Tuesday, June 27, 2017

Tuesday, June 27, Morning Global Market Roundup: Japanese Stocks Edge Towards Two-Year High, Dollar Firms Before Yellen

By Shinichi Saoshiro
June 27, 2017

Japanese stocks edged towards two-year highs on Tuesday as exporters benefited from dollar strength, with investors expecting comments from Federal Reserve Chair Janet Yellen to support the Fed's projection for one more interest rate rise this year.

Spreadbetters expected a slightly higher open for Britain's FTSE .FTSE, Germany's DAX .GDAXI and France's CAC .FCHI.

Yellen is scheduled to take part in a discussion on global economic issues at London's Royal Academy and a number of other top Fed officials are also due to speak later in the global day.

Japan's benchmark Nikkei .N225 was last up 0.3 percent at 20,210.09 in subdued trading. A rise above 20,318.11, a peak scaled a week ago, would take the Nikkei to its highest since August 2015.

"The fundamental mood is not bad, but it's hard for investors to find direction on a day where there are no other major catalysts other than a weak yen," said Hikaru Sato, a senior technical analyst at Daiwa Securities in Tokyo.

Despite lower Treasury yields, the dollar extended overnight gains and was firm at 111.800 yen JPY= after briefly rising to a one-month peak of 112.075.

Long-dated Treasury yields dropped to seven-month lows on Monday and the yield curve between five-year notes and 30-year bonds fell to its flattest level since 2007 after the weak U.S. durable goods orders raised concerns about tepid growth and slowing inflation. [US/]

The euro was steady at $1.1189 EUR= having fallen back from an 11-day high of $1.1220 overnight after European Central Bank President Mario Draghi defended the central bank's easy monetary policy.

Otherwise, Asian markets lacked strong direction as Wall Street provided few catalysts after the S&P 500 .SPX and the Dow .DJI closed overnight effectively flat. [.N]

MSCI's broadest index of Asia-Pacific shares outside Japan .MIAPJ0000PUS stood little changed.

Having made record highs during the past two months on expectations that exporters will post strong earnings, South Korea's KOSPI .KS11 rose a further 0.3 percent.

Elsewhere, Shanghai's benchmark index .SSEC and Australian shares were both down 0.1 percent.

There was also a general sense of caution in financial markets, analysts said, noting that commodities like crude oil, which is suffering from a glut, remained shaky though a recent selloff has stalled.

"Although iron ore and crude prices are stabilising, their recovery lacks strength. The U.S. equity market also hovers at a high level, but its performance is spotty with high-tech shares falling," said Masafumi Yamamoto, chief forex strategist at Mizuho Securities in Tokyo.

Crude oil was on track to rise for the fourth straight day although concerns over a festering supply glut capped prices. [O/R]

U.S. crude futures Clc1 were up 0.2 percent at $43.48 a barrel. The contract had retreated to a 10-month low of $42.05 a barrel last week before the sharp retreat stalled, but it remained on track for a monthly loss of about 10 percent.

Article Link To Reuters:

Oil Up For Fourth Day On Short-Covering, Supply Glut Caps Gains

By Naveen Thukral 
June 27, 2017

Crude oil futures rose for a fourth consecutive session on Tuesday as investors covered short positions, though worries over a festering supply glut kept a lid on prices.

U.S. West Texas Intermediate (WTI) crude futures CLc1 were up 12 cents, or 0.3 percent, at $43.50. Brent crude futures LCOc1 gained 14 cents, or 0.3 percent, to $45.97 per barrel.

The market is up slightly so far this week after dropping for the past five weeks.

"The market has fallen a lot as the news has been bad pretty consistently for the oil market," said Ric Spooner, chief market analyst at CMC Markets in Sydney.

"It has moved a long way in response to that news. Maybe we are getting to a point that there is upside risk to any good news?"

The Organization of the Petroleum Exporting Countries (OPEC) and its partners have been trying to reduce a global crude glut with production cuts. OPEC states and 11 other exporters agreed in May to extend cuts of 1.8 million barrels per day (bpd) until March.

However, Nigeria and Libya, OPEC members exempt from the cuts, have raised output.

Iran was allowed a small increase to recover market share lost under Western sanctions over its nuclear programme. It said its production has surpassed 3.8 million bpd and is expected to reach 4 million bpd by March.

And U.S. shale oil output has risen around 10 percent since last year, with the number of U.S. oil rigs in operation at the highest in more than three years.

Hedge funds and other money managers appear to have abandoned all hope that OPEC will rebalance the oil market, slashing formerly bullish bets on crude futures and options, John Kemp, a Reuters market analyst wrote in a column.

"Exchange data showed that speculators had cut their net long positions in WTI and Brent to (the) lowest level in 10 months last week," ANZ said in a note.

"Traders are also looking ahead to the EIA Energy Conference in Washington, where U.S. shale oil producers are expected to give their view of current market conditions."

Analysts at Bank of America-Merrill Lynch said demand had not grown quickly enough to absorb excess output.

As the global oil market frets about a stubborn supply glut, faltering demand growth in key Asian crude importers is further hampering efforts to restore market balance.

A fuel glut in China, a hangover from demonetisation in India, and an ageing, declining population in Japan are holding back crude oil demand growth in three of the world's top four oil buyers.

Article Link To Reuters:

Survey: Image Of The United States Has Plunged Under Trump

By Noah Barkin
June 27, 2017

The image of the United States has deteriorated sharply across the globe under President Donald Trump and an overwhelming majority of people in other countries have no confidence in his ability to lead, a survey from the Pew Research Center showed.

Five months into Trump's presidency, the survey spanning 37 nations showed U.S. favorability ratings in the rest of the world slumping to 49 percent from 64 percent at the end of Barack Obama's eight years in the White House.

But the falls were far steeper in some of America's closest allies, including U.S. neighbors Mexico and Canada, and European partners like Germany and Spain.

Trump took office in January pledging to put "America First". Since then he has pressed ahead with plans to build a wall along the U.S. border with Mexico, announced he will pull out of the Paris climate accord, and accused countries including Canada, Germany and China of unfair trade practices.

On his first foreign trip as president in early June, Trump received warm welcomes in Saudi Arabia and Israel, but a cool reception from European partners, with whom he clashed over NATO spending, climate and trade.

Just 30 percent of Mexicans now say they have a favorable view of the United States, down from 66 percent at the end of the Obama era. In Canada and Germany, favorability ratings slid by 22 points, to 43 percent and 35 percent, respectively.

In many European countries, the ratings were comparable to those seen at the end of the presidency of George W. Bush, whose 2003 invasion of Iraq was deeply unpopular.

"The drop in favorability ratings for the United States is widespread," the Pew report said. "The share of the public with a positive view of the U.S. has plummeted in a diverse set of countries from Latin America, North America, Europe, Asia and Africa".

Below Putin And Xi

The survey, based on the responses of 40,447 people and conducted between Feb. 16 and May 8 this year, showed even deeper mistrust of Trump himself, with only 22 percent of those surveyed saying they had confidence he would do the right thing in world affairs, compared to 64 percent who trusted Obama.

(GRAPHIC: Pew Research Center survey result tmsnrt.rs/2rVZ1DK)

Both Russian President Vladimir Putin and Chinese President Xi Jinping, with confidence ratings of 27 percent and 28 percent respectively, scored higher than Trump. German Chancellor Angela Merkel, with a confidence rating of 42 percent, scored highest among the four leaders in the survey.

The countries with the lowest confidence in Trump were Mexico, at 5 percent and Spain at 7 percent. The only two countries where ratings improved compared to Obama were Russia, where confidence in the U.S. president surged to 53 percent from 11 percent, and Israel, where it rose 7 points to 56 percent.

Globally, 75 percent of respondents described Trump as "arrogant", 65 percent as "intolerant" and 62 percent as "dangerous". A majority of 55 percent also described him as a "strong leader".

The survey showed widespread disapproval of Trump's signature policy proposals, with 76 percent unhappy with his plan to build the wall on the border with Mexico, 72 percent against his withdrawal from major trade agreements and 62 percent opposed to his plans to restrict travel to the U.S. from some majority-Muslim countries.

On the positive side, the survey showed that 58 percent of respondents had a positive view of Americans in general. And in many regions of the world, a majority or plurality of respondents said they expected relations with the United States to stay roughly the same in spite of Trump.

Article Link To Reuters:

Republicans Eye Billions In Side Deals To Win Obamacare Repeal Votes

The White House and Senate GOP leaders have nearly $200 billion in savings to divvy up among senators’ priorities to secure votes for the imperiled bill.

By Josh Dawsey and Burgess Everett
June 27, 2017

White House and Capitol Hill officials are exploring potential deals to divvy up billions of dollars to individual senators’ priorities in a wide-ranging bid to secure votes for the imperiled GOP health care bill.

A Congressional Budget office score that projected 22 million fewer Americans would have insurance under the plan sent some members fleeing Monday and left the bill in jeopardy of failing to have enough votes to even be called to the Senate floor this week.

But Republicans in the White House and in Congress were pleasantly surprised that the bill included more savings than they expected — and are trying to figure out if they can dole it out for votes.

The Senate has about $188 billion to play with.

Among the possible changes: More spending for health savings accounts to appease conservatives such as Sen. Ted Cruz and Sen. Mike Lee, according to three people familiar with the matter, and some additional Medicaid and opioid spending for moderates.

"We are still working with leadership to change the base bill," a Lee aide said.

Lee, Cruz and others on the right have been looking to wipe out as much of Obamacare as possible and replace it with health savings accounts, group plans and selling insurance across state lines, among other ideas. It’s not clear if the Senate parliamentarian would allow all of those proposals through under strict reconciliation rules. And Lee will likely require far more dramatic changes to be won over.

Meanwhile, senators from Medicaid expansion states huddled after the CBO score revealed the nearly $200 billion in savings to see if they could get GOP leaders to put more money into Medicaid and to thwart drug addiction. Those modifications may take place on the Senate floor, but Republicans are divided on how to use the money.

Negotiations are likely to continue quickly behind the scenes over the next 24 hours and could draw the ire of good government groups and advocates. Republicans hammered Democrats for supposedly crafting Obamacare in secret seven years ago and for handing out goodies to wavering Democratic senators.

But the GOP bill has been roundly criticized for being negotiated and written in secret — and the final terms are leaving even some Republicans queasy.

One Senate aide said that Tuesday would be "all about side deals," and another person familiar with the discussions said Senate Majority Leader Mitch McConnell had already begun talking about private deals.

"There's no one-size-fits all to getting these people on board," said one White House official. "Each of them want different things and we have to figure out if there is a path."

Defenders of the bill note that Obamacare's markets are struggling and the coverage losses are partially due to people choosing not to buy coverage, because there would no longer be a government mandate.

Any changes to appease moderates could face severe blowback from conservatives.

“There are some people who have some designs on that,” said Sen. John Thune, a South Dakota Republican. “It wouldn’t be a bad thing if we put the money toward deficit reduction."

The bill remains in peril. It is also unclear whether there is enough money to give out that could win over the divided GOP conference.

Time is of the essence.

McConnell has said he wants a vote this week no matter what, even as some White House officials have said they wouldn't mind a delay and are fearful the votes aren't there with the current legislation.

“You could make an argument for delaying it if you could get a better policy but this is the best we could do to satisfy all the different aspects of our conferences,” Thune said.

“There’s no reason not to get this done this week,” said Sen. Roy Blunt of Missouri. “And the CBO score was a little better than I thought it would be.”

White House officials said they were increasingly looking to Sen. Rand Paul (R-Ky.) and Sen. Dean Heller (R-Nev.) — and if the two maintained their opposition, the bill was likely dead. Senate leadership has largely written off Paul, and a Trump outside group has begun attacking Heller, drawing some head-scratching from Senate aides.

Article Link To Politico:

With Alphabet, Google Faces A Daunting Challenge: Organizing Itself

By Julia Love
June 27, 2017

Google’s self-professed mission is to organize the world’s information. But a company known for engineering excellence is still trying to solve the very human problem of how to organize itself.

Nearly two years ago, Google co-founder Larry Page announced the tech giant would be remade as Alphabet, a holding company whose units would include Google and an array of unrelated pursuits in areas such as healthcare, self-driving cars and urban planning.

Wall Street cheered. Previously those riskier ventures had been lumped into Google's overall financial results. Investors would now see Google’s performance independent of its so-called “Other Bets,” an eclectic collection of 11 ventures. They include Nest, a maker of Wi-Fi enabled thermostats; Calico, which seeks to prolong the human lifespan; and X, the company's secretive research lab.

Alphabet's top management also aimed to boost accountability by appointing chief executives to head each of the Other Bets. Few people in Google's constellation of ventures had ever held the title prior to that.

But so far Alphabet has failed to show it can convert its Other Bets from experiments to businesses with the reach, impact and money-making potential of Google’s core search and advertising operations. Interviews with two dozen former Alphabet executives and employees reveal an organization grappling with how much time and resources Other Bets deserve in the pursuit of profitability.

In the first quarter, which ended March 31, the ventures lost a combined $855 million; that's on top of a collective $3.6 billion loss for 2016. As a whole, Alphabet generated $90.3 billion in revenue in 2016. Google's share of that revenue was $89.5 billion, while its 2016 operating income was $27.9 billion.

Alphabet's early days have seen more pruning than expansion of its holdings.

The company has skinned back plans for Google Fiber, which delivers rapid Internet service in 10 metro areas. This month, Alphabet agreed to sell robotics company Boston Dynamics to Japanese multinational SoftBank Group Corp. It unloaded its Terra Bella satellite imaging business in February.

At one point last year, it was even looking to sell Nest, the largest of the Other Bets, three people familiar with the matter told Reuters. Google paid an eye-popping $3.2 billion for the start-up in 2014.

(For a graphic showing Alphabet's holdings, see: tmsnrt.rs/2rNgdKN)

Meanwhile, a series of executives have departed since the reorganization, including the heads of Nest, an Internet operation called Access and a venture capital firm known as GV.

An Alphabet spokeswoman declined repeated requests for comment or to make executives available for interviews. Supporters of the restructuring frame the early struggles as typical growing pains.

For now, Wall Street isn't worried: Alphabet's stock is near an all-time high, having reached $1,000 per share in June. Ruth Porat, the no-nonsense chief financial officer who has steered the restructuring, has won rave reviews from investors for enforcing financial accountability across Alphabet.

Some Other Bets have made notable strides. Life sciences initiative Verily recently attracted $800 million in outside investment. Self-driving car project Waymo is considered among the leaders in the burgeoning industry.

Still, it's not yet clear the structure will enable Alphabet to do what most companies cannot: conceive the next wave of innovation in-house or through the development of key acquisitions. That goal is central to both the company's mission and investor expectations, analysts say.

“The reason Google gets to trade at a decent multiple… is because there's a growth story beyond advertising,” said analyst James Wang of ARK Investment Management.


The Alphabet structure is Google’s stab at an age-old corporate conundrum: sustaining innovation within a giant enterprise.

Alphabet's strategy is to give entrepreneurs the autonomy of a startup, coupled with the discipline of a traditional corporate structure.

Roughly once a quarter, Other Bets leaders meet with the Alphabet board – comprised of Porat, Page, Google co-founder Sergey Brin and David Drummond, Alphabet's senior vice president of corporate development – to discuss funding and performance, according to two former employees.

At the same time, Alphabet is establishing separate compensation plans for the Other Bets to reward employees if their ventures succeed, mirroring startup incentives.

The formula has primed Alphabet's emerging businesses for "global impact," Alphabet Executive Chairman Eric Schmidt said this month at the annual stockholders meeting at the Mountain View headquarters.

"There is one solution that we know works well in capitalism, which is boards, shareholders, CEOs," Schmidt said. "My bet is that the traditional lessons of business organization will in fact result in success at Alphabet."

Still, Alphabet top brass continue to hold sway over key strategy and financing decisions, a dynamic that has chafed Other Bets chief executives who've complained they are treated more like chief operating officers than shot callers, according to people familiar with the situation.

In addition, scrutiny from Wall Street limits how generous Alphabet can be in extending Google's resources to Other Bets, said Brian McClendon, a former vice president of engineering at Google.

"As of yet, the restructuring hasn’t provided what I think is one of the immediate benefits, which is risk-taking investment," he said.

Nickeled And Dimed

Some companies acquired by Google found that being part of Alphabet wasn't what they'd bargained for.

Two former Nest employees said they were promised generous funding and time to achieve profitability following the company's acquisition by Google in 2014. But after the restructuring, Alphabet executives were keenly focused on revenue, one former employee said.

Pricey overhead has made the path to profitability tougher. After the restructuring, Alphabet began charging Other Bets for their portion of shared services such as security and facilities, ending what had previously amounted to a subsidy, people familiar with the situation said. The units also felt pressure to maintain Google perks such as free employee meals.

“One of the pitfalls (of Alphabet) is that those companies are asked to stand on their own two feet, but they may inherit the cost structure of Google," said Nest investor Peter Nieh, a partner at Lightspeed Venture Partners.

In early 2016, Alphabet explored selling Nest in an effort code-named Project Amalfi, according to three people familiar with the matter. No deal materialized, and Nest co-founder Tony Fadell departed last year. Fadell declined to comment.

Boston Dynamics, acquired in 2013 during a robotics shopping spree led by Android creator Andy Rubin, enjoyed generous funding at first. But it was adrift after Rubin's departure, two former employees said. Rubin did not respond to requests for comment.

Grumpy Googlers

The creation of the Other Bets has also changed what it means to work for Google.

Some grumble that their role now is to subsidize innovation at their sister companies, rather than to innovate themselves.

“It did sort of send the message to people who stayed back at Google, whether in search or in ads: Your job isn’t to push the envelope,” one former Googler said.

Employee transfers to X, the illustrious “moonshot factory,” are more complicated now that it's a separate entity, former employees say.

That’s a striking shift, especially for high-performing employees accustomed to moving about the company almost at will, said Punit Soni, a former Google employee who is now chief executive of Learning Motors, an artificial intelligence startup.

“A basic premise of Google was people could do whatever they wanted,” Soni said. “I can see why people will feel like it’s no longer the old Google."

In the meantime, co-founder Page is pursuing yet another "moonshot": flying cars.

He is the primary investor in Kitty Hawk, a startup in the field that is entirely outside the Alphabet umbrella.

Article Link To Reuters:

U.S. Solar Demand Could Drop 66% If Trade Case Succeeds

By Nichola Groom
June 27, 2017

The U.S. solar industry would see two-thirds of expected demand dry up over the next five years if a trade case aimed at propping up the domestic panel manufacturing industry is successful, a new report said on Monday.

The utility-scale solar industry, which accounts for more than half of U.S. installations, would be hit hardest if Washington adopts the hefty remedies sought by bankrupt solar panel maker Suniva. That is because large projects depend on being cost-competitive with natural gas-fired plants to spur buying, research firm GTM Research said in their analysis.

"This is arguably one of the biggest downside risks to the future of U.S. solar," GTM's associate director of U.S. solar, Cory Honeyman, said in an interview.

In April, Suniva filed a rare Section 201 petition with the U.S. International Trade Commission nine days after seeking Chapter 11 bankruptcy protection. In the petition, the company asked for new duties on imported solar products to combat a global glut of panels that has depressed prices and made it difficult for American producers to compete.

Suniva was founded in Georgia but as of 2015 is majority owned by Hong Kong-based Shunfeng International Clean Energy. It was joined in the petition by another domestic manufacturer, the U.S. division of Germany's SolarWorld. The German company filed for insolvency last month.

Suniva is seeking a duty rate of 40 cents per watt on solar cells and a minimum price on modules of 78 cents a watt for the first year, levels unseen since 2012, according to GTM.

Between 2018 and 2022, U.S. solar installations would fall from 72.5 gigawatts to 36.4 GW with a minimum module price of 78 cents a watt, GTM said. If a 40 cent cell tariff were implemented as well, installations would drop to 25 GW during the period.

The U.S. ITC will decide by September whether imports are causing harm to domestic producers. If it does find serious injury to the industry, by November the commission will recommend remedies to President Trump, who then makes a final decision. Trump could accept the ITC's recommendation or do something else entirely. The final outcome could vary greatly from Suniva's suggested remedies.

The Solar Energy Industries Trade Association, the U.S. solar trade group, is opposed to Suniva's petition. The group said last week that an estimated 88,000 jobs would be lost if the trade protections Suniva is seeking are imposed.

Article Link To Reuters:

Asserting 'Dominance,' Trump Seeks Boost For U.S. Energy Exports

By Roberta Rampton
June 27, 2017

President Donald Trump on Thursday will lay out his plan for reducing regulations to boost already-abundant U.S. production of oil, natural gas and coal and export it around the world, creating American jobs and helping allies.

Trump will deliver an address on his administration's new mantra of "energy dominance" at the Energy Department, officials told reporters. They declined to give details on how he would tweak existing regulations that have not stopped a surge in exports.

"We’ve gone from the age of scarcity now to the age of abundance when it comes to American energy," Mike Catanzaro, a White House energy policy aide, told reporters.

"We want to use those abundant resources for good here at home and for good abroad as well," Catanzaro said.

Trump's speech comes a week before he meets in Warsaw with leaders of a dozen central and eastern European nations who are eager to see more U.S. liquefied natural gas (LNG) in their markets as an alternative to Russian gas.

Trump is stopping at the summit on his way to the G20 in Hamburg, Germany, where he is expected to meet face-to-face for the first time in his presidency with Russian President Vladimir Putin.

Shipments of LNG will play a big part in the "energy dominance" strategy, Energy Secretary Rick Perry told reporters, but so will exports of coal and U.S. technology that helps reduce emissions from coal-fired plants, he said.

Perry said he discussed the potential for U.S. coal exports to Ukraine with President Petro Poroshenko during his visit to Washington last week.

The Trump administration believes in an "all-of-the-above" approach to energy, Perry said - borrowing the energy catch-phrase of the Obama administration.

U.S. domestic energy prices have plunged in recent years because of the natural gas boom, crowding out competing sources of power, including coal and nuclear. Dozens of nuclear power reactors are in danger of shutting down over the next several years as a result.

The Trump administration wants to make sure the United States remains "technologically and economically engaged" in the nuclear industry, Perry said. "If we do not, then China and Russia will fill that void," he said.

But he said the administration would not be "wildly supportive" of subsidizing any sectors of the energy industry. Perry said energy supports in the tax code would be examined as the administration and Congress look at tax reform later this year.

"I think we’ll have a good healthy conversation about the energy sector and tax incentives, subsidies - all of that needs to be on the table and we need to have a conversation about it," Perry said.

Article Link To Reuters:

In Disaster's Wake, BP Doubles Down On Deepwater Despite Surging Shale

By Jessica Resnick-Ault
June 27, 2017

About 300 BP workers commute 150 miles here by helicopter, from the Louisiana coast to a deep-sea drilling platform that can produce more oil in a day than a West Texas rig can pump in a year.

On the deck of Thunder Horse, they work two-week shifts, drink seawater from a desalination plant, and eat ribs and chicken ferried in by boat. On the ocean floor, robots provide remote eyes and arms as drills extract up to 265,000 barrels per day.

"There's a whole city below us," said Jim Pearl, Marine Team Leader on the platform.

This is just one of the four Gulf of Mexico platforms on which BP has staked its future in U.S. oil production.

Seven years after its Deepwater Horizon explosion and oil spill, BP is betting tens of billions of dollars on the prospect that it can slash the costs of offshore drilling by half or more - just as shale oil producers have done onshore.

The firm says it can do that while it continues to pay an estimated $61 billion in total costs and damages from the worst spill in history - and without compromising safety.

BP's Gulf platforms are key to a global strategy calling for up to $17 billion in annual investments through 2021 to increase production by about 5 percent each year, Chief Executive Officer Bob Dudley recently told investors.

"Our strategy is to take this investment that we spent so much money building, and keep it full" to the platform's capacity, Richard Morrison, BP's regional president for the Gulf of Mexico, told Reuters during the first tour of a BP Gulf drilling platform since the disaster. "We're also exploring for larger pools of oil."

BP's deepwater double-down is all the more striking for the contrast to its chief competitors, who have cooled on offshore investments in light of the lower costs and quicker returns of onshore shale plays.

While BP has some onshore U.S. developments, the firm is notably absent from the industry's rush into shale oil fields of the West Texas Permian Basin.

Majors including Exxon Mobil Corp (XOM.N), Chevron Corp (CVX.N) and Royal Dutch Shell (RDSa.L) have maintained Gulf operations but focused expansions on U.S. shale. Exxon Mobil doubled its acreage in the Permian in a deal earlier this year.

Freeport-McMoRan (FCX.N) and Devon Energy Corp (DVN.N) have pulled out of Gulf drilling entirely in recent years. Anadarko Petroleum Corp (APC.N) took a $435-million dollar write-down in May on its Shenandoah project in the Gulf, deciding it could not profit with oil prices hovering at about $50 a barrel.

"In a $50 to $60 world, we always felt like greenfield development, in the Gulf in particular, was fairly challenged," Anadarko CEO Al Walker told investors last month.

Oil prices dropped steeply last week, settling in the low $40s per barrel.

BP says its next Gulf development - the $9 billion Mad Dog phase two - would be profitable even at $40 a barrel. As recently as 2013, BP reported that it could not start new deepwater Gulf projects at prices lower than $100 a barrel.

A Billion Barrels

In time, BP's offshore expansion could produce a huge payoff. The firm announced last month that it had discovered an additional billion barrels of oil below its four audaciously named Gulf platforms - Thunder Horse, Atlantis, Na Kika and Mad Dog.

The find - worth more than $40 billion at today's market prices - amounts to more than three times the proven reserves at the Na Kika field, or the equivalent of three new fields in the Gulf.

"It seems like every ten years there's another breakthrough" that unlocks more Gulf oil, Morrison said on the deck of Thunder Horse.

Over his shoulder, a drillship three miles away tapped a new well that will feed production into the massive platform.

In the wake of the 2010 BP disaster, deepwater production was curtailed by a six-month U.S. government moratorium on drilling and a longer period of uncertainty about regulation. But output has rebounded to new record highs as projects sanctioned years ago start operations and existing hubs such as Thunder Horse expand.

BP's big new discovery is key to its slashing of estimated per-barrel costs, as are a host of drilling innovations and more favorable deals with service providers.

For eight decades, geologists have used seismic imaging to estimate oil and gas reserves beneath the rocky undersea terrain.

BP used its own new technology for the billion-barrel discovery. Called full waveform inversion, the technique uses massive amounts of data to create a high-resolution model of reserves that were previously hidden beneath salt deposits.

The firm also aims to tap those reserves without building new multi-billion-dollar platforms.

At Thunder Horse and other platforms, BP is installing wellheads on the seabed and connecting them to pipelines that rise up to existing platforms, like the legs of a spider.

These "tiebacks" allow producers to feed oil from remote regions of fields that previously went untapped.

Other design changes helped BP hold down the investment in Mad Dog's second phase from an initially estimated $20 billion to just $9 billion, the company said. Such savings are part of the equation BP uses to estimate the platform's profitability at oil prices of $40 a barrel.

The struggles of deepwater oil service firms - who were forced to cut prices after per-barrel prices tanked in 2014 - are also keeping BP's expansion costs low.

"If you're going to be building an offshore Gulf of Mexico platform, now is the time to be doing it," said Norm MacDonald, portfolio manager for Invesco's energy fund, which has increased its stake in BP, its second-largest holding.

Other funds remain leery of offshore investments because of the longer wait for a return in a volatile industry.

Shale has a "liquidity premium" because producers can make smaller investments and recoup them sooner, within two or three years, said Michael Roomberg, a portfolio analyst at Miller-Howard Investments.

Tie-backs and other advances, however, could accelerate deepwater returns and help narrow the liquidity gap with shale, MacDonald said.

Cost Cutting, Safety Concerns

BP's growing deepwater investments irk some environmentalists, who say the company has fought paying what it owes to restore shorelines and communities damaged by its massive spill.

They also see the threat of another disaster.

"They never really fulfilled those promises, and people are very skeptical about them expanding drilling," said Raleigh Hoke, campaign director at Gulf Restoration Network in New Orleans.

Richard Sears - who served as chief scientist on the National Commission on the BP Deepwater Horizon Oil Spill and Offshore Drilling - said such projects can be managed safely at low oil prices.

The causes of the BP disaster had more to do with poor decision-making and slipshod safety systems than cost-cutting, said Sears, who previously managed production projects at Shell.

BP said it has bolstered safety operations globally since the spill, introducing a safety and operational risk staff with 800 positions and an internal global wells organization to standardize drilling practices, among other measures. The company says it cannot precisely estimate new spending on safety since the spill because its efforts are integrated into many parts of the company.

In a glassed-in drilling shack on the Thunder Horse platform, operators stay connected to a new onshore command center in Houston that BP designed to monitor data from offshore wells.

On the deck below sits a blowout preventer, a room-sized piece of equipment that would soon be fitted on the wellhead of a drilling site, two miles under water.

But first it would need a safety inspection - unlike the blowout preventer that infamously failed to contain the 2010 spill, which federal regulators have said had not been inspected in years.

Article Link To Reuters:

It's Time To Break Up Syria

Some believe that the destruction of ISIS is the only thing standing between peace and eternal crisis. It isn’t.

The National Interest
June 27, 2017

of the Islamic State (ISIS) in Syria has become an unhealthy obsession for Western nations, most of which operate under the assumption that the destruction of ISIS is the only thing standing between peace and eternal crisis. It isn’t. Focusing on ISIS’s defeat is a nonstrategy that has been seen before, one familiar to anyone involved in the invasion and rebuilding of Iraq, where a U.S.-led coalition removed Saddam Hussein without a coherent plan for the day after. Our combined experiences in Iraq as senior military and humanitarian leaders prompt us to call for careful consideration of what comes next—before today’s actions lead us down an even more treacherous path.

Whether it’s the deployment of special forces against ISIS or firing Tomahawk missiles against Bashar al-Assad, regardless of which faction is eliminated or who is removed from their position of power, the likelihood of stabilizing Syria is low. The country has traveled too far down a path that no amount of international goodwill can bring back. “Syria,” as it was previously known, is dead. Investing in an attempt to revive the pre-war status quo of a unitary state is a fool’s errand, which will drain immense resources, drag out the suffering of the people and distract the international community from seeking more achievable goals. The limited capacity of the international community (both resources and will), the conflicting geopolitical interests, and the depth of animosity among people on the ground mean that a strategy premised upon a return to the Syria that once was is bound to fail.

Although success in rebuilding countries after war appears elusive, especially considering the precariousness of Iraq and Afghanistan, research shows that when three goals are achieved—legitimacy of the state, security for the people and the provision of basic needs—success follows. Lacking any of these will lead to a cycle of instability and ongoing conflict. Eliminating ISIS or removing Assad can only be justified if establishing a legitimate, stable and functioning state in the aftermath is possible.

We believe lessons from Iraq and Afghanistan indicate that key challenges can only be overcome if the borders are redrawn, allowing the various nations of people to establish their own autonomous administrations with an agreed pathway, backed by the international community, to independence.

Our argument for the breakup of Syria isn’t a call to revisit the Sykes-Picot Agreement and the subsequent Treaty of Sèvres—in which Western nations mapped out the current Middle East, ignoring what the local people wanted—but rather to recognize that borders are not immutable and are a function of an ever-evolving history, culture and politics. The century-long map of the Middle East, for better or worse, served the region during the interwar period and the subsequent postcolonial transitions, but the internal pressures that had been contained by strongman dictatorships, with the support of various foreign governments, can no longer be held back. Persisting with the status quo in Syria without acknowledging these challenges and realistically considering the likelihood of a sustainable peace will lead to a far worse situation.

Breaking up the current Syrian state is the best way the various Syrian groups calling for self-rule can have their demands met. At the same time, doing so recognizes the changing international political environment, which is no longer willing to accept the degree of foreign support that would be necessary to make the status quo work. To make this case, in the following section we consider the strengths and weaknesses of pursuing the status-quo unitary state, versus our proposal of redrawing borders, against the three criteria for successful state building.

possible for a legitimate Syrian authority to emerge from the ravages of what is quickly becoming the most devastating conflict of this century? Proponents of the putsch against Assad and those waging the war against the Islamic State should have already answered this question, yet evidence of any such consideration remains elusive. The United Nations has been pushing a three-point plan—an all-inclusive government, a new constitution and a presidential vote. But will such a plan be able to deliver a stable Syria? Military commanders have been tasked by President Trump to develop a plan to deal with the Islamic State, but they haven’t received from their political leadership a clear answer to the question: “to what end?” Without considering these questions, any military intervention serves little purpose if all it achieves is to delay a return to an even more devastating conflict. A peace plan backed solely by the weight of diplomacy is only worth pursuing if it is structured in such a way that it leads to a stable and sustainable outcome.

Can the UN peace plan contribute to establishing a legitimate government? For the UN and proponents of its plan, a government is legitimate if elections are held and other states recognize the outcome. Syria, at war with itself for six years, retains an external legitimacy in the eyes of the United Nations and its members because its peers recognize its borders, whereas Somaliland, which has had peace and stability and internal legitimacy since 1988, is not recognized internationally as a legitimate state. This preference for external legitimacy over internal legitimacy is a dangerous idea that is driven by a fundamental misunderstanding of what kind of legitimacy best contributes to stability.

According to the British social theorist David Beetham, whose work builds upon efforts by others such as Max Weber, legitimacy has three intertwined pillars: a legality of the ascension to power, governance structures needing to be justified by the prevailing norms of society, and consent being given by the populace for the new regime to rule. If the process of a peace plan doesn’t strengthen these pillars of legitimacy, then the peace plan is unlikely to result in a sustainable and stable outcome.

While an externally imposed legitimacy might be achieved by heavy international military pressure on different factions, such an outcome leaves an internal legitimacy deficit that can easily be manipulated by embittered local or foreign groups. It’s an imprecise rule of thumb, but the bigger the legitimacy deficit, the greater the burden upon the international community to enforce security, which in turn requires international consensus and a willingness to contribute blood and treasure to fill the legitimacy void. With renewed Russian assertiveness and a tired, war-weary United States under the leadership of a president fond of fewer foreign forays, the collective international commitment required for success in Syria is beyond the combined capability of any international coalition. Committing to the cause without the resources necessary to succeed will entrench the conflict by creating enemies out of friends, drain the will of the international community to act elsewhere and probably lead to an even worse outcome for the people of Syria.

The alternative approach, being pursued within the confines of a status-quo state, is an attempt to entice a broad coalition of Syria’s warring factions to come together as a replacement for Assad’s government. While possible, this approach will require overcoming the competing justifications that each group has developed to sustain its legitimacy. Syria doesn’t have the luxury of a conflict that is defined by a single dimension, such as class (Cambodia), ethnicity (Rwanda) or ethnoreligious identity (Balkans). The fundamental drivers of the competing factions are so diverse, including historical animosity, economic disenfranchisement, national aspirations, religious fundamentalism and ethnic hostility, that a genuine commitment to discussing a common platform would be impossible. Are the Sunni Arabs of the Islamist movements in Syria expected to sit together with the Alawites whom they have branded enemies of God? Can the Kurds, having for the first time established self-governance, be expected to hand back their hard-earned gains to a regime that will outnumber them ethnically in any coalition in Damascus? Investing diplomatic and military resources in the establishment of fractions of coalitions that cannot foreseeably come together and stay together distracts efforts from alternative, more achievable opportunities.

Conversely, natural constituencies have emerged through the six years of conflict, each with their own narratives that justify their ascent to power. These narratives embed their governance structures within accepted social norms, as well as having already elicited consent from the people in various forms. Legitimacy in the eyes of the people has already been achieved by the Kurds of Rojava, by the rump areas under control by Assad and arguably by some Sunni groups. This legitimacy is a gift to those seeking stability in the region—a gift that needs to be embraced. The international community needs to move away from the pursuit of de jure external legitimacy and acknowledge the de facto internal legitimacy that already exists throughout the country.

Iran Won In Lebanon. What About Iraq?

Officials in Beirut see no alternative but to accommodate the Hezbollah militia.

By Danielle Pletka
The Wall Street Journal
June 27, 2017

In the violent Middle East, Lebanon looks like a miracle. A mix of Christians and Sunni and Shiite Muslims who have fought a brutal civil war, and have weathered aggressive outside interference, Lebanon is still puttering along as a semi functioning democracy. To encourage and strengthen the Lebanese Armed Forces, the U.S. has given more than $1 billion over the last decade.

But looks are deceiving. In Lebanon, despite America’s help, Iran has won.

Step back a few decades and remember the pitched battles of the Lebanese civil war—Sunni vs. Shiite vs. Christian. The kidnapping and killing of countless innocents; the murder of the CIA station chief in Beirut; and finally, the end of the civil war with the 1989 Taif Accords, a rare Arab-led initiative, which dictated terms that enabled weary Lebanese fighters to lay down their arms.

The many militias that had grown up as appendages of the Lebanese political process were disarmed, the army was successfully deconfessionalized, militias melted into the Lebanese Armed Forces, Shiites were reassigned to Sunni units, Christians to Shiite ones and so on. The fighting ground to a halt. Israelis, and eventually even Syrian occupying forces, withdrew.

Except for Hezbollah. This Shiite militia was created by Iran’s Islamic Revolutionary Guard Corps to be an Iranian proxy, nominally “resisting” Israel, but in fact resisting the normal governance of Lebanon by its people. After more than 30 years, Hezbollah is still in Lebanon, sacrificing lives, resisting democracy, dictating foreign policy and corrupting the true Lebanese Armed Forces. For the past six years, it has been fighting assiduously on behalf of Iran and the Assad regime in Syria.

On a recent visit, my first after a long lapse, I found a palpable change in tone: Lebanese officials once privately noted their hostility to Hezbollah and Iranian interference. No longer. Now Hezbollah is something to accommodate, part of the “fabric of Lebanese life,” as one senior military official put it. Since the 2006 war with Israel, Hezbollah has rearmed dramatically, with an estimated 150,000 missiles, including short-range Katyusha-type rockets and thousands of medium-range missiles capable of striking Tel Aviv. Thousands of Lebanese have either volunteered or been forced to fight in Syria for Bashar al Assad.

Even the Lebanese Armed Forces, long considered a pillar of the state, is now cozy with Hezbollah, as the latter’s leader, Hassan Nasrallah, affirmed in a recent speech. And contrary to the oft-expressed hopes of senior U.S. officials, not only has the army failed to limit Hezbollah’s reach within Lebanon, but reports suggest it may also have shared weaponry. A recent Hezbollah military parade in Syria showed U.S.-sourced M113 armored personnel carriers of the kind supplied by Washington to Beirut. Senior Lebanese officials insist the APCs “could have come from anywhere.”

Iran is pursuing a similar strategy in Iraq. As in Lebanon, irregular militias have been part of the political and military scene since Saddam Hussein ruled. But since the withdrawal of U.S. forces in 2011 and the rise of Islamic State, some militias have proved useful to the Iraqi government—and to the U.S.—in taking on ISIS, much as Hezbollah proved itself useful to Beirut in ousting Israel from southern Lebanon.

The Baghdad government has accommodated the so-called Hashd al Shaabi, or Popular Mobilization Forces; and Grand Ayatollah Ali Sistani, one of Shiite Islam’s greatest eminences, has blessed their fight. The Iraqi legislature has approved the PMF’s nominal incorporation into the Iraqi army, even as Iraqi government officials acknowledge that 30% of the PMF are under Iranian government control. Once the fight with ISIS ends, what will happen to these militias?

There’s already a hint of how the future of the PMF will play out: Like Hezbollah, some units are fighting at Iran’s behest in Syria on behalf of Mr. Assad. Iraqi leaders, as their Lebanese counterparts once did, are fretting about the future of Iran’s proxies. The Iraqis rightly see the militias as instrumental in the counter-ISIS battle, and also rightly judge them a danger when that fight is done. Perhaps, with the help of Ayatollah Sistani, some of the PMF will be legitimately incorporated into the Iraqi army—subsidized by U.S. taxpayers to the tune of $715 million in the last fiscal year alone—and answerable in its chain of command. But Iraqi leaders know full well that some will not.

That is why more must be done soon to ensure that the Iraqi leadership understands, as the Lebanese government does not, that the continued existence of Iranian proxy forces within and working alongside its military is incompatible with long-term assistance from the United States.

Congress can predicate assistance and weapons transfers on clear assurances that Iran and its proxies are not indirect beneficiaries. If it does not, Iraq, like Lebanon before it and others to come, will become yet another pawn in Iran’s Middle East game.

Article Link To The WSJ:

Steel Yourself For Trump’s Anti-Trade Moves

Would tariffs inspire a trade war?

By James Mackintosh
The Wall Street Journal
June 27, 2017

Global trade is in trouble, and investors don’t seem to care. One of the ironies of the election of a fierce nationalist in the U.S. is that it coincided with what looked like a recovery in global trade, after years of stagnation.

We’ll find out in coming days if President Donald Trump and his administration are willing to jeopardize trade by slapping tariffs on steel on national security grounds—bypassing international rules and opening the way to a tit-for-tat response. But even without new tariffs, the nascent trade recovery isn’t all it seems.

Investors have rightly seen tariffs as good for U.S. steel stocks, which have been pummeled by international competition and weak balance sheets. But there seems to be little fear of a full-blown trade war developing, either in steel—where investors in shares of major foreign competitors have seemed oblivious—or more widely.

Why aren’t investors more concerned about the risk of globalization being put into reverse gear? One answer is that few really believe Mr. Trump wants to start a trade war. His campaign rhetoric led investors to dump the Mexican peso after he won, anticipating trade troubles. But the peso is now stronger than it was before the November election, and the first tariffs he imposed were on Canada, not the target his voters expected. Aside from Canada, his trade actions have so far mostly involved fiddling around the edges, commissioning reports and improving the enforcement of existing rules.

Another answer is that investors have been discussing “deglobalization” for a long time, so the idea of increased trade friction comes as no surprise (though a full-on trade war would be a shock). The 2007-2008 financial crisis led to a collapse in global trade, and after a brief recovery it flatlined for years. Banks also retreated from financial commitments abroad, and there has been no return to the pre-Lehman days of grand cross-border banking acquisitions. Creeping protectionism has been visible in the rising number of minor trade disputes.

The data showed a clear pickup in trade in the first quarter, with 5.7% year-over-year growth in March the highest for six years, according to the CPB Netherlands Bureau for Economic Policy Analysis. But April data was weaker, and the shipping sector is suffering.

Trade acceleration is good news for investors, as more globalization means faster economic growth and more efficient use of productive assets and workers (who may not be so happy). The twin dangers for investors are that the recent recovery proves to be a mirage, or that Mr. Trump brings it to an end.

The global trade recovery might be less than it seems if it is merely a reflection of China’s stimulus last year. Oxford Economics estimates that as much as 70% of the trade growth comes from the knock-on effects of Chinese demand, which few expect to last. As China put the monetary brakes on in recent months, the Baltic Dry index of shipping costs has tumbled, and the Dow Jones Global Shipping index shows the sector’s stocks have fallen a tenth from this year’s high. South Korea’s trade volumes, used by many as a leading indicator of global trade, have fallen back after hitting a new high in March.

If Mr. Trump goes ahead with his steel tariffs, the bet is whether it leads to a creeping deglobalization with a steady ratcheting-up of trade restrictions, or a trade war.

The lesson of the 1930s is that trade wars hurt everyone, so my money would be on more subtle forms of retaliation. But politicians can best show they mean business by striking back publicly. In Europe, attacking Mr. Trump looks especially like a vote winner. Investors should be worrying a lot more about trade.

Article Link To The WSJ:

Madoff Sons' Estates In $23 Million Settlement Over Ponzi Scheme

By Jonathan Stempel 
June 27, 2016

The trustee recouping money for Bernard Madoff's victims has reached more than $23 million of settlements with the estates of the swindler's late sons and related defendants, ending more than eight years of litigation.

According to a Monday court filing, the settlement will strip the estates of Andrew and Mark Madoff of "all assets, cash, and other proceeds" of their father's fraud, leaving them with a respective $2 million and $1.75 million.

The estates also agreed to withdraw roughly $99.5 million of claims against the bankruptcy estate of the former Bernard L. Madoff Investment Securities LLC, the filing shows.

Monday's settlement resolves some the highest-profile cases remaining in trustee Irving Picard's efforts to compensate former Madoff customers whom he estimates lost $17.5 billion. He has recovered $11.6 billion, or about two-thirds of that sum.

The settlement also resolves claims against Mark Madoff's widow, Stephanie Mack, and some entities affiliated with the Madoff family.

It also ends an investigation by the U.S. attorney's office in Manhattan, whose criminal probe resulted in a 150-year prison term for Bernard Madoff, a 10-year term for his brother Peter, and 13 other convictions and guilty pleas.

Madoff's sons were never criminally charged and had maintained they knew nothing about their father's fraud until he confessed to them shortly before his Dec. 11, 2008, arrest.

But in a civil lawsuit, Picard said Madoff's firm operated as a family piggy bank, and he sought to recoup $153.3 million from the sons' estates alone.

Settlement talks began in 2015, and the accord is a "global and complete resolution of all claims" against the estates, lawyers for Picard said in Monday's filing.

Mark Madoff committed suicide in December 2010 at age 46. Andrew Madoff died of cancer in September 2014 at age 48. Their father is 79.

Lawyers for Picard could not immediately be reached for comment. Martin Flumenbaum, a lawyer for the Madoff sons' estates, did not immediately respond to requests for comment. Alan Levine, a lawyer for Mack, declined to comment.

A spokeswoman for acting U.S. Attorney Joon Kim in Manhattan said Kim's office would have no comment until the settlement wins court approval. A hearing is scheduled for July 26.

Richard Breeden, a former U.S. Securities and Exchange Commission chairman, oversees a separate $4 billion fund to compensate Madoff victims, including third parties. Payouts could begin as soon as October.

The case is Picard v Madoff et al, U.S. Bankruptcy Court, Southern District of New York, No. 09-ap-01503. The main case is Securities Investor Protection Corp v. Bernard L. Madoff Investment Securities LLC in the same court, No. 08-01789.

Article Link To Reuters:

Charter, Comcast Explore Wireless Partnership With Sprint

By Liana B. Baker
June 27, 2017

U.S. wireless carrier Sprint Corp (S.N) is in talks with Charter Communications Inc (CHTR.O) and Comcast Corp (CMCSA.O) about a partnership to boost the two U.S. cable companies' wireless offerings, according to sources familiar with the matter.

Sprint, controlled by Japan's SoftBank Group Corp (9984.T), has entered into a two-month period of exclusive negotiations with Charter and Comcast that has put its merger talks with U.S. wireless peer T-Mobile US Inc (TMUS.O) on hold till the end of July, the sources said on Monday.

A deal with Sprint would build on a partnership that Charter and Comcast announced last month. The two cable operators have agreed that they would not do deals in the wireless space for a year without each other's consent.

Comcast has already unveiled plans for a wireless service, using its Wi-Fi hotspots and the airwaves of Verizon Communications Inc (VZ.N), the largest U.S. telecommunications provider, based on a deal between the two that dates back to 2011.

Comcast and Charter are now in talks with Sprint to secure a similar network-resale agreement on better terms, the sources said. A previous nine-year-old network-resale agreement between Comcast and Sprint was never activated, one of the sources added.

The Wall Street Journal, which first reported on the negotiations, also said that Charter and Comcast were in preliminary talks to take an equity stake in Sprint as part of an agreement. Such a deal would allow Sprint to invest more in its network, the newspaper added.

One of the sources said that a minority equity investment was being discussed but that it may not be part of any deal. Charter and Comcast could also look at jointly acquiring Sprint, but that is unlikely, the sources added.

Sprint, Comcast and Charter declined to comment.

An agreement with the cable providers over its network does not mean Sprint may not also seek a merger agreement with T-Mobile, which is controlled by Germany's Deutsche Telekom AG (DTEGn.DE), the sources said.

Sprint sees the partnership as increasing competition in the market, which should help alleviate any antitrust concerns over a merger with T-Mobile, the source added.

Investors have long expected a deal between T-Mobile and Sprint, the third- and fourth-largest U.S. wireless service providers, anticipating cost cuts and other synergies in the range of $6 billion to $10 billion.

Three years ago, Sprint ended a previous round of talks to acquire T-Mobile amid opposition from U.S. antitrust regulators.

Article Link To Reuters:

China's Premier Hints At New Economic Model As He Touts Globalization

-- The World Economic Forum's Annual Meeting of the New Champions is June 27-29 in the Chinese port city of Dalian
-- Chinese Premier Li Keqiang spoke during the event, which is also known as Summer Davos

June 27, 2017

Chinese Premier Li Keqiang delivered an address resoundingly touting the benefits of globalization during the first day of the World Economic Forum's "Summer Davos" event in Dalian, China.

During the speech, Li heralded globalization, saying that "it is bringing benefits to all countries," although he acknowledged that countries may also face challenges along the way.

While positioning China as a global leader, the premier also reiterated his country's commitment to addressing climate change — a reaffirmation which comes in the wake of the U.S. announcing its departure from the global Paris Agreement on the issue.

He also addressed the issue of protectionism, which many say China heavily practices, saying that "free trade is the foundation of economic globalization."

For his part, Li stressed that China does, in fact, give fair and equal treatment to both foreign and domestic firms, largely ignoring widespread criticism that the country protects its own through both obvious and subtle measures.

On the subject of China's domestic economy, the premier said the country is making the "utmost effort" to create employment. Jobs should be created, he said, through promoting innovation and entrepreneurship because it is important for inclusive growth. The country is aiming for near full employment, and it says it has created over 50 million new urban jobs in the last four to five years.

China is now facing challenges as it undergoes a domestic transformation, he acknowledged, but Li said "we are fully prepared for them." There will not be a hard landing for China, the premier said, and the country is capable of achieving its growth target.

Those achievements will not require a massive stimulus, and Beijing will remain committed to its reforms to open up its markets, he said. Those markets, many business leaders have noted, still have a long way to go before they are truly open for foreign firms.

The world's second-largest economy has made waves recently with its fast-growing tech sector, marking what experts say is a noticeable shift away from the old image of a copycat China. And it's a move that China needs — looking toward the new economy driven by the private sector and entrepreneurship.

In fact, Li appeared to send a new message, emphasizing innovation as the new growth model, instead of the longtime line of cutting dependence on manufacturing and exports and instead growing consumption and the services sector. He said China was reducing its reliance in all those areas because of innovation.

The country is now home to 50 unicorns — private companies worth more than $1 billion — according to CB Insights. Some are even expanding globally within their first year of operation, and experts are expecting a wave of Chinese tech IPOs to come soon.

Eyes are on how China continues to position itself on the world stage. In January, President Xi Jinping became the first Chinese leader to give a speech at the annual World Economic Forum meeting in Davos. His message positioned China as a global connector and leader, and it's one Beijing has continued to push.

China has timed its move just as the U.S. has appeared to retreat from the international stage, giving Xi an opportunity to fill the gap. For example, China's "One Belt, One Road" giant trade and diplomatic initiative serves to boost its global influence.

But critics say China, in reality, is far from achieving the image of the global leader that it's painted for itself because of economic woes, murky markets and human rights abuses at home.

Article Link To CNBC:

Another Lesson From Japan

By Stephen S. Roach
Project Syndicate
June 27, 2017

Yet another in a long string of negative inflation surprises is at hand. In the United States, the so-called core CPI (consumer price index) – which excludes food and energy – has headed down just when it was supposed to be going up. Over the three months ending in May, the core CPI was basically unchanged, holding, at just 1.7% above its year-earlier level. For a US economy that is widely presumed to be nearing the hallowed ground of full employment, this comes as a rude awakening – particularly for the Federal Reserve, which has pulled out all the stops to get inflation back to its 2% target.

Halfway around the world, a similar story continues to play out in Japan. But, for the deflation-prone Japanese economy, it’s a much tougher story.

Through April, Japan’s core CPI was basically flat relative to its year-earlier level, with a similar outcome evident in May for the Tokyo metropolitan area. For the Bank of Japan (BoJ), which committed an unprecedented arsenal of unconventional policy weapons to arrest a 19-year stretch of 16.5% deflation lasting from 1994 to 2013, this is more than just a rude awakening. It is an embarrassment bordering on defeat.

This story is global in scope. Yes, there are a few notable outliers – namely, the United Kingdom, where currency pressures and one-off holiday distortions are temporarily boosting core inflation to 2.4%, and Malaysia, where the removal of fuel subsidies has boosted headline inflation, yet left the core stable at around 2.5%. But they are exceptions in an otherwise inflation-less world.

The International Monetary Fund’s latest forecasts bear this out. Notwithstanding a modest firming of global economic growth, inflation in the advanced economies is expected to average slightly less than 2% in 2017-2018.

The first chapter of this tale was written many years ago, in Japan. From asset bubbles and excess leverage to currency suppression and productivity impairment, Japan’s experience – with lost decades now stretching to a quarter-century – is testament to all that can go wrong in large and wealthy economies.

But no lesson is more profound than that of a series of policy blunders made by the BoJ. Not only did reckless monetary accommodation set the stage for Japan’s demise; the country’s central bank compounded the problem by taking policy rates to the zero bound (and even lower), embracing quantitative easing, and manipulating long-term interest rates in the hopes of reviving the economy. This has created an unhealthy dependency from which there is no easy exit.

Though Japan’s experience since the early 1990s provides many lessons, the rest of the world has failed miserably at heeding them. Volumes have been written, countless symposiums have been held, and famous promises have been made by the likes of former US Fed chairman Ben Bernanke never to repeat Japan’s mistakes. Yet time and again, other major central banks – especially the Fed and the European Central Bank – have been quick to follow, with equally dire consequences.

The inflation surprise of 2017 offers three key insights. First, the relationship between inflation and economic slack – the so-called Phillips curve – has broken down. Courtesy of what the University of Geneva’s Richard Baldwin calls the “second unbundling” of globalization, the world is awash in the excess supply of increasingly fragmented global supply chains. Outsourcing via these supply chains dramatically expands the elasticity of the global supply curve, fundamentally altering the concept of slack in labor and product markets, as well as the pressure such slack might put on inflation.

Second, today’s globalization is inherently asymmetric. For a variety of reasons – hangovers from balance-sheet recessions in Japan and the US, fear-driven precautionary saving in China, and anemic consumption in productivity-constrained Europe – the demand side of most major economies remains severely impaired. Juxtaposed against a backdrop of ever-expanding supply, the resulting imbalance is inherently deflationary.

Third, central banks are all but powerless to cope with the moving target of what can be called a non-stationary liquidity trap. First observed by John Maynard Keynes during the Great Depression of the 1930s, the liquidity trap describes a situation in which policy interest rates, having reached the zero bound, are unable to stimulate chronically deficient aggregate demand.

Sound familiar? The novel twist today is the ever-expanding global supply curve. That makes today’s central banks even more impotent than they were in the 1930s.

This is not an incurable disease. In a world of hyper-globalization – barring a protectionist relapse led by the America Firsters – treatment needs to be focused on the demand side of the equation. The most important lesson from the 1930s, as well as from the modern-day Japanese experience, is that monetary policy provides no answer for a chronic deficiency of aggregate demand. Addressing it is a task primarily for fiscal authorities. The idea that central banks should consider making a new promise to raise their inflation targets is hardly credible.

In the meantime, Fed Chair Janet Yellen is right (finally) to push the Fed to normalize policy, putting an end to a failed experiment that has long outlived its usefulness. The danger all along has been that open-ended unconventional monetary easing would fail to achieve traction in the real economy, and would inject excess liquidity into US and global financial markets that could lead to asset bubbles, reckless risk taking, and the next crisis. Moreover, because unconventional easing was a strategy designed for an emergency that no longer exists, it leaves the Fed with no ammunition to fight the inevitable next downturn and crisis.

We ignore history at great peril. The latest disappointment for inflation-targeting central banks is really not a surprise after all. The same is true of the related drop in long-term interest rates. There is much to be gained by studying carefully the lessons of Japan.

Article Link To Project Syndicate:

The Senate’s Health-Care Hour

GOP opponents will be held accountable if they ruin this rare reform moment.

By Review & Outlook
The Wall Street Journal
June 27, 2017

Senate Republicans are headed for a vote on their health-care bill as soon as this week, and Majority Leader Mitch McConnell is still scrambling for 50 votes. What the holdouts should understand is that this is a defining political moment. They may never have a better chance to improve U.S. health care and reform government, and the window is closing.

Repairing the failing individual insurance market, putting Medicaid on budget for the first time in the entitlement’s history, and passing an enormous pro-growth tax cut are historic opportunities. If reluctant GOP Senators think they won’t be held accountable for a defeat, they should think again.

Moderates like Ohio’s Rob Portman and West Virginia’s Shelley Moore Capito remain nervous about the bill’s Medicaid overhaul, but the block grant model is the kind of fiscal progress they normally claim to want. The budget will never balance, and debt will continue to accumulate, if Congress can’t modernize entitlements. Mr. Portman already won an extension to four years from three in the House bill for the start of phasing out Obama Care’s Medicaid expansion, and many Senators represent states that didn’t expand.

Liberals call block grants heartless, but ObamaCare increased Medicaid enrollment by 29% to 74.5 million Americans—one of four citizens—in a program originally meant for poor women and the disabled. Equalizing payments for these traditional beneficiaries and ObamaCare’s new able-bodied adult enrollees above the poverty line is uncaring only in liberal caricature. The real scandal is Medicaid’s poor health outcomes and a funding formula that doesn’t encourage states to prioritize the neediest Americans.

Conservatives such as Ted Cruz of Texas, Rand Paul of Kentucky, Mike Lee of Utah and Ron Johnson of Wisconsin claim the bill doesn’t do enough to lower insurance premiums by repealing every mandate and regulation that artificially drives up costs. Their objections are principled but no bill will ever be perfect and most of their ideas don’t now command a Senate majority.

On policy substance, the Senate bill gives Governors the regulatory flexibility to upgrade their insurance markets. Even if the bill isn’t everything conservatives imagine, no one can credibly claim it isn’t deregulatory progress. ObamaCare created a rule-making pathway supposedly meant to encourage state innovation, but these so-called 1332 waivers are highly prescriptive in statute and the Obama Administration tightened them even more through regulation. Among the four states that applied, only a single waiver was approved.

The Senate bill would fast-track 1332 applications and expand their scope to include items like the definition of a “qualified health plan,” minimum benefits or limits on purchasing catastrophic health plans. The Senate waivers are far more comprehensive than the House’s Meadows-MacArthur amendment, and any Governor who wants to experiment with market solutions and roll back overregulation will be liberated from federal command and control.

The Trump Administration would rapidly start to restore the traditional state regulatory authority over insurance. Waiver critics say a Democratic successor could take back freedoms not codified in law. But federalist devolution will be hard to reverse if Governors can show they can make premiums more affordable, improve the incentives for insurers to rejoin a more robust market and increase insurance without mandates.

The Congressional Budget Office on Monday released its cost-and-coverage estimate of the Senate bill, and opponents are touting its guess of 22 million fewer insured people compared to ObamaCare. But CBO’s forecasts always underestimate the benefits of markets, and the real news is that the scorekeepers expect premiums to fall by 30% by 2020 than under current law. The GOP can deliver tangible financial gains to the millions failed by ObamaCare.

These are enormous conservative policy victories, even if they aren’t everything we or other free-marketeers would like. Democrats built the entitlement state piecemeal over decades, and it will have to be reformed in pieces that are politically sustainable.

Some Senators can’t be placated on substance and they may decide that defeating the bill is better for them politically. This is pure fantasy. Democrats won’t ease their opposition to Nevada’s Dean Heller in 2018 if he votes no. They’ll double their investment against him as Mr. Heller’s political base sours on him. When you face a tough political choice, better to stick with your friends than bet on the kindness of political enemies.

Another fantasy is that Republicans can vote no and blame Democrats for the collapsing ObamaCare status quo. The media will blame Republicans for every premium hike, and voters believe they elected a GOP Congress and President. If this bill fails Republicans will be forced to come hat in hand to Chuck Schumer’s Democrats for the votes to stop a downward spiral of surging premiums and declining choices. Conservative reform won’t be included.

The larger and rarer opportunity is to show that conservative ideas can succeed in health care. More progress is possible as voters come to trust Republican solutions, but not if the GOP now panics into defeat. Senator Johnson entered politics to oppose ObamaCare. Is he really going to squander this chance to make his detour into politics worthwhile?

Every consequential legislative reform is difficult, but the GOP anxiety over repeal and replace is excessive. They should have more confidence in their convictions and how their solutions can improve American lives.

Article Link To The WSJ:

Free The Obamacare 15 Million

They’re not ‘losing’ insurance; they just won’t be forced to get policies they don’t want.

By Doug Badger 
The National Review
June 27, 2017

The Congressional Budget Office (CBO) today warned lawmakers that 15 million people will lose medical coverage next year if the Senate GOP’s health-care bill becomes law.

That’s not quite accurate. CBO doesn’t believe that millions will “lose” their insurance in 2018. Instead, the agency thinks that millions will happily cancel their coverage — even those who get it for free. The reason: The Senate bill would repeal the Obamacare tax penalty on the uninsured, known as the individual mandate.

Supporters of Obamacare proclaim that the law has reduced the number of people who lack coverage. They’re right. Government surveys show that the number of non-elderly uninsured people fell from 44.3 million in December 2013 (the month before Obamacare took full effect) to 28.2 million at the end of last year. That’s 16 million fewer uninsured people over a period of only three years, a genuine public-policy achievement.

But here’s the catch: If CBO is to be believed, 15 million people didn’t want health coverage in the first place. They enrolled only to keep the IRS off their backs.

In its analysis of the Senate bill, CBO predicts that repealing the tax on the uninsured would next year induce 7 million people to cancel their individual insurance policies, 4 million to drop their job-based coverage, and 4 million others to abandon Medicaid, even though the government provides it free of charge in most cases.

If CBO is right, these 15 million Americans would take immediate advantage of a provision freeing them from the obligation to obtain a product they neither want nor feel they need.

Those 15 million would join a legion of refuseniks who either paid or circumvented Obamacare’s tax on the uninsured. Last January, the IRS commissioner reported to Congress on the number of uninsured people who had paid the tax, obtained a waiver, or refused to tell the government whether they had insurance in 2015. He reported that:

-- 6.2 million uninsured people paid the tax on the uninsured;

-- 12.7 uninsured million people — more than twice as many — obtained exemptions from the penalty;

-- 4.3 million people “didn’t check the box” — they simply refused to tell the IRS whether they had insurance. The government processed their tax forms and sent them their refunds without enforcing the coverage requirement.

That totals 23.2 million Americans who paid, avoided, or ignored the individual mandate. Repealing that mandate would emancipate them from IRS oversight and liberate an additional 15 million people (if you believe CBO) from coverage they’d rather not have.

It’s rare that Congress writes a bill that would please more than 38 million people without inflicting hardship on others (although health-policy theorists infatuated with the individual mandate will grieve its passing). Congress should not squander that opportunity.

The mandate, like the full repeal of Obamacare, is not politically viable. Both the House and Senate bills largely retain the Obamacare subsidies, insurance regulations, exchanges, and Medicaid expansion. The subsidies in those bills are less generous and more convoluted than those in Obamacare, but otherwise are indistinguishable from them.

The Senate, meanwhile, is rapidly unwinding the Medicaid reforms the House passed just last month. Former House Budget Committee chairman and now Ohio governor John Kasich has teamed with former OMB director and now Ohio senator Rob Portman to tear away at those reforms. In their former lives as budget mavens, Kasich and Portman preached the gospel of federal spending restraint; now they are apostles of fiscal incontinence. In 2015, Ohio spent nearly twice as much on Medicaid as it did on schools. No state came close to that preference for welfare over education. Hooked on federal Medicaid money, Kasich and Portman crave more and seem determined to take down the Senate bill if they don’t get it.

Whether or not the Senate bill passes, Obamacare will survive. Propping it up will, of course, require money, and not just for Medicaid. The Senate bill allocates an estimated $20 billion over the next two years for “cost-sharing reduction subsidy” payments to insurance companies and an additional $86 billion over the next four years “to address coverage and access disruption.” Translation: payoffs to insurers to keep them from withdrawing from states’ individual markets.

The exchanges have proven to be a losing proposition for many insurers. Republicans and Democrats alike fear that no companies will sell policies next year in many areas, leaving people who actually want health insurance with no options. It is in no one’s political interest to let that happen. So Congress will spend more money to prop up Obamacare, whether in this bill or, should it fail, in one congressional Democrats will help craft.

That additional money for the insurance industry may avert the near-term crisis, but Congress will have to shovel cash into the Obamacare money pit for many years to come.

That is a problem for another day. This week, the Senate will decide whether to end government harassment of Americans who decline health-insurance coverage.

The Senate should pass the bill and free the Obamacare 15 million.

Article Link To The National Review:

Five Findings Of The CBO On Senate Health Plan

By Michelle Hackman
The Wall Street Journal
June 27, 2017

The nonpartisan Congressional Budget Office has released its much-anticipated analysis of the Senate’s bill repealing and replacing large swaths of the Affordable Care Act. The estimate of the bill’s effects on federal spending and the number of uninsured, called a “score,” is required before lawmakers can bring up the legislation for a vote. Here are five of the CBO’s top-line findings:

1. 22 million more people would be uninsured.

The Senate bill’s changes to Medicaid, insurance subsidies and some insurance regulations would swell the ranks of the uninsured by about 22 million, compared with the Affordable Care Act. That largely is due to sizable cuts made to the Medicaid program and substantially lower subsidies to help low-income people purchase insurance.

That coverage estimate clocks in at slightly less than the 23 million people that CBO projected would lose coverage under the House’s version of the bill. Even so, it represents a much smaller improvement than lawmakers would have hoped and could complicate the political calculations of some centrist-leaning Republican senators, who balked at similar coverage losses in the House’s version.

2. The government saves $321 billion.

The Senate bill would save the federal government $321 billion over the next decade. That is about $202 billion more than the House-passed bill would have saved. The difference is in part thanks to the way the Senate bill repeals the ACA’s taxes, which restricts when people can deduct medical costs.

Because of the complex budget rules Congress is using to pass their repeal bill, the Senate’s version can save no less than the $119 billion in deficit reduction contained in the House bill. Still, the $202 billion leaves Senate leaders some wiggle room to add spending back into the bill, a tool that analysts expect they will use to win the support of wavering lawmakers. Leaders are expected, for example, to add money to the $2 billion the bill would spend on opioid treatment.

3. Premiums drop but deductibles and other out-of-pocket costs rise.

Under the Senate’s legislation, premiums would rise slightly in the first two years after the bill’s passage, because fewer people would be induced to purchase coverage without a mandate. But they would steadily begin to fall starting in 2020 onward. CBO attributes the eventual drop in premiums in part to federal assistance and to the bill’s loosening of insurance regulations that could result in health plans that cover fewer medical benefits and a smaller overall portion of a person’s health spending.

At the same time, deductibles for low-income people could balloon under the Senate plan, because beginning in 2020 the bill stops funding “cost-sharing” subsidies that lowered out-of-pocket costs for people making up to 250% of the federal poverty line. And some people with costly pre-existing conditions whose plans would no longer be required to cover certain medical benefits could pay much more for their coverage or forego insurance entirely.

4. 15 million people could lose Medicaid coverage.

The bill’s repeal of the Medicaid expansion and change to the program’s overall funding structure would result in $772 billion in savings over the next decade. CBO estimates that the cuts would result in 15 million people losing Medicaid coverage—slightly more than the number of people who gained it under the ACA’s expansion of the joint federal-state health program.

But the number of people losing coverage would likely increase after 2026, the final year included in CBO’s projection. That is because near the end of that window, the Medicaid cuts would begin to accelerate.

5. A stable market

Overall, CBO predicts the individual market would remain stable if the Senate bill were enacted, despite some uncertainty for insurance companies around the end of the ACA’s penalty for people who don’t purchase health insurance.

The report attributes the stability to lower insurance costs, which paired with the bill’s subsidies would entice a sufficient number of young, healthy people to buy insurance. Additional funding for insurers to cover out-of-pocket costs of low-income people and separate funding to help defray the costs of the most expensive customers would also encourage insurers to remain in the market, the report said.

But the legislation could cause insurers to pull out of some sparsely-populated areas of the country, because the smaller subsidies would lead to fewer people to buy insurance, making those markets less attractive.

Article Link To The WSJ: