Monday, June 19, 2017

Monday, June 19, Morning Global Market Roundup: France, Banks, And Retail Rebound Make For Bright Start For European Shares

By Helen Reid
June 19, 2017

French stocks outperformed upbeat European indices on Monday following a convincing parliamentary majority for President Emmanuel Macron, while banks bounced following upgrades and the retail sector recovered from last week's losses.

France's blue-chips .FCHI gained 1.1 percent after President Emmanuel Macron cemented an overwhelming parliamentary majority further increasing his party's capacity to push through reforms.

Banks BNP Paribas (BNPP.PA), Societe Generale (SOGN.PA) and Credit Agricole (CAGR.PA) underpinned gains on the index.

Berenberg's chief economist Holger Schmieding said France could become the strongest major economy in Europe in a decade.

Euro zone blue-chips .STOXX50E rose 1 percent while the pan-European STOXX 600 rose 0.9 percent.

The retail sector, particularly grocers, which were sent into a tailspin on Friday following Amazon's surprise $13.7 billion deal to buy Whole Foods, bounced bank, partly on hopes of more deal activity in the sector.

The regional retail index .SXRP, which suffered its worst week in 16 months last week, rose 0.8 percent with UK's Ocado (OCDO.L) up more than 6 percent and the top performing major stock across the region.

Exane upgraded Ocado to "outperform" on hopes that partnerships, if not a takeout, were more likely.

Also, in notable broker activity, Credit Suisse found favor among analysts at Morgan Stanley, Citi and Deutsche Bank.

Citi named Credit Suisse its preferred Swiss bank, while Morgan Stanley reinstated coverage on the stock with an "outperform."

Credit Suisse shares rose more than 3 percent.

Formal Brexit negotiations were scheduled to get underway on Monday, with Britain's Brexit Secretary David Davis due to meet EU chief negotiator Michel Barnier at 1100 local time (0900 GMT), though this was not seen to ruffle market sentiment in the short-term.

Article Link To Reuters:

U.S. Bank Investors Hope Fed Stress Test Results Lead To Big Payouts

By Pete Schroeder and David Henry
June 19, 2017

Investors are hoping the Federal Reserve will allow big U.S. banks to put an estimated $150 billion in idle capital toward stock buybacks, dividends and profit-boosting investments in the coming weeks after conducting a regular examination of financial strength.

On Thursday, the Fed is scheduled to begin releasing results from its two-part annual stress test, which was adopted in response to the financial crisis, to gauge banks' ability to weather an economic storm that could threaten the stability of the system. The results will be the first since Republican President Donald Trump took office.

Trump has not yet made any appointments to the Fed, but Republicans have turned up pressure on the central bank to cut red tape and ease regulations. Wall Street analysts said they will be parsing language the Fed uses in presenting the results for any signs that its approach is starting to soften.

Analysts say they do not expect the Fed to announce any explicit changes to the stress test, but they do expect higher payouts. According to their estimates, the Fed could allow banks to distribute nearly as much capital to shareholders over the next year as they generate in profits, a benchmark not hit since before the 2008 crisis.

Higher payouts "would be significant from a signaling standpoint" that regulators are easing up on capital requirements, said Steven Chubak, a bank analyst at Nomura Instinet. "That is a key part of the value case for a lot of these stocks."

Banks going through the stress tests have roughly $150 billion more capital than they need, Morgan Stanley analyst Betsy Graseck estimates. She expects the typical big bank to be allowed to increase stock buybacks by 27 percent and dividends by 8 percent, for a combined capital payout of 95 percent of annual earnings, up from 84 percent last year.

The Fed first conducted stress tests in 2009 as a way to boost confidence in the financial system. Congress codified the test into law the following year as part of a broader financial reform package, and the Fed came to see it as an important tool to ensure that banks not only maintain enough capital to withstand economic storms, but also run their businesses in ways that avoid operational calamities.

However, bankers complain that stress tests have morphed into an overly complex and time-consuming process that occurs in the secrecy of a black box. They have pleaded for more details about models the Fed uses to conduct the numeric part of the tests, and more clarity on a qualitative component that judges factors like risk management.

The Fed has been making some changes to enhance transparency, but officials say that revealing too much would allow lenders to game the exams.

"We are concerned that releasing all details on the models would give banks an incentive to adjust their business practices in ways that change the results of the stress test without changing the risks faced by the firms," Fed Chair Janet Yellen told Congress in a letter on Friday. "The result could be less effective stress tests."

Thursday's results, known as DFAST, will show how much capital the biggest banks would have after an imagined crisis. Shortly after the Fed posts its numbers, big banks tend to disclose results under their own models.

Banks can compare the scoring and then scale back and resubmit their capital plans to improve their chances of a passing grade. On June 28, the Fed will announce whether it has approved the plans in a further examination known as the Comprehensive Capital Analysis and Review, or CCAR.

The Fed has been under pressure for some time to simplify the stress tests, and changes are widely expected under Trump.

A proposed financial regulatory overhaul ordered by Trump and released by the Treasury Department last week included easing stress tests. Trump is also expected to name as many as five new officials to the Fed's seven-member governing board over the next two years.

Although Wall Street is upbeat about the idea of lighter regulations and higher payouts, regulatory experts are less sure that the Fed will unleash bank balance sheets overnight. It takes time for large institutions like the Fed to shift, even after top officials and regulatory mandates change, they said.

"It should change over time," said Brian Gardner, a policy analyst at Keefe Bruyette & Woods. "Markedly? That's tougher to determine."

Article Link To Reuters:

Oil Prices Dip On Further Rise In U.S. Drilling, Demand Slowdown

By Henning Gloystein
June 19, 2017

Oil prices dipped on Monday, weighed down by a continuing expansion in U.S. drilling that has helped to maintain high global supplies despite an OPEC-led initiative to cut production to tighten the market.

Signs of faltering demand have also prompted weakening sentiment, dropping prices to levels comparable to when the output cuts were first announced late last year.

Brent crude futures LCOc1 were down 18 cents, or 0.4 percent, at $47.19 per barrel.

U.S. West Texas Intermediate (WTI) crude futures CLc1 were down 20 cents, or 0.5 percent, at $44.54 per barrel.

Prices for both benchmarks are down by around 14 percent since late May, when producers led by the Organization of the Petroleum Exporting Countries (OPEC) extended their pledge to cut production by 1.8 million barrels per day (bpd) by an extra nine months until the end of the first quarter of 2018.

Traders said the main factor driving prices lower was a steady rise in U.S. production undermining the OPEC-led effort.

"The U.S. oil rig count continued to rise, up by 6 last week," Goldman Sachs said late on Friday.

"That's 22 weeks in a row that oil rigs have been added, a record run," said Greg McKenna, chief market strategist at futures brokerage AxiTrader.

U.S. producers have added 431 oil rigs since a trough on May 27, 2016, Goldman said. If the rig count holds at current levels, the bank added, U.S. oil production would increase by 770,000 bpd between the fourth quarter of last year and the same quarter this year in the Permian, Eagle Ford, Bakken and Niobrara shale oil fields.

Supplies from OPEC and other countries participating in the output cuts, including top producer Russia, also remain high as some countries have not fully complied with their pledges.

There are also indicators that demand growth in Asia, the world's biggest oil-consuming region, is stalling.

Japan's customs-cleared crude oil imports fell 13.5 percent in May from the same month a year earlier, to 2.83 million bpd, the Ministry of Finance said on Monday.

India, which recently overtook Japan as Asia's second-biggest oil importer, took in 4.2 percent less crude oil in May than it did a year ago.

In China, which is challenging the United States as the world's biggest importer, oil demand growth has been slowing for some time, albeit from record levels, and analysts expect growth to slow further in coming months.

"Reducing the glut of oil will be challenging," ANZ bank said on Monday.

Article Link To Reuters:

How Macron Worked The System For A Giant Parliamentary Majority

By Michel Rose 
June 19, 2017

Emmanuel Macron was visibly irritated last March at a news conference ahead of the first round of the presidential election.

Having begun the campaign as underdog, but by then already front-runner for the presidency, he was repeatedly asked on morning radio shows how he could possibly govern without a party and a parliament majority.

"I must tell you that I'm astonished to hear some commentators pretend or hope that we won't be able to have a majority," he told reporters, before explaining how French presidents had in the past defied the same doubts.

Macron probably had in mind his political history class from Sciences-Po where - like generations of French leaders before him - he was taught about the subtleties of the Fifth Republic's constitutional system.

The regime was designed by wartime hero Charles de Gaulle, who was anxious that the pre-war parliamentary squabbling he blamed in part for France's fall to Nazi Germany could not be repeated.

Known as the "fait majoritaire" theory, it is based on a two-round eliminator system for all elections.

Macron was duly elected president via a combination of strong first round support and the backing in the second round of those who did not want a victory for his run-off opponent, the far-right's Marine Le Pen.

With legislative elections often following the presidentials, the same system has the effect of blocking parties on the edges of the political spectrum, and gives voters an incentive to opt for the sitting president's candidate.

"From the first round of the presidential election, we entered an implacable, inevitable mechanism which would lead to the triumph of the one who was chosen to defeat Marine Le Pen," analyst Jerome Sainte-Marie of pollster PollingVox said.

Macron's rivals did not see that the system could help a party created only a year ago, which had never fielded candidates in a parliamentary election before, and whose leader, at 39, had been unknown to the public three years ago.

But another move by Macron took political experts by surprise and helped amplify his majority on Sunday night to 350 seats or more in the 577 lower house according to projected results. Partial official figures showed he had already reached a majority with 90 seats left to count.

By choosing a young conservative mayor for prime minister, he sowed division and discouragement in an already humiliated Republicans party.

It was the first time a president had chosen a prime minister from outside his political family without being forced to, and the move chimed with French voters' weariness of the Socialists after a chaotic five years in power.

It also undermined the right's argument that Macron was just a continuation of unpopular Socialist President Francois Hollande, under whom he had served as economy minister from 2014 to 2016.

Macron repeated the tactic in his ministerial appointments, stealing leading moderates from both The Republicans and the Socialist party.

He also chose not to contest selected seats, including one where Socialist former prime minister Manuel Valls won on Sunday night without the endorsement of his party, thereby driving home divisions in the traditional parties.

However, analysts warn Macron must not let his self-confidence get the better of him.

Macron has said he wants to embody a "Jupiterian" vision of the presidency - whereby the president, very much like the Roman god of gods, speaks rarely except to issue orders.

He has for instance refused to answer journalists' questions about a minister accused of nepotism.

"The ivory tower effect has always been a danger for the Elysee palace's occupant," political analyst Thomas Guénolé of Sciences-Po university. "Most have fallen into the trap."

Article Link To Reuters:

Zuckerberg’s Opiate For The Masses

If we get ‘universal basic income,’ the millennials will never leave our basements.

By Andy Kessler
The Wall Street Journal
June 19, 2017

At Harvard’s commencement last month, dropout Mark Zuckerberg told eager graduates to create a new social contract for their generation: “We should have a society that measures progress not just by economic metrics like GDP, but by how many of us have a role we find meaningful.” He then said to applause: “We should explore ideas like universal basic income to give everyone a cushion to try new things.” Who wouldn’t like three grand a month?

Having the government provide citizens with a universal basic income is the most bankrupt idea since socialism, but others in Silicon Valley still have been proselytizing money for nothing. “There will be fewer and fewer jobs that a robot cannot do better,” Tesla CEO Elon Musk said at the World Government Summit in Dubai earlier this year. “I think some kind of universal basic income is going to be necessary.”

Robert Reich, President Clinton’s labor secretary, summed up the wrongheaded thinking a few months ago: “We will get to a point, all our societies, where technology is displacing so many jobs, not just menial jobs but also professional jobs, that we’re going to have to take seriously the notion of a universal basic income.”

This is a false premise. All through history, automation has created more jobs than it destroyed. Washboards and wringers were replaced by increasingly inexpensive washing machines, while more women entered the workforce. Automated manufacturing and one-click buying has upended retail, yet throughout the U.S. millions of jobs go unfilled. With Amazon’s proposed purchase of Whole Foods, the online giant is primed finally to bring efficiency to the last mile of grocery shopping—but don’t count on all grocery jobs to disappear.

The economics, which they apparently stopped teaching at Harvard, are straightforward: Lowering the cost of goods and services through automation allows capital—financial and human—to attack even harder problems. Wake me up when we run out of problems.

These kinds of predictions aren’t new, and they’ve been wrong almost always. In 1930 John Maynard Keynes envisioned that his grandchildren would have a 15-hour workweek. Sam Altman, who runs the startup incubator Y Combinator, dabbles in similarly bold but meaningless statements. “We think everyone should have enough money to meet their basic needs—no matter what, especially if there are enough resources to make it possible,” he wrote last year, while admitting he has no idea “how it should look or how to pay for it.”

Where to begin? First, the cost of a universal basic income would make free college for everyone look like austerity. The cost of anything the government touches tends to increase well faster than inflation—education, health care, housing. Price signals get distorted, but since Uncle Sam is paying, no one seems to care. Anyway, why stop at $3,000 a month? Why not $4,000 a month or $40,000? Everyone deserves a MacArthur genius grant!

If last year’s presidential election proved anything, it’s that people want jobs, not handouts. The education system needs reform, but there are already two billion mobile classrooms built into smartphones world-wide. Paying people not to work means you’ll never get them back into the workforce. Why would you want to work when you can bang on a drum all day?

The U.S. is already turning European—I really think so. Remember the Obama administration’s “Life of Julia,” which glorified the nanny state? Every year more Democrats push single-payer health care because competition is deemed too messy. The safety net now has a safety net. These are all on the riverbank of paying people not to work. Universal basic income would be the final drowning of capitalism.

Many Americans really do need help, and no one should be dying in the streets. But why create an entire class of freeloaders out of people who otherwise wouldn’t have sought handouts?

The bigger question is why all these Silicon Valley bigwigs are intent on giving away other people’s money. Perhaps it’s a misplaced sense of shame for their riches. Worse, some believe they are chosen to carry society on their backs while the teeming masses can be paid to idle along. Well, as long as they download the latest apps and are given enough to pay for wireless internet and an iPhone upgrade every few years. Facebook and videogames are already huge mind sinks. Add Mr. Musk’s Neuralink direct brain interface and no one will ever get off the couch.

Most millennials are hardworking and motivated, but have you noticed that the talk of universal basic income comes just as marijuana legalization is making more gains than ever? It’s already been legalized for recreational use in eight states and for medicinal purposes in 29. Universal basic income, combined with legal weed, could ruin an entire generation. We’ll never get them out of our collective basements. Thanks, Zuck.

Article Link To The WSJ:

Trump’s Non-Celebrity Apprentices

An electrician or plumber can make more than a college grad.

By Review & Outlook
The Wall Street Journal
June 19, 2017

One restraint on economic growth is the increasing U.S. labor shortage, especially for jobs that require technical skills. Meanwhile, many college grads are underemployed and burdened by student debt. The Trump Administration is trying to address both problems by rethinking the government’s educational priorities.

President Trump directed Labor Secretary Alexander Acosta last week to streamline regulations to make it easier for employers, industry groups and labor unions to offer apprenticeships. Many employers provide informal apprenticeships for new workers, but the Labor bureaucracy regulates and approves programs whose credentials are recognized industry-wide.

About 505,000 workers are enrolled in government-registered apprenticeships. The programs typically pair on-the-job training with educational courses that allow workers to make money while honing skills in fields like welding, plumbing, electrical engineering and various mechanical trades. While construction apprenticeships are common, training programs are growing in industries like restaurant and hotel management.

Nearly all apprentices receive jobs and the average starting salary is $60,000, according to the Labor Department. That beats the pay for most college majors outside of the hard sciences. Last year’s National Association of Colleges and Employers survey estimated the starting salary of education majors at $34,891 and humanities at $46,065.

For decades the cultural and economic assumption has been that Americans will be better off with a college degree. This is still true overall, and economic returns to education have risen. This is especially true for those with cognitive ability who acquire skills in growth industries like software design or biological sciences. Politicians have responded by subsidizing college almost as much as they do housing—with Pell grants, 529 tax subsidies and more recently debt forgiveness.

Yet the politically inconvenient reality is that not every kid is cut out for traditional college, and those who struggle in high school may be better off learning a trade. Many without academic inclination or preparation often spend years (and thousands of dollars) taking remedial classes to compensate for their lousy K-12 education.

The six-year graduation rate for four-year colleges is 60% while the three-year graduation rate at community colleges is a paltry 22%. The Obama Administration response was to push even more subsidized student debt to force feed even more kids into college. Student debt doubled in the Obama years to $1.3 trillion, which will burden workers and taxpayers for decades.

Another problem is that few colleges and high schools teach vocational skills. The Labor Department Jolts survey of national job openings found more than six million in April—the most since Jolts began tracking in 2000. The vacancies include 203,000 in construction, 359,000 in manufacturing and 1.1 million in health care. These are not jobs that can be filled by Kanye West English deconstructionists. They are also typically jobs that can’t be supplanted by lower-wage foreign competition.

While employers subsidize most apprenticeships, the President has proposed spending $200 million to promote the programs. This would still be a drop in the $26 billion bucket (not including student loans) that Washington spends on higher education each year.

One objection to shifting this money will come from unions that receive much federal job-training money with poor results. But if others can run a better program, they should get the cash. It’s true that most government job-training programs are ineffective, so it’s good that Mr. Trump has instructed federal agencies to compile a list of those that should be eliminated.

An especially odd objection is that apprenticeship training is a mistake because skills become out of date over time, especially later in one’s work life. But that’s a risk throughout the economy, and all the more reason to get young people skills to enter the job market now and build up savings for the future. This makes more sense than subsidizing a college degree for a job at Starbucks .

Perhaps the most important message is that there’s dignity and purpose in all work, college degree or not.

Article Link To The WSJ:

Whole Foods Has Been Forgetting The Customer

By Nicole Gelinas
The New York Post
June 19, 2017

Whole Foods chief John Mackey has finally lost control of his company, which he calls his “baby.” Friday, he sold it to Amazon for 25 percent less than its 2015 value. Irony is, Mackey could’ve avoided this outcome if he’d stuck to the principles of “conscious capitalism” he espouses.

For two years, investors have pressured Whole Foods. Last week, Mackey slammed a hedge fund for pushing him to sell, telling Texas Monthly that “greedy bastards” were “putting a bunch of propaganda out there.” He has a point: many investors want a short-term buck.

But he brought this on himself. His firm committed a common sin: over-expansion during the good times. In 2010, Whole Foods had 299 stores. By last year, it had 456. Demand, as measured by store traffic, has been falling since 2015.

Whole Foods faces tougher competition, too: online purveyors as well as Walmart and Kroger offering organic food.

But Whole Foods’ biggest flaw — one that even agitated investors have missed — is that it stopped respecting its customers. The company can’t deal with busy stores or empty stores.

Take an example of the latter. The store on South Carolina’s Hilton Head Island is vast, shiny and relatively new. It’s also devoid of customers.

The store has dealt with this by taking away what its customers want: perishable food. One day in late May, its fish counter featured one sad cod slab and 12 shrimp. The shrimp were farmed, and from Vietnam.

The clerk duly tried to sell these shrimp — arguing that Whole Foods’ verification system ensured that the Asian shrimp are less polluted that Atlantic shrimp. But other issues aside, this argument doesn’t make sense in the Whole Foods world. The store was saying: Most of our stores have American shrimp, but it’s a good thing we don’t, because it’s polluted.

It also doesn’t make environmental sense to ship frozen shrimp across the planet when the Atlantic Ocean is a 15-minute walk away. So I went to Kroger across the street — which had five types of domestic wild shrimp, and where the clerk, unprompted, told me which one had come in off that day’s boats.

Another problem was apparent on other visits: unpredictability. Sometimes the store had American shrimp, sometimes they didn’t.

OK, so what about a successful Whole Foods — like Manhattan’s Columbus Circle? When the store opened in 2004, it became famous for its crowds and its lines. That was, it seemed, a good thing: People love the brand so much they’ll fight Penn Station-like hordes to stand in line for 15 minutes.

The crowds and lines still exist, sometimes. But the customers look more like they’re lamenting being stuck at a 1990s Kmart because of their own poor daily planning instead of happy to participate in an organic community.

Whole Foods’ aisles are too cluttered with marketing booths and stocking carts, making shopping there stressful. And the way the store manages its lines invites conflict.

People constantly get the numbered system wrong, and go to the wrong register, leaving everyone confused and annoyed.

Inconsistency abounds here, too: sometimes Whole Foods has a clerk to manage the lines, sometimes it doesn’t. Sometimes the store has every register manned and is looking vaguely concerned about its customers’ wait time, sometimes it doesn’t.

The same thing happens at busier stores’ meat and fish counters. The stores can’t manage customer flow, forcing customers into conflict with one another.

As for same-store sales: it can’t help the bottom line that when clerks can’t figure something out, they give up and give the item to the customer. This happens a lot — and with expensive stuff (thanks!).

To be fair, Whole Foods sometimes gets it right, as in Boston, Chicago and London. And — usually — the produce, meat and fish are still better than competitors’.

Mackey, who’ll continue to run the Amazon-owned firm, is one of those CEOs who isn’t satisfied with running a business. He’s out on book tours talking up “conscious leadership” and “value for all stakeholders” and such. But “conscious leadership” might involve incessantly walking your stores.

Article Link To The NY Post:

With Whole Foods, Amazon On Collision Course With Wal-Mart

By Nandita Bose and Jeffrey Dastin 
June 19, 2017

When Wal-Mart Stores Inc bought online retailer for $3 billion last year, it marked a crucial moment - the world's largest brick-and-mortar retailer, after years of ceding e-commerce leadership to arch rival Amazon, intended to compete.

On Friday, Inc countered. With its $14 billion purchase of grocery chain Whole Foods Market Inc, the largest e-commerce company announced its intention to take on Wal-Mart in the brick-and-mortar world.

The two deals make it clear that the lines that divided traditional retail from e-commerce are disappearing and sector dominance will no longer be bound by e-commerce or brick-and-mortar, but by who is better at both.

Amazon's purchase of Whole Foods also brings disruption to the $700 billion U.S. grocery sector, a traditional area of retailing that stands on the precipice of a ferocious price war. German discounters Aldi and Lidl are battling Wal-Mart, which controls 22 percent of the U.S. grocery market, with each vowing to undercut whatever price the others offer.

The stakes are highest for Wal-Mart. Amazon's move aims at the heart of the Bentonville, Arkansas-based retail giant's business - groceries, which account for 56 percent of Wal-Mart's $486 billion in revenue for the year ending Jan. 31. With the deal, Whole Foods’ more than 460 stores become a test bed with which Amazon can learn how to compete with Wal-Mart’s 4,700 stores with a large grocery offering that are also within 10 miles (16 km) of 90 percent of the U.S. population.

Amazon is expected to lower Whole Foods' notoriously high prices, enabling it to pursue Wal-Mart's customers. The push comes as Wal-Mart is headed in the opposite direction - going after Amazon's higher-income shoppers with a recent string of acquisitions of online brands such as Moosejaw and Modcloth and on Friday, menswear e-tailer Bonobos.

Wal-Mart may be ready. In preparation for the grocery price war, Wal-Mart in recent months has cut grocery prices, improved fresh food and meat offerings, modernized shelving and lighting in its grocery aisles, and expanded its online grocery pickup service.

Marc Lore, the founder who now runs Wal-Mart's e-commerce business after selling a startup to Amazon, told Reuters in an interview that Amazon's move does not change Wal-Mart's game plan. "We're playing offense," he said.

Wal-Mart is offering curbside pickup of online grocery purchases at 700 locations, with 300 more planned by year end. It also is testing same-day fresh and frozen home delivery from 10 of its stores. "We see an opportunity to do a lot more of that," Lore said.

Roger Davidson, who oversaw Wal-Mart's global food procurement and now is president of Oakton Advisory Group, said the deal will reduce Wal-Mart's brick-and-mortar advantage.

"I think this acquisition is a concern," he said.

Some industry observers say Amazon will find it difficult to use Whole Foods to pull away Wal-Mart shoppers because the two stores appeal to different customers.

But Michelle Grant, head of retailing at market research firm Euromonitor, said Amazon could use an obscure part of the Whole Foods portfolio - Whole Foods 365 - to lure Wal-Mart shoppers.

Whole Foods 365 offers private-label goods and lower prices than typical Whole Foods stores, and is targeted at younger, value-conscious shoppers. Amazon could provide the financial capital and tactical ability to build that into something big.

"That (Whole Foods 365) may become a big problem for Wal-Mart," Grant said.

Amazon, which reported $12.5 billion in cash and equivalents and a free cash flow of $10.2 billion in the year ended March 31, has plenty to spend. Wal-Mart reported $6.9 billion in cash and equivalents and $20.9 billion in free cash flow at its year ended Jan. 31.

Brittain Ladd, a former senior manager at Amazon who worked on its brick-and-mortar strategy, said Amazon will use Whole Foods to test concepts for the grocery store of the future.

Ladd, who left Amazon in March, said Amazon will seek to eliminate checkout lines by using technology that automatically scans goods as customers add them to their shopping carts. It will select merchandise based on Amazon's vaunted customer data, and potentially expects the use of technology to change prices during the course of a day.

Amazon declined comment on competition with Walmart but spokesman Drew Herdener said in a statement the company has no plans to cut jobs or use technology in development at its Seattle Amazon Go store to automate jobs of cashiers.

Ladd, who helped with AmazonFresh's global expansion and now is a supply chain consultant, said an Amazon-owned Whole Foods also likely will offer in-car pickup of online purchases, and home delivery from Whole Foods stores, add pharmacies and showcase Amazon devices inside the stores.

"Amazon will reduce prices and change the assortment of products carried in Whole Foods stores to attract a larger customer base," said Ladd. "Kroger and Wal-Mart will be impacted as their customers will defect to Amazon."

Article Link To Reuters:

The S&P 500 Has Already Met Its Average Return For A Full Year, But Don't Expect It To Stay Here

-- The average annualized total return for the S&P 500 index over the past 90 years is 9.8 percent.
-- Yet from 1928 to 2016, only six years finished with a gain within five and 10 percent, according to LPL Financial.

By Michael Santoli 
June 19, 2017

The average annualized total return for the S&P 500 index over the past 90 years is 9.8 percent. For 2017, in just under half a year, the S&P 500's total return is 9.7 percent.

Looking at these facts side by side, it might seem the market has been twice as generous as usual so far this year, tempting a wary investor to back away from stocks or expect next to nothing more over the coming six months.

Yet equity returns come in waves, not in metered doses. The market gets on a roll, overshoots, retrenches, and sometimes—as in the 18 months ended last November—just slides sideways.

One of the market's more intriguing and mischievous traits is that it rarely produces the long-term "average" return in a given calendar year.

Looking now only at price returns (not counting dividends), a gain between five and 10 percent is one of the rarest results for stocks. According to data furnished by LPL Financial senior market strategist Ryan Detrick, in the 89 years from 1928 to 2016, only six finished with a gain in that range that we think of as a "typical" annual return.

More than a quarter of all years saw better than 20 percent appreciation. And Detrick notes, too, that the S&P 500 advanced 9.5 percent last year - and has never seen two straight years of gains between five and 10 percent.

So, if the historical odds are against stocks just idling near this level for the next several months, which way are they likely to go?

Strictly looking at past periods that closely resemble this one - quiet years in an uptrend, with plenty of new highs and good market breadth - the evidence points toward further gains in the second half. Yet the calm is increasingly likely to be interrupted by the sort of more noteworthy downdraft that we haven't had in quite a while.

When the S&P 500 was up at least 7.5 percent on its hundredth trading day of a year, as it was this year, it added to those gains through year-end 20 out of 23 times.

And since 1950, when the S&P 500 has made at least 15 new all-time highs through May, it was far more likely to keep rising through December, and the average further gain over the final seven months was 7.7 percent, far better than the 4.5 percent average for June-December in all years.

A slightly different screen by Sam Stovall of CFRA - testing for years with as many new highs and similar lack of volatility as 2017 - found a similarly heavy probability of generous further upside.

The largest and most significant exception to these patterns came in 1987 - a year that began with powerful upside momentum, faltered in mid-summer, then crashed in October to wipe out the early-year gains. It's a scary year to come up in the comparative analysis.

But it's also important to note the market was up a whopping 40 percent in the first seven months of that year - a ferocious blow-off rally. And stocks got very jumpy and started losing altitude badly in August. The crash did not blindside an otherwise placid tape.

Still, this market has gone so long without even the sort of routine 5 percent pullback that visits even the best of years that even bullish investors should be checking their mirrors and blind spots.

The recent wobble in big-cap tech stocks that dropped the Nasdaq 100 (NDX) index by 4.5 percent could foreshadow at least a mild gut check for the broader market. Investor Urban Carmel of the Fat Pitch blog notes, "In the past seven years, falls of more than 4 percent in NDX have preceded falls in SPY of at least 3 percent. That doesn't sound like much, but it would be the largest drop so far in 2017."

Seasonal patterns, which have an iffy record in the past year or so, also suggest the market should get choppier pretty soon, for what that's worth. The best way to prepare for what an inherently unpredictable market might deliver is to assess the weight of the evidence and remain open to a range of outcomes.

Maybe if the market does keep chugging a good deal higher, it will finally deserve the "bubble" label (which it really doesn't right now), and perhaps it will grow more unstable as it does so, and be hounded by a collicky credit market rather than the current stoic one. None of this is observable yet.

One of the least welcome messages in the latter part of a bull market, with more than enough discomfiting headlines to go around, is "Don't worry so much." But, for better or worse, this is what the probabilities are suggesting at the moment.

Sure, stout valuations today imply so-so returns over the long term. But, remember, the market bestows its returns in unpredictable gulps, not measured sips.

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Tech Selloff Remains A Concern After Fed Hike, Tepid Economic Growth

Nasdaq is off 2.7% since peaking a little more than a week ago.

By Wallace Witkowski
June 19, 2017

As tech shares continue to sell off, investors are focusing more on how that market-leading sector will dictate the direction of the broader benchmarks in the coming week as the Federal Reserve has signaled a commitment to tightening and economic data remain lackluster.

On Friday, the Dow Jones Industrial Average DJIA, +0.11% closed at a record, notching weekly gains for a fourth straight week, while the S&P 500 index SPX, +0.03% finished fractionally higher, and the Nasdaq Composite Index COMP, -0.22% sank 0.9% for the week.

Tech stocks will remain a focus as their recent selloff has shown few signs of reversing following the Federal Reserve’s rate hike and expectations of another one in September coupled with a paring of the Fed’s $4.5 trillion balance sheet, said Bob Pavlik, chief investment strategist at Boston Private Wealth. How oil pricesCLN7, -0.49% test a $44 a barrel floor will also be a focus for the week, he said.

Since reaching a closing high of 6,321.76 on June 8, the Nasdaq has pulled back 2.7%, with shares of Netflix Inc. NFLX, +0.41% down 8.5% since then, shares of Apple Inc. AAPL, -1.40% falling 6.9%, shares of Inc. AMZN, +2.44% declining 4.6%, Alphabet Inc. GOOG, -0.27% shares falling 4.4%, Facebook Inc.FB, +0.56% shares off 3.2%, and Microsoft Corp. MSFT, +0.14% shares shedding 2.9%.

Pavlik sees a risk-off trade going on with money from recent large-cap tech highfliers going into more defensive areas of the market. On the week, tech shares were the biggest losers on the S&P 500, finishing down 1.2%, while traditionally defensive utilities rose 1.4%.

He’s concerned that the Fed is going on the belief that the economy is in a temporary slowdown, rather than one that may be more protracted.

“The rotation is coming out of these highfliers into more defensive areas because if they raise rates for a third time — four rates hikes in nine months — I’m not sure the economy can weather that right now,” Pavlik said. “It makes me think that the Fed is seeing something that may not necessarily be there.”

Pavlik pointed to a peak in the February Institute for Supply Management’s manufacturing index that has drifted since and stagnating growth in the ISM services index along with weak retail sales growth, very few signs of inflation and with a downtrend in oil prices, as signs the economy may not be as strong to weather further tightening.

“They may get 2% [inflation] but I don’t think it stays there, especially if oil breaks below $44 a barrel then you’ll see prices in the 30s, so there goes your energy component,” Pavlik said.

Plus, developments in the special counsel investigation of Russian interference in the 2016 election and President Donald Trump and his advisers will likely remain on the forefront with a lack of economic data coming out.

“It’s probably going to be a quiet week: A majority of economic reports have been disappointing, we’re still a ways from earnings, Washington has created a panic exhaustion for investors, and I’m not expecting tech [movements] to spill into the broader market,” said Randy Frederick, managing director of trading and derivatives at Schwab Center for Financial Research.

“I think we may see some modest profit-taking but that’s not much of a worry,” Frederick said.

As far as economic data go: May existing-home sales come out on Wednesday, May leading economic indicators are released Thursday, while the June Markit PMI flash and May new-home sales Friday come out Friday.

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America Sings The Postindustrial Blues

By Robert J. Samuelson
The Washington Post
June 19, 2017

Ever since President Trump’s election, a cottage industry of politicians, journalists, scholars and commentators has sought to understand what motivates Trump supporters. Theories have ranged from globalization to a rebellion against Washington elitism to racism. But the true cause may have been overlooked: the “postindustrial society.”

It has imposed on the economy a wage structure that systematically generates inequality between the majority of Americans and the upper middle class, roughly defined as the top 20 percent with a threshold income of a bit more than $100,000. We have two new studies that demonstrate this, though neither explicitly uses the term postindustrial society.

Consider. From 1960 to 2014, the annual earnings, corrected for inflation, of men who are professionals and business executives rose 70 percent, reports Stephen Rose in a study for Third Way, a slightly left-of-center think tank. By contrast, annual earnings for male factory workers rose only 18 percent over the same period.

Not only are low-skilled white men lagging behind the advances of upper-middle-class white men, says Rose, but they may also be surpassed by “many more women and racial minorities” who qualify for managerial and professional jobs that were once off-limits. Since 1960, “the white male working class has exhibited a dramatic fall in status.”

Just so, echoes Richard Reeves of the Brookings Institution in his new book “Dream Hoarders.” We should not be surprised that 58 percent of whites and 67 percent of whites without a college degree voted for Trump, he says.

“Too often the rhetoric of inequality points to a ‘top 1 percent’ problem, as if [all] the ‘bottom’ 99 percent is in a similarly dire situation,” Reeves writes. “This obsession with the upper class allows the upper middle class to convince [itself] we are in the same boat as the rest of America; but it is not true. . . . Those of us in the upper middle class are not the victims of growing inequality. We are the beneficiaries.”

The coming of the “postindustrial society” was first popularized by Harvard University sociologist Daniel Bell in a 1973 book by the same name. At the time, the U.S. economy was still dominated, symbolically at least, by heavy industry: steel, autos, appliances, aluminum, coal mining and oil production, among others. But Bell showed that the industrial sector was rapidly being overtaken by services — retailing, health care, travel, education, entertainment (including eating out), banking and other services.

The consequences of this upheaval would be many, Bell said. The record of scholars — or anyone else — in divining the future is dismal. But Bell is the exception; many of his predictions have actually come to pass. Among them:

Services would continue to expand their share of the economic pie. True. They now represent almost two-thirds of the economy, up from about half in the early 1970s.

Manual labor — factory work, construction, mining — would shrink as a share of employment. Also true. In 1960, manual jobs represented 47 percent of men’s employment, according to Rose. By 2014, the share was 27 percent.

More education was a requirement for society’s economic success — the need was for “knowledge workers” — and also was a marker of social standing. As late as 1960, 51 percent of U.S. workers hadn’t finished high school; by 2014, the comparable figure was 9 percent, says Rose. Over the same period, the share of college graduates tripled, from 10 percent to 35 percent.

By and large, these realities define today’s postindustrial wage structure. Knowledge workers — doctors, lawyers, engineers, scientists, computer specialists, corporate managers — have generally done better than average. But the erosion of manual jobs has hurt blue-collar men — more workers compete for relatively fewer spots — and many service-sector jobs (in restaurants, stores and hotels) are relatively poorly paid.

Through the 1960s, all workers’ incomes advanced fairly evenly, and people’s relative economic positions didn’t change much. That’s no longer true, say Rose and Reeves. “Over the last three or four decades, income inequality has increased in the United States, but only at the top,” writes Reeves. “There has been no increase in inequality in the bottom 80 percent of the population.”

The resulting resentment and disillusion are often cited as the true sources of political anger. In reality, they are the consequences of disappointment. As the rise of the postindustrial society shows, it’s difficult for government to override widespread economic and social changes. Just whether we can alter that is — and will be — a major focus of political debate.

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