Wednesday, January 25, 2017

Wednesday, January 25, Night Wall Street Roundup: Dow Tops 20,000 On Revitalized Trump Trade, Earnings

By Chuck and Mikolajczak
January 25, 2017

U.S. stocks climbed on Wednesday and the Dow Jones Industrial Average closed atop the 20,000 mark for the first time as solid earnings and optimism over President Donald Trump's pro-growth initiatives revitalized a post-election rally.

Trump has made several business-friendly decisions since taking office on Friday, including signing executive orders to reduce regulatory burden on domestic manufacturers and clearing the way for the construction of two oil pipelines.

The S&P 500 and the Nasdaq Composite indexes also closed at record highs for a second consecutive session.

The Dow came within a point of the historic mark on Jan. 6, as investors banked on pro-growth policies and tax cuts many expect from the new administration.

However, the index had struggled in recent weeks as investors awaited clarity on the new administration's policies grew cautious.

"It was definitely a milestone that the market has been focused on for really the better part of two months and you were starting to get a little bit of anxiety as to whether it was going to be surmounted or not," said Julian Emanuel, equity strategist at UBS in New York.

"We are particularly encouraged to see financials acting well again because they have been the leadership."

Trump marked the moment with a tweet from the official account of the office: "Great!#Dow20K".

Sentiment was also lifted by better-than-expected fourth-quarter earnings. Of the 104 S&P 500 companies that have reported results through Wednesday morning, nearly 70 percent have beaten expectations, according to Thomson Reuters I/B/E/S. Earnings are expected to show growth of 6.8 percent for the quarter, the strongest in two years.

The 42-session surge from the Dow's first close above 19,000 marks the second-shortest length of time between such milestones.

The most rapid rise was between 10,000 and 11,000 from March 29 to May 3, 1999, which took 24 days. The rise from 18,000 to 19,000 took the Dow 483 trading sessions.

The surge since Nov. 22, when the index closed above 19,000 for the first time, has been spearheaded by financial stocks, with Goldman Sachs GS.N and JPMorgan JPM.N accounting for roughly 20 percent of the gain.

On Wednesday, Boeing BA.N hit a record high of $168.65 on strong earnings, giving the Dow its biggest boost before closing up 4.2 percent at $167.36 percent gain.

The Dow Jones Industrial Average .DJI rose 155.80 points, or 0.78 percent, to close at 20,068.51, the S&P 500 .SPX gained 18.30 points, or 0.80 percent, to 2,298.37 and the Nasdaq Composite .IXIC added 55.38 points, or 0.99 percent, to 5,656.34.

A 1.7 percent rise in financials .SPSY paced the advance for the S&P 500, while names sensitive to a climb in interest rates - utilities .SPLRCU, real estate .SPLRCR and telecoms .SPLRCL - lost ground.

Advancing issues outnumbered declining ones on the NYSE by a 1.82-to-1 ratio; on Nasdaq, a 2.38-to-1 ratio favored advancers.

The S&P 500 posted 81 new 52-week highs and one new low; the Nasdaq Composite recorded 201 new highs and 13 new lows.

About 7.03 billion shares changed hands in U.S. exchanges, higher than the 6.37 billion daily average over the last 20 sessions.

Article Link To Reuters:

Oil Edges Down As Traders Weigh U.S. Stock Build, OPEC Cuts

By Jessica Resnick-Ault
January 25, 2017

Oil prices ended less than 1 percent lower on Wednesday after data showed a build in U.S. crude inventories, reinforcing the view that oil prices are range bound, buoyed by expected OPEC production cuts while pressured by U.S. output growth.

U.S. crude futures for March delivery CLc1 settled at $52.75 a barrel, down 43 cents, after earlier dropping to as low as $52.56 per barrel.

Benchmark Brent crude LCOc1 settled down 36 cents a barrel at $55.08.

"Crude oil is in the middle of a trading range that began to unfold in early December," said Walter Zimmerman, chief technical analyst at ICAP. "You have a market with a serious case of indigestion, it swallowed too much speculative length."

Market expectations of output cuts by the Organization of the Petroleum Exporting Countries have provided a floor for prices, while extreme speculative length and looming U.S. production growth provide a ceiling, he said.

The U.S. government's Energy Information Administration (EIA) reported that crude, gasoline and diesel stockpiles rose, confirming a report from the American Petroleum Institute trade group late on Tuesday. [API/S] [EIA/S]

The EIA data, however, showed a substantial build in gasoline stockpiles of 6.8 million barrels, exceeding analyst expectations and figures in the API report.

U.S. gasoline crack spreads, or refining margins RBc1-CLc1, hit a session low of $12.20 a barrel after the data was released, the lowest since Dec. 14.

Oil prices have found support in recent weeks from plans by OPEC and other producers to cut output. Around 1.5 million barrels per day (bpd) has already been cut from the market out of the 1.8 million bpd agreed by major producers starting on Jan. 1, energy ministers said on Sunday.

Bernstein Energy said global oil inventories declined by 24 million barrels to 5.7 billion barrels in the fourth quarter of 2016 from the previous quarter. The amount remaining equates to about 60 days of world oil consumption.

Meanwhile, U.S. oil production has risen more than 6 percent since mid-2016, yet it remains 7 percent below its 2015 peak. Output is back to levels reached in late 2014, when strong U.S. production contributed to a crash in crude prices.

President Donald Trump's promise to support the U.S. oil industry has encouraged analysts to revise up their forecasts of growth in domestic oil production, which is already benefiting from higher prices.

A push by Republicans in the U.S. House of Representatives for a shift to a border-adjusted corporate tax could help propel U.S. crude prices higher than global benchmark Brent, triggering large-scale domestic production, Goldman Sachs said.

Article Link To Reuters:

EBay Holiday Quarter Revenue Rises 3.1 Percent

By Anya George Tharakan
January 25, 2017

EBay Inc (EBAY.O) reported a 3.1 percent rise in quarterly revenue for the holiday period, offering a bright spot for investors as the company's revamped online marketplace attracted more buyers and helped sell more products.

Ebay has been revamping its platform to help it compete better with bigger e-commerce rival Inc (AMZN.O) as well as traditional retailers.

Shares of eBay were up 7.5 percent at $32.49 in extended trading on Wednesday.

EBay, which spun off its main growth engine PayPal Holdings Inc (PYPL.O) in 2015, has revamped its platform to offer a bigger selection of products and brands.

The company now also requires sellers to give more details on items to attract younger shoppers and has been cutting listing costs.

The company said its gross merchandise volume, or the total value of all goods sold on its sites, rose 2.2 percent to $22.34 billion in the quarter.

The company's net income rose to $5.94 billion, or $5.30 per share, in the fourth quarter ended Dec. 31, from $477 million, or 39 cents per share, a year earlier.

The boost in net income was driven by a non-cash $4.6 billion income tax benefit related to a legal structure realignment, mostly impacting its international entities.

Excluding one-time items, eBay earned 54 cents per share, in-line with estimates.

Revenue rose to $2.40 billion from $2.32 billion, in line with the average analysts' estimate of $2.40 billion, according to Thomson Reuters I/B/E/S.

The company forecast first-quarter adjusted profit of 46-48 cents per share and revenue of $2.17 billion-$2.21 billion.

Analysts on average were expecting a profit of 50 cents per share and revenue of $2.21 billion.

The company also forecast full-year adjusted profit of $1.98-$2.03 per share, missing estimates of $2.06 per share, and revenue of $9.3 billion-$9.5 billion, compared with estimates of $9.36 billion.

Article Link To Reuters:

All Of The Important Dow Milestones In One Chart

As the Dow hits 20,000 for the first time, take a look back with this visual history of the index.

January 25, 2017

Dow 20,000.

Yes, 20,000 is just a number — a big, round number — but hitting major milestones such as this one provides an opportunity to reflect, take stock and consider history. To that end, below is a visual history of the Dow and its important milestones, in one chart.

Investors may feel as though they waited forever for the Dow DJIA, +0.78% to at last reach 20,000. (Certainly we at MarketWatch, and the financial media in general, were impatiently beating the #Dow20K drum pretty much since the Dow hit 19,000 in late November.)

But clocking in at 42 trading sessions, the rally from 19,000 to 20,000 is the Dow’s second-fastest 1,000-point advance to a milestone level, since the 59-session span between late March and early July 2007. The fastest-ever 1,000-point rally was from 10,000 to 11,000 in early 1999 over 24 sessions. (See the full list of trading sessions between 1,000-point milestones here.)

In the past, the index has struggled with major milestones for years. It first touched 1,000 in 1966 but didn’t close above that mark until November 1972. And the Dow first crossed 10,000 in 1999, but only really took up residence above that milestone in 2010.

With the market’s recent record-smashing velocity since Donald Trump won the presidential election, that history did not stop some on Wall Street from talking 21,000 before 20,000 was even in the books.

These 1,000-point moves for the Dow aren’t what they used to be — as the gauge has climbed higher over the years, the percentage change associated with any 1,000-point move has, of course, gotten progressively smaller.

Meanwhile, there are plenty of warnings and red flags to temper that 20K enthusiasm: widespread investor anxiety, Trump’s biting comments toward the U.S. dollar, that recent carnage in bonds and the potential upset that could come across assets if the 10-year yield continues to reach new heights. Then there’s MarketWatch columnist Brett Arends‘s description of Dow 20,000 as a big, fat trap.

Article Link To MarketWatch:

Redefining A 'Special Relationship': Trump And May To Talk Trade

By Elizabeth Piper and David Lawder 
January 25, 2017

Trade will dominate the first talks between the new leaders of the United States and Britain this week, with both hoping commitments to a future deal will redefine their 'special relationship' in a new world order.

For British Prime Minister Theresa May - who will be the first foreign leader to meet new U.S. President Donald Trump - even a simple promise to deepen trade ties could strengthen her hand in divorce talks with the European Union.

Trump might use the meeting to go some way to winning concessions from Britain and bolster his vision of the United States exporting its way to prosperity.

But for both, the road to any firm trade deal is littered with pitfalls and could end up causing strains on the historically close relations between the countries, ties that have been almost driven as much by the personalities of their leaders as national interests.

Differences over genetically modified food, on meat production and public-sector procurement, and fears in Britain that U.S. companies might want to buy into its prized public health service could all hamper any swift movement on a deal.

Plus, while Trump has said a deal can be done "very quickly", both he and May both say they will put their respective countries' interests first.

May will meet Trump in Washington on Friday after stopping off in Philadelphia to meet senior Republican leaders from Congress at a retreat the day before.

"So as we rediscover our confidence together - as you renew your nation just as we renew ours - we have the opportunity, indeed the responsibility, to renew the special relationship for this new age," May will say in Philadelphia on Thursday.

"We have the opportunity to lead, together, again."

The prime minister will also underline areas where she says cooperation is vital, in defense and security both bilaterally and through NATO, and on Syria.

But it is trade where she hopes to "establish the basis for a strong and productive working relationship".

It is not yet clear, however, whether Friday's meeting with Trump will yield a clear shape for future ties. A British government source, who spoke on condition of anonymity, signaled that May's team was taking a cautious approach, first wanting to get to know Trump's negotiators and find out what a "quick" trade deal looked like.

'Fund Of Goodwill'

The prime minister will be keen to press her Brexit message that she wants to build a "truly global Britain". But with the EU clear that Britain must not sign trade deals with other countries until it has left and British officials expressing concern over Trump's shift towards protectionism, May will probably be reluctant about making any binding commitments.

Trump has played up traditionally close ties with Britain, distancing himself from his predecessor Barack Obama who said the country would be at "the back of the queue" for a trade deal with the United States if it left the EU.

And London has made a strong play to court Trump after an initial diplomatic glitch when, soon after his U.S. election victory, he irritated UK officials by meeting British anti-EU campaigner Nigel Farage, a critic of May, and saying he would be a good choice for Britain's ambassador to Washington.

Following a secret trip by May's two most senior aides to the United States in December, British foreign minister Boris Johnson met Trump's close advisers this month and told parliament he had found a "huge fund of goodwill" for Britain.

But experts and former officials suggest that goodwill may run out fast, not only on trade, but over other areas where Trump and May have potential to disagree, such as climate change, the NATO military alliance and the Iranian nuclear deal.

"Beware of Donald Trump bearing gifts," Mark Malloch Brown, a former British government minister and United Nations deputy secretary-general, told Reuters, suggesting that the U.S. president was not a "fan" of trade deals.

Trump formally withdrew the United States from the Trans-Pacific Partnership trade deal this week and is also working to renegotiate the North American Free Trade Agreement to provide more favorable terms.

Back-Foot Britain

Britain has yet to launch its exit negotiations with the European Union, promising to do so before the end of March, and faces some of the toughest talks it has waged since World War Two to end a relationship of more than 40 years.

May says she will leave the EU's single market, instead focusing on winning a free trade deal with the bloc and agreements with other countries.

By making clear she will cut ties with the EU unless she wins a good deal, some experts say she has handed the United States and other countries the upper hand in any future talks.

"If the EU-UK discussion goes badly, the UK is going to be left in a position of being very exposed, and wanting to find new partners quickly. Who's going to be sitting there at that point? The U.S.," said a former trade official in the Obama administration, who spoke on condition of anonymity.

After a U.S.-EU trade deal, the Trans-Atlantic Trade and Investment Partnership (TTIP), ground to a halt last year, Washington might press for Britain to drop its resistance to U.S. genetically modified foods and to smooth over regulatory differences for product safety, food and pharmaceuticals.

The two sides could also find a way to reduce regulation on financial services, although with New York and London as rival centers, any such agreement could be difficult, the former Obama trade official said.

In Britain, opposition lawmakers have already challenged May on whether she will lower health and safety standards to allow imports of U.S. beef that contains growth hormones, chicken washed in chlorinated water and genetically modified organisms.

"We will be looking for a UK-U.S. trade deal that improves trade between our two countries," May told parliament on Wednesday. "And I can assure ... that in doing that we will put UK interests and UK values first."

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Struggling U.S. Farm Sector Faces New Threat As TPP Dies

By Mark Weinraub 
January 25, 2017

U.S. President Donald Trump's decision to back out of the Trans-Pacific Partnership (TPP) trade deal, a $62 billion market for U.S. farmers, provides a fresh threat to a slumping agricultural economy that has grown increasingly dependent on exports.

Agricultural groups expressed disappointment over the move and urged the new administration to find alternative ways to boost product shipments to Asian countries. Trump announced the cancellation on Monday, quickly fulfilling a campaign promise.

Trump won nearly two-thirds of the rural vote in November, with big agricultural states including Iowa, Nebraska, Ohio and Indiana all lining up for the Republican.

The TPP, which was never approved by Congress, was a 12-nation trade pact which the Obama administration framed as way for the United States to establish economic leadership in the region. But Trump, who wants to boost manufacturing, claimed the deal hurt the U.S. job market.

"The TPP held great promise for us, and has been a key priority for several years now. We're very disappointed to see the withdrawal," said Ron Moore, president of the American Soybean Association.

Soybeans have been a rare bright spot in the struggling agriculture sector and even helped boost overall U.S. economic growth as prices for most crops have faded. But strength in the oilseed's price was largely due to overseas demand.

A 10 percent jump in soybean shipments during the third quarter helped spur the biggest gross domestic product gains in two years. The U.S. Department of Agriculture (USDA) expects 2016-17 soy exports to hit a record 2.05 billion bushels, accounting for nearly half of the recently harvested U.S. crop.

The United States is a net exporter of agricultural goods, and shipments to the 11 other countries in the TPP deal totaled $61.735 billion in 2015, latest data shows. The Obama administration had touted TPP as a trigger for further gains. At its annual Outlook Forum in 2016, the USDA had themed its trade-related sessions "U.S. Exports in the warm glow of a completed Trans-Pacific Partnership."

Trump signaled he wants to strike trade pacts with individual countries instead of joining TPP, said U.S. Senator Charles Grassley, a Republican from Iowa. The message to the country was: "I like trade and we need to negotiate down barriers," Grassley told reporters on a conference call on Tuesday.

Negotiating bilateral deals could take years, though, Grassley said, adding that "it's just not an easy thing to do." Japan is the top priority, he added.

The China Factor

U.S. farmers and trade groups are also concerned that backing out of the deal could provide other countries with better access to China, a major agriculture goods importer that was not part of the TPP negotiations.

"Mounting competition and new trade agreements within that region that exclude the U.S. continue to block opportunities for the U.S. feed industry to capture this demand," Joel Newman, president and chief executive of the American Feed Industry Association, said in a statement.

Australia and New Zealand said on Tuesday they would encourage China and other Asian countries to join the trade pact.

The U.S. Meat Export Federation, a trade group that promotes sales of U.S. meat overseas, wants to hear details on what the Trump administration plans to do to improve trade now that TPP is officially dead.

"We urge the new administration to utilize all means available to return the United States to a competitive position, so that our industry can continue to serve this important international customer base and further expand our export opportunities," Philip Seng, the federation's chief executive, said.

U.S. meat exporters could have made their biggest potential gains in Japan, which bought $2.88 billion of U.S. beef and pork in 2015, and Vietnam if TPP had been implemented, said Joe Schuele, federation spokesman. He declined to quantify in dollar amounts those possible gains.

"We look at access to the Asia Pacific region as being very, very important to both the beef and pork industries," Schuele said.

Article Link To Reuters:

Mexico Targets Free Trade With U.S. And Canada, Seeks Other Pacts

By Dave Graham 
January 25, 2017

Mexico will fight for free trade with NAFTA partners Canada and the United States in talks with the new U.S. government, as well as seek bilateral trade deals with other nations, President Enrique Pena Nieto said on Monday.

In a keynote foreign policy speech aimed at reassuring the Mexican public about the impact of Donald Trump's presidency, Pena Nieto set out his priorities and underlined the importance of frank, open dialogue with the new U.S. administration.

"Neither confrontation nor submission. The solution is dialogue and negotiation," Pena Nieto told business and political leaders at his official residence. "Trade between the three countries should be free of any tariff or quota."

Trump wants to renegotiate the North American Free Trade Agreement between Mexico, the United States and Canada in order, he says, to bring back jobs, and has threatened to dump the accord if the talks do not yield a "fair" deal.

Separately, on Monday, a businessman named by Trump to head a business advisory council, Stephen Schwarzman, said Canada has a "very special status" and is not a target of changes sought to the NAFTA accord.

Trump, who took office on Friday, has threatened to slap hefty taxes on companies that produce in Mexico for the U.S. market, and to build a border wall to combat illegal immigrants that he says Mexico will pay for.

"Mexico doesn't believe in walls. Our country believes in bridges," Pena Nieto said.

Pena Nieto listed 10 objectives for talks with Trump, including getting U.S. pledges to guarantee Mexican migrants' rights, ensuring the free flow of remittances from the United States into Mexico, and adding sections on telecommunications and energy to NAFTA.

During his election campaign, Trump had threatened to stop allowing wire transfers of money out of the United States from Mexican nationals unless Mexico agreed to fund a border wall.

Mexico will also immediately seek bilateral deals with countries that signed the Trans-Pacific Partnership free trade deal, Pena Nieto said. Trump formally withdrew the United States from the TPP on Monday.

Pena Nieto said Mexico would work more closely with Brazil and Argentina and other Latin American countries, as well as strengthening its business ties with Asia.

This week, senior U.S. and Mexico officials will meet in Washington to discuss trade, security and immigration. Pena Nieto and Trump will meet at the end of January.

Mexico's peso MXN= was little changed by Pena Nieto's announcements. The currency was gaining ground for a second session in a row after Trump refrained from specifically mentioning Mexico in his inauguration speech last Friday or taking initial actions that would disrupt trade with Mexico.

Article Link To Reuters:

Wednesday, January 25, Morning Global Market Roundup: Asian Stocks Creep To Three-Month Highs, Dollar Drifts

By Saikat Chatterjee
January 25, 2017

Asian stocks edged up to three-month highs on Wednesday but the dollar eased as growing uncertainty over U.S. President Donald Trump's policies prompted some investors to take profits on the greenback's overnight bounce.

European markets looked set to echo the uneasy mood in Asia, with key benchmarks expected to open little changed.

In Asia, MSCI's broadest index of Asia-Pacific shares outside Japan rose 0.1 percent to its highest levels since late October.

Japan's Nikkei advanced 1.3 percent, buoyed by data showing the country's exports rose for the first time in 15 months in December, a positive sign for the economy even as U.S. protectionism looms over the outlook.

Though the S&P 500 and Nasdaq set records on Tuesday in a broad rally led by financial and technology stocks, some investors are turning cautious on Wall Street as market valuations are starting to look stretched by some measures.

“When you compare what’s happening in this part of the world to the rest, maybe that discount isn’t so justified as it has been in the past,” said Tim Orchard, chief investment officer Asia ex-Japan at Fidelity International, referring to the traditional valuation discount that Asia trades at to the developed world.

Fidelity has about $279 billion in assets under management

The S&P 500 is trading at about 17 times forward 12-month earnings, compared with the 10-year median of 14.2 while the MSCI Asia-ex Japan index is trading bang in line with long term averages, according to Thomson Reuters Datastream.

Razor's Edge

The dollar snapped its recent losing streak and Treasury yields firmed on Tuesday as Trump shifted his focus back to growth initiatives including promising corporate tax breaks to fuel U.S. investment, after focusing on protectionism in his first few days in office. and

But the greenback drifted lower against a basket of its trade-weighted rivals on Wednesday on lingering concerns about growing protectionism.

"While some calm has come over the foreign exchange market in the past 18 hours, dealers are on a razor's edge," said Stephen Innes, senior trader at online FX platform OANDA in Singapore.

Sterling added to overnight gains and was trading at 1.2524 per dollar after Britain's Supreme Court ruled that the government would need approval from Britain's parliament before formally triggering the country's departure from the European Union.

The decision overall was seen as clearing the way for Prime Minister Theresa May to get on with launching Brexit talks. Sterling has bounced 4 percent over the last week.

In bond markets, U.S. Treasury yields rose with two-year benchmark yields holding firm at 1.22 percent compared to 1.15 percent on Tuesday, reflecting strong economic conditions. Ten year yields were at 2.47 percent. Oil prices consolidated overnight gains. Brent futures dipped 13 cents or 0.2 percent to $55.31 per barrel, after rising 0.4 percent overnight.

Renewed optimism over Trump's growth policies took the wind out of a recent rally in safe-haven gold, which steadied at around $1,210 per ounce.

Article Link To Reuters:

Oil Eases On Rising U.S. Inventory, Market Looks To EIA Data

By Naveen Thukral
January 25, 2017

Oil edged lower on Wednesday as expectations of an increase in U.S. inventories weighed on the market, offsetting bullish momentum from output cuts announced by OPEC and other producers.

Brent crude LCOc1, the international benchmark for oil prices, had dropped 15 cents, or 0.3 percent, to $55.29. U.S. West Texas Intermediate (WTI) crude futures CLc1 lost 22 cents, or 0.4 percent, to trade at $52.96 a barrel.

Weekly inventory data from the American Petroleum Institute showed U.S. crude, gasoline and diesel stocks all rose last week. The Energy Information Administration will report its data at 1530 GMT.

Analysts estimated U.S. crude stocks increased by about 2.8 million barrels in the week to Jan. 20.

"The market will focus on tonight's EIA data, which is the most likely market moving event in the next 24 hours," said Michael McCarthy, chief market strategist at Sydney's CMC Markets.

"I am seeing estimates here of a build of 2.5 million barrels. But there is a wide spread (in estimates) which is a reason to think tonight's data could be market moving."

U.S. oil production has risen by more than 6 percent since mid-2016, though it remains 7 percent below the 2015 peak. It is back to levels reached in late 2014, when strong U.S. crude output contributed to a crash in oil prices.

The push by Republicans in the U.S. House of Representatives for a shift to border-adjusted corporate tax could push U.S. crude prices higher than the global benchmark Brent, triggering large-scale domestic production, according to analysts at Goldman Sachs on Tuesday.

The dollar held gains, with a rebound in Treasury yields helping the greenback pull away from recent lows plumbed against the yen and euro amid concerns about U.S. President Donald Trump's protectionist stance. [USD/]

A stronger dollar makes greenback-priced crude oil expensive for foreign buyers holding other currencies.

Oil prices have received support from plans by the Organization of the Petroleum Exporting Countries (OPEC) and other producers to reduce output in a bid to boost prices.

Around 1.5 million barrels per day (bpd) has already been taken out of the market from about 1.8 million bpd agreed by oil majors starting on Jan. 1, energy ministers said on Sunday, as producers look to reduce oversupply.

Bernstein Energy said global oil inventories declined 24 million barrels to 5.7 billion barrels in the fourth quarter of last year from the previous quarter. That amounts to about 60 days of world oil consumption.

"More participants to the recent production agreement said they were close to implementing their share of the reduction," ANZ said in a note to clients.

Article Link To Reuters:

Canada May Face Era Of Pipeline Abundance After Keystone Move

Three new pipelines to add enough capacity for 20 years; President Trump signs order that revives Keystone XL project

By Robert Tuttle
January 25, 2017

President Donald Trump’s decision to revive TransCanada Corp.’s Keystone XL pipeline may herald a new era of pipeline abundance for Canadian oil producers after years of bottlenecks.

The U.S. president signed documents to advance the project Tuesday, more than a year after his predecessor Barack Obama rejected it on grounds it would contribute to climate change. The decision follows the Canadian government’s approval in November of Kinder Morgan Inc.’s Trans Mountain line to the Pacific and Enbridge Inc.’s expansion of Line 3 to the U.S. Midwest.

The three lines would add 1.8 million barrels a day of crude export capacity, enough to handle Western Canada’s growing oil production for 20 years, according to National Energy Board projections.

That would add more than $4 billion a year to Western Canada’s economy by making the region’s crude more valuable relative to other grades, Tim Pickering, founder and chief investment officer of Auspice Capital Advisors Ltd. in Calgary, said in a phone interview. Because of the lack of capacity, refiners haven’t paid as much for Canadian crude.

“Too much capacity is not a big concern for the Canadian marketplace and producers right now,” Pickering said. “It gives us room down the road to increase production.”

Big Discounts

Canadian oil producers such as Suncor Energy Inc., Cenovus Energy Inc. and Imperial Oil Ltd. have sold their heavy crude at discounts to West Texas Intermediate futures of as much as $40 a barrel in recent years amid constraints in pipeline space. Western Canadian Select’s discount to WTI averaged about $14 a barrel over the past year, data compiled by Bloomberg show. That may shrink to $5 to $7 a barrel should all three lines get built, Pickering said.

More pipelines from Canada would also “generate greater competition for crudes of comparable quality such as those imported from Mexico or Venezuela,” Harry Tchilinguirian, head of commodity-markets strategy at BNP Paribas SA in London, said in an instant message.

The administration moved to expedite approval and construction of the Keystone XL pipeline as well as the Dakota Access line through North Dakota. Trump said he wanted to renegotiate terms to get a better deal for the U.S., including more U.S.-made materials in the lines.

The 830,000-barrel-a-day Keystone XL has been blocked since it was first proposed in 2008. TransCanada said in a statement it will reapply for the project.

‘Better Netbacks’

The approval of Keystone XL and other lines “will mean better netbacks to producers,” Tim McMillan, chief executive officer of the Canadian Association of Petroleum Producers, said in a phone interview Tuesday. “It’s really just a more efficient system for our economy.”

Kinder Morgan’s TransMountain line and Enbridge’s Line 3 are scheduled for completion by the end of the decade, both companies have said.

Trans Mountain, which still faces at least two legal challenges, has the added advantage of opening up access to Asian markets for Canadian crude. Canada now sells nearly all its oil to the U.S.

“Our view has been first of all that we need to diversify our markets, we can’t rely on one market and one market only,” Alberta Premier Rachel Notley told reporters in Edmonton Tuesday.

TransCanada has declined to comment on the timing of construction. In a best-case scenario, work could start this year, Dennis McConaghy, former executive vice president of corporate development at the company and a current shareholder, said by phone.

Article Link To Bloomberg:

The Stock Market’s ‘Fear Index’ May Have Nowhere To Go But Up

The VIX has a negative correlation to stock market returns.

By Sue Chang
January 25, 2017

The CBOE Market Volatility Index, a measure of fear in the market, is trading at an extremely subdued level that is more symptomatic of a carefree market. But the mood on Wall Street is anything but, suggesting that the VIX’ volatility index’s foray below 20 may be a sign of turmoil ahead.

The so-called fear index hovered at 11.4 on Tuesday, down more than 2% from 11.8 on Monday. The VIX measures market expectations for volatility over the next 30 days; it’s calculated from the implied volatilities of S&P 500 index options. A low reading indicates traders anticipate a placid market while a higher number suggests elevated uncertainty.

“11.8 is more than one standard deviation away from the VIX’s long term average of 20. Additionally, the VIX rarely goes below 10. Statistically, 11.8 is an unusually low reading for the VIX,” said Nick Colas, chief market strategist at Convergex, in a note to clients.

It may also be worth noting that the VIX VIX, -5.95% is below the average low of 12.2 for January.

“That doesn’t guarantee that we’re at the lows on the VIX for the year, but given January’s propensity to represent an annual low it does merit your attention,” said Colas.

The absence of market volatility is typically welcomed by investors who abhor uncertainty. But since the VIX tends to have a negative correlation to stock market returns, the fear index’s somnolence may be a sign that the market will be getting a jolt soon.

“The VIX often visits its extreme point, high or low, for the year in January. And since we know 11.8 is not likely to the high point for the year, it could well be a low,” he said.

That valuations for large-cap stocks are bloated at 17 times the S&P 500’s average earnings of $130 for 2017 also makes the market ripe for a correction. But the biggest agitator for stocks is the same man who was responsible for the epic market rally of the past two months—President Donald Trump.

“Our traders think equities have run out a little ahead of themselves with the post-election rally. They are still positive for the year as a whole, but feel investors want to see more details about the new administration’s plans before they commit a lot of fresh capital,” Colas told MarketWatch.

While Trump’s policies are viewed as mostly business-friendly, investors are becoming increasingly nervous over the lack of specific details over how he will deliver tax cuts and eliminate regulatory barriers as promised.

Meanwhile, in the event of increased volatility, Colas recommends stocks offering high yields such as utilities, real-estate investment trusts, and consumer staples. Gold GCG7, -0.66% an asset that often serves as a refuge during uncertain times, is also a good bet.

The S&P 500 SPX, +0.66% and the Nasdaq Composite COMP, +0.86% closed at record highs on Tuesday while the Dow Jones Industrial Average DJIA, +0.57% resumed its march toward the psychologically-important 20,000 on the back of better-than-expected earnings even as investors girded themselves against more Trump-related uncertainty.

Article Link To MarketWatch:

Oil Traders Aren't So Sure About Republicans' Border Tax Plan

WTI-Brent spread highlights difficulty of incorporating vague policy pronouncements into financial markets.

By Luke Kawa
January 25, 2017

President Donald Trump has dealt global oil markets a major case of whiplash.

After piling into bets that the benchmark prices for crude oil traded in New York and London would converge by December 2018, traders are now paring those wagers amid doubts that a Republican Congress will be able to push through plans for a levy on oil imports and a tax exemption for exports, moves that would incentivize production in the U.S. relative to bringing in oil from overseas.

While oil sold in London has traded at a premium of about $8 per barrel over the past five years, the spread between the West Texas Intermediate and Brent futures contracts had narrowed to almost nothing on anticipation of the policy change before briskly retracing a sizable portion of the move after Trump told the Wall Street Journal on Jan. 16 that the proposal was "too complicated" and that he favored import tariffs without the cut to export taxes.

The spread between contracts set to expire at the end of 2017, 2018, and 2019 are now well off their earlier-year tights, even though the ideas outlined by Trump and the House GOP ought to be similar directionally for the WTI-Brent gap, if not in magnitude.

This price action speaks to a larger theme evolving in markets: The unbridled enthusiasm about the incoming administration has been replaced with more caution, skepticism and outright confusion about what exactly the president's policy goals are and how he'll implement them.

The five-year yield on Treasury Inflation Protected Securities, which soared after the election, has fallen back into negative territory on concerns that the new administration won't be too much of a positive for growth. Meanwhile, the U.S. dollar spot index is in negative territory in January after going on a tear in the fourth quarter, and gold has regained some of its luster after ending 2016 below $1,110 per ounce.

Whether any enacted border tax will be similar to the form envisaged by House Republicans or more selectively applied on companies that outsource jobs, which is more seemingly in line with Trump's rhetoric, remains to be seen.

When it comes to the oil proposals, analysts at Goldman Sachs Group Inc. conclude that a move to the tax program preferred by the House Republicans would cause WTI to trade at a premium to Brent immediately, and for the first time since May 2016 -- causing pain for U.S. consumers in the process. They say U.S. gasoline prices could rise by about 30 cents per gallon at the pump.

But while Trump's steadfast support for protectionist measures implies a meaningful shift in trade policy is in the offing Goldman isn't too bullish on the House Republican's plan coming to pass.

Economist Alec Phillips, a former Senate Finance Committee staffer, sees just a one-in-five chance that a border tax will be implemented. The presence of former Exxon Mobil Corp. chief executive Rex Tillerson in the cabinet, as well as comments from Treasury nominee Steven Mnuchin highlighting Trump's cognizance of how border taxes could increase gas prices, raise the prospect that energy may be ``carved out'' from changes that aim to reduce the U.S. trade deficit, Goldman concludes.

Article Link To Bloomberg:

Emerging Markets Prevail Over Trump

By Robert Burgess
The Bloomberg View
January 25, 2017

It's as if the U.S. election never happened, at least in emerging markets.

The thinking was, developing economies would suffer mightily under U.S. President Donald Trump's protectionist policies. And while they took a beating in the weeks after Nov. 8, they have since staged an impressive rebound, with the MSCI EM Index recouping all of its losses, to close at the highest level since October. Stock markets in Brazil, Argentina, Africa, the Philippines and Chile have been among the best performers in the comeback that started a month ago.

Take Brazil, which attracted $15.4 billion in foreign investment last month, more than twice the amount expected by economists in a Bloomberg survey, and the most since December 2010. Confidence is so high that even troubled Egypt decided it was an ideal time to launch a $4 billion bond sale. Morgan Stanley strategists are wary. They told clients in a note today that weak global growth, led by China's slowdown and the rise of protectionist policies, may prove too much to overcome.

Cyclical Uptick

The rally in emerging markets, whose economies are largely tied to the production of raw materials, coincides with a big gain in commodities. The Bloomberg Commodity Index has risen about 8 percent from its lows in the days after the election. While oil's strength is widely known, natural gas, copper, aluminum and soybeans have been the real winners. “We’re seeing a cyclical uptick in global economic activity and that’s driving demand, not only for oil but all commodities,” Jeffrey Currie, head of commodities research at Goldman Sachs Group Inc., said in Hong Kong on Tuesday.

Dollar Slump

Recent weakness in the dollar is also a reason the emerging markets have bounced back and commodities have soared. That's because raw materials are mainly priced and traded in the greenback. Traders are less enamored with America's currency as it becomes clear that Trump may not find it so easy to push through his spending plans, which would contain inflation and make the Federal Reserve less inclined to raise interest rates at a faster pace. Comments by Treasury Secretary nominee Steven Mnuchin that an “excessively strong dollar” could have a negative short-term effect on the economy were being interpreted by some as reflecting the Trump administration's unease over the currency's rally in the weeks following the election.

Debt & Deficits

Markets got more evidence today that debt and deficits don't really matter when it comes to the U.S. On the same day that Trump’s pick for budget director Mick Mulvaney said the almost $20 trillion national debt is a problem that needs to be "addressed sooner rather than later," the Treasury Department sold $26 billion of two-year notes at the lowest yields for that maturity since November. Investors submitted bids for 2.68 times the amount being offered, in line with the average over the past year and a level characterized as decent by strategists at BMO Capital Markets, given that the Federal Reserve meets next week to discuss monetary policy. The auctions continue tomorrow, with the U.S. seeking to raise $49 billion from the sale of two-year notes with floating rates and five-year notes with fixed rates.

Canada Stocks

Trump handed Canadian investors a gift today when he took steps to advance construction of the Keystone XL and Dakota Access oil pipelines, projects that were blocked by the Obama administration over environmental concerns. The S&P/TSX Composite Oil & Gas Index soared 2.11 percent to close at its highest level since May 2015. There is a catch: Trump foreshadowed a "renegotiation" of terms while insisting that developers use U.S. steel. Canadian stocks overall closed at their highest since 2014. Canada's dollar also got a boost, as it rose the most in more than 6 weeks against a basket of developed-market peers.

Tea Leaves

Things are looking up in the euro zone. The Munich-based Ifo institute said last month that German business sentiment rose to the highest level in almost three years in December, signaling growth in Europe’s largest economy gained steam toward the end of the year. The next reading is released Wednesday, and although the consensus is for a small increase to 111.3 from 111, economic data in Europe has been coming in better that forecast on average in recent months, according to the Citigroup Economic Surprise Indexes.

Article Link To The Bloomberg View:

Americans Are Flipping Houses Like It’s 2006

Housing market investors have pushed the share of flips, or properties sold twice in 12 months, to its highest level in a decade.

By Patrick Clark
January 25, 2017

A tactic that helped define the height of homebuying madness in the U.S. in the years before the market collapsed is rearing its head again.

Home flippers, who buy homes as a speculative bet on short-term price appreciation, accounted for 6.1 percent of U.S. home sales in 2016, according to Trulia, which defines a flip as a property sold twice in a 12-month period in arm’s-length transactions. That’s the highest share since 2006, when flips accounted for 7.3 percent of sales.

Flipping has made a strong comeback in cities that were battered by the foreclosure crisis. That includes Las Vegas, where 10.5 percent of 2016’s sales were flips, the highest in the country, as well as Tampa, Fla., and Fresno, Calif. Eleven metropolitan areas, including Memphis, Tenn., and Atlanta, had flip rates that reached 17-year highs, according to the Trulia data.

Flipping has become more common as home prices have increased, said Ralph McLaughlin, chief economist at Trulia. Whether that’s cause for concern is an open question.

Local housing market investors can bid up prices in a speculative frenzy, as recent history has shown. When flippers crowd into a market, meanwhile, they compete with buyers seeking a home to live in, deferring the availability of listings and pushing homes out of some buyers’ price range.

But flippers can also provide a valuable service to the housing market by investing in needed improvements that owner-occupiers might not have time for, McLaughlin said. Trulia’s report shows that flippers in Las Vegas are seeking building permits at the highest rate since 2000, suggesting that they’re making substantial repairs and not simply buying homes to ride local price appreciation.

"Is the market going to flip out again?" he said. "I don't think the signs are there yet."

Article Link To Bloomberg:

Cisco To Buy AppDynamics For $3.7 Billion In Growth Push

By Liana B. Baker and Heather Somerville
January 25, 2017

Cisco Systems Inc said on Tuesday that it agreed to buy U.S. business software company AppDynamics Inc for about $3.7 billion, making one of its largest deals of recent years as it searches for growth beyond its core networking business.

Legacy technology players like Cisco have been trying to shift their strategy to stay ahead of technology developments, such as the rise of cloud computing, that could otherwise threaten their core businesses.

Cisco's announcement comes a week after Hewlett Packard Enterprise Co said it would buy cloud startup SimpliVity for $650 million in cash.

President Donald Trump's plan to incentivize U.S. companies to repatriate their overseas cash could spur a new wave of dealmaking for large tech companies like Cisco, analysts say.

Rob Salvagno, Cisco's vice president of corporate development, said in an interview that the acquisition fits Cisco's long-term direction and its transition toward software.

AppDynamics makes software that manages and analyzes applications and it has about 2,000 paying customers, including NASDAQ Inc, Nike Inc and its new owner, Cisco.

Cisco swooped in to buy AppDynamics the day before the San Francisco-based firm was planning to price its long-planned IPO. The company has been on its road show with investors.

"The fact that they were in their IPO process represented a window where we needed to make a decision," Cisco's Salvagno said.

High Price But Software Revenue Positive

The $3.7 billion offer from Cisco is nearly double the $1.9 billion valuation AppDynamics received in its last financing round in November 2015. Cisco's offer comes out to roughly $26 per share, higher than the estimated $12 to $14 per share range it was planning.

“Cisco made an offer that people felt was compelling,” said Ravi Mhatre, a board member at AppDynamics from LightSpeed Venture Partners.

RBC analyst Mitch Steves said in a research note that while the price for AppDynamics "appears to be high," he views more software revenue as a positive for Cisco.

AppDynamics will become part of Cisco's Internet of Things and Applications Unit, reporting to Rowan Trollope. Cisco's last large acquisition, Jasper, is also part of that unit.

It is Cisco's largest acquisition since it bought security company Sourcefire for $2.7 billion in 2013.

Goldman Sachs, Morgan Stanley and Qatalyst advised AppDynamics while Fenwick & West was Cisco's legal adviser.

The deal, which is a mix of cash and equity, is expected to close by April.

Article Link To Reuters:

Facebook, Snapchat Deals Produce Meager Results For News Outlets

Publishers cut back on Facebook Live, Instant Articles; Snapchat ‘holds little to no short-term financial interest’

By Gerry Smith
January 25, 2017

Newspapers and other media outlets are struggling to make money from their partnerships with tech giants like Facebook and Snapchat, raising concerns over their business models in a news landscape increasingly dominated by social media platforms.

Some publishers are scaling back on Facebook Inc.’s Instant Articles program, in which they host stories directly on the social-media company’s platform instead of their own websites so they load faster on phones, according to a report by Digital Content Next, a trade group.

Media companies are frustrated that Facebook restricts the number and type of ads in Instant Articles, making it harder for them to make as much money as they can selling ads on their own websites, where they can better target readers, said the group, whose members include the New York Times, the Washington Post and ESPN. Bloomberg News, a unit of Bloomberg LP, is also a member of the group.

Digital Content Next found that 17 of its members generated an average of $7.7 million in the first half of 2016 from third-party platforms, or 14 percent of their total digital revenue. Publishers still “express deep ambivalence” about Facebook’s commitment to helping them make money on the social media platform, the report said.

“On the most basic level, publishers are being disintermediated, losing their relationship with their audiences, and they fear that Facebook will further encroach on their traditional businesses,” the report said.

Facebook and Twitter declined to comment. Snap Inc. didn’t immediately respond to a request for comment.

Facebook has struggled with its growing role as a distributor of news to its 1.79 billion users, and has been criticized for not doing more to curb the spread of misinformation on its site. As part of its latest outreach, Facebook is embarking on a project that includes stronger partnerships with media companies, greater support for local news and better efforts to educate users to avoid hoaxes.

Facebook also plans to let more publishers insert ads into Facebook Live videos and recently began letting media companies post branded content, or ads created by publishers.

Still, the Digital Content Next report lays bare the hesitance felt by media companies as they try to reach audiences that get their news from social media. While working with Facebook or Snap helps them reach bigger and younger audiences, they’re publishing their work on third-party platforms instead of their own websites, and risk losing out on valuable advertising and subscription opportunities.

Some publishers have also started to put less emphasis on Facebook Live, in which media companies create live video that’s hosted on the social media platform. Facebook has paid a select few media companies to produce Facebook Live videos. While some outlets have started testing ads in Facebook Live videos, others express concern over Facebook’s “lack of success in creating large-scale audiences around live events,” Digital Content Next said. The group concluded that, for many publishers, Facebook Live “has yet to scale or prove a revenue model.”

Several media companies have dedicated staff to create content for Snapchat, hoping to reach younger audiences that use it. Yet so far, Snapchat “holds little to no short-term financial interest” for publishers. Snapchat recently changed its model from splitting ad sales with publishers to paying them a licensing fee. The new licensing model “may translate into a limited upside for monetization by publishers,” the report found.

Article Link To Bloomberg:

What Does Israel Want From America?

By David Ignatius
The Washington Post
January 25, 2017

President Trump’s embrace of Israel poses an unlikely dilemma for leaders of the Jewish state: They have to decide what they want from America, and on that question, there’s sharp disagreement.

Prime Minister Benjamin Netanyahu moved to seize the Trump moment Tuesday by announcing that Israel plans to construct 2,500 housing units in West Bank settlements. Just two days before, he and Trump had what the new president called a “very nice” phone conversation. “We’re building — and will continue to build,” an emboldened Netanyahu proclaimed Tuesday.

But Netanyahu’s quick move angered some other Israeli officials, who argue that more settlements will push Israel toward annexation of the West Bank that would mean the end of the two-state solution. Isaac Herzog, head of the largest opposition bloc, said his supporters would resist a pro-settlement agenda that they see as a threat to Israel’s status as a Jewish democratic state.

Trump’s election offers what many Israelis have dreamed of — a relaxation of U.S. pressure on Israel to make concessions to the Palestinians. But for some, it’s a case of “be careful what you wish for.” Israel’s views may now be decisive — but the country remains conflicted 50 years after the West Bank was seized in the 1967 war.

A panoramic view of the puzzles facing Israel in the age of Trump was presented this week at a conference hosted by the Institute for National Security Studies. The gathering was attended by nearly every top Israeli official other than Netanyahu. The voices were sharply divergent.

“Israel must make a choice between separation and annexation,” argued Tzipi Livni, a parliament member who is one of the strongest advocates for a peace deal. “With a new administration, there is no longer the same pressure from Washington that Israel experienced previously. Israel now has the opportunity — indeed, the obligation — to decide what kind of future it seeks.”

Proposals for what Israel should request from Trump ranged across the spectrum. Naftali Bennett, who heads the right-wing Jewish Home party, used Trump’s signature line, “You’re fired,” to describe what he would say to Israeli officials who advocate what he described as a failed peace process. He presented a plan to formally declare Israeli sovereignty in the West Bank.

Herzog, in sharp disagreement, told the conference that Israel should start moving toward an eventual Palestinian state. He outlined a 10-year transition plan that would conclude with resolving “final status” issues such as Jerusalem and the rights of refugees. The alternative to such a separation process, he said, was Israel’s “suicide” as a democratic Jewish nation.

Israeli public opinion is divided, but according to a poll presented at the conference, 59 percent of Jewish citizens favor a two-state solution and more than 60 percent support withdrawal from at least some settlements. Most Israelis, including peace advocates, favor retention of large settlement blocks around Jerusalem in any final deal.

Americans attending the conference urged Israel to be cautious in its requests to Trump. “It’s hard to say what Donald Trump will do, because I’m not sure he himself knows,” said Martin Indyk, a former U.S. ambassador to Israel who was the Obama administration’s special envoy during its push for an Israeli-Palestinian agreement.

As a sign of Trump’s start-up uncertainty, Indyk noted that within the past week, the new administration seemed to have moved from advocating a quick relocation of the U.S. Embassy to Jerusalem (which could trigger incendiary reaction in the Muslim world) to saying that the issue was in the “very early stages” of decision.

Walter Russell Mead, a prominent foreign policy scholar who teaches at Bard College, cautioned that Trump took office with a low popularity rating and a minority of the vote. Mead urged that Israelis “not get identified with Donald Trump in the popular mood in the U.S.” and that he not be seen as “Israel’s man.”

Trump has proclaimed his desire to negotiate an Israeli-Palestinian agreement that, if he succeeded, would truly demonstrate “the art of the deal.” But Itamar Rabinovich, a former Israeli ambassador to the United States and a veteran of peace negotiations, warned the conference, “You cannot be a broker . . . by making a deal that’s 90 percent pro-Israel. It won’t fly.”

Shlomo Avineri, a prominent Israeli academic, offered a stark summary of his nation’s dilemma: “Israel after 1967 didn’t make up its mind what kind of country it wanted to be, in geography or demography. . . . This year we should say what kind of Israel we want.” That’s the conundrum Trump presents: What should Israelis ask for?

Article Link To The Washington Post:

Trump’s Already Helping The ‘Silent Majority’ Of ObamaCare Victims

By Betsy McCaughey
The New York Post
January 25, 2017

Congressional Republicans are huddling at a closed-door retreat this week to craft a replacement for the Affordable Care Act, but it’s President Trump who’s calling the shots.

On Friday, hours after taking office, he issued his first executive order. No surprise, it targeted ObamaCare, instructing federal agencies to do everything possible while the ACA is still on the books to lighten the law’s “economic burden.”

Expect relief soon if you’re one of the 10 million getting clobbered by penalties — averaging $995 per adult and $500 per child — for refusing to buy a pricy ObamaCare plan. The executive order is also likely to result in insurers in most states — though not New York — offering more affordable plans.

Beyond these changes, Trump’s wide-ranging order could provide relief within months to doctors, employers and many others suffocating under ObamaCare’s 20,000 pages of regulations. It also puts Congress on a faster timetable to repeal and replace the law.

Fairness demands immediately halting the penalties for those who don’t buy insurance. The ACA promised choice and affordability and delivered neither. In nearly a third of the nation’s counties, only one insurer is offering ACA coverage — no choice at all. And premiums have doubled since 2013.

ObamaCare already allows the Health and Human Services secretary to grant “hardship” exemptions from the penalty. As soon as Trump’s HHS secretary is confirmed, he should automatically exempt anyone who applies.

Beyond penalty relief, Friday’s order will give the feds some leeway to reduce the bells and whistles now included in every plan. That means you might be able to choose between paying top dollar for a plan that includes breast pumps and contraceptives without a copay, like the Obama administration required, or buying a streamlined plan for less.

Sorry, though, no choices for New Yorkers. On Friday, Gov. Cuomo signaled that Albany pols, not consumers, are in charge here. Cuomo announced that every insurance plan must cover “free” contraception and abortion, without a copay, so that New York women “will have cost-free access to reproductive health care.” Free? Do you also believe in the Tooth Fairy? Insurance buyers will be forced to pay for these items, whether they want them or not.

Meanwhile, ACA defenders are making alarming predictions that Trump’s executive order will cause the insurance market to collapse. Unless the healthy are coerced with penalties into signing up, they warn, only the sick will enroll, causing insurers to see huge losses ahead and flee the market.

Let’s face facts: Coercion is needed because ObamaCare is a rip-off. The law forces the healthy to pay the same premiums as people with pre-existing illnesses. The sickest 5 percent of the population consumes 50 percent of the nation’s health care. Their costs are 10 times the average. The healthy pay premiums but never meet their sky-high deductibles. Instead, their premiums foot the bills for the very sick. A scam.

As for a market collapse, it can be averted by separately funding insurance for the sick with taxpayer dollars.

That will spread the cost broadly, relieving buyers stuck in the individual market from bearing the whole burden.

Both Trump and many GOP lawmakers seem inclined to do this. Funding risk pools or reinsurance programs in each state could well result from the budget bill passed this month. The sooner the better. It’ll lower premiums for everyone else and stabilize the market.

Meanwhile, ObamaCare’s defenders talk nonstop about the 20 million who gained coverage under the law, but never acknowledge the 200 million who have been hurt by the law: the silent majority. They include millions paying penalties, part-timers who’ve had their hours slashed to evade the employer mandate, seniors hurt by Medicare cuts, doctors forced to close their practices and 155 million with on-the-job coverage whose deductibles have soared.

This silent majority was ignored. Now Trump has signed an executive order to help them.

Article Link To The New York Post:

Elon Musk Could Be A Surprising Winner Under Trump

By Matt Rosoff
January 25, 2017

Elon Musk and President Donald Trump may seem like polar opposites, but Musk in fact could end up being a big surprise winner under the Trump administration.

On the surface, the two couldn't be more different. Musk made a name for himself by making bold bets on futuristic technology: digital payments, electric cars, solar panels and privatized space exploration. His businesses typically require years of upfront investment before showing a profit.

He's cerebral but a little reckless, like a precociously smart teenager — he proudly told the story of how he crashed a $3.5 million McLaren sports car while driving too fast in a bid to impress Peter Thiel. And he didn't think to buy insurance first.

Trump, on the other hand, built his fortune in a business firmly rooted in the here and now, real estate, and his temperament is more like the scolding school principal's.

They're also diametrically opposed when it comes to climate change. Musk's business interests revolve around reducing dependence on fossil fuels, while Trump has pledged to cut through regulations meant to fight climate change, and once called it a hoax (although his pick for EPA administrator, Scott Pruitt, has admitted it's real).

So what to make of the fact that Musk was at the White House on Monday, appearing alongside execs from Ford and other old-line companies like Lockheed Martin and Johnson & Johnson? In addition, Musk was part of the December meeting between tech leaders and Trump, even though his companies have a much smaller market value than most of the others represented around the table, and he was reportedly invited to stay for a second smaller meeting alongside Apple CEO Tim Cook.


The Thiel connection. Musk has deeper connections to Trump tech advisor Peter Thiel than nearly anybody else in Silicon Valley. The two met when they led PayPal together (at the time Thiel's start-up bought Musk's), and Thiel's VC firm, Founders Fund, was an early investor in Musk's space exploration start-up, SpaceX.

Musk's businesses are also the type that Thiel admires and thinks we need more of — companies making big bets that could have a dramatic impact on human progress, rather than focusing on incremental improvements or making things cheaper.

American jobs
. Tesla, like most American manufacturers, sources most of its parts from countries where labor is cheaper. But the company is building a huge factory in Nevada, the GigaFactory, to provide batteries for its cars. It already employs more than 800 workers, with at least 1,000 more to come, plus additional workers onsite for battery partner Panasonic. These are precisely the kinds of American manufacturing jobs that Trump laments having lost to overseas competitors. Moreover, once the factory is complete, Tesla may replace Ford as the car with the most American-made parts.

SolarCity, the solar-power energy company that's merging with Tesla, also plans to build a factory in Buffalo, New York, to manufacture solar panels.

Private sector competition. SpaceX is a perfect example of a private company taking on a huge task — space travel and exploration — that used to fall exclusively to a federal government agency. This is exactly the kind of private sector invention that libertarian-minded conservatives, like Thiel, encourage.

If it continues, this unlikely alliance could have benefits for both sides. Musk gets an ear to the president who's promised to shake up the current order and make it easier for American companies to do business. Trump gets the support of a visionary technologist who could help repair his image among the Silicon Valley tech community, which was vocally opposed to Trump during his candidacy.

While this may seem surprising to a lot people, it's not totally surprising to investors. Tesla is up about 31 percent since the election, while the Dow Jones industrial average is up roughly 9 percent since the election.

Article Link To CNBC:

The Democrats' Rise Is Far From Inevitable

By Megan McArdle
The Bloomberg View
January 25, 2017

Why are the left's public demonstrations more impressive than its voter turnout? Because there are a whole lot of Democrats in the large population centers where such demonstrations are generally held. People can join a protest simply by getting on the subway; it's an easy show of force.

But there are a lot of small towns in America, and as Sean Trende and David Byler recently demonstrated, those small towns are redder than ever. Effectively, the Democratic coalition has self-gerrymandered into a small number of places where they can turn out an impressive number of feet on the ground, but not enough votes to win the House. Certainly not enough to win the Senate or the Electoral College, which both favor sparsely populated states and discount the increasingly dense parts of the nation.

The Senate map in 2018 is brutal for Democrats. If Democrats want to get their mojo back, they’re going to need to do more than get a small minority of voters to turn out for a march. They’re going to need to get back some of those rural votes.

To do that, they’re probably going to have to let go of the most soul-satisfying, brain-melting political theory of the last two decades: that Democrats are inevitably the Party of the Future, guaranteed ownership of the future by an emerging Democratic majority in minority-white America. This theory underlay a lot of Obama’s presidency, and Clinton’s campaign. With President Trump's inauguration on Friday, we saw the results.

Why was this such a bad theory? Let me count the ways:

1. The emerging Democratic majority isn’t emerging as fast as people thought.
Barack Obama had unusually high turnout and support among black voters. He was also a phenomenally gifted campaigner in his own right, who garnered a lot of extra votes from people of all ethnicities and all walks of life. These two things gave Democrats the illusion that the future was arriving faster than it actually was. When Obama wasn’t on the ticket, and minority voting habits returned to a more normal pattern, millions of Democratic votes evaporated.

2. The votes of the emerging Democratic majority are extremely inefficiently distributed. As Trende and Byler write:

"In our system of government, popular vote metrics are only sensible when put through a geographic filter. This causes problems in the Electoral College, which we’ve recounted before. There are only nine “mega-cities” in America: New York, Los Angeles, Chicago, Washington, D.C., Philadelphia, Miami, Atlanta, Houston, and Dallas. These, in turn, affect 11 states: New York, New Jersey, Connecticut, California, Illinois, Virginia, Maryland, Pennsylvania, Florida, Georgia and Texas. In other words, in seven of these states, further growth in this area does no good for Democrats, as they are already blue. In three others (Pennsylvania, Florida and Georgia), the rural areas, towns, and small cities cast enough votes to outvote the mega-city. The final one – Texas – may be the key to a Democratic majority down the road, but Hillary Clinton still lost it by nine points, with a lot of Romney’s votes going to third party candidates. Put differently, the place where the Democratic coalition is growing the most does them the least good, electorally speaking."

Democrats who recognize this problem often complain that the problem is the anti-democratic Electoral College. And yes, the Electoral College may be unjust. It is also a fact. The only way to get rid of it is to amend the constitution -- an amendment that will have to be ratified by a lot of the small rural states that the Electoral College disproportionately empowers. In other words, it isn’t going to happen, at least not in the foreseeable future. Democrats should feel free to complain about this in their spare time. But their political work has to assume it as a given, and work around that.

3. Immigrants don’t necessarily stay loyal to the party of immigrants.
The Democrats found this out the hard way in the 1980s, as “white ethnics” who had been one of their most reliable bases mass-defected to Ronald Reagan.

What happened? For one thing, the immigrants assimilated. “White ethnics” stopped identifying as immigrants, and started identifying as threatened natives. Democrats picked up a lot of votes from new migrants like Hispanics, but the party bled more than it gained.

Democrats can't count on ruling a majority-minority America. Some of those coalition members will probably defect.

4. Whatever Trump does on immigration is probably going to hurt Democrats.
The more people assimilate, the less likely they are to see their ethnic identity as the most important determinant of their political commitments. And the smaller the number of new immigrants coming over to refresh connections to the old country, the faster that ethnic identity dissipates.

Let us assume two things happen: Trump manages to eke out eight years in office, and he actually takes strong steps to stem the tide of immigration. What would the emerging Democratic majority look like then? Probably not so hot.

Just as Obamacare created new facts on the ground that are making it hard for Republicans to simply return to the old status quo, whatever Trump does on immigration will not only make it harder for Democrats to build the envisioned majority-minority coalition, but also make it harder for them to simply get back to a place where they can wait for it to dawn.

5. Identity politics cuts both ways.
A majority-minority America is one in which “white” is a salient voting identity in a way that it never has been outside of heavily black areas of the South. As Nate Cohn of the New York Times tweeted after Trump’s stunning upset: “How to think about this election: white working class voters just decided to vote like a minority group. They're >40% of the electorate.” This was the first election in which we’ve seen that happen. It probably won’t be the last. And an electoral strategy that starts by assuming you’ve lost a plurality of the country is a rough ticket to victory, especially given the geography. You can wait for them to die, of course. But that’s going to take decades.

Democrats could roar back in 2018 or 2020. But it won't be automatic. They’re going to have to abandon the idea that all they need to do to return to power is wait.

Article Link To The Bloomberg View:

Donald Trump: Anti-Trade Ideologue

By Max Boot
January 25, 2017

Donald Trump cannot be accused of being a consistent ideologue in the way that the liberal Barack Obama and the conservative George W. Bush were. He is far too erratic a thinker for that. On one subject, though, he has shown a striking degree of consistency for decades, and that is in his opposition to free trade.

Now, as president, he has a chance to do something about his fixation on supposedly unfair trade deals. On his first full workday in office, he signed an executive order withdrawing the U.S. from the 12-nation Trans-Pacific Partnership. Begun under George W. Bush and continued under Obama, TPP has now been killed by Trump.

Granted, Trump was hardly TPP’s only opponent. Many Democrats of the Bernie Sanders stripe also opposed it. Even Hillary Clinton, after once praising it, felt compelled to disown TPP during the campaign. But there might still have been a chance for it to be approved by Congress before Trump’s election.

There are many things one can say about this decision, which symbolizes an abandonment of more than 70 years of American commitment to free trade. What leaps out most clearly is the extent to which Trump’s action on TPP is at odds with his larger policy objectives. He wants to create jobs, and he wants to roll back China’s power, especially its power as an American trade competitor. TPP, which involved countries with 40 percent of global GDP, would have helped accomplish both goals.

It would have, as Obama’s office of the U.S. Trade Representative estimated, have eliminated 18,000 taxes on American exports, thus boosting U.S. exports and creating more American jobs. Because TPP excluded China, it would have bound the U.S. more closely together, strategically and economically, with important trade partners across the Asia-Pacific region, including Japan, Malaysia, and Vietnam.

Now with TPP kaput, China is free to pursue its own economic zone, the Regional Comprehensive Economic Partnership, which excludes the United States. “There’s no doubt that this action will be seen as a huge, huge win for China,” Michael B. Froman, the trade representative who negotiated the pact, told the New York Times.

If Trump had analyzed the costs and benefits of TPP dispassionately, he would have realized this. But on the subject of trade, he is an ideologue who is impervious to countervailing facts and arguments, just as Obama was on other issues (e.g., the costs and benefits of American troop drawdowns in Iraq and Afghanistan). Let us hope that Trump will at least limit the damage by negotiating a bilateral trade accord with Japan and other allies that are staunch supporters of TPP in spite of the fact that it will open their domestic producers to more foreign competition.

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Brexit Sceptics Win Battle But Will Lose The War

By Liam Proud 
January 25, 2017

Brexit sceptics have won the battle, but will lose the war. Britain's Supreme Court on Tuesday upheld a previous ruling that Prime Minister Theresa May could not pull Britain out of the European Union without consulting members of parliament. The catch for jubilant Remainers is that it probably won't stop the same lawmakers voting the exit through.

The inevitability of triggering Article 50, the EU treaty clause that starts a two-year countdown to exit, may not be immediately obvious. About three-quarters of MPs backed Remain in the Brexit referendum, including many of May's own Conservative Party, and indeed herself. Yet more than 60 percent of opposition Labour MPs represent constituencies that voted Leave in the Brexit referendum, according to an analysis by academic Chris Hanretty. Labour leader Jeremy Corbyn has said he will ask his party not to block the government's bill kick-starting the exit process.

If just half of the Labour MPs from Brexit-supporting constituencies side with May, she could survive a revolt from nearly all the 80-odd Conservative MPs from Remain-supporting constituencies. The bigger issue, though, is that much of the wind has been removed from their sails. Efforts to amend the Article 50 bill and force May to lay out her negotiating strategy have less force now that she has given an outline of plans for a clean break softened by a phase-in period.

Another plus for May is that the Supreme Court has stopped short of requiring Brexit consent from devolved parliaments in Edinburgh, Cardiff and Belfast. This lack of say could prompt Scots to call for a second independence referendum of their own. But for May that's better than them being able to delay the UK's overall EU exit.

Even if pro-EU MPs muster the numbers to oppose May, they'd struggle to prove that alternatives like staying in the European Economic Area are both viable and preferable. EEA membership means accepting free movement of labour, which is a political no-go, as well as forgoing the right to strike trade deals with non-EU countries - a priority for Brexiteers in the cabinet.

None of this makes the prime minister's breezy acceptance of the huge risks associated with a hard Brexit any more palatable. But if MPs accept that Brexit means Westminster taking control over borders and UK trade policy, May's clean-break plan looks like the only game in town.

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A Trade Policy To Boost American Competitiveness

By Fred L. Smith, Jr. and Marc Scribner
Fox Business
January 25, 2017

President Donald Trump’s early actions on the Trans-Pacific Partnership, North American Free Trade Agreement, and the nomination of avowed protectionists to key roles have shaken the confidence of free traders. There is certainly cause for concern, but there are legitimate problems affecting U.S. trade policy that Trump should address to boost American competitiveness. And he can tend to these while keeping his campaign promise to “drain the swamp.”

For too long, American trade policy has rarely sought to promote true free trade. Recent trade agreements really haven’t been primarily about trade. Rather than work to facilitate win/win exchanges beyond the nation’s boundaries, U.S. trade negotiators have focused on helping exporters and shielding domestic firms from foreign competition—favoring producer over consumer interests, while rarely displaying any sympathy for import-reliant firms. Under such a regime, lobbying clout is what matters for many businesses to survive.

Over the last few decades, U.S. trade policy has only gotten worse. Larded with lengthy provisions governing wide swathes of regulatory matters, trade deals have become regulatory behemoths chock full of special interest favors. The Trans-Pacific Partnership and Transatlantic Trade and Investment Partnership are but the latest examples. The Trump administration has an opportunity to reform this process.

Where to start? A look at recent history provides a clue.

Earlier trade negotiations proceeded under the 1947/48 General Agreement on Tariffs and Trade (GATT), which sought to lower tariffs on products in commerce among countries that were party to the negotiations. In that sense, it was akin to promoting trade within the United States. Domestically, as one nation, we succeeded in creating a massive free-trade area, fueling dramatic economic growth—which alleviated the dislocations such economic change created. But when economic competition crosses national boundaries, political integration and trust become strained, making trade liberalization much more difficult.

A trade agreement can be simple—two parties agree to allow their citizens to buy and sell from the other with no interference, much like New Yorkers can trade with Texans without hindrance. But the voluminous side provisions in trade agreements over the last two decades are more akin to peace treaties between warring polities wielding tariffs as weapons. Trade agreements determine which trade barriers each nation will “give up” in order to gain market-opening “concessions” from the other. For companies, it means whoever has the better trade lobbyist wins.

It’s long past time go back to basics on trade. In that regard, the original GATT provides a guide. It offered little more than a framework for common-sense trade rule changes to benefit each participating nation. Of course, entrenched economic or ideological interests might oppose trade liberalization, but negotiators were free to carry on in the knowledge that trade-driven domestic growth would mitigate opposition to trade deals.

Trade negotiations involved economic issues. But that changed as GATT’s success gave way to calls to “strengthen” it by expanding its scope and grating it additional enforcement powers. That in turn prompted ideological interest groups to work to advance their agendas through trade negotiations that increasingly were bilateral and regional and were more open to special interests.

The first sign of that shift cropped up in the 1990s, in the North American Free Trade Agreement (NAFTA) negotiations. And while NAFTA offered substantial benefits from lowered trade barriers, these newer participants—particularly environmental groups and labor unions—lobbied to attach “side agreements” to NAFTA outlining environmental and labor policy for all three signatory nations. Subsequent trade agreements have gone further, inserting labor and environmental provisions into the agreements themselves, as activists argue that the United States is “falling behind” in environmental protection, labor standards, what have you.

It all sounds quite lofty, but the truth is that embedding developed country standards in trade agreements protects rich countries’ industries, as it undermines developing nations’ competitive advantages during their economies’ takeoff stage—willing and able workers and untapped resources. In the end, American consumers and the foreign poor bear the costs.

The Trump administration should go after the primary threat to American industry—and it’s not foreign competition. It should modify or repeal laws that distort markets and simplify the nation’s trade agenda going forward. Trade treaties should be about trade. Environmental protection, labor regulations, and other issues can be addressed elsewhere in other for a designed for those goals.

Regulatory liberalization, one of Trump’s stated goals, would reduce costs, unleash innovation, and allow American firms to compete in all markets fairly and without politically imposed disadvantages. The end result would be more trade and economic growth—and fewer trade lobbyists. For draining the swamp, that sounds like a good start.

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