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5,300 Wells Fargo employees fired over 2 million phony accounts

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Everyone hates paying bank fees. But imagine paying fees on a ghost account you didn't even sign up for.

That's exactly what happened to Wells Fargo customers nationwide.

On Thursday, federal regulators said Wells Fargo (WFC) employees secretly created millions of unauthorized bank and credit card accounts -- without their customers knowing it -- since 2011.

The phony accounts earned the bank unwarranted fees and allowed Wells Fargo employees to boost their sales figures and make more money.

"Wells Fargo employees secretly opened unauthorized accounts to hit sales targets and receive bonuses," Richard Cordray, director of the Consumer Financial Protection Bureau, said in a statement.

Wells Fargo confirmed to CNNMoney that it had fired 5,300 employees over the last few years related to the shady behavior. Employees went so far as to create phony PIN numbers and fake email addresses to enroll customers in online banking services, the CFPB said.

The scope of the scandal is shocking. An analysis conducted by a consulting firm hired by Wells Fargo concluded that bank employees opened over 1.5 million deposit accounts that may not have been authorized.

The way it worked was that employees moved funds from customers' existing accounts into newly-created ones without their knowledge or consent, regulators say. The CFPB described this practice as "widespread." Customers were being charged for insufficient funds or overdraft fees -- because there wasn't enough money in their original accounts.

Additionally, Wells Fargo employees also submitted applications for 565,443 credit card accounts without their customers' knowledge or consent. Roughly 14,000 of those accounts incurred over $400,000 in fees, including annual fees, interest charges and overdraft-protection fees.

The CFPB said Wells Fargo will pay "full restitutions to all victims."

Wells Fargo is being slapped with the largest penalty since the CFPB was founded in 2011. The bank agreed to pay $185 million in fines, along with $5 million to refund customers.

"We regret and take responsibility for any instances where customers may have received a product that they did not request," Wells Fargo said in a statement.

Wells Fargo has the highest market valuation among any bank in America, worth just north of $250 billion. Berkshire Hathaway (BRKA), the investment firm run legendary investor Warren Buffett, is the company's biggest shareholder.

Of the total fines, $100 million will go toward the CFPB's Civil Penalty Fund, $35 million will go to the Office of the Comptroller of the Currency, and another $50 million will be paid to the City and County of Los Angeles.

"One wonders whether (the CFPB) penalty of $100 million is enough," said David Vladeck, a Georgetown University law professor and former director of the Federal Trade Commission's Bureau of Consumer Protection. "It sounds like a big number, but for a bank the size of Wells Fargo, it isn't really."

Wells Fargo confirmed to CNNMoney that the 5,300 firings took place over several years. The bank listed 265,000 employees as of the end of 2015.

"At Wells Fargo, when we make mistakes, we are open about it, we take responsibility, and we take action," the bank said in a memo to employees on Thursday.

wells-fargo

The CFPB declined to comment on when the investigation began and what sparked it, citing agency policy. "We don't comment on how we uncover these matters," a spokesman said.

As part of the settlement, Wells Fargo needs to make changes to its sales practices and internal oversight.

Customers are fuming. Brian Kennedy, a Maryland retiree, told CNNMoney he detected an unauthorized Wells Fargo account had been created in his name about a year ago. He asked Wells Fargo about it and the bank closed it, he said.

"I didn't sign up for any bloody checking account," Kennedy, who is 57 years old, told CNNMoney. "They lost me as a banking customer and I have warned family and friends."

"Consumers must be able to trust their banks," said Mike Feuer, the Los Angeles City Attorney who joined the settlement.

Feuer's office sued Wells Fargo in May 2015 over allegations of unauthorized accounts. After filing the suit, his office received more than 1,000 calls and emails from customers as well as current and former Wells Fargo employees about the allegations.

Wells Fargo declined to say when it hired a consulting firm to investigate the allegations. However, a person familiar with the matter told CNNMoney the bank launched the review after the L.A. lawsuit was filed.

Even though the Wells Fargo scandal took place nationally, the settlement with L.A. requires the bank to specifically alert all its California customers to review their accounts and shut down ones they don't recognize or want.

"How does a bank that is supposed to have robust internal controls permit the creation of over a half-million dummy accounts?" asked Vladeck. "If I were a Wells Fargo customer, and fortunately I am not, I'd think seriously about finding a new bank."

The market is doing something it’s never done before

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The S&P 500 just set a mild milestone.

Over the 40 days through Wednesday, the S&P 500's highest and lowest closes have been just 1.75 percent apart. It's the first time that has ever happened in the history of S&P data, which goes back to 1928, according to Paul Hickey, co-founder of Bespoke Investment Group.

"It's been one of the deadest summers ever, and that's what the numbers are showing," Hickey said Thursday on CNBC's "Trading Nation."

The summer didn't start out dull, what will the United Kingdom's shocking vote in June to leave the European Union. This led to a profound market dip, followed by a comeback that was just as profound, before a more recent period of intense quiescence began.

"Since early summer, we've seen three different extremes," Hickey noted.

While some have seen the market's quiet as a source of concern, history appears to show something different.

"A lack of volatility in the market is usually accompanied by positive returns," he said. "One of the periods that was closest to this narrow [in terms of the market range] was in the mid-1960s; the market did very well in the '60s, and that was a good period of calm."

Of course, since stocks tend to drop faster than they rise, this may not properly state the causation. It may simply be that positively trending markets tend to be quiet ones.

Either way, Hickey warns that "eventually that period of calm will end, and it will be followed by a short-term sell-off than a spike higher," simply because that is what has always happened in the past.

"But it is what it is, and it's nice to enjoy it while it lasts."

ES Morning Update September 9th 2016

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What a shocker to wake up this morning and see a bearish pattern actually play out! The futures are right into that lower falling trendline (in blue) and the rising trendline that intersects into it. Normally what happens here is that those trendlines hold and the futures rally back up near the open as the "buy the dippers" see it as another opportunity to get long for the ride to 2200 and beyond. At some point this will fail and the market won't bounce much but instead continue to drift lower all day, but we probably aren't there yet (if we are then I'll be surprised).

Ok for support we have the zone we are currently at where the two trendlines cross in the 2165 zone, then we have the prior low on 8/26 (left shoulder?) of 2157.50 and the most recent low on 9/1 of 2155 (head?), and below that the 8/2 low of 2141.50 (which I doubt we'll see hit today).

Pattern-wise we saw a bear flag form yesterday, which of course played out this morning. It also appeared to be some kind of B wave and this move down now is likely the C wave (It could turn into a 5 wave pattern which would make this a wave 3 down with a small wave 4 up today, then maybe wave 5 down on Monday?).

The new bullish pattern being formed right now is the inverted head and shoulders, which suggests the left shoulder is at the 2157.50 low, the head at 2155 and the right shoulder is currently happening with this mornings move down into the two trendlines of support. If the low is in at 2164.00 already this morning (not saying it is but just an example) with the high yesterday of 2189.25 then that makes the right shoulder 35.25 points long and projects a move up that amount from the high yesterday to around 2224.50 to complete the IH&S play.

Do I believe this will happen? No... and here's why! Most IH&S patterns that have the highes odds of playing out are near bottoms in the market, just like most H&S patterns that work are near tops. When you see an IH&S at a top or a H&S at a bottom the odds go down greatly that they will work. Why? Common sense really. The market is too extended in either direction in most cases for another push higher or lower when the patterns show up. Obviously an IH&S at a top does have better odds then an H&S at a bottom (only because of Fed manipulation trying to keep the market going up 100% of the time), but both patterns are weaker when compared to an IH&S at bottom and a H&S at a top.

My thoughts on it are simple. When we bottom today (or Monday) to make this IH&S pattern we'll likely rally up next week in another ABC pattern (remember, it's the monthly options expiration next week which is usually a bullish period), which should get the bulls all excited as they look for this pattern to break them over 2200... but I think it fails and catches them trapped long. The ABC move up then turns into some larger wave 2 up (or B up) and then the bulls get slammed as a wave 3 down (or C) starts the week after next week. This means I think the high is in at 2191 and that we don't see 2224.50 as suggested by the IH&S pattern currently (that's only if the 2164.00 low holds today).

San Antonio Mattress Store Unleashes Fury Over Its 9/11’Twin Tower Sale’

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SAN ANTONIO, TX -- Perhaps more than any other tragedy that has befallen the U.S., as it relates to 9/11 it will always be too soon -- too soon to make a joke, mock or exploit the tragedy for commercial gain.

San Antonio Mattress Store Unleashes Fury Over Its 9/11'Twin Tower Sale' [VIDEO]

Yet in Texas, one retailers didn't get the memo, shilling mattresses while depicting the fallen towers with pillows to advertise its 9/11 sale. The Sept. 11 date falls on a Sunday this year, prompting the retailer to tie its weekend sale to the remembrance.

The Miracle Mattress store in San Antonio, near the Leon Valley suburb, has unleashed a storm of protest over its commercial ahead of the sale. One Facebook user posted a video of the commercial, sharing it with television station KENS 5.

The commercial shows a pitch woman raving about the firm's planned "Twin Tower Sale," alerting customers they can buy any size mattress on the day of remembrance at a twin-mattress price.

As the commercial spot winds to an end, two men behind her -- seemingly excited that even a king-sized mattress can be purchased at a twin-mattress price -- tumble on an adjacent bed, knocking over two towers made of pillows in the process.

"We will never forget," the pitch woman says in mock solemnity.

Reaction to the commercial was swift. "This is beyond disgusting and disrespectful," one person posted on the Facebook thread. Another predicted the backlash might have the company back in the airwaves soon, for a going-out-of-business sale.

Company officials have since reportedly apologized.

This year marks the 15th anniversary on the Sept. 11, 2001 attack by terrorists. A series of four coordinated attacks by the Islamic extremist group al-Qaeda -- including the flying of passenger jets into the World Trade Center towers -- killed 2,996 people and injured 6,000 others.

Former CFO of real estate fund charged with fraud

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AP ASSEMBLY SPEAKER ARREST A USA NY

U.S. Attorney Preet Bharara said former executives of Real estate investment trust VEREIT were charged with accounting fraud.(Photo: Mary Altaffer, AP)

The former chief financial officer of VEREIT has been charged with falsely inflating the financial results of the real estate investment trust by about $13 million to meet its guidance in 2014, Manhattan US Attorney Preet Brahrara said Thursday.

Brian Block, 44, was charged with securities fraud, conspiracy to commit securities fraud and making false filings and certifications with the Securities and Exchange Commission.

Also charged was Lisa McAlister, 52, the company’s former chief accounting officer who pled guilty on June 29 and is cooperating with the government. Each executive faces securities fraud and false filing charges that carry a maximum prison term of 20 years, and conspiracy and false statement charges that each carry a maximum term of five years.

The fraud allegedly occurred in 2014, when VEREIT was called American Realty Capital Partners.

Before filing the company’s first-quarter earnings, Block and McAlister learned from another employee that they had used a method that erroneously inflated the firm’s income before non-cash depreciation and amortization and excluding certain one-time charges, according to an indictment unsealed in federal court.

After the first-quarter filing, the employee told Block and McAlister that the income was overstated by about 3 cents a share. But Block did not advise the company’s audit committee of the error, which put the company on track to meet its full-year guidance. The executives then used the same “misleading calculations” to calculate the second quarter measure of income, the U.S. Attorney’s office said.

In  total, their actions overstated American Realty Capital’s income by $13 for the first six months of 2014, the indictment said.

“All market investors are entitled to be told the truth from publicly traded companies when those investors are making decisions about where to invest their funds,” Bharara said in a statement.


 

Corruption is just normal business in this world I guess...

Why do I get the feeling nothing will really be done here?

Red

ES Morning Update September 8th 2016

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Looks like afterhours we did make a slightly higher high then Tuesday but still until the 2191 all time from the 23rd of August.  Again, not that I'm good at counting waves as we all know how extremely hard that is to do in such a heavily manipulated market.  But the overnight move up looks like some kind of 5th wave too me.  If so, the rally up from the 2155 low should have ended and now we are starting some ABC move down.  The question of course is... "to what degree" of a down move?  Is it just some 50% pullback from the rally to say the 2170 area or a bigger drop with thoughts of retesting the 2140 area low from August 2nd?  I can't answer that but instead just say that the rally up looks complete and a pullback should start today and carry into Friday at minimum.

Support on the way down are the three falling trendlines pointing to 2180, 2173, and 2165... then you have the double bottom tests of 2155 and 2157, but that's probably asking for a miracle at this point.  More then likely we rally back up some later in the day after the typical morning drop.  But at some point that is going to fail and we'll see an all down day that fools the bulls as they buy every dip, and it feels like we are getting close to that time but predicting the day it's going to happen is very hard.  I would say that today and Friday have better odds then early this week but again, it's not easy to forecast.

Also this morning the ECB had a meeting and the headline was "ECB surprises by failing to extend QE; holds interest rates unchanged", which the market shouldn't like as we all know how addicted it is to the free money from both the Fed and the ECB.  That's another reason to expect the overnight highs to not be taken out today (or anytime soon) and the pullback to happen this time around.  Without that free money manipulating the charts of the market they might start working again.

Anyway, to keep it simple for today I think we are starting an ABC move down and this opening gap down is the A wave.  It should end at one of the 3 falling trendlines, then rally for the B wave up.  That could happen into the close today or maybe not until Friday.  But with that ECB news of "NO More Crack" for the market the odds are much better now that the current high is in for awhile and we'll start expanding the trading range over the next few weeks with some deeper moves down and less powerful moves back up.

Bayer offers $65bn to win control of Monsanto

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Bayer logo

Germany's Bayer has raised its offer for Monsanto to $65bn (£49bn), or $127.50 a share, in a bid to create a global seeds and pesticides giant.

Bayer said it was in advanced talks with Monsanto, but warned there was no guarantee a deal would result.

Its initial offer of $122 a share in May was rejected by the US firm for being "financially inadequate".

The record all-cash offer valued Monsanto at $62bn (£43bn at the time).

Bayer raised its offer to $125 a share in July but was again rebuffed.

Combining Bayer and Monsanto would create the world's biggest agricultural supplier and be a market leader in the US, Europe and Asia.

Bayer's farm business produces seeds as well as chemicals to combat weeds and insects, but it is better known for its healthcare products such as Aspirin and Alka-Seltzer.

Monsanto is primarily known for its genetically modified seeds for crops including corn, soybeans, cotton, wheat and sugar cane. Such seeds have attracted criticism from some environmental activists.

Peppers grow in a greenhouse operated by Monsanto's seeds division in Bergschenhoek, the Netherlands
Peppers grow in a greenhouse operated by Monsanto's seeds division in Bergschenhoek, the Netherlands

The higher offer comes amid a wave of mergers in the agriculture sector.

Rivals including Dow Chemical, DuPont and Syngenta have all announced tie-ups recently, although some have yet to be cleared by regulators.

The drop in commodity prices has put pressure on companies such as Monsanto, with farmers' cutting orders for supplies.

However, a Bayer takeover of Monsanto could raise US competition concerns because of the sheer size of the combined company and the control it would have over the global seeds and sprays markets.

Farming groups have raised concerns that such mergers could lead to fewer choices and higher prices.

Insiders said that although the two companies were close to reaching an agreement on price, they had yet to agree on a strategy on how to deal with potential regulatory hurdles.

Corn harvester

Shares in Bayer have fallen by close to a fifth this year and ended at €94.24 on Monday, valuing the company at €78bn.

Monsanto has risen 9% since the start of the year and closed on Friday at $107.44, making it worth just over $47bn. Wall Street was closed on Monday for the Labor Day holiday.


 

Isn't it nice to see a drug company like Bayer, (who everyone has surely taken an aspirin from time to time) buyout a company known for poisoning the public with GMO's and pesticides?  Just think... the next time you take an aspirin it might contain poisons in it (or does it already?)

Red

ES Morning Update September 7th 2016

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Looking at the charts this morning I can now see a better picture.  We have what could be labeled an ABC pattern up from the 2155 low.  It's rough looking but when you add in the negative divergence on the MACD's making lower highs you a wave count that looks either topped yesterday or will make one more small rally back up today to finish it.  As you can see the futures have pierced through the rising trendline of support and currently has found support at the top one of three falling trendlines.

Ideally we go back up later today and close green in the 2184-2187 area as that makes a lower high then the 2191 all time high and gets the bulls thinking we are going to bust through 2200 this time area.  While everyone seems to think that is going to happen I have to take the other side and think it's still just a big tease and that the high is in for now.  Next week is the monthly option expiration period and it's usually bullish.

If they do a nice pullback to 2140 or so I'd think there's still a chance at 2200 or more, but there's just no one buying up here and the bears seem to be sleeping now, so that means there's very few left to squeeze... which is more reasons to think that 2200 will not be hit on this push up today.  The charts are looking too weak now and the volume is still extremely low.  If they could just get bunch of bears short they'd have some fuel to squeeze and possibly take out 2200, but right now I just don't see it.  Bullishness is too extremes and Bearishness is buried in the snow with the sleeping polar bear.

This whole sideways chop just under 2200 for the last couple of months still looks like distribution to me.  I think the insiders have be unloading up here as they don't want to be on the wrong side of the election outcome.  But as we get closer to it I think we'll see the trading range expand, and volatility increase... which usually means some downside moves.  Of course after they get the bears all short the upside squeezes can be just as powerful and again get close to that 2200 level, but we are now in one of the most bearish months of the year and that tells me we'll have some downside moves soon.  Will they stick or just be squeezed back up?  I don't know?  With "them" wanting Hillary as their next puppet they will do everything they can to hold this pig up until the last possible minute which could mean that we only see some normal pullbacks in September and bigger moves in October just before the November election.  It's kinda the opposite of 2015 where Aug/Sept was ugly but October ripped the bears face off.  We could see October as the wilder swinging month this time around and September kind of choppy (but again, a wider swing range then now).

When I look at the SPX Cash index it could expand to as low as 2120 or so and still be in a nice bullish uptrend channel.  That would be health for the bulls and even allow for a rise to 2300 or so.  But again, we are the weaker months of the year right now and possibly the reason they haven't let the market pullback to get health again is because it's so weak they fear it will just keep on going down lower breaking support after support. So they just hold it up here using all their fingers and toes to plug all the holes in the damn about to burst.

Anyway, all that guessing aside, for today I think we'll see early weakness but a rally later in the day and into to close seems possible as the MACD's again are looking like they want to turn up on this 60 minute chart.  It's only that the 2 hour, 4 hour and 6 hour charts are still putting some downward pressure on the market, which suggest a midday to afternoon turn back up.  Just looking at the setup right now though I think that if turn up into the close and don't take out the 2191 all time there's a good short into Thurs/Fri around the end of the day.  We'll see I guess.

Negative interest rates coming to the Fed?

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Negative interest rates are spreading like a virus. Central banks in the Eurozone, Switzerland, Sweden, and Japan all have below-zero policy rates. “NIRP,” as economists call a negative interest rate policy, is a desperation move—but the only move those central banks have.

The Federal Reserve hasn’t followed—yet. When the next recession strikes, I believe Janet Yellen will choose to break the zero lower bound. The rationale was laid out in Jackson Hole. Look behind the headlines and you’ll see the Fed already preparing for NIRP.

In theory, negative rates should encourage consumers and businesses to spend more freely and stimulate growth. It hasn’t worked out that way. NIRP just punishes savers and makes everyone miserable.

The Fed Moves Slowly

Major Fed policy changes unfold very slowly. Remember “The Taper” plan to end quantitative easing? Ben Bernanke first floated the idea in May 2013. It took until October 2014—a full 18 months—to finally end the bond-purchasing program. And then it was another 14 months before the Fed hiked rates with a baby step in December 2015.

The Fed shouldn’t let markets dictate its decisions, but we all know it does. They start hinting months, even years ahead of time in hopes markets will adjust slowly. Sometimes it works.

With NIRP, there’s another complication: The Fed hasn’t done this before. It needs to get ready.

Learning the NIRP Ropes in Jackson Hole

What better way to learn the NIRP ropes than from fellow central bankers who have actually done it? The Fed’s recent Jackson Hole retreat was an opportunity. And sure enough, they had a session on Negative Nominal Interest Rates.

The lead presenter, Marvin Goodfriend of Carnegie Mellon University, is an unabashed NIRP proponent. His paper “makes the case for unencumbering interest rate policy so that negative nominal interest rates can be made freely available and fully effective as a realistic policy option in a future crisis.”

Janet Yellen didn’t bring in Goodfriend for entertainment. She wanted to learn how to implement NIRP. Yellen’s own Jackson Hole speech had a footnote describing a monetary policy rule (to replace the Taylor Rule) that would have sent rates down to -9% in late 2008. It is clearly on her mind.

I believe the Fed wants to have NIRP as a policy option when the next recession begins. Having NIRP in the toolbox does not mean they will actually use it, but it does mean they haven’t ruled it out. The previously unthinkable is now fully thinkable.

Fed Staff Finds Legal Authority

Something else also suggests the Fed is considering NIRP. In congressional testimony last February, Janet Yellen said she had “not fully investigated” the legal issues of a negative rate strategy.

Asked again about NIRP in June, Yellen stated flatly the Fed does have legal authority to use negative rates. She denied plans to do it, but said there was no legal barrier.

So what happened between February and June?

It sure looks like the Fed’s counsel developed some kind of legal justification for NIRP. That doesn’t mean they will do it, of course. It does though strongly suggest Yellen wants to have a NIRP contingency plan ready to pull out if necessary.

Yellen Is Ready for NIRP

I don’t think Yellen will take us down to -9% like the model in her footnote describes. I do think she is mentally prepared to go below zero if she sees no better alternatives that fit within her economic philosophy. I feel very confident she and her colleagues won’t take rates much higher from here. I think we will see 0% again and then lower before we see +2%.

Look, a recession is coming. This recovery, feeble as it has been, is already long in the tooth. I think we have the real potential to enter at least a mild recession no later than the end of 2017 triggered by events in Europe. What will the Fed do then?

They are making those plans right now. If you think 2008–2009 was a wild ride, then fasten your seatbelt. The next crisis will be even wilder.


Last week, Fed vice-chair Stanley Fischer brought the Orwellian “Negative Interest Rate Policy” a step closer to American reality with his endorsement of the unconventional and economy-destabilizing tactic inherent in his comment that “it seems to be working.”

While that comment in and of itself seems innoccuous enough, could it be that the Fed is actually getting ready to repress Americans financially by foisting the policy onto them?

Arizona-based economist John Mauldin seems to think so. In a recent contribution to Yahoo Finance, he opined, “I believe the Fed wants to have NIRP as a policy option when the next recession begins. Having NIRP in the toolbox does not mean they will actually use it, but it does mean they haven’t ruled it out. The previously unthinkable is now fully thinkable.”

Mauldin isn’t the only market commentator who thinks the Fed is starting to think the unthinkable.

Federal Reserve chair Janet Yellen.

Perennial Fed critic Peter Schiff of Euro Pacific Capital also thinks the Fed is running out of options, and that Zero Interest Rate Policy will soon morph into Negative Interest Rate Policy.
Related

“The Fed is going to go negative because they want to do something stimulative to try and boost the economy so the Republicans — or someone like Donald Trump — don’t just walk away with the election,” Schiff told Business Insider in January this year.
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While Fischer himself suggested that the Fed was not needing to look at negative rates for the United States because it wasn’t required, economic numbers going into the September meeting, including jobs data and the Institute for Supply Management’s manufacturing index.

Bloomberg reported that “Signs of softness have caused markets and economists to walk back their expectations of an imminent rate increase time and again — and market-implied probabilities of a rate hike are basically in line with where they were last September.”

Election on the horizon

With the November federal election a mere two months away, will the Fed risk a volatile reaction in markets ahead of that date? It is extremely unlikely, given that the entire political establishment is on tenterhooks over the possibility that Trump could walk away with the election. The last thing Fed chairman Janet Yellen will want to be seen doing is providing ammo to Trump as the rhetoric heats up closing in on election day.

So that leaves December as the next date toward which “will they or won’t they” speculation can be directed. Should Trump prevail, the ensuing economic turmoil would certainly cause a negativization of interest rates in the U.S., as central bankers are forced to deploy the only new weapon in their arsenal since stimulus.

But what are the chances of a Trump win? While polls suggest it is a near impossibility, the Brexit outcome should serve as a warning against being too smug in one’s certainty of the result.

James West is an investor and the author of the Midas Letter, an investing research report focused on Canadian markets. The views expressed here are his own and are presented for general informational purposes only — they should not be construed as advice to invest in any securities mentioned.


Related:

Negative rates will stay for another five years, JPMorgan warns

Equity valuations between Japanese and European banks will converge with quantitative easing (QE) programs and negative interest rate policies set to continue for the long term, according to a team at JPMorgan.

"QE reduces lending rates to negative and we are going to expect negative lending rates until 2021," Kian Abouhossein, head of European banks equity research at JPMorgan told CNBC Tuesday.

"So as long as that is the case, margins will not improve. Sixty percent of revenues is net interest income and as long as that's the case earnings will not improve. So return on equity is very low."

European banks are more akin to their Japanese counterparts and less like Wall Street, warns JPMorgan, who has detailed how a negative interest rate policy has led to ongoing pressure on revenues and profit margins. Europe has seen a balance sheet recession since the economic crisis of 2008, it said, highlighting that a 10.9 percent increase in reserves at these banks has failed to increase lending to the wider economy.

"QE has worked initially and helped to stabilize asset prices, and to lower funding cost for banks …. However, the secondary long-term effects of QE are manifesting themselves in the form of pressure on revenues for European Banks with customer margins in euro area declining from 2.5 percent in 2011 to 1.8 percent in 2015," the report said.

The European Central Bank (ECB), the Danish National Bank (DNB), the Swedish Riksbank, and the Swiss National Bank (SNB) have all pushed key short-term policy rates into negative territory. A negative interest rate policy, or NIRP, essentially charges banks to hold cash at a central bank in the hope that they will instead lend to the real economy. Many expect banks to pass on this disincentive to save to its customers by trimming rates or by ramping up borrowing costs. The policy is increasingly being seen as a viable option for central bankers after Japan's move below zero earlier this year.

While this stimulates growth in some cases, negative rates put pressure on other sectors of the economy. A number of leading analysts have called for a balance of monetary and fiscal measures in order to slowly get the economy out of "QE infinity" – a paradox whereby low rates and seemingly endless rounds of bond-buying programs encourage cheap borrowing.

Alberto Gallo, head of macro strategies and manager of the Algebris Macro Credit Fund, told CNBC last week that for the global economy to exit this QE infinity trap, government action and reforms to improve productivity are needed.

"Many governments are reluctant to accept the need for these measures, often instead implementing policies that win votes but compound the distortions of easy monetary policy e.g. housing affordability programmes, mortgage subsidies," he said.

Without an adequate fiscal response from governments, growing imbalances make it harder to withdraw stimulus, warned Gallo.

However, profit margins are not the only problems that banks in Europe are facing currently.

"There are two factors," Abouhossein told CNBC. "Operationally it is cost cutting and second is finding a price for non-performing loans. Non-performing loans need to come off the balance sheet. We have 700 billion euros($781 billion) of non-performing loans, half of that in southern Europe, 30 percent in Italy so we need to clean up."

Italian policymakers and European Union (EU) officials have been pondering how to improve Italy's fragile banking system in recent months, which has been bogged down by non-performing loans estimated to total around 360 billion euros ($401 billion).

ES Morning Update September 6th 2016

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Well, it's been a long weekend as traders took off for labor day.  They will be coming back today to see the market pretty much "unchanged" from Fridays close.  Not much is expected today either as they let their hangovers wear off and drink their morning coffee trying to get back in touch with the market.  All this considered the market won't likely drop much (if any?) today as the light volume keeps it floating, but it doesn't necessarily mean they'll be some big rally either.

I don't see any clear direction early on this morning as the charts look mixed.  I think today we'll have to just watch and let the market hit some support below or resistance above, and let the charts realign together to either a bullish or bearish setup as I don't see any right now.  I've redrew some of the trendlines and added/subtracted some too.  Looks like another triangle pattern to me this morning with a peak around 2182.50 or so and an early low around 2177.50 where the rising trendline comes it at.  We might just be range-bound today as traders wake up and get back to work.  So for now I'll just end this morning update "as is" and post an new update in the chatroom later today if I see something show up that is interesting.  Right now I'd just expect slow moving day of nothing.

ES Morning Update September 2nd 2016

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Well, a little up but it's really kinda a muted reaction from the NFP report.  I'm not sure what to make of it?  It doesn't look really bullish nor does it look extremely bearish (for today I mean).  It feels like they haven't made up their mind on whether they are going to bust up through falling resistance to make a run for the recent all time high of 2191 or even the 2200 magnet level, or if they are "close enough" (to 2200 I mean) and are planing to continue down this drift lower, but won't start until next week.

All in all it's a tough call today, especially if we stay in the triangle.  If we rally up through it and get close to 2191 today I'd be bearish for next Tuesdays' open (closed on Monday for Labor Day).  As I write this post the futures are pushing up through the first falling trendline (in blue) that makes the triangle, so maybe they get through the next falling trendline too (in green), and get a lot closer to 2191?  That would certainly get the bulls excited on a bust through to 2200 early next week.  And with the Fed behind them I wouldn't say for sure that it couldn't happen, I'd only say I'd be bearish into next week.

Usually after a 3 day holiday weekend the first day back has extremely light volume and opens about flat from the Friday close, then drifts around all day doing not much of nothing.  That means it could tag 2200 I guess if it closed today really close to 2191 or so.  I just wouldn't bet on some powerful squeeze through that level now because the NFP report was the last big news event this week that should have produced 20 points up or down fast but looks more like a dud to me.

What's left next week to get it excited enough to pierce through 2200... nothing that I know of?  Just the 3 day weekend light volume afterhours and premarket manipulation by the Fed's is all I can think of... meaning (or implying) that if they want 2200 that bad they had better gap it open to that level next Tuesday.  Anyway, I leave it like that as today looks like the bulls have control (again... but with their 2nd string players) and are making another run up that should fall short again as there's just too much resistance during the normal market hours to push through I believe.  Therefore it's looking like a green close is likely but no breakout past 2191 as that's still up in the air at the moment but if it happens it's much more likely to do it next week.

ES Morning Update September 1st 2016

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I've deleted some trendlines so we could see the triangle clearer.  Basically we are still inside this triangle with the new purple falling trendline as the primary resistance that the futures seem to keep hitting on the upside and then rolling over.  The green falling trendline above that was created connecting the exact highs on the 23rd and 26th, but the market doesn't seem to see it or think it's important right now.  So when and if it's hit the resistance it "should" provide will probably be weaker then it I'd normally think.  There's still no clear direction inside this triangle as the market just waits for the jobs data Friday morning.

On the short term the SPX 60 minute chart has completely erased the overbought conditions and looks oversold to neutral.  The Daily chart is pointing down nicely on the MACD from high around +20 to in the +5 to +8 range right now.  It could turn back anytime or continue lower.  Most of the times in the past it would get much closer to the zero level before turning back up, which leads me to think we might have a "one day" wonder move up on the market from the Friday reaction to the NFP report but it shouldn't hold more then a few days.  For a decent multiday rally to start I do think that daily chart will need to at least touch the zero level if not go negative on it's MACD's, which means the price level of the SPX cash should at minimum retest the August 2nd low, if not lower.

What does all that imply you ask?  It suggests that "if" Friday's data doesn't produce a move down to that 08/02 low (around 2140 on the ES Futures) and instead produces a bear squeeze that either falls short of the 2191 all time, pierces it, tags 2200 or even runs up another 10 or 20 points, that 08/02 low would then only be a brief bounce spot on the next trip down as the likelihood of it breaking after tagging 2200+ first would be greatly increased.  At that point I'd expect much lower prices.  But if the bulls allow that 2140 area to be hit first they could get another strong rally going in September that could (should) easily take out 2200 I believe.  At that point I might even think it's possible to hit 2300 or so.

It's all about "from where" do they start that rally?  If the start it from a level like where we are going to be today at the open then odds favor the bears as the rally should exhuast itself if it some how hits and/or pierces 2200 into early next week. But if the bulls take it down on Friday to that lower level of 2140 or so, then I think they will have much strong odds of a longer lasting rally... which we all know that's what they want as they don't want the market to collapse before they can get their puppet Krooked Killary elected.  It's such a joke that we voters don't have any choices for president.  But that's the whole purpose of the two party system in the first place... to control both sides so that the elite win regardless of which party gets in.  Enough about that...

My thoughts for today are that we'll once again stay range-bound between the lower rising trendline in this triangle and the current falling trendline that the futures tagged overnight.  The bigger move will very likely happen Friday morning with the NFP reports numbers at 8:30 am EST before the cash market opens

Since I still think this market is following a pattern similar to the Aug/Sept 2014 period I'm expecting a strong move up to tag 2200 at some point, but I don't know when.  Then I think we drop for several weeks.  I'm just guessing that "they" will use this NFP report as the spark to produce this last squeeze up like they did back on September 16th-19th, of 2014.  This is just a gut call, nothing more.  Again, there's no clear direction right now.

Justice Department Challenges Deere’s Planned Deal With Monsanto

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Purchase of planting equipment line would harm competition, lawsuit says...

The Justice Department filed a lawsuit in an Illinois federal court, asking a judge to block Deere’s planned deal with Monsanto.

The Justice Department on Wednesday filed a lawsuit challenging Deere & Co.’s planned acquisition of a line of high-tech farming equipment from Monsanto Co. , saying the deal would suppress competition for technology that allows farmers to plant crops at higher speeds.

At issue is a deal from last November in which Deere said it agreed to pay an undisclosed sum to buy Monsanto’s Precision Planting equipment business.

The Justice Department said Monsanto’s equipment line had been a leading innovator in high-speed planting technology, with Deere as its only significant competitor.

“If this deal were allowed to proceed, Deere would dominate the market for high-speed precision planting systems and be able to raise prices and slow innovation at the expense of American farmers who rely on these systems,” said Renata Hesse, the acting head of the Justice Department’s antitrust division.

The department filed the lawsuit in an Illinois federal court, asking a judge to block the deal.

Deere and Monsanto said they would vigorously fight the lawsuit, calling the Justice Department’s concerns misguided and saying that the companies had cooperated fully with the U.S. antitrust review.

“The proposed acquisition benefits farmers by accelerating the development and delivery of new precision equipment solutions that help farmers increase yield and productivity,” officials for the companies said in a joint statement. They said competition among high-tech planter developers is “strong and growing” and that their deal would benefit farmers by speeding the development of new planting equipment, some of which could be used to retrofit older machinery and save farmers money.

Deere said upon finalizing the deal, it would “preserve Precision Planting’s independence to ensure innovation and speed-to-market.”

The case is the latest from Obama administration antitrust enforcers who have been particularly active in the twilight of their tenure.
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The Justice Department is currently litigating challenges to two major health insurance mergers: Anthem Inc. ’s acquisition of Cigna Corp. ; and Aetna Inc. ’s deal to combine with Humana Inc. Earlier this year it blocked Halliburton Co. ’s acquisition of oil-field-services rival Baker Hughes.

The department also is continuing to review the proposed merger of Dow Chemical Co. and DuPont Co.

Agricultural giants such as Monsanto, Deere, DuPont and Cargill are jockeying with venture capital-powered startups to capture a growing stream of data flowing off U.S. farms, enabled by cutting-edge combines and planters that collect detailed information on seeding rates and crop yields. Data-powered products and services are one way for agricultural companies to offset slumping sales in their core business lines.

Some farmers are looking to sensors and big-data services as a way to trim costs as a multiyear slide in commodity prices has U.S. farm incomes on track this year to hit their lowest point since 2009, according to the U.S. Department of Agriculture.

The Justice Department lawsuit could deal a blow to Deere’s ambitions to expand its suite of high-tech farm offerings as farmers are sharply scrutinizing their spending on everything from machinery to seeds and insecticides. Deere last year signed a string of small deals, purchasing a French planter company and forming a joint venture centered on farm-management software. Both are aimed at helping farmers maximize efficiency as crop prices continue to grind along at low levels.

Monsanto acquired Precision Planting for $210 million in 2012 as part of a broader push into data-powered farming services, hastened a year later when the seed giant paid $930 million for the weather modeling startup Climate Corp. Since then Monsanto has expanded Climate’s range of algorithm-powered advisory services and struck data-sharing agreements with software developers and farmer cooperatives.

Both Deere and Monsanto are building virtual networks that collect and sift data on farmers’ crop yields, equipment use and farm management, to formulate advice on how to grow bigger crops at lower cost. Alongside Monsanto’s planned sale of Precision Planting to Deere, the companies struck a connectivity agreement that would make it easier for farmers to link their Deere machinery with Monsanto’s Climate unit.

 


 

It's sad to see companies like John Deere even talking to evil corporations like Monsanto, who we all know are poisoning the skies with chem-trails and selling GMO seeds.

Very sad...

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ES Morning Update August 31st 2016

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The futures seem to be in a triangle now and at the (new) rising trendline that makes the bottom part of the triangle.  Normally I'd say it will breakdown as the MACD's on this 60 minute chart and larger time frames are all acting like they want to rollover in what could be a nasty C wave down.  But we have to factor in the Friday numbers that the market is waiting on, which will likely continue to keep this market range-bound.

So if the rising trendline clearly breaks I'd look for a retest of the 2168 level as first support and then the 2157 low that formed the head on this inverted head and shoulders pattern that I see in this chart.  Overall I do think "they" are hold it up for a long as possible.  It's very rare to trade in such a tight range for so many days without a breakout or breakdown.  In fact I watched a video yesterday that said the last time the market traded for at least 30 days in a 1 1/2% trading range was in 1965... so yeah, there's something going on behind the scenes.

There were many times the market should have rolled over and dropped hard but was saved.  There was even a few times that it should have bust out to hit 2200 and beyond, but I'm sure that was stopped by heavy selling by the insiders that I believe have been quietly dumping for the last two months now.  So you have the PPT saving the market on the downside when the charts have aligned bearish and big institutions selling on the upside when the charts align bullish... and we have extremely light volume day in and day out in the market.

Looks to me like SkyNet is the only one playing each day as clearly the retail public isn't buying, nor does it seem that the big funds or institution are?  So we wait and wait and wait for the government to decide on what the next direction in the market is.  Will they pull another rabbit out of a hat and get some crazy rally up to that old FP of 230 on the SPY (about 2300 on the futures and SPX) or will they roll it over after this Friday?  I guess we all need to go listen to what Jim Cramer has to say and just do the opposite.

Anyway, for today there's still that resistance overhead from a falling trendline (in green) that's pointing to around 2180 today (if the market rallies, but it's not looking good so far) and support again at 2168 and then 2157.  Pattern-wise it looks like an Inverted Head and Shoulders pattern but wave count wise it looks like we might be in some C wave down that takes out the 2157 low and goes for the 2140 area.  It's a bullish pattern and bearish wave count, so not much help there.

I'd just look to short any rally up to the falling green trendline and doesn't take out the 2182.50 "possible" high of the B wave up, as if we are in a C wave down it should have 5 smaller waves inside it which the wave 1 of that C down was at yesterday's low and we should now be in the wave 2 up of that C down.  If it stops shy of the B high at the close today then we could see the wave 3 down inside the C down tomorrow, and that will be one nasty wave!  Of course if this wave count is wrong then the IH&S pattern might play out and we rally up to 2200 or more.  But keep in mind that this IH&S pattern was formed at a topping zone and not a bottoming area.  The odds on it playing out are much less because we are already so overbought.  Doesn't mean it won't work but odds are much, much better when the market has bottomed and forms the pattern.  Anyway, I'm just watching patiently for what the close will bring us today as we could have a very nice drop tomorrow if we can get a small rally up today that doesn't take out 2182.50 (which again I think is the B wave high with the A wave low at 2158).

Nearly 10,000 Chipotle workers join class action wage theft lawsuit

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There’s a new outbreak at Chipotle: Furious workers.

Nearly 10,000 current and former Chipotle employees have joined a class-action wage theft lawsuit against the Mexican fast food franchise, court records show.

The suit started two years ago with a former manager in Colorado, but as of last week it has wrapped in 9,961 workers. That’s the equivalent of nearly one-fourth of the franchise’s current workforce.

The initial complaint, filed in September 2014, accused the company of forcing workers into unpaid overtime after they clocked out for their shifts.

Chipotle exec surrenders to authorities following coke bust

Workers also said they had to “attend mandatory after-shift meetings” and complete closing cleanups off the clock.

“To reduce this expense and maximize profit, Chipotle maintains a company-wide policy of not paying hourly-paid restaurant employees for all time worked, and encouraging its general managers to require that work be performed off the clock,” the suit says.

“Chipotle implements its policy with a system of reward and punishment. Payroll budgets are set that realistically can be met only if hourly restaurant employees work off the clock.”

The restaurants use a system that clocks out employees automatically at 12:30 a.m., even if they are staying longer. Managers then fail to document the hours — or are pressured not to, the complaint says.

Fired Chipotle worker who complained on Twitter wins ruling

The suit demands a jury trial for full overtime compensation for all workers involved in the case.

The Denver-based company, which pulled in $4.5 billion in revenue last year, has previously denied cheating its workers. Reps did not immediately return messages from the Daily News.

The suit snowballed as Chipotle faced another crisis — an E. coli outbreak that spread to restaurants in 11 states between November 2015 and January 2016, sickening 55 people.

Chipotle faced a criminal investigation in California for the contamination's, and the U.S. Food and Drug Administration investigated the outbreak — but never determined the cause.

Chipotle temporarily closed dozens of its franchises during the fast food plague, and shuttered all of its 1,900-plus locations one day for safety. The company never said how much money it lost from the outbreak. As news of the outbreak spread, Chipotle’s stock dipped nearly 30%.

Google Is Winning the Fight for PayPal’s Business

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It could potentially beat out Amazon and Microsoft.

Alphabet’s Google GOOGL -0.49% is close to winning PayPal as a client for its cloud business, potentially beating out Amazon and Microsoft, CNBC reported on Tuesday.

While Google is the front-runner, the online payments processor is evaluating the other providers and hasn’t made any decision yet, CNBC reported, citing people familiar with the matter.

However, PayPal PYPL -0.78% may not move its technology infrastructure in the fourth quarter, the peak period for online commerce, CNBC said.

PayPal has some existing business with Amazon Web Services, according to the CNBC report.

Google has been trying to beef up its presence in cloud computing, a market dominated by Amazon and Microsoft.

Google landed Home Depot HD -0.33% as a client in March, highlighting the momentum its cloud business has gained under the leadership of Diane Greene, a co-founder of VMWare VMW -1.34% . Greene joined Google late last year.

Google also counts popular messaging app Snapchat and the world’s biggest paid music streaming service, Spotify, as clients.

Overall, Google was the No. 4 player in cloud infrastructure services last year with a 4% market share, according to Synergy Research.

Amazon’s AWS cornered 31% of the market, while Microsoft’s Azure had 9% and IBM IBM -0.20% 7%.

Google, PayPal, Amazon AMZN -0.48% and Microsoft MSFT -0.36% did not respond immediately to a request for comment.

Apple’s $14.5 Billion EU Bill May Pressure U.S. on Tax Overhaul

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The European Union’s finding that Apple Inc. owes Ireland more than $14 billion in back taxes reveals the high cost the U.S. Treasury may pay by failing to keep pace in a global effort to stem corporate tax avoidance -- and Apple might represent only the first major U.S. loss.

The EU commissioner for competition said Tuesday that Apple’s tax arrangement with Ireland constitutes anti-competitive “state aid” to the company. If Apple ultimately has to pay billions in taxes to Ireland, the iPhone maker may be able to reduce its U.S. taxes by using foreign-tax credits available under U.S. law. Apple executives and Irish officials have said they plan to challenge the EU’s order.

The EU is already conducting similar investigations of other major U.S. corporations, including McDonald’s Corp. and Amazon.com Inc. Additionally, legal experts say that if the precedent for such EU orders is upheld on appeal, regulators may give harsher scrutiny to the hundreds of tax ruling letters that Luxembourg issued to major U.S. companies, including the Walt Disney Co. and Koch Industries Inc. Some of those agreements gave companies a chance to slash billions from their tax liabilities at home and abroad.

No ‘Special Deals’

Amazon, through a spokesman, declined to comment. Representatives for McDonald’s, Disney and Koch didn’t immediately respond to requests for comment. Apple’s chief executive officer, Tim Cook, said in a statement: “We never asked for, nor did we receive, any special deals.”

At stake for the U.S. Treasury Department is some of the potential tax revenue on more than $2 trillion in profit that U.S. multinationals have parked overseas. While the EU isn’t directly targeting that cash hoard, the state-aid cases could significantly reduce the revenue that the U.S. government could collect from it. The U.S. tax code, which sets a top corporate income tax rate of 35 percent, allows companies to defer paying that tax on their foreign income until they decide to bring it home via “repatriation.” Over the past few years, the U.S. Congress and President Barack Obama’s administration have been unable to agree on a plan to induce companies to repatriate their earnings at a reduced tax rate. Obama has proposed 14 percent; House Republicans this year proposed 8.75 percent.

Revenue Transfer

The delay may be costly: Federal law also gives companies credits for the foreign taxes they’ve paid, which they can use to reduce their U.S. taxes -- subject to certain restrictions. The precise effect is unclear, but U.S. Treasury officials have voiced concern that if U.S. companies are forced to pay large new tax bills to European governments, they may be able to use such credits -- effectively transferring revenue from U.S. to European coffers.

The prospect that EU regulators might force U.S. multinationals to pay taxes to countries that helped them avoid taxes at home prompted displeasure from Obama’s White House and from members of Congress Tuesday. But if U.S. policy makers saw new urgency in the large tax bill that was handed to Apple, there was little immediate sign of compromise.

 “Instead of standing by and allowing other countries to deliver multibillion-dollar tax bills to American companies, Washington should act now to ensure this doesn’t happen again,” said U.S. Representative Kevin Brady, the chairman of the tax-writing House Ways and Means Committee. Brady, a Texas Republican, called the EU’s decision “a predatory and naked tax grab” that took advantage of what he called a “broken” U.S. tax code.

‘Awful’ Decision

“That’s why House Republicans are moving forward with our tax reform blueprint built for growth that will allow more companies to operate in our country, hire our workers and help grow our economy,” Brady said. House Speaker Paul Ryan called the EU decision “awful” and said it “should be a spur to action.”

White House Press Secretary Josh Earnest, meanwhile, said Obama would “continue, over his next four months remaining in office, making his case” and pushing Congress to address the issue.

The EU’s decision was surprising for its blunt language and high assessment of Apple’s Irish tax liability, but it’s far from certain that Apple will ever pay the $14.5 billion bill. The company, along with the Irish government, has announced plans to appeal the ruling to the European Union’s general court. Legal experts say the EU’s use of antitrust statutes to regulate tax avoidance is a novel enough strategy that it could be struck down.

Dutch Appeal

Already, the Dutch government is appealing an earlier EU order that it collect 30 million euros in taxes from Starbucks Corp. Linda Mills, a spokeswoman for the coffee chain, said in an e-mail that the difference was that “today’s Apple decision is in the billions vs. ours which (pre appeal) scaled only in the millions.”

But with the potential for a continued EU crackdown, tax specialists expect pressure will escalate for the U.S. government to take action before overseas governments take major bites from companies’ offshore earnings.

“Since the U.S. has been very slow to enact reform and get revenue, the status quo has allowed the Europeans the opportunity to move in and get tax money for their governments,” said Kimberly Clausing, a professor at Reed College and an expert in international taxation. “I can’t imagine that this is going to be allowed to continue indefinitely.”

Singapore-Bound

For businesses, the ruling’s long-term impact was unclear. Because it’s subject to appeal, many accountants and corporate tax lawyers said it was too soon to tell whether it would encourage changes in U.S. multinationals’ tax strategies. For example, the effect on corporate inversions, in which U.S. companies move their tax addresses offshore by merging with foreign firms, remained undefined.

But Raymond Wiacek, an international tax lawyer at Jones Day in Washington, said the decision would prompt some multinationals -- particularly technology and pharmaceutical companies with valuable intellectual property -- to seek out new offshore tax havens.

“You don’t have to use Ireland as your base country -- people are moving to Singapore,” Wiacek said. That shift will accelerate unless Congress lowers the U.S. corporate tax rate from 35 percent, which is one of the world’s highest. Singapore taxes companies on profit derived both in Singapore and elsewhere at 17 percent.

Amazon’s Change

Amazon, which awaits the European commission’s finding on whether its own tax deal with Luxembourg constituted improper state aid, has stopped using its shell company there. That company had received royalty payments from Amazon’s subsidiaries in other European countries, effectively moving their profit to Luxembourg. Amazon officials have declined to say what motivated that change.

With the U.S. presidential election two months away, it’s likely that any U.S. effort to overhaul its international tax system will take place during the administration of Obama’s successor. Republican Donald Trump has proposed to tax companies’ offshore earnings at a reduced rate of 10 percent. Trump also proposes to cut the top corporate tax rate to 15 percent, while ending companies’ ability to defer U.S. taxes on overseas earnings. Democrat Hillary Clinton hasn’t offered a specific proposal on international taxation.

Neither campaign immediately responded to a request for comment on the issue Tuesday. Regardless, some observers believe the U.S. will move to enact a new repatriation tax rate no matter who wins the Nov. 8 election.

‘Inevitable’ Feature

“There’s a fair amount of general agreement that repatriation would be a feature of broader tax reform under a new president, which I would say is inevitable,” Jon Traub, the managing principal of tax policy at Deloitte Tax LLP, the tax arm of accounting firm Deloitte LLP told Bloomberg News last week.
As one of the most popular and recognizable brands in the U.S., Apple has thus far avoided congressional action that would alter its tax planning -- despite a U.S. Senate panel’s investigation that focused on accounting strategies the company had used to avoid what officials called billions of dollars a year in federal taxes.

The Senate Permanent Subcommittee on Investigations held hearings in which then-chairman Carl Levin, a Michigan Democrat, chastised Apple for “seeking the Holy Grail of Tax Avoidance.” They ended with committee members telling Apple CEO Tim Cook how much they loved their iPhones. The hearings led to no substantial legislative changes to the tax code. According to EU officials Tuesday, the effective tax rate for Apple’s main Irish subsidiary has dropped since the Senate hearings: from 0.5 percent in 2011 to .005 percent in 2014.

‘Completely Made Up’

Apple CFO Luca Maestri disputed those figures Tuesday, saying that the commission’s depiction of Apple’s effective tax rate was “completely made up.” Maestri said the EU had calculated incorrectly by neglecting to include all of the $400 million in taxes the company paid in Ireland in 2014 and by improperly attributing offshore profit to Apple’s Irish subsidiaries.

In Europe, the Apple case is likely to bring heightened pressure to continue the crackdown. While the state-aid cases might slow cooperative international efforts to reach agreement on comprehensive tax policies, they have nonetheless appealed to the populist sentiment in Europe -- and may spur U.S. companies and policy makers to take action.“The arguments are poorly construed, and often target the wrong entities or the wrong countries, but the cases nonetheless are spectacular political statements,” said Romero Tavares, an economics professor at the Vienna University of Economics and Business. He recently published a paper titled, “The Intersection of EU State Aid Cases and U.S. Tax Deferral: A Spectacle of Fireworks, Smoke and Mirrors.”

“Therefore I do believe more cases will come up, more companies will be scrutinized and not only in the Silicon Valley, but across the board,” Tavares said. “The amounts involved are astronomical.”

ES Morning Update August 30th 2016

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Classic Bull Flag setup as yesterday the futures rallied up nicely and now have drifted down sideways a little overnight and premarket while the MACD's reset from overbought to neutral.  The market could drift a little lower today but it looks like the MACD's will turn back up at some point soon and push the price back up.  There's resistance still at the green falling trendline, then the 2186 high and the 2191 all time high.

On the downside there's support at 2172-2175, which would likely be hit if the market just drifts lower all day riding the top trendline of the falling channel in blue.  The resistance overhead is obviously pretty strong so a drift down all day seems more likely to me then some early turn back up that busts through to the upside.  If I had to guess I'd say we won't get through 2182 area or drop below 2173 zone today.

For the bulls they want a slow drift lower all day as that would give the charts more time to reset overbought conditions allowing for a stronger move back up tomorrow or Thursday, and for the bears they want a turn back up at the open that is too weak to bust through resistance but moves the MACD's back up to overbought again by the end of the day.  The bulls really need a deeper pullback to bust through and tag 2200, or they need some news event to spark it.  This could be the employment data this Friday?

The best things for the bears is to hope the bulls stay range-bound and don't have a deeper pullback (like the the 2140 zone to retest the prior low on August 2nd).  Not letting the bulls reset their momentum with a deeper pullback will limit their upside if they breakout on Friday's data, as that move will likely fail to hold and we'll see the bears push it back down in the coming weeks.

Think of the bulls right now like a man trapped inside a closet with only three feet depth to it.  He hits the door with his fist time and time again trying to bust through but he can't deliver much more then a 6 inch punch because of the tight spot (range) he's in.  If the closet was wider, like ten feet or more, he could not only get a full swinging hit with his fist at the door but he could also get a small run at it and kick it with his feet.  That ten feet or more is like the bulls pulling back in the market 80-100 points and then making a strong run (rally) back up to 2200 where they'd not only bust through it easily but probably continue their momentum on up to 2300, whereas busting through the door in that tight 3 foot space is likely only going to pierce 2200 a little and then fall back down just like the man would exhaust himself busting a hole through the door with that 6 inch punch that got his arm out but his body would still be stuck and he'd likely collapse from being too tired and sit down in the closet and rest for awhile.

The moral of that story is that the bears want to keep the bulls in a tight range so the best they could do would be a brief pierce of 2200 from some one day news event.  Then the bulls would celebrate and rest for awhile and the bears would take it back down and start a much needed correction.  Anyway, my thoughts again for today are another day of range-bound, light volume trading between overhead resistance from the falling green trendline down to the horizontal support in the 2172-2175 area (where the top blue trendline from the falling channel also happens to be pointing too).

The coming wave of Apple-ficial intelligence

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The depth of Apple’s commitment to AI has started to manifest itself since the summer of 2016. In a recent essay Stephen Levy manifests those efforts in greater detail than before.

Back in June, I wrote: “Apple is going to continue its investments in improving UX through technologies in the AI stack… Expect more AI in Apple’s products. But I would be surprised to see large-scale open source efforts, of the kind we have seen from Google or Facebook. Open source has rarely been Apple’s bag.”

New in Levy’s piece gets more granular including the following nuggets.

  • Apple runs a neural net locally on the iPhone.
  • This neural net weighs 200Mb and trains itself in real-time, but especially overnight, using the GPUs in Apple’s iPhone device.
  • Apple cites owning the silicon design (from the far-sighted acquisition of PA Semiconductor, I guess) as a driver of improved learning performance.
  • They replaced oldskool voice recognition  (hidden Markov models) by a deep learning approach back in 2014.
  • Apple uses third-party sourced data to generalise training of things like photo recognition. This happens on-device.

Given the level of Apple’s acquisitions in this area (see 💡 my tweetstorm from May 2016 which covers this, and was prior to the Turi deal), their recent senior hirings and more than 280 job openings for hardware & software engineers with machine learning experience it is reasonable to say Apple is going for it.  (Fascinated to learn more about “Proactive Intelligence”, their new AI-enriched interface paradigm which sounds a bit Weave.Ai/Google Now like.)

One open question raised by the Levy piece is whether Apple’s mental model around privacy is a bug or feature when it comes to artificial intelligence.

Apple doesn’t share user data. And Apple’s global models are built not on this shared user data but on externally & expensively sourced data. And Apple doesn’t seem to send much user data back to the cloud to be learned from on super deep networks running on GPU clusters.

The traditional argument would be that it is a bug. Leveraging data network effects allows you to build better, more defensible products faster. Tesla’s network learning (EV#31) is a great example of this. As is Facebook’s capability in face & object detection. And keeping things on a local GPU denies your neural nets of the value of lots of GPUs (particularly for training).

The counter argument would be that user-privacy may increasingly be a differentiating feature which allows you to sell more stuff. Apple is wealthy and paying for tons of training data doesn’t make a dent in its cash pool. And, in any case, model performance often tends to a limit beyond which additional training data doesn’t help you.

Here’s my fast take on this. Apple’s approach to user privacy is may start to look more like a bug than a feature but it may not make a difference right now.

Apple’s approach to user privacy is may start to look more like a bug than a feature but it may not make a difference right now.

  • Externally sourced training data can’t keep up with novel use cases generated by real users. So your external training takes a long time to improve your overall performance. An Apple car training locally will generally have worse training data than a network Tesla whose models draw on edge cases from across the world. Worse performance means a worse product means worse market share means…
  • Their introduction of differential privacy which Levy discusses suggests they see the value of data network effects and are finding a way to grab that data while staying true to the user privacy promise. What I don’t know is whether differential privacy provides sufficiently good data. I’d recommend reading this essay at High Scalability which looks in more depth at deep learning in Apple Photos and differential privacy.
  • Andrew Ng, Baidu’s deep learning czar, has pointed out that deep learning performance doesn’t seem to flatten out as you add more data. You can just make the network deeper and the model continues to get more performant.
  • Consumers won’t care. For better or worse they won’t care enough especially when given the choice of products that feel more ‘magical’.

Right now (and perhaps for the next few years) this probably won’t hinder Apple. But their approach to user privacy might start to hurt the user experience they strive to deliver.

Now that would be an interesting tension.

Uber Loses at Least $1.2 Billion in First Half of 2016

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After touting profitability in the U.S. early this year, the ride-hailing company is said to post second-quarter losses exceeding $100 million.

The ride-hailing giant Uber Technologies Inc. is not a public company, but every three months, dozens of shareholders get on a conference call to hear the latest details on its business performance from its head of finance, Gautam Gupta.On Friday, Gupta told investors that Uber's losses mounted in the second quarter. Even in the U.S., where Uber had turned a profit during its first quarter, the company was once again losing money.In the first quarter of this year, Uber lost about $520 million before interest, taxes, depreciation and amortization, according to people familiar with the matter.

In the second quarter the losses significantly exceeded $750 million, including a roughly $100 million shortfall in the U.S., those people said. That means Uber's losses in the first half of 2016 totaled at least $1.27 billion.Subsidies for Uber's drivers are responsible for the majority of the company's losses globally, Gupta told investors, according to people familiar with the matter. An Uber spokesman declined to comment.

Uber in Hungary.

Uber in Hungary.
Photographer: Akos Stiller/Bloomberg

"You won't find too many technology companies that could lose this much money, this quickly," said Aswath Damodaran, a business professor at New York University who has written skeptically of Uber's astronomical valuation on his blog. "For a private business to raise as much capital as Uber has been able to is unprecedented."

Bookings grew tremendously from the first quarter of this year to the second, from above $3.8 billion to more than $5 billion. Net revenue, under generally accepted accounting principles, grew about 18 percent, from about $960 million in the first quarter to about $1.1 billion in the second.

Uber also told investors during the call that it was changing how it calculates UberPool's contribution to revenue in the second quarter, which had the effect of increasing revenue.

 Uber's losses and revenue have generally grown in lockstep as the company's global ambitions have expanded. Uber has lost money quarter after quarter. In 2015, Uber lost at least $2 billion before interest, taxes, depreciation and amortization. Uber, which is seven years old, has lost at least $4 billion in the history of the company.

It's hard to find much of a precedent for Uber's losses. Webvan and Kozmo.com—two now-defunct phantoms of the original dot-com boom—lost just over $1 billion combined in their short lifetimes. Amazon.com Inc. is famous for losing money while increasing its market value, but its biggest loss ever totaled $1.4 billion in 2000. Ube rexceeded that number in 2015 and is on pace to do it again this year.

"It's hardly rare for companies to lose large sums of money as they try to build significant markets and battle for market share," said Joe Grundfest, professor of law and business at Stanford. "The interesting challenge is for them to turn the corner to become profitable, cash-flow-positive entities."

The second quarter of 2016, which ended in June, could represent a nadir for Uber. The company's losses will likely fall. In July, it cut a deal with its largest global competitor, Chinese ride-hailing behemoth Didi Chuxing, washing its hands of its massive losses in that country. Didi gave Uber a 17.5 percent stake in its business and a $1 billion investment in exchange for Uber's retreat. Uber lost at least $2 billion in two years in China, people familiar with the matter told Bloomberg in July. Uber won't see any losses from China on its balance sheet after August, the company said on Friday's investor call.

The Didi app.

The Didi app.
Photographer: Qilai Shen/Bloomberg

Uber’s backers range from venture capital firms like Benchmark to the investment bank Goldman Sachs. Altogether, Uber has raised more than $16 billion in cash and debt. Its latest valuation is a whopping $69 billion. The company has effectively redistributed at least $1 billion to the Chinese working class in the form of heavy subsidies to drivers there. "Uber and Didi Chuxing are investing billions of dollars in China and both companies have yet to turn a profit there," Uber Chief Executive Officer Travis Kalanick wrote in a letter announcing the company's departure from China.

Uber has been engaged in a fierce price war with Lyft Inc. this year, and that has also contributed to the enormous losses. Uber told investors on Friday's call that it's willing to spend to maintain its market share in the U.S. The company told investors that it believes Uber has between 84 percent and 87 percent of the market in the U.S., according to a person familiar with the matter.

Lyft said its market share in major U.S. cities is more than 20 percent and has grown substantially since last year. "Uber's alleged market share is a misleading and skewed statistic given that they offer service in more markets than Lyft," a spokeswoman for Lyft wrote in an e-mail.

One Uber investor said that he was expecting the company to continue losing money in the U.S. for the next quarter or two. But Lyft, a much smaller company by trip volume, looks to be losing more money than Uber in the U.S. Lyft has told investors that it will keep its losses under $50 million a month, Bloomberg reported in April. That would be about $150 million in a quarter. Uber's U.S. losses totaled about $100 million in the second quarter of this year. In July, Uber delivered 62 million rides to Lyft's 13.9 million. Uber's subsidies were spread over more rides.

Uber has about $8 billion in the bank and will soon receive $1 billion in cash from Didi, according to a person familiar with the matter. Uber also has access to a $2 billion credit line and a $1.2 billion loan.

"I think what Uber is trying to do is, 'Hey, look, we're going to take the losses up front in order to get to disproportionate scale,'" said Robert Siegel, lecturer in management at Stanford's business school. "The question is when they can get to profitability."

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