Wednesday, December 28, 2016

Kerry’s Rage Against Israel

The Secretary doesn’t understand why his peace talks failed.

By Review & Outlook
The Wall Street Journal
December 29, 2016

John Kerry delivered a marathon speech Wednesday excoriating Israel for its settlements policy, and we hear Israeli TV stations dropped the live broadcast after the first half-hour. Who can blame them? If Israelis don’t feel the need to sit through another verbal assault from the soon to be former Secretary of State, it’s because they live in a reality he shows no evidence of comprehending.

Mr. Kerry has made the pursuit of Israeli-Palestinian peace a major goal of his tenure, conducting intensive negotiations for nearly a year until they collapsed in spring 2014. That collapse came after the Palestinian Authority announced the creation of a unity government with Hamas, the terrorist group sworn to Israel’s destruction. Shortly thereafter, Hamas started a war with Israel from its Gaza stronghold, the third such war since Israel vacated Gaza of all settlements in 2005.

We recite this history to show that it’s not for lack of U.S. diplomacy that there is no peace—and that mishandled diplomacy has a way of encouraging Palestinian violence. In 2000 then-President Bill Clinton brought Israeli and Palestinian leaders to Camp David to negotiate a final peace agreement, only to watch Palestinians walk away from an offer that would have granted them a state on nearly all of Gaza and the West Bank. That failure was followed by another Palestinian terror campaign.

Israelis remember this. They remember that they elected leaders—Yitzhak Rabin in 1992, Ehud Barak in 1999, Ehud Olmert in 2006—who made repeated peace overtures to the Palestinians only to be met with violence and rejection.

In his speech, Mr. Kerry went out of his way to personalize his differences with current Israeli Prime Minister Benjamin Netanyahu, claiming he leads the “most right-wing” coalition in Israeli history. But Israelis also remember that Mr. Netanyahu ordered a settlement freeze, and that also brought peace no closer.

The lesson is that Jewish settlements are not the main obstacle to peace. If they were, Gaza would be on its way to becoming the Costa Rica of the Mediterranean. The obstacle is Palestinian rejection of Israel’s right to exist as a Jewish state in any borders. A Secretary of State who wishes to resolve the conflict could have started from that premise, while admonishing the Palestinians that they will never get a state so long as its primary purpose is the destruction of its neighbor.

But that Secretary isn’t Mr. Kerry. Though he made passing references to Palestinian terror and incitement, the most he would say against it was that it “must stop.” If the Administration has last-minute plans to back this hollow exhortation with a diplomatic effort at the U.N., we haven’t heard about it.

Contrast this with last week’s Security Council resolution, which the Obama Administration refused to veto and which substantively changes diplomatic understandings stretching to 1967. Mr. Kerry claimed Wednesday that Resolution 2334 “does not break new ground.”

The reality is that the resolution denies Israel legal claims to the land—including Jewish holy sites such as the Western Wall—while reversing the traditional land-for-peace formula that has been a cornerstone of U.S. diplomacy for almost 50 years. In the world of Resolution 2334, the land is no longer Israel’s to trade for peace. Mr. Kerry also called East Jerusalem “occupied” territory, which contradicts Administration claims in the 2015 Supreme Court case, Zivotofsky v. Kerry, that the U.S. does not recognize any sovereignty over Jerusalem.

The larger question is what all this means for the prospects of an eventual settlement. Mr. Kerry made a passionate plea in his speech for preserving the possibility of a two-state solution for Jews and Palestinians. That’s a worthy goal in theory, assuming a Palestinian state doesn’t become another Yemen or South Sudan.

But the effect of Mr. Kerry’s efforts will be to put it further out of reach. Palestinians will now be emboldened to believe they can get what they want at the U.N. and through public campaigns to boycott Israel without making concessions. Israelis will be convinced that Western assurances of support are insincere and reversible.

Mr. Kerry’s speech was preceded by a tweet from Donald Trump telling Israel to “stay strong” until he becomes President in 23 days. That’s an encouraging sign that Mr. Trump understands that the first rule of diplomacy is to do right by your friends, especially when they are embattled and bullied democracies. We hope Rex Tillerson is taking notes.

Article Link To The Wall Street Journal:

U.S. Refiners Cash In On Mexico's Record Fuel Imports

By Devika Krishna Kumar and Marianna Parraga
December 29, 2016

U.S. Gulf Coast refiners are cashing in on rising fuel demand from Mexico, shipping record volumes to a southern neighbor that has failed to expand its refining network to supply a fast-growing economy.

The fuel trade could top a million barrels per day (bpd) at times in 2017 as Mexico becomes increasingly dependent on the United States for strategic energy supplies and providing business worth more than $15 billion a year to refiners such as Valero (VLO.N), Marathon Petroleum (MPC.N) and Citgo Petroleum.

The rise in Mexico's fuel imports reflects an economy that, after expanding for 27 quarters in a row even amid a public austerity plan, has been unable to increase its refining output to satisfy the consistent growth of its energy demand.

It has led to rapid reversal in energy trade between the two countries. In 2016, crude exporter Mexico will be a net oil importer from the United States for the first time as shipments of refined fuel heading south outnumber shipments of crude to the north, according to the U.S. Energy Information Administration (EIA).

Just ten years ago, the United States' net oil imports from Mexico stood at 1.45 million bpd.

Profit margins for the exports are strong for U.S. Gulf Coast refiners, said a source at a refiner involved in the trade.

"You're getting very good values if you're a Gulf coast supplier," he said. "Freight has been dirt cheap too - so it doesn't cost that much to move the barrels either."

Mexico constitutes a bright spot in what has otherwise been a dark year the U.S. refining industry with profits at a five-year low in 2016.

"Mexico's appetite for U.S. gasoline and distillates has played a significant part in sustaining Gulf Coast refining margins," said Sandy Fielden, director of oil and products research at Morningstar.

The exports also help to ease a supply glut in the U.S. market, said Barclays equity analyst Paul Cheng. That boosts profit margins industry-wide, even for refiners that are not directly involved in the trade, he added.

Other than state-run Pemex, among the top exporters of U.S. gasoline and distillates to Mexico to date in 2016 are Citgo Petroleum, Exxon Mobil (XOM.N) and Marathon, according to partial data based on shipping data from Thomson Reuters. A full breakdown combining marine, road, rail and pipeline exports by company is not publicly available.

That data shows Citgo [PDVSAC.UL], owned by Venezuela's state oil firm PDVSA, has exported nearly 57,000 bpd of fuels to Mexico, while Marathon has shipped about 43,000 bpd. Last year, Valero Energy (VLO.N) was the top exporter with nearly 62,000 bpd.

Based on the price for benchmark U.S. gasoline RBc1 trading at over $65 a barrel, that volume of Citgo's exports are worth around $1.4 billion and Marathon's around $1 billion.

[Link to graphic on Mexico's energy imports from the U.S.:]

Despite the rising volume of exports to Mexico, publicly traded U.S. Gulf refiners are valued below their peers. Marathon is trading at 14.67 times its expected earnings, while Valero is at 12.51. That compared to an industry median of 16.10 in oil and gas refining.

Valero did not respond to requests for comment on this story. Marathon said they would not go into detail about its exports, and Exxon Mobil also declined to comment.

Rising Consumption

The shortfall between demand and supply in Mexico has been exacerbated by the government slashing the budget for oil giant Petroleos Mexicanos (Pemex).

Pemex faces a further cut of around $5.36 billion in 2017, which hurts its ability to improve refinery output. Refineries in Mexico are running at about 60 percent of their 1.576 million bpd of capacity, according to the company's data. That leaves the onus on Pemex to import more to cover demand.

For decades, imports were a burden on state coffers, as Mexico made a loss on fuel sales at the pump while they were heavily subsidized rate.

Mexico's fuel demand is around 2.04 million bpd and the government expects growth of 2-3 percent per year in coming years.

The country is the world's fourth-largest consumer of gasoline. Car sales through September increased 18 percent on the year, to a record of 1.12 million units, pointing to continued strong demand growth.

"We continue to see very good demand for gasoline into Mexico and South America... we see good growth in that region," Gary Simmons, a senior executive at Valero, said on a conference call.

In September, Mexico's imports of U.S. fuel surged to a monthly record of about 960,000 bpd, according to the EIA. The average for the year-to-date is around 820,000 bpd.

Most of the exports are seaborne, but rail firms have also benefited with a sharp rise in volumes shipped over the border on trains, according to the Association of American Railroads.

Mexico's government opened the industry to private capital in 2013 to reverse a protracted slide in oil output, refining and reserves. Pemex still buys most of the imports from the U.S. Gulf refiners, but private imports are expected to grow in 2017 with further liberalization and improved cross-border infrastructure.

"We are expecting Mexico's imports from the U.S. to increase to an average of 900,000 barrels per day (bpd) in 2017... imports would surpass 1 million bpd at times in 2017 if private imports become significant after price liberalization," said Robert Campbell, head of oil products research at Energy Aspects.

Trade Concern

President-elect Donald Trump's plans to rewrite the terms of trade between the two countries have made importers and exporters nervous that a deterioration in bilateral relations or changes in taxes and tariffs could disrupt the flow.

"Even a minimum change in taxes could mess up gasoline exports to Mexico," a source working at a terminal and pipeline operator doing business with Pemex said. "Everybody is worried, but nobody says it."

More difficult trade could force Mexico to look for other supply sources such as Europe, but it is difficult for European refiners to export fuel at a price competitive with their rivals in the United States due to shipping costs.

Some of the top-ranking members of Trump's cabinet are from the energy industry, adding even more clout to one of the most powerful lobbies in Washington which will push hard to prevent Trump doing anything that would hurt the trade.

"Whatever restrictions might be placed on trade and immigrant flows between Mexico and the U.S. during the Trump Administration, U.S. energy producers will be anxious to protect growing hydrocarbon exports to our southern neighbor," said Fielden.

Article Link To Reuters:

Takata Could Settle U.S. Criminal Probe Next Month

By David Shepardson and Arunima Banerjee
December 29, 2016

Japan's Takata Corp (7312.T), maker of defective air bags that have been linked to 11 U.S. deaths, could settle criminal charges with the U.S. Department of Justice before the Obama administration leaves office next month, a source briefed on the ongoing talks told Reuters on Wednesday.

Part of a settlement would include Takata pleading guilty to criminal misconduct, the source told Reuters. The Justice Department has investigated whether Takata hid information from safety regulators and issued misleading statements about the dangers posed by the air bags.

Any deal would likely include a monitor to ensure Takata's compliance with the agreement, the source said.

The Wall Street Journal, citing people familiar with the matter, reported earlier on Wednesday that a settlement could require Takata to pay as much as $1 billion and be reached as early as January. (

The precise amount Takata pays could be considerably less than $1 billion and be paid over several years, the source said.

Both Takata and the DoJ declined to comment.

Takata air bag inflators have been linked to at least 16 deaths worldwide, including the 11 U.S. deaths. The inflators can explode with excessive force and send metal shrapnel inside cars and trucks.

There is no guarantee the talks will wrap up by Jan. 20, when Obama leaves office, said the source.

Monitors similar to the one that could be installed for the Takata case have been appointed as watchdogs in two recent major U.S. auto safety recalls involving General Motors Co (GM.N) and Toyota Motor Corp (7203.T).

Regulators have said recalls would eventually affect about 42 million U.S. vehicles with Takata air bag inflators, making this the largest safety recall in U.S. history.

Takata and the Justice Department have held talks for months about reaching an agreement.

The National Highway Traffic Safety Administration in December 2015 named a former U.S. Justice Department official to oversee the Takata recalls and the company's compliance with a NHTSA settlement. In November 2015, Takata agreed to pay a $70 million fine for safety violations and could face deferred penalties of up to $130 million under a NHTSA settlement for further violations.

Earlier this month, the U.S. Department of Transportation said it would press the auto industry to accelerate the pace of replacements for defective Takata air bag inflators and signaled a likely widening of the industry's largest recall.

Article Link To Reuters:

Apple, Samsung Missed Opportunities, Analysts Say

By Nathan Olivarez-Giles
December 29, 2016

In the continuing smartphone battle between Apple Inc. and Samsung Electronics Co., the week leading up to Christmas didn't provide much joy for either.

On Wednesday, Yahoo Inc.'s Flurry Analytics, issued its annual report on the most popular smartphones and tablets activated world-wide between Dec. 19 and Dec. 25. As in year's past, Apple and Samsung devices were activated far more than gadgets from rivals, such as Huawei, LG, Amazon and Motorola. But the lack of a dramatic rise or fall this year for either giant is a testament to their missed 2016 opportunities, analysts say.

Apple products accounted for 44% of activated smartphones and tablets in the period, while Samsung's smartphones and tablets accounted for 21%, Flurry said. (Flurry doesn't monitor sales, but rather device activity, so the numbers tend to differ from sales figures.) That is a dip for Apple, which claimed 49.1% for a similar period in 2015. For Samsung, it was a bump up from 19.8%.

While Apple's slide continued from 2014 -- when Apple devices represented 51.3% of activations, while Samsung's accounted for 17.7% -- it is a surprise given the massive financial and reputational hit Samsung took in the second half of 2016 with the global recall of millions of Galaxy Note 7 smartphones.

Samsung sales didn't plummet because the majority of Android loyalists are already entrenched in Samsung products, said Stephen Baker, the primary hardware analyst at the NPD Group Inc. tech industry research firm. "Most of those who bought or wanted to buy a Note 7 opted for a different high-end Galaxy phone," Mr. Baker said.

Huawei accounted for 3% of new-device activations in Flurry's report, while Inc., LG Electronics Inc., BBK Electronics Co.'s Oppo, Xiaomi Corp. and Lenovo Group Inc.'s Motorola Mobility each had a 2% share, and Alphabet Inc.'s Google Pixel phones were missing from the report altogether.

"Samsung was able to fend off other Android competition, and Apple, too, thanks to Apple's own lack of a wowing product this year," Mr. Baker said.

The iPhone 7 did produce strong sales for Apple, but Apple hasn't said yet whether or not the sale will be enough to reverse its first annual revenue decline in 15 years, which the company reported in October. This was the first year Apple decided not to report its first-weekend iPhone sales figures, leaving analysts to wonder if this was due to weak sales at launch. Apple, for its part, has said that first-weekend sales numbers aren't as relevant as they were in the past.

"Apple has the strongest ecosystem, with its hardware, software and app and content stores," said consumer tech and mobile industry consultant Chetan Sharma. "IPhone users looking for an upgrade stick with Apple. But in a year when Samsung dropped the ball in a huge way," he said, Apple "didn't have a phone with a compelling enough feature set to lure Samsung owners away."

Mr. Sharma and Mr. Baker agreed that both Apple and Samsung made mistakes this year that cost them growth. "The timing couldn't have been worse for Samsung and it couldn't have been better for Apple. But the truth is neither company capitalized this year," Mr. Sharma said.

Neither Apple nor Samsung responded to requests to comment on Flurry's report.

Article Link To MarketWatch:

Toshiba Tumbles For Third Day As Second Downgrade Fans Writedown Fears

By Ayai Tomisawa
December 29, 2016

Shares in Toshiba (6502.T) fell more than 19 percent in morning trade on Thursday, clocking a third day of heavy losses after the Japanese tech-to-nuclear conglomerate said earlier this week it faced a potential multi-billion dollar writedown.

Late on Wednesday, Moody's became the second rating agency to downgrade the group, pushing it deeper into "junk", or non-investment grade territory, with a Caa1 rating, from B3.

"Although Toshiba is still assessing the exact amount of the impairment loss, its financial metrics will likely deteriorate further, potentially resulting in a negative equity position," said Masako Kuwahara, Moody's Lead Analyst for Toshiba.

Moody's said the downgrade also reflected "mounting concerns" over corporate governance, especially in relation to due diligence for acquisitions.

Toshiba said on Tuesday that cost overruns at a U.S. nuclear business it bought from Chicago Bridge & Iron (CBI.N) last year, CB&I Stone & Webster, meant it could face "several billion dollars" in charges, acknowledging a bruising overpayment.

Since Tuesday's first warning, the share drop has wiped about $6.5 billion off Toshiba's market value.

Toshiba shares plunged 20 percent at the market open on Wednesday, immediately hitting the Tokyo exchange's daily downward limit.

Article Link To Reuters:

Sprint, OneWeb Say 8,000 Jobs Announced By Trump Are Part Of SoftBank Pledge

By Richard Cowan 
December 29, 2016

U.S. President-elect Donald Trump on Wednesday said telecommunications group Sprint Corp (S.N) and a U.S. satellite company OneWeb will bring 8,000 jobs to the United States, and the companies said the positions were part of a previously disclosed pledge by Japan's SoftBank Group Corp.

SoftBank (9984.T) holds stakes in both companies and its chief, billionaire businessman Masayoshi Son, earlier in December said he would invest $50 billion in the United States and create 50,000 jobs.

Sprint in January said it had cut 2,500 jobs as part of its plan to cut $2.5 billion in costs. On Wednesday it said it would create 5,000 jobs in areas including sales and customer care by the end of its fiscal year ending in March 2018.

Sprint spokesman Dave Tovar said the jobs were part of the pledge made by Son but would be funded by Sprint.

SoftBank and OneWeb had announced on Dec. 19 that the Japanese company was leading a $1.2 billion funding round.

OneWeb plans to use the funds to build a plant in Florida to produce low-cost satellites, creating almost 3,000 jobs at the company and its suppliers.

SoftBank described its $1 billion share of the funding as the first tranche of the $50 billion promised by Son in a meeting with Trump.

It is not clear whether the $50 billion SoftBank investment would be part of a $100 billion tech investment fund that the head of SoftBank and Saudi Arabia's sovereign wealth fund had announced earlier in the year.

"I was just called by the head people at Sprint and they are going to be bringing 5,000 jobs back to the United States, they are taking them from other countries," Trump told reporters outside his Mar-a-Lago estate in Florida.

"And also OneWeb, a new company, is going to be hiring 3,000 people. So that's very exciting," he added.

Shares of Sprint Corp, which is 82 percent owned by SoftBank, were barely changed in after-hours trading.

Article Link To Reuters:

A China-Watcher's Guide To 2017

By Christopher Balding
The Bloomberg View
December 29, 2016

Each December, China's leaders meet to lay out their economic agenda for the next year. And each December, China-watchers pore over their every word, much like Kremlinologists during the Cold War. It bears remembering that these pronouncements are rarely predictive, and that the best sources of insight on China's economy are usually found elsewhere. Here are a few key points to keep in mind next year.

Watch the data, not the New Year's resolutions.

Last year, China's leaders were touting plans for deleveraging and supply-side reform. This year, they're touting yet more plans for deleveraging and supply-side reform. In between, total outstanding credit rose from 246 percent of gross domestic product to about 265 percent, according to Bloomberg Intelligence economist Tom Orlik. Although reining in credit is essential for addressing many of China's economic problems, the government is still targeting 6.5 percent growth next year, much of which will be reliant on yet more debt. So pay less attention to the talk and more to the data -- specifically, metrics such as credit growth and real-estate prices.

Follow the Fed.

China remains tied to the U.S. economy, whether it wants to be or not. Unfortunately, not everything that's good for the U.S. is good for China. With the U.S. labor market tightening, and President-elect Donald Trump promising a $1 trillion economic stimulus, it is all but certain that the Federal Reserve will continue raising interest rates in 2017. That could have some positive effects for China's real economy, but it will also put pressure on the People's Bank of China to raise its own interest rates or risk breaking the soft peg of the yuan to the U.S. dollar. Higher rates, in turn, would raise borrowing costs for heavily indebted Chinese companies, many of which could end up in bankruptcy. How fast the U.S. economy grows, and how many times the Fed raises rates, could have as much impact on China's economy as anything next year.

Politics matter.

For a country that prizes stability, China faces a lot of political uncertainty next year. An important question is whether Premier Li Keqiang will stay on for a second five-year term after the 19th National Congress, at which most of the Politburo Standing Committee is expected to retire. Li, who plays a key role in economic policy making, had long been expected to remain paired with President Xi Jinping until 2022. Yet Beijing is now buzzing with talk that Li will be replaced. This would likely be a death knell for the free-market reforms that Li has championed, such as overhauling state-owned companies, and signal that the more centralized approach favored by Xi will prevail. Whether Li stays or goes should offer a lot of insight into China's economic future.

The cure can be worse than the disease.

Rising asset prices in China have helped prop up everything from coal and steel firms to consumer sentiment. But with potential bubbles popping up everywhere, the government seems to be laying the groundwork for reform. That could mean raising interest rates, applying new restrictions on trading or tightening other regulations. Remember that such measures, however necessary, carry risks of their own. For example, given that China has some of the world's most expensive housing relative to income, and extremely low turnover, withdrawing credit could result in a real-estate price shock. That might cause indebted developers to fail, or lead to much stronger government action to prevent a hard landing. As regulators try to rein in other asset prices, watch for similar turmoil in bonds and the yuan.

Expect the unexpected.

China has long been plagued by poor-quality data, with even senior leadership expressing frustration at getting inaccurate information from the provinces. Unreliable data makes it nearly impossible to properly assess risk, which raises the probability of some type of internal shock. It could come from the nearly $4 trillion market in murky wealth-management products. It could come from social instability tied to hidden unemployment. It could come from something totally unexpected: With the bond market in turmoil, liquidity concerns mounting and defaults rising, there are many ways in which a panic could materialize.

And that raises a final note of caution for 2017. Remember that risk is probabilistic and not mechanistic. As China's known risks accumulate, the probability of some unexpected event having an outsized impact also increases. In such circumstances, the biggest mistake one can make is to rely on past assumptions to predict the future.

Article Link To The Bloomberg View:

Keynes Reborn

By Koichi Hamada
Project Syndicate
December 29, 2016

In the fourth century, Japan’s emperor looked out from a small mountain near his palace and noticed that something was missing: smoke rising from people’s kitchens. While there were some faint trails here and there, it was clear that people were facing such harsh economic conditions that they could barely purchase any food to cook. Appalled at the circumstances of the Japanese people, who were largely peasants, the emperor decided to suspend taxation.

Three years later, the palace gates were in disrepair and the stars shone through leaks in the roof. But a glimpse from the same mountain revealed steady plumes of smoke rising from the peasants’ huts. The tax moratorium had worked. The people were so grateful to the emperor – who became known as Nintoku (Emperor with Virtue and Benevolence) – that they volunteered to repair his palace.

Almost two millennia later, the Japanese people are, again, under economic pressure. A steep hike in the consumption tax in 2014, together with another hike expected in the near future, has undermined household spending. As in the Nintoku story, it is the wealth of the people – not that of the government – that dictates consumption.

Of course, the wealth of the government does play a role in economic performance. But excessive concern about government’s solvency can cause the private sector to be reluctant to spend. That is what has happened in Japan.

Excessive government debt can be highly damaging. In inflationary periods, high outstanding government liabilities impair fiscal policy, because higher taxes are needed to finance the same level of real government spending. Making matters worse, governments can be tempted to inflate their debts away – a power that has been abused since the age of monarchs, resulting in a uniform inflation tax on asset holders.

But large public debts are not always bad for an economy, just as efforts to rein them in are not always beneficial. The focus on a balanced budget in the United States, for example, has led some elements of the Republican Party to block normal functions of state and even federal authorities, supposedly in the name of fiscal discipline. Likewise, the eurozone’s recovery from the 2008 financial crisis has been held back by strict fiscal rules that limit member countries’ fiscal deficits to 3% of GDP.

To understand the relationship between public debt and economic performance, we should look to the fiscal theory of the price level (FTPL), a macroeconomic doctrine that has lately been receiving considerable attention. In August, at the annual conference of central bankers in Jackson Hole, Wyoming, Princeton’s Christopher Sims provided a lucid explanation of the theory.

As Sims explained, contrary to popular belief, aggregate demand and the price level (inflation) are not dictated only – or even primarily – by monetary policy. Instead, they are determined by the country’s net wealth and the liabilities of the central bank and the government.

When government deficits are lower, investing in government debt becomes more attractive. As the private sector purchases more of that debt, demand for goods and services falls, creating deflationary pressure. If the central bank attempts to spur inflation by expanding its own balance sheet through monetary expansion and by lowering interest rates, it will cause the budget deficit to fall further, reinforcing the cycle. In such a context, Sims argued, monetary policy alone would not be adequate to raise inflation; fiscal policy that increases the budget deficit would also be necessary.

The FTPL provides a clear diagnosis of the Japanese economy’s problems – and points to solutions. When Abenomics was introduced in 2012, a massive injection of liquidity by the Bank of Japan was supposed to offset deflation. But, as both traditional Keynesians and FTPL followers would note, quantitative easing – which amounts to an exchange of money for its close substitutes (zero-interest bonds) – becomes less effective in stimulating demand over time. Add to that Japan’s fiscal tightening – and, especially, its consumption-tax hike – and it is no surprise that demand has remained repressed.

More recently, Japan’s negative-interest-rate policy worked rather well to push down market interest rates. But the policy also impaired the private sector’s balance sheet, because it functioned as a tax on financial institutions. As a result, it has failed to provide the intended boost.

During periods of recession or stagnation, additional interest payments by banks would burden the economy, whereas public debt may enable the economy to reach full employment. (Neo-Ricardians would argue that public debt in the hands of people is worthless, because consumers internalize their children’s future tax payments by holding debt certificates. But, as David Ricardo himself recognized, people are rarely that smart.)

John Maynard Keynes’ The General Theory of Employment, Interest, and Money, which argued for active fiscal policies, was published in 1936. Forty years later, a counterrevolution took hold, reflecting sharp criticism of fiscal activism. After another 40 years, Keynes’ key idea is back, in the form of the FTPL. This may be old wine in a new bottle, but old wine often rewards those who are willing to taste it.

Article Link To Project Syndicate:

On EU Trade, Brexiteers To The Rescue!

By Kavitha Surana
Foreign Policy
December 29, 2016

Let us imagine a world where “leave means leave,” and “Brexit means Brexit.” The United Kingdom would promptly trigger Article 50, close its borders, and say cheerio to its special single-market EU privileges. In doing so, Britain might slowly fade into irrelevance as banks, business opportunities, and immigrants flee to the continent.

Yet, like a picky child, lead Brexiteers appear to still hope they can finagle leaving the nastier, more difficult bits of the single market European Union sandwich (the crust, if you will) by the wayside while simply enjoying the tasty benefits – like free trade.

In a recent letter to business groups in the 27 other countries muddling along in the EU, Leave Means Leave pressure group co-chairmen Richard Tice and John Longworth called for continuing an uninterrupted flow of goods between the U.K. and EU. They also sought a wide-ranging trade deal “that has close to zero tariffs as is possible.”

Longworth headed the British Chamber of Commerce until he was forced to resign for openly supporting Brexit. He and Tice seem to hope stirring up economic concerns might lead European business leaders to pressure their home governments to give Britain extra market access. In turn, that could pave the way for the U.K. to eventually have its cake in Brexit negotiations and eat it too.

“Many EU member states export significant amounts of goods to the U.K. and the erection of barriers to this trade by the European Commission will have a detrimental effect on jobs and prosperity in a number of EU states, some where unemployment is already unacceptably high,” the letter said.

In other words, “leave means leave in all the trade benefits of being in the EU, ta.”

British Prime Minister Theresa May has said she plans to formally begin negotiations to leave the EU in March. But she hasn’t yet outlined whether Brexit will mean leaving the single market — and what other trade arrangement would replace it. German Chancellor Angela Merkel, meanwhile, has suggested that access to the single European market is not open to those countries that do not accept European values — like free movement.

Mark Leonard, director of the European Council on Foreign Relations, told Foreign Policy that Brexiteers “live with a fear that the negotiations are going to get very, very difficult,” perhaps forcing compromises on immigration and EU regulations, the key tenants of the Brexit campaign.

Leonard said the letter might be a bid to smooth the waters by framing an ongoing trade relationship as a win-win for EU member states with struggling economies. But it’s unlikely spurned EU countries will feel the need for leniency, despite economic concerns.

“EU member states feel that [Brexit] is an existential political threat to the European project, and they will want to make an example of Britain,” Leonard said. And the U.K., which has a large trade deficit with the EU, will pay a higher economic price for losing out on trade than the rest of the bloc.

And for those who doubt the EU will follow through, Leonard pointed to austerity negotiations with Greece in 2015. While Greeks overwhelmingly voted in a referendum against a rescue package tied to more cutbacks, the EU didn’t back down on its demands. Ultimately, Athens had to bend to the harsh terms.

Whatever the hopes of business leaders to influence the Brexit process, it’s politics — not economics — that will drive the next stage of Brexit negotiations, said Mujtaba Rahaman, head of European analysis at Eurasia Group.

“The corporate sector is going to have a very limited influence on government policy,” he predicted.

And businesses seem to be falling in line with their governments. Back in September, Markus Kerber, head of Germany’s business association, signaled business leaders would put political considerations above short-term economic benefits.

Though acknowledging 7.5 percent of German exports go to the U.K., Kerber noted “the vast majority goes to other European countries. So, as much as we would like to uphold our very good relations with British customers, it is extremely important for us not to alienate other European markets.”

Meanwhile, Italians had a field day jeering British Foreign Minister Boris Johnson when he told Italy it would have to come around to tariff-free trade in order to protect its prosecco industry.

Clearing up where the U.K. stands on trade would probably be welcome at home. Mired in uncertainty for the future, Britons are now hoarding cash, according to the British Bankers Association. Home loans in the U.K. also fell nine percent in November from a year earlier.

If the thought of a long, drawn-out Brexit negotiation fills you with dread, perhaps try something light-hearted. The comedy duo Cassette Boys just released a hilarious 2016 Brexit mashup video, in which speeches from the key cast and characters of Brexit — Johnson, former Prime Minister David Cameron, and former U.K. Independence Party leader Nigel Farage — are cut and pasted to rap out a different, perhaps more candid, version of the year.

Their edited rendition of Theresa May? “Brexit means Brexit. And we’re making a mess of it.”

Article Link To Foreign Policy:

Britons Hoard Cash As Economic Uncertainties Prompt Caution

Personal deposits rose 32.4 billion pounds in first 11 months; Separate report signals minimal house-price growth in 2017.

By Lucy Meakin
December 29, 2016

Britons are holding onto their cash in a sign that they may be hunkering down in the face of economic uncertainties, according to the British Bankers Association.

Personal deposits grew an annual 4.8 percent in November, data compiled by the BBA show. They increased by 32.4 billion pounds ($39.7 billion) in the first 11 months of the year, outstripping the 19.8 billion-pound growth in the same period of 2015.

British investors and savers were shaken by the June decision to leave the European Union, which prompted the Bank of England to cut interest rates to a record-low 0.25 percent. While the economy has held up well so far, most economists foresee a slowdown in 2017 as businesses seek more clarity on the nation’s future relationship with the world’s largest trading bloc.

“We’ve seen personal deposits, in particular, grow more strongly in recent months as consumers hoard cash in the absence of higher-yielding, liquid investment opportunities,” BBA Chief Economist Rebecca Harding said. “This growth in personal deposits may also suggest that consumers are looking to grow their cash reserves against potential economic uncertainties, such as an expectation of lower wage growth.”

The BBA figures also showed that approvals for home loans fell 9 percent in November from a year earlier. In the first 11 months of the year, approvals declined 4 percent.

U.K. house prices may only eke out a modest gain next year as economic growth weakens and a pickup in inflation squeezes consumers, according to a separate report by Halifax. The mortgage lender sees housing demand easing in 2017, partly as tax changes and stricter underwriting standards restrict buy-to-let investment.

It highlighted the market in London, where poor affordability means the capital will see a sharper slowdown than elsewhere.

London’s underperformance has also been a theme of 2016, with Brexit and an increase in stamp duty weighing on the market. Luxury home prices in some of the most expensive districts are down more than 10 percent this year, and land values are also dropping. Property website operator Rightmove said this month that the bubble in prime London “continues to deflate,” and it sees prices there declining 5 percent in 2017.

Halifax said prices should find some support from the shortage of property for sale, low levels of building and low interest rates. It forecasts that values will be rising about 1 percent to 4 percent in the U.K. by the end of next year. The most recent official data showed an increase of about 7 percent in October.

The wide range for the forecast “reflects the higher than normal degree of uncertainty” for the economy, it said.

“Slower economic growth in 2017 is likely to result in pressure on employment with a risk of a rise in unemployment,” said Martin Ellis, housing economist at Halifax. “This deterioration in the labor market, together with an expected squeeze on households’ spending power, is likely to curb housing demand.”

The Royal Institution of Chartered Surveyors also sees a slowdown in price growth in 2017, adding to the multiple reports that underscore the recent loss of momentum in Britain’s housing market. It says the supply shortage means the average number of properties on realtors’ books is close to a record low, supporting the outlook for values.

Article Link To Bloomberg:

Obamacare Didn’t Fail Because It’s Timid

By Megan McArdle
The Bloomberg View
December 29, 2016

Kevin Drum of Mother Jones thinks that making Obamacare work could have been a simple task for Democrats. All they needed was two things:

-- About twice as much funding, and
-- A higher tax penalty for not buying insurance.

More funding would have allowed them to offer higher subsidies to people with incomes above 200 percent of the poverty line, plus lower deductibles, while a mandate equal to the cost of an insurance policy would have left people with little choice other than to buy insurance. Since the people who forgo insurance today tend to be the folks who use little health care, this would have lowered the average cost of insurance for everyone.

Why didn’t they do this? Kevin blames timidity -- “Democrats were fixated on Obamacare costing under $1 trillion” -- and a “hack gap”:

"If this were a Republican plan, and it were something they really wanted, they wouldn’t have bothered with funding. They would have just made up a story about medical inflation coming down (which it is) and broader health coverage leading to improved economic growth blah blah blah. Democrats weren’t willing to do that."

Judging from my interactions with readers and my friends and family who don’t happen to spend their days marinating in health-care policy, the view that Obamacare’s problems are due to Democrats not being sufficiently left-wing, or dishonest, is pretty common on the left. That makes it worth refuting, because -- with all due respect to Kevin -- it’s completely wrong.

I agree that higher subsidies and a stronger mandate would have made Obamacare less of a policy train wreck; we probably wouldn’t be so worried about a death spiral if they had passed. On the other hand, it would have made the program much more of a fiscal train wreck. Kevin suggests that they should have just raised taxes on the rich, but for reference, the total repeal of the Bush tax cuts was projected to raise only about two-thirds of the amount needed. And since they were projected to expire, that was not a source of revenue that Democrats could use to fund Obamacare.

Funding this extra entitlement by tapping the rich would have been, to put it mildly, unpopular with an important part of the Democratic base: urban professionals. They would have, in the course of a few years, seen about 10 percent of their gross income, and a considerably larger fraction of their take-home pay, vanish. Nor would they be excited when politicians came back to them for even more money to pay for little incidentals like our growing entitlement gap.

Nor, as Kevin suggests, could Democrats have simply hand-waved the cost away. Bills have to be scored by the Congressional Budget Office. The Congressional Budget Office would not have scored heartfelt paeans to the economic benefits of broader health coverage (and to the extent that they would have, most of those benefits were already in the score the bill got.) If Democrats had tried to pass a bill that cost $2 trillion over 10 years, the Congressional Budget Office would have scored it as such, and that is the cost that the media would have reported. This -- not a tragic surfeit of honesty -- is why Democrats didn’t take the-time-honored approach of telling wild lies about what their plans would cost.

In fact, they prevaricated as much as they could, from “If you like your policy, you can keep it” to gaming the CBO forecasting process with dodgy revenue-generating provisions like the CLASS Act long-term care program, and the requirement for people to issue 1099s to anyone who sold them more than $600 worth of stuff -- things which were pretty obviously never going to actually take effect, but which helped lower the apparent cost of the bill at the time of the law’s passage, due to quirks in the CBO’s forecasting process. If they could have found more such dodgy mechanisms, they would have used them; the limit was the number of things the CBO would score, not the willingness of Democrats to make absurdly false claims about the bill’s costs.

So “lying” was simply not an option. Neither was “doubling the cost and whacking up the mandate.” Democrats were already having trouble getting their $1 trillion bill passed. This was a bill so unpopular that the state of Massachusetts (!) sent a Republican senator to Congress to stop it.

Let’s stop for a moment and ponder that. It’s common to hear Democratic pundits lament that centrist senators like Ben Nelson and Joe Lieberman held the bill hostage, forcing it to be underpowered to the task and leading to the failures of today. But if Massachusetts balked at signing up for this, then the problem wasn’t just with a few squishy moderates. Had Democrats pushed for a $2 trillion bill with a much larger mandate, as Drum wishes, the issue wouldn’t have been a handful of DINO senators -- it would have been the folks from deep-blue states fleeing for cover ahead of a mob of angry constituents.

As it was, thanks to the inconvenient arrival of Republican Scott Brown to replace Ted Kennedy, Democrats were forced to use a parliamentary maneuver called reconciliation to pass major parts of the program. Reconciliation bills cannot increase the deficit outside of the 10-year forecast window, so even if Democrats had been willing to hold hands and commit an even more gruesome form of collective political suicide than the one they chose, they could not have done what Kevin describes.

So there we are: This counterfactual history could not have happened, which is why it didn’t. But it’s particularly worth discussing why the bill was so unpopular. There was a pundit parlor game around the time of passage, and for a few years after, where liberal pundits would look at how individual components of the law polled, and report that Obamacare was secretly popular because its provisions polled well except for two little items -- the funding mechanisms, and the mandate. This is, of course, exactly backwards. Those polls weren’t telling Democrats that people actually liked Obamacare; they were telling Democrats that people hated the taxes and the mandate so much that it outweighed everything they liked about the bill. Had the taxes and the mandate been higher, that hatred would have been more intense.

Of course, this is all water under the bridge, so why rehash it now? Because we are still living with the choices Democrats made -- and the constraints that bound them will bind Republicans even more strongly as they attempt to fix the bloody thing.

Democrats at least got to package the bits people hated with goodies, like prohibiting insurers from looking at pre-existing conditions when selling insurance. For Republicans to fix the system as it stands, they would have to jack up the parts people hate -- not to deliver new benefits, but mostly just to keep the existing system from flaming into a tailspin. Only the price tag would now be much higher, for boring technical reasons I’ll leave in a footnote. The odds of this happening seem … slight.

Yet repeal and replace now seems almost as unlikely, because it means taking something away from voters -- stuff that polls really well, such as, er, prohibiting insurers from looking at pre-existing conditions. Of course, the last option -- doing nothing while the individual market flames into a tailspin -- doesn’t look all that hot, either.

If I were a Republican in congress, option three is probably what I’d choose. I’d announce a blue-ribbon commission designed to study the matter and propose a comprehensive alternative. I’d give it plenty of time to study and make recommendations. Then I’d wait and see if 2017 brings more premium hikes and insurers pulling out of smaller counties -- disasters that could then be blamed on Obama, in much the way that Democrats successfully blamed the financial crisis on Bush, even years after he’d left office.

Is this the courageous thing to do? No. Is it the right policy move? Also no. But that’s the point of today’s history lesson: When it comes to policy, political math trumps both technocratic merit and courage every time.

Article Link To The Bloomberg View:

Yes, We Can Repeal ObamaCare And Still Protect The Sick

By Betsy McCaughey
The New York Post
December 29, 2016

Democrats are warning that once ObamaCare is repealed, people with serious illnesses won’t be able to get health insurance. President Obama says repeal will mean going “back to discriminating against Americans with pre-existing conditions.”

That’s fake news.

The truth is, all Republican proposals to repeal and replace the Affordable Care Act protect people with pre-existing conditions.

Likewise, they all eliminate ObamaCare’s invidious discrimination against healthy people. ObamaCare forces the healthy to pay the same premiums as the chronically ill, whose medical costs run 10 times as high. That’s because a mere 5 percent of the population consumes half the nation’s health care.

To see how the GOP approach would work, look to Alaska, a state that seized the initiative when healthy consumers rebelled against their soaring ObamaCare premiums.

The burden of caring for 500 chronically ill patients was making ObamaCare unaffordable for all 23,000 Alaskans in the individual market. They faced 40 percent premium hikes for 2017. So in June state authorities created a separate “high-risk” pool for the sickest people, with the cost shouldered by all Alaska taxpayers, instead of being thrust on buyers in the individual insurance market. As a result, premium hikes were kept to single digits.

The Alaska remedy is a microcosm of what congressional Republicans propose for all 50 states.

High-risk pools are not a new idea. Before ObamaCare, about 250,000 people a year were denied coverage for health reasons by major insurers, and nearly all of them enrolled in high-risk pools in the 35 states that offered them. (Sadly, New York wasn’t among them, a major reason premiums were so high here.)

In 2010, the ACA established a temporary high-risk pool for people not being served by the state pools until the ObamaCare exchanges opened. About 135,000 enrolled.

That suggests that as many as 500,000 people across the nation will likely need high-risk pool coverage once ObamaCare is repealed.

Subsidizing high-risk pools in all 50 states would cost about $16 billion a year. That assumes spending about $32,000 on each person helped — the same as in the federal temporary risk pool.

Now, $16 billion sounds like a fortune. But it’s less than half the $43 billion spent on ObamaCare plan subsidies last year. And it’s money far better spent, because it directly helps the sickest among us.

Some GOP lawmakers are proposing spending less on high-risk pools in order to also offer subsidies to healthy buyers. They should reconsider.

Fully subsidizing the medically needy in risk pools will stop premiums from skyrocketing in the individual market. Then, healthy people will be able to buy coverage at reasonable prices that reflect their own expected health needs. A good deal for the sick and for the healthy.

So much for the fear-mongering that repealing the ACA will victimize millions with pre-existing conditions. In fact, ObamaCare architect Jonathan Gruber recently analyzed which provisions of the law expanded coverage to millions more Americans. Even Gruber’s analysis attributes none of the gains to changing the rules regarding pre-existing conditions.

Most people with pre-existing conditions already had coverage before ObamaCare. The pre-existing conditions crisis was largely concocted to sell Obama’s health law. President Obama even fibbed about his late mother, claiming she was hassled for a pre-existing cancer. Not true.

In fact, for people with pre-existing conditions, such as cancer, ObamaCare spells trouble. Most plans severely limit choice of hospitals and doctors, excluding specialty hospitals like Memorial Sloan-Kettering Cancer Center in New York City. Forcing a cancer patient to change oncologists is a life-or-death issue. That’s why patient advocates and several state health commissioners opposed closing high-risk pools.

High-risk pools are a key part of what will replace ObamaCare. They’re a transparent method of subsidizing care for the sickest among us, while keeping premiums affordable for the rest of us. Good riddance to ObamaCare’s devious scheme to force the young and healthy to overpay for insurance. No one was fooled.

Article Link To The New York Post:

Economists Say Trump Delivered Hope

Now he needs to boost wages and create jobs to keep the economy on track.

By Lorraine Woellert
December 29, 2016

Economists say Donald Trump is right to credit himself for sending consumer confidence to a 15-year high this month as Americans reported a rosy outlook for job creation, business growth and the stock market.

The news broke Tuesday, when the Conference Board said its Consumer Confidence Index soared to 113.7 in December, the highest level since 2001. The jump surprised economists, who say the economy has been slowing down. But it didn’t surprise Trump.

“Thanks Donald!” the president-elect said Wednesday morning on Twitter.

Trump’s election put the country in a good mood, economists say.

“There’s a lot of hope that things are going to change and get better,” said Mark Vitner, a senior economist at Wells Fargo. “Let’s see what happens.”

American’s weren’t particularly overjoyed about the economy. What made them cheerful was the hope for a new, better economy. The Conference Board’s measure of expectations, a measure of how consumers feel about the future, leapt to a 13-year high as Trump’s promise of more jobs, lower taxes and a better business climate made people upbeat.

“Optimism did surge after the election. The question is can we maintain it,” said Lynn Franco, the Conference Board’s director of economic indicators. “That depends on what happens in terms of the economy and job growth.”

It’s not unusual for consumers to feel better after an election, especially when a new party takes office. Ronald Reagan, Bill Clinton and even Barack Obama, who won his first presidential campaign in the midst of the Great Recession, enjoyed a boost in consumer optimism the month they were elected.

By contrast, optimism sank as the nation waited on hanging chads and Bush v. Gore at the end of 2000.

“Elections always give confidence a boost. There’s a sense of relief that it’s behind us,” Vitner said. “There does seem to be something to the Trump bump.”

This election year, the economy has been on a long road to recovery since the Great Recession ended in 2009. Consumer confidence has been on the upswing all year.

Still, confidence doesn’t boost wages or create jobs, and nine of the past 10 recessions began under Republican presidents.

“Trump will be breaking with tradition if we don’t see a recession in the next four years,” PIMCO’s Joachim Fels wrote in a recent blog post.

Article Link To Politico:

Rove: A Preview Of Obama’s Post-Presidency

He’s grumbling about Fox News and talk radio while feigning that he isn’t partisan.

By Karl Rove
The Wall Street Journal
December 29, 2016

In two interviews over the holidays, President Obama signaled how he’s likely to conduct himself once out of office: whiny, self-justifying and bursting with excuses.

Mr. Obama grumbled to Ta-Nehisi Coates of the Atlantic that he suffered “concentrated vilification” by “Fox News, Rush Limbaugh, the whole conservative-media ecosystem.” But he is hardly the first president to be attacked, and much of his coverage has bordered on worshipful. Still, Mr. Obama complained, conservative criticisms “had an impact in terms of how a large portion of white voters would see me.”

Most whites, he acknowledged, don’t vote based on race. But he argued that “good people” can be “made afraid, and suspicious and fearful.” The president said that many voters are “responding to a fictional character named Barack Obama who they see on Fox News or who they hear about through Rush Limbaugh.” As a result, many whites think “this black president is trying to hurt you or take something from you and looking out for ‘his own.’ ”

To illustrate his point, the president claimed that “the whole debate about Obamacare” was framed as “He’s trying to take something from you to give free stuff.” That isn’t what happened. Googling “Obamacare, free stuff” produces about a half a million hits. Searching “like your plan, keep your plan” generates nearly 1,000 times that number.

Mr. Obama admitted that some conservatives may oppose his agenda “because they have a coherent and sincere view” about the proper role of Washington. Then he quickly warned that “the relationship between the federal government and the states was very much mixed up with attitudes towards slavery, attitudes towards Jim Crow, attitudes towards antipoverty programs and who benefited and who didn’t.”

The president rarely accepts that people have honest disagreements with his policies. Instead, he insists they are putting party above country and intimates that racism is at the core of much of the opposition of white Americans.

Fox News (to which I contribute) may upset Mr. Obama by covering both sides of issues that much of the media ignores. Mr. Limbaugh may discomfort him by entertaining and educating millions. But neither is what led 47% in this election’s exit polls to say they wanted a more conservative new president while only 28% wanted someone to continue Mr. Obama’s policies.

In a podcast with his former adviser David Axelrod, Mr. Obama indicated the form his revisionism will take. He recalled his 2004 speech at the Democratic National Convention, in which he said “there’s not a liberal America and a conservative America; there’s the United States of America.” After he won the White House, Mr. Obama said, Republicans like Sen. Mitch McConnell (R. Ky.) “mobilized a backlash to this vision,” deciding to “just say no” and “throw sand in the gears” to thereby win back House and Senate seats.

This is malarkey. The GOP’s ability to throw sand was nil in Mr. Obama’s first years. Democrats held massive congressional majorities, and the president marginalized Republicans instead of co-opting them. He dismissed GOP suggestions for his stimulus bill by saying “I won.” While Democrats and Republicans on the Senate Finance Committee worked toward a possible compromise on health-care legislation, the White House made known that it would not respect any bipartisan agreement they arrived at.

It was only after nearly two years of abuse like this that Mr. McConnell declared in late October 2010 “the single most important thing we want to achieve is for President Obama to be a one-term president.” Democrats have already admitted that’s their goal for President-elect Donald Trump.

Mr. Obama still doesn’t understand that the GOP’s victories in ’10, ’14 and ’16 were repudiations of his policies. In the podcast, he argued that rural voters were wrong to vote Republican because his administration “devoted more attention, more focus, put more resources into rural America.” The idea that Democrats “abandoned the white working class,” he added, is “nonsense.” In other words, country folks should stay bought and the working class is too dumb to understand what’s good for them.

While saying it was time for “new voices and fresh legs,” Mr. Obama threatened that if “some foundational issues about our democracy” arise after he leaves office, he might “weigh in.” He also promised his presidential center would help young people become “organizers, journalists, politicians” by providing “tools for them to bring about progressive change.”

The IRS may get indigestion at such partisan use of a nonprofit, but Republicans should do cartwheels about these pledges, since it was Mr. Obama’s leadership that helped produce the biggest GOP dominance in nearly a century.

Mr. Obama will be the first ex-president since Woodrow Wilson to remain in Washington. Given the tone of his interviews, he could well become a carping, persistent presence in our nation’s capital.

Article Link To The Wall Street Journal:

Let’s Call This The No-Fault Stock Market

Two reliable long-term signs are showing the market is healthy.

By Kevin Marder
December 29, 2016

I can find few faults with this stock market.

While most growth stocks have fallen out of favor, the averages themselves are stubbornly clinging to recent highs. Volume has dried up, indicating a lack of worrisome profit-taking despite the substantial gains booked in November and December.

Over a longer period, volume and breadth have been solid, which together form one of two reliable long-term signs of health. The other, the financial sector XLF, -1.02% has outperformed the average stock since the summer.

Further upward revaluation is anticipated over the medium term, though a short-term 3% to 5% reaction can always occur in a bull market. The longer-term view here would turn negative if the advance's breadth (the performance of the average stock) were to deteriorate along with the ability of the financials to match new highs by the S&P 500 Index SPX, -0.84%

Growth-stock specialists will find few pattern setups to their liking. This is part and parcel of a bull market that is mature and rotating into value/cyclical names that tend to perform better in a rising-rate environment.

Among the names, most Wall Street analysts who cover Netflix NFLX, -1.92% have the internet-based provider of movies and TV shows earning 32% more this year than it did last year. In 2017, this expected earnings growth rate rises to 134%. Top-line growth remains buoyant and steady, at rates of 24%, 23%, 23%, 23%, 24%, 28%, and 32% over the past seven quarters, respectively.

For the past 16 months, NFLX shares have been forming a long consolidation. The past year has seen this take the form of an O'Neil cup-with-handle basing pattern. The entrance pivot, or point of least resistance, is the $129.29 top of the handle.

Aggressive speculators could use a break of this level for entrance. At the time of the breakout, volume would need to be on track to finish the day at least 40% above NFLX's 8.8 million-share average.

If this breakout occurs Thursday or Friday, thinner-than-usual holiday trading conditions may not produce the brisk volume that is needed to lift the chance of a successful move.

As always, a protective stop should be used to mitigate risk, along with a starter position that is half, or less, the normal size. This initial position could be added to if the stock proves itself. In most cases, a position should not be entered when price is extended — more than 5% past the top of its base for purchases.

Blackline BL, +0.26% is a recent new issue in the enterprise-software segment of finance and accounting. This is a very speculative company due to its losses in the past three years — plus Wall Street’s outlook for more of the same in 2016 and 2017.

In younger, unprofitable companies such as Blackline, it can be helpful to look at recent revenue growth, especially sequential growth. With BL, the last three quarters have featured sales growth of 47%, 49%, and 49%, respectively.

Sequential revenue growth is a more sensitive metric and measures growth in one quarter vs. the prior quarter, not vs. its year-ago quarter. A sequential growth rate for revenue of 10% is deemed impressive. For Blackline, the last three quarters have run at 8.6%, 9%, and 11%.

The stock jumped as much as 51% in its first day of trading as a public company nine weeks ago. Recent new issues that can climb 50%-plus in their first two months of trading are accorded special attention. It is these titles that have a higher likelihood of eventually becoming outstanding actors.

Technically, BL has been tracking sideways for the past five weeks while holding on to the bulk of its prior gains. Aggressive speculators may consider using the 28.77 high of Nov. 29 as an entrance pivot for a breakout play.

Tesaro TSRO, -1.32% came public at $14 in mid-2012. Despite dripping red ink during the past four years, investors have bid shares of the developer of cancer treatments to a recent high of $148.74.

With more losses expected by the Street for this year and next, and with inconsistent revenue growth, TSRO represents a higher-risk play.

Tesaro's chart looks constructive. At present, price is building a six-week flat base. The are two entry points: A cheater entrance could be used on a takeout of the Dec. 6 high of $143. A less aggressive pivot would be the $148.74 high of Nov. 14. A break of this latter high should be accompanied by volume at least 50% more than the daily average of 1 million shares.

In sum, a market that has climbed appreciably since just before the election has left few pattern setups for the intermediate-term speculator, especially within the growth segment. The averages are in good shape, as are volume, breadth, and the financial sector. Notwithstanding a 3% to 5% short-term reaction that can always occur in a bull market, the intermediate-term direction stays up.

Article Link To MarketWatch:

Santa Rally Fizzles: "Kiss Dow 20,000 Goodbye For 2016"

By Patti Domm 
December 29, 2016

The Santa rally has run out of steam, and it now appears investors will probably have to wait until the new year to see Dow 20,000.

Stocks stalled out Wednesday, and then declined in the second biggest loss since the election. The Dow opened just a short hop away from 20,000 but lost 111 points, falling to 19,833. The S&P 500 fell 18 to 2,249.

"I think Santa is checking into a home," said Art Cashin, director of floor operations at UBS. When asked if the Dow would reach the 20,000 mark this year, he replied, "I don't think so."

Cashin had told CNBC last Friday there was a 50/50 chance of the Dow surpassing the milestone before the end of the year.

Andy Brenner, global head of emerging markets fixed income at National Alliance, also said the selling in stocks appeared related to selling by pension funds, which would have to rebalance their holdings before the end of the year, after the stock market's recent run.

Brenner said the rebalancing between stocks and bonds may have influenced the government's auction of $34 billion five-year notes Wednesday.

"As for reallocation, it makes perfect sense in a light liquidity week to buy Treasuries in the auction and sell equity futures at the same time. Look for similar move at tomorrow's seven-year. ... Looks like you can kiss Dow 20000 goodbye for 2016," he wrote in a quick note.

The Treasury auctions $28 billion seven-year notes Thursday at 1 p.m.

Cashin also said the pension fund rebalancing appeared to be a factor in the stock market sell-off. He said there were reports of an estimated $35 to $50 billion in equities to be sold as part of the moves by pension funds to rebalance their stock and bond holdings. Wells Fargo estimated that equity selling would amount to about $32 billion but pensions would have to buy $20 billion in bonds.

"It's selling into a vacuum here. There's not much bidding going on. They tried and now there's the weight of the potential end-of-year selling. … I thought this was their last best chance. They should be under negative pressure for the last two days [of the year]," said Cashin.

Ian Lyngen, rates strategist at BMO, said the strong demand in the $34 billion five-year auction Wednesday could have been foreign buyers, and he will watch the seven-year auction to see if there is similar demand. The indirect bidders totaled 71 percent, the most since 2006.

There are initial claims data and international trade, both expected at 8:30 a.m. ET on Thursday.

"Wholesale inventory figures could influence expectations for third-quarter GDP. We have seen GDP estimates swing rather sharply on trade numbers," said Lyngen.

As for the Santa rally, it seems to have fizzled. Stock Trader's Almanac describes the Santa rally as occurring in the final five trading days of the year and the first two days of the new year. So far, stocks are now lower. The S&P 500 is off a half percent since Thursday, and the Dow is off 0.4 percent.

When stocks rally during that period, it is expected the market will start off the year on a strong footing. If not, there are expectations it could be weaker.

There is also oil inventory data at 11 a.m. and natural gas inventory supply data at 10:30 a.m.

Article Link To CNBC:

Climateers Can’t Handle The Truth

Lee Raymond’s 1997 climate speech in China is looking better than ever.

By Holman W. Jenkins, Jr.
The Wall Street Journal
December 28, 2016

Congrats are due for the term “climate denialist,” which in 2016 migrated from Paul Krugman’s column to the news pages of the New York Times.

On Dec. 7, the term ascended to a place of ultimate honor when it figured in the headline, “Trump Picks Scott Pruitt, Climate Change Denialist, to Lead E.P.A.”

Unfortunately, never to be explained is precisely which climate propositions one must deny in order to qualify as a denialist. In zinging Mr. Pruitt, currently Oklahoma’s attorney general, the Times rests its unspoken case on a quote from an article this year in National Review, in which he and a coauthor wrote: “Scientists continue to disagree about the degree and extent of global warming and its connection to the actions of mankind.”

But this statement is plainly true. No climate scientist would dispute it. Through all five “assessment reports” of the Intergovernmental Panel on Climate Change—sharer of Al Gore’s Nobel prize—the central puzzle has been “climate sensitivity,” aka the “degree and extent” of human impact on climate.

Greenpeace adopts the same National Review article to attack Mr. Pruitt, lying that he and a coauthor “claimed the science of climate change is ‘far from settled.’”

The science is not settled (science never is), but this is not what Mr. Pruitt was referring to. His plain, unmistakable words refer to a “major policy debate” that is “far from settled”—a statement that indisputably applies even among ardent believers in climate doom. Witness the battle between wings of the environmental movement over the role of nuclear power. Witness veteran campaigner James Hansen’s dismissal of the Paris agreement, which other climate campaigners celebrate, as “worthless words.”

These lies about what Mr. Pruitt wrote in a widely available article aren’t the lies of authors carried away by enthusiasm for their cause. They are the lies of people who know their employers and audiences are beyond caring.

Which brings us a two-part article in the New York Review of Books by representatives of the Rockefeller family charity, desperately trying to make the world care about their fantasy that Exxon is somehow a decisive player in the policy debate—Exxon, not voters who oppose higher energy taxes; Exxon, not the governments that control 80% of the world’s fossil fuel reserves and show no tendency to forgo the money available from them.

The Rockefeller family’s charitable attachment to the climate cause is understandable, though. Their money might instead be used to bring clean water to poor villages, immunize kids against disease, or improve education. But such programs can be evaluated and found wanting due to fraud or incompetence, whereas climate change is a cause to which money can safely be devoted to no effect whatsoever without fear of criticism.

Twenty years before his successor became Mr. Trump’s nominee to be secretary of state, Exxon’s then-CEO Lee Raymond gave a much vilified speech in China—a much misrepresented speech, too.

He did not say humans were not influencing climate, but the degree was highly uncertain, and future warming was not a “rock-solid certainty,” he said.

He could not have known he was speaking near the peak of an observed warming trend, and that relatively little or no warming would be recorded over the next 20 years.

He said poor countries would and should choose economic growth over suppressing fossil fuel use. They did, and some one billion fewer people today are living in extreme poverty (as defined by the World Bank).

He said fossil energy would continue to fuel economic prosperity, though consumption growth would moderate with increased efficiency, and as poor countries devoted a share of their increasing wealth to environmental improvement. He was right.

He predicted that technology would open up new reserves to fuel the global economy, though he didn’t mention and perhaps didn’t know about fracking.

All in all, it was a performance, in many fewer words, far more cogent than the Rockefeller pieces, notable mainly for their childishness about both climate science and climate politics.

Donald Trump, our new president-elect, has been tagged for indiscriminately referring to climate change as a hoax. Here’s what he actually said at a campaign rally in South Carolina one year ago about climate advocacy: “It’s a money-making industry, OK? It’s a hoax, a lot of it.”

This statement, with its clearly framed qualifications, is true and accurate in every detail. It’s a statement of basic truth that can be embraced, and increasingly should be, by exactly those people most concerned about man-made climate change.

Yet it won’t be, for reasons demonstrated by the New York Times’ adoption of the term climate denialist, whose deliberately non-discriminating function we now take care to state precisely: It enables a kind of journalism that is unable—incapacitates itself—to stumble on truths that would be inconvenient to climate religion.

Article Link To The Wall Street Journal:

The GOP’s ObamaCare Moment

A repeal first then replace strategy carries big political risks.

By Review & Outlook
The Wall Street Journal
December 28, 2016

With Republicans controlling both ends of Pennsylvania Avenue next year, they have a great, and rare, opportunity for reform. Ronald Reagan revived the economy, but some of his ambitions were checked by Democratic Congresses. The Gingrich Congress reformed welfare but crashed against other entitlements, and the George W. Bush-Tom DeLay GOP wasted a unified government after 2004.

The question now is whether Donald Trump and a new congressional generation can enact center-right reform solutions, and the first proving ground will be ObamaCare.


The Affordable Care Act is the first entitlement in U.S. history to fail as policy and politically. Premiums continue to surge, and enrollment to disappoint. The number of plans on the exchanges, already low, plunged 16% for 2017 as insurers quit or retrenched. In 30% of counties, Blue Cross Blue Shield alone is the sole insurer, and much of the competition is low-quality Medicaid managed care. National health spending is also re-accelerating as the law diffuses through the system.

Gallup reports that disapproval of the law remains as high as the post-2012 average of 52%. Eight of 10 support changing ObamaCare significantly (43%) or replacing it altogether (37%). Republicans have also been vindicated in their political opposition. The GOP was right to defend its free-market, pro-competition principles—and having campaigned and won on “repeal and replace” in 2010, 2014 and 2016, they must now follow through, and fast.

The GOP’s current two-stage strategy is first to repeal most of the law using budget “reconciliation,” which allows fiscal, deficit-reducing measures to bypass the Senate filibuster with 51 votes. Republicans wrote a repeal test bill in 2015 that cut the deficit by $474 billion even while repealing all of ObamaCare’s tax increases. President Obama vetoed it, but under Senate rules a similar bill could pass by mid-February.

The repeal bill would set a two- or three-year sunset for the law’s subsidies, which would then give Congress time to ensure a smooth and orderly transition to a new system. Congress will hold hearings, and the idea is to form coalitions about discrete replacement provisions that can attract 60 Senate votes.

This strategy is fraught with political risk, as any strategy would be. If Republicans don’t repeal ObamaCare immediately, the danger is that the natural inertia of Congress takes over and nothing changes. But the more time they put between repeal and replace, the more the danger will grow.

The biggest risk is that the two-stage maneuver will hand leverage to the most extreme wings of both parties. On the right, the incentive will be to denounce any replacement as ObamaCare Lite, and the leadership will have given up the leverage of “repeal” as an incentive to vote for a replacement. Conservatives from safe seats could kill reform if they attack as imperfect anything not designed by Ayn Rand.

Meanwhile, the incentive for Democrats will be to oppose any negotiations and let the GOP twist in the wind. Minority Leader Chuck Schumer has already signaled this strategy, telling reporters that “if they repeal without a replacement, they will own it. Democrats will not then step up to the plate and come up with a half-baked solution that we will partially own. It’s all theirs.”

Republicans could threaten to slip a health measure into a second reconciliation bill later in 2017, and the 10 Democrats running for re-election in states Mr. Trump won may reflect on their own political futures before concluding that they can safely oppose a deal. But the squalls of opposition will be fierce.

All the while, the media and the left will blame the repeal vote for any turmoil in insurance markets, and it won’t matter if Republicans attribute these problems to ObamaCare, however true that will be. Republicans will own health care, like it or not.

The Trump Administration will have regulatory tools to help stabilize insurance markets and minimize a insurer rush for the exits, and confirming Tom Price to run the Health and Human Services Department is the first vote for repeal. Mr. Obama’s HHS has exceeded its legal powers to control markets, and Mr. Price can reverse those excesses.


But that won’t relieve the GOP of the obligation to pass a replacement that provides more certainty as quickly as possible. Political capital ebbs with each day beyond Jan. 20. GOP leaders will have to maintain their resolve against the status quo constituencies on the left and right, and the rank and file may have to vote for some form of tax-credit subsidy to avoid the spectacle of millions losing their insurance.

If Republicans blow this opportunity, they’ll set up the next Democratic government for single payer. Now’s the chance to show they can reform the entitlement state with solutions that improve the daily lives of Americans.

Article Link To The Wall Street Journal:

How The Obama Administration Facilitated Palestinian Violence

Israelis needed our help more than ever last week. Yet for the first time in decades, they couldn’t rely on it.

By David French 
The National Review
December 28, 2016

Last week the Obama administration defied both history and international law to grant Palestinian terrorists a grand victory. At a stroke, the administration purported to declare any Israeli claim to any portion of the West Bank — including the Western Wall — illegitimate, and empowered Palestinian terrorists to press for their next round of concessions. It’s a betrayal that will echo far beyond any arms deals with Israel and could conceivably endanger the Jewish state’s very existence.

To put this staggering betrayal into context, one has to understand the long, bloody history of Arab efforts to destroy Israel, efforts that have been aided at every turn by the eternal anti-Semitism of huge swaths of our much-vaunted “international community.”

For the first 25 years of its existence, Israel endured multiple brute-force attempts at its destruction, as Arab powers mobilized large land armies for direct invasions of Israeli territory. That effort failed on a grand scale: Against all odds, Israeli forces prevailed time and again, leaving Israel in control of far more land than it initially possessed on its birth as a state. Undeterred by its conventional military losses, the Arab world turned to different methods, using a combination of lawfare and terrorism to slowly erode Israel’s ability to sustain its nation and culture. It is through the former tactic — the abuse of international law toward ends not achievable on the battlefield — that the international community seeks to de-ligitimize Israel’s territory and demography.

In other words, anti-Semites define “true” Israel (the only one they’ll recognize) as a much smaller nation that is swollen with literally millions of Palestinian “refugees” who pose an existential threat to the world’s only Jewish state. An Israel jammed into indefensible borders with a majority-Arab population wouldn’t be Israel at all. It would be Palestine, and its Jewish residents would be entirely dependent on the good graces of their enemies to live peacefully in their own ancestral homeland.

No rational nation would agree to its own extinction, though, so a hammer is necessary — one strong enough to drive a nation to make compromises it would never otherwise make. That hammer is terrorism. Whether it’s rockets from Gaza, incursions from Lebanon, or crazed knife attacks in Jerusalem, terrorism is the force that’s supposed to make Israelis ultimately beg for mercy. Of course it’s all “condemned” by the international community. They tut-tut when Jewish children die, but all that violence has to be “understood.” Oppressed people lash out against their oppressors, you see.

One can’t understand the international community’s anti-Semitism without understanding the three great double standards that together gin up fake outrage against Israel and dupe the gullible into believing the Big Lie that Israel is the oppressor and Palestinians its chief victims.

The first double standard deals with the status of land acquired as a result of waging defensive warfare. Traditionally, when aggressors launch losing wars, they are not permitted to reclaim all the territory they lost without cost or consequence. This truth is uncontroversial and apparent from the distant and recent past. Germany does not control the same land that it did in August 1939, nor does Japan. Yet time and again, the “international community” has taken the view that nations such as Egypt and Syria could and should claim the lands they lost in their own aggressive wars with Israel, including the very lands used as launching pads for those wars. The international community maintains that view in spite of the fact that applying the same reasoning worldwide would cause instability and chaos. Israel, alone among all countries, is thus bound to bear the burden of unwinding its past wars.

The next double standard deals with the definition of “refugees” — a word that means one thing when applied to Palestinians and another thing when applied to anyone in the rest of the world. Everywhere else, a “refugee” is a person who flees (or can’t return) to his home country because of a “well-founded fear of persecution.” Descendants of those people are not reckoned by the international community to be refugees themselves, unless they are Palestinian. If the same standard were applied universally, it would mean constantly growing and inherently unstable “refugee” populations. A family tree would become an instrument of migration and mobility, permitting permanent relocation and resettlement, at will, so long as you had a refugee ancestor. No sovereign nation would permit such a regime. No other sovereign nation does. Again, Israel bears a unique burden.

The third double standard is that the international community rejects Israeli efforts to destroy hostile terrorist organizations. The United States can conduct international military operations against ISIS or al-Qaeda with minimal international outcry. Across the globe, other sovereign nations conduct ruthless and sustained military operations against terrorist organizations in their midst. Yet Israel can’t conduct military operations against Hamas or Hezbollah without generating world revulsion at its “high crimes.”

When the Obama administration last week allowed the U.N. Security Council to pass a resolution that declared all Israeli settlements to violate international law, it applied the first double standard, did nothing to address the second, and facilitated Palestinian attempts to maintain pressure on Israel through terrorist violence. The Palestinians gained an immense international victory without the promise of peace. The administration’s actions fit perfectly within the long-term Palestinian-Arab strategy to destroy Israel.

In both 2000 and 2008, Palestinians rejected permanent peace settlements that would have given them control over Gaza and all but the smallest enclaves of the West Bank, with land swaps with Israel making up the difference. Why? Well, both peace agreements would have guaranteed the right of Israel to exist as a Jewish state, which is unacceptable for Palestinians and their anti-Semitic allies. Better, they decided, to keep their eyes on the Israeli prize and play the long game. After all, there’s no point in negotiating when you can gain concessions through lawfare and terror.

As always, the barrier to lasting peace isn’t Israel but rather a “partner” that longs for its ultimate destruction. Last week, the Israelis needed the backing of the United States more than ever, and yet, for the first time in decades, they couldn’t rely on it. It’s shameful that the Obama administration fell for the Big Lie and rewarded Palestinian hatred. But, sadly, it’s not surprising.

Article Link To The National Review: