corporate tax was one way Ireland improved its economy and attracted big companies, and Apple was one of the early companies to benefit.
Irish Finance Minister Michael Noonan has categorically rejected the notion that this was a special deal for Apple.
"The Irish Revenue don't do deals," Noonan told CNBC on August 30. "They issue opinions to clarify a tax situation for individual companies, but we never do deals." He continued to say that Apple doesn't owe any taxes to Ireland. "They may owe it elsewhere, but not to the Irish authorities."
To underscore the delicate relationship, Noonan accused the commission of meddling in the policies of sovereign governments. For its part, Apple CEO Tim Cook shot back, saying in an open letter that the European Commission "has launched an effort to rewrite Apple's history in Europe, ignore Ireland's tax laws and upend the international tax system in the process."
Both Ireland and Apple say the company has become a big part of the Irish economy, with 6,000 workers there. And Cook also objected to the ruling being retroactive. Under EU rules, it can compel a country to collect taxes going back 10 years from the first date it asked for information.
Ireland doesn’t want the money
Here's one of the ironies: The EU is, in effect, ordering Ireland to collect a lot of money. Most, if not all, of the $14.5 billion would go to Ireland and could be used to pay down debts. But Ireland is not interested.
"Although they get a huge amount of money back, they also want to fight it," said Werner at Jones Day. "They're not only thinking about Apple — they're thinking a whole lot of other companies established in Ireland."
Losing this battle will hurt Ireland's credibility as an inexpensive place to do business, and a place where tax laws are clear and settled.
Why is the US fighting this?
Another irony: You might think the US would applaud any effort to collect tax from US-based multinationals using Irish subsidiaries to pay less, or zero, tax. But there are a few reasons the US Treasury department is vehemently against this EU ruling and other pending cases targeting companies, such as Amazon.
One is simple: It wants to protect US businesses, and the Treasury says they're being unfairly targeted by this EU crackdown.
Second, the US wants to preserve tax revenue it hopes one day will come its way.
Companies like Apple say US taxes are too high, so they keep foreign earnings overseas. But Congress has long debated ways to get multinational American companies to repatriate some of that cash. The Treasury Department says if the commission wins this case, US companies could use these taxes paid in Europe to offset US taxes. That, it says, "would effectively constitute a transfer of revenue to the EU from the US government and its taxpayers," according to a Treasury white paper.
What about other European countries?
In his letter, though, Cook may have stepped into another debate over its aggressive tax avoidance by saying, " A company’s profits should be taxed in the country where the value is created." This is a different issue.
If Apple made money in France but realized those profits in Ireland, it is up to France, not the EU, to complain and try to get some of that money back.
The whole reason Apple's European operations are in Ireland, after all, are for its tax advantages. The question is just whether Apple received illegal special treatment.
Wait, don't these tax breaks happen in the US all the time?
One reason all this might seem odd to Americans is that the "special treatment" Ireland is accused of giving Apple is similar to incentives American states give companies all the time legally.
Massachusetts, for instance, put together $145 million in incentives to persuade General Electric to move from suburban Connecticut to Boston.
When Tesla said publicly it wanted to build a Gigafactory to produce batteries, states like California, Nex Mexico, and Nevada stumbled over themselves to offer the most generous tax breaks. In the end, Nevada agreed to $1.2 billion in tax incentives to win the deal. If these deals were issued by France to attract a company based in Denmark, it would be illegal under EU rules.
What about inversions?
Some American companies have gone further than Apple to take advantage of Irish tax breaks. Pharmaceutical firm Allergan has acquired or formed Irish subsidiaries and then "inverted," or transferred its legal headquarters to Ireland. Even if its headquarters were in the US, it is effectively an Irish company.
"Inversions are separate but related," Kleinbard said. Companies that invert "take advantage of an easily manipulated definition of what is a US company."
Nothing in the European Commission ruling affects inversions. It's up to US authorities to crack down if they want to stop the practice. Congress, for instance, could change tax law to consider a company American if its leadership and most of its workers are based in the US.
Apple, the most profitable company in the world, and Ireland, which has some of the lowest corporate taxes, made easy targets for the European Commission. But it's clearly not done yet. It's targeting McDonald's for allegedly paying no tax on its earnings in Luxembourg. The antitrust regulators are also looking into Amazon.
Ireland, however, will almost surely appeal the ruling against its dealings with Apple. It has a lot more on the line than $14.5 billion.
Salesforce has spent over $4 billion on acquisitions in the past year alone, and it's making some investors grow concerned about the company's spending strategy.
According to a note by Macquarie Research on Tuesday, Salesforce may have some explaining to do during its earnings call on Wednesday to ease the investors worried about the company's record-high buying spree over the past year.
"Salesforce's recent M&A activity has inspired a wave of speculation in the press about who Salesforce may acquire next, making many investors uneasy about the company's direction despite particularly little substantial news from the company.
"We are therefore looking for Salesforce to provide clarification on its M&A strategy during its upcoming conference call, which we believe would reassure investors about management's M&A discipline."
Salesforce has bought about a dozen companies in the past 12 months, the fastest pace in the company's history. That includes the $2.8 billion Demandware acquisition, which was the largest deal Salesforce has made to date, and the $750 million deal for the 40-person startup Quip.
On top of that, Salesforce CEO Marc Benioff is reported to have tried to outbid Microsoft's $26 billion offer for LinkedIn at one point, causing investors to question the company's M&A strategy.
Other research firms like UBS and Wedbush raised the same concerns, saying that investors are worried that Salesforce could be finding its organic growth slowing and looking to pursue expensive deals even if they are dilutive to earnings. That's also partly pressuring Salesforce's share price, which has remained roughly flat after announcing its Demandware acquisition in June.
Still, Piper Jaffray noted that most of the acquisitions make sense because they've been in the artificial-intelligence and machine-learning space, in which Salesforce is launching its new product, Einstein. Salesforce is expected to keep up its growth because of the strong potential in its service and marketing cloud products, which is also helping the company attract "some of the best talent in the industry," the note said.
"While investors we have spoken with are getting incrementally more cautious around the pace of Salesforce's M&A machine, we believe that acquisitions such as BeyondCore, which are tuck-in in nature, can expand the scope of existing solutions to make them more impactful and successful in the marketplace."
Perhaps we'll find out more on Wednesday when Salesforce reports its quarterly earnings.
Here's what analysts are expecting, according to Yahoo Finance:
- Q2 adjusted earnings per share (EPS): $0.22, up from $0.19 in Q2 2015.
- Q2 revenue: $2.02 billion, up about 23.6% from $1.63 billion in the year-ago period.
Every week, employees at the world's largest hedge fund spend at least an hour with "management principles training" lessons (MPTs), where they analyze recordings of meetings and answer questions about what they observed.
Bridgewater Associates founder Ray Dalio implemented this process around 10 years ago as a way to further instill his unique management insights into his growing firm, which now has $150 billion in assets under management and 1,700 employees in its Westport, Connecticut offices.
Dalio founded his hedge fund out of his apartment in 1975, and in the '80s developed a culture of "radical truth" and "radical transparency," codified in his 2010 guide "Principles," which all employees must read. In this environment, the majority of meetings are recorded, via an opt-in audio recorder or camera, and any time employees mention a colleague not present, they are supposed to send the recording to that person. Some of these recordings become MPTs, if they contain a "teachable moment." Others are sent to share an important, informative meeting with the entire company.
It's a unique process all job candidates know they'll be getting themselves into, since Bridgewater shows a couple of examples during its application process. To learn how they worked and have been received, Business Insider talked to several former junior- and senior-level employees. We are refraining from sharing any identifying details of these former employees so as not to jeopardize their standing with the company.
Getting to know Ray
The lessons are intended to take an average of 15 minutes each workday, but one source remembers spending anywhere from two to four hours each week on the lessons. This person said that if you ever pitched spending a few hours each week on office culture and management strategy to executives at a traditional financial firm, where this source also worked, they would "laugh you out of the room," but that Wall Street could actually benefit from more time spent on the topics.
MPTs typically consist of audio, video, or text from a meeting and/or relevant document followed by a survey, and can be completed in as little time as five minutes or as long as more than an hour. They are released in batches with deadlines, and some are released outside of batches under special circumstances. There may not be a "correct" response to the survey questions, but employees see the aggregate results after they submit their answers.
Any employee is subject to be featured in an MPT, though the majority feature the senior management team and a notable amount star Dalio. Dalio appears in so many, in fact, that one former employee told us that even though their job didn't put them in regular contact with Dalio, they felt as though they got to know him personally through the lessons.
Here are a few examples of actual MPTs, based on descriptions from sources:
1. Question your superiors
A junior-level employee meets with his manager regarding a problem he submitted in the company's issue log. He explains to his boss that he's concerned about working with third-party consultants to Bridgewater because they are not immersed in the Bridgewater way of doing things and he feels there is a culture clash. The boss explains that he and members of senior management already discussed this issue and reached a decision, and that it's not this employee's concern, anyway. They move on.
In a followup, the boss' own supervisor chastises him for the way he handled the previous situation. An employee with a problem should not be shut down, the supervisor explains. The first reaction should be to find out, "Is there truth here?" and work with the employee to get at the root of his position. Then, it's your duty to explain your decision-making to that employee. The supervisor explains that it's a manager's responsibility to encourage employee feedback, since a manager can lose track of how their actions are affecting their team.
The source who shared this story with us said that the initial interaction between the manager and his employee, where a boss tells his underling to respect his decision and roll with it, would have been normal at any other company where the person had worked.
2. Admit your weaknesses
A senior-level employee meets with Dalio. There has been some tension between them, but the employee begins explaining the ways that they have failed recently, and how this is tied to bigger-picture personal weaknesses.
This employee's self-assessment is shown as a positive example of one of the harder aspects of "Principles" in action. As Dalio writes in his guide:
"I call the pain that comes from looking at yourself and others objectively 'growing pains,' because it is the pain that accompanies personal growth ... Remember that: Pain + Reflection = Progress.
"Much as you might wish this were not so, this is a reality that you should just accept and deal with. There is no getting around the fact that achieving success requires getting at the root causes of all important problems, and people’s mistakes and weaknesses are sometimes the root causes. So to be successful, you must be willing to look at your own behavior and the behavior of others as possible causes of problems."
See the rest of the story at Business Insider
(Reuters) - Alphabet Inc's Google unit plans to open its ride-sharing programme to Waze app users in San Francisco this fall, pitting itself against Uber Technologies Inc, the Wall Street Journal reported. Google in May launched a pilot programme around its California headquarters which allowed several thousand area workers at specific firms to carpool together with users of its Wave navigation app, according to the WSJ report. (http://on.wsj.com/2bzJrcN0) Alphabet executive David Drummond on Monday resigned from Uber's board due to increasing competition between the companies. ...
Bridgewater Associates, with $150 billion in assets under management, is not only the world's biggest hedge fund.
It's also a highly ambitious, 1,700-person management experiment. And to get a job there, you have to undergo an intensive examination of your psyche.
Ray Dalio founded Bridgewater in 1975 out of his apartment, and throughout the '80s he laid the foundation of a corporate culture based on "radical transparency." This culminated in "Principles," his manifesto of 210 management insights, first published in 2011, that all employees must read.
Employees are encouraged to regularly dissect each other's thinking to determine the root of decision-making, to rate each other's performance using a proprietary iPad app called "Dots," and to send an audio file to any person mentioned in a meeting — which isn't an outlandish practice internally, since all meetings, with few exceptions, are digitally recorded for either audio or video. "Pain + Reflection = Progress" is a phrase all employees are intimately familiar with.
Because it takes a certain type of person to thrive in such an environment, Bridgewater has been developing new ways to recruit talent, the company's head of client service and marketing and cohead of its core management team, Brian Kreiter, explained to Business Insider. One of the results is the current version of the set of personality surveys all candidates, with exceptions for those who are specially recruited, must take.
We'll take a look at what these surveys are, based on our conversations with Kreiter and former employees of varying levels. The candidate takes four surveys online, in a process that takes around two to four hours, and then another that takes place over the phone and lasts around one hour. Kreiter explained that they use this variety of tests because they find imperfections in each, but believe that when the results are combined, they prove to be a useful supplement to interviews.
Meyers-Briggs Type Indicator
You probably have some familiarity with the Myers-Briggs Type Indicator (MBTI), which assigns people one of 16 personality types based on how they measure themselves against four criteria — it's the test where you can find out if you're an ESTJ or an ISTP. According to statistics from a few years ago, around 80% of Fortune 500 companies use the test.
The MBTI is controversial because rather than being based on peer-reviewed research, it is based on the work of an early 20th century mother-daughter team, Katherine Cook Briggs and Isabel Briggs Myers. The duo used psychiatrist Carl Jung's book "Psychological Types" as their main inspiration.
Bridgewater uses it to get a general idea of how people see themselves, and how they view the world.
In a Business Insider story from 2014, we worked with Paul Tieger, coauthor of the popular personality type guide "Do What You Are," on definitions of the main components of the test. (Note: Tieger is not affiliated with the Myers-Briggs Foundation.)
- Interaction with the World — "Introverts (I) often like working alone or in small groups, prefer a more deliberate pace, and like to focus on one task at a time. Extroverts (E) are energized by people, enjoy a variety of tasks, a quick pace, and are good at multitasking."
- Absorption of Information — "Sensors (S) are realistic people who like to focus on the facts and details, and apply common sense and past experience to come up with practical solutions to problems. Intuitives (N) prefer to focus on possibilities and the big picture, easily see patterns, value innovation, and seek creative solutions to problems."
- Decision-making — "Thinkers (T) tend to make decisions using logical analysis, objectively weigh pros and cons, and value honesty, consistency, and fairness. Feelers (F) tend to be sensitive and cooperative, and decide based on their own personal values and how others will be affected by their actions."
- Organization — "Judgers (J) tend to be organized and prepared, like to make and stick to plans, and are comfortable following most rules. Perceivers (P) prefer to keep their options open, like to be able to act spontaneously and like to be flexible with making plans."
Bridgewater team dynamics
Candidates will then take three proprietary surveys online, tailored to Bridgewater's unique culture.
These measure how they work with a team, how they fit into a workplace, and how they either display or interact with leadership.
According to Dalio's theories, in the ideal workplace, there is a degree of transparency among colleagues that allows them to surface problems quickly and find solutions.
There is a constant quest for "truth," which could mean a junior-level employee confronting a senior-level employee.
For example, FBI director James Comey worked at Bridgewater from 2010 to 2013, and in a testimonial video that was once featured on the firm's website, he describes a situation in which a 25-year-old employee questioned the reasoning Comey had just displayed in a meeting.
"My initial reaction was 'What? You, kid, are asking me that question?'" Comey said in the video. "I was deputy attorney general of the United States; I was general counsel of a huge, huge company. No 25-year-old is going to ask me about my logic. Then I realized, 'I'm at Bridgewater.'"
Stratified Systems Theory
The phone interview survey is conducted with third-party contractors trained in Stratified Systems Theory (SST). It's the brainchild of the psychologist Elliott Jacques, who is best known for coining the term "mid-life crisis," but was also awarded a Joint Staff Certificate of Appreciation by then-General Colin Powell for his work with the United States military in developing organizational processes.
SST, which is explained in Jacques' textbook "Requisite Organization," posits that employees in a workforce fit into one of seven "organizational strata" based on the level of work complexity they can handle and how that fits into a hierarchy.
These are the seven strata, taken from "Requisite Organization."
- I — Shop and office floor. Overcome obstacles with practical judgment.
- II — First line manager. Diagnostic accumulation.
- III — Unit manager. Create alternative pathways.
- IV — General manager. Parallel process [and take] multiple paths.
- V — Business unit president. Judge downstream consequences.
- VI — Executive vice president. Oversee complex systems.
- VII — CEO and COO. Construct complex systems.
In Bridgewater's SST survey, the interviewer will ask a question and then listen to the candidate develop an answer, without interrupting. A source told us that an example question may be something like, "If you were the HR director for a company, how would you develop an employee referral program?"
The interviewer listens to the answer to see how narrowly or broadly the candidate thinks, and where they are in their development, regardless of positions they previously held.
Upon hiring, candidates will then take a final proprietary personality survey that takes two or three hours and is an extension of the topics explored in the application process.
Finally, all of the test results are put into an algorithm to produce a "baseball card" — a profile that portrays the employee's personality, values, and abilities, along with a headshot.
Every employee at Bridgewater can view the baseball card of every employee, present and past, with the intention of maintaining a high level of transparency among coworkers.
"The Bridgewater strategy is about constant improvement as an organization and what that requires is really just constant improvement of our people," Kreiter said. "There are people who are more interested in that kind of thing than others. And so those who express that desire, that affinity, we think have a more likely chance."
You will soon have another chance to invest in finding Bigfoot.
Bigfoot Project Investments filed for a public offering of stock on Tuesday, offering 20 million shares at $0.75 per share.
The company specializes in finding and documenting proof of the creature known as Bigfoot, according to a filing with the Securities and Exchange Commission.
"Bigfoot Project Investments Inc., plans to establish itself as the most reliable and dependable source for materials including documentaries, physical evidence, and eye witness accounts for the purpose of documenting the evidence of the existence of Bigfoot," the filing said. "Our major source of revenue will be the sale of documentaries and specials that follow our progress."
The company, based in Henderson, Nevada, is currently burning through too much cash and plans to offer stock in order to raise enough money to fund the development of its business plan.
The company has been attempting to raise enough money since the beginning of the year, previously offering 30 million shares to raise $3 million. According to the filing, over 208 million shares, owned by 116 shareholders, are outstanding, but no shares have ever traded.
Bigfoot Projects currently has revenue of $5,440 per year, based on the filing. It also lost just over $25,000 last year. No brokers or underwriters are on the offering.
The company cautioned investors that a number of risks are involved in investing in offer, including:
- The company's auditors have issued a warning that the company may fold at any time.
- The company is burning through cash at an annual rate of $50,000 to $500,000.
- Consumer preferences may change, and no one may want the DVDs the company plans on making.
- Because there is no current market for the stock, there is no proof that investors may not be able to resell it.
The company has been authorized to trade over the counter (not on any stock exchange) under the ticker BGFT.
Stocks slipped in trading on Tuesday and the S&P 500 briefly lost its gains for August. The dollar rallied, while crude oil prices fell.
First, the scoreboard:
- Dow: 18,435.29, -67.70, (-0.37%)
- S&P 500: 2,173.42, -6.96, (-0.32%)
- Nasdaq: 5,213.29, -19.04, (-0.36%)
- The European Union ordered Apple to pay up to a record €13 billion ($14.5 billion) in taxes to Ireland. The EU's competition commissioner said the country gave Apple "illegal tax benefits." Apple said the decision will harm investment and job creation in Europe. Apple shares fell 1%.
- In economic data, home prices in 20 major US cities fell for a third straight month in June. S&P/Case-Shiller's 20-city index was down 0.1% month-on-month, and up 5.1% year-on-year. Nationally, home prices continued to rise.
- The Conference Board's consumer confidence index jumped to 101.1 in August, the highest since last September. The share of people saying jobs were "plentiful" increased from 23% to 26%, the highest since January 2008.
- Billionaires Carl Icahn and Bill Ackman are still bickering over Herbalife. Ackman holds a big short position in the company while Icahn is bullish. "If anyone should feel boxed in, it's Ackman," Icahn told CNBC.com. The Wall Street Journal reported on Friday that Icahn was discussing selling his shares. Hours later, he announced he bought 2.3 million shares.
- The government announced some changes to try to fix Obamacare. The 14 proposals include using some of the fees from the federally funded marketplace for outreach to get more young people to sign up, and accounting for prescription-drug use when evaluating the risk profile of potential patients. Major insurers pulled out of Obamacare in recent weeks.
In July, average hourly earnings rose 2.6% over the prior year, the fastest pace since the recession.
But this number understates the wage growth we're seeing if we break down wages by geography.
This chart, which comes to us from Macquarie, shows a big acceleration in wages in non-oil states with wages in those states — Alaska, Louisiana, Montana, New Mexico, North Dakota, Oklahoma, Texas, West Virginia, and Wyoming — lagging the rest of the country notably following the oil crash we've seen over the past two years.
Macquarie notes that non-oil states, where wages were up 2.9% year-over-year in July, account for about 87% of national employment.
And as the price of oil stabilizes and the worst of the initial price crash impact dissipates, national wage growth has an additional tailwind to push higher still.
"Looking ahead, we expect wage growth in non-oil states to propel headline numbers higher," the firm writes.
"We also believe the drag from oil-states should lessen as there is growing evidence of a bottoming in activity levels. Mining & logging industry employment as a share of total employment has declined to its lowest level in over a decade, jobless claims in oil states have flattened out after rising for much of 2015, energy investment is near multi-decade lows, but appears to have reached a bottom."
Adding this with recent news on accelerating wages for the lowest-paid US workers and a dearth of available workers with skills employers really want, it appears the only solution for US corporates is going to be raising pay.
Mylan, the drugmaker feeling the heat over its pricing of the EpiPen, said Monday that it will make an "authorized generic" version of the EpiPen that will cost $300.
Before that, to fend off public outrage over the cost of a two-pack of the EpiPen (up 500%, to about $600, since Mylan acquired the drug back in 2007), the company raised their copay coupon system to cover $300 of people's out of pocket cost. That discount did little to get them out of the woods.
But this authorized generic isn't the white flag people may have been expecting. In fact, Mylan could stand to make more off the $300 generic than their original product.
The EpiPen is a device used in emergencies to treat anaphylaxis, a severe allergic reaction that can make people go into shock, struggle to breathe, or get a skin rash.
"They don’t get a gold star for suddenly being charitable," Michael Rea, the CEO of Rx Savings Solutions, which works to help consumers and employers paying for healthcare understand their drug prices, told Business Insider.
By Mylan's own argument, the company makes $274 from every EpiPen sold. The rest of the list price all gets absorbed through the different members of the supply chain, as seen here:
But say Mylan doesn't have to deal with some of those middlemen who make money along the way, and can just distribute the drug to pharmacies — something that generic versions have an easier time doing. That cuts out the wholesalers and the pharmacy benefit managers, which are in charge of negotiating drug prices, along with the charges that would come along with their involvement. That would mean Mylan would get to pocket almost 10% more than they otherwise would.
Mylan did not immediately respond to request for comment.
What exactly is an 'authorized generic'?
For a set period of time, a drugmaker has the chance to have an exclusive on the market for a drug it developed. But once that time is up, other companies can come in with their competing versions that are virtually identical to the original.
So authorized generics are basically a drugmaker's way of staying in the game after generic competition comes to the market. The Food and Drug Administration keeps track of all the authorized generics that the makers of original branded products have created.
The authorized generic is identical to the original drug, but it doesn't come with all the bells and whistles of the branded product. In this case, the pen will be the same, but the packaging might be a different color or carry just the "epinephrine auto-injectors" title.
Much of the time, the authorized generic comes in after there's already generic competition from other companies. But here, Teva Pharmaceuticals, the company developing a generic epinephrine auto-injector is still a bit off from approval after it did not get approval from the Food and Drug Administration, with the agency citing "certain major deficiencies."
With an authorized generic, a company can "effectively cannibalize their own business," Rea said.
This way, Mylan can keep its original list price up on the EpiPen while keeping users who might be deterred by its price from going to a competing emergency-epinephrine device. And for those without commercial insurance, this should put the price in line with those paying $300 while using the savings card (which is just for the branded EpiPen, and wouldn't be for this generic version).
SEE ALSO: Congress is going after Mylan
If you didn't know better, then it would appear that healthcare costs are skyrocketing.
The amount that the US spends on healthcare passed $3 trillion for the first time in 2014. Obamacare premiums are on the rise. There's seemingly always a controversy over a new drug with a massively inflated price.
Appearances are not reality, however, according to new research from the Federal Reserve Bank of Dallas.
In a monthly economic letter, Mine Yücel and the Dallas Fed research team pointed out that healthcare-services costs are actually running below core personal consumption expenditure (PCE) inflation. Put another way, healthcare services are actually a drag on inflation right now.
For one thing, according to the research from Yücel and company, prices for healthcare services — which include things like the cost of a hospital visit, the cost of nursing-home services, and net health-insurance costs — have been growing at a much slower rate than in the past.
"The growth rate of health care services prices has slowed dramatically, from around 4 percent per year in 2004 to a low of about 0.5 percent in 2015," said the Dallas Fed team. "The rate has since moved slightly higher, to just less than 1.2 percent on a 12-month basis in 2016."
According to the Dallas Fed, this measure includes not just spending from households, but also those paying for households by proxy. Thus, government spending through programs such as Medicare and employers spending through group health plans are also included.
The impact on core PCE — which is used by such groups as the Federal Reserve in interest-rate decisions and strips out volatile food and energy prices — from healthcare services is significant. Core PCE has been running well under the Fed's target of 2% for some time now, but without the drag from healthcare services, it would be very close to the goal.
"For the ex-food-and-energy index, excluding health care services raises current 12-month inflation to 1.69 percent from 1.57 while lowering longer-term average inflation to 1.61 percent from 1.94 percent," said the Dallas Fed study. "That means ex-food-and-energy inflation is 0.08 percentage points above its longer-term average rate rather than 0.37 percentage points below, the deviation when health care services are included."
Of note, this data is on an aggregate level. It is not to say that individual health-insurance plans or experiences at the hospital were not more expensive in recent years. But, in total, price growth slowed.
Additionally, according to data from the Kaiser Family Foundation, the growth for total health spending in the US based on data from the US Center for Medicare and Medicaid Services hit the lowest point in decades in 2013 and remains well below the long-run average.
While Kaiser projects that there will be some normalization in spending growth over the next 10 years, the Dallas Fed's and Kaiser's measures show that prices for healthcare aren't exactly ballooning.
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It's all about Apple right now. Here are the headlines:
- The EU has ordered Apple to pay up to $14.5 billion in taxes.
- This chart explains Apple's tax structure in Europe that led to the $14.5 billion ruling.
- TIM COOK: "The European Commission has launched an effort to rewrite Apple’s history in Europe."
- Apple defended its Irish tax-minimizing operation using a classic photo of Steve Jobs in Cork
- Apple's response can be summarized as: You can have taxes or you can have jobs, but you can't have both.
- Ireland's finance minister doesn't want to ask Apple for the $14.5 billion.
- Here's just how big $14.5 billion is to Apple.
- Apple has told investors its $14.5 billion tax bill won't have any near-term impact.
In other news, Carl Icahn thinks Bill Ackman should feel "boxed in" on his Herbalife bet,the committee that brought in Martin Shkreli and Valeant to testify is now going after Mylan, and the US government just announced some big changes to try to fix Obamacare.
We are witnessing the end of the credit cycle, and a crash is coming, according to UBS. Home prices in 20 major US cities fell for a third straight month in June, according to the S&P/Case-Shiller home price index. And we're about to enter "the worst month of the year for stocks."
Here are the most popular college majors on Wall Street.
Finally, Warren Buffett turns 86 today. Here are 14 stunning facts about Buffett and his wealth.
Here are the top Wall Street headlines at midday:
The 'titans are going to clash' in the technology and media world - It's great to be a consumer of media these days. It's not necessarily great to be a producer of media, however.
The latest sign that Wall Street researchers are a dying breed - Wall Street research is dying. All you need to do is ask some Wall Street researchers.
ART CASHIN: 2 'potential landmines' should keep the Fed on hold in September - The Federal Reserve made a lot of noise in the past week about a possible increase in the federal funds rate at its September meeting.
Mondelez says it won't buy Hershey, and Hershey's shares are crashing - Mondelez has abandoned talks to buy candy maker Hershey in a $23 billion deal.
America is running out of young people 'willing to flip burgers' - The number of people in the workforce between 16 and 24 years old without a college degree has been steadily on the decline.
More ugly warning signs are popping up in Saudi Arabia - A bunch of warning signs have been bubbling up in Saudi Arabia's economy over the past few months.
The retirement crisis is going to hit one half of America harder than the other - American women will have a harder time of it in retirement than men, according to Sallie Krawcheck, a former Wall Street executive.
San Francisco's out-of-control housing market might start looking more 'normal' by the end of the year - San Francisco's housing market is very slowly cooling down.
Gentlemen, here's what you're usually missing from your travel bags - Listen, we're not saying you're bad at packing — we're just saying that you might be a little clumsier at it than you should be.
After a three-year probe, the European Commission has come to a decision regarding Apple’s alleged tax underpayments in Ireland, and the verdict isn’t good for the iPhone maker: It’s now on the hook for €13 billion ($14.5 billion), plus interest, in back taxes. It’s the largest fine the EU has ever doled out to a company, and significant even for a firm of Apple’s size.
This chart from Statista should help put the number into perspective. From 2003 to 2014 — the period to which the EU’s investigation and fine applies — Apple says it’s paid $4.89 billion in income taxes outside the United States. That’s over the course of 12 years. The EU’s fine asks for almost triple that.
Apple and Ireland both plan to appeal the ruling, a process that reportedly could push any decision back by three or four years. Apple itself says the effects here are more long-term than short-term, and if it does have to pay back the full amount, it won’t have that much trouble footing the bill. And again, the EU’s complaint is with Apple’s alleged “sweetheart deal” with Ireland, not foreign tax rates in general. Still, the ruling is unprecedented.
Wall Street research is dying.
All you need to do is ask some Wall Street researchers.
On Monday, Matt Turner highlighted work out of Bank of America Merrill Lynch that outlined the ways many of the traditional functions of Wall Street analysts can be automated.
The challenge, then, is how you create value — or in investment parlance, alpha — for your clients.
UBS' answer? Bring in psychologists.
According to a report in The Financial Times, UBS has brought in psychologists, as well as experts from fields like pricing and shipping, to complement the firm's research process.
Juan-Luis Perez, head of the firm's global research arm, told the FT that research analysts need to "ask better questions." Which is another way of telling employees clichéd ideas about what does or does not work in investing, or what is or is not happening in markets, is just not going to cut it anymore.
Last week, analysts at Bernstein caused a stir by arguing that the rise of passive investing is worse than Marxism.
And while this call got a lot of attention because, well, nothing gets Wall Street's God-fearing capitalists excited quite like references to Karl Marx, the point made by Bernstein is that markets are facing a dearth of properly incentivized participants.
Passive investing, the argument goes, simply encourages investors to plow money into an entity — The Market — that isn't motivated by anything at all but merely represents the output of certain motivated entities. The problem this creates is that by declining to make judgments on each of the market's entities and instead capturing the gross return provided by this agglomeration, passive investing creates a lump of unproductive nothingness.
Marxism, in Bernstein's view, at least serves the aims of a government that distributes the gains among citizens.
But the other side of this note is that by arguing for the merits of active investing, Bernstein is protecting its own trade.
Here's Bernstein (emphasis mine):
Ultimately this goes to the heart of the question, what is the social function of active management in equity markets, and indeed of sell-side equity research? In the wake of the financial crisis we think it is even more important than normal to demonstrate that there is indeed a social function. A field of endeavour that performs no social function is ultimately unsustainable if it has a cost that is imposed on the rest of society. Any such activity will, in the ultimate analysis, simply be regulated out of existence. However, there is a clear and distinct task that active management (and, by extension, sell side research) performs. This is in the allocation of capital either directly through the raising of capital in primary markets or else indirectly in the information discovery process. This is a laudable task and needs to be recognised.
As the UBS news makes clear, however, Wall Street is having a hard time convincing its clients that this is indeed the case.
America is running out of young people "willing to flip burgers" as the number of people in the workforce between 16 and 24 years old without a college degree steadily declines, according to a note from Bank of America Merrill Lynch.
"This cohort has been declining since the start of this recovery, probably reflecting the continued push towards higher education, as well as demographics which has reduced the number of younger workers willing to flip burgers for a few years while they save for college," the note said.
The number of young people enrolling in college has increased over the past few years, and the percentage of people with a college degree is also increasing. This keeps younger people out of the workforce for longer, reducing the supply of young, cheap, less educated labor.
The economists cite this as one of the reasons wages for people making the least are increasing quickly, since companies are competing for a smaller pool of workers.
America is facing a retirement crisis.
And there is one group that is going to have an even tougher time of it: women.
That's according to Sallie Krawcheck, a former Wall Street executive who founded Ellevest, an online investing adviser for women.
In the latest episode of "Hard Pass," a podcast I host with Josh Barro, Krawcheck said women would have a tougher time because "we live longer ... and when we retire we have less money."
A bunch of factors contribute to this situation. Part of it is that women take more career breaks than men, while another is that they tend to get paid less than men.
But there's more to the story than that, Krawcheck said. Women also just tend to outsource investing to their husbands. As such, Wall Street has always tailored itself to how men look at money.
"Women think of money not as a means to more money, but money as a means to accomplish goals," Krawcheck said.
More from Krawcheck on "Hard Pass" below:
Wall Street pros love talk about how regular investors are terrible market timers and thus should just buy and hold for the long haul. Small investors tend to panic sell at the lows and greedily buy at the highs. Hedge funds and active mutual funds are badly lagging their performance benchmarks as "alpha" — risk-adjusted outperformance — disappears and stocks across the market increasingly rise and fall together.
Europe sent Apple a $14 billion tax bill over a sweetheart deal in Ireland on Tuesday.
It doesn't think it will have an impact on the company. Not only does the company not expect the decision to affect its tax rate going forward, but it also doesn't expect "any near-term impact on" its financial results, according to a document posted on Apple's investor relations website.
The biggest change is that Apple expects to put an amount of money — likely the amount of the decision — into an escrow account labeled "restricted cash" as the years of appeals take place.
Of course, Apple has $231 billion in cash and short term securities on its balance sheet.
Apple is appealing and also posted a letter from CEO Tim Cook.
So far, Wall Street seems to agree with Apple's assessment. Apple's stock is down less than 1% in mid-day trading on Tuesday.
Here's Apple's complete investor FAQ:
Is the outcome of the European Commission’s decision final?
No. Both Apple and Ireland plan to appeal the decision and we are confident that it will be overturned by the courts of the European Union.
How does this decision impact Apple’s near-term financial results? Will you take a tax charge? Does this alter your previous guidance?
We do not expect any near-term impact on our financial results nor a restatement of previous results from this decision. We have previously accrued U.S. taxes related to the income in question. The tax rate guidance for Apple’s fourth fiscal quarter that we provided on July 26, 2016 does not change as a result of this decision.
What impact will this have on your tax rate going forward?
We do not currently expect this decision to have an impact on our tax rate going forward.
How will this decision impact your cash balance and when?
Our cash balance will not change as a result of this decision, but we anticipate we will place some amount of cash in an escrow account. At this point we do not know the size of the escrow amount, but we expect that it will be reported as restricted cash on Apple’s balance sheet.
How long is the appeals process likely to take?
While we desire a resolution as soon as possible, the process is likely to take several years.
SEE ALSO: Inside Apple's Irish subsidiaries
Here's something you hear right before workers start getting huge raises.
"We've never spent more money in the history of our firm than we are now on recruiting," said Keith Albritton, chief executive of Allen Investments, an 84-year-old wealth-management company in Lakeland, Fla.
In 2014, the firm hired an industrial psychologist who helped it identify the traits of its top-performing employees, and then developed a test for job candidates to determine how closely they fit the bill.
Hiring a third-party professional to determine the best process for screening candidates that most closely resemble existing successful employees is how we end up with charts like this, from Deutsche Bank's Torsten Sløk:
Because as an employer, you have a few options for acquiring or retaining talent.
You can pay for services aimed at getting the best people in the door, which Allen Investments seems to have done.
You can pay up to keep the best people in the door by giving raises to existing employees. As of July, average hourly earnings across the economy were up 2.6% against the prior year, the most since the financial crisis.
Median earnings are up a bit more than that.
But as The Journal's report makes clear, at a certain point you're simply left looking for workers that do not exist.
The hook of The Journal's report is that so-called "soft skills" — think of this as the ability to interact with other humans in a way that doesn't make them go, 'What's this guy's problem?' — are in short supply.
"I can teach somebody how to slice and dice onions. I can teach somebody how to cook a soup. But it’s hard to teach someone normal manners, or what you consider work ethic," restaurant owner Cindy Herold told The Journal.
The answer is that when you do find someone who fits the desired profile of an employee with work ethic and common sense is that you pay them more. Wages, in other words, are going up. Soon.
But all of this, I think, goes even beyond the current labor market dynamics we're seeing play out.
Go to any high school or university today and you're likely to hear about STEM — Science, Technology, Engineering, and Math — programs that promote students focusing on fields of study where, we're told, "real skills" can be acquired.
This is both true and not.
Think about Ms. Herold's comments that you can teach someone to slice onions and cook soup. This is a commoditized skill that follows its own logic, has its own rules, and can be picked up by someone prepared to learn and be attentive.
And a commoditized skill following its own logic that can be learned by an attentive student sounds a lot like coding.
Which is not to say the emphasis towards STEM fields is necessarily misguided in its aims, but more that it is flawed in what it implicitly de-emphasizes.
The social sciences most simply teach students how to think critically and articulate their view on something. Basically, social sciences are long exercises in reading and writing well. Being creative. Thinking independently. This is the academic proxy for developing "common sense."
And of course, the STEM fields are not completely bereft of creative thinking.
Cornell University math professor Steven Strogatz told Business Insider earlier this year:
Because they see it as so black and white, they think math is cold or math doesn’t leave room for creativity. But of course that’s false because pretty much everything that human beings do leave room for creativity. And math is no different. An example would be when someone is solving a math problem; there’s usually lots of different right ways to do it. And some will be more creative or more insightful than others. It’s not true when people say that math is just right or wrong. You can have many things that are right, but some are more elegant or more creative or more insightful or illuminating than others.
But it's when we're unable to see past the either/or nature of emphasizing certain areas of study over others, combined with a strong labor market, that we begin to see the cracks form.
Federal Reserve Chair Janet Yellen painted a rosy picture of the U.S. economy at an economic symposium on Friday and said the case for a rate hike was strengthening, but gave little indication on when the central bank could move. Fed Vice Chairman Stanley Fischer, in an interview with Bloomberg TV on Tuesday, said the U.S. job market is close to full strength and the pace of interest rate hikes will depend on how well the economy is doing.
By John Revill ZURICH (Reuters) - Switzerland's central bank now owns more publicly-traded shares in Facebook than Mark Zuckerberg, part of a mushrooming stock portfolio that is likely to grow yet further. The tech giant's founder and CEO has other ways to control his company: Zuckerberg holds most of his stake in a different class of stock. While most analysts think the strategy is sound, this does expose the SNB to stock market risks that the likes of the European Central Bank and U.S. Federal Reserve avoid.
Symbiont, a technology firm perfecting the use of smart contracts and distributed ledgers in financial markets, has appointed Caitlin Long as president and chairman of the Board of Directors. Long will be responsible for commercialising Symbiont's market-leading blockchain technology, encompassing business strategy and client relationships, according to a statement. Long brings 22 years of experience on Wall Street to Symbiont, including her most recent post as managing director in global capital markets at Morgan Stanley.
By Marc Jones LONDON (Reuters) - U.S. interest rate rise expectations pushed the dollar up for a seventh time in eight days on Tuesday, while Wall Street dealers braced for a bruising session for Apple after it was hit by a record $14.5 billion European tax bill. The dollar hovered at a 2 1/2-week high against other top currencies ahead of U.S. trading as the overarching theme of interest rate moves helped Europe's banking and industrial stocks push the FTSEurofirst 300 higher. Fischer spoke again on Tuesday and repeated that U.S. employment is strong and that a "one and done" rate hike cycle is not something central banks like the Fed tend to engage in.
REUTERS - The NSE Nifty closed up 1.6 percent on Tuesday after earlier hitting its highest in 16 months as positive earnings results including from DLF Ltd lifted sentiment. The Nifty hit its highest since April 15, 2015 before ending 1.59 percent higher at 8,744.35. It was the index's biggest daily percentage gain since July 11. The benchmark BSE Sensex closed up 1.58 percent at 28,343.01 after earlier hitting its highest since July 23, 2015. (Reporting by Arnab Paul in Bengaluru; Editing by Amrutha Gayathri)
Most Asian stock market indices were trading higher on Tuesday (30 August) with the Shanghai Composite up 0.24% at 3,077.29 as of 5.52am GMT, following a positive overnight close on Wall Street amid doubts that the US Federal Reserve would increase interest rates next month. While Janet Yellen, the chairperson at the US central bank, said last week that the case for increasing interest rates had "strengthened in recent months", she failed to give a timeline on when the increase could take place. This would be the last major data release before the Fed's September meeting, having a bearing on the central bank's decision on interest rates.