Tuesday, March 21, 2017

No Recovery In Sight For Oil Markets

By Andy Lipow
March 21, 2017

On November 30, 2016, OPEC and non-OPEC oil producers agreed to production cuts of 1.8 million barrels per day, hoping that this action would bring the market back in balance and prices would rise. And rise they did, from around $49.44 per barrel on the announcement date to nearly $54.50 on February 23, 2017. It seemed that OPEC was on the right track and that train was headed for $60 in the near future.

Market participants began betting on higher prices, buying futures contracts and higher prices became a reality very quickly. Both the CME Group and Intercontinental exchange noncommercial net long positions grew to record levels. However over the last 10 days, a long liquidation has begun, net length positions have declined and the market has fallen below the pre-production cut levels. What happened and where do we go from here?

Ahead of the January 1, 2017 implementation date, in December, producers sold and shipped as much crude oil as they could, and those shipments showed up at their customers doorsteps over the next two months. This occurred at the same time that refiners, especially in the U.S., began reducing their crude processing rates as the spring maintenance season got underway.

According to the Energy Information Administration, refining utilization dropped from about 91 percent in December 2016 to just over 85 percent in the week ending March 10. This represented a decline in oil demand of 1 million barrels per day. Not only that, the Strategic Petroleum Reserve has recently conducted two sales, totaling 16 million barrels of oil, which began hitting the market at the end of February and into early March.

"Fast forward to today, where the crude curve is rather flat. Translation: We figured out the technology to get our costs down and we can get more oil out of the ground at today's price level."

The result, crude oil stocks in the U.S. hit an all-time record high last week. (For the purist, if one adds back in the 32 million barrels of lease crude oil stocks, one can see that today's inventory levels are higher than those reported in October 1929).

Higher prices also helped reduce the incentive to store oil on tankers. While floating storage in the North Sea has all but disappeared, the December production rush pushed oil sales into Asia where tankers are currently backed up awaiting discharge orders in places like Singapore.

OPEC and non OPEC producers probably did not count on the resiliency of shale oil producers and other around the world to cut costs and improve efficiency. In its March 7, 2017 Short Term Energy Outlook, the EIA is now forecasting all time record crude oil production in the U.S. of 9.7 million barrels per day in 2018, up 800,000 barrels per day from 2016 levels.

While most of the talk has been about the Permian Basin, other producers have also cut costs. Last August, Statoil announced that its Johan Sverdrup North Sea oil discovery is profitable at $25 per barrel. Late last year, Canadian oil producers announced expansion projects: Cenovus at Christina Lake and CNRL at Kirby North.

Add to the mix the return of Libyan oil supplies and the oil market is simply not drawing inventories as fast as OPEC and non OPEC producers would like.

Twelve years ago, when crude oil first hit $60 per barrel, the market saw its deepest contango ever. Translation: If crude oil supplies are tight now, imagine what it will be in the future and we need much higher prices to get it out of the ground.

Fast forward to today, where the crude curve is rather flat. Translation: We figured out the technology to get our costs down and we can get more oil out of the ground at today's price level.

As oil remains under pressure in the near term awaiting signs of declining inventories, the long liquidation is likely to drag prices down to $45 per barrel. In response OPEC and no-OPEC producers will be forced to issue a series of pronouncements indicating their seriousness at reducing the oversupply, most likely culminating in an agreement in May to extend production cuts until the end of 2017.

They can only sit by and hope that the International Energy Agency is correct in forecasting a 1.4 million barrel per day demand increase in 2017 to soak up the surplus.

In the meantime, could oil prices rise to $60 on the back of some geopolitical event? It is not hard to imagine. But looking ahead, I expect WTI prices to be at $55 come January 2018.

Article Link To CNBC:

Syrian Rebels Launch Offensive On Damascus Gateway, Retake Ground

By Suleiman Al-Khalidi
March 21, 2017

Syrian rebels stormed a major road junction leading into the heart of Damascus on Tuesday as they launched an offensive to regain ground lost to the army over the weekend, rebels and state media said.

State media said rebels had re-entered parts of the city's northeastern Jobar district and the army was bombing their positions.

"At 5.00 a.m. (0300 GMT) we launched the new offensive and we restored all the points we withdrew from on Monday. We have fire control over the Abassiyin garages and began storming it," Wael Alwan, the spokesman of the main rebel group that launched the attack, Failaq al Rahman, told Reuters.

There was no immediate comment from the Syrian army, which said on Monday it had recaptured all the areas in northeastern Damascus lost after a surprise rebel assault on Sunday in the strategic entrance to the heart of the capital.

The intensity of the Syrian army's counterattack on Monday forced the rebels to retreat from most of the areas they captured that day in an industrial area that separated Qaboun from Jobar.

Syrian President Bashar al-Assad and his army, along with allied Russian, Iranian and Shi'ite militia forces, have put rebels on the back foot with a steady succession of military victories over the past 18 months, including around Damascus.

For rebels, however, their first such large scale foray in over four years inside the capital signaled they were still able to wage offensive actions despite their string of defeats.

Article Link To Reuters:

GOP Leaders Pile On Sweeteners To Sell Obamacare Repeal

The revisions are part of a last-ditch effort to get the measure passed.

By Jennifer Haberkorn, Rachael Bade, and Josh Dawsey
March 21, 2017

House Republican leaders are making a last-ditch attempt to win enough support to pass their Obamacare repeal, revealing an expansive series of changes to the bill on Monday night designed to woo wary GOP lawmakers.

Requested by President Donald Trump, the amendment includes perks for restive conservatives who wanted optional work requirements and block granting in Medicaid, as well as a potential olive branch to wary centrists who demanded more help for older Americans to buy insurance, POLITICO has learned.

But it is still unclear whether the changes are enough to win over the 216 Republicans needed to pass the measure in a high-profile vote planned for Thursday. GOP leadership insiders and White House officials firmly believe the changes will corral the necessary votes. But several rock-ribbed conservatives emerged from a closed-door session Monday night vowing to vote against the bill, and bragging that they have the votes to block it.

"House leadership does not have the votes to pass this very liberal bill unless they have a bunch of Democrats on board!" declared Rep. Mo Brooks (R-Ala.) while exiting the meeting. He called it a "the largest Republican welfare bill in the history of the Republican Party."

The changes to the bill come just a few hours before Trump will address the full House GOP conference. He's expected to urge them to vote for the bill. House Speaker Paul Ryan and his top lieutenants have been meeting with holdout moderates to find out what's needed to secure their support, while White House budget director Mick Mulvaney, a former Freedom Caucus member, has been working the far-right.

The mangers amendment is expected to entice some to vote "yes" on the bill, on both sides. For moderate and centrist Republicans, it would set aside funding — about $85 billion, according to Republican sources — for tax credits to help Americans between 50 and 64, who would see their premiums skyrocket under the current repeal plan. The amendment would not set up the tax credits but would instruct the Senate to do so, forcing House Republicans to take a vote on something the upper chamber would do later. It would be paid for by allowing consumers to write off less medical debt.

The boost for Baby Boomers was designed to counter the huge financial hit that Americans in that age group would take under the bill. The Congressional Budget Office said last week a 64-year-old making $26,500 would have paid about $1,700 for an insurance policy under Obamacare. But under the repeal plan, that would jump to about $14,600, CBO said.

That number scared a bunch of centrists on Capitol Hill. The powerful interest group AARP mobilized its members to oppose the bill in part because of the potentially huge cut to Baby Boomers.

Trump wanted the beefed up tax credit in part because voters that age are a core element of his constituency and helped propel him to the White House:

The bill also includes provisions nodding at anti-abortion GOP leaders. Among other changes to the repeal bill, the amendment would delete a provision that would have allowed consumers to move leftover tax credit money into a Health Savings Account. Anti-abortion groups had raised concerns that the provision might be eliminated under the Senate's strict budget rules and inadvertently allow for taxpayer funding of abortion.

After learning of the change, at least one member of the pro-life caucus— Rep. Vicky Hartzler — told POLITICO she changed her vote to "yes."

It also includes some red-meat for the right. Two of the changes, first reported on Friday, were essential to winning over the support of the Republican Study Committee. Trump met with leaders of the conservative group last week and agreed to allow work requirements in Medicaid as well as give states the option of converting their Medicaid programs into block grants. Both concessions were heralded by conservatives as necessary modifications to the health entitlement and long-term wins. Some states sought work requirement approval under the Obama administration, but were rebuffed by federal officials.

The amendment also sped up the repeal Obamacare's taxes a year earlier than originally planned, a win for conservatives who want to eliminate the Affordable Care Act as quickly a possible. It would also repeal the Cadillac tax in 2026 instead of 2025.

House GOP leaders also threw the New York delegation a bone to secure a whole host of "yes" votes. The amendment included a targeted change to Medicaid funding that’s specifically designed to garner support from New York’s delegation. It would attempt to transfer more Medicaid spending from counties to the state, by blocking New York from obtaining federal reimbursements for payments made by counties.

Rep. Chris Collins and other New York Republicans have been pushing leaders to add the amendment. Rep. Claudia Tenney told local reporters that the inclusion of the amendment would be essential to win her support for the whole repeal bill.

The amendment would also change federal Medicaid reimbursement rates for the elderly and disabled, a win for governors who were concerned about cuts.

In spite of all the changes, conservatives in the House Freedom Caucus are still defiant about the bill. Freedom Caucus Chairman Mark Meadows told reporters Monday evening that the negotiations on the bill appear to be over. But he doesn't think it's necessarily the end.

"I'm confident that we have enough concerns that a vote of 216 votes in the House would not happen today," he said.

Article Link To Politico:

Trump's Reckless Threat To World Trade

By Editorial Board
The Bloomberg View
March 21, 2017

Presumably at the insistence of the U.S. administration, the latest statement from the Group of 20 big economies conspicuously dropped the standard promise to "avoid all forms of protectionism." It's worth pausing to understand why that promise was ever worth making, and honoring.

The reason is surely not that governments always keep their word. For years they've been backsliding on their ritual commitment to keep markets open -- and partly for that reason, the prospects for world trade were already looking poor. But those prospects will be so much worse if governments, led by the U.S., now come to regard protection as a policy to be openly embraced.

In the recovery from the recent global recession, the volume of world trade has grown more slowly than it should. During the past four years, especially, the slowdown has been pronounced. Disentangling the causes isn't easy. Weak investment demand due to the unusual severity of the slump is one factor. But trade policy is another. Since 2012, protectionism has been quietly ratcheting up.

As always, traditional measures such as state aid, export incentives and public procurement are being used to protect domestic producers. In addition, governments everywhere have been using new local-content requirements to discriminate against foreign competitors. According to one analysis, the U.S. has led this post-2008 trend, even with an avowedly pro-trade administration in charge.

It's a cliché of trade policy that you need to keep moving to stand still, and the experience of the past few years proves the point. Without big new agreements such as the Trans-Pacific Partnership -- strongly championed by former President Barack Obama, but rejected by Congress -- international competition gets nibbled away. Instead of this mildly debilitating process of attrition, President Donald Trump now contemplates a frontal assault on liberal trade.

Although the basic case for free trade has gone out of academic fashion lately, it remains as strong and simple as ever. Competition is the wellspring of prosperity -- and liberal trade promotes competition. Forcing producers to innovate, specialize and compete makes economies more efficient. Inhibit that process, and in the end, in the aggregate, people are worse off.

"In the aggregate" does matter: Trade involves winners and losers -- as do, by the way, technological progress and purely domestic competition. In all cases, the wisest remedy is to support the workers who suffer the costs of this dislocation, especially with help for retraining and relocation. The faster an economy grows, the more easily resources for such programs can be found. The alternative is a vicious circle of diminished competition, subpar growth and stagnant living standards.

Changes in rhetoric are one thing, changes in policy quite another -- but if deeds follow words, the world is in trouble. If Trump leads governments toward a new era of outright protectionism, he will do untold damage both to the U.S. and to the wider global economy.

Article Link To The Bloomberg View:

Goldman Sachs Building Robo-Adviser To Give Investment Advice To The Masses

By Olivia Oran
March 21, 2017

Goldman Sachs Group Inc (GS.N), known for advising the world's richest and most powerful, is building a so-called robo-adviser geared to mass affluent customers, according to a job listing posted Monday on the bank's website.

A Goldman spokesman declined to comment.

The job posting for employees to help build the platform(here) comes as Goldman is looking at ways to broaden its customer base outside the super wealthy, including making deeper inroads into new consumer-focused businesses.

The bank last year launched Marcus, its first major foray into consumer lending, as well as a complementary deposit-taking platform after acquiring GE Capital's online bank. It also acquired Honest Dollar, an online retirement savings platform for small businesses and startups.

The robo platform would sit within the bank's rapidly growing investment management division, according to the ad. The unit, which Goldman has been trying to build out in recent years to diversify its revenue, posted a record $1.38 trillion in assets under supervision at the end of 2016.

Goldman has for years grappled with how to tap into the mass affluent segment, broadly defined as those with less than $1 million in investable assets, without diluting the brand of its private wealth business which is considered a jewel within the bank, according to people familiar with the matter. Goldman's U.S. private wealth business typically advises clients with an account size of around $50 million.

Goldman has in the past considered expanding Ayco, a wealth advisory firm it purchased in 2003, as a way to push more deeply into the mass affluent segment, the people added.

While the robo-advice market was initially developed by startups such as Wealthfront and Betterment with ambitions of upending the traditional financial advice sector, large firms such as Charles Schwab Corp (SCHW.N) and Vanguard have launched similar services.

Other large firms are partnering with or buying existing players.

UBS Group AG (UBSG.S) and Wells Fargo & Co (WFC.N) are partnering with online financial adviser SigFig Wealth Management, while BlackRock Inc (BLK.N) acquired FutureAdvisor.

Morgan Stanley is launching its own robo-advisor later this year, primarily for the children of its existing clients. CEO James Gorman has said that firms which combine digital and human advice will be more successful in the future.

Article Link To Reuters:

5 Takeaways From The French Presidential Debate

Marine Le Pen was an obvious target, François Fillon lives on and the EU barely rated a mention.

By Nicholas Vinocur
Politico EU
March 21, 2017

The top five contenders for the French presidency faced off Monday night in a live TV debate that was lengthy, heavy on policy and devoid of any knockout blows.

The spotlight was trained on former Economy Minister Emmanuel Macron, a centrist, and far-right leader Marine Le Pen, who are tied in the polls ahead of the election’s first round next month. On Monday night, they clashed several times, accusing one another respectively of spouting “empty words” and “lying to the French people.”

While the fireworks were few and far between, Macron, who had clearly prepared for a duel, was the more combative of the two, though he failed to inflict any mortal wounds.

Former Prime Minister François Fillon came to the debate as a wounded animal. He has been struggling to shore up his poll numbers amid a legal probe into his alleged misuse of public funds and payments to family members. The conservative candidate largely appeared calm and statesmanlike. But he was more subdued than in previous debates, when he had stood out with more masterful performances.

The two leftist candidates, Jean-Luc Mélenchon and Benoît Hamon, avoided attacking one another and instead focused on the other candidates, mainly the frontrunners Macron and Le Pen.

Here are main takeaways from Monday’s debate:

1. Macron without a ‘wow’

At 39, Macron was the youngest candidate onstage by far and he faced the challenge of proving he could hold his own. In this respect, he passed the presidential test, sticking to his message of a “pragmatic” platform while avoiding being out-manoeuvred by the more experienced Fillon, a former prime minister.

Having clearly prepared for a face-off with Le Pen, Macron unleashed several blows against the National Front chief. During one tense exchange on religious clothing in public, he directly accused Le Pen of “lying” to voters and trying to divide the country by attacking Muslim citizens. He also fended off attacks from the two left-wing rivals who accused him of being beholden to corporate interests.

But Macron failed to wow his audience. His insistence on the pragmatic platform overshadowed the unique selling point of his campaign — that he is meant to represent youthful optimism. And his debating style, at times a bit stiff, still needs work.

2. Le Pen rolls with the punches

With several polls showing her breaking into the election’s final round, Le Pen was an obvious target for all her rivals on stage. Each took turns attacking the National Front party president on her Euroskeptic program as well as her proposals to slash immigration rates, impose protectionist trade policies and start friendlier relations with Russian President Vladimir Putin. Only when Macron accused her of lying did Le Pen appear off balance. She retaliated by accusing him of being beholden to corporate interests — and blatantly smirking during his closing address.

Remarkably, Le Pen avoided mentioning her controversial proposal to hold a referendum on EU membership, a flagship measure. Instead, she insisted on what she called “economic patriotism,” vowing to slap hefty import duties of 35 percent on companies that move jobs outside France and try to sell goods back to French consumers.

Fillon blasted her anyway on her promise to leave the EU, saying it would condemn France to bankruptcy and isolation. When Le Pen said the U.K. is doing “fantastically” well after its Brexit vote, rivals shouted her down by saying that Britain had not yet felt the effects of leaving the union.

Le Pen’s measured performance seemed tactical, allowing her to stand above the sound and fury of her rivals.

3. Fillon lives on — still

Following the cascading scandal over possible misuse of public funds, Fillon has been hurt by flagging poll numbers and seemingly neverending negative press. The debate was his chance to prove that he could still win after refusing to stand down.

In November, Fillon came from behind to win the conservative’s primary election, thanks — in large part — to one masterful debate performance. He did not repeat the tour de force on Monday. Instead, Fillon pursed his lips and endured as other candidates said they would ban MPs from hiring family members — precisely what he did with his wife and children. He sounded subdued during the debate’s first half, only showing a rare flash of combativeness when attacking Le Pen on her proposal to hold a referendum on French membership of the EU.

Even so, on the whole Fillon displayed the kind of statesmanlike demeanor that won him the conservative nomination in November — and many French voters may have been reminded of why they liked him before the scandals. Ranked third in the polls, Fillon remains a force to be reckoned with.

4. Amiable Hamon, growling Mélenchon

For former Education Minister Benoît Hamon and his leftist rival Jean-Luc Mélenchon, the debate’s big question was: could one of them deliver a knockout performance to establish himself as the undisputed left-wing candidate?

The answer turned out to be no, as Hamon and Mélenchon avoided each other, focusing attacks on their rivals instead. Fillon was assailed for his Thatcherite economic proposals; Macron for his wealth and supposed links to corporate interests; Le Pen, for just about everything.

Hamon projected the same no-drama attitude that helped him win the Socialist primary against former Prime Minister Manuel Valls, offering refreshing asides on the environment and preserving his campaign’s feel-good aura. On the other hand, Hamon also at times appeared to be out of step with the main thrust of the debate. His assertion that he was the “candidate of the payslip” sounded too rehearsed — perhaps because he had borrowed the expression from Mélenchon.

5. Europe, qu’est-ce que c’est?

During the marathon three-hour debate, ample time was allotted to discuss the role of France and Europe in the world. While candidates did discuss their plans for immigration, they never focused explicitly on the EU.

Only Macron positioned himself clearly as being in favor of working within the confines of the Union. Most remarkably, Le Pen glossed over her opposition to Brussels without clearly restating her position on a “Frexit” referendum. The omission was likely deliberate: after the defeat of the Euroskeptic Geert Wilders in the Dutch election last week, the French National Front leader may be wary of too much talk of Frexit. The other candidates will be there to remind her.

Article Link To Politico EU:

Google To Revamp Policies, Hire Staff After UK Ad Scandal

By Kate Holton 
March 21, 2017

Google (GOOGL.O) vowed on Tuesday to police its websites better by ramping up staff numbers and overhauling its policies after several companies deserted the internet giant for failing to keep their adverts off hate-filled videos.

Google has found itself at the center of a British storm in recent days after major companies from supermarkets to banks and consumer groups pulled their adverts from its YouTube site after they appeared alongside videos carrying homophobic and anti-Semitic messages.

Alphabet's Google launched a review of the problem on Friday, apologized on Monday and said on Tuesday it had revamped its policies to give advertisers more control.

The company, which had said it struggled to monitor the 400 hours of video uploaded to YouTube every minute, said it would hire significantly more staff and speed up the process of removing ads from hateful and offensive content that attacks people based on their race, religion or gender.

"We believe the combination of these new policies and controls will significantly strengthen our ability to help advertisers reach audiences at scale, while respecting their values," Philipp Schindler, Google's chief business officer, said in a blog.

Britain is Google's largest market outside the United States, generating $7.8 billion mainly from advertising in 2016, or nearly 9 percent of the U.S. giant's global revenue.

Besides well-known British brands pulling the plug, some of the world's biggest advertising companies responsible for placing vast amounts of marketing material for clients, said they were reviewing how they worked with Google.

Google said the YouTube team was looking at changing its existing guidelines on what content should be allowed on the platform and giving more visibility to advertisers and agencies so they can see where adverts are appearing.

"We'll be hiring significant numbers of people and developing new tools powered by our latest advancements in Artificial Intelligence and machine learning to increase our capacity to review questionable content for advertising," Schindler said.

Where adverts were found next to videos advocating extremism, YouTube will seek to resolve the case in less than a few hours.

The boycott is the latest clash between advertising companies, media publishers and the internet giants that have built up dominant positions in digital advertising by offering not only huge audiences but also the ability to apply their user data to make ads more targeted and relevant.

Analysts have said the scandal could benefit traditional media publishers such as newspapers and broadcasters, which can promote their services as a trusted and safe online platform.

Article Link To Reuters:

A Popular Stock-Market ‘Black Swan’ Gauge Is At A Record

The so-called Skew has touched a record. Should stock-market investors be anxious?

By Mark DeCambre
March 21, 2017

A popular options-market gauge of so-called black swan, or difficult to predict, events is drawing the attention of some bears on Wall Street as it trades at record levels.

The CBOE Skew Index SKEW, -0.91% or simply Skew, which measures the relative cost of purchasing out-of-the money put options on the S&P 500 index SPX, -0.20%finished at a record of 153.34 on March 17, and maintained that level on Monday. Put options confer the right, but not necessarily an obligation, to sell an asset at a specific price and time, while calls give the owner the right to buy an underlying asset (see chart below of the S&P 500 compared with Skew levels):

Skew essentially offers a way to gauge relative demand from investors interested in purchasing insurance—or hedging their equity exposures—against a possible downturn in the broader stock market. Put another way, Skew tracks bearish options bets on the S&P compared with bullish wagers of similar duration, and by some interpretations, investors are now aggressively betting that risks are growing.

Stocks have been on a tear in the wake of President Donald Trump’s Nov. 8 election, which invigorated what some described as the market’s animal spirits. Since the election, the S&P 500 has climbed more than 11%, the Dow Jones Industrial Average DJIA, -0.04% has gained 14% and the Nasdaq Composite Index COMP, +0.01% has climbed about 13.6% during the same period.

But over the past several sessions, Skew’s rise has coincided with a decline, if not a stall out, of the S&P 500 and the broader market.

Skew has climbed in fits and starts since late January and is up more than 21% so far this year, according to FactSet data.

“I think this rise in Skew reflects demand for hedging of broad-market exposure after we have been setting new highs at a record pace,” said Mark Longo, CEO of Chicago-based research firm OptionsInsider.com.

“We see that investors are more concerned about downside protection,” he said.

The rise in Skew also comes as Wall Street’s fear gauge, the CBOE Volatility Index VIX, -1.94% has traded well below its historic average of about 20 for a protracted period, implying a market that may not be prepared for a sudden market swing.

Russell Rhoads, director of the Chicago Board Options Exchange’s Options Institute, said that a higher Skew does mean that out-of-the-money puts are relatively expensive—due to increased demand—but said that context is important to consider. “In a low volatility environment, we may get excited about an all-time high, but keep that number in a bit of context,” Rhoads said, suggesting that the lower levels for the VIX may make it more prone to climb.

Jason Goepfert, president of Minneapolis-based investment research firm Sundial Capital Research, tracks Skew in relation to the VIX. He said when Skew climbs this far above the VIX, a downturn has tended to follow in the next 30 to 60 days:

“Historically, when we have seen an extreme in the relationship between the SKEW and VIX, the S&P moves in the opposite direction over the next 1-2 months,” said Goepfert, who publishes Sentimenttrader.

To be sure, there are many interpretations of the recent rise in Skew. Perhaps the simplest one is that the price to buy insurance against an equity decline had gotten so cheap, it triggered a buying stampede that pushed prices higher.

Investors faced a veritable gauntlet of potential risks last week, including the Federal Reserve’s decision to lift benchmark interest rates a quarter-point for the first time in 2017, as well as concerns about the outcome of a Dutch election, which could have confirmed the rise of populism in Europe—potentially disruptive to the eurozone and the euro EURUSD, +0.5214%

Those events passed without much drama, but investors may now be viewing France’s presidential election in the coming months as another potential dose of geopolitical volatility.

Article Link To MarketWatch:

Chinese Firms Slow Their Overseas Buying Spree

By Sophia Yan
March 21, 2017

China's massive foreign shopping spree is finally slowing down because of tighter regulations.

So far this year, $25 billion in outbound deals from China has been announced, which is 70 percent less than the same period last year, according to Dealogic. And deal activity will be on the wane all year, experts said, because of increased regulatory scrutiny on foreign investment.

"The government is turning up its nose at these firms," said Benjamin Quinlan of financial consulting firm Quinlan and Associates. "Unless there is an imperative reason to do this, [it's saying] keep the money onshore, stop draining the current account and pushing funds out of China."

For years, Chinese companies were snapping up firms left and right. Outbound deals hit a new record every year since 2009, soaring more than 500 percent to a whopping $226.5 billion last year, according to Dealogic.

The buying frenzy meant money was flying out of China, weakening an already depreciating yuan. To counterbalance, China burned through $1 billion of its foreign exchange reserves since mid-2014 to buy back yuan.

For some time, it appeared the government felt things were under control, said China economist Julian Evans-Pritchard of Capital Economics.

But then, "Trump was elected, and we had this very sharp jump on the dollar," he said. "I think that kind of spooked [China] a little bit, and hence a couple of weeks later, we got capital controls on outbound investment."

Late last year, the government increased regulatory scrutiny on specific transactions, including deals over $10 billion, property investments more than $1 billion by state-owned firms, ones over $1 billion unrelated to a company's core area of business, and investments in overseas listed Chinese firms, according to the Rhodium Group.

That came after Beijing had already tightened checks on currency conversions, delaying a number of deals. Pan Gongsheng, the head China's State Administration of Foreign Exchange, has also warned against overseas mergers, recently calling them a "rose with thorns" in a state media report.

On the ground, acquisitions have unraveled and others are on the rocks. The biggest transaction withdrawn last year was Anbang Insurance's $15.5 billion bid for Starwood Hotels, based on Dealogic data.

Earlier this month, Chinese conglomerate Dalian Wanda's $1 billion deal to buy Dick Clark Productions, which runs the Golden Globe awards, also fell through. And a bid by a Chinese investor group to buy Italy's AC Milan football club remains stalled.

From now on, forget about seeing the "big ticket items," said Dealogic's Chunsek Chan. He said it's unlikely a deal like ChemChina's $43 billion purchase for Syngenta — the largest ever overseas acquisition by a Chinese company — will happen again.

Smaller deals that align with Beijing's strategic interests — for instance, shoring up access to resources or tech buys — have a better chance of going through, Chan said.

But experts say the government's move is a temporary solution, as it doesn't address ongoing interest by Chinese investors to move money abroad, and complicates longer-term reform efforts to loosen Beijing's grip on the yuan.

There is "still pressure for money to move out of the country as the Chinese economy slows, and especially as markets like the U.S. have gained steam," said Quinlan.

Article Link To CNBC:

Twitter Turns Trump Into His Own Worst Enemy

By Rich Lowry
The New York Post
March 21, 2017

The Trump administration is in the throes of one of the greatest self-inflicted distractions of the modern presidency.

The latest chapter comes from James Comey in highly anticipated congressional testimony. The FBI director said he has no information to support President Trump’s infamous weekend tweets alleging he was wiretapped by then-President Barack Obama during the campaign. This was treated as a bombshell, although what would have been truly surprising is if he said Trump’s allegations had a sound factual basis.

Every administration gets knocked off its game early on by something. What makes the furor over President Trump’s wiretapping claims so remarkable is how unnecessary it is. The flap didn’t arise from events outside of the administration’s control, nor was it a clever trap sprung by its adversaries.

The president went out of his way to initiate it. He picked up his phone and tweeted allegations that he had no idea were true or not, either to distract from what he thought was a bad news cycle, or to vent, or both.

The fallout has proved that there is no such a thing as “just a tweet” from the most powerful man on the planet. Trump’s aides have scrambled to find some justification for the statements after-the-fact and offended an age-old foreign ally in the process (White House Press Secretary Sean Spicer suggested it was British intelligence that might have been monitoring Trump); congressional leaders have become consumed with the matter; and it has dominated news coverage for weeks. Such is the power of a couple of blasts of 140 characters or less from the president of the United States.

The flap has almost probably undermined Trump’s political standing, and at the very least has diverted him and his team from much more important work on Capitol Hill, where his agenda will rise or fall. In an alternative and more conventional universe, the White House would be crowing over Judge Gorsuch’s testimony before Congress. Instead it is jousting with the FBI director over wayward tweets.

Spicer was reduced to arguing that Comey’s categorical rejection of the wiretapping claim was only provisional. Let’s not jump to conclusions, etc., etc. Such is the life of a press secretary when his boss has the power to make him defend the indefensible during a few thoughtless moments alone with his phone. Since the wiretapping allegations, Spicer’s days have been spent in the semantics, air quotes, and epistemological gymnastics necessary to support Trump’s claims.

Only President Trump can make it stop. He has shown, despite his unwillingness ever to admit error, an ability over the last year to simply drop and move on from counterproductive controversies. He should do the same with his wiretapping tweets. All he has to say is that he accepts his FBI director’s statement and that he doesn’t want to talk about it any more. That would immediately drain some of the headline-grabbing drama from it and release his underlings from their current exertions.

Comey’s second bombshell was the more consequential one. He confirmed there is an ongoing FBI investigation of Russia’s role in the election and possible ties to the Trump campaign. (It may eventually emerge that some of Trump’s conversations were picked up when people in his orbit were being surveilled in this probe, providing a fig leaf of vindication for his tweets.) It’s hard to see why the Russians would have had to involve Trump associates in what should have been a simple two-step process: 1) hack Democratic accounts; 2) give the resulting information to WikiLeaks. But Comey’s acknowledgement of the investigation will stoke the darkest suspicions of the Left.

All the more reason for Trump to avoid doubling down on unforced errors. There are plenty of people who want to distract and damage his administration. The president of the United States shouldn’t be one of them.

Article Link To The New York Post:

Bharara Didn’t Need To Make A Spectacle Of His Firing

By John Crudele
The New York Post
March 21, 2017

I had respect for Preet Bharara, the US Attorney here in Manhattan, until his recent tantrum over being asked to resign by Trump.

This is common practice when a new administration takes the White House. Federal prosecutors all over the country are asked to quit so that a new president can either accept or reject their offers.

That’s just the way it is done — through Republican and Democratic administrations.

Only Bharara decided to make a spectacle of it. The guessing is that he wanted the publicity and sympathy for when he decides to run for public office.

Well, when Bharara does, he will have to answer this question, and I think it will spoil his political career: Why, after all the problems that Wall Street caused in 2008, wasn’t a single person or firm in the financial community charged with anything?

Wall Street was under Bharara’s jurisdiction because he was the US Attorney in Manhattan. He was complicit in protecting Wall Street firms, and that wasn’t his job.

Article Link To The New York Post:

The Fed Must Recognize It Has A Millennial Problem

The Federal Reserve may be poised to make a major policy error in the near future.

The National Interest
March 21, 2017

The Federal Reserve has waited and waited for inflation to materialize. Now it has. The Consumer Price Index shows prices are higher by more than 2 percent from a year ago, and there are reasons to believe that this will continue. But there is also a reason to be skeptical of persistent inflation pressures: the Fed’s millennial problem.

The millennials penchant for apartments is one of the more overlooked aspects of the current inflation picture. The root causes of the increase in apartment demand are well documented and chronicled: millennials enjoy living in urban areas and have high levels of student loan debt among other factors. Of course, with increasing demand came increasing rents. But the implications for inflation—and therefore the Federal Reserve’s inflation outlook—are misunderstood.

Why is rent so critical to understanding inflation? What is important is how inflation is calculated. Because the data used to calculate price level movements in the Consumer Price Index is collected solely from renters, not homeowners. This is true not only of the portion of CPI directly related to rent, but also to the portion related to homeowners—the so-called owner’s equivalent rent.

The process is not overly complex: renters are asked how much their rent is per month and what amenities are included. The combination of the two—known as shelter—constitutes roughly 42 percent of core inflation, which excludes food and energy.

But this is a critical distinction. Rent is the sole driver of 42 percent of core inflation. Home prices do not enter into the equation, leading to some potentially misleading results. If rent does not increase in concert with home prices, then home price increases will not be reflected in the owner’s equivalent rent line. The converse is also true. If rents are increasing due to millennials failing to purchase homes and instead bidding up rents, lackluster home prices will have little to no effect on the CPI.

The quandary is an interesting one, not simply from a demographic standpoint, but from the Fed, in many ways, being its own worst enemy. Multifamily unit starts, a measure of construction activity, has returned to its pre-crisis levels. Arguably, much of this construction was encouraged by low interest rates that forced investors to search for yield, and multifamily projects provided an attractive opportunity.

With the Fed maintaining low rates, developers pushed forward with projects. According to the U.S. Bureau of Economic Analysis, multifamily investment has never been higher—with the final quarter of 2016 reporting an annualized clip of $62.9 billion. Combined with the National Multifamily Housing Council’s survey that found “looser” conditions for the same timeframe, there is an argument to be made that shelter inflation pressures are nothing to fear, and may become a problem for the Fed.

In fact, the United States may be close to peaking inflation pressures—at least in the near term—as core inflation suffers from a shelter problem. This may give the Fed some pause in the second half of the year.

To understand how critical shelter has become to the Fed, it is worth taking a step back to understand the enormity of its influence on inflation. For the past year, shelter inflation has been increasing at about a 3.5 percent clip. At a 42 percent weight, shelter’s contribution to core CPI is about 1.4 percent. Core CPI is only increasing at a 2.4 percent clip overall. Simply stated, shelter is the inflation story—any deceleration will drive the core rate lower, potentially, much lower.

And this is part of the reason why the Fed may be moving quickly following the election. With a low unemployment rate, the combination of infrastructure spending and tax cuts is a classic formula for inflation pressures. But inflation may not be set to accelerate. Instead, it may be set to weaken as shelter becomes a headwind, not the tailwind of the past eight or so years. For the Fed, core CPI may therefore pose a problem to aggressively hiking rates.

If inflation does indeed slow, it would be considered a policy error to have raised rates too quickly. But the Fed is running against rent. If shelter does slow toward 1 percent inflation, it would reduce the contribution to the core to 0.4 percent from 1.5 percent—a 1 percent decline in the core-inflation rate. This represents a substantial decline that the Fed would be forced to address.

Imagine the consequences if millennials suddenly begin to want houses. There could be a boom in housing demand with measured shelter inflation falling, even appearing to be deflationary.

How will the Fed react to its millennial problem? If the emerging inflation pressures turn out to be more misleading than substantial, then the Fed would be forced to back away from its plans to tighten policy. This would strengthen the notion that the Fed committed a policy error. For the Fed, the evolution of shelter inflation over the next six months or so will be critical. The inflationary policies from the Trump administration will take time to filter through the economy, and may not arrive in time to save the Fed.

It is not difficult to see how the millennials could ruin the Fed’s opportunity to tighten policy over the next year. Granted, rents may continue to rise, but they cannot do so forever. The millennials matter far more to the Fed than it may care to admit.

Article Link To The National Interest:

Two In Five Americans Say They’ll Need $1 Million To Retire

A new survey finds our expectations at odds with the financial reality of today’s retirees.

By Suzanne Woolley
March 21, 2017

Setting a retirement savings goal can feel like a crap shoot. How can you calculate your expenses, especially for health care, five, 10, 50 years from now?

If you've punted, you have company. Only 41 percent of workers have even tried to figure out how much they need in savings to retire comfortably.

And those who have? When asked to guess how much they needed, 37 percent of workers say $1 million or more, according to the latest (and 27th) Retirement Confidence Survey from the Employee Benefit Research Institute. That's up from 19 percent who said they'd need that much only a decade ago. The survey, done in January, is based on online polling of 1,082 workers 25 and older and 589 retirees.

How much people figure they'll need rises with income. Fifty percent of workers with household income of $75,000 or more say they'll need at least $1 million, compared with 17 percent of households with income under $35,000.

EBRI doesn't have data on how many people actually wind up retiring with a nest egg of $1 million or more, but it does have a database of 401(k) plans that covers roughly half the market, and it shows that 10 percent of plan participants have at least $200,000 stashed away, said Craig Copeland, a senior research associate at EBRI. For people in their 60s, it's 30 percent. Even that is a very small minority of American workers.

Many will never get near the $1 million mark without a huge savings push. Asked about their current savings, not including the value of a primary residence or a defined-benefit (old-fashioned) pension plan, only 20 percent of workers said they had saved $250,000 or more. Forty-seven percent had saved less than $25,000, and 24 percent of those people had saved less than $1,000. 

Rules of thumb for how much to save for retirement are a starting point for planning, if only that. Savings is often framed as the percentage of your pre-retirement income you'll need to live on per year. Many people will figure on 70 percent or 80 percent, but that may be low. EBRI's research director, Jack VanDerhei, has suggested people may need more like 100 percent of their pre-retirement income to live on—assuming they don't need long-term care. He thinks we often underestimate medical costs.

Fidelity Investments posits a savings factor you multiply your income by, at certain ages, to see if you're on track. At 45, you should have at least four times your income saved; at 55, seven times your income; at 67, it's 10 times.1 If you're 67 and make $150,000 a year, for example, you should have $1.5 million socked away. 2

Even if people have a tough time calculating how much to save for retirement, a majority of retirees surveyed (53 percent) said that expenses, excluding medical bills, were about what they'd expected when they retired. About a quarter of retirees said costs were somewhat higher, and 13 percent chose "much higher."

Where retirees tended to underestimate costs sharply was in health care. Breaking that out of the broader expenses category, EBRI found that 39 percent of the retirees said health care costs were about what they expected, but 27 percent said they were somewhat higher, and one in five said they were much higher. A presumably very healthy 8 percent said health-care expenses were somewhat lower, and 5 percent said much lower.

The survey didn't ask the retirees for specific dollar amounts they were spending on retiree health care. Fidelity estimated last August that a 65-year-old couple retiring in 2016 could spend an estimated $260,000 on medical expenses in retirement. That doesn't include money needed to cover long-term care, which could cost that couple another $130,000. 3 That's almost $400,0000, without even bringing housing into the equation. And don't forget food.

A common refrain when workers are asked about how they'll fix a savings shortfall is to work longer. EBRI has found, however, that many Americans retire before they planned to. In this latest survey, that figure was 48 percent. Health problems or disability were cited by 41 percent of those who retired before they expected to, and 26 percent pointed to changes at their company, such as downsizing or closure. Another 14 percent left earlier than planned to care for a spouse or other member of their family.

Retiring earlier than expected may mean programs such as Social Security and Medicare become a bigger part of your income stream. Only 6 percent if the survey's respondents say they're very confident that the Social Security benefits they get will be at least equal to what retirees get today. Sixty-one percent said they weren't too confident of it, or not at all confident (41 and 20 percent). For Medicare, the percentage of workers in those categories combined was also 61 percent. Seventeen percent were not at all confident.

For the first time in the survey's history, EBRI used an an outside vendor's online panel instead of a random phone survey. People surveyed over the phone tend to choose "very confident" more often, the report noted, while online respondents lean toward "somewhat confident." Online, it said, people tend to "provide more honest, less flattering responses."

Article Link To Bloomberg:

Wal-Mart To Launch Investment Arm In E-Commerce Push

By Nandita Bose
March 21, 2017

Wal-Mart Stores Inc, the world's largest retailer, will launch its first investment arm to expand its e-commerce business in partnership with retail start-ups, venture capitalists and entrepreneurs, the company said on Monday.

The plan is being spearheaded by Marc Lore, Wal-Mart's e-commerce chief, who joined the Bentonville, Arkansas-based company from retail upstart Jet.com, which it acquired for more than $3 billion in August.

Since then, Wal-Mart has acquired three small web retailers to add urban and millennial shoppers.

The venture, called Store No. 8, will work with startups that specialize in areas that include robotics, virtual and augmented reality, machine learning and artificial intelligence, Lore said at Shoptalk, a retail conference in New York. It will be based in California's Silicon Valley, he added.

Wal-Mart will keep the startups separate from the broader organization so that they will not affect the retailer's bottom line in the near term, Seth Beal, senior vice-president, incubation and strategic partnerships, said in an interview.

He declined to give a timeframe for the launch.

Article Link To Reuters:

Oil Prices Rise On Talk That OPEC Could Extend Supply Cut

By Henning Gloystein
March 21, 2017

Oil prices rose on Tuesday on expectations that an OPEC-led production cut to prop up the market could be extended, while strong demand would also work to slowly erode a global fuel supply overhang.

Prices for front-month Brent crude futures, the international benchmark for oil, were at $51.97 per barrel, up 35 cents, or 0.68 percent, from their last close.

U.S. West Texas Intermediate (WTI) crude futures were up 28 cents, or 0.58 percent, at $48.50 a barrel.

The Organization of the Petroleum Exporting Countries (OPEC), together with other producers including Russia, has pledged to cut its output by almost 1.8 million barrels per day (bpd) between January and June in an effort to prop up prices and rein in a global supply glut that has dogged markets for almost three years.

Yet so far the cutback has not had the desired effect as compliance by involved exporters is patchy and as other producers, including the United States, have stepped up to fill the gap, resulting in crude prices falling more than 10 percent since the beginning of the year.

To halt the decline, OPEC members increasingly favour extending the pact beyond June to balance the market, sources within the group said, although they added that this would require non-OPEC members like Russia to also step up their efforts.

One threat for OPEC is that other producers will fill the gap its production cuts leave.

With OPEC cutting but U.S. production rising, the premium of Brent crude over U.S. WTI has risen to around $3.5 per barrel, its highest since early 2016, potentially opening the opportunity for U.S. oil sales to Asia, traders said.

Eventually, however, traders said that healthy oil demand would help rebalance markets.

"Global demand for 2017 is expected to remain healthy and surpass long-term average growth in demand of 1.2 million barrels per day by between 0.2 and 0.4 million barrels per day. As such, the combination of robust demand and weaker global supply leading to rebalanced markets will not be de-railed by U.S. shale oil," said Jeremy Baker, senior commodity strategist at Vontobel Asset Management.

Traders said that U.S. crude storage data, due to be published later on Tuesday by the American Petroleum Institute (API), would likely be the next significant price driver.

Article Link To Reuters: