Tuesday, March 28, 2017

Brexit, No Sector Left Unscathed

How Britain’s withdrawal from the EU will affect every policy area from fisheries to transport.


By Politico
March 29, 2017

Brexit threatens to wreak havoc in many of Europe’s biggest sectors, throwing doubt on everything from fish supplies to greenhouse gas-cutting measures to student exchange programs.

While British Prime Minister Theresa May’s triggering of Article 50 Wednesday will mark the beginning of the U.K.’s negotiations with the EU, it does little to answer the endless questions that the U.K.’s departure raises for Europe’s regulatory and trade landscape.

Much of that will depend on just how deep the split between the U.K. and the European single market will be. Whether you’re talking banks, farmers, energy suppliers or airlines, the preference is almost invariably the shallower the better.

POLITICO looks at what Brexit will mean for several key policy areas.

Trade

The mandarins at the European Commission have so far insisted that talks on trade can’t begin until the size of the divorce settlement is finalized as part of the two-year Article 50 process. That means attention likely won’t turn to the kind of access Britain will get to EU markets for a few months. May has been clear that Britain will leave the single market. But given that around 45 percent of all U.K. exports are to the EU, some kind of arrangement will need to be worked out to avoid falling off a trade cliff in March 2019. The “Plan B” option of trading under World Trade Organization (WTO) rules may not be as easy as many have hoped. The U.K. is signed up as an independent member of the WTO, but many of the terms were thrashed out by the EU. Without clarity on that, Downing Street will find it difficult to discuss new trade deals with far-flung countries like New Zealand or the United States.

Financial Services


Keeping the City of London’s financial hub alive after so-called passporting rights come to an end will require a new set of British laws corresponding to the EU’s. That means a guaranteed period of limbo after the divorce. The only way U.K.-based banks, clearing houses and other institutions will be able to access EU clients, and vice versa, will be if Britain is deemed an “equivalent” jurisdiction across multiple financial regulations. In theory, this could be easy, since the U.K. is likely to copy and paste EU regulation into its own laws. But the issue of equivalence tends to be more political than technical, and it will inevitably take time because the U.K. can’t start to apply for equivalence until it leaves the EU. In another blow to Britain, the European Central Bank and the EU may not want London to continue to dominate the euro-clearing business, worth hundreds of billions of euros. In the meantime, rather than enduring years of uncertainty, banks and other financial institutions could start relocating their business and staff as soon as this summer.

Of top concern for many EU countries is the future of EU citizens living in the U.K. and Britons living in the bloc — amounting to some 4 million people. But the arrangement is under discussion and far from clear. What is clear, however, is that citizens on both sides of the English Channel want to be assured of protections and don’t want to be used as bargaining chips. May stressed in January that the U.K. will emerge with full control of immigration from the EU to Britain, without giving details. The impact of Brexit on Europe’s migration policy, instead, is limited, as the U.K. didn’t take part in core programs for some 160,000 refugees, including two to relocate people from one EU state to another.

Defense And Security


London has opposed EU defense integration for years. So it’s not by chance that with Brexit on the horizon, this is the field where deepening cooperation seems to be moving ahead. In a major step toward the plan, the EU agreed in November to explore the potential for allowing countries willing to push on to do so without waiting for others. EU leaders will discuss its implementation in June. Germany, France, Italy and Spain are pushing for it. The bloc also launched a new military unit in March that would be responsible for some EU training missions. For some member countries, it’s the first step toward establishing a real military HQ — another idea that London has always opposed.

Foreign Affairs

The most immediate implications of Brexit on EU foreign policy are already in focus, and are also difficult to distinguish from the bloc’s response to U.S. President Donald Trump: an enthusiastic embrace of internationalism, including a purposeful pivot to Asia in hopes of strengthening ties and forging new trade agreements. The U.K.’s departure is not expected to spur any major shift in EU foreign policy, as the bloc prides itself on being the steadiest and most consistent major actor on the world stage, and the global leader when it comes to wielding soft power such as development aid. Major EU initiatives focused on reconstruction and humanitarian assistance in Afghanistan and Syria will continue, as will aggressive outreach toward the Western Balkans, with a (long-term) eye toward adding new EU members. The same goes for partnership with the U.K. on some foreign affairs issues, especially through NATO, and on matters such as the economic sanctions imposed on Russia. Because while the U.K. will undoubtedly look to build a truly independent foreign policy, leaders in London and Brussels have repeatedly stated they expect Britain and the EU to remain close allies and partners in foreign affairs, security and defense. One area of divergence, however, could be in relations with the U.S., as the Trump administration has expressed affection for Brexit and skepticism toward the EU.

Energy And Climate


Quitting the EU won’t cut the U.K.’s ties to the rest of Europe through gas and power links and possibly an emissions trading market. But Britain will have no influence over the bloc’s policies in those areas — to the detriment of both sides. Gas and electricity flow between the U.K. and the EU, especially between Ireland and Northern Ireland. A hard break from the EU’s internal energy market would therefore result in steeper energy prices and bigger risks of supply shortages for the U.K. and Ireland, and possibly elsewhere. Further complicating the negotiations will be Britain’s withdrawal from the European atomic energy community, Euratom, raising questions about who will cover inspections of the country’s civil nuclear sites, manage nuclear fuel sales and fund research and development. Meanwhile, the EU stands to lose a particularly loud voice in favor of tougher climate policies such as a higher-priced Emissions Trading System.

Agriculture, Food And Fisheries

British farmers have one reason to celebrate Brexit: The end of an EU rule requiring large farms to grow at least three crops, to protect soil health. The country’s farmers hate the rule, arguing that it eats into their profits and is ineffective, and farming minister Andrea Leadsom has already committed to eliminating it. But British farmers also face a large downside: They risk losing access to the EU single market. Without a new free trade agreement, those looking to move produce between the U.K. and EU could see big tariffs imposed in both directions. London’s overtures to massive agricultural producers including Brazil, Australia and the U.S. is also worrying for British farmers, who fear they will be unable to survive if vast quantities of cheap food flood the market. British fisheries, instead, may be about to get the upper hand over their French, Spanish, Dutch and Irish counterparts, who rely heavily on rich U.K. waters to fill their fishing quotas. The U.K. government has said it will refuse EU vessels the right to fish in its waters. But the EU does have a strong card to play, as the largest fish and seafood market in the world.

Transport

Keeping traffic moving will be chief among transport concerns for British negotiators — both at port terminals and in the country’s airspace. The common aviation area now allows British registered airlines to fly their aircraft freely between airports around the bloc. But that access isn’t guaranteed without club membership. After the split, the U.K. will also find itself outside the open skies deals the EU has worked out with countries like the U.S. and Canada. And there will be big question marks regarding the country’s participation in the raft of EU agencies that regulate the sector. Will Downing Street duplicate the European Aviation Safety Agency’s looming rules on drone classification? Will it agree to pollution standards set by the European Maritime Safety Agency? Will it recognize certification of train carriages by the European Union Agency for Railways? The U.K. has put its show on the road, but its destination remains unknown.

Health Care


Brexit displaces a significant European presence in the British health system: the European Medicines Agency. Other EU countries are already drafting bids to host the EMA, but the loss of British medicines regulators, who carry out almost 30 percent of drug assessments for the agency, will be hard-felt in Europe. Meanwhile, the U.K. will have to find a way to keep more than 10,000 EU doctors working in the National Health Service and 100,000 long-term caregivers for the elderly and disabled — or face losing them. Health Secretary Jeremy Hunt has acknowledged that the U.K. system would “fall over without their help,” but May has opposed unilaterally guaranteeing the rights of EU citizens, preferring to seek “reciprocal rights” from EU countries.

Education, Science And Research

Universities and researchers in the U.K. receive well over €1 billion in EU research funding in a given year, and Brits also make up the lion’s share of researchers participating in Europe’s Horizon 2020 research and innovation projects. While London has given assurances that universities will not lose funding due to Brexit, it’s not clear how it will do that. The U.K. hasn’t ruled out continued participation in EU research programs or the popular Erasmus group of student exchange programs. Still, some 15 percent of U.K. university researchers come from the EU27 and could be affected by any change to the rights of EU citizens in the country. The EU also has limited powers to influence the effects on undergraduate, vocational and school education, since much of the European-level cooperation is voluntary and sits outside EU legislation.

Technology

Fears that Brexit could lead to a tech talent flight have been eased by recent announcements from Google, Facebook, Microsoft, Amazon and Apple that they will continue to invest in the U.K. However, a brain drain can’t be ruled out if immigration controls are tightened. Startups taking root in the U.K. will also be keen to know whether they can access the continental markets London is leaving behind. And there are key regulatory questions to be answered about data flows and whether British tourists and their EU counterparts will still be able to enjoy one popular Brussels policy: the abolition of mobile roaming rates.


Article Link To Politico:

What Immigration Means To The U.S. Economy

By Patti Domm
CNBC
March 29, 2017

Immigrants are responsible for nearly half the population growth of the United States, and by extension that also means they are a sizable part of the growth in the U.S. labor force.

Statistics provided by the U.S. Census Bureau on assumptions about population growth and immigration are rolled into economists' forecasts for GDP.

The economy is expected to grow at about 2 percent, and "what's behind that projection is the assumption of labor force growth and productivity growth ... that is a combination of assumptions about the participation rate and the growth of the population. Our assumptions of the population come from the Census Bureau," said Joel Prakken, senior managing director and co-founder of Macroeconomic Advisers.



Prakken said immigrants are probably a bigger portion of the growth in the labor force, since the U.S. population is aging, immigrants are generally younger and many come to the U.S. specifically to work.

"Most people are totally shocked when they actually process the fact that immigrants are already almost half of the population growth, assumed in our 2 percent GDP projection and by the time you get to 2045, 80 percent of it is," he said.

Prakken said the natural increase in the population, meaning those that are born in the U.S., is expected to come down due to aging of the population and fertility rates.

Prakken said a proposed bill in the Senate would limit immigration, reducing it to roughly half the 1.1 million immigrants who arrived in 2015. He said over time, that could dent the secular growth rate of 2 percent by about a quarter point.

"The effect gets bigger over time because the Census assumptions for immigration keep growing and and growing and growing, and the bill would not allow any growth," he said.

In its forecast in future years, the Census Bureau shows immigration growth well above the current 1.1 million annual immigrants allowed entry for the past several years. Prakken shows in red the estimated difference between the current amount of immigrants allowed into the U.S. and the Census Bureau estimates.



"It's already a million a year and it gets bigger as it goes out," he said of the legal entrants.

"Implicit in the Census projections is either more illegal immigration, or somehow immigration reform allows an increase in the legal immigrants. This issue is not going to go away. It is a big deal," he said.


Article Link To CNBC:

Tesla Deal Boosts Chinese Presence In U.S. Auto Tech

By Paul Lienert 
Reuters
March 29, 2017

China's Tencent Holdings Ltd (0700.HK) has bought a 5 percent stake in U.S. electric car maker Tesla Inc (TSLA.O) for $1.78 billion, the latest investment by a Chinese internet company in the potentially lucrative market for self-driving vehicles and related services.

Tencent's investment, revealed in a U.S. regulatory filing, provides Tesla with a deep-pocketed ally as it prepares to launch its mass-market Model 3. Tesla's shares rose 2.7 percent to $277.45 on Tuesday, closing in on Ford Motor Co (F.N) as the second-most-valuable U.S. auto company behind General Motors Co (GM.N).

Tencent also could help the U.S. company sell - or even build - cars in China, the world's largest auto market, analysts said.

"It certainly is a strong chess move for Tesla," said Jeff Schuster, senior vice president of forecasting for researcher LMC Automotive, citing the cash infusion and "help in navigating the Chinese market."

Tesla Chief Executive Officer Elon Musk on Tuesday tweeted: "Glad to have Tencent as an investor and adviser to Tesla." Musk did not say what he meant by "adviser" but in a separate tweet he noted Tesla had "very few" Model 3 orders from China, where the car has not been formally introduced.

The midsize Model 3 is due to go on sale later this year in the United States.

The deal expands Tencent's presence in an emerging investment sector that includes self-driving electric cars, which could enable such new modes of transportation as automated ride-sharing and delivery services, as well as ancillary services ranging from infotainment to e-commerce.

Those new technologies, and their potential to create new business models and revenue streams in the global transportation sector, have attracted billions in investment from China's three tech giants - Tencent, Alibaba Group Holding Ltd (BABA.N) and Baidu Inc (BIDU.O).

In an investor note, Morgan Stanley auto analyst Adam Jonas said on Tuesday that he "would not be surprised" to see Tencent and Tesla collaborate in the development and deployment of some of those technologies.

The White House did not immediately respond to a request for comment on the Chinese investment in Tesla, but President Donald Trump has been critical of U.S. automakers and of China trade policies.

Founded in 1998 by entrepreneur Ma Huateng, Tencent is one of Asia's largest tech companies, best known for its WeChat mobile messaging app. With a market capitalization of about $275 billion, it is roughly six times the size of 14-year-old Tesla, whose $45 billion market cap on Tuesday was only $1 billion shy of 114-year-old Ford.

Tencent was an early investor in NextEV, a Shanghai-based electric vehicle startup that since has rebranded itself as Nio, with U.S. headquarters in San Jose, not far from Tesla's Palo Alto base. Tencent also has funded at least two other Chinese EV startups, including Future Mobility in Shenzhen.

In addition, Tencent has invested in Didi Chuxing, the world's second-largest ride services company behind Uber, and in Lyft, Uber's chief U.S. rival.

Baidu has invested in Nio, as well as in Uber and Velodyne, a California maker of laser-based lidar sensors for self-driving cars. Alibaba's mobility investments include Didi and Lyft.

As Tesla is doing, many of the start-up companies backed by Tencent, Baidu and Alibaba are developing self-driving systems that eventually could be introduced in commercial ride-sharing fleets in the United States and China after 2020.

Tencent maintains a U.S. office in Palo Alto, in the heart of California's Silicon Valley. Beijing-based Baidu and Hangzhou-based Alibaba also maintain offices in Silicon Valley.

Tencent owns about 8.2 million shares in Tesla, the carmaker said. It is the fifth-largest shareholder, behind Musk and investment companies Fidelity, Baillie Gifford and T. Rowe Price.(bit.ly/2nvNeMI)

To help fund Model 3 production, Tesla raised about $1.2 billion by selling common shares and convertible debt earlier this month. Tencent said its shares were acquired as part of the early March equity sale and on the open market.

Musk had a stake of about 21 percent as of Dec. 31.


Article Link To Reuters:

China's Secret Plan To Crush SpaceX And The US Space Program

By Clay Dillow
CNBC
March 29, 2017

China's breakneck economic expansion may be flagging, but the country's ambitions in space show no signs of slowing down. Alongside ongoing efforts to rival NASA by placing robotic landers, and eventually astronauts, on the moon and Mars, China's government is increasingly looking to its burgeoning space sector to rival U.S. companies like Jeff Bezos' Blue Origin and Elon Musk's SpaceX, which is targeting March 30 for the latest launch of its Falcon 9 rocket..

Though Chinese space authorities have publicly announced the country's ambitions to forge itself into a major space power by the early 2030s, President Xi Jinping's government is also considering ways to direct spending that will push Chinese tech companies toward breakthroughs in downstream technologies like robotics, aerospace, artificial intelligence, big data analytics and other 21st-century technologies.

The majority of China's space ambitions remain focused on boosting Chinese prestige at home and abroad. But a push within Xi's government to triple spending on space science as well as the emergence of a small but growing group of privately backed space start-ups suggest that both Chinese industry and government see long-term economic benefits in their investments in space technologies.

That increasing flow of capital toward both China's state-run and private space-related tech companies could place increased pressure on NASA, and eventually on commercial space companies in the United States and Europe.

Satellites And Space Launchers


Though the exact value of China's spending on its space programs remains shrouded in secrecy, many analysts peg its civilian space budget at around $3 billion annually in recent years, a fraction of the $19.3 billion the United States allocated to NASA in 2016. But on that relatively small budget, China has managed to accomplish big things.

Prior to 2003 China — whose space program dates back to the 1950s — had never put an astronaut (a "taikonaut" in Chinese nomenclature) into orbit. In the years since, it has moved rapidly toward parity with space powers like Russia and the United States. In 2016, China launched more rockets than Russia for the first time, equaling the 22 rockets launched by the United States. Included among those missions was Shenzou 11, which carried a crew of two to dock with China's Tiangong-2 spacecraft, a temporary orbiting space habitat serving as a stepping stone for a larger, permanent Chinese space station in the early 2020s.

These missions, along with China's ambitious plans to send both robots and manned missions to distant bodies like the moon and Mars are largely about prestige, says Dr. James Lewis, a senior vice president at the Center for Strategic and International Studies. "It's escaping what they would call the domination of the West and the U.S.," he says. "It's a way to assert China's independence and a return to the global stage. It sends a message: We're a great power."

But while China's space program has historically served as a state-driven enterprise to demonstrate the nation's technological prowess, China is now looking to its space program to pay economic dividends as well. Beijing recently set its GDP growth target for 2017 at 6.5 percent — the lowest in 25 years — as an economic boom, long fueled by cheap labor and low-end manufacturing, appears to have reached the limits of its expansion.

The March Of The Unicorns


Though China is home to 43 start-ups worth at least $1 billion, according to CB Insights' "Unicorn List," President Xi has expressed a desire to see more of them, particularly in information technology and network-related businesses, that could serve as China's next growth engine. And there are signs both within and outside of Xi's government, indicating that Beijing believes its space ambitions can provide a boost to both state-owned and private enterprises in China, catalyzing the kinds of technological breakthroughs that will lift both China's global standing and its slowing economy.

In the past year a number of Chinese space launch start-ups have emerged, largely with the backing of universities and hedge funds. Two-year-old OneSpace is developing a 59-ton launch vehicle that it plans to launch for the first time in 2018. ExPace, founded early last year, plans to market its solid-fueled Kuaizhou rocket to those looking to loft small satellites into orbit. Likewise, Landspace — launched in 2015 — claims it will conduct its first commercial launch this year.

These companies aren't exactly SpaceX or Blue Origin. Though technically commercial start-ups, their relationship with the Chinese government are conspicuous. ExPace's Kuaizhou rocket is reportedly based on the launcher for Chinese anti-satellite weapons and missile defense interceptors, while Landspace's rocket is based on the government's Long March 11 rocket (for its part, OneSpace was reportedly founded with support from the National Defense Science and Industry Bureau).

But launching small satellites atop rocket technologies borrowed from China's national space programs is simply a way into the market. OneSpace plans to eventually develop a manned space capsule, and Landspace is reportedly mulling a far more powerful, liquid-fueled rocket that could compete directly with the likes of SpaceX, Blue Origin or France's Arianespace.

A Private-Sector Push

The emergence of these and other start-ups underscores a move by China to capitalize on its growing space prowess and to drive at least some of the industry's investment and innovation outside of traditional government programs. Where rockets are concerned, fostering a commercial launch industry will allow Chinese companies to market rocket technology commercially to foreign customers without running afoul of international norms and agreements that deter governments from doing that kind of business. But it will also allow companies to tinker and, ideally, improve upon government designs.

Beyond rocket hardware, China is also reportedly mulling a major boost in spending on space science programs that will challenge Chinese firms to develop new materials, sensors and other technologies. The current five-year plan (running through 2020) already calls for five major space exploration projects. These include a dark matter-seeking satellite that launched in December 2015 and an experimental quantum communications satellite that launched last year that could lead to significant breakthroughs in communications and cryptography. An ongoing build-out of geolocation and Earth observation satellites is also providing China with vast reserves of the currency that information technology companies trade in: data.

"These programs are part of a comprehensive, deliberate, long-term strategic vision for economic and societal transformation," says Dr. Alanna Krolikowski, a post-doctoral research fellow at the China Institute at the University of Alberta. "What's needed is actually new drivers of growth, and those have to come from services, from innovation, from essentially becoming an economy that's more similar to an advanced industrialized economy."

By building out its network of BeiDou satellites — China's equivalent of GPS — and Earth-imaging satellites like those in its Gaofen constellation, China can generate the kinds of data that companies can turn into high-tech service enterprises. In the United States, companies like Planet Labs, Digital Globe, Spaceknow, and Orbital Insights have generated novel — and in some cases quite lucrative — methods for generating and processing satellite imagery into meaningful data they can then sell to companies around the world. Through its own investments, China could likewise become a provider of similar information, though it's unclear how much freedom of innovation companies will have with the Chinese government acting as the central clearinghouse for satellite data.

"There is a real vision for making the fundamental infrastructure investments in the satellite constellations themselves," Krolikowski says. "Those investments are justified in terms of their downstream impact on the economy and what they're going to do for upgrading the scientific, technological and industrial base in China — what they're going to do to foster that transition toward an innovation economy that the government emphasizes."

China Expands Its Footprint

While its space industry is a part of China's vision for economic transition, it is only one component, Lewis says. Much of Beijing's desire for economic transition has manifested itself in massive investments in more traditional technology industries, like semiconductors, into which the government is pouring $150 billion to boost China's domestic chip production (a move that has drawn the ire of both the Obama and Trump administrations).

Budget disparities aside, many U.S.-based analysts have expressed concern that NASA is reining in its ambitions as China expands its footprint in orbit and beyond.

But that could change if President Trump decides to re-energize NASA and shift its priorities. Already he has expressed interest in trying to create a "Kennedy moment" again.


Article Link To CNBC:

Tuesday, March 28, Morning Global Market Roundup: Stocks Recover, Dollar Off Lows As Markets Move Past Trump's Policy Stumble

By Vikram Subhedar
Reuters
March 28, 2017

Stocks recovered while the dollar rose off four-month lows on Tuesday as anxiety over Donald Trump's setback on healthcare reform gave way to tentative hopes for the U.S. president's planned stimulus policies.

Hopes that the Trump administration will now prioritize tax reforms coupled with still-robust economic data and corporate earnings forecasts spurred some investors to look past creeping doubts about Trump’s ability to deliver on campaign promises.

Europe's STOXX 600 rose 0.4 percent helped by financials and pharmaceutical stocks.

The dollar index against a basket of major currencies edged up 0.1 percent to 99.252 .DXY, after plumbing a trough of 98.858 overnight, its lowest level since Nov. 11.

"Risky asset markets have rebounded from yesterday’s opening low, supporting our view of the current market setback as a risk pause and not a turning point towards generally lower risk valuations," analysts at Morgan Stanley said in a note to clients.

The Trump administration's failure to undo Obamacare raised concern among investors that planned tax reforms face a rockier road though Congress. The White House said it would take the lead in crafting legislation to overhaul the tax code, adding: "We're going to work with Congress on this."

Morgan Stanley said that given some of the savings that were to come from replacing Obamacare would be lost, the upcoming tax reform may turn out to be a smaller package or result in a higher fiscal deficit.

U.S. stock futures ESc1 were up 0.1 percent.

The dollar steadied after its worst week since Trump’s election after talk of more rises in Federal Reserve interest rates this year.

"Clearly we shouldn't forget we are going to see at least two more hikes by the Fed this year and that there is still the potential for the next one to be pulled forward to June," said CIBC strategist Jeremy Stretch.

Sterling GBP= edged up a notch, trading within a narrow range as Britain prepared to start formal divorce proceedings with the European Union on Wednesday.

In emerging markets, the South African rand and government bonds extended losses after Finance Minister Pravin Gordhan was ordered home by the president, triggering speculation of an imminent cabinet reshuffle.

Recent weakness in the dollar underpinned crude oil prices though persistent worries about oversupply kept gains in check.

Prices for front-month Brent crude futures LCOc1, the international benchmark for oil, were up 0.6 percent. In the United States, West Texas Intermediate (WTI) crude futures CLc1 rose 0.7 percent.


Article Link To Reuters:

What The Dow’s Losing Streak Is Telling Us

Sinking stocks staying above 200-day moving average -- for now.

By Mark Hulbert
MarketWatch
March 28, 2017

Despite suffering its longest losing streak in six years, the Dow Jones Industrial Average remains well above its 200-day moving average.

That used to mean we could breathe a sigh of relief, since it would mean that the stock market’s major trend remains up.

I’m not sure we can take much comfort from that now. The Dow’s DJIA, -0.22% 200-day moving average has a checkered long-term track record at best, and its performance has deteriorated markedly over the past two decades.

Though the 200-day moving average has beaten a buy-and-hold strategy over the last 90 years, there were several lengthy periods — each lasting more than a decade — in which this moving average caused investors to do worse than they would have done by simply buying and holding. So even on the assumption that the 200-day moving average will work as well over the next 90 years as the last 90 — a big if — the indicator provides investors with little short-term assurance as to where we are in the market cycle.



Take the last year, for example. As you can see from the chart above, the stock market twice has violated its 200-day moving average and each of these instances turned out to be the end of a period of weakness rather than the beginning of a major downtrend.

In any case, there’s also a big question as to whether moving averages have lost their effectiveness. Blake LeBaron, a finance professor at Brandeis University, has extensively analyzed various technical analysis strategies including moving averages. He points out that in the early 1990s moving averages stopped working in both the stock market and the foreign exchange markets. That increases the likelihood that we are experiencing something more than just another of the same kind of lengthy past periods in which the 200-day moving average didn’t work.

What might that something be? LeBaron speculates that one culprit might be the 200-day moving average’s increasing popularity. As more and more investors begin to follow a system, of course, its potential to beat the market begins to evaporate.

A famous newsletter turns 40


That brings me to the 40th anniversary of the newsletter that probably did more than anything else to popularize the 200-day moving average: Doug Fabian’s Successful ETF Investing. This service was created in early 1977 by Doug Fabian’s father, Richard Fabian, when it was called the Telephone Switch Newsletter. Doug retired just this month, when he handed the reigns over to Jim Woods.

Fabian’s claim to fame was a disciplined adherence to a 39-week moving average, which is essentially the same as the 200-day moving average. For a few years after I began monitoring this newsletter in 1980, the approach was quite successful, and Richard Fabian boasted that it would continue doing so into the future. He even assured followers that his system would produce a 20% annualized return over any given five-year period.

A funny thing happened on the way to the bank, of course. When Richard’s son Doug took over as editor in the early 1990s, the letter became less tied to the 39-week moving average. Doug is to be commended for doing so, in effect realizing in advance that the next couple of decades would not be a period in which this indicator would be as helpful as it had in the past.

But the shift away from the 39-week moving average also represented a shift away from the investment discipline that it imposes. And, according to the Hulbert Financial Digest, this newsletter over the last 20 years has done less well than it would have had it persisted in a strict adherence to the 39-week moving average.

So there are dual lessons here: Nothing works forever, and investment discipline is a virtue. Putting those lessons into practice can be difficult, as they sometimes point in contradictory ways. But they underline just how tough it is to beat the market.


Article Link To MarketWatch:

Democrats Burned By Polling Blind Spot

The party didn't just lose among rural white voters, it may have missed them altogether.


By Stevan Shepard
Politico
March 28, 2017

As they investigate the forces behind the party’s stunning losses in November, Democrats are coming to a troubling conclusion. The party didn’t just lose among rural white voters on Election Day, it may have failed to capture them in its pre-election polling as well.

Many pollsters and strategists believe that rural white voters, particularly those without college degrees, eluded the party’s polling altogether — and their absence from poll results may have been both a cause and a symptom of Donald Trump’s upset victory over Hillary Clinton in several states.

Determining what exactly happened is one of the most pressing problems facing the out-of-power party. In order to win those voters back — or figure out a future path to victory without them — party strategists say they first need to measure the size of that rural and working-class cohort.

John Hagner, a partner at Clarity Campaign Labs, a D.C.-based Democratic analytics firm, said 2016 taught the party a hard lesson about polling in the Trump era.

“The folks who would talk to a stranger about politics just aren’t representative of people who wouldn’t,” he said.

The first evidence of the party’s polling blind spot surfaced in a governor’s race, the 2015 contest in Kentucky. Both public and private polls going into the election showed Democrat Jack Conway and Republican Matt Bevin running neck-and-neck — Conway had a 3-point lead in the final RealClearPolitics average — but Bevin won by a comfortable, 9-point margin.

Like some of the more Democratic states where Trump upset Clinton last year, Kentucky has a large rural and a large working-class white population (often there is considerable overlap in the groups). Whites make up 88 percent of Kentucky’s population, and fewer than a quarter of Kentucky residents over age 25 have a college degree.

Demographic trends confirm that these voters have been moving toward Republicans, but they don’t provide an easy answer for why pollsters have struggled to capture them in surveys.

Hagner sees some similarities between Bevin and Trump — both businessmen who initially positioned themselves as insurgent candidates within the GOP. In both cases, there were signs of what’s known as "social-desirability bias," the idea that voters won’t admit for whom they intend to vote because they think others will look unfavorably on their choice.

“With both Bevin and Trump, every newspaper endorsed against them,” Hagner said. “The right answer, in air quotes, was, ‘I’m not going to vote for them.’ … There’s a small group of people who knew that, at some level, they didn’t want their support for Trump to be scrutinized.”

Pollsters are still analyzing whether a “shy Trump voter” effect may have been decisive in some states. Like the public polls, Democrats struggled to measure the presidential race in private polls in a number of Upper Midwest states with large numbers of working-class white voters.

Clinton’s campaign mostly ignored Michigan and Wisconsin — where public and private surveys showed Clinton consistently ahead — until the final days of the race and was edged narrowly on Election Day by Trump. And the campaign invested heavily in Iowa and Ohio — two traditional battlegrounds where she trailed — only to lose both by larger margins than expected.

“We projected Clinton to lose Ohio by 200,000 votes,” said Hagner, “and she lost by 450,000.”

Democrats’ polling problems might not only be voters hiding their intentions from pollsters — some voters may have been hiding altogether.

That bias against responding covers a number of different elements, including geography. One top Democratic strategist who requested anonymity to discuss candidly what went wrong with the 2016 polls pointed to difficulty in reaching voters in more rural districts because of spotty cellphone service.

The same strategist added that many of these voters also may choose not to participate in polls “because they don’t like the establishment and they don’t want to take a survey.”

The yawning education gap among white voters’ preferences — Trump clobbered Clinton among white voters without a college degree, while the two ran neck-and-neck among those with a degree — means that nonresponse bias may have been determinative, said Democratic pollster Nick Gourevitch, a partner at Global Strategy Group. And it may have been going on for some time.

“I think it’s very plausible that for years pollsters have been over-representing educated voters, and that it only came back to bite us recently because it was a key driver in vote preferences this time,” Gourevitch said.

It’s too early to say for sure that this explains Democrats’ struggles over the past two election cycles — or that these issues will still be relevant in 2017 and 2018. Most Democrats — along with Republicans and nonpartisan analysts — are waiting for more states to collect and publish data of which voters did and did not cast ballots, a process expected to conclude later this spring.

Democrats aren’t ready to prescribe remedies yet, but officials at the national party committees are sending strong signals that they plan to hold pollsters to a higher standard in the upcoming midterm elections. Rep. Ben Ray Luj├ín of New Mexico, who is chairing the Democratic Congressional Campaign Committee for the second consecutive election cycle, ruffled feathers last month when he suggested that “unreliable pollsters will not be invited back to the DCCC.”

A committee spokeswoman, Meredith Kelly, clarified last month that pollsters’ reliability isn’t just going to be determined by their 2016 results, but also by their willingness to participate in a DCCC-driven effort to test various polling methods.

“It’s more about unreliable data combined with an unwillingness to do better and to learn from that,” said Kelly, the DCCC’s communications director. “That’s when we’ll stop working with people.”

To that end, the DCCC plans to use this year’s races for other offices to test its pollsters — and different methods to reach the voters who caused problems in recent elections. That could include using its own automated survey infrastructure.

“We’re going to use the 2017 elections to basically ask multiple pollsters to test rural and exurban areas that have overlaps with some of our [target] districts,” Kelly said. “It’ll be an ongoing thing, so we’ll have a way to test whose approaches worked and were most predictive.”

Elisabeth Pearson, executive director of the Democratic Governors Association, said her organization conducted a review after the 2015 Kentucky governor’s race and intends to use it as a model for how to proceed headed into the next two years, when gubernatorial elections will be held in 38 of 50 states.

“I’ve seen a ton of openness from pollsters. We’ve done a couple of these meetings where we’ve brought all these pollsters that we worked with and had a great conversation about best practices, deep dives into things like sampling,” said Pearson. “I think they all understand that it’s in their best interests.”


Article Link To Politico:

Why Samsung's Galaxy S8 And Apple's iPhone 8 Launches Could Be The Most Important Ever

By Arjun Kharpal
CNBC
March 28, 2017

Phone launches follow a pretty similar pattern: Flashy press conference, excitement, pre-orders and the investing world keeping an eye on how well these devices sell.

It's always high stakes for the companies, but perhaps more than ever, the launch of the Samsung Galaxy S8 on Wednesday, and the anniversary edition of the iPhone later this year, could be the most important smartphone launches ever for both companies.

That's because it comes at a time when the smartphone market is saturating and after both companies have gone through testing periods. The Galaxy S8, which has been extensively leaked, will be released following the Note 7 scandal last year, in which Samsung was forced to recall and eventually discontinued the handset after several caught fire. The South Korean giant apologized and released a full report on what went wrong in January, but the episode is still fresh in consumers' minds.

At the same time, Samsung Group's heir-apparent Jay Y. Lee was charged by prosecutors with bribery and embezzlement connected to South Korea's ongoing corruption scandal which led to the impeachment of the country's President Park Geun-hye.

A successful and innovative Galaxy S8 smartphone will be key to shifting attention away from Samsung's current issues, putting the Note 7 saga to bed, and boosting sales and profit in its mobile division.

Meanwhile, Apple has also had a tough time recently. In its fiscal 2016 results, the U.S. technology giant experienced the first annual revenue decline since 2001, after iPhone sales fell for three consecutive quarters. Many have questioned Apple's chief executive Tim Cook's ability to innovate pointing to the Apple Watch as the only new product category under his leadership.

While talk of driverless cars and augmented reality (AR) – a technology Cook has said could be as big as the smartphone itself - have yet to materialize in any products. The iPhone 7, Apple's last flagship got criticized for not being a big change from the iPhone 6s.

But from recent leaks, the Galaxy S8 and the iPhone anniversary addition, potentially called the iPhone 8, may just be the best devices both companies have ever produced. Samsung's flagship will have a big screen and new artificial intelligence (AI) capabilities, while Apple's smartphone is rumored to have a new 3-D camera and AR capabilities. Morgan Stanley said in a recent note that the next iPhone will create a "supercycle" for Apple.

Driving a new wave of users to buy the next flagship devices will also be crucial if Apple and Samsung want their customers to adopt technologies and services that they are staking their future on such as AI and virtual reality.

But competition is tough and Huawei is chasing both Apple and Samsung with the Chinese firm establishing itself as the number three smartphone player in the world.

With such high-expectations and both companies keen to put recent issues in the past, Samsung and Apple need to deliver with their flagship launches, which can't be like any other.


Article Link To CNBC:

How Middle-Class And Even Wealthy American Families Are Sliding Inexorably Into The Red

It’s possible to still be broke in some U.S. cities with $500,000 per year in income.


MarketWatch
March 28, 2017

Not even a high six-figure salary is enough to keep New York City families out of the red. But spare a thought for the average American family, whose costs easily outpace the average income.

A recent analysis from Sam Dogen at his personal finance website Financial Samurai showed how difficult it is for high earners to escape the rat race in New York City, one of the priciest places to live in the world. He analyzed a mock budget for an imaginary family of four in which the two 35-year-old breadwinners each make $250,000 a year. After factoring in taxes, 401(k)contributions, home and child care costs, the family was left with just $7,300 for the year — as if they were living “paycheck to paycheck.”

Perhaps nobody is crying for lawyers making $500,000 a year or even $250,000, but the analysis shows just how easy it is for spending habits to take a high salary and turn it into table scraps. Dogen said pressure from peers to spend more is a big contributing factor, adding “everywhere I go, and I’ve been all over the world, high income earners are secretly feeling the same squeeze.”

“They are unhappy, getting divorces, and always comparing themselves to wealthier and wealthier people,” he said. “Heck, even a friend who is worth over $200 million after founding and taking public a company feels like he needs to continue working because he has to ‘keep up with the Zuckerbergs.’”

So how would the average American family fare by the same lifestyle? MarketWatch crunched the numbers and found they would be racking up approximately $27,000 in debt a year if they spent the average of what Americans spend on the same activities. This vast difference in economic stability comes even after adjusting for cheaper housing costs and lowering the number of vacations to one a year — the average in the U.S. Most Americans aren’t racking up more than $20,000 in debt a year (the average household with credit card debt owes $16,061, up 10% from $14,546 10 years ago and $15,762 last year) so it is clear this level of spending is relatively high.

Dogen’s fictional New York family was taking three vacations a year, higher than the average American, and paying for property taxes on a $1.5 million home — much higher than the average home value in the U.S. of $195,700. However, Dogen argues that it is only 20% more than the median home price in Manhattan — not completely ridiculous for a family of four in New York City. He also defended the $12,000 the family spends on music and sports lessons, saying the pressure to get into private high schools in major cities like New York and Los Angeles causes families to sink money into extracurricular activities.

This Financial Samurai/MarketWatch comparison shows that people at every income level can have money problems if they don’t budget well, said Mark Hamrick, the Washington bureau chief for personal finance site Bankrate.com. “Many Americans, no matter where they live and how much they make, maintain their finances precariously close to the edge of break-even,” he said. “We’re reminded of the high percentage of lottery jackpot winners who go bankrupt. The problem wasn’t too much money. The problem was a failure to make a realistic budget and stick to it. This is why maintaining an adequate savings cushion is critically important.”

“There’s no doubt that living in New York can be about as expensive as it can get in the U.S., but it is worth remembering that for every aspiring or would-be millionaire in the city, there are others who are part of the supporting cast working in restaurants and elsewhere making significantly less than hundreds of thousands of dollars a year,” Hamrick said. “Some of these people, in fact, are probably better at being thrifty than those with significantly higher incomes. They even take their lunches to work.”


Article Link To MarketWatch:

Trump Kills Obama's Environmental Rules

The ‘America First’ energy policy takes shape, and it’s good news for oil, gas, and coal companies.


The Daily Beast
March 28, 2017

The Trump administration will release an executive order on “Energy Independence” tomorrow that marks a 180-degree reversal of Obama’s policies on energy, climate change, and public lands, according to a briefing provided by a senior White House official.

Described as an “America First” energy policy, the new executive order shifts the government’s balance to favor the fossil fuel industry over environmental protection.

First, the order will immediately rescind a number of Obama administration orders, guidances, and other documents, while freezing Obama-era regulations in order to conduct new reviews. In particular, all executive orders on climate change will be formally rescinded. They “have run their course,” said the official, and “simply don’t reflect president’s priorities… We are taking a different path.”

According to the document:

• The White House Center for Environmental Quality’s guidance that all agencies take climate change into account when making policy will be rescinded.

• The EPA’s Clean Power Plan, which set the first-ever national standards for carbon pollution from power plants will be frozen pending a new review.

• The EPA’s determination of the “social cost of carbon,” i.e., the value of a ton of carbon not put into the atmosphere, will be rescinded. The Office of Management and Budget will set the value instead.

• The Department of the Interior’s moratorium on new coal mining on public land will be rescinded.

• President Obama’s 2013 memorandum calling for a climate action plan will be rescinded.

• President Obama’s 2015 memorandum on climate mitigation efforts, to be conducted by multiple departments, will be rescinded.

• Regulation of fracking will be reviewed.

• Regulation of methane emissions at oil and gas production sites will be reviewed.

All these and other reversals are but the first part of the executive order’s ambit. The second part is even more devastating for environmental concerns: to set a new, national policy on “energy independence”—in other words, energy production.

Over the next 180 days, all agencies will be instructed to identify, and slate for repeal, “any rules that serve as obstacles or impediments to domestic energy production.” Those will range from environmental laws that protect caribou at the expense of oil drilling in Alaska, to safety regulations that raise the cost of fracking.

Indeed, the order will call for reviewing any policies that “burden” energy production, including incidental ones like water regulations, limitations on public land use, housing rules regarding the siting of fracking and other fossil fuel extraction, and even tax policies. The whole point of a six-month-long, government-wide review is explicitly to change all relevant government actions to benefit energy production.

How best to understand this broad executive order?

First, this should not be a surprise. Trump campaigned against the scientific consensus on climate change and against “burdensome” environmental regulations. He’s put climate skeptics in charge of the EPA and in the White House. The extent of the action may be unprecedented, but anyone who is surprised by these moves has not been paying attention.

Second, this is more Republicanism than Trumpism. Most likely, Jeb Bush would’ve made many of the same changes. There are some distinctively Trumpist elements to it—pandering to coal miners (“the president made a pledge to the coal industry to do whatever he can to help those workers,” the official said), calling the policy “America First.” But those are more rhetorical than substantive. In fact, most of these changes are the ones that mainstream Republicans have been demanding for years. This order is as much Reince Priebus as Steve Bannon.

Indeed, the only reason that Trump can so swiftly roll back eight years of Obama administration policy is that the Republican-dominated congress refused to act on climate change. That left it to the executive branch to do the heavy lifting with regulations, executive orders, and other rules—all of which can be overturned by the next administration, as we are now seeing.

Finally, the White House official repeatedly expressed the president’s desire to “get EPA back to its core mission” of protecting clean air and clean water. That spells bad news for everything else the EPA does: scientific research, climate change prevention, promotion of alternative fuels, protecting against environmental injustice, and so on.

There were a couple of interesting developments, however.

First, the Trump administration did not formally abandon the Paris Agreement on climate change, stating that it was “still under discussion.” While this might offer a glimmer of hope to environmentalists, more likely it’s simply a tactical move. Why formally withdraw from an international accord when you can simply ignore it and miss its targets? Better to sin and ask forgiveness later than to cause a ruckus now.

Second, the administration has more finely tuned its rhetoric regarding climate change. At the briefing, journalists were told that, in fact, the president does believe in man-made climate change. Indeed, when pressed, even the official, who as recently as four months ago was a lobbyist for fossil fuel companies, admitted that he, too, believed in man-made climate change.

“Yep, sure, I do,” he said (after first saying it’s “not relevant what I think”). “The issue is to what extent, and how serious, and the magnitude of it, and a lot of other questions that flow from that.”

That is a more nuanced view than outright climate denial, or even climate skepticism. You might call it “climate meh.” As in: OK, climate change is happening, but it’s probably not such a big deal. In the words of Whitney Houston, it’s not right, but it’s OK.

That view still runs directly counter to the entirety of the scientific community’s estimates, which range from bad to catastrophic. But it is a brilliant political shift. Instead of baldly denying the science (and the weather, for that matter), the administration now invites us into the weeds of how much, how bad, how complex… how dull.

The Whitney Houston view also makes fighting climate change a matter of balancing. “It’s an issue that deserves attention,” said the official, “but the president has been very clear that we’re not going to pursue climate or environmental policies that put the U.S. economy at risk.”

See how that works—it’s not right, but it’s OK, and so we can balance it out against these other things. (Several journalists pointed out that climate change will be economically devastating, as coastal cities must protect against being inundated, extreme weather events increase in frequency, and crop belts shift northward—but the official played dumb. “I’d like the see the research,” he said.)

What, finally, is an “America First energy policy”? Per the executive order, it’s to “remove any obstacles so we can produce energy.” But of course, that’s really a fossil-fuel-industry first energy policy. Everything else just got sent to the back of the line.


Article Link To The Daily Beast:

Changes: Five Ways Brexit Will Transform The EU

By Alastair Macdonald
Reuters
March 28, 2017

Leaving the European Union, to be triggered by Prime Minister Theresa May on Wednesday, may transform Britain but it will also change the EU. Here's how:

EU Budget: Where's The Money Gone?


The Union's budget accounts for only 2 percent of public spending in the bloc. But in the east, transfers from Brussels contribute a much bigger share - some 8 percent of Poland's budget and nearly a fifth of Bulgaria's.

Without Britain, Brussels will have about a sixth less to give to countries that are net recipients, setting up a fight between east and west over a 7-year spending plan from 2021.

In the short term, there will also be a battle with Britain over what it owes on leaving. London may choose to keep paying for access to some key EU budgets, such as for research. But big accounts, like farm subsidies, could be in for radical review.

Balance of Power: Friends Left In Lurch

Britain has used its 12-percent share of EU votes to curb Brussels spending and push hard for free trade. Its departure worries smaller northern allies like the Nordics and Dutch.

Poorer easterners, whose membership Britain championed, fret that Germany and France may stiffen barriers to their low-wage workforce or beef up EU federal powers the ex-communist states dislike. Aspiring new members, notably in the Balkans, also lose an ally against rich westerners wary of further EU enlargement.

The 19 euro countries will lose a key block on their caucus power. They can now outvote non-euro states, but only just. A non-euro bloc led by Poland and Sweden would need major dissent among euro countries to prevent the euro zone setting EU policy.

France becomes the EU's only nuclear-armed, veto-wielding U.N. Security Council member and loses a dogged opponent of its ambitions for more EU defense cooperation outside the U.S.-led NATO alliance; defense is already back on Brussels' agenda.

Germany, ambivalent about being seen as dominating Europe by dint of its economic muscle and being home to nearly one post-Brexit EU citizen in five, is uneasy about how to maintain balance, notably with economically struggling co-founder France.

EU In The World: A Diminished Force

The EU loses a hefty interlocutor with the United States and the wider English-speaking world. A historic diplomatic and military force, Britain's insight and influence with powers like China and Russia or in the Middle East have been useful to the EU. In Africa, a source of growing concern over migration, British aid budgets and other clout have played a key role.

London's tough line with Moscow has won it friends among the likes of the Baltic states and the Netherlands, which fear that a softer approach from France, Italy and, possibly, Germany will undermine a consensus for pressuring Russia with sanctions over its actions in Ukraine or for cutting dependence on Russian gas.

Political Culture: Vive Le Brexit?


Though under-represented in the staff of EU institutions, British officials over 44 years of membership have established a key role in senior positions as well as in the EU parliament. That will disappear as British citizens are shut out of EU jobs.

Many governments, notably from smaller states, value what they see as a British approach to administration that is more pragmatic and laissez-faire than the more centralized, dirigiste tradition embedded in the French foundations of the Union.

Britain will leave one legacy likely to survive in the form of English as Brussels' working language, despite some hopes in Paris of restoring the prominence of French.

Survival Game: Breaking The Breakup Taboo


Since the Brexit vote, EU leaders speak of a renewed unity among the remaining 27. Polls suggest popular support for the EU has broadly increased. But unity will be sorely tested by Brexit negotiations, with governments all having differing priorities.

The unprecedented use of Article 50 of the EU treaty breaks a taboo and means invocations of an "indivisible Union" now ring hollow. Brussels will have to contend with more threats to quit, coloring decision-making across the board for years to come.


Article Link To Reuters:

Disasters Cost Insurers $54 Billion, Economy $175 Billion In 2016

By Brenna Hughes Neghaiwi
Reuters
March 28, 2017

Disasters cost insurers $54 billion in 2016 and created total economic losses of $175 billion, reinsurer Swiss Re said in a revised study on Tuesday.

"The losses in 2016 – both economic and insured – were the highest since 2012 and reversed the downtrend of the last four years," the world's second-largest reinsurer said.

The group said natural catastrophes and man-made disasters claimed 11,000 lives last year.

The figures showed an increase on initial estimates provided by the group in mid-December, which placed financial losses above $158 billion and insured losses at $49 billion at least.

In its annual natural catastrophe review released in early January, Munich Re said insurers paid out around $50 billion for natural disaster claims last year.


Article Link To Reuters:

Watch These Stocks As Barometer For Chances Of Trump Tax Reform

High-tax companies, retailers hold clues to proposal’s chances; Goldman high-tax index loses outperformance versus S&P 500.


By Joseph Ciolli
Bloomberg
March 28, 2017

Fresh off a week of health-care drama, investors shifted attention to the prospects for the Trump administration’s plan to cut taxes.

Want to know if they’re “phenomenal?” Watch the companies with the most at stake.

The simplest measure is a basket of firms that have the highest effective tax rates, including Goodyear Tire & Rubber Co. and Alliance Data Systems Corp. If the chances for passing cuts to corporate rates rise, so too will these shares. Retailers, meanwhile, hold clues on the fortunes of the border adjustment tax. If the likes of Wal-Mart Stores Inc. start to falter, that’d be a clue that the measure is gaining traction.

Handicapping the political wrangling in Washington has taken on more importance after the health bill’s failure raised concerns the administration’s pro-growth policies won’t sail through Congress. For investors forced to parse the meaning of of D.C. infighting, the collective wisdom of the market has taken on the role of soothsayer.

“These trades depend on what the market’s anticipation has been in the past, and a lot can be gleaned from whether they gel or unravel,” said John Manley, who helps oversee about $233 billion as chief equity strategist for Wells Fargo Funds Management in New York. “People work so hard trying to use things to predict the stock market -- it’s interesting to see people using stocks to predict things outside of it.”



For now, investors have turned cold on the prospects for tax reform, at least any time soon. A Goldman Sachs Group Inc. index of 50 highly taxed stocks fell as much as 1 percent Monday before finishing little changed after its worst week in 13 months. The group surged as much as 14 percent after the election, but is now down 2.8 percent in the month of March.

“The defeat of the health bill indicates that complex and controversial tax reforms are likely to be difficult to pass,” a group of Goldman economists led by Alec Phillips wrote in a note to clients on Monday.

That sentiment’s having the opposite effect on apparel and multi-line retail companies, whose reliance on overseas manufacturing makes them particularly exposed to any border-adjustment tax. The centerpiece of the House Republican tax proposal would likely raise supply costs, making the prospect for legislative gridlock a positive.

The group, which Goldman said in mid-February had the “most to lose” from the border tax, was little changed on Monday, clinging to a third straight monthly advance. It’s getting some relief from preemptive selling that saw an S&P 500 index of retailers fall 1.7 percent last week, the biggest decline of the year. L Brands Inc., Foot Locker Inc. and Abercrombie & Fitch Co. rose at least 0.2 percent. Wal-Mart edged higher.

“Watching Congress lack the backbone to make changes to the ACA reminded us how difficult tax reform could be,” Daniel Clifton, head of policy research at Strategas Partners, wrote in a client note on Monday.


Article Link To Bloomberg:

The Cost Of Trump's Deepening Unpopularity

By Jonathan Bernstein
The Bloomberg View
March 28, 2017

Gallup's first post-health care presidential approval poll showed President Donald Trump down to 36 percent approval, a new low. He had previously fallen slightly below Barack Obama's low point; he's now one tick lower than either Bill Clinton or Gerald Ford at their worst. Next up? Ronald Reagan's low was 35 percent approval, as the effects of a deep recession peaked in January, 1983, with unemployment over 10 percent. Lyndon Johnson matched that number in August 1968, after widespread opposition to the war in Vietnam had already driven him from seeking re-election. That Trump has almost matched them without those cataclysmic events is quite an achievement.

We should get beyond that headline, however, with a major caveat. He's not really quite that unpopular -- probably. Gallup has been running on the low side for Trump. On the other hand, one of Trump's best pollsters, Rasmussen, had him down to 45 percent. The polling averages all had Trump at new lows: RealClearPolitics at 42.1 percent, FiveThirtyEight at 41.8, and HuffPollster at 40.3. Those are awful, but they're not Gallup's utter disaster today.

What's clear is that these terrible numbers coincide with what is normally the honeymoon period, and Trump remains far below every other president of the polling era at this point.

The best news for Trump is that Reagan and Clinton both rebounded from awful early numbers to be re-elected pretty easily.

The bad news is, well, everything else, including the possibility that the polling averages don't yet fully account for reactions to the health-care debacle. And the possibility that we still are seeing a honeymoon effect, with Trump heading even lower as the effect wears off.

What matters are the effects Trump's unpopularity is having for him right now. And if his polling numbers continue to drop, we're going to see even larger effects.

Everyone he deals with is going to be less likely to do what he wants. That ranges a lot depending on how their particular constituencies feel about him. Even for those who are most pro-Trump, the low overall approval numbers make it a bit less likely they'll do his bidding. And those who answer to groups which really hate him will be under increasing pressure to find ways to demonstrate their opposition. If that sounds like the unenthusiastic supporters and confident opposition Trump faced during the health-care debacle, that's correct -- so now imagine if he faces his next battles with even lower numbers.

This extends far beyond members of Congress to bureaucrats, state governments, interest groups, and even judges and leaders of foreign nations. So, for example, Republicans need to pass a new spending bill by late April or else the government will shut down, but as Ed Kilgore details, conservatives might add riders in the House -- such as defunding Planned Parenthood -- which could make Senate passage impossible. Assuming Trump wants to prevent a government shutdown, he'll not only want House conservatives to delay that battle, but he'll also want pro-life groups to wait as well -- since very few House Republicans are willing to stand up to those groups. That's not an unusual White House request to interest groups: Not to take a different position, but just to look the other way for a while and save a big fight for some other time. And it's a request that is more likely to be granted to a popular president than an unpopular one.

Everything from decisions by bureaucrats on whether to leak damaging information, to decisions by judges to challenge the administration can be affected by the president's (un)popularity.

Trump and the people around him may not quite realize how damaging the situation is for him. But it's long past time to replace the White House leaders who don't realize what's at stake for Trump's presidency.


Article Link To The Bloomberg View:

The Post-Election Rally May Be Repealed And Replaced

By Doug Kass
Real Clear Markets
March 28, 2017

* Risk happens fast and the Trump trade may be over
* The administration's first initiatives have been ineffective
* A potential stock market top may now be in place

A Less Effective White House:
After Friday's failed health care bill, President Trump's future tax, regulatory and fiscal initiatives will be more difficult to accomplish. I have expected this outcome for several months; others may soon come to the same conclusion.

We soon may learn that:

* The president has and will continue to be educated that there is a fundamental difference between the art of the real estate deal and the art of delivering thoughtful legislation when 535 partisans are involved.

* I am fearful that President Trump will be unable to pivot; he maintains an overly visible and vocal contempt for his opposition in the media and in the Capitol. I am not sure whether he sees his Bannon-like anarchistic approach toward governing -- by tearing down Washington, D.C. -- is failing. His mistake is that though the populist message resonated pre-election, it must be expanded to get legislation passed post-election. We are a nation of laws, not of personalities. There are few sherpas within the administration who can guide and shepherd bills into successful laws. Every great corporate CEO or president of the U.S. knows what they don't know and they bring in brilliant, smarter and effective people to help them. However, even qualified Cabinet members such as Gary Cohn and Wilbur Ross have no experience on the Washington stage.

* The president's advisers lack knowledge of governing, have shown no ability to walk back from mistakes, and their early agenda has been ineffective (e.g., the travel ban has been declared unconstitutional and controversy has swirled around some appointees). Little has been achieved with the exception of a few executive orders, with no substance and less ability to be enforced. There has been no president in history who got stuck and lost at the start of his administration with a singular piece of legislation -- in this case the repeal and replacement of the Affordable Care Act (ACA). President Trump is likely to have many more firsts in his tenure.

* The administration now needs a win and the Supreme Court appointment of Neil Gorsuch may not be enough as Democrats now will fight tooth and nail against it. Indeed, the president, in his hostile tweets, press conferences and post-election stumping, has infuriated the Democratic Party, creating a toxic relationship.

* The bottom line is that unlike Friday morning or early November, there today is an unusual amount of policy uncertainty at a time when valuations are stretched by historic standards -- a potentially noxious combination.

I expect the president's popularity and approval ratings to continue to fray.

I also expect the President to get more and more frustrated in attempting to develop bipartisan coalitions for his agenda. (See Surprise No. 4 in my 15 Surprises for 2017)

President Trump may become the first part-time president in history, spending more and more time at Mar-a-Lago, Bedminster, N.J., and New York City. (See Surprise No. 5 in my 15 Surprises for 2017)

The Trump Presidency Likely Will Make Volatility And Uncertainty Great Again

Reduced Economic and Profit Expectations: A byproduct of a problematic, disorganized and less-effective administration will manifest itself in a lessened trajectory of domestic economic growth and U.S. profits.

The mother's milk of the S&P Index has been soured.

* Lower Interest Rates:
Even before the Friday ACA news, the yield curve already had been flattening, portending slowing growth. This flattening should continue. Interest rates likely will remain lower for longer, threatening financial institutions' promise, profitability and share prices (look at the Goldman Sachs GS chart as a template of concern). Here is the case I recently made to sell/short banks and selected financials. (This morning the yield on the 10-year U.S. note has slipped by four basis points to 2.36%, approaching its recent yield low)

I would put a laser-like focus on the 10-year U.S. note yield; dismissed by some, it will do what the consensus does not expect, in my opinion. It could fall. And with Federal Reserve Chairwoman Janet Yellen moving dovish and the very clouded bond short trade, a sharp drop in bond yields could scare the equity markets out of the "Trump Trade."

* Volatility Now May Rise:
The trend of more than 100 trading sessions without a 1% decline in the S&P 500 has been halted this past week. The problem is not that so many funds are trend-surfing (worshiping at the altar of price momentum); the problem is how much money is being committed on the same side (long) and essentially with the same strategy.

A 2017 Market Top May Be In Place


"The same principles which at first view lead to skepticism, pursued to a certain point, bring men back to common sense."


--George Berkeley

The irrational has been rationalized in recent months.

Skepticism is an historical tool that has been somehow lost since early November. (Our investment guard has been dropped and it's not "rope a dope.") Large skepticism leads to large understanding. Small skepticism leads to small understanding. And no skepticism leads to no understanding.

My market forecast, expressed in last December's 15 Surprises for 2017, remains the same:

"The S&P Index has a high of 2,375 (up 5%) for the year and a low of 1,815 (down 20%), closing the year closer to the low end of the annual price range (down 15%)."

This is no time to put our heads in the sand.

After Friday's withdrawal of President Trump's health care agenda, I expect stocks to weaken in a saw-tooth pattern (futures are down 20 this morning) , bonds to rally and to break recent price highs (yields on the 10-year are four basis points lower this morning), gold to advance (up $9 at 6 a.m. ET) and the U.S. dollar to drop (it is at a four-month low this morning).

Quite frankly, I do not understand much of the fabric of the recent bull market case anymore. Nor do I understand the logic that embraced the valuation optimism of a Trump election victory based on an aggressive tax, regulatory and fiscal agenda and that has dismissed the growing flaws and failures of the administration's policy.

With so many worshiping at the altar of price momentum and leaning on the same side of the investment boat -- having limited knowledge of private market value, replacement value, balance sheets or income statements -- their "views" may be temporary. (Remember those people were manifestly bearish if Trump won the election; well, they turned as the price momentum accelerated in November and December). Their convictions and investment backbones may not be strong or enduring; again, they are relying unduly, in my view, on the continuation of positive psychology, buoyed investor enthusiasm and on the emergence of animal spirits.

The market downside could be a function of the slope and trajectory of the correction and the sustainability of trend-surging influences that have been embraced by the long-only ETFs, CTAs, risk-parity and volatility-trending strategies shining. The robotic effect of rebalancing and strategies that worship at the altar of price and momentum are producing the impact of increasing risk and creating asymmetric reward versus risk. When the trends change, it will likely be abrupt and brutal.

With nearly everyone on the same side of the (long) boat, this has the potential to be one big feedback loop. But when the inflection point occurs, these funds sell lower after having bought higher.

Like in 1987, early 2000 and late 2007, this could be problematic.

It almost always ends badly when everyone is tilting to the same side.

President Trump will make volatility and uncertainty great again.


Article Link To Real Clear Markets:

The Biggest Risk From The Dollar's Drop May Not Be What You Would Guess

Cracks emerge in carry trade as yen, euro stage rally; Societe Generale says euro provides opportunity to double down.


By Andrea Wong
Bloomberg
March 28, 2017

A high-risk corner of the $5 trillion currency market has become the collateral damage of the dollar selloff.

Whipsawed by the greenback and confronted by U.S. policy confusion, carry trades were supposed to be a rare bright spot for investors who want to stay away from the world’s biggest reserve currency. Under the strategy, you borrow in low-rate alternatives such as the yen, and buy high-yielding peers like the Mexican peso, benefiting from low volatility and the emerging-market rally.



Practitioners of the carry trade are learning there’s no hiding from the dollar’s influence. Growing doubts about the outlook for U.S. policy following the failed attempt at health-care reform not only led to a weaker dollar, it also caused investors to pile into havens such as the yen and the euro -- the funding currencies carry traders sell as part of the strategy. The Japanese currency gained 2 percent against the dollar this month, while the euro rose 2.8 percent.

"The carry trade is far more important than the dollar move in the changing the currency market," said Bob Savage, chief executive officer of hedge fund CCTrack Solutions LLC in New York. "The rise in the yen may actually put the trade at risk. The dollar itself doesn’t affect the biggest FX trade out there, but the yen does."

There’s no hard evidence available in analyzing the scale of carry trades. But according to Bank of America Corp.’s flow data, buying emerging-market currencies made up the biggest long position as of last week. The data blend positioning and sentiment surveys conducted with its hedge fund and real-money clients, and publicly available futures data.
Funding Currency

Nonetheless, carry traders could still make a profit because of yield differentials or appreciation in emerging-market currencies. At a time when most investors have capitulated on the strong-dollar bet and currency funds struggle to yield any return for yet another year, the carry strategy may be the last oasis.

In fact, the trade is still worth it even though the funding leg of the trade goes south, according to Societe Generale SA, and investors should buy currencies such as Russia’s ruble, the Turkish lira or India’s rupee against the euro.

"High yielding currencies should outperform a basket of low yielders over the near term," Guy Stear, head of emerging markets and credit research at Societe Generale, wrote in a note published March 24. "Global markets remain enamored of risk and emerging markets have been no exception."


Article Link To Bloomberg:

The DNA Of Oil Wells: U.S. Shale Enlists Genetics To Boost Output

By Ernest Scheyder
Reuters
March 28, 2017

A small group of U.S. oil producers has been trying to exploit advances in DNA science to wring more crude from shale rock, as the domestic energy industry keeps pushing relentlessly to cut costs and compete with the world's top exporters.

Shale producers have slashed production costs as much as 50 percent over two years, waging a price war with the Organization of the Petroleum Exporting Countries (OPEC).

Now, U.S. shale producers can compete in a $50-per-barrel oil market, and about a dozen shale companies are seeking to cut costs further by analyzing DNA samples extracted from oil wells to identify promising spots to drill.

The technique involves testing DNA extracts from microbes found in rock samples and comparing them to DNA extracted from oil. Similarities or differences can pinpoint areas with the biggest potential. The process can help cut the time needed to begin pumping, shaving production costs as much as 10 percent, said Ajay Kshatriya, chief executive and co-founder of Biota Technology, the company that developed this application of DNA science for use in oilfields.

The information can help drillers avoid missteps that prevent maximum production, such as applying insufficient pressure to reach oil trapped in rocks, or drilling wells too closely together, Kshatriya said.

"This is a whole new way of measuring these wells and, by extension, sucking out more oil for less," he said.

Biota's customers include Statoil ASA, EP Energy Corp and more than a dozen other oil producers. Kshatriya would not detail Biota's cost, but said it amounts to less than 1 percent of the total cost to bring a well online.

A shale well can cost between $4 million and $8 million, depending on geology and other factors.

Independent petroleum engineers and chemists said Biota's process holds promise if the company can collect enough DNA samples along the length of a well so results are not skewed.

"I don't doubt that with enough information (Biota) could find a signature, a DNA fingerprint, of microbial genomes that can substantially improve the accuracy and speed of a number of diagnostic applications in the oil industry," said Preethi Gunaratne, a professor of biology and chemistry at the University of Houston.

Biota has applied its technology to about 80 wells across U.S. shale basins, including North Dakota's Bakken, and the Permian and Eagle Ford in Texas, Kshatriya said. That is a tiny slice of the more than 300,000 shale wells across the nation.

EP Energy, one of Biota's first customers, insisted on a blind test last year to gauge the technique's effectiveness, asking Biota to determine the origin of an oil sample from among dozens of wells in a 1,000-square foot zone.

Biota was able to find the wells from which the oil was taken and to recommend improvements for wells drilled in the same region, said Peter Lascelles, an EP Energy geologist.

"If you've been in the oilfield long enough, you've seen a lot of snake oil," said Lascelles, using slang for products or services that do not perform as advertised.

Lascelles said DNA testing helps EP Energy understand well performance better than existing oil field surveys such as seismic and chemical analysis. The testing gives insight into what happens underground when rock is fractured with high pressure mixtures of sand and water to release trapped oil.

Biota's process is just the latest technology pioneered to coax more oil from rock. Other techniques include microseismic studies, which examine how liquid moves in a reservoir, and tracers, which use some DNA elements to study fluid movement.

Venture capitalist George Coyle said his fund Energy Innovation Capital had invested in Biota because it expected the technique to yield big improvements in drilling efficiency. He declined to say how much the fund had invested.

"The correlations they're going to be able to find to improve a well, we think, are going to be big," he said.

-For graphic on 'DNA sequencing in the oil industry' click: tinyurl.com/ma8ypwd


Article Link To Reuters: