Category Archives: Economy

Chief Investment Officer of Largest US Public Pension Fund Has Deep Ties to Chinese Regime

(Nathan Su) Newly discovered deep ties between the chief investment officer (CIO) of the California Public Employees Retirement System (CalPERS) and the Chinese government, along with CalPERS’s China investment holdings, have provoked controversy about the operations of the largest public retirement fund in the United States.

CalPERS manages more than $350 billion for public employees either retired from or currently working for most of the state and local public agencies in California.

The fund holds tens of millions of shares in equities of Chinese companies. Among other things, these companies develop advanced weapons for China’s People’s Liberation Army (PLA), and, according to one expert, are involved in unethical business practices and human rights abuses, including the concentration camps holding Uyghurs in Xinjiang.

According to a 2017 report by People’s Daily, the official mouthpiece of the Chinese Communist Party (CCP), CalPERS’s current CIO, Yu “Ben” Meng, as of 2015 was a participant in the Chinese government’s prestigious headhunting program called the Thousand Talents Plan (TTP).

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Wall Street Banks Are Starting To Give Up On Lending To Farmers

After years of farm income falling and the U.S./China trade war now taking its toll on the sector, Wall Street banks look as though they are giving up on lending to farmers, according to Reuters

Meanwhile, total U.S. farm debt is slated to rise to $427 billion this year, up from an inflation adjusted $317 billion just 10 years ago. The debt is reaching levels not seen since the 1980’s farm crisis. 

Agricultural loan portfolios of the nation’s top 30 banks was lower by $3.9 billion, to $18.3 billion between their peak in December 2015 and March 2019. This is a 17.5% fall.

An analysis performed by Reuters identified the banks by their quarterly filings of loan performance with the FDIC and grouped banks that were owned by the same holding company.

The slide in farm lending is happening as cash flow worries surface for farmers. We’ve highlighted numerous instances of farmers under pressure due to the U.S./China trade war and poor conditions, like this report from early June and this report on farmer bankruptcies from May.

Sales of products like soybeans have fallen significantly since China and Mexico imposed tariffs in retaliation to U.S. duties on their goods. The trade war losses exacerbated an already strained sector, under pressure from “years over global oversupply and low commodity prices.”

Chapter 12 bankruptcy filings for small farmers were up from 361 filings in 2014 to 498 in 2018. 

Minneapolis-St. Paul area bankruptcy attorney Barbara May said: 

“My phone is ringing constantly. It’s all farmers. Their banks are calling in the loans and cutting them off.”

At the same time, surveys are showing that demand for farm credit is growing. The demand is most pronounced among Midwest grain and soybean producers. Having fewer options to borrow could threaten the survival of many farms, especially when incomes have been cut in half since 2013. 

Gordon Giese, a 66-year-old dairy and corn farmer in Mayville, Wisconsin, was forced to sell most of his cows, his farmhouse and about one-third of his land last year to pay off his debt obligations. 

He said: 

“If you have any signs of trouble, the banks don’t want to work with you. I don’t want to get out of farming, but we might be forced to.”

Michelle Bowman, a governor at the U.S. Federal Reserve called the decline in farm incomes a “troubling echos of the 1980’s farm crisis”. 

Between the end of 2015 and March 31 of this year, JP Morgan pared back its farm loan holdings by 22%, or $245 million. Capital One’s farm-loan holdings at FDIC-insured units fell 33% between the end of 2015 and March 2019. U.S. Bancorp’s fell by 25%. Agricultural loans at BB&T Corp have fallen 29% since summer of 2016. PNC Financial Services Group Inc has cut its farm loans by 12% since 2015.

The four-quarter growth rate for farm loans at all FDIC-insured banks slowed from 6.4% in December 2015 to 3.9% in March 2019. But many smaller, regional banks depend on farms as the main key to their loan books. 

In March, FDIC insured banks reported 1.53% of farm loans were 90 days past due, up from 0.74% at the end of 2015. 

Curt Everson, president of the South Dakota Bankers Association said: “All you have are farmers and companies that work with, sell to or buy from farmers.” 

Source: ZeroHedge

How The Fed Wrecks The Economy Over And Over Again

When people talk about the economy, they generally focus on government policies such as taxation and regulation. For instance, Republicans credit President Trump’s tax cuts for the seemingly booming economy and surging stock markets. Meanwhile, Democrats blame “deregulation” for the 2008 financial crisis. While government policies do have an impact on the direction of the economy, this analysis completely ignores the biggest player on the stage – the Federal Reserve.

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Global Manufacturing PMI Crashes To 7-Year Lows As New Orders Slump

It’s a bloodbath. No matter where you look, global manufacturing surveys are signaling growth is over and in most cases, outright contraction is upon us.

JPMorgan’s Global Manufacturing PMI fell to its lowest level for over six-and-a-half years and posted back-to-back sub-50.0 readings for the first time since the second half of 2012.

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June data signalled a mild decrease in global manufacturing employment for the second month running (but every sub-index declined in June).

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Of the 30 nations for which a June PMI reading was available, the majority (18) signalled contraction. China, Japan, Germany, the UK, Taiwan, South Korea, Italy and Russia were among those countries experiencing downturns. The US, India, Brazil and Australia were some of the larger industrial nations to register an expansion.

Commenting on the survey, Olya Borichevska, from Global Economic Research at J.P.Morgan, said:

The global manufacturing sector downshifted again at the end of the second quarter. The PMI surveys signalled that output stopped growing, as inflows of new business shrank at the fastest pace since September 2012. This impacted hiring and business optimism, with the latter at a series-record low. Conditions will need to stage a marked recovery if manufacturing is to revive later in the year.”

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It’s not rocket science!!

Source: ZeroHedge

 

The Great Transformation: Robots Will Displace 20 Million Jobs By 2030

A new report by Oxford Economics says accelerating technological advances in automation, engineering, energy storage, artificial intelligence, and machine learning have the potential to reshape the world in the 2020s through 2030. The collision of these forces could trigger economic disruption far greater than what was seen in the early 20th century.

Across the world, a new wave of investment in automation could displace 20 million manufacturing jobs by 2030. This coming period of change should be called the great transformation period where job losses due to automation will be on par to the automation of agriculture revolution ( the transition of farm workers into the industrial sector) from 1900 to 1940.

Robots have so far increased three-fold since the Dot Com bust. Momentum in trends suggests the global stock of robots will multiply even quicker through the 2020s, reaching as many as 20 million by 2030, with 14 million in China alone. The collision of automation in the economy will lead to more volatility and economic swings.

The adoption of new automation technologies can significantly boost income inequality and, by extension, wealth inequality. Many countries, including the US, are entering the 2020’s with extreme inequalities, and automation will likely accelerate that trend. Oxford Economics estimates that 20 million manufacturing jobs across the world will be displaced by robots by 2030.

By 2030, most of the automation disruption in major manufacturing countries will be centered in China, the EU, and the US:

  • China: over 11 million
  • European Union: almost 2 million
  • United States: nearly 1.7 million
  • South Korea: nearly 800,000
  • The rest of the world: 3 million

Oxford Economics developed the Robot Vulnerability Index – where specific regions across the US are at the highest risk of labor disruption thanks to automation.

The crosscurrents of these macroeconomic force could dramatically reshape economies around the world. Nevertheless, displacing blue-collar manufacturing jobs with robots will continue to drive income/wealth inequality to such extreme levels that governments will be forced to become more interventionist, using higher taxes, regulation, and policy to control economic imbalances.

Source: ZeroHedge

Rising Nursing Home Prices Bode Poorly For The Future

Georgetown University Medical Center reveals brutal dynamic governing long-term care in America

The results of a six-year study by Georgetown University Medical Center revealed just how fast U.S. nursing home prices have been increasing all across America. And the future looks just as grim.

Dr. Sean Huang, the study’s lead author, said the brutal dynamic governing long-term care in America — where many nursing home residents must spend down the bulk of their life savings before qualifying for federal assistance — is intensifying. California, Florida, New York and Texas all saw increases that far outstripped the 11.6% rise in inflation between 2005 and 2010, the period reviewed by Georgetown’s analysis of eight states. Additional data show the upward trend has continued in the years since.

And it’s not just baby boomers who need to worry — Generation X, millennials and Generation Z might face an even darker old age. Rising wage pressure on a sector in need of workers is driving up costs, and unless Washington comes up with a fix, be it a version of Medicare-for-All or something less ambitious, the funding for some programs is projected to start running out in the next decade.

“We’re talking about long stays — people who have disabilities, dementia, Parkinson’s disease,” Mr. Huang explained about the growing nursing home population. “Medicare does not cover that. They will pay out-of-pocket until they use all of their wealth.”

Many Americans have no idea how Medicare works, including those approaching retirement. A sort-of government health insurance policy largely for older Americans, eligibility generally begins at age 65, covering some of the costs of routine and emergency medical care. What it doesn’t cover is most aspects of long-term “custodial” care — as in nursing homes, where a large portion of Americans can expect to spend the last years of their lives.

That’s where Medicaid — state-administered coverage for Americans whose assets fall below a certain level — comes in. For those who qualify for nursing home admission, Medicaid generally requires they exhaust most of their assets first before qualifying for coverage. Without expensive long-term care insurance, which most people don’t have, an increasing number of older Americans are falling into this financial trap, Mr. Huang said.

And their nest eggs are being depleted more quickly than ever. Mr. Huang’s study found nursing home price rises over the period measured generally outpaced increases in overall medical care (20.2%) and consumer prices (11.7%). For example, in California between 2002 and 2011, the median out-of-pocket cost for nursing home care increased by 56.7%.

Mr. Huang and three co-authors began looking into the matter in 2013. With no central database, they had to collect information from each state and individual nursing homes. Some states only had data through 2010, he said. In the end, they managed to crunch data from an average of 3,900 nursing homes for each of the years measured, representing approximately 27% of freestanding U.S. facilities.

Nursing homes in New York during the period reviewed had the highest average daily price of $302, while Texas had the lowest average daily price of $121. Additional information has shown that nursing home costs have continued to increase at a much higher rate than inflation, albeit slightly slower than the study period.

In 2010, the average price per day for nursing home care in California was $217, up more than 30% (with Florida close behind) from 2005. In a more recent analysis, Mr. Huang calculated that, from 2010 to 2015, nursing home prices in California rose more slowly, by roughly 19.6% to $258 per day. However, inflation from 2010 to 2015 only increased by 8.7%, he noted. Mr. Huang said his research doesn’t point to any improvement going forward.

“I don’t see there’s any major changes that suggest the trend will be different,” Mr. Huang said.

Indeed, the median daily price for a private room in a California nursing home just last year was $323, while the national median was $275 per day, according to life insurance company Genworth. Looking at the issue from an annual perspective, the median cost in the U.S. for a private room in a nursing home was $100,375. Oklahoma provided the cheapest annual median cost at $63,510, while Alaska was the most expensive at $330,873, Genworth data showed.

Nursing homes have long been a financial drain on most who need them, constituting one of the greatest risks retirees face when it comes to managing retirement funds, a report from the U.S. Department of Health and Human Services showed. Unfortunately, the annual costs for nursing home care will continue to grow at a rate much faster than inflation, according to Urban Institute Senior Fellow Richard W. Johnson.

“It’s that labor market pressure,” Mr. Johnson said. More elderly Americans mean more demand for nursing home care, and more demand for nursing home employees. Wages go up, and the cost is passed along to consumers who, under the current system by which America looks after its elderly, coverage is limited.

In an industry that requires significant hands-on attention, technology can’t eliminate many jobs, Mr. Johnson said. And just when the labor market for nursing homes is already tight, uncertainty over U.S. immigration policies may further reduce available workers, he said. In 2017, immigrants made up 23.5% of formal and non-formal long-term care sector workers, according to Health Affairs.

“It’s unlikely that you’re going to see any improvement in these trends, and if anything, things will probably get worse because nursing homes are probably going to face something of a worker shortage,” Mr. Johnson said. Home health aides and personal care aides are ranked as the third and fourth fastest growing occupations and are expected to increase 47% and 39% respectively from 2016 to 2026, according to the Bureau of Labor Statistics.

“The baby boom generation is so large,” Mr. Johnson said. “They’re approaching their 80s, and that means that many more of them are going to need nursing home care or other types of long term care.”

“If there would be a higher reimbursement rate, either by Medicaid or Medicare, nursing home quality would be likely to improve.”

Another trend emerging in the industry that may be driving up costs is Wall Street. Four out of the 10 largest for-profit nursing home chains were purchased by private equity firms from 2003-2008, according to a case study analyzing private equity takeover.

Research on the impact of private equity has shown mixed results, though one study showed how a nursing home chain that was taken over by a private equity firm showed a general reinforcement of profit-seeking strategies that were already in place, while adding some strategies aimed at improving efficiency. Other reports have detailed darker results.

During the Obama administration, the Community Living Assistance Services and Supports Act (CLASS Act) was signed into law to help ease the burden as part of the Affordable Care Act (ACA), but it was later rescinded by Congress over concerns voluntary enrollment wasn’t viable — premiums would be too high and the system would eventually collapse, Mr. Johnson said. This left the ACA with little to no assistance for long-term care costs.

Some states have started taking matters into their own hands. Washington State passed a bill in April that would implement a 0.58% payroll tax that would give residents up to $36,500 to pay for long-term care services. Payroll tax will begin collecting in 2022, while residents can start withdrawing in 2025. But that’s just one state, and the problem, Huang and Johnson note, is national in scope.

“If there would be a higher reimbursement rate, either by Medicaid or Medicare, nursing home quality would be likely to improve,” Mr. Huang said. “But I don’t see that happening in the near future.

Source: Investment News

“On The Precipice”

Authored by Kevin Ludolph via Crescat Capital,

Dear Investors:

The US stock market is retesting its all-time highs at record valuations yet again. We strongly believe it is poised to fail. The problem for bullish late-cycle momentum investors trying to play a breakout to new highs here is the oncoming freight train of deteriorating macro-economic conditions.

US corporate profit growth, year-over-year, for the S&P 500 already fully evaporated in the first quarter of 2019 and is heading toward outright decline for the full year based on earnings estimate revision trends. Note the alligator jaws divergence in the chart below between the S&P 500 and its underlying expected earnings for 2019. Expected earnings for 2019 already trended down sharply in the first quarter and have started trending down again after the May trade war escalation.

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