Tuesday, February 21, 2017

Why The ‘Next Leg In The Oil Bull Market’ Is Coming Soon

$60-a-barrel in sight as April contract starts trading, analysts says.

By Sara Sjolin
February 21, 2017

Oil prices may soon head upward, breaking out of the tight range in which they’ve traded lately, a top energy analyst said Monday.

Speaking at the S&P Platts London Oil & Energy Forum on Monday, PIRA Energy’s Gary Ross said the bull market for oil is about to return, potentially sending prices as high as $60 a barrel in the coming weeks.

“We think the markets have consolidated enough and that the next, smaller leg in the bull market is about to occur,” said Ross. “We are actually quite [upbeat] on prices, particularly when the April contract becomes the front-runner later this week.” (The “front-runner” is the nearest tradable contract.)

The April contract for West Texas Intermediate crude oil CLJ7, +0.84% recently trading around $54, becomes the front-runner on Tuesday. Brent LCOJ7, +0.75% is already trading with deliveries for that month and was recently around $56.

“There’s a lot of things coming together in April that make us believe that we can very well see the next, shorter, leg of the bull market soon,” Ross said. “I say shorter, because [the upward move] is unlikely to be $10-$15 a barrel, but more like $5 a barrel.”

Ross expects a big drawdown in U.S. inventories as the production cuts from the Organization of the Petroleum Exporting Countries start to be felt in the market. He also noted that so-called “pipeline fill,” the oil you need in pipelines to allow the facility to operate, is likely to reduce supply at the Cushing, Okla., storage and trading hub as spring nears.

Ross is frequently bullish on oil prices. In 2015, for example, he forecast that oil could jump to $75 in 2016. Prices did almost exactly the opposite, hitting multiyear lows in February 2016, before ending the year on a more upbeat note following OPEC’s output deal.

At the forum in London, however, Ross’s relatively upbeat projection was backed by S&P Platts. In his introductory comments, Dave Ernsberger, global head of energy pricing at Platts, said Platts Analytics projected Brent could rise to $65-$70 a barrel by December this year.

“The turnaround in prices was driven by the landmark agreement between OPEC and non-OPEC countries to cut production which has provided a floor under oil prices with U.S. shale production providing a ceiling,” Ernsberger said.

Conference delegates had a more muted outlook on the oil price, however. In a poll asking “what price will front-month ICE Brent futures be trading this time next year,” 48% of respondents chose the $55-$65 bracket.

Article Link To MarketWatch:

Gas Prices May Rise To A More-Than-2-Year High By Memorial Day

Prices may rise to $2.85 a gallon by late May, says GasBuddy.

By Myra P. Saefong
February 21, 2017

It’s that time of year again—when refinery maintenance season kicks in and the market makes a shift to cleaner-burning gasoline, disrupting production and lifting prices for the fuel at the pump.

But this year, it could be a bit different: GasBuddy says retail prices may climb to levels not seen since November 2014.

“We’re likely to see some major increases at the gas pump as the seasonal transition and refinery maintenance get under way,” said Dan McTeague, senior petroleum analyst for GasBuddy.

Prices for crude oil, which is used to make gasoline, have also climbed by more than 70% from a year ago, with futures prices for West Texas Intermediate CLH7, +0.77% trading above $53 a barrel on Friday, compared with less than $31 the same time last year.

Crude-oil prices have climbed in large part due to production cuts by major crude producers following an agreement that was implemented at the start of the year.

As of Friday afternoon, the retail price for a gallon of regular gasoline averaged $2.284 a gallon, up over 57 cents from last year’s average of $1.712, according to GasBuddy.

There has been an “appreciable” rise in gasoline prices, with much of that traced back directly to the low value of crude at this time last year, McTeague told MarketWatch.

Gasoline prices may have hit their bottom last week at $2.26 a gallon—at least until the fall season, he said.

Refineries are going through a turnaround period, which can last as late as the middle of April, and they’re not pumping out as much as they normally do, said McTeague. Shutdowns at the refineries can last several days or weeks and “create a crimp in supplies.”

Refineries are also preparing for a shift to summer-grade gasoline, which is more environmentally friendly than winter-grade gasoline. The cost of summer gasoline tends to be 10 to 15 cents a gallon more, depending on location, McTeague said.

If prices see the average five-year increase they usually do during the spring, retail gasoline could cost an average $2.85 a gallon around Memorial Day—a level not seen since late 2014, he said.

And “the issue of oil is still not resolved,” added McTeague. If the crude production cuts by Organization of the Petroleum Exporting Countries are successful, oil prices could climb by another $5 a barrel, toward $60, he said.

The record for OPEC is “nothing short of abysmal,” he said.

Recent industry data for the month of January estimate a 90% compliance rate with the reductions. But even if there is strong compliance, U.S. production is headed higher and that can put pressure on oil prices, said McTeague.

The Energy Information Administration pegged domestic crude production at 8.977 million barrels a day last week. The record level stands at about 9.610 million for the week ended June 5, 2015. U.S. crude supplies have already hit an all-time high.

Gasoline prices could move sideways in the next week but, heading into March with more refineries likely to be undergoing maintenance, the market will see an even tighter supply picture, McTeague said.

Article Link To MarketWatch:

HSBC's 2016 Profit Slumps 62 Percent On Write Downs

By Sumeet Chatterjee and Lawrence White 
February 21, 2017

HSBC Holdings (HSBA.L) reported a 62 percent slump in annual pre-tax profit that fell way short of analysts' estimates as the British bank took hefty writedowns from its restructuring, sending its Hong Kong shares down 3.5 percent.

Europe's biggest bank by assets posted a 2016 profit before tax of $7.1 billion compared to $18.87 billion for the previous year and the average analyst estimate of $14.4 billion according to Thomson Reuters data. It also announced a new $1 billion share buy-back.

The 2016 profit reflected a $3.2 billion impairment of goodwill in its global private banking business in Europe and the impact of its sale of operations in Brazil, the bank said in a statement to the stock exchanges on Tuesday.

The private banking impairment charge mainly relates to its acquisition of Safra Republic Holdings in 1999, HSBC said.

HSBC effectively built out its Swiss private bank from its $10 billion purchase of Republic National Bank of New York and Safra Republic Holdings, banks controlled by Lebanese financier Edmond Safra.

But the subsequent emergence of major compliance failures at HSBC's Swiss banking operations went on to eat into the bank's bottom line and hurt its reputation, leading HSBC to radically transform this business.


"What this doesn't mean is that we are selling the private bank... it means we have restructured the private bank and that's now behind us," Chief Executive Stuart Gulliver told Reuters by phone on Tuesday.

The $1 billion share buy-back takes HSBC's announced buy-backs since the second half of 2016 to $3.5 billion following the bank's disposal of its Brazil unit in July last year in a $5.2 billion deal.

HSBC's (0005.HK) stock drop in Tuesday afternoon trading in Hong Kong was the lender's biggest single intra-day share price decline since June 24, which was a reaction to Britain's vote to leave the European Union.

But since then, it has been among the best-performing European bank stocks, climbing 53 percent in London against a 28 percent increase in the STOXX Europe index of 600 banks .SX7P as the bank benefited from an appreciation of the U.S. dollar and stronger capital levels.

HSBC's Gulliver said on Tuesday the bank had seen little impact from the referendum outcome on its business but that it is still on track to relocate 1,000 of its 43,000 UK-based workers to Paris once Britain leaves the EU.

"There will be 1,000 jobs that will have to move, because it would be unlawful for that work to be carried out from the UK, but I don't think this is a problem for the city of London," Gulliver said.


HSBC Chairman Douglas Flint said in the bank's annual report that it is still on course to name his successor by the end of the year, but did not offer any update on progress in finding suitable candidates.

HSBC rival Standard Chartered (STAN.L) last July named former deputy governor of the Bank of Spain Jose Vinals as its new chairman, ending a 16-month search that underscored the challenge of finding executives both palatable to regulators and capable of overseeing complex big banks.

Flint and his chief executive Gulliver have toiled since taking over HSBC in 2010 to shrink it, exiting more than 80 businesses and shedding over 43,000 jobs as the post-2008 crisis environment proved harsh for global mega-banks.

Article Link To Reuters:

TransferWise Launches International Money Transfers Through Facebook

By Anna Irrera
February 21, 2017

Money transfer company TransferWise has launched a new service that allows users to send money internationally through Facebook Inc's chat application, as competition in the digital payments landscape intensifies.

The London-based startup said on Tuesday that it had developed a Facebook Messenger "chatbot", or an automated program that can help users communicate with businesses and carry out tasks such as online purchases.

TransferWise's chatbot enables customers to send money to friends and family to and from the United States, Britain, Canada, Australia and Europe from Facebook Messenger. It can also be used to set up exchange rate alerts.

Facebook already allows its users to send money domestically in the United States via its Messenger app, but has not yet launched similar services internationally. TransferWise said its service will be the first to enable international money transfers entirely within Messenger.

Facebook opened up its Messenger app to developers to create chatbots in April in a bid to expand its reach in customer service and enterprise transactions.

Chatbots have become a hot topic in enterprise technology over the past year because recent advances in artificial intelligence have made them better at interacting. Businesses, including banks, are hoping that they can be used to improve and reduce the cost of their customer service operations.

One of Europe's most well-known fintech companies, TransferWise was launched in 2011 by Estonian friends Taavet Hinrikus and Kristo Käärmann out of frustration with the high fees they were being charged by banks for international money transfers.

The company, which is valued at more than $1 billion, is backed by several high profile investors including Silicon Valley venture fund Andreessen Horowitz, Virgin Group founder Sir Richard Branson, and PayPal co-founders Max Levchin and Peter Thiel, through his fund Valar Ventures.

Customers in more than 50 countries send roughly $1 billion through its website every month.

While the TransferWise chatbot is now only available in Facebook Messenger it can be adapted to work with other popular chat services, Scott Miller, head of global partnerships for TransferWise said. He said the service would eventually be extended to work in other countries and money transfer routes that the company operates in.

The launch comes as competition in the mobile payments and international money transfer sectors intensifies. Earlier this month PayPal Holdings Inc announced its U.S. payments application Venmo would be available within popular chat service Slack.

While in January, Ant Financial Services, an affiliate of Chinese e-commerce company Alibaba Group Holding Ltd, said it would acquire U.S. money-transfer company MoneyGram, in a deal that is expected to shake up the international payments landscape.

Article Link To Reuters:

Trump Slashing Financial Regulations Won’t Hurt You As Much As You Think

Wall Street regulations have a mixed record, at best.

By Mark Hulbert
February 21, 2017

It will become a dog-eat-dog, “buyer beware” world if President Trump succeeds in gutting the Dodd-Frank Act, the fiduciary rule and other financial regulations.

Just like it is now, in other words.

I say this because of the sobering track record that regulatory efforts have had in the markets. Well-intended though they are, they too often have failed to eliminate the very behaviors they were designed to check. It seems that regardless of what new rules get adopted, the small investor ends up getting the short end of the stick.

I’m afraid that means that there’s no substitute for doing the due diligence yourself.

Consider some of the most significant financial-market regulations over the past two decades, and how they’ve worked out in practice:

Global Settlement

This was the 2003 agreement with Wall Street firms to correct for their conflicts of interest, in particular their refusal to issue a downgrade or sell recommendation on a stock with which they had an investment-banking relationship. Among other things, the settlement required those firms to set up and fund independent research firms, and they were further required to distribute those independent firms’ research alongside their own. And yet analysts’ buy-side bias persists.

According to CFRA Research’s Sam Stovall, nearly half of all analysts’ recommendations on Wall Street now are higher than “hold”; only 2.9% are “sell” and just 4.6% are a so-called “hold/sell.” (Please see chart.) One particular research result is worthy of note in this regard: One academic study found that the stock recommendations issued by the independent firms were actually more positive than those of the big firms.

‘Reg FD’

This rule — short for Regulation Fair Disclosure — was adopted in August 2000, requiring companies to disclose material information to all investors at the same time rather than selectively and piecemeal to favored analysts or investors. But selective disclosure has not been eliminated, as any of us can attest by how stock prices “mysteriously” start rising before the release of positive information — and start declining before bad news. A December 2016 academic study confirmed that our intuitions in this regard are well-founded.

Attempts To Prevent Market Crashes

I’m referring to a number of regulatory changes — circuit breakers, trading halts, etc. — that have been implemented over the years, prompted by events such as the “flash crash” of May 2010, the 2008 financial crisis, the bursting of the internet bubble and the 1987 Crash, among others. This long litany is your first clue to regulators’ dismal success at preventing big down days in the market. And Xavier Gabaix, a finance professor at New York University, predicts that all such attempts will be futile. In an interview, he told me that market crashes are caused by the largest players (institutional investors) all wanting to get out of the market at once — and that no regulation can stop them when they want to. That’s because they can inevitably find other markets in which to unload their positions.

Altering CEO Compensation Incentives

There have been a number of such changes over the years, all motivated by the belief that chief executive officers will do a better job running their companies when they have skin in the game. Yet those changes’ track record has been mixed at best. CEOs of financial firms had huge sums at risk before the 2008 financial crisis, and yet that didn’t prevent them from pursuing risky strategies that cost their pocketbooks dearly — and nearly brought down the entire financial system.

The CEOs of Bear Stearns and Lehman Brothers — two firms that failed to survive the 2008 crisis — lost close to $1 billion each, for example. Rene Stulz, chair of Banking and Monetary Economics at Ohio State University, told me: “If the prospect of losing those amounts was insufficient to induce the firms’ CEOs to pursue different policies, it’s extremely difficult to imagine any compensation reform package that contains incentives that would do the trick.”

One reason that changing compensation incentives may backfire: The CEOs can manipulate the flow and release of positive and negative news to gut the effectiveness of those incentives. This isn’t just a hypothetical possibility: Alex Edmans, a finance professor at London Business School, has found that company news tends to be unusually positive in months in which a CEO’s options become vested.


For the record, I should stress that I’m not saying all market-related regulations fail, or that regulators should give up in their attempts to make the markets a more level playing field. But skepticism is healthy at all times, and especially when it comes to your money.

In short: There is no substitute for doing your homework.

Article Link To MarketWatch:

Burger King And Tim Hortons Owner Nears Deal To Buy Popeyes

By Lauren Hirsch and Greg Roumeliotis
February 21, 2017

Restaurant Brands International Inc, owner of the Burger King and Tim Hortons fast-food chains, is nearing a deal to acquire Popeyes Louisiana Kitchen Inc, people familiar with the matter said on Monday.

The deal, which will likely value Popeyes at more than $1.7 billion, is a bet by Oakville, Ontario-based Restaurant Brands that it can use its international reach to introduce Popeyes' Louisiana-style fried chicken and buttermilk biscuits to more diners globally.

It also represents a small consolation prize for Restaurant Brands shareholder 3G Capital, which lost a $143 billion bid this week to merge its biggest holding, food conglomerate Kraft Heinz Co, with consumer products firm Unilever Plc.

A deal could be announced as early as this week, the people said, asking not to be identified because the negotiations are confidential. Restaurant Brands did not respond immediately to a request for comment, while Popeyes decline to comment.

Popeyes, whose fans include pop singer Beyoncé, began 45 years ago as a Southern-fried "Chicken on the Run" restaurant in a New Orleans suburb. It has since expanded to more than 2,000 restaurants, of which 1,600 are in the United States.

The company has benefited from strong customer loyalty, as well as from a restaurant refurbishment program.

Chicken accounts for about 10 percent of the fast-food industry, according to data service IBISWorld, and Popeyes' market share is growing. The largest brands in the sector include privately held Chick-fil-A and Yum! Brands Inc's KFC.

Private equity firm 3G Capital, which is controlled by Brazilian billionaire Jorge Paulo Lemann, owns about 43 percent of the voting shares in Restaurant Brands. 3G Capital has made a name by acquiring major U.S. consumer companies including Kraft Heinz.

Restaurant Brands was formed in 2014, when 3G Capital-backed Burger King acquired Canadian coffee and doughnut chain Tim Hortons Inc for $11 billion.

3G Capital's long-time partner, Warren Buffett's Berkshire Hathaway Inc, committed $3 billion of preferred equity to finance that deal.

Article Link To Reuters:

Wells Fargo Fund Business On The Defensive Amid Sales Scandal

By Tim McLaughlin
February 21, 2017

When a scandal over unauthorized accounts rocked Wells Fargo & Co's retail division last fall, executives at its asset management arm sprang into action to limit its fallout at an already tough time for their business.

A Reuters' review of minutes from about two dozen state and municipal pension board meetings across the country from October to December showed Wells Fargo wealth management executives offering apologies, weighing fee cuts and emphasizing their own controls on staff hiring and vetting.

Joe Ready, head of Wells Fargo's institutional retirement plan business, for example, told trustees of the city of San Diego's defined contribution plan that participants' $1 billion in assets were walled off from other parts of Wells Fargo.

Last September, the bank said it reached a settlement with the authorities over findings that its branch staff opened up to 2 million unauthorized customer accounts.

"Mr. Ready apologized for any inconveniences the recent incident has caused. Mr. Ready confirmed that the retirement plan accounts are not impacted by the recent events," according to minutes of the Oct. 6 meeting published on the city's website.

San Diego pension officials declined to comment for this story. Wells Fargo declined to make Ready available and said it would not comment on its interactions with specific clients, but said in a statement:

"We certainly understand the concerns about what happened in our community bank and have been in regular dialogue with our investor clients regarding the settlement," the bank said.

It is difficult to determine the scandal's precise business impact. Like other fund managers, Wells Fargo is grappling with the seismic shift of money into funds that track indices. Even before the scandal erupted investors had been pulling money out of its funds.

Yet its fund unit has seen faster outflows than its peers and the withdrawals accelerated in the last quarter of 2016.

Wells Fargo's core mutual funds business, for example, had the biggest market share decline among large U.S. fund families in 2016, according to Morningstar Inc data. In December alone, the funds recorded $7.1 billion in net withdrawals, two and a half times more than second-worst performer.

Cyclical Underperformance 

Asked to comment on the data, the bank said in a statement it did not believe "there is a connection between our fund flows and the September 2016 sales practice settlement between Wells Fargo and regulators."

"The recent underperformance of many active managers is simply cyclical," it added in the statement.

The bank declined to make executives available for further comment.

In one case, however, the accounts debacle played a role in a lost bid for new business.

The bank's $482 billion asset management arm was among three finalists to run a $40 million bond portfolio for Oakland's police and fire pension fund last fall.

The contract went to a firm with 17 employees and $1.5 billion in assets and David Sancewich, a consultant who helped the pension fund with the selection, told Reuters the scandal influenced Oakland's choice.

"It was one variable as part of the decision process," he said in an email.

In another instance, however, Wells Fargo's assurances appeared to have had some mitigating effect. In Vermont, administrators of Champlain College who considered dropping the bank as an underwriter of a $77 million bond because of the scandal, ultimately chose to stick with Wells Fargo following a review of the bank's operations.

When contacted, the college provided Reuters with a copy of an October memo, which said it made the decision "following a robust discussion," while stressing that the school had no relationship with Wells Fargo's retail unit. Champlain declined further comment.

To be sure, Wells Fargo funds business, which ranks 28th nationally, plays a secondary role for investors, who focus more on other, bigger divisions of the bank.

"It's a small piece of Wells Fargo's business and doesn't drive the stock price," said Shannon Stemm, an analyst at Edward Jones.

Still, at least in the immediate aftermath of the scandal that led to a $185 million settlement and dismissal of 5,300 employees, some of the bank's staff grappled with the repercussions.

Employees at Wells Fargo's institutional retirement and trust unit were fielding about 75 calls a week after the settlement from participants in pension plans in which the bank acts as custodian or record-keeper, Ready told San Diego pension officials at a special meeting in October, the minutes showed.

The callers wanted assurances that their money was walled off from the retail banking operations, Wells Fargo executives told San Diego pension officials.

One executive sought to distance herself from the head office altogether.

At a Nov. 10 meeting of the North Carolina supplemental retirement board, Carrie Callahan, a managing partner at Galliard Asset Management, noted how Galliard was a subsidiary of Wells Fargo but a distinct brand.

"She stressed that there had been no impact to Galliard's business due to the activity at Wells Fargo," according to the meeting's minutes.

Callahan declined to comment. North Carolina officials were not available to comment.

Article Link To Reuters:

Tesla And Wall Street Have Never Been Further Apart

The stock has hit the stratosphere as a critical year begins, but analysts are getting queasy.

By Tom Randall
February 21, 2017

Tesla Inc. is months away from product launches that could revolutionize several industries. The most anticipated—the Model 3 electric car—is to be accompanied in 2017 by the unveiling of an electric semi-trailer truck, autonomous driving capabilities, and a ride-hailing network. Throw in the Powerwall and solar shingle, and you’ve got the makings of a busy year.

With all this going on, the stock has been on a tear—rising 48 percent in just three months. But Wall Street has begun to dissent. Analysts now consider Tesla more overvalued than at any previous time, and a technical analysis of the stock is setting off alarms.

First, it’s worth noting just how far Tesla has soared. The company’s market value reached record highs last week following an $18 billion dollar stock run. The automaker is now worth more than Nissan Motor Co. and sits within spitting distance of its biggest American rivals—Ford and GM. By market value at least, the scrappy Silicon Valley upstart has become one of America’s Big Three.

Ford Motor Co. and General Motors Co., however, are more than a century old and sell millions of cars each year, compared with Tesla’s deliveries of fewer than 80,000 in 2016. Tesla Chief Executive Officer Elon Musk has forecast between 100,000 and 200,000 sales of the Model 3 in the second half of this year, but few analysts believe he’ll achieve even the low end of that target.

Tesla’s stock price may indeed be ephemeral. The following chart shows the gap between analyst price targets for the next 12 months and Tesla’s current share price. Normally this spread should be in positive territory, indicating that analysts expect an investment’s value to increase over time. Not so with Tesla. The median target of 14 analysts surveyed by Bloomberg was as much as $48 below Tesla’s stock price last week. That’s the most pessimistic view from Wall Street since Tesla became a publicly traded company seven years ago.

For the Tesla optimist, it might be tempting to blame this price spread on laggy analysts who haven’t updated their forecasts to reflect recent milestones. But the forecasters haven’t wavered: Not one of the six analysts who updated their targets in February raised their expectations.

We “see no fundamental reason for run-up,” said UBS Securities LLC analyst Colin Langan in a note to clients last week. His latest 12-month target for the stock price is $160—a splash of cold water given that Tesla shares broke $280.

Stock price isn’t everything, of course, but for Tesla it’s unusually important. The company loses money every year as it builds the infrastructure it needs for growth: the world’s biggest battery factory, an auto plant scaled for mass-producing the Model 3, and a global network of stores, service centers, and car chargers.

“Tesla is a serial capital raiser,” said Morgan Stanley analyst Adam Jonas, who reiterated his target of $305 last week. “As such, its ability to sustain its operations and fundamental value is inextricably linked to the very performance of its share price, creating a self-reinforcing momentum.”

Tesla’s momentum can work against it or, as of late, in its favor. This time the stock price may have gotten ahead of itself, according to a technical analysis tool called the Relative Strength Index (RSI). RSI measures the speed and change of a stock price to warn investors when a stock’s momentum has carried it too far. An RSI reading above 70 indicates that a stock is “overbought” while anything below 30 is “oversold.”

Last week Tesla’s RSI topped out above 83, the highest “overbought” reading in almost four years. With an RSI analysis, the “sell signal” for a stock occurs when the elevated reading falls back below 70, which is exactly what happened at the end of last week. 

Technical analysis and Wall Street estimates both have limitations. Foremost among them is the inability to predict the future when there’s no precedent to model it on.

Tesla is betting on exponential growth curves that result in widespread adoption of electric cars, massive battery stations to back up the world’s electric grids, new glass solar shingles for rooftop power production, and autonomous cars for ride-sharing fleets. Even if these transformations occur, the timing is difficult to foresee, and analysts naturally discount their potential.

For now, Tesla investors are in a purgatory of expectations. The company reports 2016 earnings Wednesday, and no one knows what to expect, or even how much it matters. Until Tesla’s new products have the opportunity to prove themselves—the Model 3 foremost among them—uncertainty remains. Whether the intervening months are filled with unnerving financial risk or a sense of boundless opportunity depends on investor disposition—and to some extent, the momentum of the stock itself.

Article Link To Bloomberg:

Barack Obama Welcomes You To Donald Trump’s Imperial Presidency

The president can lay aside Congress and multiple Supreme Court rulings because he now has the power to simply choose which laws to enforce and which to ignore.

By Paul David Miller
The Federalist
February 21, 2017

On his first day in office, President Donald Trump signed an executive order effectively suspending enforcement of the Affordable Care Act’s individual mandate. The provision, requiring all Americans to purchase health insurance or pay a penalty, was the eye of a seven-year partisan maelstrom over Obamacare.

Conservatives argued the Constitution gave Congress no power to order Americans to buy insurance; liberals trusted in the infinite stretch of the commerce clause. John Roberts’ Supreme Court split the difference, upholding the mandate under Congress’ taxing power, not the commerce clause.

Yet little of that counts for anything. In the contemporary American system of government—in contrast to the one set up by the Founders in the actual Constitution—the final say is with the chief executive. The president can lay aside years of procedural wrangling in Congress and multiple Supreme Court rulings because he now has the power to simply choose which laws to enforce and which to ignore.

Trump can justify his move with precedent from the Obama administration. More importantly, and troublingly, he can claim that he is simply doing what the people want and the complicated machinery of government has failed to do: it is his unilateral action, not the difficult and often frustrating procedures of representation and litigation, that reflects the true will of the people.

Conservatives will not defend a law they spent most of the last presidency trying to dismantle. Trump’s base will not care—perhaps do not understand—the checks and balances at stake. This is how, in the name of empowering the people, the president undermines the best safeguards of their liberty: this is how populism undermines republican government.

The Ever-Expanding Power Of The Executive Branch

Trump has ample precedent to build on. Even The New York Times noted Barack Obama’s sweeping and nearly unprecedented reliance on executive orders during his presidency, which conservatives rightly criticized. Trump has promised to reverse Obama’s decrees, which is welcome, but Trump is unlikely to reverse Obama’s expansion of the executive power itself. (He signed at least 23 orders in his first month in office). Precedent is a powerful tool, and Trump’s ability to claim that Obama did the same shields him from repercussions for incrementally expanding the scope and reach of executive orders.

An executive order is, technically, just an order from the chief executive to the rest of the executive branch, not a generally applicable law. By itself, an executive order is neither illegal nor an abuse of power. But the executive branch is so massive and the president’s authority so sweeping that if a president mandated, for example, that the departments and agencies may only do business with companies with purple logos, we would suddenly be awash in purple. Trump has already used executive orders to reshape immigration policy, much as Obama did before him.

Trump could use executive orders to reshape the relationship between the private sector and the federal government in ways favorable to his own business interests. More broadly, if Trump aggressively uses federal purchasing power to habituate the private sector to government’s role in corporate governance, he could accelerate the trend towards a corporatist economy in which the private sector acts as an arm of the state rather than an independent realm of activity. This would be a serious erosion of economic freedom, a major bulwark of a free and open society—and it would be perfectly legal.

Executive orders are only the first tool available to a president wishing to wield his pen and phone aggressively. The president can also invoke prosecutorial discretion. The president oversees federal law enforcement and the work of federal prosecutors. By shifting budgets and setting priorities, the president can effectively choose which laws to ignore and which to enforce.

Obama used this power to selectively enforce the law, as when his administration chose to stop defending the Defense of Marriage Act before Obergefell v. Hodges. He also set aside entire categories of people exempt from law, as when he directed the Department of Homeland Security and other agencies to stop deporting millions of illegal immigrants (later struck down by the Supreme Court).

Trump might continue Obama’s abuse of prosecutorial discretion. He could, for example, refuse to prosecute violations of environmental regulations. Civil rights groups are likely to be concerned that the Trump administration will only selectively enforce civil rights, equal opportunity, and anti-discrimination statutes. If his executive order proves insufficient, Trump might not even bother asking Congress to repeal Obamacare: he could use Obama’s newfound executive power of declaring laws he dislikes to be unconstitutional to find the individual mandate is illegal and thus unenforceable.

A Drastic Uptick In Surveillance Power

The foregoing tools—executive orders and prosecutorial discretion—are conventional, even banal, means of asserting sweeping executive power. Even if the Trump administration proves to be more chaotic than authoritarian, the president is likely to continue the drift towards their ever-greater use. But if Trump proves more competent, if he pursues executive power with great efficiency and intentionality, there are means available for empowering his pursuit.

The president commands the world’s most impressive military and intelligence systems. Franklin Roosevelt inaugurated a venerable tradition of using the surveillance state to spy on political opponents, a practice perfected by Lyndon Johnson and Richard Nixon. Reforms since the 1970s helped erect safeguards for civil liberties and limit the president’s legal authority. But the technical capacity of the U.S. government for intelligence, surveillance, and reconnaissance has expanded dramatically since then.

Liberals routinely hyperventilated about what they suspected George W. Bush was doing with his vast powers; conservatives fretted the same under Obama. Those fears were almost certainly overblown, but rightly pointed to the potential for abuse inherent in a system with such awesome power. (Obama commissioned a Review Group to recommend reforms to ensure intelligence collection stays within the bounds of law).

Given the clear potential for abuse, the clear advantages in doing so, and the ample precedent set down by illustrious predecessors, it is simply rational to assume that any president will at least be tempted to use the national security state for personal and partisan purposes.

For a president with Trump’s temperament, such fears are more than a rational assumption. The president would need only a small handful of loyalists willing to circumvent the permanent bureaucracy. Trump’s feud with the intelligence agencies during his first month in office may give him the perfect excuse to clean house and install the loyalists he needs. His plan to appoint Stephen Feinberg, head of a New York investment firm with no government or intelligence experience, to oversee and investigate the agencies is a first step in that direction.

An authoritarian president might not stop with politicized intelligence agencies. The Internal Revenue Service is a powerful bureaucracy with authority to take your money, investigate your finances, and garnish your paycheck. Richard Nixon is the best-known example of a president directing the IRS to punish his political opponents, one of the charges in the articles of impeachment drawn up against him.

Because it is so obviously illegal, presidents have generally avoided Nixonian levels of bluntness, but Obama’s IRS at least wandered uncomfortably close to the line. Trump need only suggest priorities for audits to a compliant Treasury secretary and IRS commissioner. (He might start by finding an IRS commissioner willing to overlook the normal obligation to audit a president’s tax returns.)

"Any president will at least be tempted to use the national security state for personal and partisan purposes."

Finally, perhaps after many years of eroding the norms of limited government, President Trump might take direct action against the Constitution’s venerable protections for free speech and free press. Again, Trump can build on precedent: Obama prosecuted more people for leaking classified information than did any president in history (which, truthfully, is one of the best things Obama did in eight years).

But the difference between justified prosecutions of leakers to unjustified harassment of the media is very thin, and one Trump might easily overstep. Trump’s well-documented disdain for the media, his explicit threats to “open up the libel laws” to make it easier to sue media outlets for coverage he believes is untruthful, and his characterization of the media as the “opposition party,” and the “enemy of the American People,” suggest he might use whatever tools possible to harass, punish, and pressure the media.

Trump might, for example, use the threat of espionage and libel prosecutions as leverage to pressure media outlets and shape their coverage of other stories. Considering American’s widespread hostility to the media, Trump might feel he has public support on his side.

This Is Why We Need Limited Government

The American presidency has become a wildly inflated office over the course of the past century from precedent laid down by past presidents. Conservatives rightly highlighted the ways Obama’s use of executive power undermined limited government. That power is now in Trump’s hands.

"Consider the ample precedent established by Obama for progressively expanding executive power."

With Trump’s victory, most elected Republican officials are likely to be swept off their feet with the prospects of passing conservative legislation for the first time since 1928 that to compromise with small nuances of constitutional order Trump wants tweaked in exchange.

Speaker Paul Ryan appears to be aware of the danger and reassured Americans during the transition that he and Trump had spoken “extensively” about the Constitution and about checks and balances. Observers should be skeptical of taking such reassurance at face value.

Consider the ample precedent established by Obama and previous presidents for progressively expanding executive power. Couple that with what we know of Trump’s character and temperament; his tendency, so far, to appoint loyalists unlikely to stand up to him; and, finally, a compliant Congress. We have a situation ripe for the further erosion of accountable, limited government in America.

Article Link To The Federalist:

How To Survive The Trump Era

By Joseph Stiglitz
Project Syndicate
February 21, 2017

In barely a month, US President Donald Trump has managed to spread chaos and uncertainty – and a degree of fear that would make any terrorist proud – at a dizzying pace. Not surprisingly, citizens and leaders in business, civil society, and government are struggling to respond appropriately and effectively.

Any view regarding the way forward is necessarily provisional, as Trump has not yet proposed detailed legislation, and Congress and the courts have not fully responded to his barrage of executive orders. But recognition of uncertainty is not a justification for denial.

On the contrary, it is now clear that what Trump says and tweets must be taken seriously. Following the election in November, there was near-universal hope that he would abandon the extremism that defined his campaign. Surely, it was thought, this master of unreality would adopt a different persona as he assumed the awesome responsibility of what is often called the most powerful position in the world.

Something similar happens with every new US president: regardless of whether we voted for the new incumbent, we project onto him our image of what we want him to be. But, while most elected officials welcome being all things to all people, Trump has left no room for doubt that he intends to do what he said: a ban on Muslim immigration, a wall on the border with Mexico, renegotiation of the North American Free Trade Agreement, repeal of the 2010 Dodd-Frank financial reforms, and much else that even his supporters dismissed.

I have, at times, criticized particular aspects and policies of the economic and security order created in the aftermath of World War II, based on the United Nations, NATO, the European Union, and a web of other institutions and relationships. But there is a big difference between attempts to reform these institutions and relationships to enable them to serve the world better, and an agenda that seeks to destroy them outright.

Trump sees the world in terms of a zero-sum game. In reality, globalization, if well managed, is a positive-sum force: America gains if its friends and allies – whether Australia, the EU, or Mexico – are stronger. But Trump’s approach threatens to turn it into a negative-sum game: America will lose, too.

That approach was clear from his inaugural address, in which his repeated invocation of “America first,” with its historical fascist overtones, affirmed his commitment to his ugliest schemes. Previous administrations have always taken seriously their responsibility to advance US interests. But the policies they pursued usually were framed in terms of an enlightened understanding of national interest. Americans, they believed, benefit from a more prosperous global economy and a web of alliances among countries committed to democracy, human rights, and the rule of law.

If there is a silver lining in the Trump cloud, it is a new sense of solidarity over core values such as tolerance and equality, sustained by awareness of the bigotry and misogyny, whether hidden or open, that Trump and his team embody. And this solidarity has gone global, with Trump and his allies facing rejection and protests throughout the democratic world.

In the US, the American Civil Liberties Union, having anticipated that Trump would quickly trample on individual rights, has shown that it is as prepared as ever to defend key constitutional principles such as due process, equal protection, and official neutrality with respect to religion. And, in the past month, Americans have supported the ACLU with millions of dollars in donations.

Similarly, across the country, companies’ employees and customers have expressed their concern over CEOs and board members who support Trump. Indeed, as a group, US corporate leaders and investors have become Trump’s enablers. At this year’s World Economic Forum Annual Meeting in Davos, many salivated over his promises of tax cuts and deregulation, while eagerly ignoring his bigotry – not mentioning it in a single meeting that I attended – and protectionism.

Even more worrying was the lack of courage: it was clear that many of those who were concerned about Trump were afraid to raise their voices, lest they (and their companies’ share price) be targeted by a tweet. Pervasive fear is a hallmark of authoritarian regimes, and we are now seeing it in the US for the first time in my adult life.

As a result, the importance of the rule of law, once an abstract concept to many Americans, has become concrete. Under the rule of law, if the government wants to prevent firms from outsourcing and offshoring, it enacts legislation and adopts regulations to create the appropriate incentives and discourage undesirable behavior. It does not bully or threaten particular firms or portray traumatized refugees as a security threat.

America’s leading media, like The New York Times and The Washington Post, have so far refused to normalize Trump’s abnegation of American values. It is not normal for the US to have a president who rejects judicial independence; replaces the most senior military and intelligence officials at the core of national security policymaking with a far-right media zealot; and, in the face of North Korea’s latest ballistic missile test, promotes his daughter’s business ventures.

But when we are constantly barraged by events and decisions that are beyond the pale, it is easy to become numb and to begin looking past major abuses of power at the still-greater travesties to come. One of the main challenges in this new era will be to remain vigilant and, whenever and wherever necessary, to resist.

Article Link To Project Syndicate:

Asia Stocks Consolidate Recent Gains; China Shines

By Saikat Chatterjee 
February 21, 2017

Asian stocks held ground on Tuesday though Chinese equities surged to a fresh 2-1/2 month high as domestic funds piled into financial counters on expectations the world's second biggest economy may have turned a corner.

MSCI's broadest index of Asia-Pacific shares outside Japan .MIAPJ0000PUS was up 0.2 percent on Tuesday and held below a 19-month peak hit last Thursday. The index is up more than 11 percent since Dec. 23, which marked the trough in a selloff triggered by Donald Trump's surprise win at the U.S. election in November.

With U.S. markets closed for the Presidents Holiday on Monday, Asian markets have had few global cues off which to trade. European markets are broadly expected to follow in Asia's wake and seen drifting in a narrow band.

Chinese stocks led regional gainers with mainland indexes extending a nearly 7 percent rise over the last month thanks to an influx of fresh funds from domestic institutional investors and a brightening outlook for the domestic economy.

"We upgraded our China equities call last month because of the strong economic data and comments coming out from the new U.S. administration pointing to a softer stance toward China," said Francis Cheung, head of China-Hong Kong strategy at CLSA.

China's blue-chip index .CSI300 clocked its best day in six months on Monday on reports pension funds will begin pumping in funds into the country's stock markets. Meanwhile, turnover in Hong Kong shares has jumped noticeably in recent weeks.

Despite the bounce in mainland stocks, valuations remained broadly middle of the pack in Asia with price-to-earnings multiples for Chinese stocks at 19.7, far below Australia's and India's at 25 and 23, respectively.

Some investors such as Lan Wang Simond, manager of the Mandarin Fund at Pictet Asset Management, are cautious about companies in the old economy such as manufacturing giants who have not adapted to changing demand patterns.

Euro Caution

In currency markets, the euro nursed overnight losses as lingering concerns about the looming French election rattled the currency region's bonds.

The single currency declined to $1.0581 EUR=, having moved little on Monday, due partly to the absence of U.S. investors because of the public holiday. It has fallen nearly 2 percent so far this month.

Political concerns have been front and center of investors' minds over the past week or so, with markets wary about the outcome of the French elections in the wake of Brexit.

"Everybody has learned lessons from last year's big surprises. People probably don't want to take big risks. The euro could face further pressure given there's still time before the election," said Ayako Sera, market strategist at Sumitomo Mitsui Trust Bank.

The premium investors demand to hold French bonds instead of German debt rose to its highest since late 2012 after a poll showed the far-right Marine Le Pen narrowing the gap with more centrist opponents.

The latest French poll overshadowed optimism that Greece may avert another crisis after a government official said the country had agreed with euro zone finance ministers to resume negotiations over its bailout review.

Fears that cooperation on the left could lead to a run-off between Socialist candidate Benoit Hamon or hard-left candidate Jean-Luc Melenchon and Le Pen, eliminating three main moderate candidates, have dogged the euro since Friday when the two leftists said they were discussing such cooperation.

Closer to home, the Philippine peso' PHP=PDSP hit a fresh 10-year low against the greenback on Tuesday after it broke key support levels in the previous session though some likely selling by large state-run banks checked losses.

Ten-year U.S. government bond yields US10YT=RR held around 2.44 percent while 30-year Japanese bond yields JP30YT=RR held at one-year high on growing views the central bank will tolerate a yield rise in those maturities.

Oil prices were broadly steady after having suffered the first weekly decline in five weeks as the market weighed rising U.S. drilling and record stockpiles against efforts by major producers to cut output to reduce a global glut.

Brent futures LCOc1 rose to $56.24 a barrel, while U.S. West Texas Intermediate crude CLc1 for April delivery added 0.6 percent to $53.71 a barrel.

Article Link To Reuters:

Crude Prices Rise As Investors Bet Big On Oil Strength

By Aaron Sheldrick 
February 21, 2017

Crude futures rose for a second day on Tuesday, with data showing hedge funds are betting big across oil markets following OPEC production cuts agreed last year.

U.S. West Texas Intermediate crude CLc1 was up 34 cents, or 0.6 percent, at $53.74 a barrel, after rising about 0.5 percent in a shortened session on Monday due to a U.S. national holiday.

Brent futures LCOc1 were up 14 cents at $56.32 a barrel, after gaining 0.7 percent on Monday.

Investors now hold more crude futures and options than at any time on record, after members of the Organization of the Petroleum Exporting Countries (OPEC) committed last year to cut production.

Speculators raised their bets on a rally in Brent oil prices to a record last week, data from the Intercontinental Exchange showed on Monday, mirroring the optimism in the U.S. crude market. [O/ICE]

Data on Friday showed net long U.S. crude futures and options positions in the week to Feb. 14 were at a record.[CFTC/]

"I think this prolonged and increasing overcrowding of speculative net longs should be a cause for concern. Crude oil prices do not seem to be rising with this increase," said Jonathan Chan, an investment analyst at Phillip Futures in Singapore.

"Should there come a time when these speculative positions decide to unwind, oil prices will be in for a significant correction," he added.

Signs that OPEC's agreement is holding have been countered by data showing that U.S. crude oil and gasoline inventories soared to record highs last week as refineries cut output and gasoline demand softened. [EIA/S]

The catalyst for a big market move could come from the next release of inventory numbers for U.S. oil and petroleum products, said Ben le Brun, a market analyst at OptionsXpress in Sydney.

"We are coming toward the top of the recent trading range," le Brun said. "It is going to be absolutely intriguing to see just which way it trends from here."

The oil market will have to wait until Thursday, a day later than normal, for the release of this week's official data, due to the holiday on Monday.

Article Link To Reuters:

A Billion Barrels Of Bets Backing Stagnant Oil Price: Chart

By Alex Longley
February 21, 2017

For the first time ever, hedge funds hold more than a billion barrels of bets that crude oil prices will rally. Money managers last week extended their faith in OPEC-led supply cuts, increasing outright long positions in the global benchmark Brent and its U.S. counterpart West Texas Intermediate to a fresh record. Speculators are on hold, though, with futures in New York stuck in the tightest range in 13 years and Brent implied volatility the lowest in more than two years, data compiled by Bloomberg show.

Article Link To Bloomberg:

Russia Overtakes Saudi Arabia As World's Top Crude Oil Producer

Saudis lose No. 1 spot for 1st time since March: official data; U.S. ranked No. 3 with output of 8.8 million barrels a day.

By Claudia Carpenter
February 21, 2017

Russia overtook Saudi Arabia as the world’s largest crude producer in December, when both countries started restricting supplies ahead of agreed cuts with other global producers to curb the worst glut in decades.

Russia pumped 10.49 million barrels a day in December, down 29,000 barrels a day from November, while Saudi Arabia’s output declined to 10.46 million barrels a day from 10.72 million barrels a day in November, according to data published Monday on the website of the Joint Organisations Data Initiative in Riyadh. That was the first time Russia beat Saudi Arabia since March.

Saudi Arabia and fellow producers from the Organization of Petroleum Exporting Countries decided at the end of November to restrict supplies by 1.2 million barrels a day for six months starting Jan. 1, with Saudi Arabia instrumental in the plan. Non-member producers, including Russia, pledged additional curbs. Brent crude prices have climbed about 20 percent since the end of November.

The U.S. was the third-largest producer, at 8.8 million barrels a day in December compared with 8.9 million barrels a day in November, according to JODI. Iraq came in fourth at 4.5 million barrels a day, followed by China at 3.98 million barrels a day, the data show.

Saudi Arabia’s crude exports declined to 8 million barrels a day in December, from 8.26 million barrels a day, the biggest outflow for any month since May 2003, according to JODI data.

Article Link To Bloomberg:

Dow Set To Hold At Record Highs; Home Depot, Wal-Mart Earnings Due

U.S. investors took a break for Presidents Day, but bears have been napping for weeks.

February 21, 2017

With U.S. markets closed Monday for Presidents Day, futures for the Dow Jones industrial average and other indexes pointed to little change Tuesday from last week's all-time levels.

Dow components Home Depot (HD) and Wal-Mart (WMT) are among the notable earnings before the opening bell. Unilever (UN) is likely to give up much of Friday's big gains after Kraft Heinz (KHC) dropped its $143 billion takeover bid.

Futures for the Dow industrials fell a fraction vs. fair value early Tuesday, with the S&P 500 index roughly flat. Nasdaq 100 futures pointed to a 0.2% gain. The major averages closed at session highs on Friday, with the Dow and Nasdaq composite at all-time bests and the S&P 500 less than a point away from record levels set earlier in the week.

Unilever likely will give up much of Friday's 15.3% spike to a record high. Unilever fell 6.6% in London trading Monday after Kraft Heinz dropped its takeover offer Sunday. Kraft, which leapt 10.7% Friday, also seems ripe for a pullback. Unilever's only-partial retreat suggests investors still see deal-making possible. Will takeover speculation turn to consumer products firms that rallied Friday.

Meanwhile, mining giant BHP Billiton reported six-month earnings rose 687% vs. a year earlier early Tuesday. Mining stocks have generally rallied in recent weeks on strong Chinese demand, hopes for stronger U.S. growth and various supply woes that have supported prices. BHP recently declared force majeure on shipments from Chile's Escondida mine, the world's largest copper mine, due to a worker strike there.

Home Depot, Wal-Mart and Macy's (M) also report before the opening bell.

Home Depot should deliver earnings climbed 14% to $1.33 a share, with sales rising 4% to $21.793 billion. Home Depot shares broke out of a cup-with-handle base on Jan. 23. The stock has hit all-time highs but is still in range from the 137.42 buy point.

Wal-Mart and Macy's will report fourth-quarter results after a holiday season dominated by Amazon (AMZN) and e-commerce. Investors will be looking for guidance on future results, and how these retail giants plan to respond to Amazon's gains and brick-and-mortar pains.

Wal-Mart EPS likely fell 13% to $1.29 with revenue up 1.2% to $131.27 billion. Wal-Mart recently dropped its Amazon Prime membership rival and began offering free two-day shipping with minimum online orders of $35. Wal-Mart shares have retaken their 50-day line within a six-month consolidation, but are still below their 200-day line.

Macy's sales likely fell 3% to $8.62 billion with EPS down 6% to $1.96. Macy's shares remain in a deep downtrend that started in July 2015. The stock has risen lately on Macy's takeover buzz.

Papa John's (PZZA) reports earnings after the closing bell. Papa John's should report a 6% EPS gain to 66 cents, which would be the smallest yearly gain in 10 quarters. Papa John's is in a two-month flat-base pattern with a buy point of 90.59. Shares closed Friday at 86.01, just above its 50-day moving average.

Most Asian stock markets rallied modest in Tuesday trading intraday after Hong Kong's Hang Seng closed Monday at its best level since August 2015. In European trading Monday, Germany's Dax rose 0.6%, while the U.K.'s FTSE was flat and France's CAC index edged lower.

Article Link To IBD: