Monday, August 7, 2017

Monday, August 7, Morning Global Market Roundup: Stocks Reach New Peak In World Full Of Surprises

By John Geddie
August 7, 2017

World stocks breached new record highs on Monday as better-than-expected company earnings and economic data from the United States stole the focus from rising geopolitical tension over North Korea's nuclear program.

The U.S. dollar dipped slightly but held on to most of Friday's gains - its biggest daily rise this year - made after data showed the United States created more jobs than forecast last month.

For those watching second quarter corporate results in recent weeks, there have been many such surprises. Of the nearly 1000 companies in the MSCI world index that have reported, 67 percent have beaten expectations, according to Reuters data.

These two factors helped nudge the flagship share index above a peak breached late last month, setting a new all-time high of 480.09 on Monday.

"The US made the most noise last week ... At the start of the new week, risk sentiment improved in Asia with investors continuing to show a certain degree of risk affinity," DZ Bank strategist Rene Albrecht said.

Aside from a slight weakening in the Korean won, there was little financial market reaction to the news over the weekend that the U.N. Security Council unanimously imposed new sanctions on North Korea aimed at pressuring Pyongyang to end its nuclear program.

South Korean President Moon Jae-in and his U.S. counterpart, Donald Trump, agreed in a telephone call on Monday to apply maximum pressure and sanctions on North Korea, while China expressed hope that North and South Korea could resume contact soon.

Yields on U.S. and German government bonds - seen as a safe haven in times of stress - rose off one-month lows hit at the tail end of last week.

Asian Gains

A strong rise in U.S. and Asian stocks propelled the world index to a new high, with the strength of the euro providing a bit of a headache for European markets.

The Dow Jones recorded its eighth consecutive record high on Friday, with MSCI's broadest index of Asia-Pacific shares outside Japan adding 0.5 percent when trading commenced on Monday.

Japan's Nikkei and Chinese blue chips both added over 0.5 percent, with the latter bolstered by bets for strong economic data from the world's second largest economy this week.

The euro zone's main stock index was a touch lower, however, as the single currency headed back towards a 20-month high, a trend which appears to be denting profitability in certain sectors.

Of the MSCI Europe companies having reported, 61 percent have either met or beat expectations. But focusing on industrial firms – of which many depend on exports, and are sensitive to a stronger euro – the beat ratio is just 37 percent.

Dollar Doubts

Growing signs of labor market tightness offer U.S. policymakers some assurance that inflation will gradually rise to the central bank's 2 percent target, and likely clear the way for a plan to start shrinking its massive bond portfolio later this year.

But market pricing shows investors are still about evenly divided over whether the Fed will also opt to raise rates again in December.

For some analysts, Monday's pull back in the dollar backs some views in markets that Friday's rally may not have legs.

The dollar index, which tracks the greenback against a basket of six global peers, inched back 0.2 percent to 93.361. It rallied 0.76 percent on Friday, its biggest one-day gain this year.

The dollar slipped 0.2 percent against the euro to $1.1796 per euro, after surging 0.8 percent on Friday.

"The most logical view here is the moves on Friday were clearly just a sizeable covering of USD shorts, from what was one of the biggest net short positions held against the USD for many years," Chris Weston, chief market strategist at IG in Melbourne, wrote in a note.

For the dollar rally to gain momentum, the market needs to change its interest rate pricing, Weston added.

In commodities, oil prices fell away from nine-week highs hit after the strong job data bolstered hopes for growing energy demand.

U.S. crude slipped 0.6 percent to $49.30 a barrel, after rising 1.1 percent on Friday. Global benchmark Brent lost 0.7 percent to $52.06.

Gold steadied as the dollar surrendered some of its gains, but remained under pressure. The precious metal was marginally lower at $1,257.41 an ounce, extending Friday's 0.8 percent loss.

Article Link To Reuters:

Oil Slides From Nine-Week Highs As Market Looks To OPEC

By Libby George
August 7, 2017

Oil prices edged lower on Monday, sliding away from nine-week highs, as worries lingered over high production from OPEC and the United States.

Global benchmark Brent crude futures LCOc1 were down 65 cents, or 1.24 percent, at $51.77 a barrel.

U.S. crude futures CLc1 were down 59 cents, or 1.19 percent, at $48.99 per barrel.

Both contracts stood more than $1 below the levels hit last week, which marked their highest since late May, when oil producers led by the Organization of the Petroleum Exporting Countries extended a deal to reduce output by 1.8 million barrels per day (bpd) until the end of next March.

Doubts have since swirled around the effectiveness of the cuts, as OPEC output hit a 2017 high in July and its exports hit a record.

"The market is looking for comment from Saudi Arabia signaling OPEC will meet its agreed target," said Hans van Cleef, senior energy economist with ABN AMRO. "The possibility for (price) movement seems limited unless OPEC comes out with a statement."

Officials from a joint OPEC and non-OPEC technical committee are meeting in Abu Dhabi on Monday and Tuesday to discuss ways to boost compliance with the deal.

The OPEC concerns were enough to outweigh news on Monday that Libya's Sharara oilfield, which has been producing 270,000 bpd, is gradually shutting down. Increased output from Libya, which along with Nigeria was exempt from the initial cuts, has been a key driver in OPEC's production increases.

High oil output in the United States was counteracting other bullish factors, including a Baker Hughes report on Friday that showed a cut of one drilling rig in the week to Aug. 4, bringing the total count down to 765. RIG-OL-USA-BHI

U.S. weekly oil production hit 9.43 million bpd in the week to July 28, the highest since August 2015 and up 12 percent from its most recent low in June last year. C-OUT-T-EIA

Analysts said further output gains could send prices lower.

"This week, weekly data out of the U.S. should be really influential ... if (U.S. daily production) makes further gains given the high prices, I think that would be a catalyst for downside news," said Michael McCarthy, chief market strategist at CMC Markets.

Article Link To Reuters:

Higher-Cost Crude Could Squeeze Margins At U.S. Refiners

By Erwin Seba
August 7, 2017

U.S. refiners could face a continued squeeze on profit margins in the months ahead as dwindling supplies of heavy crude from Venezuela and elsewhere are leading several to switch to higher-priced but easier-to-refine light, sweet crude.

The shift also could mean higher prices for consumers in the last weeks of the summer driving season and into the fall if refiners are able to pass along those higher costs to drivers, analysts said.

PBF Energy Inc , Valero Energy Corp, Phillips 66 and Marathon Petroleum Corp said in earning calls over the past two weeks they are running more light crude as a result of narrower discounts for heavy crude. ExxonMobil Corp also is running a heavier slate of light crude at a Gulf Coast plant.

Refiners' "margins have already been heavily impacted," said John Auers, executive vice president at refining consultancy Turner, Mason & Co. "They will be impacted in the third quarter" as well, Auers said. The final period's outlook could depend on whether the U.S. applies sanctions on Venezuelan imports, he added.

In part, the companies are reacting to high costs and anticipating weaker supplies of Venezuelan crude coming to the United States. Heavy crude prices also have been impacted by tax changes in Russia that have raised prices of its heavy crudes and by reduced production from Canada last quarter.

Through June, U.S. imports of Venezuelan crude declined 7.1 percent compared with the same six month period last year, to 654,078 barrels per day (bpd), according to Reuters data.

Light, sweet crude costs more than heavier oils, narrowing the discount that U.S. refiners, especially those along the Gulf Coast, have gained by configuring their plants to run heavy, sour crude over the past 20 years.

Marathon's second-quarter income from its refining and marketing operations fell in part due to "unfavorable crude oil and feedstock acquisition costs, primarily due to lower sweet/sour crude oil price differentials," the company said on Thursday.

PBF also said narrower heavy crude discounts contributed to its second quarter loss of $1.01 a share, compared to Wall Street expectations of a 2-cent a share gain.

Exxon is studying adding a light crude-processing unit at its Beaumont, Texas, refinery early in the next decade, spokeswoman Charlotte Huffaker said this week. It would be the second light-crude processing unit at the plant.

"These investments reflect the increased availability of abundant, affordable supplies of U.S. light crude," Huffaker said in an email.

Valero and Phillips beat analysts' estimates, Valero by 13 cents at $1.23 a share and Phillips by 5 cents at $1.06 a share.

Other factors could balance the higher crude cost in the coming months, such as strong global demand for U.S. refined products, said Andrew Lipow, president of Lipow Oil Associates in Houston.

"Prices are going up because we're seeing the impact of the cuts by OPEC and non-OPEC countries," Lipow said.

Neil Earnest, president of Dallas energy consultancy Muse, Stancil & Co, said changes in the price of crude could also affects refiners' margins ahead.

"They don't move in lockstep," Earnest said. "It may, however, impact a refiner who has customized a process to run heavy crude. That refiner may see narrower margins."

Article Link To Reuters:

City Pledges For ‘100% Renewable Energy’ Are 99% Misleading

The power grid is built on fossil fuels, and there’s no way to designate certain electrons as guilt free.

By Charles McConnell
The Wall Street Journal
August 7, 2017

Dozens of cities have made a misleading pledge: that they will move to 100% renewable energy so as to power residents’ lives without emitting a single puff of carbon. At a meeting of the U.S. Conference of Mayors in late June, leaders unanimously adopted a resolution setting a “community-wide target” of 100% clean power by 2035. Mayors from Portland, Ore., to Los Angeles to Miami Beach have signed on to these goals.

States are getting in the game, too. Two years ago Hawaii pledged that its electricity would be entirely renewable by 2045. The California Senate recently passed a bill setting the same goal, while moving up the state’s timeline to get half its electricity from renewables from 2030 to 2025.

Let’s not get carried away. Although activists herald these pledges as major environmental accomplishments, they’re more of a marketing gimmick. Use my home state of Texas as an example. The Electric Reliability Council of Texas oversees 90% of the state’s electricity generation and distribution. Texas generates more wind and solar power than any other state. Yet more than 71% of the council’s total electricity still comes from coal and natural gas.

The trick is that there’s no method to designate electrons on the grid as originating from one source or another. Power generated by fossil fuels and wind turbines travels together over poles and underground wires before reaching cities, homes and businesses. No customer can use power from wind and solar farms exclusively.

So how do cities make this 100% renewable claim while still receiving regular electricity from the grid? They pay to generate extra renewable energy that they then sell on the market. If they underwrite enough, they can claim to have offset whatever carbon-generated electricity they use. The proceeds from the sale go back to the city and are put toward its electric bill.

In essence, these cities are buying a “renewable” label to put on the regular power they’re using. Developers of wind and solar farms win because they can use mayoral commitments to finance their projects, which probably are already subsidized by taxpayers.

But the game would never work without complete confidence in the reliability of the grid, which is dependent on a strategy of “all of the above,” generating power from sources that include coal, natural gas, nuclear, wind and solar.

The mayor of Georgetown, Texas, announced earlier this year that his city had reached its goal of 100% renewable electricity. But in a 2015 article announcing the pledge, he acknowledged what would happen if solar and wind were not able to cover the city’s needs: “The Texas grid operator, the Electric Reliability Council of Texas, will ensure generation is available to meet demand.”

Two years ago the mayor of Denton, Texas, announced a plan to go 70% renewable, while calling a target of 100% unrealistic. “One of the challenges of renewable energy is that it’s so hard to predict,” he said. “You don’t know exactly when the sun is going to shine or when the wind is going to blow. To maintain that reliable power, you must have backup power.”

There is no denying that wind and solar power are important to a balanced energy portfolio. But coal is the bedrock of affordable electricity, and it will remain so, no matter how much wishful thinking by environmental activists. Coal is abundant and reliable. Unlike wind and solar, coal generation can be dialed up and down in response to market conditions and to satisfy demand.

The headline-grabbing 100% renewable pledges intentionally overlook these facts. Fossil fuels are not only the largest and most critical component of the energy portfolio, they are the foundation upon which renewable power must stand. Wind and solar generators ride free into the electric grid on the backs of fossil generators that have installed and paid for the infrastructure on which all Americans depend. The rise of renewable generation is made possible by fossil fuels, not despite them.

We should celebrate the growth of renewables, but not with false and misleading claims. What’s needed is transparency and a shared objective to provide consumers with the most reliable, resilient and affordable energy available.

Article Link To The WSJ:

BlackRock, Vanguard Say Bond Market's Got This Trade All Wrong

Inflation in the U.S. bound to accelerate in matter of months; Bond traders are too complacent and TIPS ‘incredibly cheap’

By Liz McCormick
August 7, 2017

Two titans of the bond market are still clinging to the idea that inflation is going to make a comeback.

Time and again, weak economic data have made the market’s inflationistas -- many of whom were beguiled by President Donald Trump’s pro-growth promises -- look a little foolish.

But for Vanguard and BlackRock, it’s only a matter of months before inflation is back at 2 percent. Regardless of what does (or doesn’t) happen in Washington, a tight job market will boost wages, lead Americans to spend more and push up consumer prices. Add to that a weak dollar and prospects the Federal Reserve will hold off raising interest rates until 2018, and they see a good chance the bond market is too downbeat about inflation.

“The underlying trends in core inflation will be higher,” said Gemma Wright-Casparius, a senior money manager at Vanguard, which oversees $4 trillion.

Getting it right matters. Despite rock-bottom rates and trillions of dollars in quantitative easing by the Fed, inflation has been one indicator that’s stubbornly failed to return to levels consistent with a healthy U.S. economy. Inflation eased for a fourth month in June, dropping to an annual rate of 1.6 percent. The Fed’s preferred gauge was even weaker, slipping to 1.4 percent.

That’s made it more difficult for the Fed to unwind its easy-money policies, which a growing chorus of critics say have only succeeded in inflating the price of financial assets and left the central bank with little margin for error.

Fed officials, for their part, have repeatedly said the inflation slowdown is transitory, though they acknowledged in their July statement that price measures have “declined and are running below” goal.

To Wright-Casparius, the situation has left the bond market too pessimistic. As recently as June, bond traders saw inflation averaging less than 1.7 percent a year over the next decade. While last week’s strong job and wage numbers have helped to lift the market’s outlook (known as the break-even rate in bondspeak) to 1.8 percent, it’s still too low, she says.

Vanguard estimates 10-year break-even levels should be close to 2 to 2.25 percent. In July, she bought inflation-linked Treasuries, known as TIPS, which profit when inflation exceeds the market’s expectations. Wright-Casparius said she intends to add to those positions in the months ahead.

QE Rollback

The Fed’s focus on reducing its crisis-era bond investments in coming months also means it will likely keep rates steady until at least March. Wright-Casparius says that will help ensure inflation stays at or above 2 percent once it gets there.

BlackRock’s Martin Hegarty favors inflation-linked Treasuries over those in the U.K. or Europe and suggests that bond traders are making a mistake if they expect inflation in the U.S. to remain depressed.

“TIPS are incredibly cheap,” said Hegarty, the head of inflation-linked bond portfolios at BlackRock, which oversees $5.7 trillion.

There are signs that some investors are coming around to the same view. After U.S. inflation-linked bond funds suffered redemptions in May, they added $1.2 billion in June and July, according to EPFR Global. That hardly compares to the flood of cash that the funds amassed after Trump’s election, but it’s still the first month since January that inflows have risen from the prior month.

“The economy is stronger and eventually during this second half of the business cycle inflation should trend higher,” said Jeremie Banet, a fund manager at Pimco, which oversees $1.6 trillion. Unlike Vanguard and BlackRock, Pimco sees inflation remaining below 2 percent until next year. But Banet says the firm is still overweight TIPS because they are undervalued.

History Lesson

Even if the bond market consensus is wrong about inflation, James Ong, a senior macro strategist at Invesco, which oversees $858 billion, is willing to wait before going all-in. Wage growth is starting to bounce back as more companies compete to fill job openings, but that doesn’t necessarily mean price pressures will immediately increase.

“It could take a long time for those things to affect inflation,” he said.

Recent history hasn’t been kind to TIPS bulls. The trade has been a loser -- at least compared with returns on plain-vanilla Treasuries -- in three of the past four years and is underperforming once again this year.

However, strategists at Goldman Sachs say some of the forces that have weighed down inflation expectations will soon dissipate. For example, the term premium, which measures the extra compensation investors need to own long-term Treasuries, has been depressed by the Fed’s bond purchases.

Once the central bank starts unwinding its $4.5 trillion of holdings, it should increase and push up break-even rates, they said.

Another key development that could lift inflation over the longer term is the dollar, according to Vanguard’s Wright-Casparius. A weaker dollar, which has declined about 8 percent this year against major currencies, raises the price of imported products for U.S. consumers.

“Declines we’ve seen in the dollar also should feed through to more inflation pressures in about a year from now,” she said.

Article Link To Bloomberg:

Brexit Uncertainty Shadows Bank Of England’s Every Move

More rate increases than planned might be warranted as markets brace for unknown shape of post-EU economic regime.

By Simon Nixon
The Wall Street Journal
August 7, 2017

All major central banks now face a similar dilemma, but the challenge for the Bank of England is harder than most. The failure of wages to rise despite falling unemployment, a puzzle common to all advanced economies, makes it hard to know when interest-rate increases might be needed to offset inflation. But in the U.K., that assessment is made more complicated by Brexit.

Much of the world is enjoying the first synchronized upswing since the start of the global financial crisis 10 years ago, but U.K. growth is slowing. The economy expanded by 0.2% and 0.3% in the first two quarters. That is just half the rate of the buoyant eurozone, and it forced the BOE last week to cut its forecast for growth this year by 0.2 percentage points to 1.6%.

The BOE’s downbeat assessment of the impact of Brexit uncertainty—and the lack of guidance on the timing of a rate increase—triggered a swift market reaction: Sterling fell 0.6%, and the gilt yield curve flattened. In the space of a few weeks—and despite inflation at 2.6%, well above the BOE’s 2% target and forecast to stay above target for the rest of its three-year forecasting horizon—speculation that the BOE might be the next central bank to raise interest rates has given way to a belief it will be the last. But was the market right to react this way?

The BOE clearly thinks not. The market is expecting two rate increases by 2020. But bank governor Mark Carney warned at last week’s Inflation Report press conference that the BOE’s rate-setting committee believes that if the economy continues to grow in line with its revised forecasts, further rate increases will be necessary. Its concern isn’t just that Brexit is hitting demand as the higher inflation resulting from the 18% trade-weighted devaluation of sterling since its pre-referendum peak eats into household incomes and business uncertainty holds back investment, but that Brexit is hitting supply too. Under the BOE’s latest forecast, corporate investment is expected to be 20% lower in 2020 than it was predicting before last year’s referendum.

To be fair, the U.K.’s supply-side challenges predate Brexit. Productivity is 18% below where the BOE might have expected it to be if it had maintained its precrisis trend. Evidence suggests, however, that Brexit is making the problem worse. Businesses are delaying building the new capacity needed to build the U.K.’s capital stock to cope with improving global conditions and boost productivity. As result, the BOE has lowered its estimate of U.K. potential growth—the rate at which it can grow without generating inflation—from around 2.5% precrisis to 1.75% now. If Brexit leads to reduced immigration and creates new obstacles to trade with the European Union, it could yet further lower what Mr. Carney calls the U.K.’s “speed limit”.

So why did the market ignore the BOE’s warnings, causing the yield curve to flatten rather than steepen?

It may be that the market has seen through the BOE’s attempts to “talk hawkish and act dovish.” After all, three members of the BOE’s rate-setting committee voted in favor of a rate increase in July and a fourth, BOE chief economist Andrew Haldane, hinted he might soon join them. Yet last week, only two members voted to raise rates. That was a signal to markets that the first rate increase may in fact be further away than seemed likely a month ago.

A second reason could be that the market thinks the BOE is underestimating the Brexit hit to the economy. The BOE’s own central scenario is based on the most optimistic outcome for Brexit, including a smooth transition to a new trading arrangement that preserves a large degree of access to the EU market. But Credit Suisse, for example, expects the U.K. economy to grow by only 1.5% this year, 0.2 percentage points below the BOE’s revised forecast, reflecting its view that business investment and net trade will be even weaker than the BOE is predicting. Meanwhile housing market activity is slowing, new car sales have fallen for four months in a row and the BOE is putting pressure on banks to rein in riskier consumer lending, further dampening household spending.

A third reason may be that the flatness of the yield curve reflects the market’s assessment of the risk that the U.K. and EU will fail to reach any negotiated exit deal. Indeed, some banks believe the probability of this extreme scenario is as high as 25%. Investors may be betting that this would deliver such a hit to growth that the BOE would have to loosen monetary policy. Yet a no-deal Brexit would not only do even greater damage to the U.K.’s supply side potential, it would also likely lead to further erosion in sterling, driving inflation further above target, while creating a hole in the public finances that the government probably would aim to fill with increased borrowing, raising doubts about its fiscal credibility. Under such a scenario, the BOE might have little choice but to raise rates.

As the BOE grapples with its Brexit dilemma, the market should brace itself for surprises.

Article Link To The WSJ:

France And Germany Plan Crackdown On Tax Loopholes Used By Apple

Finance Minister Le Maire to set out proposal in September; Le Maire also renews call for euro-area tax harmonization.

By Caroline Connan, and Geraldine Amiel
August 7, 2017

France is working with Germany and other partners to plug loopholes that have allowed U.S. tech giants like Alphabet Inc.’s Google, Apple Inc., Facebook Inc. and Inc. to minimize taxes and grab market share in Europe at the expense of the continent’s own companies.

France will propose the “simpler rules” for a “real taxation” of tech firms at a meeting of European Union officials due mid-September in Tallinn, Estonia, French Finance Minister Bruno Le Maire said in an interview in his Paris office on Friday, complaining that Europe-wide initiatives are proving too slow.

“Europe must learn to defend its economic interest much more firmly -- China does it, the U.S. does it,” Le Maire said. “You cannot take the benefit of doing business in France or in Europe without paying the taxes that other companies -- French or European companies -- are paying.”

The push reflects mounting frustration among some governments, regulators and, indeed, voters, at the way international firms sidestep taxes by shifting profits and costs to wherever they are taxed most advantageously -- exploiting loopholes or special deals granted by friendly states.

The European Commission last year ordered Apple to pay as much as 13 billion euros ($15.3 billion) plus interest in back taxes, saying Dublin illegally slashed the iPhone maker’s obligations to woo the company to Ireland. Apple and the Irish government are fighting the decision.

Harmonizing Taxes

The clampdown on tech firms is part of President Emmanuel Macron’s muscular approach to ensuring a level playing field, after seeing first hand during his election campaign how French firms struggle to compete with countries where taxes and social security payments are lower.

To that effect, Macron is renewing a broader call for the 19 euro-area states to better align their tax systems. Le Maire said that Macron’s pledge to lower corporate taxes to 25 percent by the end of his five-year term should be seen as an opening gambit in this process. He urged countries with lower tax rates to raise them.

France is making “a considerable effort,” Le Maire said. “We’re asking other member states of the euro zone to make a similar effort in the other direction.”

Again, the country’s historic alliance with Germany is at the heart of Le Maire’s plan to bring around other EU countries. He said once the euro area’s two biggest economies are aligned, that would be the basis for a wider convergence.

“No later than 2018 we should be able to have a common corporate tax with Germany which should be the basis for a harmonization at the level of the 19 member states of the euro zone,” he said. Germany’s corporate tax rate is currently between 30 percent and 33 percent, according to Deloitte.

No Protectionism

Macron is also cutting taxes on financial wealth, dividends and capital gains, while simplifying labor rules as he tries to make the country more attractive for investors. The government will also reform the pension system and unemployment benefits, and will seek to boost housing construction to reduce real estate prices, the minister said.

Le Maire rejected the idea that his government’s intervention in corporate decisions amounted to protectionism, saying Macron only decided to block Italian shipbuilder Fincantieri SpA’s bid for French shipyard STX last month because it was of strategic importance to France.

Talks with Fincantieri are continuing and France aims to find a solution by the end of next month, Le Maire reiterated. He said he hopes for closer cooperation between French and Italian military shipbuilders and, ultimately, the creation of a “large European naval group” based on a Franco-Italian alliance.

Article Link To Bloomberg:

College Is Trade School For The Elite

Even education in the humanities has become vocationalized, though the transformation is subtle.

By Allen Guelzo
The Wall Street Journal
August 7, 2017

Donald J. Trump has a degree from an Ivy League university—my alma mater, in fact—but he is not one of the Ivies’ admirers. “We must embrace new and effective job-training approaches, including online courses, high school curricula, and private-sector investment that prepare people for trade, manufacturing, technology and other really well-paying jobs and careers,” the president declared in March. “These kinds of options can be a positive alternative to a four-year degree.”

If ever an issue seemed assured of bipartisan support, you’d think it would be an initiative that helps connect workers with work. But up went the howls of injury anyway. “I’m worried that the idea of vocational education has become so popular,” wrote David Leonhardt of the New York Times . “We shouldn’t be promoting vocational education at the expense of general education.” Instead, “expanding the number of four-year college graduates also deserves to be a national priority.”

Maybe. Mr. Leonhardt is pitting vocational education against the ideals of higher education—independence of thought, breadth of knowledge and understanding. It’s not hard to see how important these ideals are to a democracy, in which political sovereignty lies with the people at large. If the people are ignorant or fixed only on grubbing for a living, they may make awful—and irreversible—mistakes.

The problem is that so little of those ideals really operate in most of American higher education.

Judged by the catalogs, curricula and websites of American colleges and universities, American higher education already is vocational. The number of degrees in nursing, social work, education and the holy quartet of STEM—science, technology, engineering and mathematics—vastly outweighs those awarded in the humanities, which is where we’re supposed to find the pure arts of thinking. One out of every five bachelor-level degrees is in business—which is to say, accounting, marketing, management and real estate—while one in 10 is in a health-related field.

Business and education lead the parade among master’s-level degrees; the bulk of doctoral degrees are in medicine, law, biology and engineering. The highest-growth fields since 2008 have been homeland security, law enforcement, firefighting, parks, recreation, leisure and fitness studies.

Even education in the humanities has become vocationalized, although the transformation is subtle. Take almost any college or university literature department at random, and its faculty will be composed of people who have been trained in other college and university literature programs to be literature professors. History majors are, in department after department, seen—and taught—as future history professionals, whether in museums or colleges. Even in schools that still valiantly defend the virtue of a liberal arts education, much of it tends ineluctably toward professional formation, not breadth or understanding. Vocational training is what higher education has been doing without even realizing it.

I wonder if the real complaint about Mr. Trump’s praise of vocational education is that his interest in the “wrong” vocations—“trade, manufacturing, technology”—and in the wrong places.

College-based vocationalism is still vocationalism; there’s no intrinsic difference between peeling a spud and popping a vein. But it is a vocationalism of merit, defined by testing, credentials and cultural signaling. In this version of vocationalism, the four-year college experience becomes a path by which the talented and brainy are induced to abandon their neighborhoods, churches and families to become the next generation of staffers for multinational corporations and nonprofits. Either you arrive already equipped with merit (through your meritocratic parents and your meritocratic college-prep program) or you are cherry-picked to receive it, and thereafter spurn the base rungs by which you do ascend.

Why the meritocracy’s college-based vocationalism should be considered superior to Mr. Trump’s vocationalism has little to do with dollars and cents and a lot to do with the cultural imperialism of the meritocracy. Mike Rowe, creator of “Dirty Jobs” and “Somebody’s Gotta Do It,” was perplexed to find that even in the depths of the Great Recession small-business owners hung out “Help Wanted” signs in all 50 states, but couldn’t find people to hire. Why? Because of “the stigmas and stereotypes that dissuaded people from exploring a career in the trades.”

Everywhere, Mr. Rowe met with the blank convictions that “opportunity is dead” and “success can only occur if you purchase a four-year college degree.” Tell that, he says, to the employers who have 5.6 million job openings that aren’t in danger of being filled by robots.

Mr. Trump’s determination to revive vocational education is a validation of varieties of work the meritocracy disdains. But meritocracy, as the cultural critic Christopher Lasch wrote, “is a parody of democracy.” It promises advancement, but only for a few, and only at the expense of a common culture. By validating a real vocationalism, we might also arrive at a new revival of democracy, and even—who knows?—a true rediscovery of the humanities.

Article Link To The WSJ:

Big Oil's Dream Of $65 Billion Hidden Off Norway Is Fading Away

More Norwegians are turning against expanding oil exploration; Oil industry wants more areas to sustain era of production.

By Mikael Holter
August 7, 2017

Norway’s oil industry has been salivating for years over the Arctic Lofoten islands, which could hold billions of barrels of crude. It will likely have to keep dreaming.

The general election next month is unlikely to lift a deadlock that’s keeping a ban on drilling off the environmentally sensitive archipelago as more and more Norwegians are turning their backs on the industry that helped make the country one of the world’s richest.

“It’s a dead issue,” said Frank Aarebrot, a professor of political science at the University of Bergen.

Backed by unions and business, Norway’s two biggest parties, Labor and the Conservatives, have long favored steps that could open up the area for exploration. But so far they have had to compromise with smaller parties that are determined to keep Lofoten oil-free.

That’s because the area is a natural wonder. The waters off the rugged archipelago are home to the world’s biggest cold-water coral reef and a breeding area for 70 percent of all fish caught in the Norwegian and Barents seas, according to WWF. The islands also host mainland Europe’s biggest seabird colony. Opponents of oil exploration argue a spill could cause catastrophic harm and that Norway will run afoul of the Paris climate agreement if it expands exploration more.

Oil companies led by state-controlled Statoil ASA, the biggest Norwegian producer, say gaining access is key if the country wants to maintain production of oil and gas, which is forecast to fall again from 2025 after already dropping 12 percent since a 2004 peak. While the government estimates Lofoten could hold about 1.3 billion barrels of oil equivalent, industry group Konkraft has said resources could top 3 billion barrels. If it’s all crude rather than gas, that would represent at least $65 billion in sales value at current prices.

“We’re dependent on making new discoveries to have new projects in that time-frame,” Statoil spokesman Bard Glad Pedersen said by phone. “That also underlines the urgency in an impact assessment for Lofoten and Vesteraalen.”

The debate over Lofoten frames a wider discussion in Norway over what role western Europe’s biggest oil and gas producer, which started pumping crude in the 1970s, should take in the fight against climate change. Some 44 percent of Norwegians would be willing to leave some oil in the ground if it helps cut emissions, according to an Ipsos poll done this month for Dagbladet.

The question is also whether there will actually be a need for the area’s untapped crude. As prices for renewable energy drop and oil producers from Exxon Mobil Corp. to OPEC hike their forecasts for electric car sales, Big Oil has started talking about crude demand peaking as early as next decade.

While both Prime Minister Erna Solberg and her rival from Labor, Jonas Gahr Store, say Norway needs to become less reliant on oil, they also maintain that petroleum production will continue to play a big part for many years ahead. Production alone still accounts for about 12 percent of the economy, down from more than 20 percent before oil prices crashed in 2014, and the entire industry employs almost 200,000 workers.

The Compromise

Ascendant opponents such as the Green Party, which looks set to gain more seats in parliament next month, and environmental groups say Norway needs to start to phase out its oil industry, arguing that more production would be a breach to its commitments under the Paris climate accord. Greenpeace is suing the country to get it to stop exploring in the Barents Sea off Norway’s northern tip.

In a sign that opponents of drilling are gaining traction, Labor in a “compromise” earlier this year said it would only seek to start an impact study in one of the three areas designated as potential oil blocks off Lofoten. But even such as small move is opposed by the Center Party and the Socialist Left Party, its potential ruling partners after the Sept. 11 vote. Polls show such a coalition would win a clear majority.

Even industry friendly politicians such Ola Borten Moe, deputy leader of the Center Party, says there’s no need to push into Lofoten. “There’s more than enough good acreage available,” he said in an interview.

But the former oil minister, who was well-liked in the industry, stopped short of presenting Labor with an ultimatum, contrary to the Socialist Left which says it won’t lend its support to any government that allows oil activity off Lofoten.

“We will spend political capital on this,” Kari Elisabeth Kaski, a member of the party’s governing body, said in an interview. “It’s an important symbolic issue.”

The parliamentary situation is fluid and Labor could potentially seek support to form a coalition from the Christian Democrats and the Liberal Party, two centrist groups that currently support the Conservative-led government. But they also oppose an impact study.

Any government run by Labor or the Conservatives would maintain stable terms for the oil industry, including taxes and acreage awards, even if several smaller parties are pushing for an overhaul of Norway’s energy policy.

The price for that may well be that Lofoten is left alone forever.

Article Link To Bloomberg:

Shown The Door, Older Workers Find Bias Hard To Prove

By Elizabeth Olson
The New York Times
August 7, 2017

For more than four decades, manufacturing was the only work Donetta Raymond knew.

Fresh from high school, she followed her father to the factory floor because, she said, "It was the best-paying job around."

Starting as a sheet metal mechanic, Ms. Raymond found plenty of work in her hometown, Wichita, Kan., home to famous names in aviation like Cessna, Beech and Boeing.

She applied her skills, eventually becoming a production operation specialist on 737 airplane fuselages at Boeing's sprawling facilities. Her work was praised consistently, including a good performance review in 2012 from the management of Spirit AeroSystems Holdings.

The next year, she underwent a separate company review to gauge whether the company should retain her. Ominously, she slid to a "C" from her "A" rating the previous year.

And just a few months later, the company laid off hundreds of longtime workers, including her, then aged 59. The layoffs were swift and blunt.

"They walked us out, and wouldn't let us go back and say goodbye," said a fellow worker, Debra Hatcher, 57, then a manufacturing operations analyst. "They drove us to an empty parking lot, and that was it."

Spirit AeroSystems — formed from Boeing's 2005 sale of its Wichita division and Oklahoma operations — is an important supplier for Boeing, its biggest customer, and a rival, Airbus, chalking up nearly $1.7 billion in revenue in the first quarter of this year.

When it laid off 360 workers in summer 2013, the company was not closing down or moving jobs to Mexico or anywhere else. Spirit, which has 11,000 employees in Wichita and operations in Europe and Asia, said layoffs among its salaried employees and managers were necessary to remain competitive.

Today, a lawsuit filed by 70 former employees, including Ms. Raymond, is in proceedings in the Federal District Court in Wichita. The lawsuit was cleared first by the federal Equal Employment Opportunity Commission, which must decide the validity of any claim of age or disability discrimination before it can proceed.

The workers brought the suit after discovering that nearly half — or 164 — of those in the 2013 layoffs were 40 or older, the age that initiates federal age discrimination law protections. And workers charge that they were singled out, in addition, because either they or their spouses had serious medical conditions.

Sprit maintains that it does not discriminate in hiring or termination decisions.

"Reductions in force are never easy, however all decisions are based on job-related, nondiscriminatory criteria," said Fred Malley, Spirit's spokesman.

"We are confident the evidence in this case will show Spirit is compliant with the law in its employment practices."

Such lawsuits are popping up as the nation's work force ages and as many longtime workers claim that they are being deliberately targeted for such reductions. As manufacturing has contracted, more experienced workers feel they have limited options for re-employment if they are discarded at older ages.

"Once layoffs were done by reverse seniority. It was last in, first out, so the more senior workers kept their jobs," said Robert J. Gordon, an economics professor at Northwestern University, who studies the country's growth and work force productivity.

"Now we're seeing a transition from the age of favoritism to that of age discrimination," Mr. Gordon said, "because newer workers are allowed to stay on while more costly, older workers are let go."

One of the few recourses for employees is to file a job discrimination complaint with the Equal Employment Opportunity Commission. Nearly 21,000 age discrimination complaints were filed in 2016 with the commission, up from 20,144 in 2015, though down slightly from a high of almost 25,000 in 2009 during the financial crisis, when huge numbers of jobs were eliminated.

In recent years, the number of filings has hovered in the 21,000 range, and age discrimination accounts for nearly a quarter of the overall complaints filed with the agency, which also pursues charges of discrimination against a job applicant or employee on the basis of a person's race, color, religion, sex, national origin, disability or genetic information.

Yet, even as the work force has a large number of older employees, one of the principal tools to fight such discrimination, the Age Discrimination in Employment Act — which Congress passed a half-century ago — may not be up to the task, said Laurie A. McCann, a lawyer with AARP Foundation Litigation, which is providing legal counsel to the Wichita plaintiffs.

"Ageism unfortunately remains pervasive in the American work force," she said. Only two of the cases the E.E.O.C. filed in court last year involved the federal age discrimination act, according to a list assembled by AARP, the nonprofit older citizens group.

They were among a total of only 86 workplace discrimination cases litigated in court last year, AARP found. Few cases are taken to court because such complaints are complicated and expensive; it can take a long time to assemble relevant evidence and testimony.

And a 2009 Supreme Court ruling has made proving age discrimination more difficult legally. In a case brought by the insurance executive Jack Gross, who was among a dozen employees who were demoted, the court overturned an initial favorable ruling him and imposed a tougher legal standard.

To win, the court said, plaintiffs like Mr. Gross had to prove that age discrimination was the prime, or motivating, reason for demotion or dismissal.

Without action by Congress to shore up the 1967 law, employers seem likely to continue to have an edge. In February, a group of senators, including Robert P. Casey, Democrat of Pennsylvania, and Susan Collins, Republican of Maine, introduced the Protecting Older Workers Against Discrimination Act. But past efforts to strengthen older worker rights have foundered on opposition from business groups, and the current bill is given little chance of passage.

And many discrimination cases never reach the courtroom because they are settled voluntarily, said Victoria A. Lipnic, acting chairwoman of the Equal Employment Opportunity Commission, which in 2016 recovered just under $350 million for discrimination victims through mediation, conciliation and settlements. That compared with $52.2 million recovered from cases that involve litigation, she said in an interview.

People who work in states like California and New Jersey, which have strong anti-discrimination laws, may fare better complaining to state employment fairness agencies than relying on federal agencies or courts.

Still, proving age bias is difficult. Even companies that decide that older workers are too expensive, with their larger paychecks and costlier health insurance, rarely detail this in internal documents or emails. And court rulings have given companies significant leeway to defend against such lawsuits.

"Employers have a great deal of freedom to decide how layoffs occur," said Lisa Klerman, a law professor at the University of Southern California Gould School of Law, and a mediator in employment disputes.

While long-term workers are better off than they were a half-century ago when employers flatly blocked applicants over 55 years old and ran help-wanted ads that said "only workers under 35 need apply," older employees still can encounter different kinds of age bias.

Age-related harassment complaints, especially remarks that belittle or demean longtime workers' skills or contributions, are up noticeably. They rose to 4,185 last year, an increase of almost 14 percent since 2011, according to E.E.O.C. data.

But under the law, comments that perpetuate stereotypes — like "older workers are deadwood" — do not carry a stigma equal to that of similar remarks on race or sex. While such demeaning remarks are not seen as conclusive proof of bias, they can help persuade a fact-finder, mediator or court that some wrongdoing has occurred in a workplace.

"Those remarks can plant seeds in the mind of fact-finders about a company's motivations," Ms. Klerman noted. Mediators or judges can look at a list of criteria, including safety records, attendance, leadership, communication and interpersonal skills, that the company lists as factors it uses to evaluate workers, she said.

"Of course, many of those are subjective," she acknowledged.

In Wichita, dozens of laid-off Spirit employees who are challenging their layoffs say their situation was exacerbated by the company's use of personal medical information to single them out for layoffs. A short time before the dismissals, they said in legal papers, Spirit switched to self-paid medical insurance, giving it an incentive to jettison higher-risk or sick employees to save money, they say.

Then a few months after the 2013 layoffs, Spirit held a job fair to recruit for empty jobs, some of which appeared to have the same or very similar duties to the positions that had been vacated.

But, according to Ms. Raymond and others, the company, Wichita's largest employer, with few exceptions, would not accept résumés, interview or rehire the discharged workers. Since those layoffs four years ago, aircraft parts plants in Wichita are now scrambling to find enough workers to fill a resurgence in orders.

But that is little consolation to Ms. Raymond, who last October was told she had ovarian cancer. To get by, she said she had drawn down her savings, started her Social Security benefits earlier than planned and underwent retraining to use power tools to make cabinets. She was further squeezed financially because she did not take the company's severance pay package and waived further claims against it.

"It hurt big time not to do that," she said, "But I think it was unethical and illegal to use our health conditions and age against us, and I want to see that through and make sure everyone knows the company did that."

Ms. Hatcher, her colleague, who has struggled to make a living with jobs in real estate and in estate sales, declined the severance payment as well. The women and their former colleagues say it's a matter of principle.

"It's infuriating that you spend so much time with a company, and give them your loyalty and it winds up this way," Ms. Hatcher said. "It's just discrimination."

Article Link To The NYT:

Be Afraid -- Everybody Seems To Agree On Where The Stock Market Is Headed

Critical information for the U.S. trading day.

By Shawn Langlois
August 7, 2017

The danger, it seems, is that it feels so obvious. And the obvious, of course, is always a risky proposition in the stock market. But it’s hard to imagine the lack of volatility lingering much longer, especially in the face of ... well, everything.

Just how calm has it been?

The VIX VIX, +2.69% a gauge of expected stock market volatility, finished below 10 only 26 times from 1990 to 2017, according to Bloomberg data. Since May, we’ve seen 17 of these historically low readings. Unless they’re shorting volatility, it’s tough out there for day traders to scalp profits when the swings are so minimal.

Obvious or not, Eric Peters of One River Asset Management, in our call of the day, says there’s, indeed a shift coming. A big one. He explains in a LinkedIn post just how “extraordinary” the current situation is and where we go from here.

“All previous periods of extreme asset valuation required investors to imagine a vastly different tomorrow, a wildly optimistic future, a steeper slope,” he writes. “But today, they expect the opposite. Due to unfavorable demographics and over-indebtedness, investors expect the slope to flatten, perhaps forever.”

Then why are returns so high and volatility so low?

“Because of this flattening, they also imagine perpetually low interest rates, which they then use to justify extreme valuations across other asset classes, in an endogenous loop that is increasingly disconnected from the real economy,” Peters says.

So, for investors to keep selling volatility at these historically low levels — a strategy that has paid off incredibly well during this run — he says they must see a tomorrow that looks exactly like today.

“They must imagine that bond yields won’t rise despite every major central bank looking to hike interest rates and exit QE,” he says. “They must imagine that economies at or near full employment will not create inflation; that GDP will neither accelerate nor decelerate; that governments will tolerate historic levels of income inequality despite citizens voting for the opposite; that strongly rising global debts will be supported by decelerating global growth.”

There’s more, but you get the idea.

His bottom-line advice: “Given the unprecedented volatility-selling in this cycle, I can imagine a historic reversal.” Now’s the time “you must begin finding thoughtful ways to get long volatility.”

Key Market Gauges

Bitcoin BTCUSD, +0.36% smashed through another record over the weekend, rising above $3,300 for the first time. The crypto continues to defy and confound the naysayers, more than tripling in value for the year. Keep an eye on the volatile currency for more wicked swings this week.

No sign of any volatility explosion yet for equities this morning. Futures for the Dow YMU7, +0.13% and S&P ESU7, +0.08% are edging higher early. Asia markets ADOW, +0.47% closed with modest gains, and Europe SXXP, -0.28% is caught in a tight trading range. Gold GCU7, -0.23% is flat, while crude oil CLU7, -1.31% is lower as OPEC kicks off a two-day meeting.

The Chart

Get ready for those contrarian juices to start flowing. According to Yale’s one-year investor confidence indexes, these are the most bullish times on record. Smart money and dumb money alike agree the stock market will be higher a year from now. We’re talking just about 100% of both institutions and retail investors are on the bull train.

The Heisenberg Report blog posted this chart to put it in perspective:

What could possibly go wrong?

The Buzz

Google’s GOOG, +0.47% new diversity chief criticized the contents of an employee’s memo that went viral inside the company for suggesting the search giant has fewer female engineers because men are better suited for the job. She said the employee’s memo “advanced incorrect assumptions about gender” and is “not a viewpoint that I or this company endorses, promotes or encourages.”

A securities fraud conviction has finally humbled “pharma bro” Martin Shkreli, who took to social media over the weekend to apologize to everybody for being such an ass. Actually, no he didn’t.

Tyson Foods TSN, +0.09% and LendingClub LC, +2.36% are on the earnings docket ahead of the open.

The Quote

“I’ve seen what’s coming. And it’s a big self-driving truck that’s about to run over this economy” — Former Facebook FB, +0.61% exec Antonio Garcia Martinez, in a BBC piece discussing the threat of an autonomous future.

“Every time I meet someone from outside Silicon Valley — a normy — I can think of 10 companies that are working madly to put that person out of a job,” he added.

The Economy

There’s been a fair amount of economic data to absorb lately, but things quiet down a bit this week, with the highlight coming on Friday in the form of the Consumer Price Index.

As for what’s on tap today, we’ll get the Labor Market Conditions Index at 10 a.m. Eastern, along with the Federal Reserve’s consumer credit number after the market closes.

The Stat

$3,136 — That’s not only the record high bitcoin hit at one point on Saturday (it has since gone higher), but it also marked the 3,136th day of the cryptocurrency’s volatile existence, according to Bitcoin News Service.

Article Link To MarketWatch:

Euro Zone Investor Morale Stable, But Expectations Dropping

August 7, 2017

Investor sentiment in the euro zone remained stable in August, buoyed by strong current conditions, but future expectations slumped amid growing concerns about the U.S. economy and the potential impact of a widening car emissions scandal.

The Frankfurt-based Sentix research group's euro zone index edged lower to 27.7 points from 28.3 points in July, in line with the mid-range forecast of 27.8 in Reuters poll of analysts.

But expectations fell to 16.0 points from 19.8 points in July in what the group called a worrying sign.

"It is become increasingly clear that the economic momentum has passed its high point," Sentix said, noting that its survey often acted as a bellwether for future economic developments.

"Expectations are falling around the globe, led by the United States where they dropped for a fifth straight time ...

"And the German 'model student' has also dropped sharply, with the scandal surrounding the automotive industry killing the economic mood," it added.

Sentix said the investor sentiment index for the United States dropped to 14.1 in August from 14.8 in July, with investors growing increasingly cautious despite U.S. President Donald Trump's boast about "his successes".

The index for Germany fell for a third consecutive month, to 33.2 from 37.5 a month earlier, with expectations collapsing to 5.75 points from 12.5 in July amid growing concern about the emissions scandal affecting some big German carmakers.

The Munich-based Ifo institute's business climate index last week hit a record high, but Sentix said its survey showed "a noticeable decline in momentum.

"Given the crisis in the important automotive industry, that is a signal to investors," it said.

The group said the current conditions sub-index for the euro zone rose to 40.0, its eighth consecutive increase and the highest level seen since November 2007.

But Sentix dampened expectations for a rapid shift in the European Central Bank's monetary policy, citing a drop in inflationary pressures this year and potential concerns about declining expectations for the U.S. and German economies.

"The reasons in both cases are homemade problems, but in the end it doesn't matter why the economic cycle shifts," the group said. "Both tendencies are likely to cause Mario Draghi (president of European Central Bank) to remain cautious."

Article Link To Reuters:

Has China's Rise Topped Out?

The spread of its global economic influence is slowing sharply.

By Michael Schuman
The Bloomberg View
August 7, 2017

The fall from grace of China’s Anbang Insurance Group Co. Ltd. continues to get steeper. Not long ago, the mysterious firm was chasing one foreign deal after another, becoming a symbol of China’s global economic ambitions. Now it appears the government may be pressuring Anbang to divest those prized foreign assets. If that proves to be the case, China will have given foreign businessmen yet another reason to be wary of working with Chinese companies: the uncertainty of an erratic, intrusive state meddling in private financial affairs.

But the Anbang case is also part of something bigger, and for China’s economic future, scarier. In just about every category, China’s rise into a global economic superpower has stalled. And the Chinese government sits at the heart of the problem.

Most people around the world still seem to believe China’s ascent is relentless and inevitable. A recent survey by the Pew Research Center showed that while more of those polled still see the U.S. as the world’s leading economy, China is quickly narrowing the gap. Chinese President Xi Jinping has been feeding that positive image by presenting his country as a champion of globalization, trade and economic progress.

Statistics tell a different story. The common perception is that China is swamping the world with exports of everything from mobile phones to steel to sneakers. In fact, the entire Chinese export machine is sputtering. Between 2006 and 2011, China’s total merchandise exports nearly doubled, powering the country through the Great Recession. Since then, they’ve increased less than 11 percent, according to World Trade Organization data.

The same trend holds for China’s currency. In late 2014, the renminbi broke into the top five most-used currencies for global payments, reaching an almost 2.2 percent share. China seemed well on the way to achieving its long-stated goal of turning the yuan into a true rival to the dollar. But that progress has reversed. In June, the renminbi chalked up only a 2 percent share, according to Swift, slipping behind the Canadian dollar.

The situation isn’t very different in China’s capital markets. While the government has cracked open its stock and bond markets to foreign investors, they still prefer buying Chinese shares listed in Hong Kong or New York to those in Shanghai or Shenzhen. For instance, domestically traded A-shares in a China equities fund managed by Zurich-based GAM account for less than 10 percent of its holdings.

In part, China is simply running into the difficult transition every country faces when losing its low-cost advantage. Facing stiff competition from countries like India and Vietnam, where wages are lower, China is losing ground in apparel and textile exports to the United States. Meanwhile, the Chinese economy isn’t replacing these traditional exports with new, high-value ones quickly enough. For example, in 2016, China exported 708,000 passenger and commercial vehicles, a sharp deterioration from the more than 910,000 shipped abroad in 2014.

Rather than boosting China’s global expansion, government policy is holding it back. The renminbi remains a sideshow in currency markets because the state can’t stop fussing with its value. In May, the central bank actually reversed its stated policy to liberalize the renminbi’s trading and imposed more control. Investors haven’t forgotten the heavy hand Beijing employed to try to quell a stock market collapse in 2015, leaving them wary of exposing themselves to Chinese shares.

Nowhere is the disconnect between China’s global ambitions and actual policy greater than with the government’s interference in overseas direct investment. For a while, officials were encouraging big companies to shop abroad, resulting in a surge of deal-making by firms like Anbang. That led to a debt-crazed buying binge. Having created the problem, the government then stepped in to “fix” it, by suddenly changing course and clamping down on foreign deals. According to the American Enterprise Institute, China’s offshore investment still grew by 9 percent in the first half of 2017, but only because of one giant deal -- state-owned China National Chemical Corp.’s acquisition of Syngenta AG. Take that one out, and overseas investment would have fallen by about a third.

The root cause of China’s global stall is this continued inability to let markets be markets. Meddling in the allocation of finance has ensured that much-needed capital gets gobbled up by the politically connected, not the competitive. Then the government tries to rectify the damage with more government. In an effort to rejuvenate exports, China has unleashed a subsidy-rich industrial program to upgrade its manufacturing called “Made in China 2025.” To help companies expand around the region, the government has cooked up the Belt and Road Initiative, an infrastructure-building scheme that looks to many like a boondoggle.

The fact is that Chinese companies will face enough trouble transforming into global players -- with the brands, technology, financial savvy and management expertise to battle it out with the world’s best -- without bureaucrats intruding. Anbang may or may not be an overleveraged neophyte that bit off more than it could chew. The point is that China would be better served letting the market decide.

Article Link To The Bloomberg View:

The Problem With Electric Cars? Not Enough Chargers

To hit its sales targets, Tesla has to sell 430,000 cars by the end of 2018 and 10,000 a week after that—but where are they all going to plug in?

By Christopher Mims
The Wall Street Journal
August 7, 2017

It’s the dawn of the age of the electric vehicle. For real, this time. Probably.

The evidence: Tesla’s delivery of its first “affordable” compact sedans, the Model 3, and the road maps of more or less every other automaker on the planet promising widely available electric cars in the next three to five years.

Within a decade, electric cars will even have similar sticker prices to their gasoline competitors, says Stephen Zoepf, executive director of the Center for Automotive Research at Stanford. Some analyses say EVs are already cost-competitive, if you factor in savings on fuel and maintenance.

Aggressive pricing and sales projections are all part of the seemingly self-fulfilling prophecy of rapid EV adoption. To hit Chief Executive Elon Musk’s targets, Tesla must sell 430,000 cars by the end of 2018 and continue to sell 10,000 a week after that.

But if Tesla and its competitors succeed, they face a new problem: Where are all those cars going to plug in?

At present, electric cars represent only about 1% of cars sold in the U.S., and 0.2% of our total automobile fleet. They aren’t yet taxing our electrical grid or fighting each other for the roughly 44,000 public charging stations now available in the U.S. Yet if anything like analysts’ projections come to pass, they could rapidly dwarf that number.

Electric-car owners at present overwhelmingly charge at home. What public stations exist are found in parking lots and at businesses in cities and wealthy suburbs where early adopters reside. But the current charging infrastructure offers little support for a larger pool of people who have both the income and the impetus to buy EVs: city dwellers who lack garages.

“You see models that say, ‘We’ll sell a million EVs this year, then two, then four and so on,’ but I have concerns about the practicalities of this transition,” says Francis O’Sullivan, director of research for the MIT Energy Initiative.

“All things cannot be sorted before the industry starts,” says Pasquale Romano, chief executive of ChargePoint, which controls the largest U.S. network of charging stations.

Charging infrastructure is adequate to meet current demand, and there’s no reason to believe it won’t continue to scale in line with future demand, he argues. ChargePoint makes and sells charging stations to businesses, individuals and governments, charging monthly to maintain the stations and accepting payments for the electricity they provide.

ChargePoint was part of an initiative in Los Angeles to put charging stations in existing lampposts, says Matt Petersen, until recently L.A.’s chief sustainability officer. (The city has installed 82 so far.)

That makes sense because a good chunk of a new charging station’s cost—which can hit $5,000—is installing it and wiring it up, ChargePoint’s Mr. Romano says.

German firm Ubitricity is pioneering relatively low-cost, low-power plugs that go directly into lampposts, and can be accessed with an internet-connected “smart” power cable that handles all metering and billing.

Kieran Fitsall, head of service improvement and transformation for the Westminster City Council of central London, says it has installed 20 Ubitricity plugs in street lamps. The plan is to increase that to 100 by March 2018.

One of Ubitricity’s advantages is the plugs don’t require the council to designate EV-only parking spots, which are unpopular with people who don’t drive them, Mr. Fitsall says. Ubitricity currently has no U.S. presence but is seeking investment to expand, says company co-founder Knut Hechtfischer.

While these efforts may show where the technology is headed, it isn’t clear that it’s rolling out at anywhere close to the pace automakers anticipate they will sell vehicles.

The biggest challenge for those building out charging infrastructure is that no one can predict the demand for charging as EVs become commonplace, says MIT’s Dr. O’Sullivan. In fact, he calls some of the behavioral factors needed to make such predictions “exceptionally opaque.” These include the time of day people will choose to charge, how responsive they will be to price incentives on electricity designed to encourage them to charge at the “right” time, and how often they’ll use “superchargers” versus lower-power outlets for overnight charging.

This brings us to another looming issue: America’s often-overtaxed power grids won’t be able to handle a large influx of new demand without careful management. This generally won’t be a problem if cars charge at night, when the power grid is underutilized. But as EVs proliferate, drivers who can’t charge them at home will want to charge them at work, during the day. They’ll also seek superchargers, which typically are installed along highways and designed for fast charging and long-distance travel.

“Superchargers are enormous power draws,” says Jesse Jenkins, a researcher at the MIT Energy Initiative. “Chargers in parking garages or superchargers at rest stops are not a solution for charging EVs en masse unless we are OK with significant costs to upgrade distribution grids.”

Even the regular charger found in homes and businesses could present a costly problem when cars charge during demand peaks. Anything that increases peak demand could increase the cost of electricity for everyone, says Stanford’s Dr. Zoepf.

The sheer scale of the transformation of the electrical grid to accommodate mainstream adoption of EVs boggles the mind. A major portion of the energy currently trapped in automotive fuels will have to arrive in the form of electrons, instead. While some analyses indicate America’s existing electrical grid can handle it, it may be only if millions of American consumers can be coaxed to play along and charge at the right place and time.

That’s also assuming private companies and public utilities can get the needed charging infrastructure to the public at a price they are willing to pay.

If Elon Musk and his competitors succeed at selling as many electric vehicles as they project, keeping them all full of electricity will be a long, hugely expensive and potentially contentious undertaking. It could also be quite lucrative for the people who figure it out.

Article Link To The WSJ:

Electric Car Boom Drives Rush To Mining's $90 Billion Hub

Lithium scramble likened to Big Oil’s race to Middle East; Australia cementing status as a dominant supplier, UBS says.

By David Stringer
August 7, 2017

A scramble by the lithium market’s biggest players to tie up supply of the high-tech metal is gathering pace in the 170-year-old heartland of Australia’s $90 billion mining industry.

Rising Chinese demand for lithium-ion batteries needed for electric vehicles and energy storage is driving significant price gains and an asset boom in Australia, already the world’s largest lithium producer. The fast-developing hub is drawing investment and deals from global producers as well as chemical-to-battery manufacturers in China, the top consumer.

Western Australia has four operations in production and three more major projects being advanced to begin output. Major players are likely to continue to scope for deals in the state to secure supply for the next 20 or 30 years, according to consultant Benchmark Mineral Intelligence.

“There are serious companies investing and people are starting to lock up the biggest, long-life resources. The question is -- who’s next?” Simon Moores, managing director of Benchmark Mineral, said by phone from London. Though on a smaller scale, “it’s a land grab like in the petroleum industry when BP, Shell and others rounded on the Middle East in the 1960s and 1970s,” he said.

Greenbushes in Western Australia, the world’s biggest hard-rock lithium mine, is being expanded to more than double annual capacity, Talison Lithium, a joint venture between China’s Tianqi Lithium Corp. and North Carolina’s Albemarle Corp., said in an email. The site, first mined for tin from about 1888, already accounts for about 30 percent of global lithium production, according to Australia’s government. Tianqi is also planning about A$717 million ($578 million) of processing plant expansions.

Jiangxi Ganfeng Lithium Co., which has interests in projects in countries including Ireland and Argentina, holds about 43 percent of Australia’s Mt. Marion operation and in May agreed a supply and investment pact with Pilbara Minerals Ltd. for a mine development. Battery maker Shaanxi J&R Optimum Energy Co. in July struck an agreement for future output from Altura Mining Ltd.’s project.

“It’s the most significant expansion in lithium supply ever, and we are still undershooting demand,” said Chris Reed, chief executive officer of Neometals Ltd., a partner with Ganfeng and Mineral Resources in the Mt. Marion operation. Reed is scheduled to speak Wednesday at the close of the three-day Diggers and Dealers mining forum in Kalgoorlie, Western Australia.

Soc. Quimica & Minera de Chile SA, the world’s second-largest lithium supplier, in July made a first move outside South America to invest about $110 million for 50 percent of Kidman Resources Ltd.’s Mt. Holland project in Western Australia, aiming to enter production by at least 2021. The project would add to SQM’s expansion into Argentina.

Prices of lithium carbonate, the primary base-chemical produced by the industry, more than doubled in the 5 years to 2016, according to UBS Group AG. The material advanced about 5 percent to average $14,250 a metric ton in July from the previous month, even as Australian exports rise, according to Benchmark Mineral.

“We don’t see any price fall in the next three years,” Benchmark’s Moores said. “When you look at all the battery plants being built and the plans for EVs, even if only about 25 percent of those are realized, we’re still going to be short of lithium. It’s a unique once-in-a-generation situation.”

Chinese companies plan battery factories with capacity to pump out about 120 gigawatt-hours a year by 2021, more than three times the proposed volume of Tesla Inc.’s Gigafactory in Nevada, according to Bloomberg New Energy Finance. About 55 percent of global lithium-ion battery production is already based in China, compared with 10 percent in the U.S. by 2021, China’s share is forecast to grow to 65 percent, according to the forecasts. 

Electric cars will outsell fossil-fuel powered vehicles within two decades as battery prices plunge, Bloomberg New Energy Finance estimates.

The world’s biggest car manufacturers are joining the race to secure raw materials, Galaxy Resources Ltd.’s Chief Financial Officer Alan Rule told reporters Monday at the Kalgoorlie forum. “They want to talk to us directly, to get access to long-term supply,” he said. “They are really concerned.” Galaxy visited major Western automakers in recent weeks, some of whom have reviewed more than 200 lithium projects and developers, he said.

Mineral Resources Ltd. and Galaxy are Australian producers that this year began new shipments of lithium concentrate to China, while project developers including Pilbara Minerals are targeting exports from 2018. The project pipeline is cementing Australia as a dominant player, UBS said in a June report.

For battery makers and auto-manufacturers “it’s starting to dawn on them that there could be a supply chain issue,” Pilbara CEO Ken Brinsden said Monday in Kalgoorlie.

Perth-based Mineral Resources is a touchstone for the shift from old-to-new industry in Western Australia as this fiscal year the iron ore producer will earn more from lithium than the steel-making ingredient, according to Deutsche Bank AG, which has a buy rating on the stock. It also sees Albemarle and Orocobre Ltd. as among the best global lithium prospects.

Lithium’s current $2.5 billion market is a fraction of the $86 billion a year seaborne iron ore trade and some miners have eschewed opportunities to add projects. Fortescue Metals Group Ltd. in December agreed the sale of a lithium exploration portfolio. BHP Billiton Ltd. argues it’s poised to benefit most from electric vehicle growth through copper demand. Australia will face competition from lithium projects in Canada, Chile and Argentina, according to UBS.

New lithium production and a potential addition of cobalt output and graphite projects -- two other metals experiencing rapid demand growth from the battery sector -- promise to add to mining exports from Australia. The value of mined exports is forecast at A$113.7 billion ($89.6 billion) in the year to next June 30, according to its government.

Article Link To Bloomberg:

Bitcoin Soars To Record As Buyers Look Beyond Miners' Split

Price of the new Bitcoin Cash plunged over the past week; Buyers look to activation of SegWit2x to resolve issues.

By Justina Lee
August 7, 2017

Bitcoin extended gains to a record, ignoring a split in the cryptocurrency over its future.; Exclusive insights on technology around the world.

The digital exchange rate jumped as much as 16 percent from Friday to an unprecedented $3,292.41, even after bitcoin’s division last week. The debate has revolved around how to upgrade its underlying technology, with a group of developers backing a solution called SegWit2x against miners -- some of whom have created an offshoot called Bitcoin Cash -- who want to increase the size of data blocks more drastically.

“The miner-orchestrated hard fork has had limited traction and will not impact the price or future development of bitcoin,” said Aurelien Menant, chief executive officer of Gatecoin Ltd., a cryptocurrency exchange in Hong Kong, referring to the split. “The activation of SegWit is a significant milestone in bitcoin’s technological evolution.”

At the heart of the dispute is an issue that has dogged bitcoin’s development: as its popularity grew, transactions slowed because of a cap on the amount of data processed by the blockchain. Under SegWit2x, some of that data will be moved off the main network while block sizes will be doubled to 2 megabytes in November -- a quarter of that for Bitcoin Cash. While the first step of SegWit2x has been locked in and the technology will probably be adopted at some point in August, infighting could disrupt the transition.

The price of Bitcoin Cash has plummeted 62 percent from a record high reached last week to $274, CoinMarketCap data show, bolstering the appeal of its older cousin. For now, Bitcoin Cash still pales in comparison to the original asset: the former has a capitalization of $4 billion, compared with the latter’s $53 billion, according to CoinMarketCap.

“The scaling debate is not over yet,” Menant added. “The promised 2 MB block size increase due in November in accordance with the SegWit2x agreement may still be rejected by certain stakeholders.”

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U.K. Economy Takes A Hit As Consumer Spending Slumps Further

Expenditure and house price growth in worst streak since 2013; Bank of England last week lowered its growth forecasts.

By Hannah George and Cat Rutter Pooley
August 7, 2017

U.K. consumers cut back on spending for a third month in July as house-price growth slowed sharply, dealing yet another blow to the economy.

The broad-based weakness is being blamed on a squeeze on pockets as inflation outpaces wage growth as well as concerns about the health of the economy. The latest figures leave both household expenditure and the property market at their weakest in more than four years.

A report from IHS Markit and Visa showed that consumer spending dropped 0.8 percent year-on-year, with clothing, household goods, food and transport among the worst hit. Home-price increases weakened to an annual 2.1 percent in the past three months, its slowest since April 2013.

The two downbeat reports come days after the Bank of England downgraded its economic outlook and Governor Mark Carney warned that Brexit uncertainty is weighing on business and households. BOE Deputy Governor Ben Broadbent said Friday that the “maximum rate of pain” for consumers will soon pass, though any improvement could be modest. The central bank also cut its forecast for wage growth last week.

In addition to the income squeeze, consumer expenditure has been hit by concerns among shoppers about the broader outlook after the economy slowed dramatically in the first half of the year.

“Alongside the renewed squeeze on household budgets, uncertainties linger over the direction of the economy,” said Annabel Fiddes, an economist at IHS Markit. “This makes it seem unlikely that consumer spending will recover in the current challenging conditions.”

The July consumer figures showed a 6 percent increase in spending at hotels, restaurants and bars. Markit said this may be partly related to an increase in “staycations,” with the weaker pound making foreign holidays more expensive. Sterling, little changed on Monday, has fallen 13 percent since the Brexit vote in June 2016.

According to the Halifax report, house prices slipped 0.2 percent in the three months through July against the previous quarter. That’s a fourth consecutive decline, the first time that’s happened since 2012. On an annual basis, the pace of growth is now just a fifth of its peak in March 2016. The market has also been damped by tax changes in 2016 and affordability concerns after years of rampant house-price gains.

Article Link To Bloomberg:

Regulators’ Penalties Against Wall Street Are Down Sharply In 2017

Business-friendly shift under President Trump is only one factor, as enforcement actions from the financial crisis wind down.

By Jean Eaglesham, Dave Michaels and Danny Dougherty
The Wall Street Journal
August 7, 2017

Wall Street regulators have imposed far lower penalties in the first six months of Donald Trump’s presidency than they did during the first six months of 2016, a comparable period in the Obama administration, according to a Wall Street Journal analysis.

Lawyers who defend financial cases said a shift to a business-friendly stance at regulatory agencies in the Trump administration is one of several reasons for the decrease. Other factors include delays resulting from the change in administrations and the winding down of cases from the financial crisis.

Penalties levied against firms and individuals by the Securities and Exchange Commission, the Commodity Futures Trading Commission and the Financial Industry Regulatory Authority in the first half of 2017 were down nearly two-thirds compared with the first half of 2016—putting regulators on track for the lowest annual level of fines since at least 2010, the Journal found. Fines of $489 million in the first half of 2017 compared with $1.4 billion in the 2016 period.

The SEC levied some $318 million in penalties during the first half of 2017, a search of federal court documents and all publicly available records on the agency’s website and data provided by Andrew N. Vollmer, a professor at the University of Virginia School of Law, showed. Last year, agency actions yielded $750 million in penalties during the same period, an agency spokesman said. The SEC declined to disclose its own tally of 2017 penalties; the agency didn’t dispute that the total value of penalties fell in the first half of 2017 compared with the same term in 2016.

Kevin Callahan, the spokesman, said the SEC doesn’t consider six months to be long enough to draw any lessons about the agency’s effectiveness. The number of cases brought over the two periods was “relatively constant,” he added.

The Trump administration is preparing to roll back some Obama-era financial regulations. Fines marched steadily higher during the previous administration, partly because of enforcement against misconduct that occurred before and during the financial crisis.

James McDonald, enforcement chief at the CFTC, said variations in penalty tallies from year to year are normal and “not an indication of any changes in our commitment to vigorously prosecute violations of our laws to preserve market integrity and protect customers.” He said, “There will be no let up, no pause, and no delay in our enforcement program.”

Nancy A. Condon, a Finra spokeswoman, said “vigorous enforcement is an essential part of our oversight.” The nongovernmental watchdog, which oversees brokers and brokerage firms, assesses its regulatory programs “based on our ability to efficiently and effectively identify and discipline bad actors,” she added, and “not on the volume of actions or overall quantity of fines.”

The Trump administration brings new priorities to the SEC and CFTC, said Thomas Sporkin, a former senior SEC official and now a partner at law firm Buckley Sandler LLP. “When you move from an administration that put a heavy emphasis on regulation to a more conservative, business-friendly one, that means a change in the agenda,” he said.

Each of the three agencies has changed its enforcement chief in the past five months, and both the SEC and CFTC have new chairmen. The SEC and CFTC have each been operating with less than the full roster of five commissioners: The CFTC had just two commissioners until last week, when the Senate voted to approve two more; the SEC had two until May and now has three.

Because SEC commissioners have sometimes split along party lines on the issue of financial penalties, vacant seats make it harder for agency enforcers to bring certain kinds of cases, according to current and former officials. “With only two commissioners in place, it only takes one to prevent the staff from bringing an enforcement action,” said Mark Schonfeld, a former director of the SEC’s New York office and now a partner at law firm Gibson Dunn & Crutcher LLP.

Another factor is the falloff in blockbuster, multibillion-dollar cases the SEC and CFTC have brought against Wall Street alleging crisis misconduct and market manipulation in recent years.

The drop in the CFTC’s half-year penalties, to $154 million from $603 million, was mostly the result of two big benchmark-rigging cases it brought in May 2016, according to the Journal’s analysis.

At the SEC, a single case filed in June last year, alleging a bank misused customer assets, imposed penalties of $358 million—more than 10 times the agency’s biggest penalty in the first half of this year of $30 million.

The scarcity of big cases is reflected in SEC settlements of cases alleging accounting violations, a priority area under the last chairman. The highest accounting-related penalty in the first half of 2016—$80 million paid by biotech giant Monsanto Co.—dwarfs the highest penalty for accounting failures so far in 2017—$8.25 million paid in January by medical-device company Orthofix International NV. Orthofix admitted wrongdoing; Monsanto, a much bigger company, settled with the SEC without admitting or denying wrongdoing.

SEC Chairman Jay Clayton, who took over in May, has expressed concern about the size of corporate penalties the SEC has levied in recent years, saying they hurt shareholders and it would be better to punish guilty individuals.

Wall Street is lobbying to reduce the size of financial penalties. Organizations including the U.S. Chamber of Commerce, the Financial Services Institute and Fidelity Investments have been pushing Finra, which is financed by the industry, to ease up.

Finra, which is overseen by the SEC, is weighing a potential change to its enforcement guidelines, according to people familiar with the matter.

The watchdog imposed only two fines of more than $1 million in January through June this year and didn’t announce either.

In the first half of 2016, Finra imposed at least five fines of more than $1 million and publicly announced each of them.

Overall this year, Finra has levied $17 million in fines, down 77% from the first half of last year.

“There has been a dialing back,” said Brian Rubin, a partner at law firm Eversheds Sutherland (U.S.) LLP. Finra “has gotten lot of feedback from member firms that there has been a big increase in fines [in recent years] …and that’s something they’re looking at.”

Article Link To The WSJ: