Why is Donald Trump Acting Like A Russian Oligarch?

It’s becoming clear why Presidential Candidate Trump and Russian President Putin have been so chummy with each other. Trump has become dependent on Russian oligarchs to fund his real estate ventures, since U.S. banks no longer will because of his various bankruptcies and history of failure to pay his debts.

One of his sons even admitted so. “Russians make up a pretty disproportionate cross-section of a lot of our assets,” Trump’s son, Donald Jr., told a real estate conference in 2008, according to an account posted on the website of eTurboNews, a trade publication. “We see a lot of money pouring in from Russia.”

And the FBI has nothing to say about the fact that Donald Trump has become so dependent on Russian oligarchs. Yet what looks like blatant collusion in illegal activity between Trump and Russian oligarchs has been documented in lawsuits, and much more since the Donald has been unable to borrow from U.S. banks.

He has had to depend on Russian oligarch monies, many of them either Russian Mafia figures or close associates of Vladimir Putin, to fund his real estate empire. And he has repaid them by adopting their playbook—discredit NATO and U.S. alliances, call for hacking of Hillary’s emails, and lauding Putin as a stronger leader than President Obama..

That is why the latest FBI fiasco—Director Comey’s refusal to discuss their ongoing investigation into Donald Trump’s Russian connections—is so damaging to our national security, even though he had no problem discussing their investigation into Hillary Clinton’s “extremely careless” use of a private email server. It means the FBI has lost credibility as a transparent and impartial institution.

Trump’s Russian connections have been well documented. Let’s ignore the possible link to Vladimir Putin, which he claims to never have met, though he did invite him to a meeting when Trump brought his 2013 Miss Universe pageant to Moscow.

The real connections are with those Russian oligarchs surrounding Putin, which number some 120 billionaires that own most of Russia’s assets, according to a former Russian hedge fund manager. Many have invested in Trump properties. The fact that Trump won’t disclose his taxes is almost proof in itself that he doesn’t want those connections revealed.

Why wouldn’t Trump want to reveal the extent of those connections, if legal? Because much of it could be laundered money that Russia’s plutocrats have stolen from Russians, and their own government.

A Times Magazine article detailed this. As major banks in America stopped lending him money, the Trump organization was forced to seek financing from non-traditional institutions. Several had direct ties to Russian financial interests in ways that have raised eyebrows. What’s more, several of Trump’s senior advisors have business ties to Russia or its satellite politicians, such as former campaign manager Paul Manafort..
It also explains why Russia has been hacking DNC email accounts, including that of Clinton Campaign Chief of Staff John Podesta.

“The Trump-Russia links beneath the surface are even more extensive,” Max Boot, a senior fellow at the Council on Foreign Relations, wrote in the Los Angeles Times. “The Russians have every reason to sabotage the Democratic candidate. Her opponent, Donald Trump, is more pro-Russia than any previous presidential candidate.  As far back as 2007, Trump was telling CNN that Russian President Vladimir Putin was doing a “great job.” In 2013, Trump tweeted: “Do you think Putin will be going to The Miss Universe Pageant in November in Moscow - if so, will he become my new best friend?”

“In 2015, Trump told MSNBC that Putin was a real leader, said Boot, “unlike what we have in this country,” and that reports of Putin killing political opponents didn’t bother him — “Well, I think our country does plenty of killing also,” he said..”

Trump has become so popular with Russian oligarchs because he is willing to aid and abet the laundering of their money, in other words, mostly obtained by criminal activity.

Bill Browder, CEO of Hermitage Capital Management, has written and testified extensively how President Putin and his cronies have milked the Russian economy in his best-seller, Red Notice, A True Story of High Finance, Murder, and One Man’s Fight for Justice.

In Browder’s case, Putin, et. al. were able to obtain a refund of Hermitage Capital’s last $230 million tax payment to the Russian Government in 2005 by simply raiding their Moscow offices and changing corporate ownership documents, then altering the corporate tax returns for that year so they would show a loss of $230 million, which was then refunded to the new ‘owners’, who were revealed to be members of the FSB, Russia’s FBI and Secret Service, and government officials that aided in the tax fraud.

This was all revealed in testimony before the U.S. Congress and European Parliament, and has resulted in the seizure of foreign assets and travel bans for 38 of those implicated in the scheme.

We therefore have to ask why the FBI won’t reveal details of their ongoing investigation of Donald Trump’s Russian connections that have already been so damaging to our election process, and could cause even more damage to our national security in the future?

Harlan Green © 2016

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Personal Incomes, Manufacturing Remain Strong Before Unemployment Report

Popular Economics Weekly

Personal income rose a solid but slightly lower-than-expected 0.3 percent in September, reports the Commerce Department’s Bureau of Economic Analysis (BEA). The wages & salaries component rose 0.3 percent, another sign of rising incomes. That’s why consumer spending was especially solid in September. So-called Personal Consumption Expenditures, a proxy for retail sales, rose an as-expected 0.5 percent and reflecting the month's strength in vehicle sales.

Graph: Econoday

U.S. Manufacturing is also strong, according to the ISM’s Manufacturing Index. "The October PMI^® registered 51.9 percent, an increase of 0.4 percentage point from the September reading of 51.5 percent, “ said Bradley J. Holcomb, CPSM, CPSD, chair of the Institute for Supply Management^® (ISM^®) Manufacturing Business Survey Committee.

The New Orders Index registered 52.1 percent, a decrease of 3 percentage points from the September reading of 55.1 percent. The Production Index registered 54.6 percent, 1.8 percentage points higher than the September reading of 52.8 percent. The Employment Index registered 52.9 percent, an increase of 3.2 percentage points from the September reading of 49.7 percent.

Graph: Econoday

In other words, manufacturing employment, production and deliveries were up, though new orders dropped slightly. This tells us, along with the strong auto sales that Friday’s unemployment report should also be solid. The consensus among economists is 175,000 payroll jobs will be added. Today’s ADP private payroll survey estimated a slightly lower total of 147,000, vs. its September 202,000 revised total.
But if the Labor Department’s Friday’s payroll numbers are lower than predicted, it may keep the Fed from raising rates in December, as was just hinted in its policy statement released at the end of today’s FOMC meeting.

“The committee judges that the case for an increase in the federal funds rate has continued to strengthen but decided, for the time being, to wait for some further evidence of further progress toward its objectives.”

Bond and mortgage rates have been rising as a consequence of the expectation that the Fed will eventually raise their rates. The Fed said inflation has been moving up toward its 2 percent target since the beginning of the year.

But is the economy strong enough to warrant a rate increase? GDP growth in the third quarter was 2.9 percent, highest in 2 years. Shouldn’t we wait at least several more quarters to see if this growth rate will continue?

Harlan Green © 2016

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Q3 GDP Growth Fastest In 2 Years

Financial FAQs

Third quarter GDP growth was the fastest in two years, aided by a spike in soybean and other U.S. exports and a rebound in the size of inventories companies keep on hand for sale, reports the U.S. Bureau of Economic Analysis. Critics are saying this can’t last, because soybeans are not a dependable export, and inventories tend to fluctuate wildly. When exports drop below imports, the difference subtracts from growth.

The BEA said gross domestic product, the official scorecard for the economy, expanded at a 2.9 percent annual clip from July through September. That’s a marked improvement from the first half of the year when the U.S. grew just barely over 1 percent.

And mainly because of full employment and rising wages, consumers are spending again and should through the holiday season. So we should see excellent GDP growth prolonged into Q4 as well.

Personal consumption expenditures rose at a solid 2.1 percent annualized rate led by an important durables component which surged at a 9.5 percent rate (i.e., things like autos that last more than 3 years). Personal consumption was the largest contributor in the quarter, adding 1.5 percentage points to the quarter's GDP rate.

Boosted by foods and specifically soybeans, exports rose at a double-digit 10.0 percent rate, more than offsetting a 2.3 percent rise in imports—which are subtracted from exports, as I said, so that net exports added 0.8 percentage points to the quarter.

Another important positive in the report is a second straight quarter of improvement in what has been low business investment. Contributing 0.2 percentage points to GDP, so-called nonresidential fixed investment rose at a 1.2 percent rate on top of the second-quarter's 1.0 percent rate. Inventory change was also a positive in the quarter (0.6 point contribution) as were government purchases (contributing 0.1 percentage points). A negative for a second straight quarter was residential investment, falling at a 6.2 percent rate and pulling GDP down by 2 tenths.

Graph: Econoday

Another number that buttresses higher growth is the Employment Cost Index, a little-known indicator that tracks actual wages and benefit costs. It shows that wages and salaries are rising again, and which means more buying power for consumers.

For the third straight quarter, employer costs rose a quarter-to-quarter 0.6 percent in the third-quarter. Component contributions shifted slightly with wages & salaries down 1 tenth to plus 0.5 percent and benefits up 2 tenths to plus 0.7 percent. Year-on-year, total costs held steady at a moderate plus 2.3 percent with wages & salaries dipping 1 tenth to 2.4 percent and benefits up 3 tenths to 2.3 percent.

This doesn’t really show higher inflation, but since employment costs are two-thirds of product costs, the Fed watches it closely for that reason. But who knows? The stock and bond markets are predicting a near-term hike in short term rates, when Fed Chair Yellen hasn’t yet indicated such hikes are imminent.

Harlan Green © 2016

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Housing Sales, Prices Continue Skyward

The Mortgage Corner

The S&P Case Shiller Home Price Index continues to soar, with Seattle and Portland existing-home prices up double digits in a year, while Dallas and Denver are up some 8 percent annually.

Case-Shiller’s national index is within a hair of its 2006 peak — just 0.1 percent below. The smaller 20-City index is 7.2 percent lower. Tight inventory has constrained the housing market for years, driving prices higher. Many analysts have expected to see price gains decelerate in response, especially in overheated metros like San Francisco, but that hasn’t happened yet. San Francisco prices were flat in July but picked up again in August, and are up 6.7 percent in a year.

September existing-home sales are also soaring again, after a slight drop in August. September sales surged 3.2 percent to a 5.470 million annualized rate that exceeds Econoday's high estimate. The key single-family component leads the report, up 4.1 percent to a 4.860 million rate while condos, where choices are limited and permits for new building are on the rise, fell 3.2 percent to a 610,000 rate.

Graph: Econoday

It is possible because mortgage rates are still at record lows, with the 30-year conforming fixed rate still as low as 3.0 percent for those that want to buy down the rate and have excellent credit. Fannie and Freddie offer their best rates to those with 740 plus credit scores.

This has enabled more first-time homebuyers to own homes, with their percentage up to 34 percent of sales. Regionally, September sales were strongest in the West, up 5.0 percent for a year-on-year gain of 1.6 percent, and in the Midwest, up 3.9 percent on the month for a year-on-year plus 2.3 percent. Total year-on-year resales are up but only fractionally, at plus 0.6 percent.

But the existing-home inventory of homes for sale is still at a 4.5 month supply at the current sales rate, hardly enough to supply the rising demand from first-time homebuyers. And so new-home sales have to eventually fill the void.

New-home sales are still struggling in September, up 3.1 percent to a 593,000 annualized rate, though sharp downward revisions to both August (575,000 from 609,000) and also July (629,000 from 659,000) do lower expectations for more solid strength in the new home market. But year-on-year, sales are up 30 percent in what is a sharp contrast to the fractional 0.6 percent gain on the existing-home side.

Graph: Econoday

The potential for more inventory is mixed with new-home construction permits higher in what is a deceptively solid housing starts & permits report. Starts plunged what looks like a shocking 9.0 percent in September, to a 1.047 million annualized rate. But the drop is tied entirely to the volatile multi-family component where starts fell a massive 38 percent in the month to a 264,000 rate. The more important single-family component is up sharply in its own right, 8.1 percent higher to a 783,000 rate.

We can therefore see from the graph that starts are still on an upward trend, which is needed if we want housing prices to mitigate their sharp rises of late, and so make housing more affordable to those youngest household-forming adults.

The demand is there as evidenced by the sharp rise in new-home prices nationally, up 6.7 percent in the month to a median $313,500. And further price gains can be expected as the year-on-year gain, in contrast to the surge in sales, is only 1.9 percent, says Econoday.  While the existing-home median price is already up 15 percent this year, per the NAR’s affordability index.

Harlan Green © 2016

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Hillary Clinton, A New FDR?

Popular Economics Weekly

Even President Obama, among others, has said Hillary Clinton is one of the most qualified presidential candidates ever. And she has been advocating a new New Deal for America, including tuition-free public universities and colleges, paid maternity leave, child care, expanded social security and Medicare benefits, as well as more public investment at a time when the private sector has severely cut back on productive investment of any kind.

She would also be our first female president. So how should we compare her to FDR, our father figure during the Great Depression and WWII, at a time of economic suffering from the second worst depression we have just lived through?

What is little know is that the major New Deal programs created during the Great Depression, including Social Security, unemployment insurance, and the 40-yr work week, were designed and created by a female Labor Secretary, Francis Perkins, whom he had brought with him from his New York state governorship.

During her term as Secretary of Labor from 1933 to 1946, Secretary Perkins created the Civilian Conservation Corps, the Public Works Administration (WPA), and the labor portion of the National Recovery Industrial Act. With the Social Security Act, she established unemployment benefits and pensions for the many uncovered elderly Americans, and welfare for the poorest Americans. She pushed to reduce workplace accidents and helped craft laws against child labor. Through the Fair Labor Standards Act, she established the first minimum age and overtime laws for American workers, and defined the standard forty-hour work week.

Yes, Francis Perkins, a woman, was the real designer and implementer of most of the New Deal programs, without which we would not have weathered the Great Depression with enough economic strength to win WWII.

So might Hillary Clinton provide a similar vision for America during these divided times when so much of the rest of the world wants what we have? Her drive to provide tuition-free public colleges is a first step.

The now $1 trillion in student debt is holding back economic growth, for starters. It prevents students from investing in their future growth, such as a profession they prefer, rather than continuing to pay for the past investment in themselves. It has held back the number of college graduate that both earn higher salaries and are more fully employed than non-college graduates.

A recent NBER Working Paper by economist Enrico Moretti, showed a percentage point increase in the supply of college graduates raises high school drop-outs' wages by 1.9 percent, high school graduates' wages by 1.6 percent, and college graduates wages by 0.4 percent. The effect is larger for less educated groups, as predicted by a conventional demand and supply model. But even for college graduates, an increase in the supply of college graduates increases wages, as predicted by a model that includes conventional demand and supply factors as well as spillovers, said Dr. Moretti.

Graph: CAP

It is particularly important that the United States increases its investment in postsecondary education in the face of rising competition from its international peers, and having government take on the burden of public university debt is a first step. As recently as 1996, the United States had the second highest share of adults who had earned postsecondary education credentials and the highest share of adults with university degrees, in part because there was little or no tuition until the 1970s, when governments began to cut back on their share of state university funding, which was then taken up by rising tuition fees.

More recently, however, America’s level of achievement has fallen behind other nations. In 2012, the most recent year measured, the United States ranked fifth in the percentage of adults who had earned postsecondary education credentials, according to the Center for American Progress. Even more worrisome, the share of young Americans—those between the ages of 25 and 34—with postsecondary credentials has dropped to 12th relative to other nations, while those possessing university degrees fell to 14th.

Why is Hillary so qualified? President Roosevelt had a history of public service, first as Assistant Secretary of the Navy, then New York Governor, before serving as our President from 1932-45. Hillary has had 30 years of service, including as a State Senator, Secretary of State, and First Lady. And such a broad record of service is what it will take to even begin to heal our fractured society.

Harlan Green © 2016

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Housing Construction--Slow But Steady Increase

The Mortgage Corner

Single-family housing construction rose in September. Though overall starts plunged what looks like a shocking 9.0 percent in September, to a 1.047 million annualized rate, said Econoday. The drop is tied entirely to the volatile multi-family component where starts fell a massive 38 percent in the month to a 264,000 rate. But the more important single-family component is up sharply in its own right, 8.1 percent higher to a 783,000 rate.

Graph: Calculated Risk

However, no problem, as multi-family construction starts were up sharply in August. But the graph really shows how far we need to catch up to prior years. There just aren’t enough affordable homes to satisfy demands for more affording dwellings, and the Fed is now hinting at a December rate hike.

What will happen to those millennials that want to buy their first home? However builder confidence is still high, according to the Wells Fargo Home Builders Index, and purchase mortgage applications are up 13 percent in a year, which may be the reason builders are still optimistic about future construction and inventories.

Builder confidence in the market for newly constructed single-family homes was down just two points to a level of 63 on the National Association of Home Builders/Wells Fargo Housing Market Index (HMI).

Graph: NAHB.org

  “The October reading represents a mild pullback from a jump in September, and indicates that the housing market continues to make slow and steady gains,” said NAHB Chief Economist Robert Dietz. “Moreover, mortgage rates remain low and the HMI index measuring future sales expectations has been over 70 for the past two months. These factors will sustain continued growth in the single-family market in the months ahead.”

So there may be a lull in sales, as the NAR’s Pending Home Sales Index of future sales is also lower. According to NAR chief economist LawrenceYun, evidence is piling up that without more new home construction the current housing recovery could stall. Housing inventory has declined year-over-year for 15 straight months; properties in August typically sold 11 days quicker than in August 2015¹ and after increasing 5.1 percent last month, existing-home prices have risen year-over-year for 54 consecutive months.

"There will be an expected seasonal decline in new listings in coming months, which could accelerate price appreciation and make finding an affordable home even more of a struggle for would-be buyers," added Yun.

Mortgage rates have bumped up slightly, with 30-year fixed conforming rates now 3.125 percent for a 1.0 pt. origination fee, and 3.375 percent for no points in California, which is helping to boost the mortgage volume. The question then will be, who can afford to buy without more homes in the construction pipeline?

Harlan Green © 2016

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Is Retail Sales Pickup For Real?

Financial FAQs

September retail sales rose: total up 0.6 percent, ex-auto up 0.5 percent, ex-auto ex-gas up 0.3 percent, which indicates a good holiday season for retail. But this is bucking the downward trend that has sales sinking to the 3 percent range since 2014—not what is needed for a continuing recovery. This is even though the jobs market is looking good, with job openings still at almost record levels and the unemployment rate at 5 percent.

Graph: Econoday

Auto sales are the highlight of the September retail report, up 1.1 percent to reverse the prior month's 0.3 percent decline. Auto sales, a discretionary category, have been solid this year though down from last year's peak. Restaurants, another discretionary category, are also strong, up 0.8 percent to add to August's 0.7 percent gain.

Job openings fell to 7.3 percent in August to 5.443 million at the same time that hiring, instead of rising, slowed by 0.9 percent to 5.210 million. And though the openings number is the lowest since last December, the hiring number is more respectable, ranking as the fourth highest so far this year.

Graph: Econoday

We still have a problem with male blue collar workers, however. Some 7 million, or 11.4 percent of men between 25 and 54 years of age, have stopped looking for work, according to Princeton Economist Alan Krueger. The causes are many, including physical disabilities, but also because of lack of skills required in this fast changing economy. Most have no college or post-high school technical education, according to Dr. Krueger. And 40 percent take some kind of opioids, most painkillers.

This is the hard core of the unemployed that need government assistance the most—such as universal healthcare (that includes being able to negotiate for drug costs), and government-funded infrastructure jobs that would encourage them to return to the jobs market.

And those most affected are in the poorest red states that have rejected Obamacare, in particular, which tends to hurt the unemployed most , thus stoking their anger. It is times like these that require a fully-funded and functional social safety net, in other words.

So it really is the huge loss in both residential and public investment construction that has most hurt this recovery, and resulted in the huge backlog of deferred bridge, highway, and energy infrastructure improvements. Residential construction of new homes is roughly two-thirds of what it was in 2005, for instance.

Whereas the private sector has gained some 11 million jobs, governments haven’t yet hired back all those that lost their jobs due to the Great Recession Which in many ways was greater than the Great Depression. I.e.,, more wealth was lost with less GDP growth since 2008 than in the Nineteen-Thirties because we did not have a new New Deal that could employ millions in the public sector when the private sector economy collapsed.

This happens when tax revenues plunge, and state governments in particular have to balance their budgets. There has to be a massive reinvestment in our future growth, in other words, for this economy to really recover and put those 7 million still disenfranchised back to work.

Harlan Green © 2016

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