Thursday, January 11, 2018

Bonds Bounce, Stocks Struggle, Bitcoin Battered

By Marc Jones
January 11, 2018

Worries about a U.S.-led trade war put world stocks at risk of their first two day loss of the year on Thursday, while bond markets bounced as China poured cold water on reports that it might stop buying U.S. debt.

Europe’s main bourses dipped in and out of the red [.EU] and MSCI’s world index was down 0.2 percent after Asian and emerging market indexes[.T] had been pulled lower by warnings from Canada and Mexico that NAFTA’s days could be numbered.

Bitcoin also took a major beating, falling as much as 11 percent as South Korea - one of the crytocurrency’s biggest markets - said it was drawing up laws to ban trading in it.

Benchmark government bonds bounced though after China’s regulator said a Bloomberg report that it was considering slowing or halting its U.S. bond purchases, was possibly “fake news”.

It also helped the dollar to its fourth gain in the last five days against a basket of top world currencies [/FRX], having suffered one of its worst years on record in 2017.

Against the yen, it added 0.4 percent to 111.83, after hitting a six-week low of 111.27 yen in the previous session when it skidded 1.1 percent, its largest decline in almost eight months.

“The denial of the China story puts the dollar back where it was though the yen is still strong, so to me that is the interesting move and whether that is going to stick,” said Saxo Bank’s head of FX strategy John Hardy.

“The 2.5 percent level on the Treasury is a line in the sand so U.S. CPI (inflation) data tomorrow is going to be absolutely critical,” he added, talking about the view that higher inflation will encourage more U.S. interest rate hikes.

U.S. 10-year Treasury yields - which move inverse to prices and are one of the main drivers of global borrowing costs - pulled back to 2.544 percent from Wednesday’s ten-month high of 2.597 percent.

Euro zone bond yields eased 1-3 basis points (bps) too, with Germany’s 10-year Bund yield 3 bps off a two-month high at 0.46 percent.

The European Central Bank releases the minutes from its December meeting later in the day but there was also some relief from Japan, another source of pain for bond markets this week.

The Bank of Japan (BOJ) maintained the amount of its bond purchases on Thursday. A cut in its buying of longer-dated debt earlier this week had fanned worries the BOJ may be moving to turn off its stimulus.

Canadian Dollar, Mexican Peso Weak

Canada’s dollar and Mexico’s peso remained firmly in the doldrums due to worries about the North American Free Trade Agreement which the two countries hold with the United States.

Sources in Canada’s government told Reuters on Wednesday that they were increasingly convinced Donald Trump could announce he is quitting the pact. Sources in Mexico then said it would also abandon ship if the U.S. did so.

The euro traded at $1.1945, nearly flat on the day, and holding above Tuesday’s low of $1.1916.

There was more upbeat data for the shared currency though. German economy grew at the strongest rate in six years last year a preliminary estimate from the country’s statistics office showed, although it was slightly under some peoples’ forecasts.

Commodity markets meanwhile were taking something of a breather after a flying start to the year.

Both Brent and U.S. West Texas Intermediate (WTI) oil price futures were hovering just off three-year highs at just under $70 and $64 a barrel, while industrial metals dipped and gold ticked to $1,317.76 after spiking to nearly four-month highs in the previous session.

“In Q1, the balance of risk to Brent lies to the downside, with prices overheating, record net-length built into the futures market and fundamentals set to weaken seasonally,” BMI Research said in a note.

Article Link To Reuters:

Whispers Of $80 Oil Are Growing Louder

Rising demand for oil and OPEC production cuts could send prices higher in 2018.

By Alison Sider
The Wall Street Journal
January 11, 2017

Oil prices have been grinding higher and higher, spurring forecasters to predict they could hit $80 a barrel this year.

Oil is already trading at its highest levels in three years after a 22% gain for U.S. crude futures over the past 12 months, and some market watchers expect prices to take out new milestones as the rally continues in 2018.

On Wednesday, U.S. crude futures rose 0.97% to $63.57 a barrel and Brent, the global benchmark, was up 0.55% at $69.20 a barrel.

Byron Wien, vice chairman of the Private Wealth Solutions group at Blackstone, put $80 West Texas Intermediate on his annual list of 10 surprises in store for markets this year.

“Demand is going to continue to increase faster than supply,” he said in an interview. “It’s out of consensus, but people are underestimating the expanding middle class in the developing world and their resultant demand.”

Shrinking inventories, commitment by the Organization of the Petroleum Exporting Countries to cut output through the year, and only modest production growth from outside the group could all also push prices higher, he said.

Production cuts by OPEC and other major producers and unexpectedly strong demand were a potent mix last year, helping pull prices out of a three year downturn.

Citigroup also said $80 is a possibility. In a note Tuesday, the bank said the right combination of geopolitical crises could tip crude prices into the $70 to $80 range. With supplies already so tight, any unexpected disruption could cause prices to surge.

Much of last year was relatively calm in the oil world, with unexpected interruptions reducing supplies by about 2 million barrels a day at the end of last year—half the 2016 peak. But there are looming risks to production in Iran, Iraq, Libya, Nigeria, and Venezuela.

“After hitting a 5-year low in September 2017, global oil supply disruptions could materially increase in 2018” and and in particular from OPEC countries, the Citi analysts said.

Still, others remain skeptical. Analysts at Commerzbank said Wednesday that market participants are ignoring the risks of an onslaught of new production from U.S. shale—something that looks increasingly likely at these high prices.

“Selective perception is the reason why the market is completely ignoring this just now. Attention is paid only to news that tallies with the picture of rising prices,” the analysts wrote.

Citi also cautioned in a separate note last week that high prices might not last.

“Higher oil prices (WTI [greater than] $60, Brent [greater than] $65) now will lead to a correction later in the year,” analysts wrote.

Article Link To The WSJ:

Apple Could Get A $4 Billion Boost From Tax-Law Quirk

Microsoft, Cisco might also benefit from GOP bill ‘loophole’; Law gives some firms edge in paring offshore cash tax tab.

By Lynnley Browning
January 11, 2018

Companies that stockpiled trillions of dollars offshore free of U.S. income tax may get one last break before paying up -- provided their fiscal years don’t follow the calendar year.

A timing quirk in the tax overhaul that President Donald Trump signed last month may be good news for companies such as Apple Inc., Microsoft Corp. and Cisco Systems Inc., all of which began their fiscal years before Jan. 1. Firms including Alphabet Inc., Amgen Inc. and General Electric Co. -- with fiscal years that began on Jan. 1 -- appear to be shut out of the benefit.

Apple alone, which disclosed an offshore cash hoard of $252 billion as of Sept. 30, may be able to lop more than $4 billion off a future tax bill, according to Stephen Shay, a tax and business law professor at Harvard Law School who wrote about what he called the “potential loophole” last month. He characterized the boon as a side effect of the speed with which congressional Republicans passed their tax bill.

“This bill was passed on a speed train schedule with no time to think,” said Shay, who was a senior Treasury Department official during the administrations of former presidents Barack Obama and Ronald Reagan. It’s up to Treasury and the Internal Revenue Service to create rules to prevent companies from taking advantage, he said.

In passing the most extensive tax-code revisions since 1986, Congress scrapped the previous international tax system for corporations -- an unusual arrangement that allowed companies to defer U.S. income taxes on foreign earnings until they returned the income to the U.S. That “deferral” provision led companies to stockpile an estimated $3.1 trillion offshore.

In switching to a new system that’s designed to focus on domestic economic activity, congressional tax writers also imposed a two-tiered levy on all that accumulated foreign income: Cash will be taxed at 15.5 percent, less liquid assets at 8 percent. Companies can pay over eight years.

Timing Issue

The timing issue that Shay surfaced stems from a provision that, in effect, gives a company until the end of its fiscal year to measure what’s cash and what isn’t for tax purposes. Consequently, companies that began new fiscal years before Jan. 1 get an extra chance to reduce foreign cash they’ll accumulate this year -- which they can do by distributing cash dividends to their U.S. parents before tallying up what’s left to be taxed, Shay wrote.

Under separate changes that took effect Jan. 1, any such dividends would be tax-free in the U.S., he noted.

The law actually specifies two dates that companies should use in tallying their offshore cash piles -- and they have to pay the 15.5 percent rate on whichever tally is larger. The options: The two-year average of foreign cash as of Nov. 2, the date the House introduced its tax bill; or the end of the firm’s current fiscal year -- if it began before Jan. 1.

Here’s how Shay said it could work for Apple, which began its fiscal year on Oct. 1: Under the Nov. 2 formula, the company’s two-year average offshore cash stash was $234 billion. Shay said Apple’s historical earnings suggest that figure could grow to $289 billion by Sept. 30, when its year ends.

7.5 Percentage Points

Therefore, Shay said, if Apple’s foreign subsidiaries operate on the same fiscal year, they could distribute as much $55 billion to their parent, taking the overseas cash total down to match the Nov. 2 number. And because there’s a 7.5 percentage-point difference in the two tax rates, the company’s tax savings thanks to the distribution could amount to $4.1 billion, he said.

A spokesman for Apple didn’t respond to requests for comment; nor did spokesmen for Cisco and Alphabet. Spokesmen for Microsoft, Oracle, Amgen and GE declined to comment.

The IRS didn’t respond to a request for comment. One line in the tax bill says that if federal officials determine that a company has shifted cash or cash equivalents into other assets with “a principal purpose” of trying to reduce their tax bills, the transaction will be disregarded. But Shay said that line isn’t enough to prevent abuse, and the IRS should produce detailed, concrete guidance for companies.

As it stands now, if companies use the strategy to try to reduce their tax bills, it would be up to the IRS to challenge the move -- and then see whether its position holds up in court, said Eric Solomon, a co-director of the national tax practice at Ernst & Young LLP.

‘Going Crazy’

Overall, multinational corporations -- including those that don’t have the fiscal year advantage -- are weighing different ways to mitigate the effects of the repatriation provision, said Solomon, who was a top Treasury tax official in former President George W. Bush’s administration.

Republican tax writers -- who cut tax rates for businesses and individuals -- sought to balance the cuts partly with hundreds of billions of dollars from companies paying levies on their stockpiles of offshore earnings. Setting the rates at 15.5 percent and 8 percent would generate almost $340 billion in revenue over a decade, according to estimates by the Joint Committee on Taxation, Congress’s official scorekeeper.

“Practitioners have all been going crazy trying to figure out how to determine and potentially minimize the transition tax burden,” said Itai Grinberg, an international tax law professor at Georgetown University Law Center.

The IRS issued some guidance on Dec. 29, but companies are still awaiting additional details on many “pressing questions” related to offshore earnings, Solomon said.

One major question: How cash and cash-equivalents will be defined. Treasury Secretary Steven Mnuchin has the authority to write new rules specifying which assets he identifies as being economically equivalent to cash. The IRS said in its notice that commercial paper, foreign currency, certificates of deposit and governmental and state securities would all be considered cash and taxed at the 15.5 percent rate.

The tax bill’s international provisions “were put out in a rush,” and the IRS notice “is prime evidence of this and probably a bellwether for other problems to come,” said Chris Sanchirico, a tax law professor at the University of Pennsylvania Law School.

“Are there planning opportunities?” said Sanchirico. “Yes, most likely.”

Article Link To Bloomberg:

Trump Proves He’s Sane

The president may have to invite Michael Wolff to attend the second Inauguration.

By Daniel Henninger
The Wall Street Journal
January 11, 2018

By putting it out there that the U.S. president is an “idiot,” a “dope,” “dumb as sh—” and basically insane, Michael Wolff may have ensured the success and continuation of Donald J. Trump’s improbable presidency. That’s right, Michael Wolff, who admitted on “Meet the Press” that “this is 25th Amendment kind of stuff,” did President Trump a favor.

It’s impossible to know which half of Mr. Wolff’s book is more-or-less true and which half is second-level hearsay (similar to many of the Russian collusion stories). So it follows that among those uncertain about what’s fake is Donald Trump. After all, someone did allow Mr. Wolff, a well-known stab-in-the-back specialist, to hang around the White House for six months. A lot of White House courtiers, including the exiled Steve Bannon, seem to have spent most of their working hours the first six months speed-dialing dirt to White House reporters. We all watched the muck leak into the Oval Office.

So if you are Donald Trump, and like any normal person don’t want the world to think you’re cuckoo, what do you do? You prove they are wrong. Which is what Mr. Trump did twice this week with conscious intent in public forums. Both events not only showed the president acting, in his word, “stable,” both also offered a successful model for a post-Bannon, post-Wolff presidency.

People who have a job that requires them to make a living by doing something other than watch Donald Trump in real time most likely didn’t see either of these events. The first was Mr. Trump’s speech Monday to the American Farm Bureau in Nashville, Tenn. The other, which is worth a look if you didn’t see it, was a nearly hour-long session on immigration legislation Mr. Trump held at the White House with about 24 members of Congress, TV cameras rolling and the press taking notes.

What struck me most about the farm speech was how relaxed Mr. Trump was. Most Trump speeches to large audiences are generally delivered in a simmering anger, the president gripping both sides of the podium and launching words like grenades at a still-doubting world. Not this one. He was at ease throughout.

That would have been about as noteworthy as a passing cloud if not for the next day’s immigration meeting on the Dreamers and DACA legislation. Mr. Trump presided over this meeting like some previously undiscovered Buddha. He talked but didn’t dominate. He methodically elicited views from Republicans (among them Lindsey Graham, Kevin McCarthy, David Perdue and Carlos Curbelo ) and Democrats (Dick Durbin, Steny Hoyer, Dianne Feinstein ).

Once you realized it wasn’t a brief photo-op before the doors closed, the meeting was sort of weird, with reporters and their notebooks looming over the legislators’ backs, but it was also weirdly impressive. They looked like politicians doing real work, and afterward the White House announced the framework of a deal on the Dreamers.

Contrast this with how Barack Obama invited congressional Republicans and Democrats to a public, televised forum on health-care reform at Blair House in early 2010, listened to a series of GOP policy proposals from serious people such as Lamar Alexander and Tom Coburn, and then smirked it all away as nothing new. It was a setup that poisoned the well.

Or how in 2011 Mr. Obama blew up the deficit-reduction deal Joe Biden had worked out in meetings and dinners with a bipartisan supercommittee. Mr. Obama then descended on the group to lecture it on his demand that they raise taxes on “the wealthy” and corporations. “I will not support any plan that puts all of the burden for closing our deficit on ordinary Americans,” Mr. Obama magisterially intoned. The bipartisan deal collapsed.

The Trump-Republican-Democratic DACA deal, if it succeeds, will be a major bipartisan accomplishment.

But back to the Trump-is-Dr. Strangelove thesis. Mr. Trump himself contributed to the mania with a tweet, days before the Wolff book’s release, about his nuclear button being bigger than Kim Jong Un’s . That tweet put the president’s mental capacity in play, even among supporters, which is not where he should want it to be.

Instead, the Trump immigration negotiation session with Congress is the sort of public presidential face the world should see more of. In fact, that meeting’s productive content is a template for broadening the president’s Twitter account, an underutilized asset.

The morning after the immigration summit, a grudging consensus formed that Mr. Trump had confounded critics of his basic competence. A parallel consensus snorted that this positive moment won’t last.

And maybe it won’t. If this week’s impressive Trump performance gets buried beneath petty feuds, Mr. Wolff’s dumpster diving inside the Bannon-era White House will be seen as prescient and accurate enough.

But if the president running that meeting is the one seen by voters going forward, Mr. Trump should invite Mr. Wolff to the second inauguration.

Article Link To The WSJ:

Oprah’s ‘Truth’ And Its Potentially Deadly Consequences

She gave Jenny McCarthy a platform to promote the discredited idea that vaccines cause autism.

By Julie Gunlock
The Wall Street Journal
January 11, 2017

Former daytime television superstar and rumored Democratic presidential candidate Oprah Winfrey won the Cecil B. DeMille Award at Sunday night’s Golden Globes. In the “complicated times” we live in, she said during her acceptance speech, “speaking your truth is the most powerful tool we all have.”

While such bromides may play well with an audience of entertainers, Ms. Winfrey’s applause lines should be a warning to those who take her political ambitions seriously. She built her media empire by crafting pleasing narratives. She isn’t interested in boring things like data and facts. She has difficulty acknowledging that some things are true and some things are not.

Like President Trump, who for years made inflammatory remarks about vaccines and even flirted with the idea of appointing noted skeptic Robert F. Kennedy Jr. to a vaccine safety commission, Ms. Winfrey has a penchant for promoting the myth that vaccines are dangerous. While she claims publicly to be pro-vaccine, she has allowed antivaccine megastars a platform to share “their truths.” Yet those “truths” aren’t true at all. They are a collection of unsubstantiated and conspiratorial charges linking vaccines to autism—never mind the mountain of evidence to the contrary.

Ms. Winfrey’s biggest gift to the antivaccine movement came in September 2007 when she invited the actress Jenny McCarthy to appear on her top-rated talk show. Ms. McCarthy proceeded to explain that her son Evan’s autism symptoms appeared only after he received the vaccine for measles, mumps and rubella, known as MMR. That vaccine has long been associated with autism because of a flawed 1998 study. The prestigious journal Lancet eventually retracted the study, and a British government commission determined that its author, Andrew Wakefield, had acted “dishonestly and irresponsibly” in his research. Mr. Wakefield lost his license to practice medicine in the United Kingdom.

Yet the safety record of the MMR vaccine, along with details of Mr. Wakefield’s downfall, weren’t mentioned on the show. Instead, Ms. McCarthy made outrageous claims about the vaccine’s dangers while promoting equally ungrounded theories about “cures” for autism, including a diet she found on the internet.

In a brief moment of responsible journalism, Ms. Winfrey read a statement from the Centers for Disease Control and Prevention stating—accurately—that autism’s cause is unknown and that vaccines “protect and save lives.” This brief statement carried none of the emotional punch provided by the testimony of a struggling mom.

Despite employing dozens of producers and support staff, Ms. Winfrey failed to challenge Ms. McCarthy’s data or inform her viewers about the substantial body of scientific studies showing vaccines to be safe. Ms. Winfrey also failed to mention that major medical organizations such as the American Academy of Pediatrics and the American Medical Association affirm the safety of vaccines. Instead, the famous tastemaker put her trust in the famous actress, who, when asked about her own expertise, answered, “My science is [my son] Evan. . . . That’s my science.”

In Ms. Winfrey’s world of personal truths, this approach makes sense. Ms. McCarthy’s “truth” defied truths showing the opposite. She believed her son had been harmed by a vaccine. Therefore all vaccines are bad. Her “truth” didn’t have to make room for facts, such as a steady decrease in world-wide mortality rates because of widely available vaccines for diseases that once killed millions of people.

Ms. McCarthy benefited greatly from being a regular guest on “The Oprah Winfrey Show.” She used her association as a springboard to other programs—“The Doctors,” “The Larry King Show,” “Ellen,” “The Rosie Show” and others. Ms. Winfrey’s blessing also helped Ms. McCarthy land a season-long spot on “The View,” where she continued to promote her antivaccine message. The support of her beloved benefactress may have allowed Ms. McCarthy to convince thousands of parents to forgo vaccinating their children, which could be to blame for the resurgence of measles and other infectious diseases in the U.S.

While many Democrats seem thrilled that Ms. Winfrey could run for president, her vague and shifting sense of the truth is the very thing they often claim to despise about Republicans. The left was quick to criticize President George W. Bush’s “truthiness” and decries Mr. Trump’s use of “alternative facts.” But the antivaccine hysteria Ms. Winfrey helped incubate was more dangerous than mere “fake news.” It actually put people’s lives at risk.

Article Link To The WSJ:

Rove: Psychiatrists With Press Passes

A dubious new book starts a long national dialogue on whether Trump is crazy.

By Karl Rove
The Wall Street Journal
January 11, 2017

Long before the presidential election, the populist candidate’s mental state was under attack. The New York Times ran a series over several days suggesting he was unfit for office. It included a letter from an anonymous psychiatrist diagnosing the candidate’s “megalomania” and saying he “presents in speech and action striking and alarming evidence of a mind not entirely sound.” Another piece said the political outsider was “laboring under the delusion he is persecuted” and possessed “an enormous passion for haranguing every time he sees a crowd gathered.” One psychologist refused to call the candidate “ordinarily crazy,” but added “I would like to examine him,” while another said he was “beset with what I believe to be delusions.”

But, dear reader, hold your amusement or your rage. These articles appeared in 1896. The victim of the Times’s insanity assault was not Donald Trump but William Jennings Bryan, the Democratic presidential nominee. It is a reminder that the media frenzy this week about Mr. Trump’s mental acuity isn’t the first time the question has been raised about a White House occupant or a presidential candidate. It won’t be the last.

The current conflagration was set off by Michael Wolff’s “Fire and Fury,” a lengthy tabloid gossip article masquerading as a book. It includes the genre’s usual collection of anonymous quotes, unsourced descriptions and clever insinuations, all heavily influenced by the author’s liberal biases.

The book contains little that will change the opinions of either Trump haters or Trump lovers. Some of the material is obvious score settling by West Wing adversaries. Some of it is spicy and sensational gossip. A good portion of it can never be confirmed, and some of it already has been credibly denied. My assessment is that much of the book is probably untrue, and most of what is correct Americans knew already.

Portions of the text undermine the author, not his target. Consider Chapter 8, where Mr. Wolff writes at length about the conflicting approaches of three top White House aides. In Mr. Wolff’s telling, Chief of Staff Reince Priebus was “cultivating” congressional Republicans to advance the Trump agenda; son-in-law Jared Kushner was “concentrating on presidential bonhomie and CEO roundtables”; and senior adviser Steve Bannon was focused on “a succession” of executive orders “that would move the new administration forward without having to wade through Congress.” The president, according to Mr. Wolff, “didn’t understand why he couldn’t have them all.”

But why couldn’t he? One can criticize the effectiveness of Messrs. Priebus, Kushner and Bannon, but every Oval Office occupant wants Congress to pass his agenda, seeks support among outside constituencies to advance his program, and uses his powers as chief executive to advance his policies as much as that authority allows. If someone here doesn’t understand how the presidency functions, it is Mr. Wolff, not Mr. Trump.

The book leaves many questions unanswered. Who was the PR genius who allowed Mr. Wolff, a writer of dubious accuracy and scandal-mongering tastes, to visit the West Wing 20 times, notepad and recorder in hand? Why the heck did Mr. Bannon belch out every profane thought he had about everyone else in the West Wing, including the president? The book’s most revealing quotes come from Mr. Bannon in extended interviews where Mr. Wolff’s recorder was clearly running so long that its lithium batteries must have almost caught fire.

Mr. Bannon’s political self-immolation was newsworthy enough, but the hubbub around “Fire and Fury” would have been much smaller except that Mr. Trump tweeted in response and even threatened to sue the publisher. The president has obvious and alarming deficiencies in his behavior and tone, but they are a long way from Mr. Wolff’s imputations that a madman works in the Oval Office. Still, Mr. Trump’s response helped turn a minor story that would have lasted a day or two into a weeklong national conversation about whether he is crazy. There was a better way.

Witness Mr. Trump’s televised 45-minute negotiating session Tuesday on immigration with Republican and Democratic congressional leaders. If the president wants to ease concerns about his fitness for office, he should show the nation more moments like that—and fewer tweets claiming he is “a very stable genius” and “like, really smart.” He can’t erase Mr. Wolff’s book; what he can do is display more acts of leadership that disprove its central thesis. The choice is entirely up to him.

Article Link To The WSJ:

Justice Department Blindsided Banking Agency On Pot Policy Flip

By Sarah N. Lynch
January 11, 2017

When the U.S. Justice Department said last week it was reversing policy on the $7 billion marijuana business, it failed to first notify federal officials who advise banks in states where the drug is legal, sources in Congress said.

The announcement by U.S. Attorney General Jeff Sessions, a longtime critic of legalizing marijuana, caused confusion among banks about how to do business with marijuana growers, processors and distributors without running afoul of federal money laundering laws.

The uncertainty unleashed a flood of phone calls to the Financial Crimes Enforcement Network (FinCEN), an office within the U.S. Treasury Department, from congressional offices with questions from lawmakers and constituents.

But FinCEN had no ready answers because it received no advance warning of Sessions’ Jan. 4 announcement rescinding an Obama-era policy that had eased up on federal enforcement of marijuana laws, said congressional aides who spoke on condition of anonymity.

A Justice Department spokesman declined to comment about whether it had coordinated with FinCEN in advance.

The abrupt announcement by Sessions was the latest example of sudden actions by the Trump administration that have blind-sided its own government agencies on major policy shifts. In 2017 the administration blindsided the Defense Department with a decision to ban transgender Americans from serving in the military. It also took many by surprise at the Department of Homeland Security by barring people from some predominantly Muslim countries from entering the United States.

Marijuana is banned by federal law but it has become legal in one form or another in a number of states.

About 400 banks and credit unions do business with the U.S. marijuana industry. Most are small institutions with operations limited to states where marijuana has been legalized.

Critics said the Justice Department’s decision, which gives prosecutors wide latitude to pursue criminal charges, could drive banks out of the cannabis industry.

Sessions issued his one-page announcement three days after California formally launched the world’s largest regulated commercial market for recreational marijuana. Five other states have legalized recreational use, while dozens permit medicinal use.

“I imagine that Sessions did not even contemplate that his action could trigger potentially billions of dollars of cash from being unbanked,” said Saphira Galoob, whose firm The Liaison Group lobbies on behalf of cannabis clients.

Reversing the Obama administration, Sessions said the Justice Department was withdrawing legal guidelines known as the Cole and Ogden memos, widely seen as giving safe harbor against prosecution to cannabis businesses in states where pot is legal.

The memos said that, while marijuana was still illegal, prosecutors would not prioritize pursuing criminal charges in states that had set up their own regulatory regimes.

Deputy Attorney General Rod Rosenstein said in September that the marijuana policy was under review for possible changes.

In last week’s announcement, the Justice Department made no mention of parallel marijuana guidance that FinCEN issued in February 2014 in coordination with Justice officials.

The guidance provided a pathway for banks to serve marijuana businesses in states such as Oregon, Colorado, Washington and California. It relied heavily on the Cole memo.

FinCEN requires banks to file suspicious activity reports with the government on legally questionable transactions. The FinCEN guidance says banks must continue to file those reports, but lets them say if they are confident that their cannabis customers are complying with relevant state laws.

Democratic Representatives Dennis Heck of Washington state and Ed Perlmutter of Colorado are expected this week to send a letter, seen by Reuters, to FinCEN urging it not to rescind the guidance amid concerns that doing so could “inject uncertainty in the financial markets.”

Stephen Hudak, a FinCEN spokesman, said in a statement that the agency’s guidance “remains in place,” despite the Justice Department’s actions.

Article Link To To Reuters:

Why It Makes More Sense To Rent Than Buy

Nearly two-thirds of Americans live in areas where it is more affordable to rent than buy.

By Jacob Passy
January 11, 2018

A majority of Americans are renting on the cheap — at least, compared to what they’d be paying if they bought a home.

Most Americans (64%) live in a county where renting takes up a smaller portion of one’s paycheck than buying, according to a report released Thursday by real estate data firm Attom Data Solutions. And yet in more than half (54%) of housing markets — 240 of 447 U.S. countries — buying a median-price home is more affordable than renting a three-bedroom property,

Even if they can’t afford to buy, the majority of people are renting in areas where they get the most bang for their buck. “The buy-versus-rent calculus is shifting toward renting being more affordable,” said Daren Blomquist, vice president at Attom Data Solutions.

What’s contributing to this shift toward renting?

Interest rates are expected to increase throughout 2018, making buying a home with a mortgage less affordable for many. And tight housing inventory across the country is fueling competition for homes that makes them more expensive. Plus, Blomquist said the “drive until you afford” mentality made many once-affordable suburbs vastly more expensive.

The Republican tax bill has further complicated the math in deciding whether to rent or buy, according to the Urban Institute, a Washington, D.C.-based think tank. Under the 2017 tax code, a family of three with an annual income of $150,000 would be better off buying if their rent exceeded $1,507 per month. But with the new tax code, they’d have to pay more than$1,885 per month to make buying worthwhile.

“Do we expect people not to buy because of these changes? At the margin, yes,” researchers wrote.

Rent are rising faster than wages in most markets

Collectively, American renters paid a total of $485.6 billion in 2017, up $4.9 billion from the $480.7 billion in 2016. That’s according to an analysis by Zillow, a real estate and rental website. Renters in Las Vegas, Minneapolis and Charlotte felt that increase the most. In each of those cities, rent rose more than 7% since 2016.

Rental income as a share of gross domestic product hit an all-time high in the first quarter of 2017, according to the U.S. Labor Department due to high demand and limited housing supply.

What’s more, in 60% of markets, including Chicago and Los Angeles, rents are rising faster than wages. As a result, more renters may also find themselves priced out of the housing market, since home prices are appreciating more quickly than rents in 59% of markets.

Take Huntsville, Ala., the most affordable rental market in the country, according to Attom Data Solutions: On average, only 22.3% of wages there went to rent. But home prices rose nearly 11% between 2016 and 2017, as investors flocked and bought up properties to rent out. And the prevailing wages in places like Huntsville aren’t as high as in cities like New York or Seattle.

“It’s great in theory to buy in those markets and have a lot of disposable income, but the problem is going to be finding a job period or a job that will pay as well,” Blomquist said.

Article Link To MarketWatch:

Bitcoin’s Price Surge Looks More Like Than

Judging the cryptocurrency craze with dot-com era hindsight is eye-opening

By Michael Edesess
January 11, 2017

On December 10, 1999, stock closed at $106 per share, a mind-blowing 67 times its price only two-and-a-half years earlier. Opinion articles in major newspapers declared there was no doubt that Amazon shares were in an irrational bubble.

The disbelievers were right. Less than two years later, in September, 2001, Amazon’sAMZN, +0.13% share price had collapsed to $6.

While many of Amazon’s dot-com peers didn’t survive, Amazon’s stock on January 9 reached an adjusted share price of $1,252.70 — more than eleven times its 1999 high. Indeed, an investor in Amazon at the stock’s 1999 peak would have since realized an annualized return of 14.6%, far exceeding the S&P 500’s SPX, -0.11% 5.3% annualized gain over that same period.

Now we have a new bubble. The rapid rise of bitcoin BTCUSD, -8.10% , along with other cryptocurrencies, is similar to Amazon’s phenomenal 1998-99 runup. Of course — as was the case with Amazon — many are declaring this an obvious irrational bubble.

Maybe so. But if it isn’t, what is propelling it? The vision among cryptocurrency enthusiasts, even in the face of recent setbacks, is in ways a logical extension of the dot-com era belief that digital commerce would be the wave of the future.

As of now, global commerce is denominated in national currencies. There are about 180 national currencies. Most can be freely exchanged, but only a country’s own national currency is used within it. Transactions between two countries are inefficient, costly, and slow.

This state of affairs is archaic in the age of seamless global interconnection. Cryptocurrency enthusiasts believe it will end, replaced by a future where the main currencies will be application-based and internet community-based. For example, there might be several currencies or a single currency used for airline travel. If you want to pay for your own or someone else’s air travel in another country you won’t need a credit card, you’ll just digitally send the tokens (i.e. currency) used for airline travel.

In this global blockchain economy, Amazon will have its own currency; Airbnb its own currency; Uber its own currency. Facebook might even have its own currency. Like the internet, these currencies will know no national boundaries, aside from any measures required to adhere to national laws.

National central banks will issue their own currencies also, as they do now, but they’ll be digitized like cryptocurrencies, and used mainly to pay government employees and contractors and to pay taxes.

These currencies (also called tokens) will be readily interchangeable, just as national currencies are now. Bitcoin might be the chief numeraire — the standard — of this digital economy. The world almost always has designated a principal numeraire currency. For most of history, the numeraire has been gold.

Gold’s predominance ended in the mid-1970s when the U.S. took the dollar off the gold standard, though many gold enthusiasts still regard it as the only reliably enduring numeraire. Gold has since been replaced primarily by the U.S. dollar. This is one of the reasons why the dollar’s value has remained so buoyant.

But 10 or 20 years from now, if bitcoin is still the chief numeraire of cryptocurrency, its current price may turn out to have been justified.

There is no certainty whatsoever about this scenario, but it is not absurd. To call bitcoin an irrational bubble is too rash. Its value could even be viewed — with considerable imagination — as a reflection of rational expectations.

Article Link To MarketWatch:

No Deal Brexit Could Cost 482,000 Jobs As City Recruitment Slows

London Mayor’s report warns of danger of severe economic risk; London finance jobs also post ‘seismic’ drop in sign of impact.

By Alex Morales and Stefania Spezzati
January 11, 2018

Leaving the European Union without a deal in 2019 could cost Britain almost half a million jobs, a report found as London’s key finance industry vacancies also plummeted the most in three years.

Failure to stitch up a deal also means Britain could see around 50 billion pounds ($68 billion) in reduced investment by 2030, according to the report commissioned from Cambridge Econometrics by London Mayor Sadiq Khan. The forecast modeled five different Brexit scenarios, from the hardest to the softest form of Brexit, and broke down the economic impact on nine industries, from construction to finance.

The report was released hours after recruitment firm Morgan McKinley published a survey showing job vacancies in London’s finance industry fell 52 percent in December, the most in three years. There was also a 37 percent decline in job openings year-on-year, underscoring the looming “Brexodus” from the City, the company said.

“In December, the City is abuzz with holiday parties, not hiring, so a drop is to be expected,” Operations Director Hakan Enver said in the report, published Thursday. “But for it to be such a seismic drop is alarming.”

In the worst-case scenario in the Cambridge study, Prime Minister Theresa May would fail to secure a two-year transition to ease the passage for businesses, a situation that in London alone may create 87,000 fewer jobs and usher in 10 years of lower growth, Khan’s office said. Negotiations with the EU will resume in March, with the status of banks the new battleground of trade discussions.

Every Brexit outcome analyzed would damage the U.K. economy, but the more distance Britain puts between its current and future trading arrangements with the EU, the worse things got.

“It’s crucial the government understands the consequences of each scenario they’re considering with the EU,” Khan told BBC Radio 4’s ‘Today’ show. “I want them to choose the best outcome for jobs, for investment and for economic output.”

The timing of the report is unfortunate for the premier, who’s meeting later Thursday with city financiers from companies including Goldman Sachs Group Inc., HSBC Holdings Plc and the London Stock Exchange Group Plc to discuss safeguarding their interests post-Brexit. The study said that in a no-deal hard scenario, the industry that fares the worst will be financial and professional services, with as many as 119,000 fewer jobs nationwide.

Morgan McKinley cited firms’ frustration at the lack of progress in carving out a Brexit divorce agreement and said that a lot of good news -- such as an increase in the number of skilled-worker visas being issued -- was being overlooked in the confusion. Goldman Sachs, Deutsche Bank AG and Bank of America Corp. are all said to be moving operations away from London in favor of cities such as Frankfurt and Paris in case of a no-deal departure.

The report commissioned by Khan is also likely to be embarrassing for May after Brexit Secretary David Davis confessed last month that the government hasn’t conducted a detailed analysis of the impact of Brexit scenarios on different sectors of the economy. A series of much-talked about documents that Parliament insisted on seeing turned out to be statements of the obvious.

Khan, a member of the main opposition Labour Party, announced he’d commissioned the report after Davis’s admission. Davis was forced by lawmakers to publish studies that he’d previously described as containing “excruciating detail” on the impact of Brexit on the economy but that lawmakers complained had nothing that couldn’t be found on Wikipedia.

“If the government continues to mishandle the negotiations, we could be heading for a lost decade of lower growth and lower employment,” Khan said in a statement.

Article Link To Bloomberg: