Monday, November 20, 2017

Monday, November 20, Morning Global Market Roundup: European Markets Jarred By German Coalition Collapse

By Abhinav Ramnarayan
November 20, 2017

European stocks slipped and safe haven government bonds were in demand early on Monday as the collapse of coalition talks in Germany served as a reminder of political risk that still runs as an undercurrent in Europe.

Chancellor Angela Merkel said on Monday her efforts to form a three-way coalition government had failed, thrusting Germany into a political crisis and pushing Europe’s largest economy closer to a possible new election.

German stocks led the move downward, with the country's main index .GDAXI down by over 0.2 percent, pulling the main pan-European broader Euro STOXX 600 index lower by a similar amount.

Investors instead preferred safe haven government bonds: the yield on Germany’s 10-year government bond, the benchmark for the bloc, edged lower to a 1-1/2 week low of 0.35 percent at one stage. DE10YT=TWEB

“The collapse of the talks was a surprise and there is little clarity on how things will unfold from here. It adds to uncertainty which is weighing on risk sentiment in world markets,” said Rainer Guntermann, rates strategist at Commerzbank.

Other analysts said however, that the overall sentiment towards the euro zone remains positive, reflected in the resilience of the euro on Monday.

“The eurozone political story is an outlier at the moment in the G10 currency trading space. The German political news over the weekend is not a game changer in our view,” said Viraj Patel, a currency strategist at ING in London. “The broader story still remains of a recovering eurozone with improving fundamentals.”

And so the euro, which had dipped to as low as $1.1722 EUR= at one stage, was back up on the day by 0900 GMT, resuming a more than 2 percent recovery against the dollar over the past two weeks.

Against the yen, the single currency dipped as much as 0.8 percent in Asian trading to a two-month low of 131.16 yen EURJPY=EBS. But it was flat in London trade at 131.97 yen, down just 0.2 percent on the day.

In Asia, MSCI’s broadest index of Asia-Pacific shares outside Japan .MIAPJ0000PUS was off its session lows to be slightly down, as volatile Chinese shares reversed earlier sharp losses.

Japan's Nikkei stock average .N225 finished down 0.6 percent.

“It’s year-end season, so people have more incentive to take profits,” said Kyoya Okazawa, Hong Kong-based head of institutional clients, APAC at BNP Paribas Securities.

This after Wall Street had ended last week on a sour note with major indexes slipping as investors weighed the fate of the Republicans’ tax overhaul plan.

The dollar edged lower against a basket of major currencies on Monday, and was close to one-month lows hit last week. .DXY

Crude oil futures were mixed. Brent crude oil LCOc1 dipped 19 cents, or 0.3 percent, to $62.51 a barrel, while U.S. crude CLc1 added 9 cents, or 0.2 percent, to $56.64 a barrel.

Oil rebounded more than 2 percent on Friday after falling for five straight session as a major U.S. crude pipeline was shut and traders anticipated an OPEC deal to extend curbs on production.

But crude prices still fell for the first week in six, pressured by rising U.S. output data and doubts that Russia would support an extension of the OPEC output cut deal.

Article Link To Reuters:

Oil Markets Tepid Ahead Of Nov. 30 OPEC Meeting

By Henning Gloystein
November 20, 2017

Oil markets were tepid on Monday as traders were reluctant to take on big new positions ahead of an OPEC meeting at the end of the month, when the producer club is expected to decide whether to continue output cuts aimed at propping up prices.

Brent crude futures LCOc1, the international benchmark for oil prices, were at $62.47 per barrel, down 25 cents, or 0.4 percent, from their last close.

U.S. West Texas Intermediate (WTI) crude futures were at $56.57 a barrel, up just 2 cents from their last settlement.

Traders said they were avoiding taking on large new positions due to uncertainty in markets.

“Traders seem to be turning their attention now to the OPEC/Non-OPEC meeting ... and an extension of the production cut deal to cover all of 2018,” said Jeffrey Halley of futures brokerage OANDA.

The Organization of the Petroleum Exporting Countries (OPEC), together with a group of non-OPEC producers led by Russia, has been restraining output since the start of this year in a bid to end a global supply overhang and prop up prices.

The deal to curb output is due to expire in March 2018, but OPEC will meet on Nov. 30 to discuss the outlook for the policy.

OPEC is expected to agree an extension of the cut as storage levels remain high despite recent drawdowns, although there are doubts about the willingness of some participants to continue to restrain output.

“(The) OPEC meeting remains the key sector catalyst into year-end ... The market expectation is for an extension through 2018, created by OPEC comments early this fall ... (but) there is increased risk that OPEC delays the extension decision,” U.S. bank Morgan Stanley said on Monday in a note to clients.

Morgan Stanley said that the question over extended cuts “has shifted to non-OPEC participants’ willingness to extend, primarily Russia”.

Despite this, Greg McKenna of futures brokerage AxiTrader said it was “worth noting data showed more longs added by the speculative community”, indicating expectations of rising prices.

In the United States, the number of rigs drilling for new oil production remained unchanged in the week to Nov. 17, at 738, data from oil services firm Baker Hughes showed on Friday.

Article Link To Reuters:

Can Bitcoin Survive An Apocalypse?

Doomsday preppers in North America bet on bitcoin; Cryptocurrency is starting to impinge on gold's appeal.

By Eddie Van Der Walt
November 20, 2017

Wendy McElroy is ready for most doomsday scenarios: a one-year supply of nonperishable food is stacked in a cellar at her farm in rural Ontario. Her blueprint for survival also depends upon working internet: part of her money, assuming she needs some after civilization collapses, is in bitcoin.

Across the North American countryside, preppers like McElroy are storing more and more of their wealth in invisible wallets in cyberspace instead of stockpiling gold bars and coins in their bunkers and basement safes.

They won’t be able to access their virtual cash the moment a catastrophe knocks out the power grid or the web, but that hasn’t dissuaded them. Even staunch survivalists are convinced bitcoin will endure economic collapse, global pandemic, climate change catastrophes and nuclear war.

“I consider bitcoin to be a currency on the same level as gold,” McElroy, who lives on the farm with her husband, said by email. “It allows individuals to become self-bankers. When I fully understood the concepts and their significance, bitcoin became a fascination.”

At first glance, it seems counter-intuitive that some of bitcoin’s most ardent proponents are people motivated by the belief that public infrastructure will collapse in times of social and political distress. Bitcoin isn’t yet widely accepted as a method of payment and steep transaction costs make it inconvenient to use at vendors that do take it.

Preppers, as it happens, have a different perspective on what they see as the money of the future, which has surged 10-fold in the past 12 months as supporters lauded it as a digital alternative to rival the dollar, euro or yen.

Used to send and receive payments online, bitcoin is similar to payment networks like PayPal or Mastercard, the difference being that it runs on a decentralized network—blockchain—that’s beyond the control of central banks and regulators. It was born out of an anti-establishment vision of a government-free society, a key attraction for those seeking unhindered access to their capital in case a massive shock shuts down the banking system.

“People see bitcoin prices going to the moon. No one thinks gold is going to the moon”

“Not too long ago, people in the prepper community were actively warning against crypto, and now they’re all investing in it,” said Tom Martin, a truck driver from Washington who runs a social-media website for people interested in learning skills to survive disaster. “As long as the grid stays up, people will keep using bitcoin.”

In addition to gold, silver and stocks, Martin invests in bitcoin and peers litecoin and steem because they’re easier to travel with, harder to steal and offer better protection in the event of the kind of societal breakdown that would unfold if a fiat currency like the dollar collapsed.

He’s among those confident that bitcoin can withstand even a complete blackout through the strength of the underlying blockchain, the anonymous public bookkeeping technology that records every single bitcoin transaction.

Discussions on the pros and cons of investing in crypto have popped up on survivalist forums like and this year as bitcoin rallied above $7,000. “Buy bitcoin” is now a more popular search phrase than “buy gold” on Google.

The buzz is starting to impinge on gold’s role as a store of value especially since, like the precious metal, there’s a finite supply of bitcoin, which proponents say gives it anti-inflationary qualities. Sales of gold coins from the U.S. Mint slid to a decade low in the first three quarters months of 2017.

“It’s definitely had some impact on the market,” Philip Newman, who does research on precious-metal coin sales and is one of the founders of research firm Metals Focus, said by phone from Washington. “People see bitcoin prices going to the moon. No one thinks gold is going to the moon.”

To attract investors who traditionally buy gold, several digital assets, like Royal Mint Gold and Anthem Gold, have been developed that are backed by physical gold stored in vaults.

Still, it’s hard to envision people walking around spending digital coins to buy Spam, canned beans or bottled water at a local supermarket when they don’t have electricity at home to charge their smart phones, let alone a working internet connection to access their digital wallets.

“I doubt bitcoin is a safe haven from an extreme-risk environment. In that sense, bitcoin isn’t gold,” said Charlie Morris, the London-based chief investment officer at Newscape Capital Advisors Ltd., which invests in cryptocurrencies and is building a price-discovery platform for them.

Bitcoin has also not reached the critical mass to be considered a viable currency to invest in, UBS Group AG’s Mark Haefele said in an interview. The total sum of all cryptocurrencies is “not even the size of some of the smaller currencies’’ that UBS would allocate to, he said.

Preppers, though, stock enough food and supplies to sustain them for months, if not years, and they expect whatever governing structure emerges post-calamity will prioritize getting the web back up and running.

“It may be difficult, if not impossible to access for a while, but once things start returning to some level of normality, then the blockchain will return as it was before the disaster,” said Rob Harvey, a bitcoin investor who prepares for natural and nuclear catastrophes by learning and teaching survival skills, like making a fire. “The blockchain does not need a specific place or a specific person to survive—that’s a strong survival tactic.”

“It is a people’s currency”

Interest in cryptocurrencies has started permeating the mainstream. When Morris surveyed hundreds of executives attending the London Bullion Market Association’s annual conference last month, one in 10 said they’d rather own bitcoin than gold following a nuclear war.

Along the fringe, the 20,000 libertarians expected to converge on New Hampshire as part of the Free State Project are also switching from precious metals. They like bitcoin because it isn’t created by a government, unlike conventional currency.

“You can use bitcoin for economic transactions in a way that gold was never designed to do because it’s a physical thing—it’s heavy,” Matt Philips, the project’s president, said by phone. “A lot of people don’t know what the heck to do with gold if you give it to them in exchange for a cup of coffee.”

Whatever doom-and-gloom scenario unfolds, McElroy, from Canada, has faith in bitcoin. She’s writing a book called Satoshi Revolution, inspired by the pseudonym of the person or people who created bitcoin in 2009 as an answer to the financial turmoil wrought by the global financial crisis.

She says the digital currency breaks society’s dependence on a state that uses its monopoly over the issuance of money to dominate the economy, making it a natural hedge against disaster.

“It is a people’s currency,” she writes in the book’s introduction. “Bitcoins move seamlessly through a world without states or borders, obeying only the command of individuals who choose to deal with each other. Immune to currency manipulation and inflation, they do not serve the powerful elites at the expense of average people.”

Article Link To Bloomberg:

Venezuela Is Starving Its People

The Maduro regime is using its control of food to stamp out protests.

By Mary Anastasia O’Grady
The Wall Street Journal
November 20, 2017

There’s something vaguely uplifting about the house arrest of Zimbabwe dictator Robert Mugabe last week. But it’s depressing to think that he hung onto power for 37 years, despite hyperinflation and famine in an African nation that was once a major food producer for the continent.

Ronald Reagan believed that “what is right will always eventually triumph,” but Zimbabwe is proof that it can take a long time. So too is Venezuela, which is experiencing its own Zimbabwean meltdown with no electoral way out.

Venezuelan shortages of everything are widely acknowledged. But there is less recognition that strongman Nicolás Maduro is using control of food to stamp out opposition. Hyperinflation has shriveled household budgets and the government has taken over food production and distribution. Most damning is evidence that access to government rations has become conditional on Maduro’s good favor.

The hardship is killing and deforming children. But Cuba, which runs the Maduro intelligence apparatus, also endorses it. Holding power trumps all.

Maduro took the helm in Venezuela after the March 2013 death of Hugo Chávez. Over 14 years Chávez had destroyed property rights and civil liberties and greased the monetary printing press. But $100 per barrel oil covered his multitude of sins.

Now the global crude price has been cut in half and the Chávez mess is exposed. The central bank’s net hard-currency reserves have fallen below $1 billion. Last week Miraflores Palace missed deadlines for interest payments on two sovereign debt issues and one bond issued by the national oil company PdVSA. Triple-digit inflation is spiraling.

Outside the country many are asking why the popular rebellion, which was significant in July, has gone quiet. The answer may be in the government’s skillful use of hunger as much as imprisonment to quash dissent.

Last week the newspaper El Nacional reported on a “food emergency forum” held by Amnesty International in Caracas. One participant was Maritza Landaeta, coordinator of the Caracas-based nonprofit Bengoa, which has worked to aid Venezuelans in food and nutritional needs since 2000. In describing the crisis, Ms. Landaeta shared the grim reality facing many mothers: “They say their children cry all day and they can only give them water. They are dying.”

Ms. Landaeta said some communities are experiencing undeniable “famine” and that in some parts of the country 50% of the children have left school because of hunger. According to the website El Estímulo Ms. Landaeta also reported that household surveys in the Baruta neighborhood of Caracas found that since the beginning of 2016 residents have lost, on average, more than 30 pounds. In September El Nacional reported that a study in 32 parishes in the states of Vargas, Miranda and Zulia by the Catholic aid organization Caritas Venezuela found that 14.5% of children under five are suffering either from moderate or severe malnutrition. This is no accident.

Inflation has stripped Venezuelans of purchasing power. The minimum monthly salary is now 456,507 bolivars, which on Nov. 15 was equal to about $8. A year ago the monthly minimum was 90,812 bolivars or about $21. Obviously imported food is unaffordable for most Venezuelan families.

The breakdown of domestic production is not new. But it has worsened in the past two years. Without hard currency, farm equipment cannot be serviced and seeds cannot be imported. Price controls make it hard for local producers to earn a profit.

The dictatorship increasingly controls what food there is. Dollars from oil exports go only to the state, which uses them to import. It also confiscates, at will, farm production and the output of agricultural processors. It plans to use the capital freed up by a restructuring of $3 billion in debt held by Moscow to buy Russian wheat. The government is forcing the use of debit and credit cards by withholding cash. This allows it to monitor all commerce and it saves on the costly importation of plane loads of new bills.

Venezuelans face risks if they complain. Last week the government announced that anyone who “incites hatred, discrimination or violence” against another, for their politics, faces 10-20 years in jail. The threat of jail, or worse, has already caused a retreat from the streets. This new law, which includes social media, will further chill speech.

Hunger has much the same effect because government rations are crucial for survival. Food supplied by the military-run Local Committee for Supply and Production—known by its Spanish initials CLAP—is not enough to live on. But it’s a subsidy that makes a big difference to families.

To receive the rations, Venezuelans must carry the Carnet de la Patria, a government-issued license only available to those approved by the regime. As Ms. Landaeta bravely explained, “Food is controlled and votes are bought, food is used as a political weapon and is at the center of the hurricane.”

Article Link To The WSJ:

As Venezuela Pumps Below OPEC Target, Oil Rivals Begin Filling Gap

By Marianna Parraga and Rania El Gamal
November 20, 2017

 As Venezuela’s dilapidated energy sector struggles to pump enough crude oil to meet the country’s OPEC output target, rival producers within the exporters group have started to plug the gap, OPEC and industry sources said.

The South American country’s oil output hit a 28-year low in October as state-owned oil giant PDVSA [PDVSA.UL] struggled to find the funds to drill wells, maintain oilfields and keep pipelines and ports working.

Venezuela's oil production, which has been falling by about 20,000 barrels per day (bpd) per month since last year, is on track to fall by at least 250,000 bpd in 2017 according to numbers reported to the Organization of the Petroleum Exporting Countries (OPEC), as U.S. sanctions and a lack of capital hobble operations. [For a graphic on Venezuelan and Iraqi oil shipments to the United States and India, click]

Some OPEC members expect the fall to accelerate in 2018, reaching at least 300,000 bpd, OPEC sources said. At a recent internal OPEC meeting, Venezuelan officials were asked to give a clearer picture of the country’s declining output.

“A lot of questions have been raised by Saudis and others to the Venezuelans to present a real picture on the production status and decline,” one of the sources said. The topic could come up later this month at the group’s next meeting.

Saudi Arabia will not raise its output to compensate for this decline as OPEC’s defector leader is focused on reducing global oil stocks, one OPEC source familiar with Saudi oil policy told Reuters this month.

But heavy oil from OPEC member Iraq and non-OPEC producers Canada and Brazil are already replacing Venezuelan barrels to key customers the United States and India, according to the sources and Thomson Reuters data.

Iraq has increased shipments of crude and condensate to India by 80,000 bpd this year as Venezuelan deliveries fell by 84,000 bpd. The second largest OPEC producer also has exported 201,000 bpd more oil to the United States this year through October as Venezuelan shipments dropped about 90,000 bpd, according to the Reuters data.

Venezuela’s weaker output “could be good for market rebalance and we could see price stay at $60 for a slightly longer time,” one OPEC source said. “That doesn’t mean there will be no free riders,” the source added.

Plugging The Gap

Venezuela pumped 1.863 million bpd in October, undershooting its OPEC target by 109,000 bpd, according to an assessment that OPEC uses to monitor members’ output. Venezuela said it had pumped 1.955 million bpd, still below its output target of 1.972 million bpd.

There often are discrepancies between the assessment and official figures reported by the OPEC members.

When member countries have suffered supply disruptions in the past, other OPEC members have covered the gap, often without changing official production quotas.

Saudi Arabia boosted its output in 2003 to offset Iraq’s falling exports after the U.S. invasion, but the agreement was never formally disclosed.

OPEC discussions of Venezuela’s quota is not new. Proposals to change the country’s quota have been raised and batted down several times in OPEC meetings since the South American country’s production started declining in 2012, a Venezuelan government source said.

Venezuela has argued in the past, when faced with questions about falling output, that it was working to reverse declines from its sizeable proven oil reserves.

But it could be difficult for Venezuelan officials to convince OPEC that an upturn is likely in the near future as the country seeks to restructure $60 billion in debt. Dependent on oil revenues, Venezuela has seen its economy contract sharply in the three years since crude prices collapsed from over $100 a barrel.

Reviews of quotas and reallocation of market share can be contentious, and the group may prefer to allow market forces to fill the supply gap left by Venezuela’s decline rather than make an official share revision and reallocation to other members, one senior OPEC source said. A formal change would be opening a “can of worms” that OPEC would not want to do, the source added.

OPEC’s oil ministers will meet in Vienna later this month to discuss supply policy. The group is expected to extend beyond March an agreement under which its members and rival producers, including Russia, have reduced joint output by about 1.8 million bpd.

“We want a successful meeting on Nov. 30, re-discussing quotas will not be accepted by Venezuela and talking about it at the meeting will just open the door for others to do the same,” the senior OPEC source said.

Article Link To Reuters:

Reducing Corporate Tax Games

The GOP reforms are far tougher on income shifting than Obama was.

By The Editorial Board
The Wall Street Journal
November 20, 2017

Liberals are denouncing Republican tax reform as a giveaway to big corporations, as they always do. But the irony is that the Senate and House bills would do far more to stop corporate tax gaming than anything the Obama Administration did in eight years. This includes preventing tax avoidance, leveling the tax field for U.S. multinationals, and stopping corporate inversions.

Start with cutting the corporate rate to 20% from 35%, which in a stroke offers less incentive for companies to move capital, income and intellectual property out of the U.S. to lower tax climes. During the Obama Administration, many U.S. companies “inverted” by merging with smaller foreign competitors to take advantage of lower tax rates abroad. The U.S. has the highest corporate rate in the developed world, whose average is 25%.

Inversions seek to make American companies more globally competitive and let them reinvest in the U.S. tax free. Under the current U.S. worldwide tax system, companies can defer taxes on their overseas profits until they bring them home—and then get smacked with the full 35% rate. Hence, corporations have parked $2.5 trillion or more abroad.

Both Senate and House bills move to a territorial system that exempts most foreign income from taxation. Most advanced economies have territorial systems, but they also have safeguards—i.e., base-erosion rules—to prevent abuse. Without these rules, companies could shift domestic income through foreign affiliates to lower tax jurisdictions and then bring the profits home without paying taxes.

The best tool to prevent base erosion is a low rate. Ireland has less cause to worry about tax avoidance with its 12.5% (6.25% for intellectual property) corporate rate than France whose government takes a third of corporate income but is now proposing to take 25%. But there are still zero-tax jurisdictions like Bermuda and the isle of Jersey where Apple recently located subsidiaries. Tax havens are especially attractive for locating IP since assets such as patents are intangible and mobile.

The House and Senate bills would impose an effective 10% rate on intangible property of U.S. multinationals that is held overseas. In return, U.S. companies like Apple and Google would be able to repatriate their income tax free. The Senate bill also creates a virtual patent box to entice foreign companies to move their patents to the U.S. by taxing their subsidiaries’ royalties at 12.5%.

While Ireland’s tax is lower, the European Union has sought to impose restrictions on patent boxes to prevent the flight of IP and profits. The Senate’s lower rate for IP could make the U.S. attractive to foreign innovators who want to take advantage of our strong legal patent protections.

Both bills would also prevent foreign multinationals from abusing “transfer pricing”—that is, inflating the price that their U.S. affiliates pay to license IP in order to shift profits overseas. U.S. companies can deduct these payments, and their foreign affiliates then pay taxes at lower rates. The potential for tax arbitrage is greater for IP since it’s hard for government authorities to value. What is a reasonable royalty for a patent? Apple will surely differ from the IRS.

To deter tax avoidance, the House bill threatens a 20% excise tax on all payments from U.S. affiliates to related foreign companies. However, American companies can avoid the excise tax by declaring the payments “effectively controlled income,” which would then be subject to the U.S. 20% corporate rate minus expenses and foreign tax credits. The bill would be minimal for most companies that aren’t exploiting tax havens, but would nonetheless prevent tax arbitrage.

House Republicans modified the provision after foreign multinationals that sell goods into the U.S. howled, though the rewrite is messy and the excise tax is a vestigial appendage that ought to be dropped. The Senate legislation includes a cleaner mechanism to deter base erosion that would effectively equalize the tax treatment of U.S. and foreign multinationals.

Both bills also include measures to prevent companies from loading up on debt in the U.S. (where interest is deductible) to capitalize foreign companies. The Senate establishes a slightly stricter limit on interest deductibility on debt that is issued to foreign affiliates, but both bills would curb the practice of earnings stripping that the Obama Administration sought late last year to stop with regulations.


We report all this because you’d think from the press coverage that corporate tax reform is all about enriching a few CEOs. The truth is that it’s a serious attempt to fix a broken U.S. code that has festered for years and made America increasingly uncompetitive as a destination for mobile global capital. The GOP reforms would help the economy and make it harder for corporations to avoid paying taxes.

Article Link To The WSJ:

Quit Modifying Capitalism

Profits should be pure, generated from price signals between buyers and sellers.

By Andy Kessler
The Wall Street Journal
November 20, 2017

After the calamitous century between Russia’s October Revolution and Venezuela’s debt default last week, you might think socialism would be dead and buried. You’d be wrong: It’s capitalism that is back on the rack, being tortured and refitted according to the ideologies of its detractors. But be warned, when you modify the word “capitalism,” you are by definition misallocating capital. I call this fill-in-the-blank capitalism.

Bernie Sanders offers a fine place to start. “Do I consider myself,” he asked at an October 2015 rally, “part of the casino capitalist process by which so few have so much and so many have so little?” (Emphasis mine.) Never mind that it was a progressive hero, Barney Frank, who said in 2003 that he wanted to “roll the dice a little bit more in this situation toward subsidized housing”— which helped lead to the financial crisis. Now Mr. Sanders wants to load the dice: Free college for all. Free Medicare for all. Free rations for all?

Al Gore, an ostensible environmentalist who made millions dealing with oil-rich Qatar, is no stranger to ideological modifications. On these pages in 2011, Mr. Gore co-wrote “A Manifesto for Sustainable Capitalism,” which demanded that markets integrate “environmental, social and governance (ESG) metrics throughout the decision-making process.” Yet messing with critical price signals through “ESG metrics” is exactly what would make capitalism unsustainable. See: Frank, Barney.

A 2014 Huffington Post headline declared “Let’s Make Capitalism a Dirty Word.” This was right around the time that “Capital in the Twenty-First Century,” the French economist Thomas Piketty’s now largely discredited book, was published in English. Mr. Piketty called for a tax on dynastic wealth because of “a strong comeback of private capital in the rich countries since 1970, or, to put it another way, the emergence of a new patrimonial capitalism.” Tell that to Mark Zuckerberg and Larry Page, self-made billionaires who weren’t even alive in 1970.

Nobel Prize winner Joseph Stiglitz tried to one-up Mr. Piketty, complaining in a 2014 article for Harper’s magazine about “phony capitalism.” But he offered a remedy! “A well-designed tax system can do more than just raise money—it can be used to improve economic efficiency and reduce inequality.” Messrs. Stiglitz and Piketty and all the modern-day central planners will no doubt gladly make the economic decisions needed to right the ship after they have sunk it.

The conspiracy theorist and occasional filmmaker Oliver Stone was at the July 2016 Comic-Con to promote his film “ Edward Snowden. ” Speaking to the cosplay crowds, he got nervous about the augmented-reality game Pokémon Go. “It’s what some people call surveillance capitalism,” he warned. “You’ll see a new form of, frankly, a robot society, where they will know how you want to behave.” He was borrowing the term from Shoshana Zuboff, a Harvard Business School professor—another strike against getting an M.B.A.

Much of this technocratic tinkering started with the 20th-century economist John Maynard Keynes, who called for government intervention in the economy to end a depression caused by government. He envisioned economists in control, running the economy. In “The General Theory of Employment, Interest and Money” (1936), his inner socialist comes out. “I conceive, therefore, that a somewhat comprehensive socialisation of investment will prove the only means of securing an approximation to full employment.”

It never ends. In 2012, Britain’s then-Prime Minister David Cameron talked about socially responsible and genuinely popular capitalism” and blamed Labour for “turbo capitalism.” Whole Foods CEO John Mackey touts “conscious capitalism.” Postdocs in Che T-shirts whine about late capitalism over $6 soy lattes. China practices state-directed capitalism. The jury is still out.

My advice? Drop the modifiers. There is only one type of capitalism that works, and it goes like this: Someone postpones consumption, invests his savings to produce a good or service, delights customers, generates profits, and then consumes and invests what’s left in further production. These profits are pure, generated from price signals between buyers and sellers, without favoritism from experts or elites. It isn’t hard to grasp.

Profit is the ultimate measure of value to consumers—and therefore to society. Consumers benefit from buying stuff, or else they would make it all themselves, and producers benefit from selling, or else business wouldn’t be worth the effort. Of similar value, profits go both ways. “Experts” who poke their noses in only mess with this fine balance. And who needs central planning when there’s the stock market, where theories melt and reality bites? Stock exchanges are the true consiglieres of capitalism, providing capital to ideas deemed worthy of it and starving the rest.

Most of this was once self-evident, but in 2017 capitalism is losing the mind-share game. Where does all this end up? For something scary, skip the next Stephen King clown movie. Instead read up on postcapitalism and progressive mutualism. It sounds like Venezuela.

Article Link To The WSJ:

How To Build On Europe’s Economic Recovery

To be lasting, the improvement needs to be followed by structural changes.

By Mohamed A. El-Erian
The Bloomberg View
November 20, 2017

After years of crisis management, heightened self-doubt and even existential threats, Europe is in a much better place. Economic growth is picking up, political uncertainty has diminished and, despite (if not partially because of) Brexit, the vision of an “ever-closer” regional union is energizing some new constructive thinking in core countries. Translating this into sustainable prosperity, however, is far from automatic and that pivot will be problematic without progress in four key areas.

The latest set of robust high-frequency numbers shows that Europe's economy is growing at a much healthier 2 percent to 2.5 percent annual pace, with many more of its member states sharing in the growing expansion. Although youth joblessness remains an acute problem in several economies, the overall unemployment rate is coming down. And, with ample liquidity, European financial markets have been performing well, both in absolute terms and relative to others.

The endogenous economic and financial healing is opening the way for reducing the prolonged reliance on the unconventional monetary policy measures being implemented by the European Central Bank. The ECB can start thinking seriously about an exit plan for both negative interest rates and its program of large-scale purchases of securities, though it will be very gradual, which will also help to reduce a high risk of greater political challenge to its institutional independence.

France and Germany have had their key elections, and there is now hope for a constructive regional political runway anchored by a strengthened collective vision and coordinated action by the two countries. Even though German Chancellor Angela Merkel encountered some domestic political turbulence over the weekend, the relationship between her and President Emmanuel Macron of France combines new energy with deep experience and credibility, raising hopes for progress on some long-delayed elements of the European project.

The internal push for reforms is amplified by several pressure points.

The U.K.’s vote in favor of Brexit has provided an impulse for greater coordination among the other 27 members of the European Union. Since the highly uncertain days immediately the referendum, the remaining countries of the union have developed -- rightly -- much greater confidence in their ability to move forward without the U.K., especially now that the economic performance gap has swung against Britain and is widening.

Brexit has amplified other external pressures on the effective functioning of the EU. These include the common challenge of migration, Russia’s annexation of Crimea, uncertainties about common defense and grumblings by some of the eastern members.

All of this places the historical European project in a different place, and not just in terms of the situation on the ground. A reactive crisis management and prevention mindset is giving way to a more confident proactive and strategic one that seeks to achieve common prosperity.

Yet this change remains tentative and, critically, still needs to develop deeper structural roots. This won’t happen unless there is progress in four major areas. (Contrary to what many would have you believe, these do not include the rapid conclusion of Brexit negotiations. Indeed, the EU has started to move beyond this issue that dominates politics in the U.K. and diverts attention from other major challenges.)

The four areas are:

1. Strengthening engines of growth by combining long-delayed structural reforms in individual countries with a renewed emphasis on completing regional economic and financial integration -- that is, adding a complete banking union and better fiscal integration to the monetary union.

2. Building a more collaborative working relationship between Germany and France once a governing coalition is formed in Germany. This would be characterized by adding to Germany’s regional leadership ability a greater willingness to act. France, which has a much greater willingness to act but less ability, would enhance its stature with more concerted efforts at getting its economic house in order.

3, Resolving separatist challenges that, over the longer-term, are more serious for both the euro zone and the EU than Brexit. These involve countries such as Spain that have bought into the vision of the ever-closer economic, political and social union, as opposed to the U.K.’s overriding emphasis just on free trade. This should start with common sense EU mediation support on Catalonia.

4. Developing more concrete collective responses to outstanding challenges that can only be addressed in a cooperative fashion. Eurobonds and debt relief for Greece lead the list of protracted issues, yet it may be more promising -- at least tactically -- to start with a better common response to the more recent questions presented by technology, including a more visionary approach to taxation, regulation and assessing the broader structural implications.

Such a combination of bottom-up and top-down measures would increase Europe's resilience and agility, paving the way for the type of inclusive economic and financial gains that improve not just actual performance but also potential prosperity. Without these measures, Europe’s recent economic gains could turn out to be a cyclical blip rather than the durable foundation for the better future that remains a legitimate and attainable aspiration for the region's citizens.

Article Link To The Bloomberg View:

Can Marijuana Alleviate The Opioid Crisis?

The federal government should stop blocking research into the drug’s medical potential.

By Richard Boxer
The Wall Street Journal
November 20, 2017

Jennifer, a 37-year-old Virginia school teacher now unable to work due to unrelenting pain caused by a genetic spinal disease, stared hopelessly at the bottle of opioids her doctor had prescribed her. Beset by desperation discomfort, she faced a difficult choice. The opioids would provide limited relief but came with a high risk of addiction. Or she could try marijuana, which would likely be safer but put her on the wrong side of the law.

Jennifer chose marijuana. She drove to Washington, D.C., where the drug is sold legally, and visited three medical marijuana storefronts offering ridiculously named products like “Kush,” “Diesel” and “Head Trip.” While the offerings were of unknown concentrations and efficacy for her pain, they worked to a greater degree and with fewer side effects than any previous medication Jennifer had tried. Her experience (she is the daughter of a patient in Los Angeles, where I practice) inspired me to advocate for further research into clinical uses of the drug for pain relief.

For the most part, doctors and patients rely on anecdotal information when deciding on a treatment path involving cannabinoids. No rigorous scientific studies have been published that corroborate claims about marijuana’s medical benefits when prescribed and used properly. The federal government should remove the drug from Schedule I of the Federal Controlled Substances Act so researchers can lawfully assess its medical potential.

In September, Sen. Orrin Hatch introduced a bill “to improve the process for conducting scientific research on marijuana as a safe and effective medical treatment.” The Marijuana Effective Drug Study Act of 2017 has bipartisan support. “To be blunt, we need to remove the administrative barriers preventing legitimate research into medical marijuana,” Sen. Hatch said in a press release.

Any research on medical marijuana must first assess the potential for addiction to other, harder drugs. The notion that marijuana is a “gateway” is so far unsupported. “There is no conclusive evidence that the drug effects of marijuana are causally linked to the subsequent abuse of other illicit drugs,” wrote researchers for the Institute of Medicine in 1999. Still, the idea lives on, underscoring the need for real research.

Not only is marijuana a potentially effective pain treatment, it may also help alleviate the opioid crisis. States that have legalized medical marijuana enjoy significantly lower levels of opioid consumption and overdose deaths than states that continue to penalize possession and use, according to the Journal of the American Medical Association: “States with medical cannabis laws had a 24.8% lower mean annual opioid overdose mortality rate . . . compared with states without medical cannabis laws.”

Researchers from the University of California, San Diego found that hospitalization rates of people suffering from painkiller abuse and addiction dropped 23% and overdoses requiring hospitalization fell 13% in places where medical marijuana was made legal. And a recent study found that Colorado, which legalized the drug for recreational use in 2014, experienced a 6.5% reduction in opioid-related deaths.

Last year alone, more than 64,000 Americans died from drug overdoses. Recognizing the link between decriminalizing marijuana and reducing opioid overdoses could save thousands of lives. With 650,000 prescriptions for opioids filled each day (3,900 for new patients) the epidemic seems likely to continue. Although scientific proof is no guarantee of an end to partisan squabbling, evidence-based medical data may offer hope for a consensus about the effectiveness of cannabis in the alleviation of human suffering.

Jennifer is not a criminal. She uses marijuana to relieve her debilitating pain because it is effective, non-addictive and almost impossible to overdose on. By preventing essential research on the medical uses of the drug, the federal government forces Jennifer, and thousands like her, into an impossible position.

Article Link To The WSJ:

U.S. Patent Review Board Becomes Conservative Target

By Jan Wolfe
November 20, 2017

In August, a dozen inventors gathered around a fire pit outside the headquarters of the U.S. Patent and Trademark Office in Alexandria, Virginia, and set alight patents they said had been rendered worthless by an overreaching federal government.

“It’s time for us to make patents great again,” Michael Caputo, an advisor to Donald Trump’s presidential campaign, told those gathered. US Inventor, the group behind the protest Caputo now represents as a spokesman, is calling for the abolition of the U.S. Patent Trial and Appeal Board, an administrative tribunal run by the patent office that reviews the validity of patents.

The rallying cry marks an about-face for some conservatives, who broadly supported the board’s creation in 2011 as a way to rein in trial lawyers and “patent trolls,” who hold patents for the sole purpose of suing big companies for licensing fees.

“Things have really flipped when it comes to the conservative perspective on patents,” said Charles Duan, a lawyer with left-leaning consumer group Public Knowledge.

Much of the credit goes to activists who have convinced many conservatives that the real problem is not out-of-control litigation but how the tribunal designed to speed up resolving patent disputes favors big business over smaller rivals.

The change of positions has been aided by deepening right-wing distrust of tech giants, such as Apple Inc and Alphabet Inc's Google, which have benefited the most from PTAB while embracing liberal causes like immigration or gay and transgender rights. (Graphic:

The U.S. Supreme Court is due to rule sometime next year on whether the tribunal is an unconstitutional intrusion of the executive branch onto matters reserved for the courts and influential conservative groups are already weighing in.

The Heritage Foundation, the Cato Institute, Federalist Society, and the American Conservative Union have published articles or submitted briefs arguing that PTAB should be abolished.

Most legal experts expect it to survive, though, noting the Supreme Court has largely accepted the powers of executive-branch courts in other areas, such as public employee benefits. The mounting criticism of PTAB could still convince the court’s conservative justices to vote for abolition, said Q. Todd Dickinson, a lawyer with the firm Polsinelli and a former director of the patent office.

The advocacy effort by conservative groups could also convince the Trump administration to curb the patent board’s power, Dickinson said.

An Anti-Troll Weapon

More than 70 percent of the Republicans in Congress backed the legislation that created PTAB. At the time, the U.S. Chamber of Commerce said the law would “help reduce unnecessary litigation against American businesses.”

In February the same business lobbying group criticized PTAB for creating “cost and uncertainty for patent owners.”

U.S. Representative Thomas Massie, a Kentucky Republican who holds patents relating to computer interfaces, was not in Congress at the time the board was created, but said conservatives’ initial intent to curb excessive litigation has gradually given way to fears that PTAB is helping the wrong businesses.

The board’s creation was pushed by big tech companies, banks and retailers, who complained they were being inundated with “troll” lawsuits.

Successfully defending a patent case in federal court often takes years and costs millions of dollars, escalating pressure to settle. PTAB offered a cheaper and faster alternative. The average cost of litigating a PTAB petition to a final decision is about $250,000, according to patent risk management company RPX Corp.

There are no juries and limited live witness testimony in PTAB proceedings, and its administrative judges apply a lower standard of proof than would be required in federal court.

About 80 percent of the patents that PTAB makes final decisions on are either partially or fully invalidated, according to a report issued in October by the patent office. But the agency also said 56 percent of patents challenged at PTAB are upheld, in part because the court frequently declines requests to review patents.

A spokesman for the patent office declined to comment.

Inventors say PTAB has made it much harder to get patents licensed by big technology, which now routinely respond to patent infringement claims by initiating PTAB proceedings.

“Patents owners who don’t have the wherewithal to withstand serial challenges to the validity of their patents just can’t license them,” said David Pridham, chief executive of Dominion Harbor, a firm that owns and attempts to license former Eastman Kodak Co patents.

Paul Morinville, a cowboy hat-wearing entrepreneur from Indiana and the founder of US Inventor, said it has become harder for him to get funding for his business based on software patents he holds.

Morinville has been speaking to Republican lawmakers and their staffers for the past four years and many conservatives credit his group with raising alarm about the patent tribunal.

“They are as close to your iconic garage inventor as you can get, so their stories really resonate,” said James Edwards, a conservative lobbyist focused on patent law.

While conservative groups have been most vocal, the debate transcends party lines. Some Republicans, such as Representative Darrell Issa of California, keep supporting the PTAB, while some Democrats have joined Republicans in calls to curb its powers.

Many trial lawyers whose case loads have fallen also oppose it.

But many liberals have embraced PTAB as a means of eliminating brand-name pharmaceutical patents that keep drug prices high.

Generic drug makers and large tech companies are also among the board’s supporters, arguing it has actually increased competition by weeding out low-quality patents.

The conservative backlash in part reflects how the right views tech giants like Apple and Google, which thanks to the tribunal have prevailed in hundreds of disputes with patent owners seeking hefty compensation.

“Google, Amazon, and Apple and other big tech companies - you look at their power and it is really astounding. And they are generally left-leaning companies,” said Matthew Dowd, a conservative patent lawyer in Washington D.C. who has represented US Inventor. “Those dynamics are definitely playing into the increasing willingness of conservatives to speak up about patents.”

Article Link To Reuters: