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In Business and Finance….

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►  This bull market creates few jobs in finance

Today, we are going off the beaten path with an interesting look at an aspect of employment data that was a bit surprising.

The subject of Wall Street employment came up via my colleague, Josh Brown, who mused that this may be the first bull market when Wall Street jobs didn’t grow. Finance, of course, is more than just Wall Street: it is a large and diverse industry, encompassing many different occupations.

Thus, we begin our search at the U.S. Bureau of Labor Statistics. The BLS has 26,709 employment-related data series; I refined and eliminated all but 27 subsectors, keeping only those job categories that are finance related. I removed all of the obvious subsectors as well as real estate, auto leasing/rental and other such segments. I left out some insurance occupations, but I did include insurance jobs that appeared to be related to investing.

The list is admittedly imperfect, but it gives a pretty good sense of finance-industry employment back to the start of the Great Recession in December 2007. The big takeaway is that since then, this finance-related group has dramatically lagged the overall economy in job creation, growing just 0.7 percent. Compare that to total private-sector employment gains during that period of 6.6 percent.

Not surprisingly, the job gains and losses tracked broader changes in the economy, from automation to the responses to the credit crisis. But the devil is in the details, and in the data. It reveals quite a few surprises.

Let’s start with the outliers: the largest job declines were among “savings institutions,“ with a drop of 43 percent; the biggest gainer was “investment advice,“ with a 42 percent gain.

If I had to guess, job losses at savings institutions were a result of automation and technology. But one must also surmise that a decade of zero percent interest rates is pressuring customers to look elsewhere to park their money.

I was more surprised at the gains in investment advice – not so much the direction, but the magnitude. I would guess that the underlying reasons for this big increase can be traced to three forces. First, after the financial crisis, more people decided they were better off having a professional to speak to, hold their hand and otherwise assist in financial decisions. Second, there has been a general shift toward the registered investment adviser and away from the broker-dealer. Third, the move to passive indexing tends to favor asset allocators, who I believe are included in this category.

Another surprising loser was “monetary authorities and central banks.“ For all of the activity by the Federal Reserve during and after the financial crisis, employment declined 5 percent. Here again, we might be able to lay off some of this on technology and automation.

“Commercial banking” also had a decline, though at 3 percent it’s almost a rounding error.

“Credit card issuing” is actually pretty surprising, with a 20 percent decline, despite more Americans than ever charging it. Again, I have to think automation is a big factor.

And yet there’s “financial transaction processing and clearing,“ with a 21 percent gain. That’s big, considering the decrease in bond trading and the general shift toward passive index investing. On the other hand, I imagine there has been a big increase in fintech, which hardly existed a decade ago and still isn’t an employment subcategory in the BLS data.

Finally, there’s “other financial activities, including funds and trusts,“ which came in with a 26 percent gain. Intuitively, I have to think this reflects wealth inequality and efforts to transfer assets to heirs and limit exposure to the taxman. Similarly, the 19 percent gain among “insurance, brokerage and related services” and the 15 percent rise among “insurance agencies and brokerages” is likely a result of estate planning.

These numbers give us some clues about how finance is changing. It isn’t so much that there have been layoffs—of course, there have been; it’s that we are in the midst of a wholesale restructuring of how financial services are provided.

I rarely make many forecasts, but I will venture one here: More changes are coming to financial sector employment and probably in ways that will continue to surprise us.


►  Takata files for bankruptcy, overwhelmed by air bag recalls

Japanese air bag maker Takata Corp. filed for bankruptcy protection in Tokyo and the U.S. on Monday, saying it was the only way to ensure it could carry on supplying replacements for faulty air bag inflators linked to the deaths of at least 16 people.

Most of Takata’s assets will be bought by rival Key Safety Systems, a Chinese-owned company based in suburban Detroit, for about $1.6 billion.

The company’s executives sought to reassure their customers, suppliers and shareholders in a news conference on Monday. With the company rapidly losing value while Takata struggled to reorganize its finances, filing for bankruptcy protection was the only option, Takata’s president, Shigehisa Takada, told reporters.

“As a maker of safety parts for the automobile industry, our failure to maintain a stable supply would have a major impact across the industry,“ Takada said in Tokyo.

Takata’s inflators can explode with too much force when they fill up an air bag, spewing out shrapnel. Apart from the fatalities, they’re responsible for at least 180 injuries, and are grappling with the largest automotive recall in U.S. history. So far 100 million inflators have been recalled worldwide including 69 million in the U.S., affecting 42 million vehicles.

More than 70 percent of the airbags recalled in Japan have been replaced, and 36 percent in the U.S., said Hiroshi Shimizu, a Takata vice president. He said progress of the recalls in other countries was unknown.

Under the agreement with Key, remnants of Takata’s operations will continue to make inflators to be used as replacement parts in the recalls, which are being handled by 19 affected automakers.

Takata will use part of the sale proceeds to reimburse the automakers, but experts say the companies still must fund a significant portion of the recalls themselves.

“It’s likely every automaker involved in this recall will have to subsidize the process because the value of Takata’s assets isn’t enough to cover the costs of this recall,“ said Karl Brauer, executive publisher of Kelley Blue Book and Autotrader.

Takata and the automakers were slow to address the problem with the inflators despite reports of deaths and injuries. Eventually they were forced to recall tens of millions of vehicles. The scope of the recall means some car owners face lengthy waits for replacement parts, meanwhile driving cars with air bags that could malfunction in a crash.

The defect in the inflators stems from use of the explosive chemical ammonium nitrate in the inflators to deploy air bags in a crash. The chemical can deteriorate when exposed to hot and humid air and burn too fast, blowing apart a metal canister.

At least $1 billion from the sale to Key is expected to be used to satisfy Takata’s settlement of criminal charges in the U.S. for concealing problems with the inflators. Of that amount, $850 million goes to automakers to help cover their costs from the recalls. Takata already has paid $125 million into a fund for victims and a $25 million fine to the U.S. Justice Department.

Attorneys for those injured by the inflators worry that $125 million won’t be enough to fairly compensate victims, many of whom have serious facial injuries from metal shrapnel. One 26-year-old plaintiff will never be able to smile due to nerve damage, his attorney says.

The lead attorney for people suing the automakers said in a statement following the announcement that he doesn’t expect the bankruptcy to affect the pending claims against the companies. Settlement agreements with Toyota, Subaru, BMW and Mazda already have won preliminary court approval, Peter Prieto noted.

That settlement will speed the removal of faulty inflators from 15.8 million vehicles and compensate consumers for economic losses, he said. Claims are continuing against Honda, Ford, Nissan and Takata.

Fallout from the bankruptcy filing came swiftly from the Tokyo Stock Exchange, which said it was stripping the company founded in 1933 from trading as of Tuesday.

Key makes inflators, seat belts and crash sensors for the auto industry and is owned by China’s Ningbo Joyson Electronic Corp. Its global headquarters and U.S. technical center is in Sterling Heights, Michigan.

Key said it won’t cut any Takata jobs or close any of Takata’s facilities.

The Takata corporate name may not live on after the bankruptcy. The company says on its website that its products have kept people safe, and it apologizes for problems caused by the faulty inflators. “We hope the day will come when the word ‘Takata’ becomes synonymous with ‘safety,‘“ the website says.


►  Travel and Tourism Satellite Accounts, 1st quarter 2017

Real spending (output) on travel and tourism turned up in the first quarter of 2017, increasing at an annual rate of 0.4 percent after decreasing 2.7 percent (revised) in the fourth quarter of 2016, according to new statistics released by the Bureau of Economic Analysis.

In contrast, real gross domestic product (GDP) for the nation decelerated, increasing 1.2 percent in the first quarter (second estimate) after increasing 2.1 percent in the fourth quarter of 2016.

Long-Term U.S. Mortgage Rates Slip Last Week

The Free Press WV

Long-term U.S. mortgage rates dropped slightly last week.

Mortgage buyer Freddie Mac says the benchmark 30-year, fixed-rate mortgage averaged 3.90 percent, down from 3.91 percent last week. The rate stood at 3.56 percent a year ago and averaged a record low 3.65 percent in 2016.

The 15-year, fixed-rate home loan, popular with homeowners seeking to refinance their mortgages, also blipped lower – to 3.17 percent from 3.18 percent. A year ago, the 15-year rate was 2.83 percent.

The rate on five-year, adjustable-rate mortgages decreased to 3.14 percent from 3.15 percent. It was 2.74 percent a year ago.

Mortgage rates have remained low even though the Federal Reserve has been raising short-term rates: The Fed last week ratcheted rates higher for the third time in six months.

To calculate average mortgage rates, Freddie Mac surveys lenders across the country between Monday and Wednesday each week. The average doesn’t include extra fees, known as points, which most borrowers must pay to get the lowest rates. One point equals 1 percent of the loan amount.

The average fees on 30-year, 15-year and five-year adjustable mortgages were unchanged at 0.5 point.

In Business and Finance….

The Free Press WV

►  Most-Loved CEOs Aren’t Who You Think

It’s not much of a surprise that Travis Kalanick was left off Glassdoor‘s list of the top 100 CEOs, based on opinions from the employees they manage. But what may come as a surprise are those on the top of the list, who inched past Mark Zuckerberg and Elon Musk. The 10 highest rated CEOs and their approval rating:

  1. Benno Dorer, Clorox Company: 99%
  2. Jim Kavanaugh, World Wide Technology: 99%
  3. Michael F. Mahoney, Boston Scientific: 99%
  4. Craig B. Thompson, Memorial Sloan Kettering: 99%
  5. Martin Rankin, Fast Enterprises: 99%
  6. Jen-Hsun Huang, NVIDIA: 99%
  7. Bob Bechek, Bain & Company: 98%
  8. Elon Musk, SpaceX: 98%
  9. Brian Halligan, HubSpot: 98%
  10. Mark Zuckerberg, Facebook: 98%

Click for the FULL LIST.


►  Man Facing Largest-Ever FCC Fine Over 97M Robocalls

A man allegedly responsible for millions of illegal telemarketing robocalls may finally be getting his comeuppance in the form of the largest fine ever proposed by the FCC. The agency on Thursday accused Adrian Abramovich of making nearly 97 million robocalls promoting bogus travel deals over the course of three months in late 2016, about 1 million calls a day, reports Bloomberg. The FCC has proposed a $120 million fine, the largest in its 80-year history. According to USA Today, call recipients would be asked to press “1” to hear about travel deals from companies like Marriott and TripAdvisor. Those who did were transferred to call centers where operators would try to sell them on vacation deals and timeshares unaffiliated with those companies.

NPR reports that while making prerecorded telemarketing calls without prior consent is prohibited by the FCC, the fine is a penalty for Abramovich’s use of unlawful ID “neighbor spoofing,“ a technique in which calls appear with the same area code and first three digits of the recipient’s phone number, a violation of the Truth in Caller ID Act. The FCC also issued Abramovich a citation for committing criminal wire fraud and violating robocalling limits. Officials say Abramovich’s calls also overloaded an emergency medical paging service. The FCC began its investigation after being tipped off by TripAdvisor, which had received numerous consumer complaints. Abramovich has 30 days to respond to the proposed penalty before the FCC makes its final determination.


►  Illinois could be 1st state with ‘junk’ credit due to budget

Illinois is on track to become the first U.S. state to have its credit rating downgraded to “junk” status, which would deepen its multibillion-dollar deficit and cost taxpayers more for years to come.

S&P Global Ratings has warned the agency will likely lower Illinois’ creditworthiness to below investment grade if feuding lawmakers fail to agree on a state budget for a third straight year, increasing the amount the state will have to pay to borrow money for things such as building roads or refinancing existing debt.

The outlook for a deal wasn’t good Saturday, as lawmakers meeting in Springfield for a special legislative session remained deadlocked with the July 1 start of the new fiscal year approaching.

That should alarm everyone, not just those at the Capitol, said Brian Battle, director at Performance Trust Capital Partners, a Chicago-based investment firm.

“It isn’t a political show,“ he said. “Everyone in Illinois has a stake in what’s happening here. One day everybody will wake up and say ‘What happened? Why are my taxes going up so much?‘“

Here’s a look at what’s happening and what a junk rating could mean:


Why now?

Ratings agencies have been downgrading Illinois’ credit rating for years, though they’ve accelerated the process as the stalemate has dragged on between Republican Governor Bruce Rauner and the Democrats who control the General Assembly.

The agencies are concerned about Illinois’ massive pension debt, as well as a $15 billion backlog of unpaid bills and the drop in revenue that occurred when lawmakers in 2015 allowed a temporary income tax increase to expire.

“In our view, the unrelenting political brinkmanship now poses a threat to the timely payment of the state’s core priority payments,“ S&P stated when it dropped Illinois’ rating to one level above junk, which was just after lawmakers adjourned their regular session on May 31 without a deal.

Moody’s did the same, stating: “As the regular legislative session elapsed, political barriers to progress appeared to harden, indicating both the severity of the state’s challenges and the political difficulty of advocating their solutions.“


What is a ‘junk’ rating?

Think of it as a credit score, but for a state (or city or county) instead of a person.

When Illinois wants to borrow money, it issues bonds. Investors base their decision on whether to buy Illinois bonds on what level of risk they’re willing to take, informed greatly by the rating that agencies like Moody’s assign.

A junk rating means the state is at a higher risk of not repaying its debt. At that point, many mutual funds and individual investors – who make up more than half the buyers in the bond market – won’t buy. Those willing to take a chance, such as distressed debt investors, will only do so if they are getting a higher interest rate.

While no other state has been placed at junk, counties and cities such as Chicago, Atlantic City and Detroit have. Detroit saw its rating increased back to investment grade in 2015 as it emerged from bankruptcy – an option that by law, states don’t have.


What will it cost?

Battle says the cost to taxpayers in additional interest the next time Illinois sells bonds, which it inevitably will need to do in the long-term, could be in the “tens of millions” of dollars or more.

The more money the state has to pay on interest, the less that’s available for things such as schools, state parks, social services and fixing roads.

“For the taxpayer, it will cost more to get a lower level of service,“ Battle said.

Comptroller Susana Mendoza, who controls the state checkbook, agreed.

“It’s going to cost people more every day,“ she said. “Our reputation really can’t get much worse, but our state finances can.“


Other impacts?

Because the state has historically been a significant funding source to other entities, such as local government and universities, many of them are feeling the impact of Illinois’ worsening creditworthiness already.

S&P already moved bonds held by the Metropolitan Pier & Exposition Authority and the Illinois Sports Facilities Authority – the entities that run Navy Pier, McCormick Place, and Guaranteed Rate Field – to junk.

Five universities also have the rating: Eastern Illinois University, Governors State University, Northeastern Illinois University, Northern Illinois University and Southern Illinois University.

In Business and Finance….

The Free Press WV

►  Balenciaga’s $1K Bag Looks Just Like Its Free Paper Ones

Is French designer Balenciaga making fun of its wealthy clients, or does it just know a thing or two about brand loyalty? Whatever the case, the Sun reports the fashion house is selling a mock white paper shopping bag for £876, which works out to roughly $1,110, and it’s so popular it’s sold out on Colette. It looks just like the free paper bags Balenciaga gives patrons their purchases in, only this one is made from calfskin and costs just a touch more.

Time calls it Balenciaga’s “latest effort to troll the fashion world” after it released a $2,145 version of one of those cheap blue IKEA shopping bags in April. In a one-up over the freebie paper bag, the new version does boast plenty of zippers and pockets inside. If you’ve got $1,110 burning a hole in your pocket and you want to walk around town looking perpetually like you’ve just shopped at Balenciaga, this bag’s for you.


►  American Airlines Doesn’t Want Qatar’s Investment

Shares of American Airlines stock may have jumped after news that Qatar Airways was interested in buying a 10% stake in the company, but American CEO Doug Parker threw cold water on any shareholder celebration. The announcement of interest from the airline to buy American stock worth about $808 million prompted Parker to write a letter to employees denouncing the bid, reports CNBC. “[W]e aren’t particularly excited about Qatar’s outreach,“ Parker writes, “and we find it puzzling given our extremely public stance on the illegal subsidies that Qatar, Emirates and Etihad have all received over the years from their governments,“ he writes, referring to two other Gulf carriers.

The actual investment hasn’t happened yet: Anyone trying to buy 4.75% or more of American’s stock must submit a written request to the board, and that hasn’t happened yet, reports Business Insider. Qatar Airways’ motives were unclear, telling American only that its investment would be “passive.“ Quartz notes that the airline is small in comparison to US airlines and has been purchasing stakes in foreign airlines recently to beef up. In his letter Parker, attempts to allay any fear that the potential new investor could influence the airline. “Do not worry,“ he writes, citing a law that prohibits any foreign entity from owning 25% of a US airline. “There is no possibility that Qatar will be able to purchase enough of American to control or influence our Board, management or our strategy.“

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