Tuesday, February 28, 2017

Asian Shares Add To Solid February Gains, Await Trump Policy Speech

By Lisa Twaronite
Reuters
February 28, 2017

Asian shares edged up on Tuesday, on track for a winning month and bolstered by gains on Wall Street as investors awaited a speech by U.S. President Donald Trump for signals on tax reform and infrastructure spending.

MSCI's broadest index of Asia-Pacific shares outside Japan was up 0.2 percent, up 3.6 percent this month nearly 10 percent for the year so far.

Australia's S&P/ASX 200 index was up 0.4 percent as financial shares gained, while China's Shanghai Composite Index added 0.3 percent.

Japan's Nikkei stock index got a tailwind from a weaker yen and rose 0.8 percent, on track to gain more than 1 percent for February and 0.7 percent for the year to date.

"Investors have seen the market fluctuating between hopes and disappointment about Trump's growth policy and a lack of details," said Isao Kubo, equity strategist at Nissay Asset Management in Tokyo.

On Monday, U.S. stocks edged up, with the Dow Jones Industrial Average closing at a record high for a 12th straight session, after Trump said he would talk about his plans for "big" infrastructure spending in his first major policy address to Congress on Tuesday (9 pm ET Feb 28/0200 GMT on March 1). [.N]

"This could be like the case of his inauguration speech, in which expectations were high, but he didn't come up with any concrete details," said Ayako Sera, market strategist at Sumitomo Mitsui Trust Bank.

"The market does not want a repeat of that, and wants to hear some actual plans, or there will be disappointment," she said.

Treasury Secretary Steven Mnuchin said in a televised interview on Sunday that Trump will use the event to preview some elements of his sweeping tax reform plans.

Trump will seek to boost Pentagon spending by $54 billion in his first budget proposal and slash the same amount from non-defense spending, including a large reduction in foreign aid, a White House budget official said.

The dollar edged down 0.1 percent to 112.62 yen but still held above Monday's nadir of 111.920, which was its lowest since Feb. 9. The euro was steady on the day at $1.0586.

Hawkish comments from a U.S. Federal Reserve official also bolstered U.S. Treasury yields and underpinned the dollar.

Dallas Fed President Robert Kaplan said on Monday that the Fed might need to raise interest rates in the near future to avoid falling behind the curve on inflation.

The yield on benchmark 10-year U.S. Treasuries, which had slumped to more than five-week lows last week, stood at 2.370 percent in Asian trade, compared to their U.S. close of 2.367 percent on Monday.

Crude oil prices were largely steady, as expectations of higher U.S. crude production offset reports of high compliance with OPEC's production cut agreement.

U.S. crude was up 0.2 percent on the day at $54.18 per barrel, while Brent crude added 0.3 percent to $56.10.

Spot gold edged up slightly to $1,253.06 an ounce but remained shy of a 3-1/2-month peak scaled on Monday as investors awaited Trump's speech.


Article Link To Reuters:

U.S. Oil Ticks Up For 2nd Day On Record OPEC Output Cut Compliance

By Naveen Thukral
Reuters
February 28, 2017

U.S. crude oil edged higher for a second day on Tuesday, underpinned by high compliance with OPEC's production cuts even as the market remains anchored by rising U.S. production.

The Organization of the Petroleum Exporting Countries (OPEC) has so far surprised the market by showing record compliance with oil-output curbs, and could improve in coming months as the biggest laggards - the United Arab Emirates and Iraq - pledge to catch up quickly with their targets.

"With the prospect of OPEC extending the current cuts even longer, we would expect to see prices continue to push higher from here," ANZ said in a note.

West Texas Intermediate crude oil added 11 cents, or 0.2 percent, to $54.16 a barrel, while benchmark Brent crude oil added 17 cents, or 0.3 percent, to $56.10 a barrel.

For the month, U.S. crude oil is up 2.6 percent after falling in January, while Brent oil has risen marginally.

Under the deal, OPEC agreed to curb output by about 1.2 million barrels per day (bpd) from Jan. 1, the first cut in eight years. Russia and 10 other non-OPEC producers agreed to cut around half as much.

A Reuters survey of OPEC production later this week will show compliance for February.

Passive investment funds are poised to shift an estimated $2 billion from far-term to near-term crude futures over the next week, anticipating an energy market rally as the OPEC output cut slashes supply.

At the same time rising U.S. oil production continues to limit gains.

"Talking about more OPEC cuts, they can't have too much higher cuts as it will lead to more U.S. shale oil coming into the market," said Jonathan Barratt, chief investment officer at Sydney's Ayers Alliance.

U.S. producers boosted crude production to over 9 million bpd during the week ended Feb. 17 for the first time since April 2016 as energy firms search for more oil, according to federal data.

U.S. drillers added five oil rigs in the week to Feb. 24, bringing the total count up to 602, the most since October 2015, energy services firm Baker Hughes Inc said on Friday.

A bearish target at $53.37 per barrel has been aborted for U.S. oil, as it seems to have stabilized around a support at $53.99, said Wang Tao, Reuters market analyst for commodities and energy technicals.

Brent oil looks neutral in a range of $55.93-$57.26 per barrel, and an escape could suggest a direction.


Article Link To Reuters:

U.S. Shale Surge Threatens OPEC Strategy

OPEC’s output agreement may have put a floor under prices, but it has also prompted the return of U.S. shale.


By Christopher Sell
Bloomberg
February 28, 2017

OPEC’s Nov. 30 output agreement to cut production by 1.2 million barrels a day may have put a floor under the oil price, but has also awakened U.S. shale. Exploration and production companies have added 77 rigs this year to Feb. 24, according to the latest figures from Baker Hughes, while U.S shale production is forecast to reach about 4.87 million barrels a day in March, according to the Energy Information Administration's latest Drilling Productivity Report. That's the highest since May 2016. Estimates of just how much shale will be added over this year range from as high as 900,000 barrels a day by Macquarie and Rystad Energy to a more modest 400,000 barrels a day by JP Morgan Asset Management.



E&Ps are also gaining access to capital in 2017. "The combination of a collapse in the cost of borrowing and increased hedging opportunities following the latest price rally has put U.S. shale oil producers back in business," Ole Hansen, chief commodity strategist at Saxo Bank, said in an e-mail to Bloomberg Briefs on Feb.15. "Instead of cutting cost to meet the punitive borrowing cost witnessed a year ago they can now look ahead and begin making plans to expand production."



Booming shale isn't the only problem for OPEC. Crude stockpiles hit 518.6 million barrels in the week ended Feb. 17, according to the EIA. This is the highest level since the EIA began compiling weekly data in 1982.

U.S. crude production isn't slowing down either. Since September, output has been rising at an average rate of 93,000 barrels a day, according to Bloomberg Oil Strategist Julian Lee, and is now back above 9 million barrels a day.



Still, all is not lost. OPEC's Nov. 30 deal to cut production by 1.2 million barrels a day -- led by Saudi Arabia -- at present appears to be holding. January production figures from the organization (depicted by the blue bars), shows about 90 percent compliance with agreed production levels (depicted by the pink bars).

The question on everyone's lips now is: Will OPEC extend the cuts after six months?


Article Link To Bloomberg:

Facebook's Virtual Reality Ambitions Could Be Threatened By Court Order

By Jan Wolfe
Reuters
February 28, 2017

Facebook Inc's big ambitions in the nascent virtual reality industry could be threatened by a court order that would prevent it from using critical software code another company claims to own, according to legal and industry experts.

Last Thursday, video game publisher ZeniMax Media Inc asked a Dallas federal judge to issue an order barring Facebook unit Oculus from using or distributing the disputed code, part of the software development kit that Oculus provides to outside companies creating games for its Rift VR headset.

A decision is likely a few months away, but intellectual property lawyers said ZeniMax has a decent chance of getting the order, which would mean Facebook faces a tough choice between paying a possibly hefty settlement or fighting on at risk of jeopardizing its position in the sector.

For now, Facebook is fighting on. Oculus spokeswoman Tera Randall said last Thursday the company would challenge a $500 million jury verdict on Feb. 1 against Oculus and its co-founders Palmer Luckey and Brendan Iribe for infringing ZeniMax's copyrighted code and violating a non-disclosure agreement.

Randall said Oculus would possibly file an appeal that would "allow us to put this litigation behind us."

She did not respond to a request for comment for this article.

An injunction would require Oculus, which Facebook acquired for $3 billion in 2014, to stop distributing the code to developers or selling those games that use it.

Such a court order "would put a huge stumbling block in front" of Oculus, said Stephanie Llamas, an analyst with gaming market research firm SuperData. It would offer the company's rivals in the new market, which include HTC, Sony Corp, Alphabet Inc and others an "important opportunity for them to become first movers."

Sales of the Rift itself would not be barred, but Llamas, said a lack of available titles could hinder Facebook's offering relative to HTC's Vive headset and Sony's Playstation VR.

That market is relatively small at the moment - sales of VR hardware and software totaled $2.7 billion in 2016 - and mainly limited to gaming. But Facebook chief executive Mark Zuckerberg has predicted the technology "will become a part of daily life for billions of people," revolutionizing social media, entertainment and medicine.

SuperData says the VR market will be worth $37 billion by 2020. Likewise, investment firm Cantor Fitzgerald last year issued a report predicting VR would account for 10 percent of Facebook revenue in four years' time.

ZeniMax's lawsuit arose from 2012 correspondence between Luckey and famed video game developer John Carmack, creator of the Doom and Quake series and then a ZeniMax employee. Luckey signed a non-disclosure agreement with ZeniMax covering his communications with Carmack.

Carmack joined Oculus in 2013 as chief technology officer. ZeniMax sued in 2014, claiming Carmack's work while its employee was crucial to the Rift. At trial, Facebook said ZeniMax concocted its claims because of "sour grapes" over missing the VR trend.

Zuckerberg testified that "the idea that Oculus products are based on someone else’s technology is just wrong."

The jury decided Oculus had not stolen trade secrets but had infringed ZeniMax's intellectual property. It also said Oculus breached the non-disclosure agreement.

IP lawyers said the judge would consider factors such as whether ZeniMax continues to be harmed and whether money is sufficient compensation.

Edward Naughton, a Boston-based copyright lawyer with Brown Rudnick, said ZeniMax has a strong argument because its technology continues to be used without its permission and the jury's verdict does not compensate for that.

"I think they have a pretty good shot here," Naughton said.

Mitchell Shelowitz, a copyright lawyer in New York, noted that the non-disclosure agreement explicitly stated ZeniMax would be entitled to an injunction in the event its terms were violated.

Not all lawyers agree ZeniMax has the stronger position. Chicago-based IP lawyer Joshua Rich said he thinks Facebook has a good chance to repel the injunction by arguing that ZeniMax is not being harmed by the sale of the Oculus products because it is not direct competitor.

If Facebook can get past the injunction fight, the calculus could change, said Naughton. Facebook may believe it has strong arguments on appeal or, because it has so much cash on hand, it may hope to wear ZeniMax down to the point where it settles on favorable terms.

"Facebook has deep pockets," said Naughton. "That allows them to put their opponent into litigation fatigue."


Article Link To Reuters:

Snap Expects Some IPO Investors To Make Year-Long Commitments

By Lauren Hirsch
Reuters
February 28, 2017

Snap Inc, owner of popular messaging app Snapchat, disclosed on Monday that it expected investors buying up to a quarter of the shares in its $3.2 billion initial public offering this week to agree not to sell them for a year.

While Snap cautioned it had no binding commitments yet from investors accepting such a lock-up period, the disclosure is a sign of confidence from the company in what is expected to be the biggest U.S. IPO since Facebook Inc (FB.O).

Lock-up periods help companies moderate stock volatility by preventing company insiders from selling their shares within an allotted time. A year-long lock-up period is atypically long, potentially signifying strong demand for the IPO.

Snap is targeting a valuation of between $19.5 billion and $22.3 billion from listing on the New York Stock Exchange on Thursday. It is looking to price 200 million shares on Wednesday night at a range of $14 to $16 dollars a share.

Orders for the IPO have begun to come in at the high-end of its range, and its "book" is already oversubscribed, according to people familiar with the process who requested anonymity.

In its updated IPO registration document with the U.S. Securities and Exchange Commission on Monday, Snap said it expected approximately 50 million shares of its Class A common stock purchased by investors in the offering to be subject to a separate one-year lock-up agreement. The roughly 50 million shares are designated for new Snap IPO investors who do not currently have a stake in the company, the sources said.

Lock-up periods can buoy companies at risk of a stock selloff in the months following their IPO. This risk is particularly strong for companies in the technology sector. Eight of the 10 biggest technology IPOs fell by between 25 percent and 71 percent in their first 12 months on the public market, according to a Reuters analysis of market performance.


Article Link To Reuters:

Tech Startup Market Sinks To Lowest Point In Three Years

Concerned venture capitalists sit out the stock market’s Trump bump.


By Sarah McBride
Bloomberg
February 28, 2017

The post-election rally that’s lifting U.S. public markets has left at least one group by the wayside: private technology startups.

Since last year’s peak in mid-December, startup deal-making has fallen 37 percent, according to the Bloomberg U.S. Startups Barometer, which tracks fundraising, initial public offerings and acquisitions. The index is at its lowest point since April 2014.

Although far from the only factor, politics plays a role in investment decisions. Silicon Valley’s uncertainty toward the policies of President Donald Trump has sapped the confidence of some venture capitalists. “We’re in for a lot of volatility in the next four years, and it’s hard to invest in that,” said Dennis Phelps, a partner at VC firm IVP. “It’s also an opportunity as an investor.”



Meanwhile, the technology-laden Nasdaq Composite Index has jumped 13 percent since Election Day, and the Dow Jones Industrial Average cracked 20,000 for the first time. Investors are optimistic about potential corporate tax cuts, freeing overseas cash and reduced regulation. Startups should benefit from some of these same factors, with lower taxes and repatriation possibly resulting in more deals. But other anticipated moves by Trump could hit startups especially hard. For example, immigrants start American companies in disproportionately high numbers, and a crackdown could starve the startup ecosystem of talent.

Private-market deals typically settle into a lull at the beginning and end of the year, but the recent decline has been unusually sharp. The startup market is returning to “a more normal period” before the rush that began in 2014, said Marcelo BallvĂ©, an analyst at research firm CB Insights. The effect is being felt globally. Startups raised $12.9 billion so far this year compared with $18.7 billion during the same period in 2016, according to CB Insights data.

At times last year, VCs grappled with the prospect that they had overpaid for many investments, particularly the coveted unicorn startups valued at $1 billion or more. Many mutual funds marked down the values of their stakesin private companies during the last couple of years and pulled back on investing. Several high-profile, bargain buyouts, including Hudson’s Bay Co.’s purchase of Gilt Groupe at a 75 percent discount to its earlier private valuation, didn’t help, either. Nor did IPOs that valued companies well below their peak private-market valuations, including Square Inc., which went public in late 2015 at less than half the value investors put on it the year before.

But VCs are sitting on a lot of cash, and it has to go somewhere eventually. Last year, U.S. venture funds raised $41.6 billion, the most since the dot-com days of 2001, according to the National Venture Capital Association, a trade group. Investors hope that a successful offering for Snap Inc., which could come as soon as this week, could help convince other venture-backed companies to go public.

The biggest drop in the Startups Barometer came from a 35 percent decline in the 12-week trailing average of startups raising money from investors for the first time compared with the same period last year. Access to financing for the youngest businesses is essential for a healthy entrepreneurial ecosystem and indicates investor appetite for the riskiest bets.

VCs said there’s a healthy pipeline of deal flow, which isn’t yet reflected in the data because they haven’t been disclosed publicly. Scott Raney, a partner at Redpoint Ventures, said while his firm has been investing at a slightly slower pace so far this year, that has more to do with trying to find the right bet than the turbulent political climate. He said: “If you’re generating revenue and you’re starting to grow, you can definitely raise capital.”


Article Link To Reuters:

China's Economy Faces Global Uncertainties, Overcapacity At Home

Reuters
February 28, 2017

China's economy faces risks from international uncertainties and excess factory capacity this year, the statistics bureau said on Tuesday.

The world's second-largest economy grew 6.7 percent last year, easing from the pace in 2015 but roughly in the middle of the government's target range of 6.5-7 percent.

Yet, even as China's exports are finally showing signs of recovering after a multi-year slump, the outlook for global demand is being clouded by a feared rise in U.S. trade protectionism.

"The international situation is still complex and volatile, there are still many uncertainties and there are contradictions between domestic overcapacity and structural upgrading," Li Xiaochao, vice head of the National Bureau of Statistics, said a statement posted on the agency's website.

Li pointed to problems of deep adjustments of the world economy, weak global trade and the trend of deglobalization.

China far exceeded its targets to reduce bloated industrial overcapacity last year by forcing the closure of many inefficient steel plants and coal mines.

It has earmarked further reductions for 2017, though market watchers say much of the outdated operations are being replaced with leaner and cleaner ones, doing little to reduce overcapacity and the threat of oversupply.

Li also said maintaining mild inflation will be favorable for China's economy, as price pressures start to build again globally after years of weakness.

Consumer inflation accelerated to 2.5 percent in January from a year earlier, the highest for a month since May 2014, while producer price inflation accelerated to 6.9 percent -- the fastest since August 2011 -- as a construction boom fueled demand for materials from steel to cement.

About 57 percent of the 1.38 billion mainland Chinese lived in towns and cities at the end of 2016, the statistics bureau said in a report on China's economy and social development on Tuesday.

The urbanization rate rose 1.25 percentage points from a year earlier, it said.

The government hopes 60 percent of China's population will be urban residents by 2020.

China's working-age population was at 907.5 million at the end of 2016, down 3.5 million from a year earlier, it said.


Article Link To Reuters:

Will The Ides Of March Bury The Stock Market?

By Mark DeCambre
MarketWatch
February 28, 2017

“I come here to bury Caesar, not to praise to him,” says Marc Antony in Act III, Scene II of William Shakespeare’s tragedy Julius Caesar. Caesar was famously murdered by a cadre of Roman senators on March 15, 44 B.C.E.

And the question for stock-market investors is, will March be the month that buries a run of records and monthly advances? or, will investors further gild the lily of equities, pushing stock indexes up in the coming month.

Although, past performance is no guarantee of future results, there is some precedent for March ringing up more positive returns for stocks, based on history, as the following table from Ryan Detrick, LPL’s senior market strategist, shows. The graphic illustrates returns for the S&P 500 index SPX, +0.10% by month over the past 10 years:



Average returns for March from 2007 to 2016 have been 2.7%, making it the best-performing month of the year on a an average-return basis, though April shows a greater tendency to finish higher, having risen 90% of the time over the past decade.

The table also shows that January has historically been the worst month, posting an average negative return of 1.7% over the past 10 years and ending in the red 60% of the time. Only June, with an average return of negative 1.52%, is close to January’s shabby results.

This past January, however, the S&P rose 1.8%.

And February is shaping up to be a stellar month for stocks, underpinned by continued expectations that President Donald Trump will make good on promises to loosen regulation, cut taxes, increase infrastructure spending—and essentially fulfill his pledge to make America great again.

For February, the S&P 500 is on track to close the month up by about 4%, which would mark the best monthly performance for the broad-market gauge since March 2016 when it rallied by 6.6%, and its best February since 2015’s 4.3% gain.

Meanwhile, the Dow Jones Industrial Average DJIA, +0.08% is on pace to rise 4.9% and the Nasdaq Composite Index COMP, +0.28% is on track for a 4.4% return in February.

“Historically, March has been a strong month, but the past 10 years no month has been better. What is quite interesting about this month also is if there is strength heading into it, it appears to actually get stronger,” Detrick told MarketWatch.

In fact, the three main equity benchmarks have booked gains over the past four months since the presidential election in early November.

Detrick says when the S&P 500 is up both in January and February, it has an average return of 1.45% the following March and ends higher 73% of the time since 1950.

And strength tends to beget strength. When looking at periods in which the S&P 500 has posted positive months from November to February. During those periods, March has logged an average return of 2.28% and finished higher nearly 85% of time.

The following chart illustrates the S&P 500’s performance by month since 1950:



The notion that this market can go higher after touching such blistering heights in such a relatively short period might stir the acrophobe in some, but there are those bulls that make the case that stocks still have plenty of room to bounce.

Billionaire investor Warren Buffett said stocks aren’t in bubble territory. He backed up those comments on CNBC by saying that presently ultralow interest rates support the current valuations for stocks, which currently run about 18 on a forward price-to-earnings ratio, a measure of an equity valuations.

“Stocks actually are on the cheap side compared to historic valuations,” he told CNBC during a morning interview.

That said, there are signs that Wall Street is on edge about an advance that has occurred in stocks and while the yields for U.S. government bonds TMUBMUSD10Y, +0.11% have been retreating, which some may take as a sign that some market players are guarding against risks, including a host of elections in Europe that could challenge the status quo for the European Union and the euro EUR, -1.56%

Trouble Ahead


Specifically, March could harbor a host of events that could induce a selloff in equities, including the Federal Reserve’s meeting in the middle of the month. Here’s a short list of events that could be a catalyst for near-term problems:

--Trump’s address to Congress on Tuesday evening, which will have market ramifications 
-- March 1: Fed boss, Janet Yellen, speaks Friday at 1 p.m. Eastern time in Chicago
-- March 14-15: Federal Open Market Committee policy-setting meeting
-- March 15 is the so-called technical deadline for U.S. government to raise its debt ceiling
-- Dutch elections on March 15, could set the stage for further antiestablishment sentiment in Europe


Article Link To MarketWatch:

Time To Restart That Old Capitalism Death Watch

By Justin Fox
The Bloomberg View
February 28, 2017

The global capitalist system has been having a tough decade. We can probably all agree on that.

Lots of explanations have been offered for why things have been going so poorly: inadequate regulation, excessive regulation, excessive monetary easing, inadequate fiscal stimulus, inequality, “secular stagnation,” you name it.

Wolfgang Streeck has another possibility for you to consider: Maybe capitalism is dying.

Streeck is a German sociologist, the emeritus director of the Max Planck Institute for the Study of Societies in Cologne. He came there in 1995 after teaching for several years at the University of Wisconsin at Madison. Not long after his return to Germany, he also became involved in efforts to shape economic policy, mainly trying to “defend the German regime of worker participation, which was under pressure from Europeanization and globalization.” From an outsider’s perspective, those efforts seemed to have been moderately successful, but they left Streeck increasingly pessimistic.

“I used to be a reformist, I used to be a social democrat,” Streeck said when I visited him at his office on Friday. “I believed that with good policy you can make the capitalist wealth machine subservient to political objectives.”

Nowadays, he thinks the capitalist wealth machine is spinning out of control, and he’s been spelling out this belief in books that, somewhat to his surprise, have garnered significant attention outside Germany. First came “Buying Time: The Delayed Crisis of Democratic Capitalism,” which was published in Germany in 2013, in English in 2014 and is now out in an updated English-language edition. Then there’s “How Will Capitalism End?” -- a collection of essays, most originally written in English, that was published last fall.

I haven’t read every word of the two books, but I think I can say with some confidence that there are no shocking revelations in them. “There’s sort of a very simple idea there, which is that everything that has a beginning has an end,” Streeck told me about “How Will Capitalism End?” In a Financial Times review of the book, Martin Wolf described Streeck’s “defeatism before supposedly unmanageable social forces” as “characteristic of a certain sort of intellectual.” Which is true, but this might actually be a useful sort of intellectual to have around from time to time.

“I believe in trends and in long-term tendencies, not in momentary cross-sectional comparisons,” Streeck told me. “I believe in history, not mechanics.” Economists are the mechanics. My favorite passage in “Buying Time,” in fact, is probably Streeck’s description of former U.S. Treasury Secretary Lawrence Summers as “the most influential service mechanic of the stuttering capitalist accumulation machine” -- a description that Summers should really consider adding to his Twitter bio and putting on his business cards.

What’s nice about mechanics is that they fix stuff. But economic mechanics have been getting a lot of things wrong lately. That’s because, Streeck said, “the world has changed and causal structures have changed.”

Streeck works instead in a tradition that’s most often identified with Karl Marx but could also be traced to Georg Wilhelm Friedrich Hegel or even Ibn Khaldun, the 14th-century North African historian who wrote that great dynasties carried the seeds of their collapse within them. It doesn’t offer any repair manuals or even clear predictions, but it may help in understanding what’s going on.

Streeck writes that the three main symptoms of a crisis of capitalism are slowing economic growth, rising indebtedness, and increasing inequality in the leading capitalist nations. These trends have been in place since the 1970s; the financial crisis of 2008 merely accelerated them.

Conservative observers have also focused on the first two of those symptoms, arguing that the problem is voters demanding handouts and politicians too willing to accede. Streeck doesn’t buy that, writing in “How Will Capitalism End?”:

"That the fiscal crisis was unlikely to have been caused by an excess of redistributive democracy can be seen from the fact that the build-up of government debt coincided with a decline in electoral participation, especially at the lower end of the income scale, and marched in lockstep with shrinking unionization, the disappearance of strikes, welfare-state cutbacks and exploding income inequality."

Streeck points instead to tax cuts for high earners and corporations, as well as increasing “institutional protection of the market economy from political interference,” as key culprits. The market has been given more and more freedom to follow its own internal logic, and that logic has led to an inevitable crisis. It’s only when democratic political forces can keep the market in check that it really delivers the goods as far as growth and prosperity, but in a global economy without a global state, those democratic forces don’t have much power.

At least, that’s my reading of Streeck’s argument. He doesn’t see a global state -- or global Bolshevik Revolution -- in the offing, and so expects a long, messy period full of Brexits and Donald Trumps. A big question is whether that would really threaten to end capitalism. Streeck himself writes that the modern capitalist system has been through repeated revolutions and transformations over the centuries, and that theories of capitalism have always been theories of crisis:

"This holds not just for Marx and Engels but also for writers like Ricardo, Mill, Sombart, Keynes, Hilferding, Polanyi and Schumpeter, all of whom expected one way or other to see the end of capitalism during their lifetime."


They were all disappointed in that expectation. This is no guarantee that Streeck will be too, of course, but it does seem to be a hint that today’s troubles could be something other than harbingers of epochal change. There is another thing Streeck told me that we can probably all agree on, though: “We’re going into a long period where we don’t know what is coming.”


Article Link To The Bloomberg View:

The Hidden Heart Of Unaccountable Big Government

By Rich Lowry
The New York Post
February 28, 2017

Steve Bannon blew a dog-whistle for constitutional conservatives when he spoke of “deconstructing the administrative state” at CPAC.

Although not everyone got the reference. Trump haters interpreted the line as an incendiary call to decimate the federal government, when “the administrative state” was a more specific reference to a federal bureaucracy that operates free of the normal checks of democratic accountability.

The administrative state has been called “the fourth branch” of government. It involves an alphabet soup of executive agencies that wield legislative, executive and judicial powers and thus run outside of and counter to our constitutional system. The agencies write “rules” that are laws in all but name, then enforce them and adjudicate violations.

Boston University law professor Gary Lawson describes how this works in the case of, for instance, the Federal Trade Commission:

“The Commission promulgates substantive rules of conduct. The Commission then considers whether to authorize investigations into whether the Commission’s rules have been violated. If the Commission authorizes an investigation, the investigation is conducted by the Commission, which reports its findings to the Commission.

“If the Commission thinks that the Commission’s findings warrant an enforcement action, the Commission issues a complaint. The Commission’s complaint that a Commission rule has been violated is then prosecuted by the Commission and adjudicated by the Commission.”

Welcome to government by commission.

James Madison called such an undifferentiated accumulation of powers, which the Constitution is meant to avoid, “the very definition of tyranny.” In his epic scholarship on the administrative state, Philip Hamburger argues that it’s “a version of absolute power.”

Constitutional law arose, Hamburger writes, to check the prerogative power of the British crown, and now the federal bureaucracy is replicating that prerogative power in extralegal practices.

If progressives in the Trump years were truly concerned with reaffirming democratic accountability, they’d be delighted with a prospective deconstruction of the administrative state. But they built it and rely on it.

A century-old ideological project, its roots are in the Progressive Era, and it grew apace during the development of the New Deal and Great Society. The idea was to circumvent the frustrations of constitutional government, with all its natural obstacles to action, and to institute rule by experts.

The administrative state is the friend of anyone hoping to aggrandize government. President Barack Obama would have been hobbled without it. He used it to institute sweeping new regulatory regimes on carbon emissions and the Internet. He imposed his preferred social policies on schools and universities through “dear colleague” letters issued by middling bureaucrats.

The administrative state was exactly what he needed — a way to govern without Congress.

Hostility to the administrative state isn’t necessarily natural for Trump, who isn’t a limited-government conservative or a constitutional purist. Yet he campaigned against regulation, he scorns the elite and federal bureaucrats have already made clear their desire to frustrate his plans. Dethroning the administrative state fits into a populist program to restore power to the people through their elected representatives.

It’s chiefly Congress that needs to reassert itself. It has delegated its legislative powers over the decades, and needs to pull them back. As Adam White writes in an essay for City Journal, it should pass the REINS Act to require congressional approval for major new regulations. It should revisit laws like the Clean Air Act and Communications Act of 1934 that give regulators too much leeway. It should limit the deference that courts give to administrative agencies.

None of this is the stuff of fire-and-brimstone, but rather the mundane work of slowly lurching the wheels of the federal government back onto a constitutional track. Something as entrenched as the administrative state won’t be “deconstructed” in one presidential term, or two. If it can be dialed back, though, it’ll be a significant victory for old-fashioned representative government.


Article Link To The New York Post:

Where The Sanders Wing Can Have A Bigger Impact

By Jonathan Bernstein
The Bloomberg View
February 28, 2017

Let's talk democracy, and the difficulties and opportunities involved in newly energized citizens.

I didn't write about the contentious contest for Democratic National Committee chair while it was underway because, as others have said, it just doesn't matter very much. The DNC chair raises money, runs a marginally important bureaucracy, and may wind up speaking for the party on cable news shows that practically no one watches. New chair Tom Perez comes from the same mainstream liberal wing of the party as does his narrowly defeated foe, Keith Ellison. The election will almost certainly have no effect on who wins the 2018 elections, Democratic strategy in opposing Donald Trump, the 2020 presidential nomination outcome, or really anything.

Still, the frustrations of those who strongly supported Ellison and feel defeated by the process and the party are still quite real, and those who also supported Bernie Sanders for the 2016 nomination and feel doubly defeated by the party have understandable feelings about it, even if objectively they simply lost fair and square.

There are two ways to look at it.

One is that it is incredibly difficult to take over a party. As Will Cubbison argued on Twitter over the weekend, "If you want to change the direction of the party be prepared and have a plan to organize tens of thousands of almost full time activists." He means the formal party at the national level, the Democratic National Committee, and he's correct. It is, as Cubbison points out, a pyramid-style structure and one needs to capture seats from the bottom up in order to capture the top. And, yes, organizations such as this one (or its Republican counterpart -- all of this applies to both parties) tend to have rules which give advantages to those already involved. Rules aren't even the main barrier; the current party organization has advantages of relationships and knowledge that make outright defeating them difficult at best.

On top of that is just the massive scale involved. The Democratic Party is one of two major national parties in a nation of over 300 million citizens. Of course it's difficult to turn such an organization around rapidly, at least for any relatively small group -- and tens of thousands still constitute a small group in a polity of that size.

Beyond that: Politics is frustrating by its nature. One cannot hope to win even in a much smaller jurisdiction without entering into alliances with people who are involved for often completely different reasons -- people who may simply be very different, on all sorts of dimensions. We get involved in politics, often, because of a fierce rage for justice on some issue or another, but it's never going to be true that everyone else feels that rage, and some flat-out disagree. That's bad enough if they are on the other side (and it can be chalked up to malevolence), but if one has to form a coalition with those folks in order to have any chance of winning? Well, that can be -- is -- painful. And the basic condition of U.S. politics, with two broad-based political parties, means each party must necessarily be a coalition.

But that's just one way of looking at it.

As hard as it is to take control of a national party in such a large nation, it turns out both major parties are incredibly permeable. The doors are open.

That's true of the formal party organizations. Show up at a party meeting, perhaps with a few (or a few dozen) friends, and in a very short time it's not at all hard in almost every precinct in the U.S. to be a real player at that level, and before long in many places at the county level.

The even better news is that one can ignore that entire hierarchy and still become meaningfully involved, and even influential, in the party. That's because U.S. political "expanded" parties are composed of both formal organizations and informal networks. In practical terms, that means one can jump in at any level of electioneering.

Indeed, there are hundreds of winnable elections in the U.S. for which the Democrats (or the Republicans) fail to field any candidate at all or, in some cases, only have a placeholder candidate. Winning the nominations for these contests is entirely plausible, even for a fairly small group of newbies. If you can win a nomination, you already have influence within the party; win the election, and you have more. More good news: The candidate who wins that election with your help is going to pay a whole lot more attention to your preferences than to what the national committee chair wants -- or even, in most cases, what the state party chair or the county party chair wants. Politicians care a lot about their strongest supporters.

Capturing, or perhaps influencing, a handful of state legislators, a city council, or a few school boards -- or even a U.S. House seat -- may not be as glamorous as winning a national party chair contest. But each of those positions has real ability to affect public policy (something a national party chair can only potentially do indirectly at best).

There's more. Parties are made up of politicians, campaign and governing professionals, donors and activists, formal party officials and staff, and party-aligned interest groups and media. Anyone can jump in -- and indeed one can start new groups that can potentially wield influence within the party.

The truth is that both Democrats and Republicans are eager to bring in new people, especially those with useful resources such as money, volunteer time and energy, expertise, or the ability to produce significant numbers of votes. The extent to which those already in the party may resist new policy ideas depends on many things, but ultimately in most cases the parties are going to attempt to accommodate any new group which can realistically promise to help win elections.


Article Link To The Bloomberg View:

This Is The Speech Trump Needs To Say -- But Probably Won’t

By John Crudele
The New York Post
February 28, 2017

Here’s what President Trump would probably like to say Tuesday when he addresses a joint session of Congress for the first time as president:

“Members of Congress, please remember one thing. I’m in charge.

And I’d like to remind all of you — whether you are sitting to my right as Democrats or on my left as Republicans — that few of you wanted me to be here tonight. Few wanted me to be president.

Therefore, few of you earned any goodwill with my administration. I don’t owe any of you any favors.

I hope we’ll have a cordial working relationship. But I’m the boss.”

All of that would be true.

And Trump could follow up with another one of his patented mean-spirited speeches about the woeful nature of the US economy, the mess left by former President Obama, how a world full of terrorists is taking aim at our country, and how working Americans are tired of paying more than their fair share because too many people — including the richest among us — are paying too little.

And all of that would also be true. This is why Trump was elected.

Shocked Democrats have certainly been sore losers since the November election. Sore, sore losers the likes of which a democracy has seldom seen. But Trump hasn’t exactly been a gracious winner, either.

So I think it’s time for our president — who, as I’ve said before, I met for the first time 30 years ago — to brush that block of arrogance off his shoulder before he enters the House chamber tonight and offers up a speech that’s more like this:

“Members of Congress, please remember one thing. Despite our differences, we all want the same thing — what’s best for the country.

And while we may differ on the details, we are all aiming for one goal. There is plenty of blame to go around for our nearly $20 trillion federal debt and the lack of enough quality jobs in this country and the deteriorating infrastructure and the violence in some of our cities and the drug epidemic and the ease with which bad people can hurt Americans.

I could go on, but I won’t because today’s speech is about something else — about how to fix these problems. Since I took office a little over a month ago, I’ve done a lot of things. Some may not have been very well thought out.

But I promised Americans I would get things done — “drain the swamp” — and I’m doing that. Now, let me make sure you know where I stand.

On the economy: It needs to grow faster.

My plan is to cut taxes dramatically. Some of you, even Republicans, are concerned this would balloon our already monstrous federal debt before there is a payoff in high tax revenue.

Well, then, find me a better plan. Despite increasing the federal debt by $9 trillion over the past decade, the US economy is still growing at the slowest pace in half a century. And the situation is so mixed up that, even with growth coming in at less than 2 percent a year, the Federal Reserve is in the process of raising interest rates to slow the economy down.

On jobs: A think tank connected with the Democratic party recently concluded that 94 percent of all jobs created since 2009 are nontraditional. That means they are freelance positions, part time, contract or some other sort of job that doesn’t come with benefits.

Who’s to blame for this? Who cares! Let’s just fix the problem.

As you know, I’ve been pressuring companies lately to keep jobs in the US. And I do mean pressuring. That’s my style. Can’t help it.

If any members of Congress have a better approach, I’m willing to listen. Certainly allowing US companies to bring home the many billions in profits they have stashed overseas would be a start. We let them bring the money back at an attractive tax rate — and if they pledge to create jobs.

And that pledge would be inviolate. If the companies break their promise, their tax rate on the repatriated money would jump big league.

On health care: I don’t like the Affordable Care Act because it doesn’t live up to the name “affordable.” Everyone deserves medical care. But we don’t have to go broke providing it. We will negotiate this, too.

On immigration: Nobody listening tonight either in this chamber or at home wants bad people in our country. Terrorists need not apply for admission to the US. Good, hard-working people are welcome to come here legally.

What about those who are already here illegally? We will have to work something out. Perhaps you can stay; maybe not. The circumstances will matter — whether you are a productive member of society, whether you will contribute to the greater good, whether you have an American citizen sponsoring you, as has been done in this country in the past.

Finally, about The Wall. The Wall can be taken as literal or symbolic. Yes, I’ve been talking about putting up a physical wall and making Mexico pay for it. But there are other ways to protect our southern border. And our technology geniuses on the West Coast can certainly come up with a better way to prevent undesirable people from coming into our country.

If we stop one terrorist. One drug dealer. One person from coming into the US illegally and then hurting an American, it will be worth it.

Anyone here who thinks protecting Americans isn’t a worthwhile goal, please raise your hand. We will tell your constituents back home.”

President Trump, of course, probably won’t say any of that tonight. But at some point in the near future, he is going to have to reach out to those who hate him and those who merely dislike him if his administration is going to be successful.


Article Link To The New York Post:

Trillions Of Dollars Are At Stake When Trump Speaks To Congress

Policy specifics seen as needed to sustain election rally; Reflation trade shows sign of fatigue in stock, bond markets.


By Liz McCormick and Dani Burger
Bloomberg
February 28, 2017

Donald Trump’s address to Congress on Tuesday is taking on the importance of a State of the Union speech when it comes to U.S. financial markets.

For investors relying on more than a year of campaign promises of a pro-growth agenda to push U.S. stocks to record highs, the dollar surging and bond yields climbing, the prime-time speech to House and Senate lawmakers couldn’t come any sooner.

“We need to see some details within all the policy talk,” said Sean Simko, who manages $8 billion in fixed-income assets at SEI Investments Co. in Oaks, Pennsylvania. “More specifics in terms of numbers or even a more defined timeline. If there aren’t specifics there, the risk trade might be ending.”



Though new life was given to some faltering Trump reflation trades by the president’s promise of a “phenomenal” tax plan earlier this month, investors say more is needed, especially with the administration designating the repeal and replace of Obamacare as its first priority ahead of a tax overhaul.

While it isn’t considered a State of the Union address since it falls within Trump’s first year, the initial speech to Congress has been no less important to presidents in the modern era. Barack Obama first spoke before both legislative bodies in February 2009 about the financial crisis.
Trump will propose boosting defense spending by $54 billion in his first budget plan and offset that by an equal amount cut from the rest of the government’s discretionary budget, according to administration officials. During a speech to governors Monday, Trump called his plan a "public safety budget" and promised that “we’re going to start spending on infrastructure, big,” without giving details.



Since Trump’s election, stocks have showed few signs of slowing down. The S&P 500 has advanced 10 percent, posting 17 record closes in a rally that’s added $2.8 trillion in value to the U.S. equity market. To be sure, fundamentals are playing a part in the market’s gains. The economy has shown signs of accelerating and corporate earnings are predicted to surge 12 percent from last year, a turnaround from the profit declines in 2015 and 2016.

“It’s possible that if the market hadn’t been rising so dramatically, we could wait,” said Quincy Krosby, a market strategist at Prudential Financial Inc., which oversees about $1.3 trillion. “But this is a market that’s pretty impatient and wants results.”

Adding to the anxiety are differing views on how to proceed on tax reform. House Republicans are considering a border-adjustment tax proposal that shifts the burden from exporters to importers, arguing that it would benefit American manufacturing while providing revenue to make up for losses from reducing corporate-tax rates. Trump has called the plan "too complicated."

As the debate grows, traders have reduced bullish wagers on the dollar. The greenback has dropped 3.3 percent since January, after surging 6.5 percent after the Nov. 8 presidential vote, according to the Bloomberg Dollar Spot Index. Hedge funds and other large speculators have cut net bullish dollar bets to the least since before the election.



“There is only so long the market will bid the dollar higher on the promise of something,” said Stuart Bennett, head of Group-of-10 currency strategy at Banco Santander SA in London. “They will want detail. And if it’s not forthcoming, then it’s a little bit like the boy who cried wolf.”

Complacency could be one of the biggest risks, according to John Canally, chief economic strategist at LPL Financial in Boston. The Chicago Board Options Exchange Volatility Index, a gauge of investor anxiety also known as the VIX, is only two points above its all time low. The VIX, which tracks implied volatility through S&P 500 options, is headed for the lowest yearly average on record.



“Everyone is wondering why equity market volatility is so low given the uncertainty out there,” said Canally. “The economy is not in dire need of a tax cut, but maybe his speech could be a catalyst” for an uptick in volatility, he said.

Not everyone is convinced. The rally in stocks has been driven by solid earnings and economic data in spite of growing skepticism over Trump’s policies, Tobias Levkovich, Citigroup Inc.’s chief U.S. equity strategist, wrote in a Feb. 24 note.

“Fears of a major pullback if President Trump does not outline a ‘phenomenal’ tax program on Feb. 28th may be overdone,” Levkovich said.

In the bond market, speculators are holding onto wagers on higher yields, and lower debt prices.



David Woo, head of global rates and FX strategy at Bank of America Merrill Lynch, said Trump’s desire for a tax plan before the August break means it is likely that the president lays out at least a “skeleton” of the program on Tuesday.



If Trump does provide more clarity on his tax and growth plans, that raises the risk that the Federal Reserve will be more willing to increase interest rates, Woo said. Traders currently assign about a 40 percent probability for a hike at the Fed’s March 15 policy meeting.

“There is a lot riding on Tuesday,” said Woo. “The consequences for some kind of plan being unveiled will be massive. You will see volatility really going through the roof if he does so.”


Article Link To Bloomberg:

Trump Giving Lawmakers Whiplash On Obamacare

The president will have to gain some message discipline if he wants to push through a repeal-and-replace plan.


By Josh Dawsey and Rachana Pradhan
Politico
February 28, 2017

President Donald Trump is giving Washington a case of whiplash when it comes to his plan for Obamacare, saying one moment that he’s going to kill it and replace it with something “great” and then publicly flirting with letting it implode the next.

Whether the White House can repeal and replace the law this spring — as Capitol Hill leaders say is the goal — largely depends on the president's ability to focus and outline the specifics of what he would like, while convincing reluctant GOP members to back a plan. So far, his rhetoric has been all over the place, offering differing timelines and ideas, depending on the venue and the person he's speaking with.

"Nobody knew that health care could be so complicated," Trump said Monday morning. He added to the GOP’s nervousness by refreshing the idea that Republicans should maybe just let Obamacare collapse under the weight of rising premiums and volatile exchanges — though he claimed it wasn’t an idea he would pursue.

"Let it be a disaster, because we can blame that on the Dems that are in our room — and we can blame that on the Democrats and President Obama," Trump told Republican governors. "But we have to do what's right, because Obamacare is a failed disaster."

Huddling with insurance CEOs, Trump talked up how fantastic his Obamacare replacement would be without giving details. Separately Monday, he said it would be very difficult to do something good.

"Costs will come down, and I think the health care will go up very, very substantially," the president said. "I think people are gonna like it a lot. We've taken the best of everything we can take."

Republicans, meanwhile, don't know exactly what to believe. And they have grown increasingly concerned that the law is becoming more popular among Americans while the White House is dithering away. Trump is not focusing his first major address as president on repealing and replacing Affordable Care Act, according to allies and Capitol Hill aides briefed on the remarks set to be delivered before Congress on Tuesday — though he is expected to touch on the law. In recent weeks, the president has expressed conflicting opinions on what he'd like to see done — and when — depending on his audience.

With Trump so far lacking message discipline, Republicans say the law’s advocates are hijacking the conversation.

"The folks who are avowed fans of Obamacare are really a small subset of the population yet they are controlling a large part of the debate," said Josh Holmes, a former top aide to Senate Majority Leader Mitch McConnell. "The administration has the capability of reversing that."

Trump has taken a particular interest in what to do about Obamacare, calling House Speaker Paul Ryan, frequently asking New York allies what they would do, and listening to a range of opinions — as he often does on subjects. While Andrew Bremberg, a top policy adviser, is studying the portfolio and working with Republicans on Capitol Hill, Trump also quizzes Vice President Mike Pence, son-in-law Jared Kushner and strategist Steve Bannon, among others. He calls Secretary Tom Price after talking to others and shares what he has heard.

He has seemed, at times, to not understand the intricacies of policy, according to friends, associates and others who have spoken with him, while at other times asking sharp questions. These people say Trump is acutely attuned to the potential for political damage and wants to be careful -- and make sure Democrats are blamed if there is any fallout. Trump, who decries polls as "fake news," also closely follows them and has noticed the law's popularity ticking up.

"My experience with President Trump is, he’s a sponge. He’s listening and constantly asking questions and so hopefully in the state of the union he’ll talk about where he is," said Gov. Rick Scott of Florida on Monday about Trump’s focus on Obamacare.

While Trump is expected to address the law in his speech Tuesday night, he is unlikely to offer a detailed plan, several advisers say, and his thinking remains fluid on the law. After meeting with Ohio Gov. John Kasich last Friday, he seemed to show the governor support on his plan and had Secretary Tom Price meet with Kasich on Saturday, even though Kasich's plan contrasted with current Washington thinking. Kasich came away unclear whether his plan would get any more traction.

"The president can play a major role in endorsing a plan he wants to sign into law, and I think it's absolutely essential that he takes a lead role," said Rep. Chris Collins, a top Trump ally in the House.

House leaders are hoping that Trump will come around to their plan and let them do the heavy lifting. Republicans in the House want to take down major parts of the law that form the foundation of Obamacare, including significantly rolling back Medicaid spending, and eliminating the individual mandate and the law's taxes.

They'd like to finesse the details with outreach to conservative groups and line up votes, like they would do with other Republican presidents. But the Senate has expressed some hesitation at the plan, and whether the two can be meshed through reconciliation seems unclear. Some members, like Rep. Peter King of New York, say they are leery of supporting the plan because they aren't sure what it will be replaced with. And they are facing resistance from the right. Rep. Mark Meadows, who leads the Freedom Caucus, said he wouldn't vote for the House plan Monday. He is influential among conservatives and often sways a number of votes.

So far, Trump has liked to critique the law but has offered few significant, tangible options. A leaked House Republican plan that would gut major parts of Obamacare was a draft that does not reflect lawmakers’ current thinking, GOP senators and governors said Monday after they met in Washington to discuss health issues. The draft legislation, among other things, would replace Obamacare’s income-adjusted tax credits for ones tied to individuals’ age and scrap the law’s expansion of Medicaid. But Republican governors said they were told that it’s far from etched in stone.

“That was a draft document. It wasn’t even near close to being a final product,” Nevada Gov. Brian Sandoval, whose state expanded Medicaid under Obamacare, said Monday after meeting separately with Republican and Democratic lawmakers to discuss the path forward on repeal.

“They were told that that does not reflect current thinking,” said Texas Sen. John Cornyn.

Republicans in Congress are witnessing growing pushback on their plans to dismantle core pieces of the law, including the federal funding boost it gave to states to expand their Medicaid programs. GOP governors also do not have consensus on how to proceed on Medicaid expansion, as well as broader changes that would cap federal spending on the program, but several leaders from states that took the law’s expansion have been outspoken about the need to preserve it.

“We’re going to come up with a solution that makes it more affordable to the states and [bends] the cost curve for the federal government, but at the same time does not rip the heart out of the health care systems that have been built in the states,” Arkansas Gov. Asa Hutchinson said.

What Trump needs to do, according to legislators, senior GOP aides and longtime political observers, is clearly delineate what he wants a plan to say. He needs to huddle frequently with congressional leadership and discern the pressure points. And he needs to control his remarks, making sure they are aligned and his allies are on the same page.

Holmes said the president has a "much larger platform" to get health insurers, lawmakers and others to the table, where he can "rule things in and out."

Trent Lott, the former Senate Majority leader and an uber-lobbyist, said the complaints will "dissipate a little" if people will get in a room "behind closed doors, and hash it out."

John Weaver, a Kasich adviser briefed on the meeting, was less than certain that could happen.

"We spent a lot of years railing against it," he said. "I don't think that prepared us to govern."


Article Link To Politico:

Trump Seeks 'Historic' U.S. Military Spending Boost, Domestic Cuts

By Steve Holland
Reuters
February 28, 2017

President Donald Trump is seeking what he called a "historic" increase in defense spending, but ran into immediate opposition from Republicans in Congress who must approve his plan and said it was not enough to meet the military's needs.

The proposed rise in the Pentagon budget to $603 billion comes as the United States has wound down major wars in Iraq and Afghanistan and remains the world's strongest military power.

The plan came under fire from Democratic lawmakers, who said cuts being proposed to pay for the additional military spending would cripple important domestic programs such as environmental protection and education.

A White House budget official, who outlined the plan on a conference call with reporters, said the administration would propose "increasing defense by $54 billion or 10 percent." That represents the magnitude of the increase over budget caps Congress put in place in 2011.

But Mick Mulvaney, the White House budget director, said the plan would bring the Pentagon's budget to $603 billion in total, just 3 percent more than the $584 billion the agency spent in the most recent fiscal year, which ended on Sept. 30, 2016.

The rise would be slightly higher than the country's current 2.5 percent rate of inflation.

"President Trump intends to submit a defense budget that is a mere 3 percent above President (Barack) Obama’s defense budget, which has left our military underfunded, undersized, and unready to confront threats to our national security," John McCain, the Republican chairman of the Senate Armed Services Committee, said in a statement.

The defense boost would be balanced by slashing the same amount from non-defense spending, including a large reduction in foreign aid, the White House budget official said.

Trump does not have the final say on federal spending. His plan for the military is part of a budget proposal to Congress, which, although it is controlled by his fellow Republicans, will not necessarily follow his plans. Budget negotiations with lawmakers can take months.

McCain told reporters he would not vote for a budget with the slight military increase and thought it would face opposition in the Senate.

Trump told state governors at the White House his budget plan included a "historic increase in defense spending to rebuild the depleted military of the United States of America."

He said his proposal was a "landmark event" and would send a message of "American strength, security and resolve" to other countries.

Big Cuts To State Department

Officials familiar with Trump's budget blueprint said the plan would call for cuts to agencies including the State Department and the Environmental Protection Agency.

One official familiar with discussions over State's budget said the agency could see spending cut by as much as 30 percent, which would force a major department restructuring and elimination of programs.

The United States spends about $50 billion annually on the State Department and foreign assistance.

More than 120 retired U.S. generals and admirals urged Congress on Monday to fully fund U.S. diplomacy and foreign aid, saying such programs "are critical to keeping America safe."

Trump has vowed to spare middle-class social programs such as Social Security and Medicare from any cuts.

Nancy Pelosi, the top Democrat in the House of Representatives, said Trump’s plan to slash funding for federal agencies to free up money for the Pentagon showed he was not putting American working families first.

"A $54 billion cut will do far-reaching and long-lasting damage to our ability to meet the needs of the American people and win the jobs of the future," Pelosi said. "The president is surrendering America’s leadership in innovation, education, science and clean energy."

Shoring Up 'Choke Points'


An official familiar with the proposal said Trump's request for the Pentagon included more money for shipbuilding, military aircraft and establishing "a more robust presence in key international waterways and choke points" such as the Strait of Hormuz and South China Sea.

That could put Washington at odds with Iran and China. The United States already has the world's most powerful fighting force and it spends far more than any other country on defense.

About one-sixth of the federal budget goes to military spending.

Trump has said previously he would expand the Army to 540,000 active-duty troops from its current 480,000, increase the Marine Corps to 36 battalions from 23 – or as many as 10,000 more Marines – boost the Navy to 350 ships and submarines from 276, and raise the number of Air Force tactical aircraft to 1,200 from 1,100.

He has not said where he would place the extra hardware and forces or made clear what they would be used for. The United States has been shutting some of its military bases in recent years.

Trump has also said he would bolster the development of missile defenses and cyber capabilities. Last week, he told Reuters the United States had "fallen behind on nuclear weapon capacity." He pledged to ensure that "we're going to be at the top of the pack."


Article Link To Reuters:

Monday, February 27, 2017

Monday, February 27, Night Wall Street Roundup: Stocks Close Higher, Dollar Steady Before Trump Speech

By Sinead Carew
Reuters
February 27, 2017

Wall Street closed slightly higher on Monday and U.S. Treasury yields rose on hopes for rising rates and expectations for an infrastructure spending announcement in U.S. President Donald Trump's speech Tuesday night.

Oil futures were a mixed bag as the prospect of rising U.S. production offset reports of compliance with an OPEC production cut agreement.

While many investors were hoping Trump would unveil details of pro-business policies including tax reform, cash repatriation or infrastructure spending during his address to Congress Tuesday night, others were not ready to make new bets as they worried that the speech would disappoint.

Trump said earlier in the day that he would issue a big statement on infrastructure during his speech on Tuesday, but also said tax reform details would not be revealed until after the administration's proposal on healthcare.

"Investors want something concrete on corporate taxes or repatriation. They're more focused on that than the affordable care act, but the first focus of the administration is ACA," said Jeffrey Saut, chief investment strategist at Raymond James Financial in St. Petersburg, Florida.

The Dow Jones Industrial Average .DJI rose 15.68 points, or 0.08 percent, to 20,837.44, the S&P 500 .SPX gained 2.39 points, or 0.10 percent, to 2,369.73 and the Nasdaq Composite .IXIC added 16.59 points, or 0.28 percent, to 5,861.90.

The Dow Jones Industrial Average scaled its 12th consecutive record high, its longest such run since 1987.

Benchmark 10-year notes US10YT=RR were last down 13/32 in price to yield 2.363 percent, from a yield of 2.317 percent late Friday. Dallas Fed President Robert Kaplan said the U.S. central bank might need to raise interest rates in the near future to avoid falling behind the curve on inflation.

“What the market reacted to was a combination of (Kaplan’s comments) with the fact that we might be getting signs that legislation may be sooner rather than later on things like tax reform and infrastructure, and that’s all very growth-positive," said Priya Misra, head of global rates strategy at TD Securities in New York.

The dollar .DXY was up 0.05 percent against a basket of major currencies ahead of Trump's speech and comments from Federal Reserve officials also expected this week.

The greenback reversed earlier weakness and the Japanese yen weakened, indicating a perception that a rate hike is more likely in coming months.

"I’d say the fundamental driver is interest rate differentials,” said Marc Chandler, global head of currency strategy at Brown Brothers Harriman in New York.

MSCI's benchmark world stock index was unchanged .MIWD00000PUS after it hit a record high Thursday. Europe's benchmark index of leading 300 shares .FTEU3 fell 0.2 percent.

In commodities, Brent crude LCOc1 settled down 0.1 percent at $55.93 per barrel while U.S. West Texas Intermediate CLc1 settled up 0.1 percent at $54.05 per barrel as a global supply glut appeared to ease.

Spot gold XAU= turned down 0.4 percent to $1,251.3 an ounce, as its inability to hold above the 200-day moving average was a source of technical weakness. The precious metal had risen to $1,263.80 earlier in the day, its highest since Nov. 11.


Article Link To Reuters:

Wal-Mart Launches New Front In U.S. Price War, Targets Aldi In Grocery Aisle

By Nandita Bose
Reuters
February 27, 2017

Wal-Mart Stores Inc (WMT.N) is running a new price-comparison test in at least 1,200 U.S. stores and squeezing packaged goods suppliers in a bid to close a pricing gap with German-based discount grocery chain Aldi ALDIEI.UL and other U.S. rivals like Kroger Co (KR.N), according to four sources familiar with the moves.

Wal-Mart launched the price test across 11 Midwest and Southeastern states such as Iowa, Illinois and Florida, focusing on price competition in the grocery business that accounts for 56 percent of the company's revenue, said vendor sources with direct knowledge of the matter who did not wish to be identified for fear of disrupting business relations with Wal-Mart.

Wal-Mart's tests are aimed at finding the right price point across a range of products that will attract more shoppers, and then adjusting prices as needed.

Spot checks by Reuters on a basket of grocery items sold by competing Aldi and Wal-Mart stores in five Iowa and Illinois cities showed Wal-Mart's bid to lower prices is already taking hold. Wal-Mart consistently offered lower prices versus Aldi, an improvement over recent analyst estimates that Wal-Mart's prices have been as much as 20 percent higher than Aldi on many grocery staples.

The competition at these stores is intense, with both competitors selling a dozen large eggs for less than a dollar. A gallon of milk at some stores was priced at around $1. For a graphic, click: tmsnrt.rs/2le6v0Y

The big box retailer also held meetings last week in Bentonville, Arkansas with food and consumer products vendors, including Procter & Gamble (PG.N), Unilever PLC (ULVR.L), Conagra Brands Inc (CAG.N), and demanded they reduce the cost they charge the retailer by 15 percent, sources said.

Wal-Mart also said it expects suppliers to help the company beat rivals on head-to-head pricing 80 percent of the time, these vendor sources said. The wide-ranging meeting with suppliers - where Wal-Mart discussed other topics - was also attended by Johnson & Johnson (JNJ.N) and Kraft Heinz Co (KHC.O), among others, sources told Reuters. The consumer goods companies did not respond to Reuters requests seeking comment.

These Wal-Mart moves signal a new front in the price war for U.S. shoppers, as the pioneer of everyday low pricing seeks to regain its competitive pricing advantage in traditional retailing.

For more than a year, Wal-Mart said it is investing in price while not sharing specifics. When asked by Reuters about the test and demands on grocery suppliers, Wal-Mart spokesman Lorenzo Lopez said the company is "not in a position to share our strategy for competitive reasons."

Germany-based discount grocer Aldi is one of the relatively new rivals quickly gaining market share in the hotly competitive grocery sector, which already boasts Kroger, Albertsons Cos Inc and Publix Super Markets as stiff competitors on price. A second Germany-based discount grocer, Lidl, is planning to enter the U.S. market this year, and together the German discounters pose a serious threat to Wal-Mart's U.S. grocery business.

The stakes are high for Wal-Mart. According to Scott Mushkin, managing director of Wolfe Research and a leading pricing analyst, the retailer would need to spend about $6 billion to regain market share from all of its grocery rivals.

Wal-Mart also needs to find ways to cut prices without further damaging its bottom line. In its latest quarter, gross margins slipped 8 basis points, while net income dropped 18 percent compared to the year-ago quarter. The company attributed the decline to factors such as price investments, which is essentially the cost of cutting prices.Vendors said Wal-Mart has told them it intends to maintain margins on average and lose money on some goods as part of its pricing plan. Wal-Mart told vendors it will absorb some of the losses so suppliers can adjust to the new pricing demand.

A supplier of consumer goods said Wal-Mart cut prices on some of his company's products by as much as 30 percent in some stores over the past few months.

"It helped them figure out the sweet spot that drives traffic," the person said.

Wal-Mart also said it wants vendors to make logistics improvements that would help vendors get $1 billion more in sales, though it did not specify the time period. The retailer asked vendors to work harder on shipping orders in full and on-time, which would trim delivery costs, reduce re-orders, and reduce out-of-stock problems that have vexed the retailer and hurt sales in recent years, vendor sources who attended the meeting told Reuters.

"Wal-Mart is trying to go back to where they were 10 years ago when they were absolutely the low price leader," a large packaged food supplier told Reuters on condition of anonymity. "We understand they are willing to give up profits to a large extent in some cases, so they can invest in their own brand."

Aldi and Kroger declined to comment on the story. Lidl and Publix did not respond to Reuters' requests seeking comment. Albertsons said running its stores means delivering price competitiveness every day, but did not comment specifically on the tests.

Heated Competition


Wal-Mart is eyeing both German chains based on its recent experience in the United Kingdom. Aldi and Lidl, with their no-frills stores, limited product assortment and low-cost model, have successfully upended the grocery market there, cutting into the sales of larger players like Tesco Plc (TSCO.L) and Asda, Wal-Mart's UK arm.

A Reuters spot check of markets where Wal-Mart is running its new U.S. pricing program indicates the retailer has already taken the price battle to Aldi. The Reuters check of Wal-Mart and Aldi stores in five Midwestern cities where Wal-Mart is running its test found Wal-Mart's prices for a basket of 15 staples averaged 8 percent less than Aldi's products.

Reuters conducted the price comparisons in Dubuque and Davenport, Iowa, and Moline, Dixon and Galesburg, Illinois. At each, Reuters collected prices for a basket of 15 similar-sized products including private-label packages of butter and milk, along with branded items like Crest toothpaste and 2 liter-bottle of Coca-Cola.

In some cases, Wal-Mart's prices were as much as 10 percent cheaper than at Aldi. Reuters found Wal-Mart's prices were lower on at least eight and as many as 12 items in each of the five locations.

Wal-Mart is also conducting the price comparisons in Georgia, Indiana, Kansas, Kentucky, Michigan, North Carolina, South Carolina and Virginia, according to sources.

In the United States, Aldi is starting from a small base and Lidl has not yet opened its first store. Aldi, with roughly 1,600 U.S. stores, accounts for only about 1.5 percent of the U.S. grocery market - but it is growing at 15 percent a year. Mushkin of Wolfe Research estimated Aldi and Lidl together could grab as much as seven percent of the U.S. market over five years.

Wal-Mart currently controls about 22 percent of the U.S. grocery market, and its U.S. sales are estimated to grow about 2 percent this year, according to analysts.

Over the past few years, Aldi's prices have been about 20 percent lower than Wal-Mart's, said Mushkin of Wolfe Research. When Mushkin in December compared Wal-Mart and Aldi prices in Connecticut for private label goods - the retailers' own brands, typically the lowest-priced goods in each category - he found the German chain's prices were 24 percent lower.


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'Made in China' Isn't So Cheap Anymore

By Sophia Yan
CNBC
February 27, 2017

Turns out that "made in China" is not so cheap anymore as labor costs have risen rapidly in the country's vast manufacturing sector.

Chinese factory workers are now getting paid more than ever: Average hourly wages hit $3.60 last year, spiking 64 percent from 2011, according to market research firm Euromonitor. That's more than five times hourly manufacturing wages in India, and is more on par with countries such as Portugal and South Africa.

As China's economy expanded at breakneck speed, so has pay for employees. But the wage increase has translated to higher costs for companies with assembly lines in China. Some firms are now taking their business elsewhere, which also means China could start losing jobs to other developing countries like Sri Lanka, where hourly factory wages are $0.50.

Apparel manufacturing has been hit "extremely hard," said Ben Cavender, a principal at Shanghai-based China Market Research. "The result has been that factory owners have gone on a massive investment spree outside of China."

Companies are also investing in robots in efforts to automate as much as possible to offset labor costs, according to Jefferies analysts Sean Darby and Kenneth Chan. China's industrial robotics market became the world's largest in 2013, and is continuing to grow.

With fewer jobs available — and perhaps more robots buzzing on factory floors — experts maintain unemployment will be an ongoing concern, especially as the government works to maneuver the world's second-largest economy away from manufacturing and toward services.

"You're talking about a way to re-skill millions of workers, but it's not clear what jobs they're going to be placed into," Cavender said. "They're creating white collar, clerical jobs here as quickly as possible, but it's still not enough to go around."


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We’ve Entered An Era Of Disbelief

By Robert J. Samuelson
The Washington Post
February 27, 2017

We live in an age of disbelief. Many of the ideas and institutions that have underpinned Americans’ thinking since the early years after World War II are besieged. There is an intellectual and political vacuum into which rush new figures (Donald Trump) and different ideas (America First). These new ideas and leaders may be no better than the ones they displace — they may, in fact, be worse — but they have the virtue of being new.

Almost everything about the U.S. election defied belief, from Trump’s victory to the Russian hacking of Democratic computers, to Trump’s numerous falsehoods and smears. Could this really be happening? The campaign recalled humorist Dave Barry’s famous line, “I’m not making this up.”

To say that this is an era of disbelief means, quite literally, that millions of Americans no longer believe what they once believed. There is a loss of faith in old orthodoxies and the established “experts” who championed them. There are three areas where Trump suggests major departures from existing policies.

First, the economy. Despite a 4.8 percent unemployment rate, the recovery from the 2007-2009 Great Recession has been middling. The number of payroll jobs, 145.5 million in January, was only 5 percent above the level in January 2008, the peak in the previous economic expansion. Millions of workers have dropped out of the labor force, notes Nicholas Eberstadt of the American Enterprise Institute. Gross domestic product (GDP) — the economy’s output — has been growing only about 2 percent annually. The Trump administration believes it can raise that to 3 percent or more through lower tax rates, less regulation and more aggressive trade policies.

Second, the world order. Since the late 1940s, the United States has provided physical and economic security for our allies through alliances (NATO) and trade agreements. The collapse of the Soviet Union in 1991 signaled the success of this strategy and — it was said — marked the beginning of a long period of peace and prosperity, presided over by the United States. Trump is unsympathetic to this global role, which (he argues) burdens us with large costs in both blood and treasure. He wants trade agreements to be more favorable to us, and for our allies to pay for more of their defense.

Third, the welfare state. Here, Trump’s plans are fuzziest. He has said he would protect Social Security and Medicare but other anti-poverty programs could face cuts. One way or another, immense sums are involved. Under existing policies, the Congressional Budget Office estimates that all welfare programs, from Social Security to food stamps, will cost $34 trillion from 2018 to 2027; that’s two-thirds of federal spending projected over this period. The deficit is already $9 trillion for these years.

To be sure, there are other areas of policy differences from the status quo, immigration and climate change being two examples.

Just what will be proposed and enacted, and the consequences, are unknown. There are plenty of skeptics — including me — who think Trump’s agenda is largely impractical or undesirable. To take one example: Since at least John F. Kennedy, presidents have pledged to increase economic growth. What we have learned is that, over meaningful time periods (say, four or five years), they can’t control economic growth. It’s too complicated to be easily manipulated.

Or consider the United States’ relation with the world. I fear that an America in retreat will create a world that is less stable, more fractious and more dangerous. The perception of our weakness would encourage others, possibly Russia, to be more adventurous. It’s fine to ask our allies to spend more on their defense, but it’s inconsistent to do so while threatening to weaken their economies by insisting on tough trade concessions. True to his “America First” slogan, Trump minimizes the collective interests we share with many other countries, starting with Mexico.

But I want to make a larger point. The election’s unanticipated outcome is of a piece with other events: 9/11; the 2008-2009 financial crisis. These, too, were essentially unimagined and, therefore, unpredicted. Even without Trump’s eccentric and questionable behavior, so much is in flux that we’re disoriented. Stripped of familiar and reassuring beliefs, we are increasingly governed by disruptive surprises. This is why I call the present moment the age of disbelief.


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