Wednesday, May 10, 2017

Oil Prices Rise In Expectation Of Aramco Supply Cut To Asia

By Aaron Sheldrick
May 10, 2017

Oil futures rose on Wednesday after Reuters reported Saudi Arabia would cut supplies to the region as OPEC tries to counter rising U.S. output that is threatening to derail its attempts to end a sustained global crude glut.

Oil was also supported by a larger than expected fall in U.S. crude inventories last week, down 5.8 million barrels compared with analysts' expectations for a 1.8 million barrels decline, according to industry group the American Petroleum Institute. [API/S]

Global benchmark Brent futures LCOc1 were up 19 cents, or 0.4 percent, at $48.92 a barrel. They fell 1.2 percent on Tuesday.

U.S. West Texas Intermediate (WTI) crude CLc1 was up 23 cents, or 0.5 percent, at $46.11 a barrel.

State-owned Saudi Aramco will reduce oil supplies to Asian customers by about 7 million barrels in June, a source told Reuters, as part of OPEC's agreement to reduce production and as it trims exports to meet rising domestic power demand over summer.

Seven million barrels is roughly two days of oil imports into Japan, the world's fourth biggest importer. Aramco had previously been maintaining supplies to its important Asian customers.

"The Saudis are largely about Asian customers, so if they are trimming sales that is supportive at the margins," said Ric Spooner, chief market analyst at CMC Markets in Sydney.

WTI also fell 1.2 percent in the previous session, and the closing price for both contracts on Tuesday was the second lowest since Nov. 29, the day before the Organization of the Petroleum Exporting Countries (OPEC) agreed to cut production during the first half of 2017.

Prices surged immediately after the agreement, but have come under sustained pressure in recent weeks as U.S. production has ramped up and pushed back the expected timing for when the oil market will come into balance.

"Chief among (the) oil market's worries is that the renewed rise in U.S. oil production is reducing the speed at which the supply surplus is being eroded," Fawad Razaqzada, market analyst at, said in a note.

Saudi Arabia's energy minister Khalid al-Falih said on Monday he expected the output deal to be extended to the end of the year or possibly longer. OPEC meets later this month.

Higher crude output from the United States should limit any upside to global oil prices through the end of 2018, the U.S. government said on Tuesday.

U.S. crude production is expected to rise by more than previously expected in 2017 to 9.31 million barrels per day from 8.87 million bpd in 2016, a 440,000 bpd increase, the U.S. Energy Information Administration (EIA) said.

Official numbers on weekly U.S. crude and product inventories from the EIA are scheduled to be released 1430 GMT on Wednesday.

Article Link To Reuters:

Shale Drillers Are Outspending The World With $84 Billion Spree

North American independents to lift outlays 51 percent in ’17; Wave of new crude supplies to hit world markets by end of year.

By Joe Carroll
May 10, 2017

North American independents to lift outlays 51 percent in ’17; Wave of new crude supplies to hit world markets by end of year.

U.S. shale explorers are boosting drilling budgets 10 times faster than the rest of the world to harvest fields that register fat profits even with the recent drop in oil prices.

Flush with cash from a short-lived OPEC-led crude rally, North American drillers plan to lift their 2017 outlays by 32 percent to $84 billion, compared with just 3 percent for international projects, according to analysts at Barclays Plc. Much of the increase in spending is flowing into the Permian Basin, a sprawling, mile-thick accumulation of crude beneath Texas and New Mexico, where producers have been reaping double-digit returns even with oil commanding less than half what it did in 2014.

That’s bad news for OPEC and its partners in a global campaign to crimp supplies and elevate prices. Wood Mackenzie Ltd. estimates that new spending will add 800,000 barrels of North American crude this year, equivalent to 44 percent of the reductions announced by the Saudi- and Russia-led group.

“The specter of American supply is real,” Roy Martin, a Wood Mackenzie research analyst in Houston, said in a telephone interview. “The level of capital budget increases really surprised us.”

Drilling budgets around the world collapsed in 2016 as the worst crude market collapse in a generation erased cash flows, forcing explorers to cancel expansion projects, cut jobs and sell oil and natural gas fields to raise cash. The pain also swept across the Organization of Petroleum Exporting Countries, which in November relented by agreeing with several non-OPEC nations to curb output by 1.8 million barrels a day.

Oil prices that initially popped above $55 in the weeks after the cut was announced have since dipped to around $46, reflecting pessimism that the OPEC-led deal can withstand the onslaught of U.S. shale.

So far, independent American explorers such as EOG Resources Inc. and Pioneer Natural Resources Co. are holding fast to their ambitious growth plans. Some recently finished wells in the Permian region yielded 70 percent returns at first-quarter prices, EOG Chief Executive Officer Bill Thomas told investors and analysts during a conference call on Tuesday.

EOG, the second-largest U.S. explorer that doesn’t own refineries, plans to boost spending by 44 percent this year to between $3.7 billion and $4.1 billion. Pioneer is eyeing a 33 percent increase to $2.8 billion. The sub-group that includes North American shale drillers like EOG and Pioneer is collectively targeting $53 billion in spending this year, up from $35 billion in 2016, according to the Barclays analysts led by J. David Anderson.

U.S. oil production is already swelling, even though output from the new wells being drilled won’t materialize above ground for months. The Energy Department’s statistics arm raised its full-year 2017 supply estimate to 9.31 million barrels a day on Tuesday, a 1 percent increase from the April forecast.

Next year, U.S. fields will pump 9.96 million barrels a day, 0.6 percent more than the department estimated last month.

To be sure, most of the biggest U.S. and European explorers -- an elite caucus of five companies known as the supermajors -- are pursuing a contrary path and cutting expenditures this year. As deepwater, oil-sands and other high cost, high risk investments soured during the slump, the supermajors were battered and had to regroup. But shale drillers, unburdened by such large-scale projects, have been better able to quickly respond to price changes.

Holding Tight
Royal Dutch Shell Plc, Chevron Corp., Total SA and BP Plc are reducing or holding flat on 2017 spending. Only Exxon Mobil Corp., the largest member of the group, is pushing up its budget, planning to spend $22 billion this year compared to $19.3 billion last year.

West Texas Intermediate, the U.S. benchmark, lost 14 percent of its value since April 11 amid signals the global crude glut isn’t shrinking at the expected pace. The futures fell 1.3 percent to $45.82 at 1:15 p.m. on the New York Mercantile Exchange. The price hasn’t poked above the $50 mark since April 26.

Shale drillers can afford to be sanguine despite oil’s recent tumble because they’ve cushioned themselves with hedges, Martin said. Hedges are financial instruments that lock in prices for future output and shield producers from volatile market movements.

“There is some price malaise creeping in,” Martin said. “But the aristocracy of the U.S. independents have insulated themselves” through hedging.

Article Link To Bloomberg:

Trump To Meet Russian Foreign Minister Lavrov On Wednesday

May 10, 2017

U.S. President Donald Trump will meet Russian Foreign Minister Sergei Lavrov at the White House on Wednesday to discuss Syria and a wide range of international issues, a senior U.S. official said.

It will be the highest-level contact between Trump and the government of Russian President Vladimir Putin since Trump took office on Jan. 20.

The official, speaking on condition of anonymity, said on the agenda would be Syria as well as U.S.-Russian relations and other global issues.

Relations deteriorated between the United States and Russia after U.S. air strikes against a Syrian airfield in response to a chemical weapons attack that Washington blamed on Syrian President Bashar al-Assad, a Russian ally.

Article Link To Reuters:

ESPN Concerns Drag On Disney, Shares Dip

By Lisa Richwine and Rishika Sadam
May 10, 2017

A decline in subscribers and higher programming costs at cash-cow ESPN weighed on shares of Walt Disney Co (DIS.N) on Tuesday, overshadowing a quarterly profit that topped Wall Street estimates.

Investors have been closely watching how ESPN navigates the shakeup in television as viewers defect from traditional pay TV services and online services proliferate. Chief Executive Bob Iger told analysts that Disney added customers on new digital platforms, but not enough to make up for subscriber losses from expanded basic cable packages.

Shares of the world's biggest entertainment company dropped 2.4 percent in after-hours trading.

Disney's January through March profit beat analysts' estimates as the company benefited from the success of live-action fairy tale adaptation "Beauty and the Beast" plus a new theme park in China. Total attendance to date at the Shanghai park will cross 10 million visitors in the coming days, faster than Disney projected, Iger said.

For the quarter, adjusted earnings per share hit $1.50, ahead of analysts' projection of $1.41, according to Thomson Reuters I/B/E/S.

Overall revenue for the quarter rose 2.8 percent to $13.34 billion, but missed an analysts' estimate of $13.45 billion, according to Thomson Reuters I/B/E/S.

The cable division recorded a 3 percent drop in operating income to $1.79 billion.

ESPN lost subscribers during the quarter and was hit with higher programming costs, in part due to a new, more costly NBA contract, Disney said in its earnings report. Fewer subscribers means less revenue for ESPN, which is locked into sports programming contracts for several years.

"Lower numbers of people paying for television is a big problem for ESPN, given the cost structure they have with sports rights over the next several years," said BTIG analyst Richard Greenfield.

Iger said Disney was adapting quickly to the changing TV marketplace and was encouraged by consumer interest in digital services that feature ESPN, such as Dish Network Corp's (DISH.O) Sling TV and Sony Corp's (6758.T) PlayStation Vue

"The substantial growth we're already seeing makes us bullish on the future of these nascent offerings," Iger said. "Right now, they're a small part of the pay TV universe, but we believe they'll be a much bigger part of the business going forward."

Disney also is preparing to launch an ESPN subscription streaming service and bought a 33 percent stake in video-streaming company BAMTech for $1 billion last year.

Net income attributable to the company rose to $2.39 billion in the second quarter ended April 1, from $2.14 billion a year earlier.

Article Link To Reuters:

Can Macron Pull It Off?

By Dani Rodrik
Project Syndicate
May 10, 2017

Emmanuel Macron’s victory over Marine Le Pen was much-needed good news for anyone who favors open, liberal democratic societies over their nativist, xenophobic counterparts. But the battle against right-wing populism is far from won.

Le Pen received more than a third of the second-round vote, even though only one party other than her own National Front – Nicolas Dupont-Aignan’s small Debout la France – gave her any backing. And turnout was apparently sharply down from previous presidential elections, indicating a large number of disaffected voters. If Macron fails during the next five years, Le Pen will be back with a vengeance, and nativist populists will gain strength in Europe and elsewhere.

As a candidate, Macron was helped in this age of anti-establishment politics by the fact that he stood outside traditional political parties. As president, however, that same fact is a singular disadvantage. His political movement, En Marche !, is only a year old. He will have to build from scratch a legislative majority following the National Assembly elections next month.

Macron’s economic ideas resist easy characterization. During the presidential campaign, he was frequently accused of lacking specifics. To many on the left and the extreme right, he is a neoliberal, with little to distinguish himself from the mainstream policies of austerity that failed Europe and brought it to its current political impasse. The French economist Thomas Piketty, who supported the socialist candidate Benoît Hamon, described Macron as representing “yesterday’s Europe.”

Many of Macron’s economic plans do indeed have a neoliberal flavor. He has vowed to lower the corporate tax rate from 33.5% to 25%, cut 120,000 civil service jobs, keep the government deficit below the EU limit of 3% of GDP, and increase labor-market flexibility (a euphemism for making it easier for firms to fire workers). But he has promised to maintain pension benefits, and his preferred social model appears to be Nordic-style flexicurity – a combination of high levels of economic security with market-based incentives.

None of these steps will do much – certainly not in the short run – to address the key challenge that will define Macron’s presidency: creating jobs. As Martin Sandbu notes, employment was the French electorate’s top concern and should be the new administration’s top priority. Since the eurozone crisis, French unemployment has remained high, at 10% – and close to 25% for people under 25 years old. There is virtually no evidence that liberalizing labor markets will increase employment, unless the French economy receives a significant boost in aggregate demand as well.

This is where the other component of Macron’s economic program comes into play. He has proposed a five-year, €50 billion ($54.4 billion) stimulus plan, which would include investments in infrastructure and green technologies, along with expanded training for the unemployed. But, given that this is barely more than 2% of France’s annual GDP, the stimulus plan on its own may not do too much to lift overall employment.

Macron’s more ambitious idea is to take a big leap toward a eurozone fiscal union, with a common treasury and a single finance minister. This would enable, in his view, permanent fiscal transfers from the stronger countries to countries that are disadvantaged by the eurozone’s common monetary policy. The eurozone budget would be financed by contributions from member states’ tax receipts. A separate eurozone parliament would provide political oversight and accountability. Such fiscal unification would make it possible for countries like France to increase infrastructure spending and boost job creation without busting fiscal ceilings.

A fiscal union backed up by deeper political integration makes eminent sense. At least it represents a coherent path out of the eurozone’s present no man’s land. But Macron’s unabashedly Europeanist policies are not just a matter of politics or principle. They are also critical to the success of his economic program. Without either greater fiscal flexibility or transfers from the rest of the eurozone, France is unlikely to get out of its employment funk soon. The success of Macron’s presidency thus depends to a large extent on European cooperation.

And that brings us to Germany. Angela Merkel’s initial reaction to the election’s outcome was not encouraging. She congratulated Macron, who “carries the hopes of millions of French people,” but she also stated that she would not consider changes in eurozone fiscal rules. Even if Merkel (or a future government under Martin Schulz) were more willing, there is the problem of the German electorate. Having portrayed the eurozone crisis not as a problem of interdependence, but as a morality tale – thrifty, hard-working Germans pitted against profligate, duplicitous debtors – German politicians will not have an easy time bringing their voters along on any common fiscal project.

Anticipating the German reaction, Macron has countered it: “You cannot say I am for a strong Europe and globalization, but over my dead body for a transfer union.” That, he believes, is a recipe for disintegration and reactionary politics: “Without transfers, you will not allow the periphery to converge and will create political divergence towards extremists.”

France may not be in the European periphery, but Macron’s message to Germany is clear: Either you help me out and we build a true union – economic, fiscal, and eventually political – or we will be run over by the extremist onslaught.

Macron is almost certainly right. For the sake of France, Europe, and the rest of the world, we must hope that his victory is followed by a German change of heart.

Article Link To Project Syndicate:

Wednesday, May 10, Morning Global Market Roundup: Asia Stocks Rise For Third Day On Earnings; Dollar Stalls On Comey Sacking

By Saikat Chatterjee
May 10, 2017

Asian stocks edged higher for a third consecutive day on Wednesday as investors focused on strong corporate earnings and the dollar gave back some of its recent gains.

U.S. President Donald Trump's abrupt dismissal of FBI Director James Comey prompted some unwinding of risky bets in early Asian trading but strategists said investors were cheered by a strong slate of corporate earnings, reflecting the cyclical rebound in the first quarter of 2017 was still in place.

European stocks are set to follow Asia's example, with major indices set for a broadly flat start according to index futures.

"Markets are setting aside the many policy changes seen from the Trump administration and focusing on the improvement in corporate performance and that should support sentiment," said Tai Hui, chief Asia market strategist at JPMorgan Asset Management in Hong Kong.

With results in for the majority of the companies on the S&P 500, estimated Q1 earnings growth is now at 14.5 percent, highest since Q3 of 2011, Thomson Reuters data shows with roughly 75 pct of companies are beating analysts' expectations.

That has helped Asia as well, with 12-month forward earnings per share for the MSCI index of Asia-Pacific shares outside Japan rising to its highest level in more than three years.

"Strong corporate earnings are supporting risk sentiment in the Asian equity markets, said Fan Cheuk Wan, head of investment strategy and advisory at HSBC Private Banking.

MSCI's Asia ex Japan index rose 0.3 percent after posting modest gains in the previous session. It hit a two-year high last week.

South Korean stocks led losers as investors took profits after liberal leader Moon Jae-in was elected president, while losses in Australia's big banks weighed on the broader market after the government levied taxes on the lenders to help balance the budget. and

Chinese stocks edged higher, shrugging off news that showed April's producer price inflation cooled more than expected, with investors stepping into the market to scoop up bargains after a recent fall.

Markets were also relieved when U.S. Commerce Secretary Wilbur Ross signaled the Trump administration would attempt to use existing tools to aggressively enforce trade rules and insist on fairer treatment for U.S. goods, rather than adopt the slash-and-burn approach Trump promoted on the campaign trail in 2016.

In currencies, the dollar index, which tracks the greenback against a basket of six major currencies, was flat at 99.435, moving away from a three-week high of 99.688.

Rising U.S. yields propped up the dollar to its strongest level against the Japanese yen in two months at 114.32 in the previous session but it gave back some of those gains after Trump fired FBI Director Comey in a move that shocked Washington.

It was last changing hands at 113.76 per dollar, while yields on benchmark 10-year U.S. Treasury notes were lurking near their highest levels since end-March at 2.39 percent.

But some market analysts pointed out with market volatility indicators hitting record lows -- the VIX indicator fell overnight to 9.56, its lowest since late 2006 -- the likelihood of a large move in financial markets has grown.

"Geopolitics and the divergence of policy have not gone away," Marc Chandler, global head of FX strategy wrote in a daily note.

"It is a reminder that we are often lulled into complacency just before being shocked by how treacherous things really are."

Fed funds futures pricing showed investors almost universally expect the Federal Reserve to raise U.S. overnight interest rates at its next meeting, with close to a 90 percent perceived chance of an increase next month.

Brent crude futures rose more than 0.5 percent to $49.03 per barrel after Reuters reported Saudi Arabia would cut supplies to the Asia region to maintain supply to meet rising domestic demand for power during the summer months.

OPEC is battling against rising U.S. output that is threatening to derail its attempts to end a sustained global glut of crude.

Gold advanced modestly to $1221.90 ounce, breaking a two-week long losing streak.

Article Link To Reuters:

Amazon Trounces Rivals In Battle Of The Shopping 'Bots'

By Jeffrey Dastin 
May 10, 2017

Earlier this year, engineers at Wal-Mart Stores Inc (WMT.N) who track rivals' prices online got a rude surprise: the technology they were using to check several million times a day suddenly stopped working.

Losing access to Inc's (AMZN.O) data was no small matter. Like most big retailers, Wal-Mart relies on computer programs that scan prices on competitors' websites so it can adjust its listings accordingly. A difference of even 50 cents can mean losing a sale.

But a new tactic by Amazon to block these programs - known commonly as robots or bots - thwarted the Bentonville, Arkansas-based retailer.

Its technology unit, @WalmartLabs, was unable to work around the blockade for weeks, forcing it to retrieve Amazon's data through a secondary source, according to a person familiar with the matter who was not authorized to speak publicly.

The previously unreported incident offers a case study in how Amazon's technological prowess is helping it dominate the retail competition.

Now the largest online retailer in the world, Amazon is best known by consumers for its fast delivery, huge product catalog and ambitious moves into areas like original TV programming. But its mastery of the complex, behind-the-scenes technologies that power modern e-commerce is just as important to its success.

Dexterity with bots allows Amazon not only to see what its rivals are doing, but increasingly to keep them in the dark when it undercuts them on price or is quietly charging more.

"Benchmarking against Amazon is going to become hard," said Guru Hariharan, a former Amazon manager who now sells pricing software to retailers as chief executive of Mountain View, California-based Boomerang Commerce.

A Wal-Mart spokesman declined to discuss the January episode but said the company improves its technology regularly and has multiple tools for tracking items. He said the company offers value not only through pricing but from discounts for in-store pickup and other benefits.

A spokeswoman for Amazon said the company is aware of competitors using bots to check its listings and denied any "campaign" to stop them. "Nothing has changed recently in how we manage bots on our site," she said. Still, she said, "we prioritize humans over bots as needed."

Bots can slow down a website, a big motivator for retailers to block them.

Reuters interviewed 21 people familiar with bots and how they are deployed, including current and former Wal-Mart employees, former Amazon employees and outside specialists. Many spoke only on condition of anonymity because they were not authorized to discuss the issues publicly.

Most pointed to Amazon's leadership in the burgeoning bot wars. [For graphic - click]

The company's technological edge has been good for its profit margin, and it's proving a winning formula for investors. Shares of the internet powerhouse have risen about 15-fold since the market's bottom in March 2009, while the S&P 500 has more than tripled in value. Amazon hit $100 billion in annual sales in 2015 - faster than any company in history, it said.

Brave New World

Bot-driven pricing has represented a massive change for the retail industry since Amazon helped pioneer the practice more than a decade ago.

Traditionally, brick-and-mortar stores changed prices no more than weekly because of the time and expense needed to swap labels by hand.

In the world of e-commerce, though, retailers update prices with ease, sometimes multiple times a day, helped by algorithms that consider inventory levels, sales forecasts and rivals' pricing data.

To stay in the game, companies such as online wholesaler Boxed, based in New York, depend on a variety of methods including bots to ensure they do not lag others' price moves for even 20 minutes.

"That’s like a lifetime during Christmas," said Chief Executive Chieh Huang, whose company sells bulk staples like toilet paper and pet food. "If we're not decently priced, we'll see it almost immediately" in sales declines.

Disguised As Humans

Using bots to view massive amounts of data on public websites - a process known as crawling or scraping - has many purposes. Alphabet Inc's (GOOGL.O) Google, for example, constantly crawls the Web to gather information for its search engine results and to sell ads.

In e-commerce, though, the use of bots has developed into a cat-and-mouse game. Companies try to thwart the practice on their own websites while aiming to penetrate their competitors' defenses. Third-party services abound to help less-savvy retailers. [For diagram - click]

To protect data from rivals, some retail websites use what's known as a "CAPTCHA" - typically a distorted string of letters and numbers that humans can read but most bots can't. Amazon shies away from the practice because it annoys some customers.

For merchants seeking to evade such defenses, disguising their computer programs as real shoppers is key. Some pricing technology experts have programmed computer cursors to meander through a Web page in the way a person might, instead of going directly to the prized data. Another technique is to use multiple computer addresses so that retailers cannot track a barrage of clicks to a single source.

"It is an arms race," said Keith Anderson, a senior vice president at e-commerce analytics firm Profitero, based in Ireland. "Every week or every month, there's some new approach from both sides."

Amazon's maneuver that halted Wal-Mart in January took aim at a specialized Web browser called PhantomJS. Unlike, say, Internet Explorer, this browser is designed specifically for programmers - a telltale clue that its users are not typical shoppers. Amazon put up a digital curtain to hide its listings from PhantomJS users, according to three people familiar with the situation.

It was unclear how the move, which was not aimed at Wal-Mart in particular, affected other companies.

Tests conducted in recent weeks for Reuters show that among major U.S. retail chains, Amazon had by far the most sophisticated bot detection in place, both for its home page and for two popular items selected by Reuters because they change price frequently - a De'Longhi coffee maker and a Logitech webcam.

The tests were run by San Francisco-based Distil Networks, which sells anti-bot tools. In one of the tests, Distil programmed bots to hit each retailer's website 3,000 times, but slowly enough to mimic a person clicking through listings. This tricked most retail behemoths, but not Amazon.

Blocked bots would not have seen, for instance, that Amazon's price for the De'Longhi espresso machine changed four times in a single 24-hour period starting on the morning of April 25, according to price tracking website During that time, the price swung by more than 10 percent, from a low of $80.06 to $88.16.

Swarming With Bots

Despite Amazon's capabilities, the sheer volume of crawling on its site is staggering. At times, as many as 80 percent of the clicks on Amazon product listings have been from bots, people familiar with the matter say, compared with just a third or more of the traffic on other large sites.

In addition to rivals seeking price data, that traffic includes bots from university researchers studying competition, search engines, advertising services and even fraudsters trying to break into Amazon accounts.

For Wal-Mart, a small group in Silicon Valley directs its automated pricing strategy while dozens of engineers in India and around the world handle the code, current and former Wal-Mart employees said.

Amazon had about 40 engineers who would covertly extract and organize rivals' data with bots as of several years ago, one of the people interviewed said. Amazon did not discuss the size or structure of its teams working with bots.

According to one U.S. patent application, Amazon is working on encryption technology that would force bots, but not humans, to solve a complicated algorithm to gain access to its Web pages. [For full patent record - click]

"Amazon has both the competency to detect bot traffic and the wherewithal to do something about it," said Scott Jacobson, a former Amazon manager and now managing director of Madrona Venture Group. That "isn't the case for most retailers."

Article Link To Reuters:

The Democrats’ Social Security Plan Means Much Higher Taxes

Absent other reform it’d raise the total top marginal rate to 59.4% -- the developed world’s highest.

By Andrew G. Biggs
The Wall Street Journal
May 10, 2017

Social Security may be the “third rail” of U.S. politics, but congressional Democrats are suddenly eager to risk touching it. Over a remarkably short time they have embraced an ambitious but flawed policy of expanding the program’s benefits via tax increases on all workers, including doubling payroll taxes on high earners.

Since its release on April 5, Rep. John Larson’s Social Security 2100 Act has accrued 160 co-sponsors, more than any other reform proposal in recent history. With support from 80% of House Democrats, Mr. Larson’s legislation can fairly be called the Democrats’ Social Security plan.

Democrats have always been reluctant to cut Social Security benefits, favoring tax increases to fix the troubled program’s long-term deficit of more than $10 trillion. But today’s Democrats have gone further, embracing an expanded Social Security program to address what they claim is inadequate retirement saving outside the government-run system.

The Social Security 2100 plan would boost the initial benefits Americans receive upon retirement, and pay larger cost-of-living adjustments, or COLAs, in the years after. Over the plan’s first 10 years, Social Security benefit payments would rise by almost $1.2 trillion, according to an analysis by Social Security’s actuaries.

To fund those higher benefits, the plan would increase the Social Security payroll rate from the current 12.4% to 14.8% between 2019 and 2042. The plan also would phase out the ceiling on earnings subject to the tax, currently $127,000, so that by the mid-2030s all earnings would be taxed.

For low- and middle-income workers, lifetime payroll taxes would rise by nearly one-fifth from current levels. For a high earner with an average annual salary of $237,000, payroll taxes would more than double. Absent any other tax reform, the effective top federal marginal tax rate on earned income (inclusive of Medicare taxes and limitations on deductions) would rise from the current 44.6% to 59.4%. State income taxes could boost the total marginal rate as high as 72.7% for California residents. Under the Democrats’ Social Security plan the U.S. would have, by far, the highest top marginal tax rate in the developed world.

Those extra benefits wouldn’t go only to the poor. According to the Social Security Administration’s actuaries, the poorest 4% of retirees—that is, low earners with relatively short careers—would receive an extra $361 a year in initial benefits. Individuals averaging $127,000 a year over their working careers, who make up the richest 6% of retirees, would receive an additional $511 annually.

But the Democrats’ higher COLA payments would exacerbate the imbalance because, increasingly, the rich live longer than the poor. A 2014 Congressional Budget Office study found that the highest-income Americans live 6.2 years longer past 65 than the poor. Incorporating these longevity differences, the Democrats’ plan would boost lifetime benefits for a $127,000 annual earner by more than $20,000. The poorest retirees would only see a $7,300 rise in benefits. A better-targeted plan could couple more poverty reduction with lower taxes.

To its credit, the Democrats’ plan would make a big dent in Social Security’s long-term deficit, fixing all of it under the Social Security Administration’s projections and most of it under CBO’s more pessimistic forecast. But the tax increases included in the Social Security 2100 Act would also significantly reduce revenue in the rest of the federal budget.

Most economists believe—and the SSA and CBO scorekeepers accept—that employers who are required to pay higher Social Security taxes would reduce wages to help cover those costs. Those lost wages would no longer be subject to federal income taxes or Medicare taxes. According to a recent analysis by the Joint Committee on Taxation, lost income and Medicare taxes would offset between 12% and 21% of workers’ Social Security payroll tax increases, depending on income level.

This projected loss of non-Social Security revenue does not account for any behavioral effects from dramatically increasing marginal tax rates. Left-leaning economists Emmanuel Saez and Jeffrey Liebman found in a 2006 study that even modest behavioral reactions could reduce the net revenue gains from a plan like Mr. Larson’s by nearly half. Assume stronger behavioral effects (specifically, an elasticity of taxable income of 0.5), and losses to non-Social Security revenue would, in the authors’ words, “swamp any benefits from the increase in payroll tax revenue.” In other words, the Democrats’ Social Security reform could increase government deficits and debt, permanently.

President Trump’s pledge not to cut Social Security benefits leaves the Republicans’ position on reform unclear. But the Democratic Party’s stand on Social Security couldn’t be clearer: higher taxes on all workers to fund higher benefits to all retirees, including the richest, and the highest marginal tax rates in the developed world, which would significantly cut income tax and Medicare tax revenue. Democrats may find that the third rail of American politics can still deliver a shock.

Article Link To The Wall Street Journal:

New South Korea President Vows To Address North Korea, Broader Tensions 'Urgently'

By Ju-min Park and Christine Kim
May 10, 2017

South Korea's new liberal President Moon Jae-in was sworn in on Wednesday and vowed to immediately tackle the difficult tasks of addressing North Korea's advancing nuclear ambitions and soothing tensions with the United States and China.

Moon said in his first speech as president he would immediately begin efforts to defuse security tensions on the Korean peninsula and negotiate with Washington and Beijing to ease the row over a U.S. missile defense system being deployed in the South.

He also planned to announce major cabinet and presidential staff appointments almost immediately to bring a swift end to a power vacuum left by the removal of his predecessor, Park Geun-hye, in March in a corruption scandal that rocked South Korea's business and political elite.

"I will urgently try to solve the security crisis," Moon said in the domed rotunda hall of the parliament building. "If needed, I will fly straight to Washington. I will go to Beijing and Tokyo and, if the conditions are right, to Pyongyang also."

The deployment of the Terminal High Altitude Area Defense System (THAAD) in the South has angered China, Seoul's major trading partner, which sees the U.S. system's powerful radar as a threat to its security.

The issue has clouded efforts to rein in North Korea's nuclear and missile programs, and also led to recriminations by Beijing against South Korean companies.

Moon, 64, also pledged to sever what he described as the collusive ties between business and government that have plagued many of South Korea's family-run conglomerates, known as chaebol, and vowed to be an incorruptible leader.

"I take this office empty-handed, and I will leave the office empty-handed," Moon said.

Moon met leaders of opposition parties before his simple swearing-in ceremony at parliament and promised to coordinate better with them on national security issues.

"I can do well on matters of South-North Korea relations, national security, and the Korea-U.S. alliance if the Liberty Korea Party helps me," Moon told senior officials of the conservative opposition party. "I will share information on national security with the opposition to gather wisdom."

Office workers and passersby lined the streets as Moon's motorcade passed through central Seoul en route to the presidential Blue House from parliament.

Moon stood and waved to well-wishers through the sunroof of his limousine, which was flanked by police motorbikes and a security detail.

Trust, Understanding

Chinese President Xi Jinping and Japanese Prime Minister Shinzo Abe both congratulated Moon on Wednesday. Xi said China was willing to handle disputes with South Korea "appropriately" on the basis of mutual trust and understanding.

Abe said in a statement he looked forward to working with Moon to improve bilateral relations, describing Seoul as one of Japan's "most important" regional neighbors".

The decision by the ousted Park's government to host the controversial THAAD system has already proved a headache for Moon as Seoul tries to walk a fine line between Washington, its closest security ally, and China.

Moon has said the decision had been made hastily and his government should have the final say on whether to deploy it.

As president, Moon must find a way to coax an increasingly belligerent North Korea to ease its nuclear and missile threats. Pyongyang has conducted its fifth nuclear test and a series of missile launches since the start of last year, ratcheting up tension on the peninsula.

Washington wants to increase pressure on Pyongyang through further isolation and sanctions, in contrast to Moon's advocacy for greater engagement with the reclusive North.

In one of his first acts as president, Moon spoke by telephone with Chairman of the Joint Chiefs of Staff Lee Sun-jin. A separate statement from Moon's Democratic Party said he was briefed on the status of the North Korean military and South Korea's military readiness.

Moon's election could add volatility to relations with Washington, given his questioning of the THAAD deployment, but was not expected to significantly change the alliance, a U.S. official said.

The White House also congratulated Moon, saying it looked forward to working with him to strengthen the longstanding U.S.-South Korea alliance.

The National Election Commission confirmed Moon's win shortly after 8 a.m. on Wednesday (2300 GMT Tuesday).

The first major positions he was expected to fill included the prime minister, the head of the National Intelligence Service, chief of staff, and chief bodyguard, a parliament official said.

Yonhap News Agency reported Moon had already decided on provincial governor Lee Nak-yon as prime minister, although a spokesman for Moon said he was unaware of the report and declined to comment further.

Other challenges Moon faces include mending a society badly bruised by the corruption scandal that doomed Park's administration.

Moon's party lacks a majority in a divided parliament. To push through major initiatives, including creating 500,000 jobs annually and reforming the country's powerful family-run conglomerates, he will need to forge partnerships with some of the parties and politicians he fought fiercely on his path to the presidency.

Moon won with 41.1 percent of the votes but that seemingly comfortable margin belied a deep ideological and generational divide in the country of 51 million people.

Data from an exit poll conducted by South Korea's top three television networks showed that, while Moon won the majority of votes cast by those under the age of 50, conservative rival Hong Joon-pyo found strong support among voters in their 60s and 70s.

Article Link To Reuters:

Day One For Korea's New President Sees Stocks, Won In Retreats

Kospi toppled from record as North Korea tips nuclear test; Bullish investors expect corporate reform from new leader.

May 10, 2017

South Korean assets greeted the country’s new president cautiously, with stocks, bonds and the currency falling as investors shifted focus to the challenges ahead.

The Kospi index dropped the most since March as North Korea’s reiteration of its pledge to push forward with another nuclear test showed Moon Jae-in, the victor in Tuesday’s presidential vote, is unlikely to get a honeymoon. While Citigroup Inc. to Morgan Stanley are betting on further upside for South Korea’s record-setting stocks, analysts and investors are seeking more from Moon, who ran on a platform of corporate reform and rapprochement with North Korea.

“Markets will take this on the chin,” said James Soutter, who helps manage the equivalent of about $500 million at K2 Asset Management in Melbourne, referring to the election. “Rumblings out of North Korea on further nuclear tests should have a bigger influence on markets than the election.”

While Korean technology shares rallied on bets Moon will bolster the sector as a way of delivering more jobs, the Kospi spiked lower, declining as much as 1.2 percent -- the most since March as utilities and banks paced losses. Markets in Seoul were closed for the election Tuesday, and the drop comes after a 2.3 percent surge in the Kospi on Monday, its best day since September 2015.

Markets in South Korea have learned to shrug off a lot of North Korea’s saber rattling, but the entry of Donald Trump into the equation has raised the stakes. The U.S. is deploying a missile defense system in South Korea, an initiative that has angered Pyongyang and its main ally, China. At the same time, Moon inherits an economy predicted to expand this year at the slowest pace since 2012.

The vote removes a lot of the political uncertainty associated with South Korea -- former president Park Geun-hye was ousted amid a corruption probe in March -- which should give the Kospi’s rally more oxygen, according to analysts from Citigroup, Jefferies Group and Morgan Stanley.

“I wouldn’t be surprised to see a pullback in the market in the way that you buy a rumor, sell the news,” said Nader Naeimi, head of a dynamic investment fund at AMP Capital Investors in Sydney. “But deep down underneath that I think that the election bodes really well for Korean stocks.”

Equities reacted modestly after the past three Korean presidential elections:

Companies expected to benefit from Moon’s win jumped Wednesday, with shares of Shinwon Corp. climbing as much as 30 percent in Seoul. The clothing manufacturer has factories in the Kaesong industrial region, a joint economic venture between the two Koreas.

The Kospi is ready to “blow off” now the election is done, said Sean Darby, chief global equity strategist in Hong Kong at Jefferies, which is modestly bullish on South Korea within its global asset allocation.

Neither “the economic uncertainty caused by the North Korean geopolitical tensions, nor the impeachment of former President Park Geun-hye has deterred investors,” Darby said in a note. “The combination of an improving export picture, sanguine inflation, a large current account surplus to GDP and inexpensive valuations has tipped investors towards Korean equities.”

The won retreated 0.2 percent from Monday’s close. While well off a nadir reached in December, the increase in North Korean tensions over the past two months has weighed on the currency.

Benchmark bonds continued their decline, with 10-year yields up four basis points to 2.29 percent, edging up toward a 15-month high reached in March.

Goldman Sachs Group Inc. predicts two main policy outcomes from the election: tax hikes and improvement in corporate governance. Reforming South Korea’s chaebols -- the opaque family-run conglomerates that drove the country’s post-Korean war recovery -- is a key concern among foreign investors, who have long complained about their lack of transparency.

But Moon, who said Wednesday that close ties between the chaebols and the government will disappear, may face some push back in these efforts, said Goohoon Kwon, Goldman’s senior Asia economist.

It will be key who Moon picks for his new team as well as his approach to corporate reform and foreign policy, according to Morgan Stanley analysts Joon Seok and Deyi Tan.

On equities “positives have played out in the near term, but the medium term has more upside than downside risk,” they wrote in a report, recommending technology shares and dividend stocks. “Time may be needed for key policies to be implemented but macro policies should be neutral, while chaebol reform presents a positive opportunity if well carried out.”

Article Link To Bloomberg:

A Map Like This Persuaded Trump To Save Nafta, For Now

States that supported Donald Trump in the election have the most to lose if Nafta ends.

By Randy Woods
May 10, 2017

Location is everything in the real-estate biz, so it's not entirely surprising that a map changed former developer Donald Trump's mind.

President Trump was close to withdrawing from the North American Free Trade Agreement last month, before he saw a U.S. map highlighting areas that rely on business with partners Mexico and Canada. It just so happened many of those states supported Trump in the 2016 election, giving him a strong motivation to renegotiate rather than abandon the pact, he told the Washington Post.

The White House declined to provide a copy of the exact map presented to Trump, so we came up with our own version.

A quick look at export data from 2016 shows manufacturing and border states that voted Republican in the November election depend heavily on trade with Nafta partners, both north and south of the U.S. borders. The five states with the largest percentage of exports to those countries supported Trump, including delegate-rich Michigan and Ohio, which backed his Democratic predecessor Barack Obama in 2012 and 2008.

Employment in those two states is highly linked to manufacturing, such as automobile assembly, which depends on the supply of parts that move freely and frequently between the three countries. Nafta’s demise and a potential trade spat on the continent would disrupt and possibly cripple that flow, and send manufacturers to seek cheaper supplies overseas, according to Joseph Parilla, a fellow at the Brookings Institution.

“If we diminish our competitiveness in a way that makes it more attractive for those supply chains to just fully up and leave North America, that could essentially be the death knell for American manufacturing,” he said.

That would deal a blow for supporters who flocked to Trump on his promise to bring prosperity back to the Rust Belt states.

The data also show agriculture-based economies that voted for Trump like Nebraska and Iowa rely on exports to Canada and Mexico, while the 10 states with the biggest trade surpluses with Nafta all voted Republican on the presidential ticket last year.

For now, Trump seems satisfied to re-negotiate Nafta provided the talks go in America's favor. But could the president, who called the pact a "disaster" on the campaign trail, have another change of heart?

"I would be very surprised if they actually decide to scrap the deal," according to Robert Scott, a senior economist at the Economic Policy Institute in Washington. "There are too many businesses heavily invested in production in Mexico and Canada who would be hurt by doing away with Nafta."

Article Link To Bloomberg:

Markets Are Doing Nothing, And Investors Have Nowhere To Hide

Demand and prices fall for global equity and currency hedges; Stock replacements, euro options among protection ideas.

By Dani Burger and Liz McCormick
May 10, 2017

It doesn’t pay to worry about the unprecedented market calm.

As U.S. stocks trade at fresh highs and volatility across assets is so subdued it’s touching near-record lows, hedging seems like a luxury. It’s getting harder to justify coughing up money for cheap protection that ends up seeming overpriced in the face of rare, and quickly reversing, selloffs.

With the French election out of the way, investors have stopped paying what had been a five-month high in the cost of insuring against declines in the S&P 500 Index. The price of hedging against a 5 percent drop in the gauge over the next month is 36 percent below it’s five-year average. Meanwhile the Bank of America Corp.’s Skew Index, which measures demand for hedging against large swings in global equities and currencies, is it’s lowest since 2013.

For some, this sense of calm in the market is anxiety-inducing in its own right, especially as valuations stretch to levels not seen since the aftermath of the 1990s internet bubble.

“It looks to me that the configuration of assets prices aren’t quite ready for a shock,” Kevin Warsh, a former Federal Reserve governor, said at the Sohn Investment Conference on Monday. “I would not take comfort, I would take fear.”

Warsh isn’t alone in his concern that investors are under-prepared for a shock. Julian Emanuel, executive direction of U.S. equity and derivatives strategy at UBS Group AG, says that “people are definitely under-hedged,” considering that cheap options are rarely paying off. Still, others are getting more creative about hedging.

One reason the options market isn’t the site of a lot of hedging may be that using it doesn’t pay. A study published in March by Roni Israelov of AQR Capital Management found that simply keeping a chunk of your portfolio in cash achieved the same results as employing a 5 percent put protection strategy, with much smaller losses and volatility.

Here’s how some people are choosing to hedge their exposure:

Long End of the VIX Curve

The front end of the VIX futures curve keeps sinking lower as the VIX Index trades below 10, it’s lowest level since 1993. For traders, going long volatility has been punishing, as the falling VIX spot drags down short-term futures.

However, moving further out on the VIX curve there’s still a bid for September futures. And it’s one that Macro Risk Advisors’ Pravit Chintawongvanich likes. On the long-end, investors can buy contracts that are less exposed to decay from time and more exposed to volatility risks, he said.

“Over the next four-to-five months, there is a good chance to monetize these long-dated VIX futures,” Chintawongvanich wrote in a note to clients Monday.

Defensive Stocks

Though not a hedge per se, overweighting stocks that aren’t sensitive to gyrations in the U.S. economy helps protect against the “red flag” of market complacency, said Howard Ward, chief investment officer of growth equities at Gamco Investors Inc., which oversees nearly $40 billion.

“It has been a long time since we had a 5 or 10 percent correction, and the clock is ticking,” Ward said. “Earnings estimates for this year are too aggressive, and the consumer is saving more, spending less, and consumers represent 70 percent of the economy.”

Though fully invested, Ward says he’s overweight health care, consumer products and tech software. And he’s underweight the reflationary Trump Trade.

Euro Options

Currency markets aren’t immune from plummeting volatility. Take Deutsche Bank AG’s FX Volatility Index, which shows implied volatility at it’s lowest in three years. Because implied volatility has fallen below realized, euro options are an attractive hedge, said Dean Curnutt, chief executive officer at Macro Risk Advisors.

Implied volatility on one-year options on the euro-U.S. dollar exchange rate is 7.2 percent, or a percentage point below a gauge of actual swings in the currency over the past 12 months, now at 8.2 percent. Over the past five years, that spread, a metric strategists look at to measure if options are cheap or expensive, has had actual volatility exceed implied by 0.35 percentage points.

“We continue to think that Europe has substantial challenges ahead of it,” Curnutt said. “It’s rare to be able to buy an option with implied volatility below the realized.”

Sterling Options

While traders may not be actively using options to buffer against currency swings, they are still hedging against risk, said Neil Jones, head of hedge-fund sales at Mizuho Bank Ltd. in London. Wagers that profit if the British pound slides versus the dollar are a prime example, he added.

Large speculative investors, including hedge funds, are net short pound futures against the dollar by 81,364 contracts as of May 2, according to the Commodity Futures Trading Commission. That’s close to the record bearish wagers reached in March.

Stock Replacements

Since UBS’s Emanuel believes stocks are unlikely to move materially higher, he said a hedge called a stock replacement makes sense. In this trade, instead of holding a long position in a stock, traders pay a premium for a limited downside by buying a call option. That way, they can benefit from any move higher, but the actual amount of cash at risk is lower because the options are cheaper than the shares.

“The cool thing about hedging at this level is that the VIX could rise 30 percent off of nothing. From that perspective, hedging is cheap and stock replacement makes sense,” said Emanuel. “If the economic numbers don’t strengthen materially in the coming weeks, we think people will take a closer look.”

Article Link To Bloomberg:

Yelp Plummets As Advertisers Revolt

Company says it has solved issue affecting newer advertisers, but investors aren’t sticking around to see.

By Therese Poletti
May 10, 2017

Advertisers fled Yelp Inc., and now investors are doing the same.

Yelp said Tuesday it saw a wave of local advertiser departures in January and February, and shares plummeted a shocking 28% as the online-reviews site again lowered its full year outlook. While 2017 was once seen as the year Yelp reached $1 billion in annual revenue, it now looks like even $900 million will be hard to reach after a second consecutive quarter of weak advertiser growth and declining forecasts.

Yelp YELP, -2.80% said that small emerging businesses had trouble competing in its ad system with some of the more established businesses. The company said it was able to stem the tide of advertiser revolts against its system of late, but not soon enough to prevent a dent.

“It was all hands on deck obviously at that point, and we put a team in place to focus on that particular cohort and that particular profile,” said Jed Nachman, Yelp’s chief operating officer. “And we’re able to really course-correct in a pretty short period of time and saw progressively better results as we got into March and particularly in April.”

Company executives said on Tuesday that because of the challenges with local advertisers, it expects revenue in the range of $850 million to $865 million for the full year. In early February, Yelp lowered its 2017 revenue to a range of $880 million to $900 million, down from its previous forecast of $1 billion, as new account growth slowed.

Investors have already been concerned about the sequential slowing of new advertising accounts, as it sees more competition from both Alphabet Inc.’s Google GOOGL, -0.21% GOOG, -0.23% and Facebook Inc. FB, -0.38% for smaller local advertisers, where Yelp makes the bulk of its revenue. Yelp added 4,500 new accounts in the most recent quarter, up from an extremely disappointing 2,800 in the holiday quarter, but still below expectations. The company had added 6,600 in the third quarter last year and 7,400 in the second quarter, raising hopes for advertising growth.

Yelp’s stock has suffered since its disappointing holiday-quarter report, falling 16.4% in the past three months as the S&P 500 index SPX, -0.10% has gained 3.9%. That decline appears to be headed for a sharp acceleration after Tuesday’s report.

Beyond a declining share price, Yelp could have other worries. Already on Tuesday, Holzer & Holzer LLC, a law firm in Atlanta which specializes in shareholder litigation, said it was investigating Yelp’s statements on its outlook.

Lawsuits will matter little, however, if Yelp can’t convince local businesses to advertise alongside its reviews. If advertisers won’t join or stick around, neither will investors.

Article Link To MarketWatch:

Rushing To Pay Back A Large Student Loan? You May Want To Think Again

Evidence isn’t clear on benefits of aggressively paying down over $15,000 in debt.

By Jillian Berman
May 10, 2017

There’s no shortage of headlines celebrating 20- or 30-somethings who scrimped, side-hustled and saved to pay off their five or six-figure student loans and are now living debt- and carefree. But according to a new study, there’s little evidence that those with high student debt levels actually benefit from rushing to pay off their loans.

For borrowers with $15,000 or less in student loans there appears to be an advantage to paying them off faster than the 10 years typically allotted for federal student loan borrowers, according to a recent paper included in “Understanding Student Debt: Implications for Federal Policy and Future Research,” a volume published by The Annals of the American Academy of Political and Social Science. But once those debt loads start to inch higher — about $24,000 or above, — there’s little evidence of any such benefit.

“We cannot say for certain that they should try to pay as soon as possible,” said Manuel González Canché, a professor at the University of Georgia’s Institute for Higher Education and the author of the study. “People with higher debt may benefit more by ascribing to the 10-year-repayment plan because (repaying quickly) may divert them from starting a family or getting married or enrolling in graduate school.”

And indeed, many personal finance experts advise borrowers with federal student loans to take advantage of their full repayment term, as long as their loan has a relatively low interest rate. That way they can use the extra cash to address debt with higher interest rates, like credit cards, save for an emergency fund, a home or even turn it into more money by investing it elsewhere. (Borrowers with private student loans that may have less generous terms or variable interest rates may want to take a different approach).

Even for borrowers with lower levels of debt, the benefits González Canché observed to paying it back quickly were relatively small. Borrowers with a four-year degree who repaid their loans quickly earned about 8% more a year than those who didn’t pay their debt back or those who didn’t borrow at all. That could be because they had higher salaries to begin with, González Canché admits, but even if that’s the case, it’s possible they were motivated to earn those higher salaries to pay off their debt more quickly, the study notes.

But other than a possible salary bump, the research didn’t point to any other advantages of rushing to pay back student loans, such as a greater likelihood for homeownership. Still, González Canché said his research indicates borrowers with smaller debt loads could benefit from more flexible repayment terms, such as a plan that limits the amount of interest that accrues in exchange for paying off their loans in five years.

For borrowers with high debt loads on the other hand, the evidence is much less clear that rushing to repay their loans offers any benefit. In fact, some personal finance experts suggest borrowers take their time paying off the loans. The psychological burden of student debt means that borrowers will sometimes rush to pay it off with a feverish intensity that precludes other financial goals, Shannon McLay, the owner of the Financial Gym, a financial planning company geared toward young adults, told MarketWatch last year.

“The number one thing I see is that people believe that their student loan debt prohibits them from leading a good life,” she said at the time. “There needs to be more of an acceptance of living with that debt for a period of time.”

Article Link To MarketWatch:

Early Proposed Rates For ObamaCare Hint At A Jump In Premiums For 2018

By Amy Goldstein 
The Washington Post
May 10, 2017

Early clues suggest that health insurance prices in Affordable Care Act marketplaces could jump again for the coming year, defying predictions that premium rates would begin to level off.

Amid the uncertainties hovering over those marketplaces as the Trump administration and a Republican Congress try to dismantle major parts of the law, many states have postponed for another few months their spring deadlines for insurers to report how much they want to charge for ACA health plans in 2018.

But the first four states to announce proposed rates in recent days reveal that insurers are seeking double-digit increases — in some cases far exceeding the average 25 percent jump for the most popular group of ACA plans in 2017. The sharp rise further fueled Republicans’ rallying cry to repeal the law.

Elsewhere around the country, insurers and state insurance commissioners have begun to caution that the GOP’s maneuvering in Congress and through executive actions could drive up prices.

The president of BlueCross BlueShield of Tennessee sent a letter Tuesday to that state’s insurance commissioner, agreeing to sell coverage in eastern counties that otherwise could lack any ACA coverage next year. But he said the decision is not “a reflection of our perspective on the stability of individual marketplace overall. In fact, we can’t justify doing so based solely on current political uncertainty.”

As a result, the rates to be filed by July 1 will “price-in those downside risks,” the letter noted.

The Washington area includes three of the four jurisdictions that have released proposed 2018 marketplace rates for individuals and families buying health plans on their own. The largest insurer in the Mid-Atlantic region, CareFirst, is requesting an average increase of 52 percent in Maryland and 21.5 percent in Virginia. For the District, CareFirst is asking for an average increase of 40 percent for HMO plans and 20 percent for plans with preferred-provider networks.

In Virginia, the seven insurers proposing prices for 2018 compares with 11 now selling ACA health plans there. The largest, Anthem, wants an average rate hike of 38 percent, more than double its increase from 2016 to 2017.

Anthem also is asking for a 34 percent average increase in Connecticut, while the second insurer selling ACA plans to residents is seeking a 15 percent increase.

States vary in how they handle health insurance rates. Some review what insurers propose and then negotiate final rates, while other states give insurers latitude to charge what they want. The rates announced in the District and those three states are merely requests, which could be lowered after regulators’ scrutiny. Insurers proposing rates now also could decide by late summer, when they must sign federal contracts for the ACA marketplaces, not to participate after all.

Fragmentary as the early picture is, it suggests that Obama administration officials and other supporters of the 2010 health-care law may have been optimistic when they predicted last fall that the large jump in premiums for 2017 was a course-correction that would be followed by a period of more stable prices.

On Tuesday, Senate Republicans seized on the early rate requests, issuing a statement that decried “massive, double-digit price premium” increases and quoted Majority Leader Mitch McConnell (R-Ky.) as saying that Americans are “watching as Obamacare collapses all around them.”

Yet insurance commissioners, insurance officials and leaders of ACA marketplaces attribute the high preliminary rate proposals to more-conservative health policies that the GOP is trying to usher in, along with uncertainty about some important decisions that the Trump administration has not yet made.

Under the American Health Care Act, GOP legislation that squeaked through the House last week, the government would no longer penalize people for failing to have coverage, as the ACA requires. And since Trump took office, the Internal Revenue Service has decided to process tax refunds even for people who fail to report their insurance status.

In addition, the White House has sent mixed messages about whether it will continue to appeal a federal lawsuit over the legality of “cost-sharing reductions” that help about 6 million people with ACA plans nationwide to afford deductibles and copays.

Late last month, Covered California, the nation’s second-largest ACA insurance exchange, released the results of a consultant’s study of the likely effects there if enforcement of the individual mandate ceased and the cost-sharing subsidies went away.

The California study by PricewaterhouseCoopers estimated that the end of both aspects of the law could cause premiums to rise by 28 percent to 49 percent, in part because healthy people would stop buying coverage. The cost increase could lead to 340,000 fewer Californians with coverage, the study concluded.

“[T]he possibility of changing the rules . . . is threatening to upend markets and put consumers at risk,” exchange executive director Peter V. Lee said in a statement.

In Pennsylvania, meanwhile, the insurance commissioner and the chief executives of the five insurers remaining in the state’s ACA marketplaces cited the same two parts of the law in a recent joint letter to Health and Human Services Secretary Tom Price.

“Putting aside the larger political debate over the ACA, we would like to more immediately address the threat of, and uncertainty related to, rapid changes and a lack of funding,” they wrote, saying that such changes “could undermine the progress we have made, reduce coverage options and significantly increase prices for millions of vulnerable Pennsylvanians.”

Article Link To The Washington Post:

Key To Keeping Trump-Russia Inquiry Alive: 3 Republicans

To force Trump's hand on investigating Russia, all it takes is 3 of the 52 Senate Republicans to work with the 48 Democrats.

By Jonathan Bernstein
The Bloomberg View
May 10, 2017

As I write, we don't really have any idea why Donald Trump decided to fire FBI Director James Comey, but there is widespread agreement that it's inappropriate for the president to have done so, even more inappropriate for him to have done so the way he did it, and considerable speculation that Trump means to have the investigation into the Russia scandal suppressed -- speculation egged on by the practically insane letter Trump released dismissing Comey, which directly referenced that investigation.

Regardless: If it was necessary before to have a special prosecutor named to look into the Trump-Russia scandal -- and it was -- it's absolutely imperative now, along with a (separate) Senate select committee.

Will it happen? That's up to the Republicans.

Senate Republicans, at least at first. All it takes is 3 of the 52 Senate Republicans to work with the 48 Democrats. A Senate majority can bring the administration to a standstill. At the very least, 51 or more Senators could demand a special prosecutor, and refuse to confirm a new FBI director -- or any Department of Justice nominees, or even any executive branch nominees at all -- until Trump gives in.

Will at least three Republicans do that? Would Republicans with at least some history of responsible actions join them, increasing the pressure on Trump? I'm talking about senators such as Lamar Alexander, Susan Collins, Bob Corker, Jeff Flake, Lindsey Graham, Johnny Isakson, Mike Lee, John McCain, Lisa Murkowski, Rand Paul, Rob Portman, and Ben Sasse. Several of them called the president's action troubling or words to that effect on Monday night, but that's not enough. To be meaningful, it has to be backed up with action.

Are they willing?

Not, I suspect based on how they've acted so far, without receiving a fair amount of pressure themselves.

Here's the thing. Quite a few high profile Republicans took principled stands against Donald Trump during the presidential campaign, and many of them have continued to stand vigilant against Trump's threats to democratic norms.

(Just to back up a bit: Investigating crimes and prosecuting crimes, including decisions on whether to prosecute, are the responsibility of the executive branch. Traditionally, decisions about both investigations and prosecutions are held at arm's length from the White House, even though the president is nominally the boss of the FBI and the Department of Justice. Richard Nixon appointed a Watergate special prosecutor, along with the staff to investigate, because the Senate demanded it as a condition for confirming Nixon's nominee for Attorney General in spring 1973. After that, Congress passed a law setting up a procedure for appointing independent counsels when scandals touched the presidency or the president's allies in the executive branch, but the law was allowed to lapse in 1999, leaving us today where things were back in 1973: The president must act for any special prosecutor to be named.)

What's needed now is several important steps further than that. Republicans who consider Trump's actions a threat to constitutional government need to do more than tweet about it. If they really mean what they say, they need to be willing to put serious pressure on Republican senators, especially those up for re-election in 2018, including Flake and Dean Heller. Patriotic Republicans need to be willing to threaten to go all the way -- that means supporting Democrats in those states -- unless those senators fight back against Trump.

What can Democrats do? Other than what they've done so far, not much; they simply don't have the votes in the House or Senate to do anything, and Democrats are already (naturally) mobilizing against Trump and in preparation for the 2018 elections and will continue to do so with or without this added incentive. After all, for them, the policy choices of the Republican Congress and of the Trump Administration are sufficient reasons for outrage, regardless of whether or not Trump followed democratic norms. Of course, they should condemn lawless behavior by the White House, but they cannot prevent it without help. 1

As for Republicans? They've delayed action despite flagrant violations of democratic norms by this White House up to now. If they let Trump do this with no serious pushback, they're asking for even worse next time.

Article Link To The Bloomberg View:

Trump's Possible Picks For Next FBI Chief

Candidate list could include Larry Thompson, Robert Conrad or even Frances Townsend.

By Aruna Viswanatha
The Wall Street Journal
May 10, 2017

President Donald Trump’s firing of Federal Bureau of Investigation Director James Comey on Tuesday raises a number of questions, including who might be the next FBI chief.

The White House is in a delicate position with this nomination. It will need to pick someone with a reputation for integrity who is well-respected in Congress and by FBI agents. One issue for the White House is many respected national security officials were part of the “never Trump” group who opposed his nomination.

Presidents have often turned to former U.S. attorneys and judges to fill the job. Some possible options include:

Former Bush Administration Officials In The Justice Department

—Mark Filip served as deputy attorney general under President George W. Bush and as a federal judge. He is now a defense lawyer at Kirkland & Ellis.

— Larry Thompson served as deputy attorney general between 2001 and 2003. Mr. Thompson also was a U.S. attorney in Atlanta and a former general counsel at PepsiCo Inc. He is close to U.S. Attorney General Jeff Sessions and supported his nomination. Mr. Thompson’s criticism of Mr. Comey’s disclosures about the Hillary Clinton email investigation was mentioned in the memo that advocated for Mr. Comey’s firing. If chosen, Mr. Thompson would be the first African-American director of the FBI.

—Ken Wainstein served at the Justice Department for 19 years, including as the first head of its national security division. He also worked as general counsel at the FBI and as chief of staff to then-FBI Director Robert Mueller. Mr. Wainstein endorsed a letter opposing Mr. Trump’s candidacy, which could hurt his chances.

Former U.S. Attorneys Who Also Serve As Judges

— Robert Conrad, a former U.S. attorney for the Western District of North Carolina, is now a judge in that district.

— Stephen Murphy, a former U.S. attorney in Detroit, is a federal judge in the Eastern District of Michigan.


—Trey Gowdy, a former federal prosecutor who represents a South Carolina district in the House of Representatives as a Republican, is best known as leading the House investigation into the 2012 attack on the U.S. consulate in Benghazi. He was rumored to be a possible contender to be attorney general in the Trump administration.

Unconventional Pick

— Frances Townsend is a former national security official in the Bush administration who is now a television personality. She also served in senior Justice Department roles in her career and is said to be liked by Mr. Trump. She would be the first woman to lead the FBI.

Article Link To The Wall Street Journal:

Comey’s Deserved Dismissal

The FBI chief forfeited his credibility with his 2016 interventions.

By Review & Outlook
The Wall Street Journal
May 10, 2017

President Trump fired James Comey late Tuesday, and better now than never. These columns opposed Mr. Comey’s nomination by Barack Obama, and the Federal Bureau of Investigation Director has committed more than enough mistakes in the last year to be dismissed for cause.

Mr. Trump sacked Mr. Comey on the advice of Deputy Attorney General Rod Rosenstein, a former U.S. Attorney with a straight-up-the-middle reputation who was only recently confirmed by the Senate. In a memo to Attorney General Jeff Sessions, Mr. Rosenstein cited Mr. Comey’s multiple breaches of Justice Department protocol in his criminal investigation of Hillary Clinton’s mishandling of classified material.

The FBI isn’t supposed even to confirm or deny ongoing investigations, but in July 2016 Mr. Comey publicly exonerated Mrs. Clinton in the probe of her private email server on his own legal judgment and political afflatus. That should have been the AG’s responsibility, and Loretta Lynch had never recused herself.

“It is not the function of the Director to make such an announcement,” Mr. Rosenstein wrote. “The Director now defends his decision by asserting that he believed Attorney General Loretta Lynch had a conflict. But the FBI Director is never empowered to supplant federal prosecutors and assume command of the Justice Department.”

Mr. Rosenstein added that at his July 5 press appearance Mr. Comey “laid out his version of the facts for the news media as if it were a closing argument, but without a trial. It is a textbook example of what federal prosecutors and agents are taught not to do.”

Then, 11 days before the election, Mr. Comey told Congress he had reopened the inquiry. His public appearances since have become a self-exoneration tour to defend his job and political standing, not least to Democrats who blame a “Comey effect” for Mrs. Clinton’s defeat. Last week Mr. Comey dropped more innuendo about the Trump campaign’s alleged ties to Russia in testimony to Congress, while also exaggerating the new evidence that led his agents to reopen the Clinton file.

For all of these reasons and more, we advised Mr. Trump to sack Mr. Comey immediately upon taking office. The President will now pay a larger political price for waiting, as critics question the timing of his action amid the FBI’s probe of his campaign’s alleged Russia ties. Democrats are already portraying Mr. Comey as a liberal martyr, though last October they accused him of partisan betrayal.

The reality is that Mr. Comey has always been most concerned with the politics of his own reputation. He styles himself as the last honest man in Washington as he has dangled insinuations across his career about the George W. Bush White House and surveillance, then Mrs. Clinton and emails, and now Mr. Trump and Russia. He is political in precisely the way we don’t want a leader of America’s premier law-enforcement agency to behave.

As for the Russia probe, if Mr. Trump is trying to cover up anything, firing the FBI Director is a lousy way to do it. Such a public spectacle will make details more likely to leak if agents feel their evidence is being sat on. Mr. Comey’s credibility was also tainted enough that whatever he announced at the end of the probe would have been doubted.

As Mr. Rosenstein put it in his memo, “I agree with the nearly unanimous opinions of former Department officials. The way the Director handled the conclusion of the email investigation was wrong. As a result, the FBI is unlikely to regain public and congressional trust until it has a Director who understands the gravity of the mistakes and pledges never to repeat them. Having refused to admit his errors, the Director cannot be expected to implement the necessary corrective actions.”

A new FBI Director who looks at the Russia evidence with fresh eyes and without the political baggage of the last year will have a better chance of being credible to the American people. Mr. Trump should now devote himself to nominating someone of integrity who can meet that standard.

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Trump Pulls From Nixon's Playbook

The president is the first since Watergate to fire an official in the middle of investigating potential misconduct by his own campaign.

By Todd S. Purdum
May 10, 2017

On the evening of Saturday October 20, 1973, Federal Judge John Sirica sat in front of his television set watching FBI agents seal off the office of the Watergate special prosecutor Archibald Cox, who had just been fired at the command of the Nixon White House. The scene reminded him of a banana republic coup. “What the hell is this crowd doing?” he asked.

It’s far too early to say whether President Donald Trump’s firing of FBI Director James Comey will have the same dire consequences for his political future as Richard Nixon’s dismissal of Cox did for his. But not since that “Saturday Night Massacre” more than 40 years ago has a sitting president dared to fire an official in the middle of investigating potential misconduct by his own campaign. The risks of doing so are enormous.

“If President Trump thought the Russian hacking investigation would just go away, his decision today has insured that it won’t,” said presidential historian Timothy Naftali. “It’s going to make getting rid of those allegations so much harder. There’s now a cloud of doubt.”

This is not the first time a president has fired the FBI director. Bill Clinton sacked William Sessions in 1993 amid allegations of alleged ethical misconduct – Sessions had used an FBI plane to visit his daughter, and had a home security system installed at government expense. But it is the first time a president has fired an FBI director who was probing possible misconduct by his own campaign aides or advisers – and on the recommendation of an attorney general who had already recused himself from the same investigation.

“It’s terrifying on so many levels,” said Michael Waldman, president of the Brennan Center for Justice at New York University Law School and a former chief speechwriter for Clinton. “This has every appearance of a cover-up, a possible act of obstruction of justice, just as much as Nixon firing Archibald Cox. That’s the only comparable historical precedent I can think of.”

Trump’s rationale for the firing – just days before Comey was to appear before the Senate intelligence committee -- was not entirely clear. Last fall, on the eve of the election, Trump praised Comey’s re-opening of his investigation into Hillary Clinton’s use of a private email server as secretary of state. But a memo from Deputy Attorney General Rod J. Rosenstein laid out a bill of particulars faulting Comey’s handling of the Clinton investigation – both his initial decision to clear her, and his subsequent announcement that he was revisiting the issue.

In his own letter to Comey, Trump muddied the issue further by saying he greatly appreciated Comey’s having informed him, “on three separate occasions,” that the president himself was not under investigation, then adding that he concurred with the Department of Justice “that you are not able to effectively lead the bureau.”

That seemed to echo Nixon’s self-serving insistence to his Attorney General Elliot Richardson that Cox should be fired in “the national interest.” Richardson and his deputy, William Ruckelshaus, both declined to dismiss Cox before Solicitor General Robert Bork eventually carried out Nixon’s order. “Mr. President,” Richardson told Nixon, “it would seem we have a differing view of the national interest.”

“It’s very Nixonian, in its own way,” said Nixon’s former White House counsel John Dean, speaking of Trump’s move. “But that’s typical of the man. They’re obviously trying the get the bureau back under the Department of Justice’s control. But I don’t think it’ll affect the Russia investigation. You’ve got too many career people, and the counter-intelligence division – the cream of the crop – that will not take lightly to being messed with.”

Indeed, while the Democratic minority in Congress lacks subpoena power, there are any number of built-in institutional forces – including the FBI, the intelligence establishment and career prosecutors and lawyers scattered across the government that will all but assure the issue will not die – especially given how many of them will regard Trump’s motives as suspect on their face.

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“The rationale is transparently absurd,” Waldman said. “Does anyone actually believe that Trump fired Comey because Comey was unfair to Hillary Clinton during the campaign?”

A major question now is how Republicans on Capitol Hill will react to the firing. Already, some Democrats have called for the appointment of a special prosecutor to continue the investigation into whether anyone in the Trump campaign colluded with Russian interests to help sway the outcome of last November’s election. At least one top Republican, Senator Charles Grassley, chairman of the judiciary committee, supported the firing.

Forty-five years ago, Nixon’s resistance to cooperating with the legal processes of the Watergate investigation helped turn the tide against him – even among some Republicans – and his last shreds of support collapsed in the face of taped evidence of his own involvement in the cover-up of the break-in at Democratic National Committee headquarters. It is far from certain in the hyper-partisan climate of today’s Washington that Trump’s fellow Republicans will be anywhere near so inclined to break ranks, despite the extraordinary nature of the Comey firing.

Then, too, there is the issue of whom Trump might nominate to succeed Comey. Who would take the job in such a moment, and who could possibly be confirmed by the Senate? If Comey’s decision to make public statements about the Clinton case, even at the risk of influencing the outcome of the election, was a break with the non-partisan reputation that the FBI has worked hard to build up in the four decades since Watergate, Trump’s firing of the director landed as an even bigger blow to that status.

And Trump would do well to remember another lesson from the Nixon years. In the wake of Cox’s firing, the president’s men recommended the appointment of a new special prosecutor, a Texan who had been a “Democrat for Nixon.” His name was Leon Jaworski, and barely six weeks after his appointment, he secretly told the White House chief of staff Alexander Haig that Nixon had better hire a criminal lawyer. The reason: He had by then heard the tape of John Dean’s March 21, 1973 conversation with Nixon, in which the lawyer told the president that there was a “cancer” on the presidency and they discussed how to cover it up.

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