Wednesday, May 3, 2017

Wednesday, May 3, Night Wall Street Roundup: Wall St. Slips As Fed Holds On Rates; Financials Rise

By Lewis Krauskopf
Reuters
May 3, 2017

Wall Street ended slightly lower on Wednesday after the U.S. Federal Reserve held interest rates unchanged and investors digested another heavy round of earnings reports.

The benchmark S&P 500 reduced its losses following the statement from the U.S. central bank, which downplayed weak first-quarter economic growth and emphasized the strength of the labor market, in a sign it could tighten monetary policy as early as June. Investors are betting on a 65 percent chance of a hike in June, according to Thomson Reuters data.

The S&P financial sector .SPSY, seen benefiting in a rising rate environment, ended up 0.6 percent after the Fed's bullish statement, leading all groups. Seven of the 11 major sectors finished negative, however.

The Fed is in its first tightening cycle in more than a decade after it spent years keeping rates near zero to help the economy following the 2007-2009 recession.

"The Fed is communicating its mantra of gradual rate hikes," said Ryan Sweet, senior economist at Moody’s Analytics in West Chester, Pennsylvania. "The next time they will likely raise rates would be June."

The S&P 500 .SPX lost 3.04 points, or 0.13 percent, to 2,388.13. The Nasdaq Composite .IXIC dropped 22.82 points, or 0.37 percent, to 6,072.55, its biggest percentage drop in about three weeks.

The Dow Jones Industrial Average .DJI rose 8.01 points, or 0.04 percent, to 20,957.9.

The S&P 500 has returned to within 8 points of its all-time high during an earnings season that generally come in above expectations.

First-quarter profits at S&P 500 companies are estimated to increase 14.2 percent, its strongest growth since 2011, according to Thomson Reuters I/B/E/S.

Apple (AAPL.O) shares fell 0.3 percent, weighing on indexes, but recovering from steeper losses after the company's quarterly report, in which it reported a surprise fall in iPhone sales.

The S&P 500 has climbed 11.6 percent since President Donald Trump's Nov. 8 election, fueled by hopes for tax cuts, deregulation and infrastructure spending, although investors have questioned his ability to enact his agenda.

"There was a lot of optimism based on the Trump agenda at the start of the new year and it has started to peter out," said Robert Pavlik, chief market strategist at Boston Private in New York.

In other corporate news, Sprint (S.N) shares slid 14.3 percent after the U.S. wireless carrier did not give specifics on deals it would pursue, even as its quarterly loss narrowed.

Delphi Automotive (DLPH.N) shares jumped 10.9 percent. The company said it planned to spin off operations tied to internal combustion engines and focus on technology for electrically powered and self-driving vehicles. The stock was the biggest percentage gainer in the S&P 500.

The New York Times Co (NYT.N) rose 12.6 percent after the newspaper publisher reported its biggest quarterly revenue growth in six years.

After the market close, Facebook Inc (FB.O) shares fell more than 1 percent even as the social media company reported a 76.6 percent surge in quarterly profit.

About 7.3 billion shares changed hands in U.S. exchanges, above the 6.6 billion daily average over the past 20 sessions.

NYSE declining issues outnumbered advancing ones by 1.47-to-1. On Nasdaq, a 1.79-to-1 ratio favored decliners.

The S&P 500 posted 31 new 52-week highs and seven new lows, while the Nasdaq Composite recorded 83 new highs and 71 new lows.


Article Link To Reuters:

Wednesday, May 3, Morning Global Market Roundup: Global Stocks Struggle, Dollar Gains Ahead Of Fed Decision

By Patrick Graham
Reuters
May 3, 2017

European stock markets retreated from 20-month highs and the dollar inched up on Wednesday as investors pondered the chances of another rise in U.S. interest rates next month ahead of the Federal Reserve's May statement.

Since December, the U.S. central bank has finally begun to deliver on long-disappointed expectations of a steady rise in borrowing costs and an increase in official rates June is now almost 60 percent priced in by markets.

But U.S. economic numbers in the past month have been less convincing, and the latest gains for global share prices look as much the product of an improving recovery in Europe as the U.S.-based optimism that dominated the end of last year.

A surprise fall in iPhone sales in the first quarter and drops in vehicle sales for Ford (F.N) and General Motors (GM.N) added to nerves about the durability of U.S. growth in the absence of a boost from tax cuts or new public spending.

Falls in the price of copper, iron ore and other metals also underlined growing nerves over China and, with oil prices stuck near recent lows, weighed on Europe's commodity-heavy indices.

"These numbers point to U.S. consumers becoming more cautious and do seem like a source of some of the weakness today," said Andy Sullivan, a portfolio manager with GL Asset Management UK in London. "Autos, tech and basic resources are leading Europe lower."

By 0845 GMT, the STOXX 600 index of leading European shares was down 0.2 percent. France's CAC 40 .FCHI and Germany's DAX .GDAXI fell 0.3 and 0.2 percent respectively while the resource-heavy FTSE 100 .FTSE dipped 0.3 percent.

After a mixed Asian session, with a number of major markets closed, the MSCI global share index was marginally lower on the day. .MIWD00000PUS

A surge in business investment and the fastest wage growth in a decade suggest U.S. activity will regain momentum as the year progresses.

But Satoshi Okagawa, senior global markets analyst for Sumitomo Mitsui Banking Corporation in Singapore, said the weak U.S. auto sales could make market participants wary of actively buying the dollar against the yen for now.

"Concerns about geopolitical risks such as North Korea had weighed on the dollar against the yen recently ... But the focus is shifting to whether the (strength) of U.S. economic fundamentals is for real," he said.

"There is more data coming up including the jobs data, so those need to be watched closely," Okagawa said, referring to the U.S. nonfarm payrolls report due on Friday.

The dollar index .DXY, which tracks the greenback against a basket of trade-weighted peers, rose 0.1 percent to 99.055.

It gained around 0.2 percent against the yen JPY=D4and 0.1 percent against the euro on the day but remained below highs hit over the past week.


Article Link To Reuters:

As U.S. And China Find Common Ground On North Korea, Is Russia The Wild Card?

By James Pearson and Alexei Chernyshev 
Reuters
May 3, 2017

When North Korean leader Kim Jong Un sent Lunar New Year greetings this year, the first card went to Russian President Vladimir Putin, ahead of leaders from China and other allies of the isolated country, according to its official news agency.

Some academics who study North Korea argue Kim could be looking for Russia to ease any pain if China, which accounts for about 90 percent of North Korea's trade, steps up sanctions against the isolated country as part of moves to deter its nuclear and missile programs.

U.S. President Donald Trump lavished praise on Chinese President Xi Jinping last week for Beijing's assistance in trying to rein in Pyongyang. A day later, U.S. Secretary of State Rex Tillerson pressed the United Nations Security Council to impose more sanctions to further isolate Pyongyang.

There is no sign of any sustainable increase in trade between Russia and North Korea, but business and transport links between the two are getting busier.

A new ferry service starting next week will move up to 200 passengers and 1,000 tonnes of cargo six times a month between North Korea and the Russian port of Vladivostok.

Shipping data on Thomson Reuters Eikon shows there has been a recent steady flow of oil tanker traffic from Vladivostok into North Korean east coast ports.

Last Thursday, five North Korean-flagged oil tankers had loaded up at Vladivostok-area ports and identified North Korean ports as their destination. It was not known what products they were carrying.

Earlier this year, Russian government officials visited Pyongyang to discuss more cooperation in rail transport, according to media reports. A Russian-built railway link between the Russian eastern border town of Khasan and the North Korean port of Rajin has been used to carry some coal, metals and various oil products.

"North Korea does not care about China's pressure or sanctions because there is Russia next door," said Leonid Petrov, a North Korea expert at Australia National University.

"Pyongyang has been playing off Beijing and Moscow for half a century, letting them compete for the right to aid and influence North Korea."

Russia, especially Vladivostok, is also home to one of the largest overseas communities of North Koreans in the world, and they send home tens of thousands of dollars in much-needed hard currency each month.

Speaking at the United Nations last week, Tillerson called on states to sever diplomatic and financial ties with Pyongyang and suspend the flow of North Korean guest workers. The Security Council has not yet agreed on any course of action.

While Russia has not indicated it will oppose U.N. sanctions or seek to dilute them, its ties with the United States are fraught, which could complicate its joining any U.S.-led initiative on North Korea.

Trump and Putin spoke in a telephone call on Tuesday and discussed North Korea, among other issues, both sides said. There was no word of any agreement.

"Loyal Partner"


Samuel Ramani, a Russia expert at Oxford University, said support for the Pyongyang regime could bring economic benefits for Moscow. It would demonstrate Russia was "a loyal partner to anti-Western regimes facing international isolation and sanctions", he said.

"As Russia has close economic links with other countries at odds with the West, like Iran, Venezuela and Syria, this symbolic dimension of the Russia-North Korea relationship has strategic significance."

The United States is calling for an embargo in oil sales to North Korea, which imports all its fuel needs. China, North Korea's main supplier, is unlikely to agree because that would be potentially destabilizing for the Pyongyang regime, but it may impose curbs on the trade, experts say.

China exports about 500,000 tonnes of crude and 270,000 tonnes of products each year, oil industry sources in China say. Russia, the other major supplier of oil to North Korea, exported about 36,000 tonnes of oil products in 2015, the latest year for which figures are available, according to U.N. data.

Russia has already taken over the supply of jet fuel to North Korea after China halted exports two years ago, according to the industry sources in China.

Russia is also the source of foreign exchange for North Korea, mostly from Vladivostok.

The city of 600,000 people, just about 100 km (60 miles) from the border with North Korea, is home to thousands of North Koreans who mainly work on construction or do home renovations. A city web site advertises "Korean Professional Contractors" and says they work "Cheaply and Fast".

One North Korean man, who works as a handyman, told Reuters he was obliged to hand over a portion of his income - $500 – to the North Korean state each month. Thin and in his 30s, he did not disclose his monthly income, but said he charged 4,000 rubles (about $70) for a day’s labor.

The man said he had worked in Russia for 11 years, leaving his wife and daughter back home whom he only saw on rare visits.

Like all North Koreans, he wore a badge on his lapel bearing the portrait of late North Korean leader Kim Il-Sung.

"It's better here than in North Korea," said the man, who did not want to be named. "It's a very difficult life there. Here you can make money."

But the most symbolic upturn in ties between Russia and North Korea is the start of regular trips of the Mangyongbong ferry from Monday between Vladivostok and the North Korean town of Rajin.

Vladimir Baranov, the head of Vladivostok-based Investstroitrest company, told Reuters his company had chartered the Mangyongbong and would be the general agent for the ferry route. The ageing boat used to ferry tourists between Japan and North Korea, but Tokyo banned its visits in 2006 as part of sanctions against Pyongyang.

An editorial in Japan's Yomiuri Shimbun newspaper described the ferry service to Russia as "a move that puts a damper on international efforts to strengthen the encirclement of North Korea aimed at halting its nuclear and missile development."

Still, despite the differences with the United States and the existing links with North Korea, experts say Russia is unlikely to sharp increase trade with Pyongyang because of its low foreign exchange reserves and general unreliability.

"All trade with North Korea has to be subsidized," said Andrei Lankov, a Russian North Korea expert at Seoul's Kookmin University. "I do not see the Russian government spending its dwindling currency reserves to support the regime they despise and see as incurably ungrateful, and also prone to risky adventurism".


Article Link To Reuters:

Oil Rebounds On U.S. Stocks Drawdown, But Declining OPEC Compliance Weighs

By Naveen Thukral
Reuters
May 3, 2017

Crude oil prices bounced back on Wednesday as a decline in U.S. inventories underpinned the market, although a dip in compliance with OPEC efforts to reduce output and near record supplies capped gains.

The benchmark for global oil market, Brent futures LCOc1 gained 47 cents, or 0.9 percent to $50.93 a barrel. U.S. West Texas Intermediate crude CLc1 rose 37 cents, or 0.8 percent, to $48.02 a barrel.

On Tuesday, WTI slid 2.4 percent to its lowest close since March 21 and Brent closed at its lowest level this year, erasing all of the gains made since OPEC agreed to reduce production in November.

"There is precautionary buying following API data and leading to EIA data tonight," said Ric Spooner, chief market analyst at CMC Markets in Sydney.

"The lower oil gets, there is potential for forming a base. We are near lows made in March both in Brent and West Texas and if we do see, as many expect, a good run of draw in inventories into the summer, I think there is some upside potential."

U.S. crude stocks fell last week, and both gasoline and distillate inventories also dropped, data from industry group the American Petroleum Institute (API) showed on Tuesday.

Crude inventories fell by 4.2 million barrels in the week ended April 28 to 528.3 million barrels, compared with analyst expectations for a decrease of 2.3 million barrels. Crude stocks at the Cushing, Oklahoma, delivery hub fell by 215,000 barrels, API said.

The U.S. government will release its Energy Information Administration (EIA) inventory data on Wednesday at 1430 GMT.

"The supply of crude oil continues to decline. This is evident in both spot and forward supply data," commodities brokerage Marex Spectron said in a note.

"Demand remains strong and in spite of lower refinery profitability we see increasing capacity utilization rates."

Production from the Organization of the Petroleum Exporting Countries (OPEC) fell for a fourth straight month in April, a Reuters survey found on Tuesday, as top exporter Saudi Arabia kept production below its target while maintenance and unrest cut production in exempt nations Nigeria and Libya.

But more oil from Angola and higher UAE output than originally thought meant OPEC compliance with its production-cutting deal slipped to 90 percent from a revised 92 percent in March, according to Reuters surveys.

OPEC pledged to reduce output by about 1.2 million barrels per day (bpd) for six months from Jan. 1 - the first supply cut deal since 2008. Non-OPEC producers are cutting about half as much.

Russia had cut oil output by 300,790 barrels per day as of May 1 compared with October 2016, Russia's Energy Ministry said on Wednesday.

Crude oil discharged on ships worldwide in April was near a record high of 45 million barrels per day, according to Thomson Reuters Eikon data.

This indicates supplies remain high, but it also implies strong demand, especially from Asia.

While OPEC countries are cutting production, exports of U.S crude oil to Asia have spiked.


Article Link To Reuters:

Where The Arctic Oil Industry Is Booming

As Donald Trump seeks to open more U.S. Arctic waters to drilling, Norway is showing the way.


By Mikael Holter
Bloomberg
May 3, 2017

With the oil industry barely recovering from its most brutal slump in decades, you might expect the Arctic Ocean to be the last place explorers would hunt for new discoveries.

The Barents Sea off Norway’s northern tip is different.

Norwegian authorities expect companies including Lundin Petroleum AB and OMV AG to drill a record 15 wells in the Barents this year. Statoil ASA’s Songa Enabler, a floating drilling machine the size of two football fields, is in the vanguard of those efforts as it embarks on a five-well exploration campaign.




The Barents enjoys a number of advantages over the U.S. Arctic, where President Donald Trump is pushing to expand drilling. Thanks to the Gulf Stream, it’s largely ice-free, unlike other areas such as Alaska and Greenland, which have been deserted by oil companies like Royal Dutch Shell Plc since 2014. The relatively shallow waters off Norway mean drilling is less costly, while the potential prize is huge: the Enabler’s fourth well will be Korpfjell, probably the largest prospect to be tested offshore Norway since the 1990s.

“It’s the biggest remaining structure that we know of on the Norwegian shelf,” Tim Dodson, head of exploration a state-controlled Statoil, said aboard the rig last week. “It’s important for us, and for northern Norway — and the entire country, actually.”

Norway is betting the under-explored Barents could boost its oil industry, after crude production fell by half since 2000. There could be more than 17 billion barrels of oil and gas yet to find here, or almost 65 percent of Norway’s undiscovered resources, according to estimates from the Norwegian Petroleum Directorate.



In Hammerfest, the regional oil hub that bills itself as “the northernmost town in the world,” the industry downturn since 2014 that prompted tens of thousands of job cuts along Norway’s North Sea coast has gone largely unnoticed.

Encircled by snow-clad hills on a fjord south of the town center, Polarbase AS serves ships supplying the Songa Enabler and other rigs. When oil exploration in the Barents was halted for six years during the 1990s, Polarbase survived by selling snow scooters and farming salmon. This time is very different.

Exploration is booming and “we’re now focused on oil and gas,” said Ketil Holmgren, manager of Polarbase.

Statoil, Lundin and OMV have already made discoveries totaling more than a billion barrels in the Barents Sea since 2010, and Eni SpA last year started producing oil from Goliat, the area’s first platform. Statoil plans to make a final investment decision on the Johan Castberg project this year after reducing costs by more than 50 percent.

Even with the Gulf Stream, which pumps warm water north across the Atlantic Ocean and cold water south, the Enabler rig is “winterized” and can withstand temperatures down to -25 degrees Celsius — complete with a heated emergency-exit path on deck. But apart from a few scattered snowflakes in the late-April air, there’s little to suggest you’re deep inside the Arctic Circle.

Korpfjell is high-risk — Dodson sees a one in six chance of making a find there — but its multi-billion barrel potential could also prove high-return. With a higher probability for Statoil’s other targets, he expects to make at least one discovery.

With the basin bucking the global downturn in offshore exploration, the government has proposed a record number of Barents blocks in its next licensing round.

Despite industry optimism, Arctic drilling remains controversial in Norway, a country of 5.3 million people that became one of the world’s richest after striking oil in the North Sea in the late 1960s.

Environmental groups such as Greenpeace and WWF say drilling rigs are going too close to the edge of the polar ice sheet — a fragile ecosystem that sustains species from plankton to mammals — posing catastrophic threats in case of a spill. A debate is also raging over whether oil and gas in the remote Barents can be profitable amid efforts to fight climate change that could cause demand for fossil fuels to plummet.

If Arctic projects don’t pay off, that could mean billions of dollars of lost revenue for the Norwegian government, which offers generous refunds and deductions for exploration and investment in a trade-off for imposing a high tax rate on oil production.

“There’s a very high probability that these investments will be stranded assets,” said Jens Ulltveit-Moe, a Norwegian investor who made part of his $400 million fortune in oil-related ventures, before selling them more than a decade ago.

Statoil and Norway’s Petroleum and Energy Minister Terje Soviknes don’t agree.

“With a break-even price of $35 a barrel, we’re competitive and then some,” he said in an interview on board the Enabler, referring to Statoil’s Castberg project. “That makes a lot of the stranded-assets debate disappear.”

Statoil’s Barents Sea wells are among the cheapest in its global exploration portfolio this year, at $25 million apiece at most, Dodson said.

“It’s a bit of a myth, to be quite honest, that things are so much more costly up here,” he said.

That’s good news for Hammerfest, where the oil industry has created 1,200 jobs since Statoil decided 15 years ago to build a liquefied natural gas plant to process production from the Snovhit deposit, the Barents Sea’s first field.

The town used to be a “run-down” place from which you moved away if you wanted to get ahead, said Polarbase’s Holmgren, a 55-year-old native of Hammerfest. Now, “young people who leave have plans to come back.”


Article Link To Bloomberg:

Russia Said To Back Extending OPEC Deal After Hitting Target

Goal of cutting output by 300,000 barrels a day met on May 1; Russia sees sense in extending output deal for six months.


By Elena Mazneva and Stephen Bierman
Bloomberg
May 3, 2017

Russia considers it sensible to extend the existing deal with OPEC to curb crude output for at least six months, given current market dynamics, according to a government official with knowledge of the matter.

Russia exceeded its target of cutting production by 300,000 barrels a day from October levels by 790 barrels a day on May 1, said the official who asked not to be identified as the information isn’t public. The world’s largest energy exporter will maintain that output level through June under the current deal.

Russia and other non-OPEC producers last year joined the Organization of Petroleum Exporting Countries’ effort to eliminate a global crude surplus by curbing output by a total of 1.8 million barrels a day. Saudi Arabia’s Minister of Energy and Industry Khalid Al-Falih said last week that he planned to meet his Russian counterpart Alexander Novak before OPEC ministers gather in Vienna on May 25 to decide whether to extend the deal.

Russia is satisfied with the way global inventories are declining, the official said. Oil production increases in some countries are more than offset by growing demand and good compliance with output cuts from nations cooperating with OPEC, the person said.

Russian oil production in April fell 0.5 percent from a month earlier to 10.995 million barrels a day, according to data emailed from the Russian Energy Ministry’s CDU-TEK unit on Tuesday. The monthly average was about 252,000 barrels a day below the October level.


Article Link To Bloomberg:

Chinese Yuan, Indian Rupee Forecast To Fall Over Coming Year

By Krishna Eluri 
Reuters
May 3, 2017

The Chinese yuan and Indian rupee are expected to weaken against the dollar over the coming year, a Reuters poll found, with the greenback supported by U.S. interest rate hikes, though analysts have trimmed their bearish bets on Asian currencies from the previous poll.

While markets do not expect the Federal Reserve to raise interest rates at its policy meeting later on Wednesday, the central bank is tipped to lift rates twice more this year, with one likely as early as next month, which would be supportive of the dollar. [ECILT/US]

China's yuan CNY=CFXS is up just around 0.7 percent so far this year, having lost nearly 7 percent in 2016. In November, the yuan hit an eight-year low following Donald Trump's shock election as U.S. President.

In the latest poll of 60 foreign exchange strategists, taken over the past week, the yuan, also known as the renminbi, is forecast to weaken to 7.07 against the dollar in a year from around 6.89, where it was trading on Wednesday.

"There will be moderate strengthening in the U.S. dollar, contributing to stability in the yuan and, by extension, other emerging market currencies," wrote Dirk Willer, EM strategist at Citi, in a note.

"This is assumed to take place against the backdrop of moderately higher U.S. rates, consistent with our call for two more rate hikes from the Fed this year."

A separate Reuters poll showed investors reduced bullish bets on most Asian currencies. They fell to the lowest in a month for the Chinese yuan. [ASIA/FXP]

Still, the latest predictions show less conviction in the dollar strength story than was the case last month, with the latest poll medians for the yuan slightly higher than April's poll.

While concerns remain over President Trump's policies, especially on Beijing's large trade surplus with the U.S., the new administration has refrained from declaring China a currency manipulator despite campaign promises to do so.

Separately, the Indian rupee INR=IN is forecast to weaken to 66.23 per dollar in the year, a more than 3 percent fall from where it was trading recently at 64.22.

The rupee has gained more than 5 percent against the dollar so far this year, reaching a 20-month high of 63.92 per dollar late last month.

The expected losses come despite the Reserve Bank of India having moved to a neutral stance earlier this year from an easing bias, although economists in a separate Reuters poll suggested the central bank's next move will likely be a cut towards the end of the year.


Article Link To Reuters:

Buffett To Face Big Crowd As Berkshire Grows Bigger

By Jonathan Stempel
Reuters
May 3, 2017

As the United States adapts to the presidency of Donald Trump and faces rising tensions abroad, Berkshire Hathaway Inc (BRKa.N) shareholders will descend on Omaha, Nebraska this weekend seeking reassurance, from Warren Buffett.

The weekend known as "Woodstock for Capitalists" is unique in corporate America, a celebration of the billionaire's image and success at a conglomerate whose businesses range from Geico insurance to the BNSF railroad to See's candies to Ginsu knives.

Buffett, 86, and vice chairman Charlie Munger, 93, will answer five hours of questions at Saturday's annual meeting.

Many say it reinforces their views about investing and Berkshire, even if it remains unclear how much new they learn.

"Watching someone like (Buffett) with strong command on details of the economy and Berkshire's operations is very impressive," said Meyer Shields, a Keefe, Bruyette & Woods analyst who rates Berkshire "market perform." "But you're not going to learn a lot about Berkshire Hathaway the company."

Last year's attendance fell to about 37,000 from more than 40,000 a year earlier.

But there were also 1.1 million real-time sign-ons to Yahoo Finance, which webcast the meeting for the first time. It will do so again, in English and Mandarin.

Large, Large Organization


Much of Berkshire's relative outperformance came decades ago when it was much smaller, and even Buffett has called the company's huge size an "anchor on investment performance."

Buffett has said Berkshire owns 10 businesses big enough to make the Fortune 500 list of large U.S. companies on their own.

But details can be thin. For example, aircraft parts maker Precision Castparts, acquired last year for $32.1 billion, merited about a page in Berkshire's annual report.

Precision's final annual report, in 2015, ran 87 pages.

"It's a large, large organization," said Jeffrey Stacey, founder of Stacey Muirhead Capital Management in Waterloo, Ontario, who is attending his 26th straight meeting. "I am willing to give it the benefit of the doubt because the track record has been so good for so long."

Buffett said in February that boosting disclosure could put many Berkshire businesses at a disadvantage, and that "it's the growth of the Berkshire forest that counts."

He also knows the perils of conglomerates, saying in 2015 that dubious accounting, self-promotion and mediocre businesses make them "richly deserve" their "terrible" reputation.

Buffett says Berkshire is different, in part because he took Munger's advice to buy wonderful businesses at fair prices.

Shareholders enjoy that focus less than they once did.

Berkshire's share price has slightly lagged the Standard & Poor's 500 .SPX including dividends during the eight-year bull market, but has outperformed since the global financial crisis mushroomed in September 2008.

Shields, who is not attending Saturday's meeting, wants Buffett to reveal more, even if shareholders can "safely assume" his eventual successor as chief executive is top-flight.

Issues Aplenty


While Buffett and Munger do not know in advance the questions they will get from shareholders, journalists and analysts at Saturday's meeting, they can anticipate many.

Buffett may need to review Berkshire's support of Wells Fargo & Co (WFC.N), in which it holds a roughly 10 percent stake, despite a sales scandal over bogus customer accounts.

He may also get questions about his support for 3G Capital, a Brazilian firm known for ruthless cost-cutting. Berkshire controls Kraft Heinz Co (KHC.O) with 3G, and recently tried to help 3G buy Unilever NV (UNc.AS) (ULVR.L) for $143 billion.

Trump is sure to come up. Buffett did not support his election but Berkshire's book value could swell by $36 billion with his proposed corporate tax cuts, Barclays Capital said.

Buffett may also get questions about his surprise bets on Apple Inc (AAPL.O) and the four biggest U.S. airlines.

Having gone over a year since a big acquisition, Buffett may be asked how he can better deploy the $86.4 billion of cash, equivalents and Treasury bills that Berkshire recently held.

Succession may also come up. Indeed, Buffett has already delegated work to lieutenants like Ajit Jain, Gregory Abel, Tracy Britt Cool and Todd Combs that he once would do himself.


Article Link To Reuters:

Apple Sells Fewer iPhones In Last Quarter, Shares Slide

CEO blames demand dip on reports about future phone models; Services sales up 18%; company returns more cash to investors.


By Alex Webb
Bloomberg
May 3, 2017

Apple Inc. reported falling iPhone sales, highlighting the need to deliver blockbuster new features in the next edition of the flagship device if the company is to fend off rivals like Samsung Electronics Co.

Investor confidence has been mounting ahead of a major iPhone revamp due later this year. Yet competitors released new high-end smartphones recently, putting pressure on Apple to deliver a device that’s advanced enough to entice existing users to upgrade and lure new customers.

Apple sold 50.8 million iPhones in the quarter ended April 1, down from 51.2 million units in the same period a year earlier, and less than the 51.4 million predicted in a Bloomberg survey of analysts.

"We’re seeing what we believe to be a pause in purchases of iPhone, which we believe are due to the earlier and much more frequent reports about future iPhones," Apple Chief Executive Officer Tim Cook said during a conference call with analysts.

In the past, Apple changed the basic shape of the iPhone about every two years. The iPhone 7, unveiled in September, had similar form and features to its predecessor, extending the cycle to three years. That may have encouraged more customers to delay purchases.

Apple stock slipped almost 2 percent in extended trading. The shares have jumped 27 percent this year and closed at a record Tuesday on anticipation of an iPhone 8 launch in the fall for the 10th anniversary of the device. The company has tested a new type of screen, curved glass, stainless steel materials, new cameras and augmented-reality features.



"We agree with the market that a bet on shares of Apple is a bet on the company’s ability to transition from their existing iPhone platform to an augmented reality-driven platform in the future," said Gene Munster, co-founder of Loup Ventures and a former veteran Apple analyst.

Apple had $257 billion in cash and equivalents at the end of the quarter. The company said it will return more of that to shareholders, announcing $50 billion in new buybacks and a 63-cent dividend. Analysts had forecast 62 cents, up from the 57 cents paid in its 2016 fiscal year. The company had already announced $175 billion in repurchases, helping maintain the stock price in lulls between new products.



The Cupertino, California-based company also forecast $43.5 billion to $45.5 billion in revenue for the current quarter, below analysts’ estimates of $45.7 billion.

Much is riding on the success of the next iPhone. Smartphone sales growth has been slowing and Apple has lost market share in China, a major source of growth before last year, amid increased competition from local rivals.

"Chinese vendors such as Huawei, Oppo and Vivo continue to make life really hard for Apple in the region," John Butler, a Bloomberg Intelligence analyst, said.

Still, in the fiscal second quarter China revenue fell 14 percent -- less precipitously than last year.

“We expect our performance in China to continue to improve as we go through the year," Chief Financial Officer Luca Maestri said in an interview.

Apple benefited from Samsung’s recall of its Galaxy S7 smartphone last year, but the South Korean company followed up with the introduction of the well-reviewed Galaxy S8 in April. If S8 sales are strong, that may mean fewer new customers for the new iPhone and the services businesses that feed off the device.

Cook has repeatedly sought to highlight Apple’s services, the fastest growing part of the company last year. Sales of offerings like iCloud, the App Store and Apple Music grew 18 percent to $7.04 billion in the quarter. Maestri said the company aims to double annual services revenue by 2020.

Apple’s offshore cash reserves climbed to $240 billion at the start of April, according to the CFO. Cook’s plans for that money have come under increasing focus after President Donald Trump proposed slashing the corporate tax rate on repatriated funds. Maestri said it was too early to say how Apple might spend any cash it brings home.


Article Link To Bloomberg:

Relief Map For Greek Debt? Not Without A Fight Or Two

By Jeremy Gaunt
Reuters
May 3, 2017

Pretty much everyone agrees that Greece needs debt relief; what they don't agree on is what debt relief means.

Easing Greece's fiscal path forward is likely to be the next great struggle in the country's agonizing, seven-year, three-package bankruptcy saga now that a bailout pact has opened the door a crack to discussions on relief.

Only this time it will not just pit Greece against its lenders, but lender against lender as well.

Start with the numbers: At the last count, the Greek government owed 314 billion euros ($343 billion) despite writing off about 100 billion euros owed to private bondholders in 2012.

That's more than the gross domestic product of South Africa.

It's also equivalent to around 179 percent of GDP, a ratio which despite improvements in Greece's economic performance goes up every time lenders make a bailout payment to Athens.

This is why debt relief is on the agenda -- with Greece perhaps quixotically pushing for something as early as May 22, when the Eurogroup of euro zone finance ministers meets to sign off on Tuesday's staff-level pact on support for Athens.

The battle will be fought on a number of fronts.

Firstly, there is the issue of whether the International Monetary Fund will participate financially in the current, third bailout.

The IMF says Greece's debt is unsustainable -- with or without the reform measures taken -- and it doesn't want to keep throwing money at the problem while that is so. Indeed, it is not allowed to by its charter.

"For the IMF to be entering into a program with Greece would require that the program can walk on two legs. One leg is the leg of reforms and the other leg is that of debt sustainability," IMF Managing Director Christine Lagarde said last month.

The European Union lenders -- the European Commission, European Central Bank and European Stability Mechanism -- want the IMF involved, primarily because it brings in an outside enforcer.

But the Europeans themselves have so far refused to say what they plan to do, preferring a general pledge to provide debt relief once certain reform criteria are achieved.

Germany, for one, does not want to show this year's voters it is doing Greece a favor using German taxpayers' money.

That is not enough for the IMF.

Details, Details

Then there is the question of what kind of debt relief to offer Greece. There is something of an edifice in place here, but so far it is a wall without cement.

There is no longer any talk of debt "forgiveness" - simply letting Greece off paying back its debt. The euro zone says there is no provision for that under its rules.

But there is less objection to stretching out payments, cutting interest on the EU debt and making repayments flexible enough that they do not amount to more than 15 percent of Greece's GDP annually.

For its part, the IMF cannot legally change its repayment structure, which in turn slightly undermines its demands of the EU.

How far to stretch out payments, where to cut interest rates to, and even what part of the debt is included are all issues to be argued over.

One more opportunity for a clash is over just how much of a primary budget surplus -- the budget balance excluding debt repayments -- Athens has to run for its debt to be sustainable.

The IMF says Greece can hit 2.2 percent in 2018 and aim at 3.5 percent annually in 2019-2021. After that, though, it says it should only be 1.5 percent.

Euro zone lenders, however, want Greece to sustain a 3.5 percent primary surplus target over a slightly longer period to be able to pay the annual interest rates for its debt. After that, it is publicly undecided.

Few other European Union countries run surpluses of the size that Greece is being told to reach and sustain.

But then, none of them have a debt mountain the size of the South African economy.

($1 = 0.9163 euros)


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Rising Brexit 'Bill' Raises Negotiating Stakes

By Alastair Macdonald
Reuters
May 3, 2017

EU negotiators have hiked possible payment demands for Brexit over recent weeks, officials say, widening the divide between Brussels and London, which questions whether it owes anything at all before talks start next month.

Hours before chief negotiator Michel Barnier was due to give more details on the EU's standpoint, a Financial Times headline saying the EU might seek an upfront payment in 2019 of up to 100 billion euros ($110 billion), drew an immediate rejection from Britain's Brexit Secretary David Davis that he would pay that sum.

The European Commission has previously given a ballpark estimate of the bill of about 60 billion euros. The FT said the calculations it referred to would result in a net payment from Britain of roughly that level, after subsequent reimbursements.

One senior EU official involved in preparing for the talks after a British election on June 8 said he did not recognize the 100-billion-euro figure, although a number of private calculations of the bill have gone as high or even higher.

Last month, the Bruegel think-tank in Brussels put the up-front payment for Britain as high as 109 billion euros under one of many scenarios for the calculation. Later reimbursement would bring the net figure to 65 billion, Bruegel's study showed.

Over the past month, the 27 other member states have drafted negotiating guidelines for the executive Commission that leaders agreed on Saturday. In the course of drafting, governments insisted on clarifying that Britain be made to pay up front for, among other things, contingent liabilities for guarantees on loans made by, for example, the European Investment Bank.

A document seen by Reuters outlining Barnier's plans for negotiations, showed he has a plan to calculate up-front payment for contingent liabilities, to be repaid later: "This calculation will also identify the amounts covering or guaranteeing loans which have to be reimbursed to the United Kingdom if uncalled, on the basis of the maturity of the loans."

Barnier has repeatedly said that the final amount cannot be calculated until Britain is leaving, since the EU budget will change. However, EU leaders want agreement on the "methodology" for the calculation among several conditions for opening the talks on a future free trade deal that Britain is seeking.

Leaders hope that agreement could be reached by December.

However, concern is rising in Brussels that talks might collapse as the rhetoric from both sides intensifies and British Prime Minister Theresa May fights a snap election she called last month, increasing the possibility of Britain leaving in a legal limbo in March 2019 that would be damaging all round.

European Commission President Jean-Claude Juncker was quoted as saying after a dinner with May last week that he saw a major risk of failure as the two sides were so far apart.

Some EU officials are concerned that governments and the EU institutions may be adding to that risk by loading public demands on Britain when they know that, in the end, a settlement is likely to mean substantial compromise on both sides.


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Wall Street’s ‘Fear Gauge’ Is Falling, Bonds And The Stock Market Are Soaring -- Something’s Gotta Give

The stock market and bonds are climbing together and that odd dynamic has investors uneasy.


By Mark DeCambre
MarketWatch
May 3, 2017

Curious moves in asset prices are raising eyebrows on Wall Street.

Of particular note is the sustained and simultaneous rally in government bonds and stocks. Meanwhile, Wall Street’s “fear gauge” just touched a 10-year low, as other measures of market volatility hover at the lowest levels in decades.

What gives?

It is hard to say but the market’s recent moves have been offering mixed signals about the outlook for the economy, raising questions about the ability of the run-ups in stocks and bonds to persist.

Perhaps the odd correlation between stock and bond prices has drawn the most attention.

Typically, assets considered risky like stocks shouldn’t climb at the same time as havens like Treasurys are being bid higher. But that is exactly what has happened in recent trade. The 10-year Treasury benchmark TMUBMUSD10Y, +0.75% for example, is offering a yield of 2.29%, just off a recent low of 2.17% hit April 18, according to FactSet data. That implies that investors continue to scoop up bonds, pushing yields, which move inversely to prices, lower.

Moreover, those moves come as the Federal Reserve has been on a path toward normalizing interest-rate policy and shrinking its balance sheet, which should result in higher yields.

On its face, lower yields suggests that bond investors have been bearish on the U.S. economic outlook or are anxious about geopolitical tensions—or both.

S

Meanwhile, equity markets are rallying, with the Nasdaq Composite Index COMP, +0.06% finished at a fresh record on Tuesday (see chart below), while the S&P 500 index SPX, +0.12% is off about 0.2% from its all-time closing high hit March 1 and the Dow Jones Industrial Average DJIA, +0.17% is less than a 1% shy off its own record close.



“So far, these moves seem to be pressing against common wisdom,” said Boris Schlossberg, managing director at BK Asset Management.

Schlossberg said part of the divergent narrative is that stock investors are still holding out hope that President Donald Trump will make good on promises to cut taxes, along with delivering on a host of other Wall Street-friendly pledges.

Bond investors, however, have been keying in on other factors, including weakness in recent economic reports. A preliminary reading of first-quarter gross domestic product, the official scorecard for the U.S. economy, showed the slowest pace of growth in three years. Rising geopolitical tensions between the U.S. and North Korea and concerns about elections in France that have threatened to disrupt the global markets, have kept Treasury yields low but hasn’t rattled the resolve of equity investors.

And bond investors appear to have growing doubts about Trump’s ability to implement his legislative agenda. That’s a shift from the postelection environment, when expectations Trump’s policies would spur growth, inflation—and larger budget deficits—pushed the benchmark 10-year yield to a peak of 2.62% mid- December.

“Hope springs eternal and there’s an enormous amount of built-in optimism around a massive tax stimulus, fiscal stimulus or both. If Trump produces neither that is going to be a serious shock to the market,” Schlossberg said.

VIX

That said, the markets don’t appear to be worried about much. Wall Street’s :fear gauge,” the CBOE Volatility Index VIX, +0.38% touched its lowest reading in a decade on Monday, falling to 10.11, and briefly hit single digits. The VIX is a measure of the market’s expectations for volatility 30-days in the future, and is based on options on the S&P 500 index. The gauge usually moves in the opposite direction of the S&P and at around 10 it is far from its historic average of 20, suggesting that investors aren’t making big bets on equity prices tumbling soon.

Nicholas Colas, chief market strategist at New York-based global brokerage Convergex, said the VIX is flirting with levels that bode ill for stock bulls. He said when the VIX closes “below 10 [it is] is historically correlated with a one-year pause in S&P 500 returns.”

Jeffrey Saut, chief investment strategist at Raymond James, in a Tuesday note, said the retreat in the VIX coincided with France’s presidential election, which saw centrist Emmanuel Macron decisively come out on top in the first round on April 23, putting him in pole position heading into the Sunday runoff against far-right candidate Marine Le Pen, who has threatened to drag the country out of the European Union.

Saut writes that an “’upside leg’ [for equities] has begun with the French pre-election results where Macron (the internationalist) looks to be the next French president!”

Indeed, elections and referendums have been among the most significant catalysts of market swings of at least 1% over the past year, (see chart below, which shows the S&P 500’s reactions to recent elections and Fed announcements):



Volatility

Another uncanny element of the market’s recent ascent has been its inexplicable buoyancy. Salil Mehta, a statistician and a former director of analytics for the Treasury Department’s TARP program, says the standard deviation for the S&P 500 index from January to April is at its lowest in 20 years (see chart below).



The S&P 500’s standard deviation has been roughly 0.4% on average, as of April 28. Mehta says that equates to a VIX of about 8.

Mehta makes the logical case that what goes up must come down, and that with such a protracted period of calm that when the market does slump it will likely be particularly spectacular.

Here are few other statistics Mehta offers up on the length of time since the S&P 500 saw significant drops of varying intensity:

-1.5% or worse (160 days ago, average is 22 days)

-2% or worse (160 days ago, average is 47 days)

-5% or worse (1,441 days ago, average is 706 days)

-10% or worse (7,443 days ago, average is 16940 days)

“Now is not the time to believe markets will continue to unrelentingly rise,” he said.

Looking ahead, Peter Boockvar, managing director at the Lindsey Group, said he thinks that the Fed’s monetary policy will offset any benefits from the expected Trump stimulus program, should they become a reality. He sees the Fed raising rates at more rapid pace if the economy starts to heat up.

“I don’t know why people think everything is going to change just because we get some tax cuts,” he said.


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Is The Fed Ready To Change Course?

By Mohamed A. El-Erian
The Bloomberg View
May 3, 2017

The Federal Reserve’s Open Market Committee is meeting this week in the context of a weaker data patch in which “hard” measures of economic activity continue to lag better sentiment indicators. As a result, the central bank is widely expected by markets to maintain an unchanged policy stance when the two-day meeting concludes on Wednesday.

Nevertheless, this will be an interesting test of the view, which I and some others have espoused, that the Fed is in the process of shifting operating regimes -- from following markets to being more willing to lead them.

Last week’s disappointing reading of 0.7 percent gross domestic product growth for the first quarter, the lowest in three years, added to other data releases (such as retail sales, inflation and autos) suggesting that the U.S. economy -- and consumption in particular -- is going through a softer economic patch. In previous years, this would have provided the Fed with the excuse to soften its policy signals, assuring markets that monetary policies will remain ultra-stimulative and minimizing the risk of financial asset volatility. Indeed, these are the signals that the European Central Bank reiterated last week when its governing council met. And the ECB did so despite official recognition that, in the case of the euro zone, economic conditions have improved and forward downside risk is lower.

The Fed’s inclination to repeat past practices is countered by three considerations.

-- An element of the recent data weakness is likely to be both temporary and reversible.
-- The Trump administration has reiterated its intention to pursue a large tax cut that, if approved by Congress (a big if), would most likely lead to a considerably wider budget deficit, at least in the short-run until economic growth and budgetary receipts pick up (especially given the lack of large revenue measures).
--Though even harder to quantify, the Fed is not indifferent to the collateral damage and unintended consequences of prolonged reliance on unconventional monetary policies.

Rather than soften its policy guidance, the central bank is likely to maintain its baseline projection of two additional rate hikes this year (for a total of three) and advance discussions on the normalization of its balance sheets (the final details of which, however, are unlikely to emerge from this meeting). In doing so, it will avoid a phenomenon that had occurred numerous times in the last few years: having its policy signals dragged down by markets that have been conditioned to expect even more lenient monetary conditions in the event of virtually any domestic or international headwind to economic activity.

This is not an easy position for the Fed to be in. If officials decide to maintain their policy guidance unchanged, they would risk tightening into an economic slowdown. But if they back away, they would risk reinforcing a market behavior that has already decoupled prices from fundamentals and distorted asset allocation in markets and the economy.

The best, indeed perhaps the only prospect for a “beautiful” normalization of monetary policy -- to adapt a term used in another context by Bridgewater’s Ray Dalio -- is for the Fed (and other central banks) to be able to transfer a large part of the macroeconomic policy burden -- which they have been carrying almost single-handedly -- to the institutions and officials that implement fiscal policy and structural reforms. The longer this handoff is delayed yet again, the greater the central banks’ policy dilemma and the larger the risk of a potential policy error.


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Democrats Dig In, Delay Against Dodd-Frank Overhaul

By Pete Schroeder
Reuters
May 3, 2017

Democrats in the U.S. House of Representatives opposed to Republican legislation that would repeal major sections of the Dodd-Frank financial reform law on Tuesday made multiple efforts to delay the bill.

The House Financial Services Committee was due to consider Representative Jeb Hensarling's sweeping bill to rework the 2010 law. In addition to eliminating large portions of Dodd-Frank - enacted in the wake of the global financial crisis - it would put new handcuffs on regulators charged with writing and enforcing its rules.

The partisan maneuvering to slow work on the bill demonstrated how divided the two parties are regarding rules for the financial sector, casting doubt on Congress's ability to revisit them significantly despite Republican President Donald Trump's vow to "do a number" on existing regulations.

First, Democrats ordered a vote on whether the committee even wanted to actually consider the bill. That amendment passed with support from only the Republican majority.

Then, Democrats ordered that all 589 pages of the law be read out loud by the committee clerk. The reading of legislative language is almost always waived by committee members when considering a bill.

After about 3-1/2 hours of the bill being read to a largely empty committee room, Democrats agreed to shelve that request and proceed to the amendments they wanted to offer. Democrats had drawn up roughly 140 amendments they wanted to offer to change the bill, according to a House aide. But that number is expected to shrink as the two parties work out a path forward.

Hensarling announced on Tuesday that despite earlier plans to vote on amendments to the bill throughout the day, no votes would be held on the bill until Wednesday morning at the earliest.

The procedural obstacles were all aimed at a bill that is not expected to actually become law, as the sweeping rewrite of Dodd-Frank is not expected to garner enough support in the Senate, which the Republicans hold by a slim majority.

But it is expected to pass the Republican-led House, and the skirmish over it was a clear indication of how much Democrats are willing to dig in on measures that would make life easier for the financial sector.

"This is one of the worst bills I've seen in my time in Congress," said Representative Maxine Waters, the committee's top Democrat, as the committee began debate on the measure. "The bill is rotten to the core, and simply carries water for Trump and his buddies on Wall Street."

Hensarling's bill would allow large banks to avoid most Dodd-Frank rules if they agree to establish a 10 percent capital ratio, and also scraps several powers given to regulators after the financial crisis to more closely scrutinize some of the nation's largest institutions.

It also makes several changes to the Consumer Financial Protection Bureau, severely limiting its power and giving Congress and the White House more direct control over its operations and funding.


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Trump Has Decided To Blame Canada

By Noah Feldman
The Bloomberg View
May 3, 2017

President Donald Trump has arrived at his new slogan: “Blame Canada.” But not because anything is actually Canada’s fault. Rather, process of elimination has led Trump to favor symbolic sanctions against America’s closest and best ally.

As it turns out, trade is one of the only areas where a president can take significant action unilaterally without violating the Constitution. Trump’s most dramatic executive orders have been struck down by the courts. Congress won’t pass any important legislation. That leaves trade by default -- and since it would be too risky to take on trade with China, the best Trump can do is to make headlines by blaming Canada for trade unfairness on such unexciting products as softwoodlumber and dairy.

I’ve just come back from Canada, where bemusement with Trump is beginning to turn into annoyance. The disputes over lumber and dairy are longstanding, and on the whole better known to the Canadian public than the U.S. public. So no one is horrified about the substance of Trump’s complaints. And Canadians have no great reason to worry about his apparent foolishness at imposing what is in effect a tax on U.S. homebuilding, via lumber tariffs. (Builders in the U.S. will either use the more-expensive domestic materials or will pay the tariff for Canadian materials. Either way, they’ll presumably pass the higher cost on to consumers.)

Rather, what’s eating Canadians is the president’s apparent belief that he can go after them without serious consequences. There’s an emerging sense that Trump is targeting Canada because he can, or at least thinks he can. There’s also some concern that Trump might actually want to pull out of Nafta.

Yet the real culprit here is the U.S. Constitution and the limits it imposes on Trump’s capacity to do anything much on his own. The president’s first week saw a spate of executive orders. The two connected to immigration -- the "Muslim ban" and penalties for sanctuary cities -- have both been struck down by the courts as beyond the president’s authority. One that has remained in place withdrew the U.S. from the Trans-Pacific Partnership. No wonder the president shifted his attention to trade, the arena where his actions seemed to have clear consequences.

Then there are Trump’s legislative efforts. The Affordable Care Act remains in place, because Trump needed Congress to pass it, and Congress -- even a Republican Congress -- has to satisfy the public. Tax reform is but a dream, at least for the moment. Trump can’t do that on his own either.

Trump did make some headlines by bombing Syria, a unilateral action. It’s questionable whether he exceeded constitutional authority there. The Obama administration claimed it didn’t need congressional authorization to bomb Syria, but then it went to Congress anyway, which said no. The most honest analysis is that the president should seek congressional authorization before engaging in what would clearly count as an act of war in a new theater -- but that accepted practice allowed Trump to bomb Syria anyway.

Nevertheless, there’s a practical limit to how many places you can bomb, especially if you’ve run for office on a loosely isolationist platform.

If Trump wants to look like he’s strong, he needs to do it through action on trade.

And here’s he’s lucky. Although the Constitution itself doesn’t give him much inherent power on trade, Congress has conferred extensive authority on the president.

The Trade Act of 1974 says that the president can withdraw from any trade agreement provided he gives six months’ notice. It also lets the president raise tariffs on his own (within generous limits).

The 1974 law was made applicable to NAFTA in 1988. As a result, Trump could unilaterally withdraw from NAFTA, according to almost all legal experts.

China would seem to be the obvious target for trade action like tariffs, given Trump’s campaign rhetoric. But (thank God) he seems to have learned over the last hundred days that China is crucially important not merely as a trade partner but also as a foreign-policy interlocutor. Trump needs China to help with North Korea -- but that’s not all, not by a long shot. He needs China to help produce global stability more broadly.

And as Trump learns about linkage, he’s realizing he can’t push China too hard on trade. That leaves … well, Canada. You always hurt the one you love.

Yet it would be a mistake to go after Canada just because the U.S.-Canada relationship is so close and relatively easy to manage. That’s because the relationship goes far beyond trade. Canada and the U.S. are each other’s closest partners because of both political culture and geopolitical necessity.

The two countries share basic values. They share language (mostly, Quebec excepted) and civilization (if you count TV as civilization).

And they share a border that would be much harder to police unilaterally than the border with Mexico. That border is so long and so open that the U.S. must take de facto responsibility for much of Canada’s geostrategic defense, simply as a condition of protecting itself. If Canada were overrun, the U.S. would be too.

Having a strong relationship with Canada thus isn’t a luxury, but a necessity. Trump may be tempted to disrupt it just because he can, but he should be cautious.


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Climate Editors Have A Meltdown

How did science reporting get so detached from the underlying science?


By Holman W. Jenkins, Jr.
The Wall Street Journal
May 3, 2017

I’ll admit it: I would have found it fascinating to be party to the discussions earlier this year that led to oscillating headlines on the New York Times home page referring to the new EPA chief Scott Pruitt alternately as a “denier” or “skeptic.” At least it would have been fascinating for 20 minutes.

Ditto the hysterical discussions undoubtedly now arising from an anodyne piece of climate heterodoxy by the paper’s newest columnist, a former Journal colleague who shall remain nameless, in which he advises, somewhat obscurely, less “certainty” about “data.”

Whether or not this represents progress in how the U.S. media cover the climate debate, a trip down memory lane seems called for. In the 1980s, when climate alarms were first being widely sounded, reporters understood the speculative basis of computer models. We all said to ourselves: Well, in 30 years we’ll certainly have the data to know for sure which model forecasts are valid.

Thirty years later, the data haven’t answered the question. The 2014 report of the Intergovernmental Panel on Climate Change, voice of climate orthodoxy, is cited for its claim, with 95% confidence, that humans are responsible for at least half the warming between 1951 and 2010.

Look closely. This is an estimate of the reliability of an estimate. It lacks the most important conjunction in science: “because”—as in “We believe X because of Y.”

Not that the IPCC fails to offer a “because” in footnotes. It turns out this estimate is largely an estimate of how much man-made warming should have taken place if the models used to forecast future warming are broadly correct.

The IPCC has a bad reputation among conservatives for some of its press-release activities, but the reports themselves are basically numbing testimonies to how seriously scientists take their work. “If our models are reliable, then X is true” is a perfectly valid scientific statement. Only leaving out the prefix, as the media routinely does, makes it deceptive.

We don’t know what the IPCC’s next assessment report, due in 2021, will say on this vital point, known as climate sensitivity. But in 2013 it widened the range of uncertainty, and in the direction of less warming. Its current estimate is now identical to that of the 1979 Charney Report. On the key question, then, there has been no progress in 38 years.

For journalists, the climate beat has been singularly unrewarding. It has consisted of waiting for an answer that doesn’t come. By now, thanks to retirements and the mortality tables, the beat’s originators are mostly gone. The job has passed into hands of reporters who don’t even bother to feign interest in science—who think the magic word “consensus” is all the support they need for any climate claim they care to make.

Take Inside Climate News, an online publication, lately accruing degraded journalism prizes, whose title echoes a successful series of specialist newsletters like Inside EPA and Inside the Pentagon that charge fancy prices for detailed, crunchy, reliable information about the U.S. government.

Inside Climate News might sound like it’s doing the same but it isn’t. Search its website and the term “climate sensitivity,” the central preoccupation of climate science, appears zero times. Any reporter who is truly curious about what scientists know and how they know it would not be working there. Asking such questions would only get him or her suspected of denialism.

But not even the EPA’s Mr. Pruitt or the New York Times’s newest recruit exhibits the ill grace to phrase the “so what” question.

“So what” is the most important question of all. So what if human activity is causing some measure of climate change if voters and politicians are unwilling to assume the costs (possibly hugely disproportionate to any benefit) of altering the outcome of the normal evolution of energy markets and energy technology.

Even liberals have noticed that climate advocacy has morphed into a religion, unwilling to deal honestly with uncertainty or questions of cost and benefit. Climate apoplexy, like many single-issue obsessions, is now a form of entertainment for exercised minorities, allowing them to vent personal qualities that in most contexts they would be required to suppress.

Whether apocryphal or even a joke, who did not delight in the story of “Zach,” the young Democratic staffer who supposedly stormed out of a post-election meeting after cursing the party’s incompetent elders because, thanks to Hillary Clinton’s defeat, “I’m going to die from climate change.”

For the record, Zach, an estimate recently touted by the Washington Post precisely because it was five or 10 times worse than previous estimates had this to say about the consequences of climate change. If unaddressed, they would reduce economic growth by one-fifth over the next 85 years.

In other words, under the worst scenario, Zach’s grandchildren’s world would be only nine times richer than ours today.


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