Thursday, July 27, 2017

Expect Advanced Micro Dev. ($AMD) To Follow Its Recent Pattern Of Hitting The $15/Share Mark, And Promptly Giving Back Those Gains From Short-Sellers. Sell $AMD Short Today @ $15.25; +/- .25

Thursday, July 27, Morning Global Market Roundup: Asia Shares Hit 2007 Top, Dollar Skids On Fed Inflation Tweak

By Wayne Cole
Reuters
July 27, 2017

Stocks, bonds and commodities were all on a roll in Asia on Thursday, as bulls scented a softening in the Federal Reserve's confidence on inflation that promised to keep U.S. interest rates low for longer than some had expected.

MSCI's broadest index of Asia-Pacific shares outside Japan climbed 0.9 percent to heights not seen since December 2007. It has gained over 5 percent so far this month.

South Korea and Japan's Nikkei both added 0.2 percent, while Australia put on 0.3 percent. Stocks in the Philippines were at a one-year peak and Hong Kong's Hang Seng index added 0.3 percent to push above 27,000.

But worries about tighter regulations nudged China's blue-chip CSI300 index down 0.7 percent, though data showed a pick up in profit growth for industrial firms.

The latest rush for risk came after the Fed left U.S. rates unmoved as expected on Thursday, and tweaked its wording on inflation.

The market seized on the fact that the central bank noted that both overall and core inflation had declined, and it removed the qualifier "recently," perhaps suggesting concerns the slowdown might not be temporary.

The Fed also said it expected to start winding down its massive holdings of bonds "relatively soon," cementing expectations of a September start.

While that would be an effective tightening in financial conditions it might also lessen the need for actual hikes in rates, which matter more for currency valuations.

"The dollar's biggest problem is it can't expect help from the Fed for a long time," said Alan Ruskin, global head of forex at Deutsche.

"In the short-term we are still in a risk-favorable loop, whereby subdued goods and services inflation supports a well behaved bond market and asset inflation. It's just another day in paradise."

A Reuters poll showed most primary dealers, the banks authorized to trade directly with the Fed, still see the Fed's next rate rise in December. But Fed funds rate futures are pricing in less than 50 percent chance of a hike by then, compared to more than 50 percent before the Fed's meeting.

Dollar Breaks Lower


Yields on U.S. 10-year benchmark U.S. Treasuries fell 5 basis points and were last at 2.278 percent. The dollar followed, falling to a 13-month trough against a basket of currencies of 93.322.

The euro, which had been bumping up against a 23-month top for most of the week, finally broke through to reach $1.1750, its highest since January, 2015.

The next major chart target was the 200-week average at $1.1807 - a measure the euro has not traded above since August 2014.

The dollar was fast approaching the 200-week barrier on its Canadian counterpart, and had breached that technically important level on the Australian dollar.

The dollar even fell back against the yen to 110.875, though the damage was somewhat limited by expectations the Bank of Japan would keep its super-easy policies in place longer than most other global central banks.

The prospect of U.S. policy staying stimulative saw Wall Street's fear gauge touch a record low as stocks notched record closing highs. The Dow ended Wednesday up 0.45 percent, while the S&P 500 added 0.03 percent and the Nasdaq 0.16 percent. [.N]

The declining U.S. dollar boosted commodities priced in the currency. Spot gold hit a six-week high and was last trading at $1,263.80, while copper reached territory not trod since May 2015.

Oil prices neared eight-week highs as a surprisingly sharp drop in U.S. inventories encouraged speculation a global crude glut would recede.

A bout of profit-taking in Asia on Thursday saw Brent crude futures ease 6 cents to $50.91 a barrel, while U.S. crude dipped 7 cents to $48.68.


Article Link To Reuters:

Oil Prices Hover Near Eight-Week Highs On Lower U.S. Stocks

By Fergus Jensen
Reuters
July 27, 2017

Oil prices were sitting just below 8-week highs on Thursday, buoyed by hopes that a steeper-than-expected decline in U.S. crude oil inventories will reduce global oversupply.

Brent crude futures were down 16 cents, or 0.3 percent, at $50.81 a barrel after rising about 1.5 percent in the previous session.

U.S. West Texas Intermediate futures were down 13 cents, or 0.3 percent, at $48.62 a barrel.

U.S. crude stocks fell sharply last week as refineries increased output and imports declined, while gasoline stocks decreased and distillate inventories dropped, the Energy Information Administration said on Wednesday.

The 7.2 million barrel decline in crude inventories in the week ending July 21 was well above the 2.6 million barrel forecast.

"This marks the fourth consecutive week that total hydrocarbon inventories have fallen during a time of year when they normally increase," said PIRA Energy oil analyst Jenna Delaney.

U.S. shale producers including Hess Corp, Anadarko Petroleum and Whiting Petroleum this week announced plans to cut spending this year as a result of low oil prices.

Optimism that the long-oversupplied market is moving towards balance was also supported by news earlier in the week that Saudi Arabia plans to limit its crude exports to 6.6 million barrels per day (bpd) in August, about 1 million bpd below its export levels a year earlier.

Fellow members of the Organisation of Petroleum Exporting Countries (OPEC) Kuwait and UAE have also promised export cuts.

"The narrowing of the global glut is still on track," OCBC said.

But analysts say oil prices may have little room to head higher as recent gains could encourage more output, particularly from U.S. shale producers with low costs.

"The market will likely be paying even more attention to drilling activity in the U.S. in the coming weeks, particularly after suggestions from certain industry players that the rig count in the U.S. is slowing," ING said in a research note on Wednesday.

U.S. fuel exports are on track to hit another record in 2017, making foreign fuel markets increasingly important for the future growth prospects and profit margins of U.S. refiners.

Meanwhile, Norway's Statoil said on Thursday it expected a 5 percent increase in output this year amid higher oil prices, but the company reduced its planned exploration spending.


Article Link To Reuters:

Investors To Big Oil: Restrain Yourselves

Exxon, Shell, BP, Chevron are under pressure to show they can keep spending under control.


By Sarah Kent
The Wall Street Journal
July 27, 2017

Three years into an oil-price slump, investors want the world’s biggest oil companies to do something they have historically struggled with: Maintain some financial discipline.

The companies are under pressure to show they are continuing to move on from budget-busting projects once common in the industry, as they head into second-quarter financial disclosures that begin on Thursday with Royal Dutch Shell RDS.B 0.49% PLC and Total SA TOT 1.14% .

Shell, Total and peers such as Exxon Mobil Corp. XOM 0.12% and Chevron Corp. CVX 0.70% , which both report earnings Friday, have reined in spending through an oil-market downturn during which crude prices fell from $114 a barrel to $27 a barrel and remain about $50 a barrel. Those efforts paid off in the first quarter, when the companies returned to billion-dollar profits after years of losses or anemic earnings.

Now, said Jags Walia, senior portfolio manager at Dutch pension-fund manager APG Asset Management, “there’s no room to take your foot off on capital discipline.”

“I think that would be quite unforgivable,” said Mr. Walia, whose fund invests in several large oil companies, including Exxon, Shell and BP BP -0.17% PLC.

It is a call for big oil companies to keep their businesses steady in a tricky financial environment.

International oil prices were up nearly 10% in the second quarter compared with the same time last year. But prices are still likely too low for many companies to cover spending and dividends with cash, or break even. At the same time, the companies have to keep finding new oil to replace the barrels they are pumping. That means spending money on exploration, development and acquisitions.

BP, which reports earnings next Tuesday, faced criticism from investors and analysts after a flurry of acquisitions inflated its investment plans for 2017 and pushed up the oil price at which the company could break even to $60 a barrel. The company’s shares fell 4% after the February announcement. It has since said it is working to drive down its break-even oil price to between $35 to $40 a barrel by 2021.

It isn’t just BP. The number of new projects approved this year across the industry is expected to creep up to between 20 and 25 from just 12 in 2016, according to Edinburgh-based consultancy Wood Mackenzie.

The oil companies declined to comment ahead of their earnings reports.

But they have moved to tackle the challenges.

BP’s costs are down 40% since 2013 and it has vowed to maintain a budget cap of $17 billion a year out to 2021.

At BP’s first-quarter results in May, Chief Financial Officer Brian Gilvary said the company intended to deliver on promises to increase cash flow and dividends in coming years by “maintaining strict discipline within our financial frame and staying focused on delivering returns.”

Exxon’s capital spending last year was $12 billion lower than in 2015, though it has crept higher this year. The company says it is focusing a chunk of its firepower on shale developments that start to generate cash quickly.

Chevron has said it will be able to cover its spending and dividends with cash at $50 a barrel this year with the help of asset sales. In April, Chevron said it had lowered capital spending 22% compared with its average quarter in 2016 and 56% versus the average quarter in 2014. The company plans to spend $17 billion to $22 billion a year out to the end of the decade.

“If oil prices remain near the $50 per barrel mark, you can expect to see our future spend near the bottom of this range,” Chief Financial Officer Patricia Yarrington told analysts in April.

The companies have said that they still have room to cut further and that they can start to invest in new projects without returning to the spendthrift era that eroded returns before the oil-price crash in 2014. Capital spending on new projects sanctioned so far this year is on average just $11 per barrel of oil equivalent, down from $15 in 2015, according to Wood Mackenzie.

“I think a lot of these companies have found religion,” said Brian Youngberg, senior energy analyst at brokerage firm Edward Jones. “They realize now they can’t just spend, spend, spend. They have to be more disciplined with their capital.”

Exxon, Shell, BP and Chevron have all indicated they will be able to generate enough cash this year to cover spending and shareholder payouts at $60 a barrel, but at $50 the picture is more mixed. Even next year, many of them will still need higher oil prices to cover their costs, according to analysis by Macquarie.

Investors remain cautious. Big oil companies’ share prices are little changed or lower than at the same time last year, even though oil prices are higher. For instance, Exxon’s share price is down more than 10% from a year ago.

The companies still have high debt levels, and some—like Shell and Total—offer dividends as company shares, known as scrip, helping them to preserve cash but also diluting investors’ earnings per share.

“We need to see discipline and people being more realistic about where oil prices could remain for quite a long time,” said Jason Kenney, an oil-company analyst at Spanish lender, Banco Santander .

It is a tall order for an industry that struggled to break even when oil was at $100 a barrel. And the challenge facing the companies could be more difficult after banks revised their oil-price forecasts downward in recent months.

“The goal posts have moved,” Deutsche Bank said earlier this month. “It’s time to go away and remodel for a $45 to $50 a barrel world.”


Article Link To The WSJ:

The Market Will Kill Oil Before The Government Does

The U.K. plans to outlaw the sale of gas and diesel cars by 2040, but most cars sold by then may be electric anyway.


By Jess Shankleman
Bloomberg
July 27, 2017

European governments are making a big splash, pledging an assault on traditional cars to help clean up polluted air in cities. The latest strike came Wednesday in the U.K., which says it will ban the sale of diesel- and gasoline-powered cars by 2040.

Those plans might not be quite as ambitious as they first seem. Consumers, automakers, and even some oil companies are already preparing for a battery-powered future.

The U.K. government’s plan to tackle record levels of air pollution was announced two weeks after French President Emmanuel Macron announced a similar plan to cut smog and become a carbon neutral nation.



While the targets will send a strong signal to automakers in Europe about the kinds of vehicles they should be producing over the next quarter century, they’re more likely to confirm that companies like Nissan Motor Co., Volvo Car Group, and BMW AG are on the right track.

“The industry is already working full speed on developing new, more environmentally friendly technologies,” Moody’s Investor Service said Wednesday in a statement regarding the U.K. plans.

Car companies say they’re ready for the paradigm shift. “We do see electrification as absolutely central to our future strategy,” BMW spokesman Graham Biggs said in a phone interview.

Europe’s car market is set to undergo unprecedented changes over the next two decades, driven as much by economics as government policy. Rapidly falling battery costs will make zero-emission electric vehicles as affordable as internal-combustion engine cars over the next 10 years, according to Bloomberg New Energy Finance.

In the U.K., plug-in cars are still only about 1 percent of all vehicle sales in the country. But that will hit almost 80 percent by 2040, according the London-based researcher. In France too, more than 70 percent of new cars sold will come with a plug even without Macron’s new targets, the researcher said.

“Given the rate of improvement in battery and electric-vehicle technology over the last 10 years, by 2040 small-combustion engines in private cars could well have disappeared without any government intervention,” Alastair Lewis, a professor at the National Centre for Atmospheric Science at the University of York, said in an email.



The shift to electric vehicles will upend oil markets, and gas stations will give way to home charging units. Britain’s retail stations are closing at a rate of about 100 per year, according to energy consultant Wood Mackenzie.

“If auto manufacturers can deliver this, then oil demand will peak and then decline swiftly,” Alan Gelder, Wood Mackenzie senior vice president, refining and chemicals research, said in an email. “This will have a massive impact on the refining sector and the oil markets.”

Royal Dutch Shell Plc, BP Plc and Total SA are betting that demand for natural gas will rise as the world shifts to cleaner-burning fuels. The electricity needed for battery-powered cars could be generated by burning natural gas, companies say.

Shell has said oil demand could max out in as little as 15 years, while BP forecasts it may happen in the 2040s. Meanwhile, demand for natural gas will continue to grow for years, they say.

Total has invested in a battery company, and Shell wants more wind and hydrogen production in its portfolio. Still, the investments are small compared with traditional oil and gas.

New infrastructure—such as charging stations for electric cars—will be needed before diesel and gasoline cars can be taken completely off the roads.

“Getting from 70-odd percent to 100 percent is a different ball game,” said Albert Cheung, analyst at Bloomberg New Energy Finance.


Article Link To Bloomberg:

The Coming Squeeze For Shale Oil Drillers

Oil field services firms see improvement in the U.S. shale patch, but rising margins may come at the expense of oil and gas producers’ profits.


By Spencer Jakab
The Wall Street Journal
July 24, 2017

Rising profits for oil-service companies usually means oil producers are making money, too. But when the producers are drilling high-cost oil from shale, rising expenses could squeeze profits and lead them to scale back growth.

That is the message from earnings at Schlumberger SLB -0.03% and Halliburton , HAL 1.48% the world’s two largest oil service providers, which reported strong results this week but said the boom in new shale drilling has likely ended.

The number of rigs drilling for oil and gas in the U.S. has more than doubled in the past year. Paradoxically, though, Halliburton executive chairman David Lesar noted that a “tapping of the brakes is happening all over the place in North America” even as he sees stronger margins ahead.

Schlumberger’s executives said last week that its pressure-pumping equipment is in very high demand in the U.S. shale patch, but chief executive Paal Kibsgaard sounded a skeptical note. He said that U.S. land-based producers are “largely driven by the U.S. equity investors who are encouraging, enabling and rewarding short term production growth in spite of marginal project economics.” He also suggested that activity would moderate.

The fact that these comments are being made with U.S. crude prices hovering around $46 a barrel would have been remarkable three years ago. Back then the conventional wisdom held that the break-even price for spending any money on shale formations was somewhere in the $60-$70 a barrel range.

That number has come way down, much to the chagrin of producers in the Organization of the Petroleum Exporting Countries and major non-OPEC power Russia that were scrambling to stabilize prices at a meeting in St. Petersburg. Much of it stems from innovation—squeezing more oil out of each well. But part came at the expense of oil field services companies that saw margins collapse. That trend is reversing.

“The rig count is up. There are less underutilized assets sitting around, and that puts oil field services companies in a stronger position,” says Rob Thummel, portfolio manager at energy-focused investment firm Tortoise Capital Advisors.

In addition to services such as pressure pumping, other important costs for shale producers such as sand are rising. As employment streams back into the business, labor costs may also go up. Unless producers can innovate away the increased costs of services, materials and labor, or OPEC’s discipline forces prices higher, this inflation will eat away at their margins and make them less likely to drill as many new wells.


Article Link To The WSJ:

Talk Is Cheap: Automation Takes Aim At Financial Advisers -- And Their Fees

Services that use algorithms to generate investment advice, deliver it online and charge low fees are pressuring the traditional advisory business.


By Jason Zweig, Anne Tergesen and Andrea Fuller
The Wall Street Journal
July 27, 2017

Automation is threatening one of the most personal businesses in personal finance: advice.

Over the past decade, financial advisers in brokerage houses and independent firms have amassed trillions in assets helping individuals shape investment portfolios and hammer out financial plans. They earn around 1% of these assets in annual fees, a cost advisers say is deserved because they understand clients’ particular situations and can provide assurance when markets fall.

In the latest test of the reach of technology, a new breed of competitors— including Betterment LLC and Wealthfront Inc. but also initiatives from established firms such as Vanguard—is contending even the most personal financial advice can be delivered online, over the phone or by videoconferencing, with fees as low as zero. The goal is to provide good-enough quality at a much lower price.

“It’s always been questionable whether or not advisers were earning our money at 1% and up,” said Paul Auslander, director of financial planning at ProVise Management Group in Clearwater, Fla., who says potential clients now compare him with less expensive alternatives. "The spread’s got to narrow.”

The shift has big implications for financial firms that count on advice as a source of stable profits, as well as for rivals trying to build new businesses at lower prices. It also could mean millions in annual savings for consumers and could expand the overall market for advice.

Competitors across the spectrum agree the demand is there. Advice “is big and growing—it’s what clients are looking for,” said Roger Hobby, executive vice president of private wealth management at Fidelity Investments.

The hunger for help marks a shift from the 1990s, when do-it-yourself investing was in vogue. Back then, the adoption of 401(k) plans moved responsibility for investment choices to company employees just as one of the biggest bull markets in history was boosting individuals’ confidence in their investing prowess. Meanwhile, pioneering online brokerage firms made trading inexpensive and convenient.

After internet stocks collapsed in 2000, along with the broader stock market eight years later, many individuals sought help. In the past decade, baby boomers started to retire and wanted technical guidance on drawing down their assets.

The advice industry expanded with the demand. Besides managing people’s investment portfolios—handling the trades, not merely suggesting them—some financial advisers also provide help with budgets or tax and estate planning.

The number of advisory firms grew to almost 3,900 in 2017, up from fewer than 750 in 2002, according to a Wall Street Journal analysis of Securities and Exchange Commission data. This universe of firms handles at least $100 million in assets each and provides both investment management and financial planning to individuals.

As of March 2017, such firms collectively had $5.5 trillion in assets on which they made investment decisions, the Journal’s analysis found. That is about six times as much as in 2002.

Throughout this period, advice fees have largely held steady—typically 1% of assets, with a potential discount for big accounts. One reason the standard held is many clients value aspects of advice that can’t always be measured or easily compared.

C. Lansdowne Hunt, 72, of Burke, Va., said he became more price-conscious after his portfolio fell 31% in the late-2008 stock-market meltdown. So in 2012, he switched to a less expensive adviser, and this year, asked for a discount on its 0.9% fee.

After being rebuffed, Mr. Hunt shopped for a new adviser for his $1.3 million portfolio at firms including Charles Schwab Corp.SCHW -0.40% , TD Ameritrade Inc. and Edward Jones. The former Naval officer and defense-contractor employee concluded his current Virginia advisory firm offers services, such as tax-sensitive investing and stock picking, that might be hard to replicate for a lower cost.

“I couldn’t get the exact twin,” he said.

Many firms are wagering that other customers will take less, for less.

About two years ago, Vanguard Group, known for serving do-it-yourselfers, started undercutting the financial-adviser industry with an annual advice fee of 0.3%.

Assets in its service, which combines recommendations from computer-driven algorithms with phone, video and email consultations with human advisers, grew to about $35 billion in the first year and to $83 billion by end of last month, according to the firm.

Joe McDonald of Titus, Ala., was an early customer. Long a do-it-yourself investor, he decided he needed an adviser after making an ill-timed move into an all-cash portfolio after Barack Obama’s 2008 election.

“I pulled out and stayed in cash until 2014, which was a terrible mistake,” said the 74-year-old retired electrical engineer. “I found I didn’t really have the discipline to stick with my own plan.”

He thought about hiring a traditional adviser in Florida who charges 1% of assets under management. His wife wasn’t comfortable entrusting money with someone she didn’t know, he said.

Mr. McDonald said he first invested in a mutual fund from Vanguard in 1983. He liked its 0.3% fee on an account with advice, and moved his roughly $500,000 in retirement accounts there.

“Expenses don’t mean a whole lot if you are making 10% a year,” Mr. McDonald said, ”but if you are making 2% or 3% a year, they are a real big deal.”

At Schwab, assets handled by financial advisers, including those at independent firms that use Schwab’s services, now account for more than half of the firm’s total assets. In recent years, the discount brokerage firm has added a range of options for those seeking advice, including a “robo” service introduced in 2015 that uses algorithms to build and monitor portfolios.

At Fidelity, assets handled with financial advice, either from the firm or from independent advisers who use its services, have nearly doubled over five years.

Part of the shift is generational, as younger adults appear to trust technology more than what they see as salesmanship. “Kids are saying to their parents, ‘Why the hell are you paying so much to your adviser? Is it worth 1% a year to have somebody to play golf with?’ ” said Joe Duran, chief executive of United Capital Financial Advisers LLC, an investment-management and financial-planning firm that also provides services to advisers.

Independent robo advisers that target younger customers—with fees as low as zero for the smallest accounts—have enjoyed hefty growth. Betterment and Wealthfront say they manage $9.7 billion and $7.1 billion in assets, respectively, up from $5.1 billion and $3.5 billion a year ago.

Morgan Stanley , UBS Group AG, Wells Fargo & Co. and Bank of AmericaCorp.’s Merrill Lynch, known for providing full-frills service at top rates, are testing or have already launched automated-advice ventures that charge less than their standard fees. The goal is to keep fee-conscious and lower-balance customers.

Some dealmakers are buying up traditional financial advisers with an eye toward consolidating and cutting costs, saying the industry has too many firms with outmoded technology and high overhead. The first half of 2017 was the most active yet for mergers and acquisitions among financial advisers, according to consulting and investment-banking firm DeVoe & Co.

The myriad pressures have traditional financial advisers investing in timesaving technology to cut costs. Some are passing along part of the savings to clients through fee reductions, while others are adding services to justify maintaining their fees. According to a survey from research firm Cerulli Associates, 79% of executives at advisory firms expect their fees to fall within the next five years.

Ann Gugle, a principal at Alpha Financial Advisors in Charlotte, N.C., said her firm recently cut its annual fee on assets of over $5 million to 0.125% from 0.25%. “If you do the math, you realize your practice will be worth significantly more if you’re smart about aligning your pricing with the value you deliver,” said Ms. Gugle. “If not, you’re going to be mincemeat.”

Robert Schmansky, a solo practitioner in Livonia, Mich., dropped his advisory fee to 0.85% from 1% earlier this year.

Until recently, Mr. Schmansky said, he has mainly marketed himself as a fiduciary—someone committed to working in the client’s best interests. Now he finds himself in direct competition with Vanguard, Schwab and others that also call themselves fiduciaries. “My key marketing distinction is being eroded by these firms in some ways.”

He said he works with a lot of younger investors, and “when I tell them my fee is 1%, they know immediately that Betterment costs less.”

Of all the initiatives, Vanguard’s is widely cited as the most threatening to the status quo. The firm’s size, brand recognition and aggressive pricing will create a challenge unlike anything independent advisers have seen before, said Michael Kitces, director of wealth management at Pinnacle Advisory Group Inc. in Columbia, Md.—much as Vanguard’s index funds have wreaked havoc on the traditional mutual-fund business.

Vanguard’s Personal Advisor Services (minimum investment: $50,000), has gained traction because customers want it, said Karin Risi, head of the firm’s retail investor group: “They didn’t just want to invest in a fund with us—they were saying they needed more help.”

So far, only about 10% of assets in the program comes from clients new to the firm. Advisers and industry analysts say it is only a matter of time before the service starts poaching more clients from competitors.

Vanguard has devoted about 500 financial advisers to its venture, said Ms. Risi. She expects the firm to hire roughly 100 advisers annually for the next several years. Clients with more than $500,000 get a dedicated adviser, who is a certified financial planner; those with less interact with rotating advisers drawn from a pool, some not yet CFPs.

Many traditional advisers suggest that partially automated services such as Vanguard’s provide basic, cookie-cutter advice inferior to what an experienced financial planner can provide. Ms. Risi said the firm’s advisers go through “pretty impressive training.”

Elyse Foster, an adviser in Boulder, Colo., has taken note. Three years ago, she cut financial-planning fees by an average of 40% at her firm, Harbor Financial Group Inc. It also has invested in technology that allows clients to open accounts online, automatically rebalances portfolios to a target mix of stocks and bonds, and shares software so clients can simulate their own planning scenarios.

“We are aware consumers are more price-conscious and are lowering our fees proactively,” said Ms. Foster. “We are trying to stay ahead of the industry.”


Article Link To The WSJ:

Discovery In The Lead To Acquire Scripps Networks

By Jessica Toonkel and Liana B. Baker
Reuters
July 27, 2017

U.S. media company Discovery Communications Inc is in the lead to acquire U.S. cable TV network owner Scripps Networks Interactive Inc, people familiar with the matter said on Wednesday, in a deal likely to top $12 billion.

The acquisition would bring together Scripps' HGTV, Travel Channel and Food Network and Discovery's Animal Planet and Discovery Channel, giving the combined company more pricing power with which to negotiate with cable TV operators such as Comcast Corp and Charter Communications Inc.

Discovery has entered into exclusive talks with Scripps after prevailing over a rival offer from Viacom Inc, another U.S. media company, one of the sources said. [nL1N1KH011]

While a deal could come as early as next week, negotiations are ongoing and no agreement is certain, the sources added.

The exact value of Discovery's offer could not be learned, but sources said it is a cash-and-stock bid, comprising mostly cash, and valuing Scripps in the region of $90 per share. Scripps shares ended trading on Wednesday at $84.07.

The sources asked not to be identified because the negotiations are confidential. Viacom, Scripps and Discovery declined to comment.

Cable TV networks are coming under pressure as more viewers watch their favorite shows and movies on their phones and tablets, and there is also increasing competition for viewers from streaming services such as Netflix Inc and Amazon.com Inc.

By adding Scripps programming, Discovery, which has a market capitalization of $15.2 billion, could launch its own "skinny bundle" of networks at a low cost for viewers. The deal would also help Discover to sell its content overseas more easily.

Scripps has been considered a takeover target since the Scripps family trust that controlled the company was dissolved five years ago.

This is at least the third time that Discovery, whose shareholders include cable magnate John Malone, has held talks to buy Scripps.


Article Link To Reuters:

Facebook Quest Beyond Ads Should Top Itinerary

By Jennifer Saba
Reuters
July 27, 2017

It’s time for Facebook to start looking beyond Madison Avenue. The social network beat profit estimates in the latest quarter as more brands sought to reach its 2 billion users. Yet the torrid pace of revenue growth is cooling off, mobile’s share of advertising has limited upside, and regulators are increasingly questioning the company’s dominance.

For sure, the $480 billion firm run by founder Mark Zuckerberg is firing on all cylinders. Net income soared 71 percent in the second quarter, and earnings of $1.32 a share handily beat analysts’ estimates. That pushed the stock to a new high, extending its gain for the year to nearly 44 percent. Revenue merely matched estimates, rising 47 percent, but that was no small feat given that executives have been warning for months of an imminent ad slowdown.

That could hurt given that nearly all of the company’s top line comes from selling ads to everyone from small businesses to global conglomerates. Mobile growth has been particularly strong, but it now generates 87 percent of advertising revenue, up 3 percentage points from a year earlier.

Facebook’s 23 percent slice of the global digital mobile-advertising market trails Google’s 35 percent, according to research from eMarketer, which suggests some further growth potential. Yet there are small cracks on the surface that could turn into more troublesome gaps down the road. European trustbusters are eagerly going after the tech giants, slapping the search behemoth run by Sundar Pichai with a record $2.7 billion fine last month. Such action could spur U.S. legislators and regulators to give closer scrutiny to the two companies’ competitive advantages.

Facebook isn’t standing still. Expenses were up 33 percent in the latest quarter and it’s investing aggressively. On a call with analysts Wednesday, Zuckerberg talked up the merits of artificial intelligence – a nod to his spat with Silicon Valley peer Elon Musk. Unlike the threat that the Tesla boss perceives in that technology, Zuckerberg sees the potential for AI to help flag fake stories in news feeds and help advertisers figure out which consumers would be most receptive to a pitch. By contrast, he barely mentioned virtual reality, three years after spending $2 billion to acquire Oculus.

Google parent Alphabet is investing heavily in things like self-driving cars, and Amazon has turned cloud services into a big money maker. With Facebook near the top of its game, it should be looking harder for alternatives of its own.


Article Link To Reuters:

Trump Says Apple Will Build Three U.S. Plants. It Won't.

The business press should know by now that the president is not a reliable source. Investors figured that out.


By Shira Ovide
The Bloomberg View
July 27, 2017

President Donald Trump's latest media interview brought this not-very-revealing revelation: Apple Inc. promised the president that it would build "three big plants, beautiful plants," he said.

I have no idea what the president meant, and Trump didn't elaborate in the interview. Clearly the president wants to take credit for convincing the world's most valuable public company to start making iPhones in U.S. factories that hire U.S. workers. It's a pledge Trump made when he was campaigning for president. But there is a zero percent chance this is true.

Apple doesn't build or operate factories -- except a lonely one in Ireland that manufactures some Mac computers but exists mostly for tax reasons. Apple made itself an American success story by helping to create one of the world's most intricate manufacturing and production networks -- in Asia, owned and operated by Apple's corporate partners in Asia, employing people in Asia. This won't change by U.S. presidential decree.

We're all left to parse the real meaning behind the president's words. This is the impossible situation faced by both the political and the business press in trying to write about public figures who should be authoritative sources, but can't be believed.

It's possible the president and Apple have discussed or reached agreement on expanded U.S. facilities that aren't Apple-owned manufacturing plants. There are a few existing middlemen companies that do at least some assembly of relatively small numbers of Mac computers in places like Austin, Texas, and Fremont, California.

Maybe Apple is working to expand the work of these middlemen in the U.S. That's not what Trump said, of course, but Apple CEO Tim Cook has previously boasted about these contract manufacturing companies as signs of Apple's commitment to U.S. production.

It's also possible Trump was referring to new factories under consideration from the companies that make iPhones or parts used to make iPhones and other Apple gadgets. Foxconn, the Taiwanese company that assembles iPhones under contract with Apple, is scouting for locations to build a U.S. factory, and Trump is expected to announce one on Wednesday. This potential future factory won't be making Apple products, however, even if it does one day materialize. Foxconn hasn't followed through on previous pledges to invest millions to create U.S. jobs.

Cook also said the company planned to invest at least $1 billion to support advanced manufacturing companies in the U.S. Corning, which makes glass used in iPhone and iPad screens, was the first recipient of money from this Apple investment pool. Again, these are not Apple plants, but they do create jobs in the U.S.

Maybe the president was referring to new Apple server complexes. Apple operates these warehouses full of computer equipment in places like North Carolina and Nevada (in return for big tax breaks) to store people’s files including photos and iTunes music. It's worth noting that these computer facilities are highly automated and require very few workers. Some of these data centers Trump might find "beautiful," if he enjoys giant complexes stuffed with computer equipment and chilled to a temperature that is uncomfortable for humans.

Or maybe when he said "three big plants," he meant lower-case "apple."

No matter what Trump says, a "made in America" iPhone isn't coming. If Apple planned to start its own manufacturing facilities in the U.S. or anywhere else, it would need to completely upend how it does business. Its stock price would be tanking. But Apple shares are up about 75 cents on Wednesday. Investors by now know not to take the president's comments literally.


Article Link To The Bloomberg View:

In A Robot Economy, All Humans Will Be Marketers

Here's one way the technological revolution isn't very inspiring.


By Tyler Cowen
The Bloomberg View
July 27, 2017

The fear that robots, or more generally smart software, will put us all out of work is one of dominant economic memes of our time. But that fear is misplaced. We’re unlikely to see mass unemployment; rather, workers will shift into new economic sectors -- albeit with transition pains -- as has always been the case. The real risk is that the robots will push too many of us into less socially productive jobs -- especially those in marketing.

Let’s consider the ATM. Contrary to what many people think, the widespread adoption of automated teller machines in the 1990s didn’t significantly diminish the demand for bank tellers. ATMs made bank branches easier and cheaper to operate, and that led banks to hire more staff, including tellers.

These tellers play a smaller role in counting cash and handling deposits than before, so what are they doing instead? Economist James Bessen explained: “Their ability to market and their interpersonal skills in terms of dealing with bank clients has become more important. So the transition -- what the ATM machine did was effectively change the job of the bank teller into one where they are more of a marketing person. They are part of what banks call the ‘customer relationship team.’”

This shift toward marketing, in the broad sense of that term, isn’t just about bank tellers. More legal work is done by smart software, but cultivating client relationships has never been more important. Some functions of medical assistants are being automated, but hospitals and doctors are still trying to improve the patient experience and reach new customers. Amazon Inc. warehouses use robots to pull goods down off the shelves, but someone has to persuade consumers to buy the stuff.

Above and beyond these specific examples, consider the general logic of labor substitution. Machines and software are often very good at “making stuff” and, increasingly, at delivering well-defined services, such as when Alexa arranges a package for you. But machines are not effective at persuading, at developing advertising campaigns, at branding products or corporations, or at greeting you at the door in a charming manner, as is done so often in restaurants, even if you order on an iPad. Those activities will remain the province of human beings for a long time to come.

How much is this shift of labor into marketing a step forward? To be sure, a lot of commercial persuasion is useful. Marketing informs consumers about new products and their properties, or convinces them that one product is better for them than another. It was marketing that got me to stop watching baseball and switch to the more exciting NBA. Sometimes the very existence of an ad -- even apart from any direct informational value -- makes a product more enjoyable. If a particular basketball sneaker is associated with LeBron James, through an endorsement and TV commercials, some people will enjoy wearing that sneaker more.

That all said, a lot of marketing is a zero- or negative-sum game. Each business tries to pull customers away from the other brands, and while the final matching of customers to products is usually closely attuned to what people want, more is spent on these business battles than is ideal for social efficiency. My bank might make me feel better about being a customer there, but its services just aren’t much superior to those of the nearest competitor, if at all. Maybe Coke really is better than Pepsi, or vice versa, but it’s not that much better -- and billions are spent trying to persuade consumers to make one switch or the other. By one estimate, the Coca-Cola Co. spent about $4 billion last year on global advertising.

The more a sector exhibits economies of scale, and thus some monopoly profits, the higher wasteful advertising spending can rise. Although consumers enjoy these panderings to some degree, there’s a limit on value added. As workers shift from serving tables to greeting customers, many diners will feel just a little more welcome. Going to the bank will also be a more fun experience, as tellers who used to count cash are now trained to sell us on how the bank is managing our savings. Still, that’s an uninspiring vision of what we will do with the human labor freed up by robots. There’s a darker vision too: Some of those marketers may look toward fraud, such as the Wells Fargo employees who signed up unknowing customers for new accounts.

Don’t be surprised if you see a lot of robots in daily life, and in news stories, but not huge productivity gains in the published statistics. That’s exactly the American economy right now.


Article Link To The Bloomberg View:

The Apple Car Could Run Traditional Automakers Off The Road

By Vitaliy N. Katsenelson
MarketWatch
July 27, 2017

Apple's brand extends far beyond technology and coolness. The company has accumulated incredible goodwill with consumers.

So whenever Apple AAPL, +0.47% comes out with the Apple Car, it will grab a disproportionately large market share from General Motors GM, +0.14% and other automakers precisely because of that deep well of goodwill. By the time my youngest child, Mia Sarah, who is almost two, learns to drive, internal combustion engines will likely be a relic consigned to museums (just like Ford’s Model T).

I had this “Aha!” moment recently when I visited a Tesla TSLA, +1.25% store and saw its cars’ power train. It looks just like a skateboard — basically a flat slab of metal (which houses the battery), four wheels, and an electric engine the size of a large watermelon. That’s it — the Tesla has only 18 moving parts.

Wall Street nowadays is going gaga over the stocks of auto dealerships (especially after Warren Buffett’s Berkshire Hathaway bought Van Tuyl Group) and automakers. I am in the minority in thinking that party will come to an end. Just like Tesla, Apple is not going to be using a dealership model to sell its cars. Just as with the iPhone, the company will want complete control of the buying experience.

If both Tesla and Apple bypass the dealership model, the GMs of the world will be at an even larger competitive disadvantage. They will have to abandon the dealership model too. Yes, I know, selling cars directly to consumers is not legal in many states, but if the U.S. Constitution could be amended 27 times, the law on car sales (which is an artifact of the Great Depression) can be amended as well. The traditional dealership model is unlikely to survive anyway, as its economics dramatically degrade in the electric-car world. A car with few moving parts and minimal electronics has few things to break. Consequently, electric cars will need less servicing, throttling the dealerships’ most important profit center.

What is also amazing about electric cars is that they aren’t that much different from smartphones. Smartphone prices have declined significantly because their components became ubiquitous and commoditized. The simplicity of electric cars and the declining ambition of Tesla, Apple, and whoever else enters that space to be known as a “car” company will likely lead to commoditization of components and thus lower prices. Tesla today is more a software and battery company than a car company.

Think back to the day when Apple introduced the iPhone. No one suspected that it (and the smartphones that followed) would enable a service like Uber, which is putting cabdrivers worldwide out of business.

The baby boomer generation romanticizes cars. Most boomers can recite the horsepower and other engine specs of every car they have ever owned. For the tail end of Gen-X (my generation) and Millennials, a car is an interruption between Facebook FB, +0.20% and Twitter TWTR, -1.80% . We know the brand of speakers in our car but if asked would have to Google its horsepower. We feel little romanticism for our cars and have much higher brand loyalty to Apple and Google GOOGL, -0.38% than to GM or Ford Motor F, -1.86%

When Apple makes its entrance into the auto industry, it will likely be successful and highly disruptive. After all, Apple has the much-needed software know-how to design a car. (Apple is already working with car companies on CarPlay, the iPhone-centered car infotainment system.) Apple boasts a global network of stores, possesses unlimited resources ($150 billion of net cash and $50 billion of free cash flows annually), and its imagination has not been damaged by decades of producing cars with internal combustion engines.

General Motors’ answer to Tesla has been no different from Nokia’s response to the iPhone.


Let me stress that last point. There is a good reason why Nokia, which at one time was the dominant cellphone manufacturer, failed to compete with the iPhone. It had too much institutional knowledge. Nokia had hundreds of engineers who tried to add IQ to a dumb phone. The company was attempting to convert Symbian, a dumb-phone operating system, into a smartphone operating system. Despite Apple showing Nokia how the smartphone should look, the company couldn’t see its product as a smartphone but rather just as the next iteration of a dumb phone.

General Motors’ answer to Tesla has been no different from Nokia’s response to the iPhone. GM came out with the Chevy Volt, which was really one of its internal combustion engine (ICE) cars with an electric engine dumped in. Unless an ICE car company creates a silo unit isolated from the rest of the operation, it will be extremely difficult if not impossible to get engineers who have designed ICE vehicles all their lives to change their thinking and turn into electric-car engineers.


Article Link To MarketWatch:

Amazon 1492: Secret Health Tech Project

-- Amazon has a secret skunkworks lab called 1492, dedicated to health care tech.
-- Areas of exploration include a platform for electronic medical record data, telemedicine and health apps for existing devices like the Amazon Echo.


By Eugene Kim 
CNBC
July 27, 2017

Amazon has started a secret skunkworks lab dedicated to opportunities in health care, including new areas such as electronic medical records and telemedicine. Amazon has dubbed this stealth team 1492, which appears to be a reference to the year Columbus first landed in the Americas.

The stealth team, which is headquartered in Seattle, is focused on both hardware and software projects, according to two people familiar. Amazon has become increasingly interested in exploring new business in healthcare. For example, Amazon has another unit exploring selling pharmaceuticals, CNBC reported in May.

The new team is currently looking at opportunities that involve pushing and pulling data from legacy electronic medical record systems. If successful, Amazon could make that information available to consumers and their doctors. It is also hoping to build a platform for telemedicine, which in turn could make it easier for people to have virtual consultations with doctors, one of the people said.

The group is also exploring health applications for existing Amazon hardware, including Echo and Dash Wand. Hospitals and doctor's offices have already dabbled in developing skills for Amazon's voice assistant Alexa, which presents a big opportunity for the e-commerce company.

It's not clear whether Amazon is building any new health devices, but sources didn't rule it out.

The company currently has a slew of roles available for its "stealth" operation, which are searchable on the jobs site under the keyword "a1.492." Some job posts describe the position as "The Amazon Grand Challenge a.k.a. 'Special Projects' team." The unit is currently hiring for a UX Design Manager for its "new vertical," as well as a machine learning director with experience in healthcare IT and analytics and a knowledge of electronic medical records.

Some members of the team list their affiliation with a1.492 on LinkedIn. Those involved include two machine learning experts; a UX designer; and two strategic initiative leads that are running projects inside the group, Kristen Helton and Cameron Charles.

Amazon did not immediately respond to a request for comment.

1492 isn't the only team inside Amazon that is working in health and life sciences.

Its cloud operation, Amazon Web Services, has also hired a slew of health experts to beat out Microsoft and Google for contracts with large hospitals and pharmaceutical vendors. The company has also invested in a health startup called Grail as a very special kind of future customer for its cloud business.

Its Amazon business team is also grabbing opportunities in the $3 trillion sector. It has been selling medical supplies for several years, which poses a big threat to the U.S. distribution business, and is looking to build out a pharmacy business.

The company is attempting to better coordinate these efforts through a series of meetings with senior leaders across these groups that kicked off this year, according to one of the people.

The market opportunity is enormous: Former White House CTO Aneesh Chopra, who has been highly involved in efforts to digitize health operations but had no prior knowledge of the Amazon effort, told CNBC "anyone who aspires to help consumers navigate our health system and is digitally capable should find the market conditions ripe for entry."

Apple's health unit is also working with partners in the industry to aggregate medical information, CNBC previously reported. Google and Microsoft have stumbled in similar efforts, known as Google Health and HealthVault.


Article Link To CNBC:

Amazon Enters Singapore With Most Aggressive Service Yet

Prime Now available for limited time without Prime membership; Amazon gains a foothold in Southeast Asia via Singapore.


By Yoolim Lee
Bloomberg
July 27, 2017

Amazon.com Inc. is kicking off in Singapore with its most aggressive service yet, offering the Prime Now two-hour delivery service on everything from chilled Tiger beer to Samsung mobile phones.

Customers in Singapore can shop using the Prime Now app and get tens of thousands of items delivered to their door with free delivery on orders of more than S$40 ($29), according to Henry Low, director of Amazon Prime Now, Asia Pacific.

Amazon’s entry into Southeast Asia could spark fierce competition with Alibaba Group Holding Ltd., which has acquired control of Lazada Group SA and is said to be considering an investment in Indonesia’s PT Tokopedia. The region of 620 million people is home to an e-commerce market forecast to reach $88 billion by 2025, according to a report by Google and Temasek Holdings Pte.

“Southeast Asia is a burgeoning marketplace for us with more than 600 million consumers, growing wealth and digitization,” Low said in an interview. “I’m super optimistic with opportunities that we have. This is day one.”

The U.S. e-commerce giant has been stepping up its overseas expansion. Having largely ceded China to Alibaba, the Seattle-based firm is waging a war of attrition with Flipkart Online Services Pvt in India, where it has pledged to spend $5 billion in the next few years. In March, Amazon agreed to buy Dubai-based online retailer Souq.com.

Amazon will always evaluate deal opportunities, Low said, declining to comment on its road map for regional expansion.

“Together, Amazon and Alibaba are set to create an unprecedented disruptive force,” said Raghav Kapoor, an analyst at Smartkarma.

In Singapore, Amazon and its rivals are betting on the growth of online retail. E-commerce accounted for just 0.9 percent of the city-state’s retail market in 2003 before rising to 4.8 percent last year, according to data compiled by Euromonitor.

Amazon’s Prime Now service will be available for trial for free for a limited time in Singapore, before the company rolls out its Prime membership program, Low said. It’s the first time the service has been offered on debut in a new market. In other cities, it’s a prerequisite to be a Prime member to get the two-hour delivery service.

The company will also offer a one-hour expedited delivery service for S$9.99 per shipment.

Amazon’s Prime Now in Singapore will operate out of an urban fulfillment center, a facility of around 100,000 square feet, the company’s largest Prime Now only fulfillment center in the world, Low said. He added that the company plans to hire hundreds of people in Singapore as it expands services.


Article Link To Bloomberg:

Facebook Shares Hit Record High As Mobile Ad Sales Soar

By David Ingram and Rishika Sadam
Reuters
July 27, 2017

Facebook Inc's mobile advertising business grew by more than 50 percent in the second quarter, the company said in its earnings report on Wednesday, as the social network continued to establish itself as the venue of choice for an ever-growing array of online advertisers.

Shares in Facebook, owner of four of the most popular mobile services in the world, rose more than 4 percent to about $173 in after-hours trading. Through Wednesday's close, the stock price had climbed nearly 44 percent this year.

Facebook, which now has more than 2 billion regular users, has been squeezing more ads into its Facebook News Feed while adding more ads to its photo-sharing app Instagram, which has more than 700 million users.

With money cascading from those two services, Chief Executive Mark Zuckerberg said the company was turning attention to monetizing its two messaging services, Messenger and WhatsApp, which have more than 1 billion users each.

"I want to see us move a little faster here but I'm confident that we're going to get this right over the long term," Zuckerberg said in a conference call with analysts.

The company also is accelerating its push into video, an effort aimed at taking advertising dollars from the television industry and increasing the time people spend on Facebook.

Within weeks, Facebook is expected to start a video service that will include scripted shows, a sharp change for a business built on user-generated content.

Zuckerberg said video would be a significant driver of Facebook's business in the next two to three years.

With those possibilities still on the horizon, Facebook said total revenue rose 44.8 percent to $9.32 billion in the second quarter of the year. That beat the average forecast of $9.20 billion among analysts tracked by Thomson Reuters I/B/E/S.

Growth was even steeper in mobile advertising, which increased to nearly $8 billion.

"In mobile we're continuing to see great strengths," Facebook Chief Financial Officer David Wehner said in a phone interview with Reuters. "We're seeing more and more ad dollars getting allocated to mobile, and we think that trend will continue."

"Killing It On Mobile"

Mobile ad revenue accounted for 87 percent of the company's total advertising revenue of $9.16 billion in the latest quarter, up from 84 percent a year earlier.

"They're killing it on mobile," Needham & Co analyst Laura Martin said, referring to Facebook's suite of apps. "They are the de facto mobile advertising monopolies and that's a really big deal."

Martin said she sees no weaknesses in Facebook's business.

Facebook and Alphabet Inc own half of the online advertising market worldwide, and Facebook's revenue growth this quarter outshone Alphabet, the owner of YouTube and Google.

Alphabet on Monday reported a 21 percent increase in quarterly revenue, although it started the quarter from a larger base than Facebook did.

Facebook has not said how much of its revenue is attributable to its Instagram unit, although the photo-sharing app has become a greater focus of its business.

"Clearly, the biggest driver of growth is, overall, Facebook News Feed," Wehner said. "Instagram is making a contribution and an increasing contribution."

But investors want Facebook to find additional revenue streams because the company has warned it is hitting maximum ad load in the News Feed, potentially slowing its overall growth.

So far that has not happened.

"They kept warning about ad load, but the ad load continues to be strong," said Ivan Feinseth, research director at Tigress Financial Partners. "I still think ad revenue will grow, because more advertisers are adapting to this platform because there are so many people out there."

The popularity of Instagram also has put pressure on Snapchat, the app owned by Snap Inc. Instagram has added features similar to Snapchat's and Snap's stock on Wednesday closed at an all-time low of $13.40.

Facebook said about 2.01 billion people were using its service monthly as of June 30, up 17 percent from a year earlier.

For the second quarter, net income attributable to shareholders rose to $3.89 billion, or $1.32 per share, from $2.28 billion, or 78 cents per share, a year earlier. Analysts on average had expected earnings of $1.13 per share, according to Thomson Reuters I/B/E/S.

Article Link To Reuters:

Trump Isn’t Hurting The Economy. Here’s Why

By Charles Lane
The Washington Post
July 27, 2017

There seems to be no end to tumult in Washington, of which President Trump’s vindictive and ethically clueless attacks on his attorney general are the latest manifestation.

High-level instability in the world’s most powerful government spells inevitable trouble for the country, and the world.

Or does it? Obviously, the paranoia and vulgarity emanating from the White House do harm, probably lasting, to the political culture of the United States, which was not healthy even before Trump’s election.

In one important sense, however, it’s amazing how little difference the absence of a functional figure at the top in Washington has made: The global economy, the United States very much included, continues to generate steady if unspectacular growth, price stability and job creation. Even recent laggards such as Europe and Japan seem poised for some of their best results in years.

Surveys of business leaders and hard data on employment, industrial production and the like, in both developed and emerging economies, reflect “a broadening global economic expansion,” according to the July 24 edition of “Eye on the Market,” a report to investors from J.P. Morgan’s analysts. Within the United States, consumer confidence and house prices are at post-2001 and post-2006 highs, respectively — not surprising given that unemployment is only 4.4 percent.

For Michael Cembalest, chairman of market and investment strategy at J.P. Morgan and principal author of “Eye on the Market,” the lesson is that geopolitical events — even highly disruptive ones such as Brexit and the rise of Trump — are less damaging economically than much conventional wisdom, on and off Wall Street, would have it.

As his report notes, the world’s perennial trouble spots (e.g., Syria and Ukraine) encompass 12 percent of global population but account for less than 1 percent of stock market capitalization, profits or investment flows.

“It’s the business cycle that matters,” Cembalest told me. Right now, the business cycle — abetted by central bank policies, and resilient with respect to Trump’s antics — is in a benign phase.

That could change, of course. Contrary to what he’s done so far, Trump could convert his protectionist rhetoric into actual policy, triggering a trade war. The Middle East’s various military conflicts, mishandled by Trump’s foreign policy team, could spiral out of control, triggering an oil price shock like the one that derailed the world economy in 1973 — and which Cembalest considers the only documented case of a postwar geopolitical event that wrought lasting economic damage.

But otherwise, it’s likely that things will chug along at their current pace through the 2018 congressional elections, even though the latest International Monetary Fund forecast marked down U.S. growth slightly due to Congress’s inability to enact Trump’s promised tax cuts.

That, in turn, casts further doubt on scenarios that Trump will be impeached or otherwise ousted before his term expires in 2021, even if a recent USA Today poll found 42 percent of the public favors Trump’s removal and 36 percent expect it.

Obviously, the key variables are Trump’s alleged wrongdoing and the quality of the proof against him — which would have to be substantial indeed to persuade Republicans on Capitol Hill to abandon him, as Republicans eventually turned against President Richard Nixon during Watergate.

Those breathlessly anticipating Trump’s ouster often forget that Nixon’s Watergate woes were compounded by what was then the worst economic crisis since the Great Depression — triggered in large part by the October 1973 cutoff of oil supplies by Arab states as reprisal for Nixon’s support of Israel during the Yom Kippur War.

Both unemployment and inflation rose rapidly during 1974, a key reason, along with the steadily mounting Watergate crisis, that Nixon’s approval rating plummeted from 67 percent, in the aftermath of his landslide reelection and the January 1973 Vietnam peace accord, to 24 percent at the time of his resignation in August 1974.

We’ll never know what might have happened if the economy had been in better shape and Nixon’s approval rating had been closer to the approximately 40 percent floor Trump has maintained for months, despite one Russia revelation after another.

Perhaps Republican senators would have stood by their man and Nixon would have tried to serve out his second term despite impeachment proceedings — just as President Bill Clinton did in 1998 and 1999, sustained by a 73 percent job approval rating due in part to a booming economy at full employment.

Morals of the story: Even a bizarre president can’t necessarily bring down the global economy. And, awkwardly for Trump’s opponents, it might take a really bad global economy to bring down a bizarre president.


Article Link To The Washington Post:

The Post-Hillary Democrats

How in God’s name, the Democrats wonder, did we ever lose the 2016 election to him?


By Daniel Henninger
The Wall Street Journal
July 27, 2017

On climate change, Democrats believe they know to the 10th decimal place that Earth is on the brink of an apocalypse. But by their own admission this week, they don’t have a clue about which way the wind is blowing with the American voter.

On Monday the Democrats released something called “A Better Deal,” a set of policy ideas to win back voters. Think of it as the party laying down the first quarter-mile of blacktop on its road back to power.

The short version of “A Better Deal” is that they would bust up corporate trusts (Teddy Roosevelt, circa 1902), ramp up public-works spending ( FDR, circa the Great Depression) and enact various tax credits (Washington, circa eternity).

The more interesting question here lies in the document’s unspoken subtext: How in God’s name did we lose a presidential election to . . . him?

In a recent Washington Post interview, one of Hillary Clinton’s closest advisers, Jake Sullivan, admits, “I am still losing sleep. I’m still thinking about what I could have done differently.” Who wouldn’t? What happened Nov. 8 was like losing five Super Bowls in one day.

Hillary Clinton has taken to citing one fact: “Remember, I did win more than three million [more] votes than my opponent.” True, notwithstanding the pesky two-centuries-old Electoral College vote, which she lost.

Here’s another fact that still poses a maddening question for many: Donald J. Trump got more than 62 million votes. It wasn’t long before Election Day that many political sophisticates wondered how Donald Trump would get 620 votes, much less 62 million—after the McCain slander, the “Access Hollywood” tape, the generalized ignorance.

A conventional explanation for the loss—and we know this because Chuck Schumer conventionalized it last weekend—is to blame her. “When you lose to somebody who has 40% popularity,” said Sen. Schumer, “you don’t blame other things—Comey, Russia—you blame yourself.”

This is rich. It’s almost oxymoronic. The reason Democrats lost to him is that they had an unelectable candidate. But if both parties were running “unelectable” candidates, then a lot of that day’s 138 million voters based their decisions on something more concrete than the personalities of two celebrities.

Hillary Clinton was running as the extension of Barack Obama’s two-term presidency. If the Democrats are now throwing her under the bus, Mr. Obama is down there with her.

The Obama presidency was a watershed for the Democratic Party for reasons having little to do with his historic candidacy. Mr. Obama moved his party significantly to the left, arguably as Ronald Reagan had moved his to the right. But those two buzzwords—left and right—have substantive meaning. In practice, the Obama years constituted an abrupt enhancement of state power. ObamaCare was the tip of the iceberg.

Barack Obama was as smooth as Bill Clinton was slick, and he used his eloquence to soften the hard edges of the many policy coercions by his Justice, Labor and Education departments and the omnipresent EPA.

In 2016, the Clintons, especially the ex-president, recognized the risks of running on this leftward legacy in a general election. Thus Hillary’s efforts to essentially talk and fog her way past that reality.

But Bernie Sanders wouldn’t let her. Like Banquo’s ghost, Bernie reminded voters for months what the real face of the Democratic Party looked like—the unelectable left.

Yes, some forgotten voters in Pennsylvania, Wisconsin and Michigan tipped the vote to Mr. Trump. But those states turned because millions of more-easily identified voters dumped the Obama Democrats, too.

A total surprise? I’d say there were at least five canaries in the Democrats’ fatal 2016 mineshaft. Any map of the party’s famous “blue wall” of electoral votes includes Maryland, Massachusetts, Michigan, Wisconsin and Illinois. What each of those deep-blue states has in common is that their presumably liberal, Democratic voters have elected Republican governors— Larry Hogan in Maryland, Charlie Baker in Massachusetts, Rick Snyder in Michigan, Bruce Rauner in Illinois and Scott Walker in Wisconsin. Throw in Chris Christie in irredeemably blue New Jersey.

Maryland’s Mr. Hogan is the benchmark. He won in 2014 because his Democratic predecessor, Martin O’Malley, desperate for revenue, had taxed Maryland’s people unto death. Naturally, Mr. O’Malley then ran for the Democratic presidential nomination.

Obama-era Democrats barely admit the states as part of the American system, and they obviously dismissed as irrelevant these GOP governors winning inside blue-wall states.

I almost forgot—the Better Deal. It sounds a lot like the federal spending initiatives in JFK’s New Frontier, except for one element: the Kennedy tax cuts of 1964.

In anyone’s lifetime, a tax under a Democratic president can go only one way. “Better” would not be the word for it. That, too, is the sort of thing voters would notice when forced to choose between a Democrat and a Trump.


Article Link To The WSJ:

Rove: How Long Can The Trump Tumult Go On?

This has been a wild week, even for him. It also ought to be a wake-up call.


By Karl Rove
The Wall Street Journal
July 27, 2017

Even for this dramatic administration, the past seven days have been extraordinary. Start a week ago Wednesday, when President Trump said Attorney General Jeff Sessions “should have never recused himself” from the investigation of Russian electoral meddling, calling the recusal “very unfair.” These comments were followed by the unlikely rumor that the Trump legal team would go after Special Counsel Robert Mueller’s staff, along with more-plausible suggestions that the president might fire Mr. Mueller.

On Friday, Mr. Trump appointed New York financier Anthony Scaramucci as White House communications director, prompting press secretary Sean Spicer to resign. This all sparked speculation about the standing of chief of staff Reince Priebus and chief strategist Steve Bannon, both of whom allegedly opposed hiring Mr. Scaramucci.

Then on Monday, a Senate panel interviewed White House senior adviser Jared Kushner about a July 2016 meeting with a Russian lawyer. That meeting was organized by Donald Trump Jr., who had received an email saying Russian officials possessed “documents and information that would incriminate Hillary.” Young Mr. Trump was told this “very high level and sensitive information” was “part of Russia and its government’s support” for his father.

The following day, the president renewed his attacks on his attorney general, tweeting that Mr. Sessions had taken “a VERY weak position on Hillary Clinton crimes (where are E-mails & DNC server) & Intel leakers!” Later, during a Rose Garden presser, Mr. Trump lamented that he was “very disappointed in Jeff Sessions.”

During this swirl of events, Team Trump portrayed Mr. Scaramucci’s appointment as a major reset, saying the president was his administration’s best communicator and that he would benefit from delivering more of his message directly. But this is a misdiagnosis of what ails the administration’s public relations. The president’s job-performance rating has dropped from an even 44% approval and disapproval on Jan. 27 to 40% approval and 55% disapproval this Wednesday, according to the RealClearPolitics average. Mr. Trump’s ratings are sliding because of his own messages and actions, not those of his subordinates.

In addition, although Mr. Scaramucci is an effective, personable advocate for Mr. Trump, his ultimate value must come from planning and executing a coherent communications strategy that results in a disciplined message and advances the president’s agenda. This requires working with the entire White House leadership, the rest of the administration, congressional Republicans and outside allies. It can be done only with consultation, thoughtfulness, collegiality and constant thinking ahead. The communications director’s job is complicated even in normal presidencies, which this isn’t.

One of Mr. Scaramucci’s strengths is his relationship with Mr. Trump. He can assist the president most by using his influence to help Mr. Trump resist his worst impulses. The president could demonstrate that this isn’t an impossible hope by ending his public humiliation of Mr. Sessions, which is unfair, unjustified, unseemly and stupid.

Mr. Trump should consider how ugly the next six months will be if he continues attacking Mr. Sessions. If he fires the attorney general, the president will guarantee that every other message is buried under bad press as he deals with the fallout and searches for an acceptable replacement. Senate Democrats would spend months tormenting that person during confirmation proceedings, and even Republican senators would raise tough questions. If Mr. Trump instead makes a recess appointment, a crisis will ensue.

For the record, Justice Department rules require Mr. Sessions to recuse himself from any investigation that touches the Trump campaign. Those rules—required by federal law—dictate that no Justice official “shall participate” in an investigation “if he has a personal or political relationship with . . . any person or organization substantially involved . . . that is the subject of the investigation.” This is why then-Attorney General John Ashcroft recused himself after the Valerie Plame incident. (I was involved in the matter and had previously been Mr. Ashcroft’s campaign consultant.)

Mr. Sessions, a decent and principled man, is doing his best to further the Trump agenda and restore the Justice Department’s tattered reputation. That the president is publicly shaming him, heedless of the damage it’s causing, shows just how vindictive, impulsive and shortsighted Mr. Trump can be.

This past tumultuous week should wake up the president and all those around him. If Mr. Trump continues this self-destructive behavior, he will drown out his message and maybe even blast his presidency to bits before his first year in office is even out.


Article Link To The WSJ:

Bannon Is Said To Call For 44% Tax On Incomes Above $5 Million

It’s unclear if Trump would support rate for highest earners; White House plan released in April called for 35% as top rate.


By Margaret Talev
Bloomberg
July 27, 2017

White House chief strategist Steve Bannon supports paying for middle-class tax cuts with a new top rate of 44 percent for Americans who make more than $5 million a year, according to a person familiar with his thinking.

It’s unclear whether President Donald Trump would support the move, which would bring the top rate, currently 39.6 percent, to the highest level in 30 years. Trump has said he’s focused on tax changes that would help the middle class, but an analysis this month of the tax outline the White House released in April shows it would mostly benefit top earners.

That plan condensed the seven existing individual income tax rates to three, with a top rate of 35 percent. Income thresholds weren’t included in the outline.

White House officials and congressional leaders have been meeting weekly to agree on a framework to rewrite the tax code. So far, they haven’t announced any decisions on how deeply to cut tax rates or whether the lost revenue should be offset, and how.

It’s not the first time that kind of tax increase has been suggested.

During the 2016 presidential campaign, Democratic nominee Hillary Clinton had proposed a 4 percent surcharge on Americans making more than $5 million annually. It was part of a set of proposals that her campaign said would ensure the wealthy paid a higher effective tax rate than the middle class.

Bannon’s call for a 44 percent top rate was reported earlier today by the Intercept.


Article Link To Bloomberg:

Fed Reinforces Its Path Toward A 'Beautiful Normalization'

The central bank is on a course that delivers low volatility and contains disruptions to the markets.


By Mohamed A. El-Erian
The Bloomberg View
July 27, 2017

At the end of its two-day policy meeting, the Federal Reserve on Wednesday delivered a rather milquetoast statement -- purposely and understandably so. In the process, the central bank is achieving two goals: keeping its options open as it continue to navigate an unusually fluid economic, financial, institutional and political landscape; and reinforcing the markets’ comfort with the notion that the Fed will be able to provide, to borrow a phrase from Ray Dalio, a “beautiful normalization” after a prolonged period of heavy reliance on unconventional monetary policy.

As expected, the Fed left interest rates unchanged and stated that it would start reducing its balance sheets “relatively soon.” It made the announcement in the context of continued solid job gains, a somewhat more dovish view of inflation, an unchanged outlook, and as it focused on what it sees as a “roughly balanced” balance of risk.

The immediate reaction of markets was supportive of this steady-as-it-goes approach. The VIX, the widely followed measure of stock market volatility known as the “fear index," dipped momentarily to a record low, while market yields eased somewhat, equities remained strong and the dollar weakened a little.

More generally, the statement serves to reinforce, at least for now, the markets’ notion that the Fed is on course to deliver a normalization that keeps volatility low and contains disruptions to both the fixed-income and equity markets, as well as to the economy. It is consistent with the view that the next rate hike would come in December at the very earliest, and that the balance-sheet reduction process, which many predict will start this fall, would be cautiously measured and orderly.

For the next few weeks, the focus of markets and analysts will shift overseas, and to the European Central Bank in particular. Beyond that, it will also come back to a Fed that, after all, is with many others in seeking to solve and model analytical uncertainties for the nation’s productivity, wage dynamics and inflation determination -- and to do so in a context of fluid politics and periodic threats to its operational independence.


Article Link To The Bloomberg View:

Fed Holds Rates Steady, Expects Portfolio Cuts 'Relatively Soon'

By Jason Lange and Lindsay Dunsmuir
Reuters
July 27, 2017

The Federal Reserve kept interest rates unchanged on Wednesday and said it expected to start winding down its massive holdings of bonds "relatively soon" in a sign of confidence in the U.S. economy.

The Fed kept its benchmark lending rate in a target range of 1.00 percent to 1.25 percent, as expected, and said it was on track to continue the slow path of monetary tightening that has lifted rates by a percentage point since 2015.

In a statement following a two-day policy meeting, the U.S. central bank's rate-setting committee indicated the economy was growing moderately and job gains had been solid.

It also noted that both overall inflation and a measure of underlying price gains had declined - trends which have worried some policymakers - but that it expected the economy to continue strengthening.

"The committee expects to begin implementing its balance sheet normalization program relatively soon," the Fed said, adding that it would follow a plan outlined in June to trim its holdings of U.S. Treasury bonds and mortgage-backed securities.

U.S. stock prices rose following the release of the policy statement while yields on U.S. government debt fell. The dollar dropped against a basket of currencies.

After pushing rates nearly to zero to fight the 2007-2009 financial crisis and recession, the Fed pumped over $3 trillion into the economy in a bond-buying spree to further reduce rates. Its balance sheet has grown to $4.5 trillion.

The statement cemented expectations the Fed will announce at its next policy meeting in September the start of its balance sheet reduction plan, marking the end of a controversial tool that drew criticism from Republican lawmakers in Congress.

"The Fed all but told the market the balance sheet run-off will start in September," said Brian Jacobsen, an investment strategist at Wells Fargo Funds Management in Menomonee Falls, Wisconsin.

Inflation Jitters


Torsten Slok, an economist at Deutsche Bank, said the Fed appeared keen to begin balance sheet reduction given the uncertainty over whether President Donald Trump will nominate Fed Chair Janet Yellen for another four-year term.

Trump told the Wall Street Journal this week that Yellen, whose current term expires in February, was among several candidates he would consider to lead the central bank.

While Fed researchers have concluded that bond buying only modestly boosted the economy, Yellen has said the central bank could turn to asset purchases again if the economy fell into a deep rut.

Steady job creation in the economy has pushed the U.S. unemployment rate to 4.3 percent, near a 16-year low.

The Fed had previously signaled it would begin to trim its balance sheet this year.

At the same time, a slowdown in inflation has caused jitters among some Fed officials who are concerned inflation has been below the central bank's 2 percent target for five years.

The Fed's preferred measure of underlying inflation dropped to 1.4 percent in May from 1.8 percent in February. The Fed had described inflation as being "somewhat" below target in its policy statement in June, but on Wednesday it simply stated that it was below 2 percent.

"That, I think, is a signal that it's a slightly more cautious tone," said Omer Esiner, an analyst at Commonwealth FX in Washington.


Article Link To Reuters: