Thursday, February 9, 2017

Global Automakers Blame Tax Policy, Lunar New Year For China Sales Drop

By Jake Spring
February 9, 2017

China vehicle sales in January fell by the largest margin since 2015 for several global automakers, with General Motors Co (GM.N) and Ford Motor Co (F.N) blaming the roll back of a tax cut on small-engined vehicles and the Lunar New Year holiday.

Ford Motor said on Thursday that its sales fell 32 percent year-on-year, while GM said sales dropped 24 percent, making the biggest drop since the two automakers first began reporting data for retail sales of their vehicles in China in the second quarter of 2015.

China's central government raised the purchase tax on cars with engines of 1.6 liters or less to 7.5 percent this year from a special rate of 5 percent last year, a policy originally instituted to shore up sales in a weakening economy. It plans to return the rate to 10 percent in 2018.

"January was an unusual month with the earlier timing of the Chinese New Year holiday and the impact of the reduced tax incentive," Ford said in a statement citing Peter Fleet, head of sales for Asia Pacific. "Sales of vehicles not affected by the tax incentive were strong."

China annually takes a one-week holiday for the Lunar New Year, which typically distorts sales in January and February as the dates vary each year.

On Wednesday, Toyota recorded a 18.7 percent drop in January sales, its largest decline since March 2015.

Nissan reported a 6.2 percent sales decline for the month, also citing seasonality and "the rush for car purchase in December 2016" before the tax policy changed.

Honda, which has outstripped its US and Japanese competitors for the last two years, thanks in part to hot-selling sport-utility vehicles, said on Wednesday that sales grew 5.3 percent in January.

The country's automakers association predicts sales in China, the world's largest auto market, will grow 5 percent this year, slowing from a 13.7 percent rise in 2016 that was achieved on the back of the tax cut.

Article Link To Reuters:

Sessions' Role As U.S. Attorney General Unsettles Legalized Pot Industry

By Sharon Bernstein
February 9, 2017

The prospect of Senator Jeff Sessions as U.S. attorney general has cast uncertainty over the country's nascent legalized marijuana industry, souring deals and disrupting share prices since the longtime critic of the drug was nominated.

The U.S. Senate on Wednesday confirmed President Donald Trump's nomination of Sessions by a vote of 52-47 after strong opposition from Democrats.. The Republican senator from Alabama has opposed attempts to legalize marijuana and reduce drug sentences and once urged the death penalty for drug traffickers.

Trump named Sessions as his choice to lead the Justice Department on Nov. 18, shaking the exuberance of an industry that last year reached $7 billion in legal sales and generated half a billion dollars in sales taxes.

The choice of Sessions drove some businesses back underground and scared away investors, industry experts said. Growers are seeking advice on how to protect themselves from a crackdown, while other cannabis companies are seeking ways to shield their records from investigators.

"Everyone's back into wait-and-see mode," said Sasha Kadey, chief marketing officer for Greenlane, which distributes cannabis accessories such as vapor smoking devices. "Because one doesn't want to paint a target on one's back."

More than two dozen U.S. states have legalized some form of marijuana for medical or recreational use, but the drug remains illegal at the federal level.

The administration of former Democratic President Barack Obama mostly tolerated the state legalizations, focusing on big cases or transactions that involved other crimes, such as selling pot to children.

Trump has said in the past he would defer to states on marijuana legalization, and has not addressed the issue since he was elected last November.

But Sessions, asked about marijuana policy at a Senate confirmation hearing last month, said that if Congress no longer wanted to criminalize marijuana, it "should pass a law that changes the rules."

"It’s not so much the attorney general’s job to decide what laws to enforce. We should do our job and enforce laws effectively as we are able," Sessions said.

Neither the administration nor Sessions responded to requests for comment.

'Deals Lost'

Massroots, which makes a mobile app that allows people to review and discuss cannabis strains, lost 14 percent of its share price in the three trading days after Sessions' nomination, and it was promptly removed from the Google Play app store, said Chief Executive Isaac Dietrich.

The share price has since recovered and is up 24 percent since Nov. 18.

At Greenlane, Kadey changed the company's plans for a new line of premium, child-resistant packaging, deciding to market it without using the words marijuana or cannabis.

"There was a sharp drop in the stocks post-election," said analyst Tom Adams, editor-in-chief of Arcview Market Research. "There were deals lost and second thoughts had by many people."

An index of 33 publicly traded legal cannabis companies followed by Arcview dropped to a low of 284 points after the election from a high of 418 in October, analyst Michael Arrington said. The index has since regained much but not all of that value, hitting 379 on Jan. 6, the most recent date for which the company has data.

An effort to ramp up prosecution of federal marijuana offenses would reinvigorate the black market in cannabis and limit the states' ability to regulate both legal and illegal sales, said Andrew Freedman, who last month left a job as Colorado's top marijuana regulator to become a consultant in the industry.

Tighter enforcement could also threaten $140 million in taxes from marijuana sales that Colorado has used for education and other purposes, Freedman said.

Since the election, volatile valuations have complicated potential deals for companies that are up for sale, said Steve Gormley, CEO of the cannabis private equity firm Seventh Point, LLC.

Khurshid Khoja, a San Francisco Bay-area attorney who specializes in cannabis issues, said the climate was stalling deals as companies grow nervous about opening their books."It's that they just don't know," Khoja said.

Article Link To Reuters:

Oil Rises After Drop In U.S. Gasoline Stocks, But Market Remains Bloated

By Henning Gloystein 
February 9, 2017

Oil prices rose on Thursday, boosted by an unexpected draw in U.S. gasoline inventories, although bloated crude supplies meant that fuel markets remain under pressure.

Brent crude futures LCOc1, the international benchmark for oil prices, were trading at $55.52 per barrel, up 40 cents, or 0.7 percent, from their last close.

U.S. West Texas Intermediate (WTI) crude CLc1 was up 39 cents, or 0.8 percent, at $52.73 a barrel.

The U.S. Energy Information Administration (EIA) said on Wednesday that gasoline stocks USOILG=ECI fell by 869,000 barrels last week to 256.2 million barrels, versus analyst expectations for a 1.1 million-barrel gain. [EIA/S]

Traders said that this surprise increase in U.S. gasoline inventories had helped push up crude, although most added that fuel markets were still bloated and that this would likely prevent further big price rises.

"We remain highly skeptical of the overnight price action," said Jeffrey Halley, senior market analyst at futures brokerage OANDA, referring to rising crude.

U.S. commercial crude inventories soared by 18.8 million barrels to 508.6 million barrels, according to the EIA.

U.S. bank Goldman Sachs said that high fuel inventories as well as rising U.S. crude production mean that oil markets will remain over-supplied for some time.

"The 4Q16 global oil market surplus led to further rises in global inventories in January, and as a result the draws that we expect will start from a high base," the bank said.

"U.S. production has also rebounded faster than our rig modeling suggested ... and we view the faster shale rebound as creating downside risk to our 2018 WTI price forecast of $55 per barrel, but not to our expectation that the global oil market will shift into deficit in 1H17," it added.

Ongoing high inventories undermine efforts by the Organization of the Petroleum Exporting Countries and other producers including Russia to cut output by almost 1.8 million bpd during the first half of this year in order to prop up prices and rebalance the market.

As a result, both Brent and WTI are down around 5 percent since early January, when the OPEC-led cuts started to be implemented.

"Our 2017 Brent outlook is broadly neutral, with a $57.0 per barrel average forecast for the year," BMI Research said.

"Agreed production cuts by OPEC and Russia are supporting prices, but heavy refinery maintenance, and production growth in Libya, Nigeria and the (U.S.) Permian will cap gains," it added.

Article Link To Reuters:

Wall Street’s Love Affair With Energy Heats Up As Rigs Soar

January equity offerings at $6.64 billion, highest since 2000; Oil service firms hard hit in rout grabbed a quarter of total.

By David Wethe
February 9, 2017

Wall Street is throwing the most money at U.S. energy companies since at least 2000 amid growing confidence that the industry is emerging from the worst downturn in a generation.

Energy firms raised $6.64 billion in 13 equity offerings in January, drawn in by a rich combination of oil prices consistently above $50 a barrel and a rush to drill that’s doubled the rigs in use in the U.S. and Canada since May. The biggest change from last year: Oilfield servicers that provide the rigs, fracking equipment and sand used by drillers.

The most beaten-down sector during a two-year price rout, servicers made up 22 percent of the equity totals in January, compared with 5 percent all last year.

"The mood is absolutely different," according to Trey Stolz, an analyst in New Orleans at the investment banking firm Coker & Palmer Inc., in a phone interview. "Go back to a year ago and the knife was still falling. But today, it feels much, much better."

Already, companies such as Weatherford International Plc. are able to charge more for the use of their equipment and services as explorers race to open the spigots in the fertile Permian Basin of West Texas and other U.S. shale fields, according to Krishna Shivram, Weatherford’s interim chief executive officer.

"We’re seeing signs of improved pricing of roughly 25 percent on average, versus December levels," Shivram said last week in a conference call. "There is considerable optimism."

Energy companies in the U.S. far outpaced the rest of the world, raising more than two thirds of the $9.41 billion in new or additional stock last month, according to data compiled by Bloomberg. New investments emerged around the globe, from the share sale of Thorney Technologies Australia to SD Standard Drilling Plc in Cyprus.

U.S. benchmark West Texas Intermediate crude traded at $52.62 a barrel on Thursday, up more than 20 percent from last year’s average.

The services sector was among the hardest hit during the downturn, slashing service prices by more than a third and contributing the greatest chunk of the 440,000 jobs slashed globally in that time. Now, a new dynamic is at play, evidenced by the emergence of the Keane Group, a Houston-based provider of fracking services, as one of the first initial public offerings for the U.S. in 2017.

Keane raised $508.4 million on Jan. 20. Though it may be surprising that an industry as volatile as hydraulic fracking produced an IPO in such a manner, consider that trading began on the day of President Donald Trump’s inauguration. The incoming president made energy independence a plank of his election platform and has promised to roll back regulations on the drilling industry.

“We have potentially an exponential increase in demand for our services with the rig count that’s increased over the last couple of quarters,” Chief Executive Officer James Stewart of the Keane Group, said in a Jan,. 20 telephone interview. “The public equity markets are looking to invest in pure-play completion companies with a footprint and a growth story."

Stock Sellers

Other U.S. service companies that sold shares last month were Helix Energy Solutions Group Inc., Atwood Oceanics Inc. and Patterson-UTI Energy Inc., for a combined $899 million.
Services companies, though, weren’t alone in drawing investment. The Williams Companies, Inc., a pipeline company, raised $2.17 billion while oil explorers Parsley Energy Inc. and Jagged Peak Energy Inc. raked in $885.5 million and $474 million, respectively.

There’s no sign that companies are done raising money. Parsley dipped back into the market Tuesday to raise $1.12 billion from 36 million new shares offered Tuesday that will help fund its $2.8 billion acquisition of drilling rights in the Permian.

The improved drilling efficiency and more monstrous frack jobs will inevitably lead to larger output from the shale wells, Stolz said.

International Headlines

"But it seems like the international headlines, whatever’s happening with OPEC or Saudi Arabia, that seems to be a lot more impactful than marginal improvement in wells in North American shale plays," Stolz said. "Let’s not go out in the street and dance quite yet. It feels a lot better and there’s still a long way to go."

The revival of drilling and acquisitions in the Permian Basin of West Texas made it a hot spot for equity offerings last year as well. The $14.6 billion of stock offerings by independent Permian drillers last year made up more than a third of the energy industry’s total, according to data compiled by Bloomberg.

"The world looks a lot better to the service company now than it did 6 months ago," David Oelman, co-head of the capital markets at Vinson & Elkins in Houston, said in a phone interview. "It looks like we’re in a place where the momentum is making energy investments pretty attractive."

Article Link To Bloomberg:

Jump In US Crude Imports To Reverse In March

February 9, 2017

The recent jump in U.S. crude imports could reverse from March as major oil exporters start cutting production, Goldman Sachs analysts said in a note.

The latest Energy Information Administration (EIA) report released on Wednesday found that U.S. crude inventories surged in the week ended Feb 3 by 13.8 million barrels – the second largest weekly build up on record.

However, the rise did not shock the market, since preliminary data from the American Petroleum Institute (API) late on Tuesday had indicated an even bigger increase.

Goldman Sachs attributed the recent jump to an increase in imports, especially those from the Gulf Coast. However, output cuts by the Organization of the Petroleum Exporting Countries (OPEC) and other producing nations could reverse this trend.

"Given the relatively high compliance to the proposed cuts so far, we believe that this import channel will reverse from March onward," the analysts said in the note.

The analysts explained that the average crude transit time from the Arabian Gulf to the U.S. Gulf Coast is 47 days. With freight data showing a decline in vessel demand in January, this means arrival to the U.S. should slow down by early March.

"As a result, we do not view the recent excess U.S. builds as derailing our forecast for a gradual draw in inventories, with in fact the rest of the world already showing signs of tightness."

Goldman Sachs also noted that a key manufacturing indicator, the Purchasing Managers' Index (PMI), has continued to show strength globally since late-2016. This may support global demand and accelerate the rebalancing of the oil market.

The bank's global demand growth forecast is at 1.5 million barrels per day in 2017.

Oil prices rose following the release of the EIA report, with investors covering short positions as the rise in U.S crude inventories was not as massive as many had feared, and as gasoline futures got a boost from a surprise decline in inventories of the fuel.

Article Link To CNBC:

Tesla Pausing Factory For Model 3 Preparation This Month

By Paul Lienert and Alexandria Sage
February 9, 2017

Tesla Inc (TSLA.O) said on Wednesday it will shut down production at its California assembly plant for a week this month to prepare for production of its high-volume Model 3 sedan, moving the company closer to meeting its target to start production in July.

Tesla said the "brief, planned" pause would allow the company to add capacity to the existing paint shop to prepare it for the Model 3, and other general maintenance.

"This will allow Tesla to begin Model 3 production later this year as planned and enable us to start the ramp towards 500,000 vehicles annually in 2018," said a Tesla spokesman.

He added that the pause was not expected to have a material impact on first-quarter production or delivery figures, as the company had added production days to compensate.

Separately, sources told Reuters that the luxury electric carmaker planned to begin test-building the Model 3 on Feb. 20.

Tesla Chief Executive Elon Musk last year told investors and more than 370,000 customers who put deposits down for a Model 3 that he intended to start building the cars in July 2017. At the time, many analysts and suppliers said the timeline was too ambitious and would be difficult to achieve, pointing to Tesla's history of missing aggressive production targets.

If Tesla succeeds in starting pilot production of the sedan at its factory in Fremont, California on Feb. 20, as people familiar with the matter told Reuters, the company would be able to share the news with shareholders two days later when it reports fourth-quarter results and better answer any questions about the Model 3 rollout.

'Stoke The Fan Base'

The sources did not know how many of the highly anticipated vehicles Tesla aimed to build in February, but it would likely be a small number to test the assembly system and the quality of vehicle parts.

"What better way to stoke the fan base and Wall Street than to wheel out pre-production models" ahead of the earnings announcement, said one person familiar with Tesla's plans who spoke on condition of anonymity.

The Tesla spokesman declined to comment on the company's production schedule.

Musk had told investors last year that the company could miss the July 2017 startup target if suppliers do not meet deadlines.

Tesla has a lot riding on the Model 3, which is priced at roughly $35,000 before government incentives. If successful, the sedan could raise Tesla beyond a niche luxury player in the automotive sector.

Tesla has not had a profitable year since going public in 2010, though the company's $41.4 billion market capitalization now equals that of Nissan Motor Co Ltd (7201.T), which reported a profit of $4.7 billion last year.

Musk's bold approach to cars, space exploration and clean energy has fueled investor enthusiasm for Tesla, but skeptics are waiting to see if Musk can fulfill his promise of producing 500,000 cars per year by 2018.

That would expand Tesla's annual production by four to five times compared to 2016 levels. In its fourth quarter, Tesla produced 24,882 vehicles.

Tesla disclosed in May that it had taken 373,000 refundable $1,000 deposits for the Model 3, underscoring its appeal ahead of production. The company has not since updated that number. Total sales of fully electric vehicles last year in the United States amounted to just 84,275 vehicles, according to data compiled by the Electric Drive Transportation Association.

Moving Design Target

Sources with knowledge of the Model 3 timeline had called it extremely aggressive, with challenges compounded by Tesla making last-minute changes to the car's design. Such design tweaks can delay production, and add cost as suppliers rework tools and molds to meet new specifications.

Musk said in July the design of the Model 3 was complete. The car, he told shareholders earlier in May, would be "easy to make" and free of the complicated design that led to production delays in the Model X sports utility vehicle.

It is common practice for automakers to make minor adjustments to a "finished" design for a variety of reasons, ranging from fit and finish to safety.

One source said last week that design changes were still underway for the Model 3, which could potentially hinder the ramp-up to full production. Tesla declined to comment on whether the design was still being tinkered with.

Tesla's previous launches for the Model S sedan and Model X sports utility vehicle were marked by production delays and initial quality issues.

That track record meant some analysts were skeptical that Musk would launch production by July. "We assume 0 Model 3 deliveries in '17," Barclays analyst Brian Johnson wrote in a Jan. 3 note, while Morgan Stanley's Adam Jonas in a Jan. 19 note said he expected a "soft launch" of the Model 3 to be delayed until late 2017.

Article Link To Reuters:

Why Snapchat Is Losing So Much Money

Snap’s cost of revenue has exceeded sales for two years, and could grow more.

By Caitlin Huston
February 9, 20017

Snap Inc. has managed to find revenue the past two years, but it has spent more to get those sales thanks to the needs of its growing user base.

The Snapchat parent company filed to go public last week and revealed total revenue in 2015-16 of $463.1 million, but costs of revenue of $634 million for the two years. The primary driver of Snap’s SNAP, +0.00% cost of revenue is the cloud-computing power it must buy to handle the millions of users sending messages every day, and the company expects costs to rise, including a recent commitment to spend $2 billion on those services with Google GOOGL, +0.08% GOOG, +0.17% over the next five years.

“We anticipate that cost of revenue will increase for the foreseeable future as user engagement increases, including as we continue to deliver new product offerings,” Snap says in its prospectus.

Snap relies on Google for computing, storage and other bandwidth needs. It signed the five-year agreement on Jan. 30, 2017, three days before it filed to go public.

Other costs of revenue include payments to content partners, costs of creating content and inventory costs for Spectacles, the company’s camera-enable sunglasses. The company notes that costs related to Spectacles are expected to be higher than revenue from the product, at least for the near future.

Cost of revenue has increased every quarter.

Cost of revenue is just one item that contributed to Snap’s total losses of $514.6 million in 2016 and $372.9 million in 2015. In 2015, Snap reported cost of revenue of $182.3 million and revenue of $58.6 million, but those figures got closer in 2016: cost of revenue totaled $451.7 million while sales were $404.5 million.

Cost of revenue is expected to rise as the company’s number of daily active users grow. Snap saw this between 2015 and 2016, when cost of revenue increased 148%, while DAUs rose 48%. The company said cost of revenue has increased in every quarter presented in the prospectus.

As Bloomberg pointed out, in the fourth quarter of 2016, for every dollar Snapchat made, its cost of revenue was an average of 93 cents.

Costs could weigh on the company in the future, as Snap needs to grow daily active users to remain competitive and bring in greater revenue. Advertising is Snap’s primary form of revenue.

Revenue growth could save Snap, though. Snap saw an almost sevenfold revenue increase, up 590%, from 2015 to 2016.

Article Link To MarketWatch:

What These Experts Would Tell Trump At 3 A.M. About The Dollar

Trump reportedly has had predawn questions about the U.S. currency.

By Greg Robb
February 9, 2017

The phone rings at 3 a.m., and President Donald Trump is on the line. He wants to know whether a strong or a weak dollar is good for the U.S. economy.

According to a report in the Huffington Post, this recently happened to national-security adviser Mike Flynn.

Since the Clinton administration, the mantra that a strong dollar is in the nation’s interest has been official policy. Comments from Trump, incoming Treasury Secretary Steve Mnuchin and Trump trade adviser Peter Navarro all suggest that a rethink of the policy is underway.

MarketWatch asked some currency experts what they would say if they were on the other end of a call from the president.

Marc Chandler, global head of currency strategy at Brown Brothers Harriman in New York:
People have scoffed at the “strong dollar” policy, but it’s best to stick to this commitment. It has lasted from Clinton to Bush and Obama. The real meaning of it is we won’t use the dollar as a trade weapon, and we won’t seek to depreciate to reduce our debt burden. It came after Lloyd Bentsen and James Baker tried to use the dollar as a weapon — so, both parties. Remember, what we do will become the lead for other countries. The worst thing for working-class Americans would be if our trade and dollar policies lead to a breakdown in the world economy. We’ll get inflation without our salaries matching it.

Paul Ashworth, chief U.S. economist at Capital Economics in Toronto
: It is a very good question. A few years ago, when unemployment was high and inflation uncomfortably low, I would have said a weaker dollar was needed to boost aggregate demand via stronger exports. With the economy now close to full employment, however, an equally valid case could be made that a stronger dollar, which would improve real living standards, is more desirable. A weaker dollar might do little to boost real exports and end up pushing domestic inflation higher. More than anything else, a relatively stable currency would probably be most helpful over the next couple of years.

Alan Tonelson, founder of RealtyChek, a public-policy blog:
Thanks for your call, Mr. President. For several reasons, the dollar serves as the world’s leading currency. And as long as it keeps playing this role, underlying demand for the greenback is going to be strong. But the dollar can become too strong — enough to harm the American economy — and especially the manufacturing sector that you’ve rightly identified as its productive heart. Currency movements don’t exist in isolation. So the more you focus on the crucial global and domestic policy landscapes, the less attention you’ll have to pay to the intrinsically risky task of seeking the dollar’s “correct” value.

Your critics have a point in warning that the kinds of international trade restrictions you seem to have in mind could drive the dollar high enough to price many U.S.-made goods out of markets all around the world. However, much of your emerging economic program can counteract these effects substantially, and bolster the American economy on net. On the trade front, for instance, Nafta could be turned into more of a trade bloc. Strict domestic-content standards for all inbound foreign manufacturing investment would also curb net imports, and spur more domestic production. Using U.S. trade laws more extensively can keep out of American markets goods that benefit from predatory foreign practices, especially China’s, through punitive tariffs — which can be sky high. And don’t forget the border-adjustment tax, some version of which deserves your strong support.

Stephen Roach, senior fellow at Yale University’s Jackson Institute of Global Affairs
: I would say it’s really important at this juncture to reaffirm our conviction that a strong dollar has long been in America’s best interest. It’s a policy that has worked since the early 1990s. It served the purpose of removing the fear of currency instability from decision-making. The dollar has gone up and down and it has not prevented normal market fluctuations. But if the president altered the rhetoric, he’d be lifting the anchor of currency stability. There is a lot of concern. It is disconcerting and it raises the possibility of retaliatory currency adjustments from other major nations, the so-called currency war. In conjunction with other rather hostile comments with respect to trading practices of Mexico, Japan, Germany, and by inference, Canada, if you inject currency instability into that equation, you run the risk of a major shock to currency markets and global financial markets.

Brad Setser, senior fellow at the Council on Foreign Relations:
“Right now the dollar is too strong. Based on past experience, the current level of the dollar will lead the trade deficit to rise over time. A dollar that is so strong that it leads to large and persistent trade deficits is a problem for the economy’s long-term health. In the short-run though, the dollar fluctuates based on the relative performance of the United States’ economy and the economies of its trading partners, and in response to the monetary and fiscal policies adapted by U.S. and its trading partners. The best way to bring the dollar down to levels that are more sustainable over time is for other countries to adopt policies that do more to support their own demand. Stronger support for demand would mean that they would have less need for easy monetary policies, and their currencies would strengthen.”

Article Link To MarketWatch:

A Conservative Answer To Climate Change

Enacting a carbon tax would free up private firms to find the most efficient ways to cut emissions.

By George P. Schultz and James A. Baker III
The Wall Street Journal
February 9, 2017

Thirty years ago, as the atmosphere’s protective ozone layer was dwindling at alarming rates, we were serving proudly under President Ronald Reagan. We remember his leading role in negotiating the Montreal Protocol, which continues to protect and restore the delicate ozone layer. Today the world faces a similar challenge: the threat of climate change.

Just as in the 1980s, there is mounting evidence of problems with the atmosphere that are growing too compelling to ignore. And, once again, there is uncertainty about what lies ahead. The extent to which climate change is due to man-made causes can be questioned. But the risks associated with future warming are so severe that they should be hedged.

The responsible and conservative response should be to take out an insurance policy. Doing so need not rely on heavy-handed, growth-inhibiting government regulations. Instead, a climate solution should be based on a sound economic analysis that embodies the conservative principles of free markets and limited government.

We suggest a solution that rests on four pillars. First, creating a gradually increasing carbon tax. Second, returning the tax proceeds to the American people in the form of dividends. Third, establishing border carbon adjustments that protect American competitiveness and encourage other countries to follow suit. And fourth, rolling back government regulations once such a system is in place.

The first pillar, a carbon tax, is the most cost-effective way to reduce emissions. Unlike the current cumbersome regulatory approach, a levy on emissions would free companies to find the most efficient way to reduce their carbon footprint. A sensibly priced, gradually rising tax would send a powerful market signal to businesses that want certainty when planning for the future.

A “carbon dividend” payment, the second pillar, would have tax proceeds distributed to the American people on a quarterly basis. This way, the revenue-neutral tax would benefit working families rather than bloat government spending. A $40-per-ton carbon tax would provide a family of four with roughly $2,000 in carbon dividends in the first year, an amount that could grow over time as the carbon tax rate increased.

A carbon dividends policy could spur larger reductions in greenhouse-gas emissions than all of President Obama’s climate policies. At the same time, our plan would strengthen the economy, help working-class Americans, and promote national security, all while reducing regulations and shrinking the size of government.

The third pillar is a border adjustment for carbon content. When American companies export to countries without comparable carbon pricing systems, they would receive rebates on the carbon taxes they have paid. Imports from such countries, meanwhile, would face fees on the carbon content of their products. Proceeds from such fees would also be returned to the American people through carbon dividends. Pioneering such a system would put America in the driver’s seat of global climate policy. It would also promote American competitiveness by penalizing countries whose lack of carbon-reduction policies would otherwise give them an unfair trade advantage.

The eventual elimination of regulations no longer necessary after the enactment of a carbon tax would constitute the final pillar. Almost all of the Environmental Protection Agency’s regulatory authority over carbon emissions could be eliminated, including an outright repeal of President Obama’s Clean Power Plan. Robust carbon taxes would also justify ending federal and state tort liability for emitters.

With these principles in mind, on Wednesday the Climate Leadership Council is unveiling “The Conservative Case for Carbon Dividends.” The report was co-authored by conservative thinkers Martin Feldstein,Henry Paulson Jr., Gregory Mankiw,Ted Halstead,Tom Stephenson and Rob Walton.

This carbon dividends program would help steer the U.S. toward a path of more durable economic growth by encouraging technological innovation and large-scale substitution of existing energy sources. It would also provide much-needed regulatory relief to U.S. industries. Companies, especially those in the energy sector, finally would have the predictability they now lack, removing one of the most serious impediments to capital investment.

Perhaps most important, the carbon-dividends plan speaks to the increasing frustration and economic insecurity experienced by many working-class Americans. The plan would elevate the fortunes of the nation’s less-advantaged while strengthening the economy. A Treasury Department report published last month predicts that carbon dividends would mean income gains for about 70% of Americans.

This plan will also be good for the long-term prospects of the Republican Party. About two-thirds of Americans worry a “great deal” or “fair amount” about climate change, according to a 2016 Gallup survey. Polls often show concern about climate change is higher among younger voters, and among Asians and Hispanics, the fastest-growing demographic groups. A carbon-dividends plan provides an opportunity to appeal to all three demographics.

Controlling the White House and Congress means that Republicans bear the responsibility of exercising wise leadership on the defining challenges of our era. Climate change is one of these issues. It is time for the Grand Old Party to once again lead the way.

Article Link To The Wall Street Journal:

Asian Stocks At 18-Month Highs As China Rises

By Saikat Chatterjee
February 9, 2017

Asian shares climbed to their highest in more than 18 months on Thursday, as investors grew more confident about China while the dollar slightly firmed in the wake of growing concerns over political instability in Europe.

MSCI's broadest index of Asia-Pacific shares outside Japan gained 0.3 percent to their highest since July 2015 with Hong Kong, Taiwan and China among the region's best performing markets.

European stocks are set to follow Asia's cues, with spread-betters expecting a rise of up to 0.1 percent in Britain's FTSE, 0.2 percent in Germany's DAX and 0.3 percent in France's CAC.

"In China we have an overweight view on equities as we see improved corporate earnings outlook with the Chinese PPI (producer price index) turning around from deflation trend," said Fan Cheuk Wan, head of investment strategy for Asia at HSBC Private Bank.

It also has overweight recommendation on India and Indonesia.

An ongoing rally in commodity prices led by copper and iron ore, along with gentle policy tightening by Beijing via money market rates, has led to a more optimistic view of Chinese corporate earnings, analysts said.

Earnings growth for MSCI China is expected at nearly 15 percent over the next 12 months, slightly ahead of 13 percent projected for companies in MSCI Asia outside Japan, according to Thomson Reuters data.

Pictet Asset Management has cut its exposure to U.S. markets due to expensive valuations, and has turned bullish on emerging markets in Asia, citing strong correlations with commodity prices.

In other markets, New Zealand stocks rose after the central bank signaled that a further cut in interest rates was no longer likely while Japanese shares were in focus before a meeting between U.S. President Donald Trump and Japan's Prime Minister Shinzo Abe on Friday.

Abe will propose a new cabinet level framework for U.S.-Japan talks on trade, security and macroeconomic issues, including currencies, a Japanese government official involved in planning the summit in Washington said.

"Trade and defense will be in focus," said Norihiro Fujito, a senior investment strategist at Mitsubishi UFJ Morgan Stanley Securities. "We need to see if anything is said that has an effect on currencies, or on specific companies."

Commodity Rally

In commodities, copper stepped back after a sharp gain the previous day as the world's top two mines said strikes and permit delays would force them to cut output.

Helping sentiment was a recent pick-up in China's producer price index to its highest levels since September 2011. Copper prices are up 27 percent since late October.

Oil prices stabilized on Thursday, boosted by an unexpected draw in U.S. gasoline inventories. Brent crude futures was trading at $55.45 per barrel, up 0.5 percent.

However, bubbling political concerns, including a strong showing by far-right candidate Marine Le Pen in France's presidential race, have pushed up premiums demanded by investors to buy French debt over comparable bonds and pushed the yen and U.S. Treasuries higher.

Uncertainty translated into another day of gains for bonds, with 10-year U.S. benchmark bond yields declining for a third consecutive day to 2.34 percent, the lowest level in three weeks and retracing one-third of its rise since Trump's victory in early November.

The dollar bounced after the previous day's drop, but falling yields are set to limit the greenback's gains.

Against a broad trade-weighted basket of its rivals, the dollar was trading at 100.39 compared to a level of 99.30 last week. The Japanese yen also held its ground thanks to a broad rush to safety.

Article Link To Reuters: