Wednesday, August 9, 2017

Wednesday, August 9, Morning Global Market Roundup: Shares Slip, Yen And Gold Gain As Korea Tensions Escalate

By Lisa Twaronite
August 9, 2017

Asian shares and U.S. stock futures slipped on Wednesday and investors sought havens such as U.S. Treasuries, gold and the yen as tensions on the Korean peninsula escalated, with Pyongyang saying it is considering plans to attack Guam.

European bourses also looked set to open lower across the board, with Eurostoxx 50 futures already down 0.7 percent in early trade.

A spokesman for the Korean People's Army said in a statement that it was "carefully examining" plans for a missile attack on the U.S. Pacific territory, which has a large American military base.

The comments came just hours after U.S. President Donald Trump told North Korea that any threat to the United States would be met with "fire and fury", rattling markets globally.

MSCI's broadest index of Asia-Pacific shares outside Japan fell 0.5 percent, while Japan's Nikkei lost 1.3 percent as the stronger yen sapped investor appetite.

South Korean shares, which have been among the strongest performers in the world so far this year, fell 1 percent, while the won lost around 0.6 percent to 1,134.70 to the dollar. Both hit more than one-month lows.

Financial markets have tended to quickly shake off North Korea's periodic saber-rattling in the past, dismissing it as bluster, but tensions have lingered this year amid signs that it is making progress in its ballistic missile program and on Trump's growing frustration with Pyongyang.

"The sell-off caused by geopolitical tensions on North Korea will likely be short-lived as long as both Trump and Kim Jong Un keep making feints against each other and neither takes military action," said Tomoaki Fujii, head of the investment research division at Akatsuki Securities Inc in Tokyo.

"The market's dent only lasted for a week in April when tension rose between them after North Korea launched a missile. Both countries know that there is no turning back once they push the button," Fujii said.

Black Swans

Others believe North Korea has no intention of backing down.

A man looks at an electronic board showing Japan's Nikkei average outside a brokerage at a business district in Tokyo, Japan August 9, 2017.Kim Kyung-Hoon

"Tensions will continue to mount and could eventually develop into a 'black swan' event that the markets are not prudently considering," Steve Hanke, professor of Applied Economics at the Johns Hopkins University, told the Reuters Global Markets Forum on Wednesday.

Though Hanke said he did not expect a sustained sell-off in riskier Asian assets, he added "safe assets, as a class, are probably underpriced at present."

S&P 500 e-mini futures were down 0.2 percent, hinting at weakness on Wall Street later in the day. The dollar notched a two-month trough on the safe-haven Japanese yen and was last down 0.3 percent at 109.99 .

The yen tends to benefit during times of geopolitical or financial stress as Japan is the world's biggest creditor nation and there is an assumption investors there will repatriate funds should a crisis eventuate.

The euro slid 0.6 percent to 128.92 yen, and fell 0.1 percent against the dollar to $1.1735.

"It's a clear case of 'risk-off' sentiment lifting the yen, as investors focus on the latest developments with North Korea," said Kumiko Ishikawa, FX market analyst at Sony Financial Holdings in Tokyo.

The dollar index, which tracks the greenback against a basket of six major rivals, was nearly flat on the day at 93.646, remaining above last week's 15-month low of 92.548.

The yield on the benchmark 10-year U.S. Treasury note fell to 2.255 percent from its U.S. close of 2.282 percent on Tuesday.

U.S. stocks closed lower on Tuesday after Trump's vow to respond aggressively to any North Korean threats triggered a late afternoon selling spree.

Spot gold added 0.4 percent to $1,265.18 an ounce, pulling away from the previous session's two-week lows.

Crude oil prices extended their slide as exports from key OPEC producers rose, despite news of lower crude shipments from Saudi Arabia.

U.S. crude shed 20 cents to $48.97 a barrel, while Brent crude fell 26 cents to $51.88 a barrel.

Article Link To Reuters:

Oil Falls For Third Day As Doubts Over OPEC Cuts Linger

By Aaron Sheldrick
August 9, 2017

Crude futures fell for a third day on Wednesday despite a bigger than expected drop in U.S. oil inventories reported by an industry group, with doubts lingering over OPEC's ability to restrain supply as promised.

Benchmark Brent crude was down 27 cents, or 0.5 percent, at $51.87 a barrel. In the previous session, it settled down 0.4 percent.

U.S. West Texas Intermediate (WTI) crude was down 21 cents, or 0.4 percent, at $48.96 a barrel, after falling 0.4 percent on Tuesday.

Crude stockpiles in the U.S. dropped more than expected last week as imports declined and refinery runs increased, while gasoline inventories grew unexpectedly, the American Petroleum Institute said late on Tuesday.

Crude inventories declined by 7.8 million barrels in the week to 478.4 million, compared with analyst expectations for a decrease of 2.7 million barrels.

The U.S. Energy Information Administration will release its weekly petroleum status report at 10:30 a.m. ET (1430 GMT) on Wednesday.

On Tuesday, it trimmed its forecast for gains in U.S. oil production for 2018, though it increased its outlook for output growth this year.

"Oil is stuck in a range of $45-$50 for WTI and a bit more for Brent for now," said Bob Takai, president at Sumitomo Corp Global Research in Tokyo.

"That said, U.S. shale production is slowing down a bit, looking at the rig count, as drillers cannot make money when WTI is under $50, so a push higher above $50 is possible."

The market seems immune to bullish signs of falling stockpiles as the Organization of the Petroleum Exporting Countries (OPEC) and other major producers struggle to maintain compliance with a deal to cut output.

A recovery in Libya's oil output and higher production in Nigeria have complicated OPEC's efforts to curb supply, while U.S. shale oil drillers have ramped up production.

Libya and Nigeria are OPEC countries that are exempt from the agreement to limit production through March 2018.

Officials from a joint OPEC and non-OPEC technical committee said on Tuesday that they expect greater adherence to the pact to cut 1.8 million barrels per day in production.

Saudi state oil company Aramco will cut allocations to its customers worldwide in September by at least 520,000 barrels per day (bpd), sources familiar with the matter told Reuters on Tuesday.

"With only a few weeks left of the U.S. summer driving season, investors are starting to debate whether the current OPEC production cuts will offset the subsequent falls in demand in North America," ANZ Research said in a note.

Article Link To Reuters:

Legalizing Pot Is A Bad Way To Promote Racial Equality

In Colorado, arrests of black youths for marijuana possession rose 58% after the drug was legalized.

By Jason L. Riley
The Wall Street Journal
August 9, 2017

Cory Booker, New Jersey’s ambitious junior senator, has gone to pot. Last week the Democrat introduced a bill that would legalize marijuana at the federal level while withholding funds from states that don’t legalize it and that disproportionately incarcerate “low-income individuals and people of color for marijuana-related offenses.”

The legislation may help Mr. Booker burnish his image with progressives if he runs for president in 2020, but it almost certainly is going nowhere. Republicans control Congress, and Attorney General Jeff Sessions is a drug warrior, which is one reason President Trump put him in charge of the Justice Department. Nevertheless, Mr. Booker’s arguments for drug legalization are worth considering because they represent a large and growing consensus. Support for marijuana legalization has nearly doubled to 60% since 2000, according to a 2016 Gallup survey. Even 42% of Republicans support legalization.

In his Facebook posts promoting the bill, Mr. Booker cites some of the more common rationales put forward by proponents of pot legalization, including racial disparities in drug arrests and prisons teeming with “nonviolent” offenders that drain state budgets. “In the United States today, black people are almost four times more likely than their white counterparts to be arrested for marijuana use or possession,” writes the senator. “This is the right thing to do for public safety, and will help reduce our overflowing prison population.”

Mr. Booker believes drug legalization would address these racial disparities, but don’t bet on it. Violent offenses, not drug offenses, drive incarceration rates, and blacks commit violent crimes at seven to 10 times the rate whites do. Data from 2015, the most recent available, show that about 53% of people in state prisons (which house nearly 90% of the nation’s inmates) were imprisoned for violent crimes, 19% for property crimes and just 16% for drug crimes. Given that blacks are also overrepresented among those arrested for property and other nonviolent offenses, merely altering U.S. drug laws would effect little change in the racial makeup of people behind bars.

Much is made of studies that show blacks and whites use drugs at similar rates. But a large majority of drug arrests are for trafficking, not possession, so we shouldn’t expect usage rates and arrest rates to be identical. Anyway, marijuana offenders of any race occupy relatively few jail and prison cells, and the ones who do tend to be dealers. “As a percentage of our nation’s incarcerated population, those possessing small amounts of marijuana barely register,” writes James Forman, a former District of Columbia public defender, in his new book, “Locking Up Our Own.” He continues: “For every ten thousand people behind bars in America, only six are there because of marijuana possession.”

Liberal Democrats like Mr. Booker aren’t the only ones who believe the benefits of drug legalization outweigh the costs. Two libertarian-leaning Republican senators, Rand Paul of Kentucky and Mike Lee of Utah, have also supported bills that would reduce penalties for drug offenders in an effort to close racial disparities in the criminal-justice system. There are plenty of sound reasons to revisit drug policies as the nation’s mores and priorities change. Comparisons between prohibitions on alcohol and weed aren’t perfect, but neither can they be dismissed out of hand. Health and public-safety concerns should be weighed against personal freedoms.

But if the goal is more racial parity in our penal system, drug legalization seems like an odd place to start. Citizens of Washington state and Colorado voted to make recreational pot legal in 2012. A 2016 study from the Center on Criminal and Juvenile Justice found that while pot arrests overall were down in Washington, large racial discrepancies remained. In fact, blacks were still twice as likely as whites to be arrested for marijuana-related offenses. And Jeff Hunt of Colorado Christian University reports that the illegal market for weed in the Rocky Mountain State is still thriving and seems to have exacerbated racial inequities. “According to the Colorado Department of Public Safety, arrests in Colorado of black and Latino youth for [underage] marijuana possession have increased 58% and 29% respectively after legalization,” Mr. Hunt wrote in USA Today recently. “This means that Black and Latino youth are being arrested more for marijuana possession after it became legal.”

Justice Louis Brandeis said that states serve as laboratories of democracy, where “novel social and economic experiments” can be attempted “without risk to the rest of the country.” Let’s hope that the experiences of these states that are currently experimenting with experimenting will inform Beltway politicians who want to make guinea pigs out of the rest of the country.

Article Link To The WSJ:

Why Debt Ceiling Worries Are Way Overblown

The House Freedom Caucus is talking tough, but they have no leverage.

By Jonathan Bernstein
The Bloomberg View
August 9, 2017

The debt limit panic being led by Paul Krugman and budget experts Stan Collender and Edward D. Kleinbard is probably all for nothing. Absolutely every incentive is for Republicans in Congress to bite the bullet and increase it by the fall deadline (by the end of September, or perhaps mid-October), and absolutely every incentive is for the president to sign on the dotted line. Nor are there any obvious insurmountable obstacles to getting it done. This is basically a very easy task that would take monumental stupidity or ineptness or both to get wrong.

And the bad news? Have you seen this Congress and this president? If anyone could screw it up ... but, really, they probably won't.


Republicans have long demonized raising the debt limit -- especially during the long period into the mid-1990s when Democrats usually held congressional majorities. So debt limit increases are usually seen as tough votes. And they look even tougher since the rise of the House Freedom Caucus, which views all must-pass legislation as leverage to extract concessions from everyone else.

Both are problems, but overall it's a lot easier to raise the debt limit during times of unified government than with divided government, when congressional majorities might just want to make trouble for the president (as House Republicans did when Barack Obama was president).

Republican voter hostility to raising the debt limit is extremely unlikely to harm the president or Republican politicians if they do it anyway. That's because the people who really care about such things are the intense Trump fans (and Republican loyalists) who are bound to make excuses for their heroes and blame anything bad on others, regardless of what happens.

A recession, on the other hand, while also not costing Trump with his core supporters, would further damage him with everybody else, especially the weak supporters and weak opponents who Republicans will need in 2018 and Trump will need in 2020. Indeed, while passing and signing a debt limit increase is exactly the kind of story that tends to disappear rapidly after the fact (and long before midterm elections, let alone Trump's presumed re-election bid two years later), a recession will remain in the news as long as it lasts. And George W. Bush's mid-20s approval ratings late in his second term demonstrate that it's not the kind of story that Fox News and other Republican-aligned media can blot out.

But a deliberate decision to hit the debt limit would be even worse than that. After all, just as in the case with a government shutdown, sooner or later Trump and congressional Republicans would have to relent and pass a debt limit increase after all. So allowing a government default would be nothing but downside for incumbent Republicans.

Moreover, Trump clearly understands that a strong economy is in his interest. In tweets and events, he has tried to lay claim to market rallies and jobs growth and refrained from taking steps -- immediately cancelling NAFTA, cancelling the Iran deal, and some of the ways he could sabotage the Obamacare exchanges -- that could lead to a downturn. That's not a guarantee, but it is suggestive of his style of governing in the early stages of his presidency.

So how does this work?

The easiest route for Republicans is to try to pass a "clean" increase. If all Republicans vote for it and Trump signs it -- the administration has signaled that's their preference -- that's the end of the story. Democrats wouldn't have the votes to stop it in the House even if they wanted to, and certainly would not filibuster it in the Senate.

The problem is that Freedom Caucus radicals are threatening to oppose a clean bill, mistakenly believing they have leverage to force policies they couldn't get passed otherwise.

If Freedom Caucus members withhold their votes, Republican leaders could ask Democrats for help in passing it. Democrats would likely demand something in return -- perhaps, as Brian Beutler suggests, getting rid of the (completely unnecessary) debt limit altogether. In that scenario, Republicans who joined Democrats would accept the price of being labeled "RINOs" and whatever Democrats received for their votes in order to avoid the chance of being blamed for unemployment spiking in their districts and other economic malaise. Of course, the more Democrats they need, the more Democrats can demand, which then makes it more costly for Republicans.

But the alternative -- giving in to whatever the Freedom Caucus demands -- is even less likely to work. Senate Democrats could decide to filibuster the bill, and they have more than enough votes to keep 52 Republicans (some of whom may not support whatever the radicals demand) from getting the 60 needed to defeat a filibuster and allow the bill to pass.

The bottom line is that the Freedom Caucus doesn't really have any leverage over the final shape of the bill. Instead, their only choice is whether to support a clean bill or to withhold their votes, and therefore give Democrats some bargaining power they would otherwise not have. Granted, that hasn't stopped Freedom Caucus members from doing this sort of thing before, whether because they misunderstand the process or because they truly prefer a more Democratic-friendly policy outcome they don't support over a more Republican-friendly policy they would have to vote for.

Despite that, the odds are heavily in favor of this getting worked out in time. Just not as certain as it should be.

Article Link To The Bloomberg View:

Scant Oversight, Corporate Secrecy Preceded U.S. Weed Killer Crisis

By Emily Flitter
August 9, 2017

As the U.S. growing season entered its peak this summer, farmers began posting startling pictures on social media: fields of beans, peach orchards and vegetable gardens withering away.

The photographs served as early warnings of a crisis that has damaged millions of acres of farmland. New versions of the herbicide dicamba developed by Monsanto and BASF, according to farmers, have drifted across fields to crops unable to withstand it, a charge authorities are investigating.

As the crisis intensifies, new details provided to Reuters by independent researchers and regulators, and previously unreported testimony by a company employee, demonstrate the unusual way Monsanto introduced its product. The approach, in which Monsanto prevented key independent testing of its product, went unchallenged by the Environmental Protection Agency and nearly every state regulator.

Typically, when a company develops a new agricultural product, it commissions its own tests and shares the results and data with regulators. It also provides product samples to universities for additional scrutiny. Regulators and university researchers then work together to determine the safety of the product.

In this case, Monsanto denied requests by university researchers to study its XtendiMax with VaporGrip for volatility - a measure of its tendency to vaporize and drift across fields.

The researchers interviewed by Reuters - Jason Norsworthy at the University of Arkansas, Kevin Bradley at the University of Missouri and Aaron Hager at the University of Illinois - said Monsanto provided samples of XtendiMax before it was approved by the EPA. However, the samples came with contracts that explicitly forbade volatility testing.

"This is the first time I’m aware of any herbicide ever brought to market for which there were strict guidelines on what you could and could not do," Norsworthy said.

The researchers declined to provide Reuters a copy of the Monsanto contracts, saying they were not authorized to do so.

Monsanto's Vice President of Global Strategy, Scott Partridge, said the company prevented the testing because it was unnecessary. He said the company believed the product was less volatile than a previous dicamba formula that researchers found could be used safely.

"To get meaningful data takes a long, long time," he said. "This product needed to get into the hands of growers."

'Jeopardize The Federal Label'

Monsanto employee Boyd Carey, an agronomist, laid out the company's rationale for blocking the independent research at a hearing of the Arkansas Plant Board's Pesticide Committee in the summer of 2016.

A meeting summary by the Arkansas Legislature's Joint Budget Committee described Carey’s testimony as follows: "Boyd Carey is on record on Aug. 8 stating that the University of Arkansas nor any other university was given the opportunity to test VaporGrip in fear that the results may jeopardize the federal label."

Efforts to reach Carey were not successful. Monsanto declined to comment on his testimony.

To be sure, complaints about damaged crops are still under investigation and there is no evidence that independent testing of XtendiMax’s volatility would have altered the course of the crisis. But it would have given regulators a more complete picture of the formula’s properties as they decided if and how to let farmers use it, agriculture experts said.

In the end, the EPA approved the product without the added testing in September. It said it made its decision after reviewing company-supplied data, including some measuring volatility.

"EPA’s analysis of the data has shown reduced volatility potential with newer formulations," the EPA said in a July 27 statement.

However, EPA spokeswoman Amy Graham told Reuters the agency is "very concerned about the recent reports of crop damage" and is reviewing restrictions on dicamba labels.

Monsanto Chief Technology Officer Robert Fraley said, "We firmly believe that our product if applied according to the instructions on the label will not move off target and damage anyone."

States Approve Without More Testing

Companies can limit independent testing because the substances are proprietary. When samples are provided to researchers, lawyers hammer out contracts detailing how testing will be conducted and results will be handled, but rarely do agreements limit what the products can be tested for, according to researchers interviewed by Reuters.

For instance, BASF, which introduced its rival herbicide, Engenia, around the same time, said it allowed several university researchers to evaluate its "off-target impact and application parameters."

Norsworthy, of the University of Arkansas, confirmed he had been permitted by BASF to study Engenia for volatility and that the results showed less volatility than previous dicamba formulations. BASF says its product is safe when properly applied.

The EPA did not answer questions about whether it noticed a lack of input from university researchers about XtendiMax’s volatility or whether it requested such testing.

It also did not address whether the lack of independent research played into its decision to give the product an abridged two-year registration, less than the 20 years experts say is more common. The agency did the same for BASF's Engenia.

"The EPA placed time limits on the registration to allow the agency to either let it expire or to easily make the necessary changes in the registration if there are problems," Graham, the EPA spokeswoman, said.

After the EPA signed off, Monsanto sought approval from individual states, which determine whether agricultural products are suitable for their climates and geographies.

To help them do that, Monsanto shared its XtendiMax testing results with state regulators. But it only supplied that data in finished form, Monsanto’s Carey told the Arkansas Plant Board meeting, meaning it withheld underlying data that could be analyzed independently by the regulators.

Only Arkansas wanted more. Terry Walker, the director of the Arkansas Plant Board, said the state asked Monsanto for extra testing, but the company refused.

"As the system progressed and it got closer to EPA approval, the board kept asking for local data," Walker said. "That did not happen."

Monsanto’s Fraley said the company could not honor Arkansas' request within the EPA’s timeline. "Given the timing of the approval… there simply wasn’t the opportunity to do the additional testing," he said.

Arkansas blocked Monsanto's product because of the lack of extra volatility testing by universities, but approved BASF’s because it had not limited such testing and the results were acceptable. Thirty-three other states - every other state where the products were marketed - approved both products.

After Arkansas blocked XtendiMax in December, crop damage began to appear in the state anyway. Investigators trying to determine the cause of the damage are considering a range of possibilities including problems with or improper use of Engenia or illegal use of XtendiMax or earlier formulations. In July, the state banned all products containing dicamba.

Some states including Illinois, Missouri and Tennessee said they do not seek the more data if products pass EPA scrutiny.

"The EPA is the federal agency responsible for approving and registering pesticides for sale and use," said Missouri Department of Agriculture spokeswoman Sarah Alsager. "The Department does not perform field testing or solicit local input."

Some states are now forming task forces to determine what should be done about the damage.

Article Link To Reuters:

It Was A Great Year For America’s Pensions, But Many Are Still In Crisis

Large public pensions are facing a funding shortfall of as much as $4 trillion because their liabilities are so large.

By Heather Gillers
The Wall Street Journal
August 9, 2017

A run-up in stocks helped deliver a banner year for America’s public pensions. But the gains won’t be nearly enough to ensure all state and local retirees receive their promised future benefits.

Large U.S. systems that oversee retirement funds for police, firefighters, teachers and other public workers earned median returns of 12.4% in the fiscal year ended June 30, according to Wilshire Trust Universe Comparison Service. That is their best annual result since 2014.

Yet many of these public pensions remain severely underfunded despite the recent gains, meaning they don’t have enough assets on hand to fulfill all promises made to their workers. Estimates of their collective shortfall vary from $1.6 trillion to $4 trillion.

“It’s a hole that took a long time to dig, so it will take a long time to fill,” said Fitch Ratings analyst Douglas Offerman.

The pensions’ predicament is the result of decades of low government contributions, overly optimistic investment assumptions, over-promises on benefits and two recessions that left many retirement systems with deep funding holes. Demographics are also a factor: Liabilities are rising as waves of baby boomers retire, leaving fewer active workers left to contribute to pension plans.

For many pensions, funding problems worsened in the years following the 2008 financial crisis as interest rates hit—and remained at—rock bottom. Some states pushed through benefit cuts that moved new employees onto less-generous, 401(k)-style plans, but those changes often failed to alleviate funding woes because they didn’t affect existing retirees.

Many funds tried to address the issue by ramping up their ownership of equities in the hopes of benefiting from an eight-year bull market. Public pension funds had a median 56.61% of their holdings in equities as of June 30, compared with 54.9% a year earlier, according to Wilshire TUCS.

But that level of exposure to stocks means public pensions will experience even more funding stress if a bear market returns.

Many pensions are preparing for lower returns by scaling back predictions of what they will earn in the future, an accounting adjustment that pushes liabilities higher. Public pensions use a combination of investment income and contributions from employees, states and cities to fund benefits.

Even if returns remain elevated, large public pensions won’t be able to reverse their shortfall in coming years, according to Moody’s Investors Service. Large public plans currently have just 70% of what they need to pay future benefits to their retirees, according to 2016 figures from Wilshire Consulting.

Funding levels won’t improve significantly unless cities and states ramp up their yearly pension contributions, according to a recent report by the Center for Retirement Research at Boston College. But budget problems in many states and cities mean governments either can’t afford to make aggressive payments or opt to stretch them over decades so big outlays are delayed.

Few states are having more trouble with these issues than Illinois, which has struggled for years to agree on budget priorities and pay for mounting pension liabilities. One result is that the fund that oversees retirement money for state employees, judges and lawmakers now has just 35% of what it needs to pay for all future retirement obligations.

Funds overseen by the Illinois State Board of Investment earned nearly 12% in the fiscal year ended June 30—its best result since 2014—but Chairman Marc Levine said he expects the funding deficit to widen.

“Our liabilities are three times our assets,” said Mr. Levine. “Maintaining our funding level would require investment returns over 20% annually. That’s not going to happen.

“Even in a fantastic year,” he added, “we can’t keep up.”

Many other public pensions around the country reported robust returns in the year ended June 30 but warned of difficult budget choices ahead. The California Public Employees’ Retirement System, the biggest in the U.S., earned 11.2% in fiscal 2017—largely because of stocks and private equity. But the fund, known by its acronym Calpers, noted that it has just 68% of the assets it needs to pay for future benefits. That is up from 65% in 2016.

“We welcome this fiscal year’s strong returns, but we also remain about 68 percent funded and vulnerable to a downturn in stock markets,” Calpers Chief Executive Marcie Frost said in a statement. The fund has about $332 billion in assets for 1.8 million workers and retirees.

The California State Teachers’ Retirement System, which sits roughly one mile from Calpers in Sacramento, Calif., reported a fiscal 2017 return of 13.4%. The fund’s chief investment officer, Christopher Ailman, touted the number on Twitter as being higher than Calpers: “BOOYAH!!”

In a release, though, he offered some caution: “Just as one bad year will not break us, one good year will not make us.”

One of the best gains among public pensions happened in Connecticut, where retirement funds earned a collective return of 14.3% in the fiscal year ending June 30.

“It was a jackpot for the taxpayers,” said state Treasurer Denise Nappier.

But the fund that oversees retirements for state employees has just 35.5% of what it needs to pay for future obligations and a fund for teachers has 56%. The state, Ms. Nappier said, made a mistake by not contributing more to the funds in past years.

Now she wants the teachers’ fund to reduce expectations for future gains, calling its current goal of 8% “an unrealistic expectation.” The state employee fund last year dropped its assumption to 6.9% from 8%.

“The robust returns in the past aren’t in the cards for the future,” Ms. Nappier said.

Article Link To The WSJ:

Brits Fearing Brexit, Corbyn Seek Shelter In FX Accounts At HSBC

Foreign-currency account demand jumped in June amid election; U.S. vote saw dollar account demand surge as greenback soared.

By Kaye Wiggins and Stephen Morris
August 9, 2017

HSBC Holdings Plc isn’t plastering Heathrow with its “world’s local bank” tagline anymore, but a Brexit-battered pound and a political swing to the left have spurred internationally minded Brits to snap up its foreign-currency accounts.

Demand for HSBC Currency Accounts, which let customers hold cash in foreign currencies in the U.K., spiked 23 percent in June from the previous month, spokesman Ankit Patel said. On June 8, the election Prime Minister Theresa May had been expected to win easily resulted in a minority Conservative government after a surprising surge by the Labour Party under Jeremy Corbyn, who has pledged more state intervention and vowed to tax higher earners more heavily. He has since overtaken May in opinion polls.

"Having seen the calamitous falls you saw immediately post-Brexit, people have woken up to the fact that they have currency risk,” said Rob Burgeman, an investment manager at Brewin Dolphin, which advises high-net-worth individuals. As the election loomed, Britons “look and think, we could have Prime Minister Corbyn here this time next month. It just focused people’s minds on currency risk and political risk: you’re not going to catch us like that again.”

HCAs are offered in 14 currencies, with the vast majority of customers choosing dollars or euros. Year-on-year, the number of new HCAs was 5 percent higher in the first seven months of 2017, Patel said. The year-earlier period includes June 23, 2016: on that day, Britons shocked pollsters and financial markets by voting to leave the European Union, prompting the pound to plunge to multi-decade lows against the dollar.

Unlike the other big U.K. consumer banks, HSBC operates extensive retail networks abroad, and targets customers with international needs through the HCA and a “global view” product to manage accounts based in other countries. Barclays Plc also offers foreign-currency accounts, but declined to provide figures on recent demand. U.K.-centric Lloyds Banking Group Plc said the number of new foreign-currency accounts is little changed.

Fifty-seven percent of the people who have HCAs are British, HSBC says. Many of the rest were opened by U.K.-resident foreign nationals, possibly Americans: the bank says there was a surge in demand for accounts around the U.S. presidential election last fall. The Dollar Index, a measure of the greenback’s strength against other major currencies, rose 7 percent in the last five months of 2016.

“We see an increase in demand during election periods, because the uncertainty means customers begin to look at the potential impacts on their wealth and how they can minimize this risk,” HSBC said in a statement in response to questions.

More than 80 percent of HCAs are in dollars or euros. Patel said there was a rush into dollar accounts between August and December 2016. He said the proportion of dollar HCAs jumped to 41 percent from 35 percent during that period.

Trump Trade
In November, Donald Trump shocked U.S. pundits by taking the presidency, while trailing Hillary Clinton in the popular vote. The U.S. currency soared amid optimism his tax cuts would send cash surging back into the world’s biggest economy.

For people earning pounds, the Trump trade exacerbated the post-Brexit slump in dollar terms. After reaching $1.50 on optimism for a win by the Remain campaign, the pound bottomed out at $1.18 in October, amid growing concern about a so-called hard Brexit, which would see the U.K. excluded from the EU’s single market.

As Trump’s legislative agenda has stalled, the dollar has weakened recently, with the pound and euro touching 10-month and 2 1/2-year highs against the greenback respectively.

But sterling remains near an eight-year low against the euro as the Brexit talks have begun, trading at about 1.10 euros per pound versus about 1.30 before the vote. In the weeks after the Brexit vote, HSBC was inundated with requests for HCAs, Bloomberg News reported at the time.

Brewin Dolphin’s Burgeman said accounts like HSBC’s are most useful for Britons who have a mortgage on a property outside the country, or are planning on buying a retirement retreat abroad.

“I don’t think people were wildly speculating,” he said. “It was people who have liabilities, current or future, and want to be able to hedge out some of that.”

Article Link To Bloomberg:

Dimon Sides With Bears, Says Sovereign Bonds Are Too Pricey

JPMorgan CEO says he wouldn’t buy 10-years anywhere in world; Also comments on London Whale, says he doesn’t blame Iksil.

By Jennifer Surane
August 9, 2017

Jamie Dimon is siding with the bond-market bears.

“I do think that bond prices are high,” the chief executive officer of JPMorgan Chase & Co. said Tuesday in an interview on CNBC. “I’m not going to call it a bubble, but I wouldn’t personally be buying 10-year sovereign debt anywhere around the world.”

The remarks echo a chorus of bears in the Treasury market who say an expanding economy will boost yields as the Federal Reserve increases its benchmark rate. Dimon, 61, didn’t go as far as former Fed Chairman Alan Greenspan, who said last month that the bond market is experiencing an actual bubble, warning that real long-term interest rates are too low to be sustainable. Signs of economic expansion in Europe are also feeding concern fixed-income prices in the region could be headed for a fall.

In the wide-ranging interview Dimon also said he believes his bank has moved beyond the “London Whale” debacle, when JPMorgan traders were accused of hiding more than $6.2 billion in trading losses on wrong-way derivative bets five years ago. Dimon said he doesn’t blame Bruno Iksil, the Frenchman at the center of the case, for the incident. Iksil said last year he wasn’t responsible, and blamed his managers.

Dimon, a member of President Donald Trump’s Strategic and Policy Forum, also said in the interview that he’s not interested in taking a more formal role in politics. The chief executive has been criticized for his support for the president and he’s said he helps Trump because it’s his obligation as a patriot.

Article Link To Bloomberg:

Trump Just Set His Own, Uncrossable 'Red Line' -- And North Korea Crossed It Instantly

-- President Donald Trump has drawn a red line for himself by pledging to attack North Korea, but it's unlikely he will live up to his promise, experts said
-- The incident is seen as yet another example of Trump undermining American credibility and escalating tensions in the Korean Peninsula

August 9, 2017

President Donald Trump appears to have painted himself into a corner: He must now follow up on his pledge of hitting North Korea with "fire and fury," or he risks further blowing U.S. credibility.

Kim Jong-un's regime said late on Tuesday that it may strike Guam. That came shortly after Trump warned Pyongyang it would face "power, the likes of which this world has never seen before" if the renegade state continued to threaten the U.S.

"If the red line he drew today was 'North Korea cannot threaten the U.S. anymore,' that line was crossed within an hour of him making that statement," said John Delury, associate professor of Chinese studies at Seoul-based Yonsei University.

The episode draws parallels to President Barack Obama's own geopolitical red line.

In 2013, the former leader said the use of chemical weapons in Syria's civil war would trigger an American military response. But when it happened, Obama failed to follow up on his promise — a move that critics, including Trump, said weakened Washington's position as a superpower.

"Trump is drawing a decisive red line for himself, we all think back to Obama's red line in Syria, which ultimately became an embarrassment for him," Peter Jennings, Australia's former deputy secretary in defense, told CNBC.

So, Will Trump Attack?

A U.S. offensive on North Korea isn't likely anytime soon, experts said, which means Trump just made the same mistake as his predecessor.

"Certainly, the president cannot back up a red line," said Delury, a senior fellow at the Asia Society.

Defense secretary James Mattis and new chief of staff John Kelly are unlikely to sign off on any military action, so this may just be yet another example of "Trump being Trump and firing off his mouth," added Robert Kelly, associate professor at Pusan National University.

The Republican has certainly chalked up a lengthy track record of unsupported statements. For one, his administration said in April that an aircraft carrier strike group was headed toward North Korea when the vessel was actually in Indonesian waters.

Instead of interpreting Trump's remark as a red line, the president may be playing the role of the madman, in a ruse to pressure the Chinese to get tough on Kim, Kelly continued.

Trump's ultimatum of "fire and fury" came after a Washington Post report said the pariah state was capable of building a miniaturized nuclear weapon.

"In the short term, the Americans will wait and see if the latest sanctions change North Korea's behavior," said Jennings.

But because Kim isn't expected to budge, the stalemate could result in the real risk of American preemptive action within six months, according to Jennings: "Just because it's a dangerous option doesn't mean it won't happen. It will be an act of last resort but looks like we're heading in that right direction."

US Image Dented

Trump's use of such incendiary rhetoric is seen further undermining the image of the world's largest economy.

"The more he doesn't follow-up on promises, the weaker America's image gets overseas...Trump is gaining a reputation for not being truthful," said Kelly.

Indeed, policy flip-flops from NATO to China have become a signature of the billionaire's administration.

"The problem with Trump's comments is there is no strategy behind them. They don't reflect a thought-out plan or discussions with allies, they just add more risk to an already risky situation," Jennings added.

Moreover, there was no real need for the president's Tuesday remark, according to Delury.

"Every single day, there's a [North Korean] threat on the U.S. or its allies. We haven't really seen any spectacular new level of threat," said Delury, who referred to North Korea's Guam warning as "standard operating procedure."

Instead of military might, officials should concentrate on the "freeze for freeze" deal, which remains the best option on the table, Delury continued.

Under the proposal, North Korea would temporarily freeze nuclear and missile tests in return for a reduced American military presence in the Korean Peninsula.

"It's a shame [Secretary of State] Rex Tillerson was in the same room as the North Korean foreign minister, who is a reasonable person, and that discussion didn't occur," Delury said. "Both sides need to probe to find a way to step back from the cliff and change these dynamics."

Article Link To CNBC:

Steady China Factory Inflation A Boon For Industrial Profits, Economic Growth

By Sue-Lin Wong and Min Zhang
August 9, 2017

China's factory price inflation held steady in July in a positive sign for industrial output and profits for the third quarter, even though a government-led drive to reduce debt is expected to cool earnings and economic growth by year-end.

China's economy has expanded solidly this year as commodity prices recovered, helping boost the industrial sector, while mild consumer price gains have left policymakers room to maneuver should growth falter.

The producer price index (PPI) rose 5.5 percent last month from a year earlier, unchanged from June, the National Bureau of Statistics (NBS) said on Wednesday. Analysts polled by Reuters had expected producer prices to hold steady for a third straight month at 5.5 percent.

Analysts say given expectations of deeper capacity cuts heading into the winter months, keeping supply tight and prices up, operating margins for businesses will probably remain solid in a boost to the bottom line.

"We expect the PPI y/y to remain strong in the coming months, as the capacity reduction proceeds," said David Qu, markets economist at ANZ in a note to clients.

"The strong PPI indicates decent growth in corporate profits, especially for SOEs, leaving the authorities room for deleveraging," he said.

On a month-on-month basis, the PPI rose 0.2 percent in July, after three months in the red, with the NBS attributing this to a rise in prices of commodities including steel and non-ferrous metals.

Prices of commodities futures including steel rebar began to rise again in June and have continued to surge through early August, underscoring concerns over tight supply amid pollution inspections and strong restocking demand.

China has eliminated around 120 million tonnes of low-grade steel capacity and 42.39 million tonnes of crude steel capacity in the first half of the year, equivalent to 84 percent of its target for the whole year.

Beijing has also ordered steel and aluminum producers in 28 cities to slash output during the winter heating season that starts in November to curb pollution, spurring local investors to anticipate gains for big producers when a shortfall bites.

Besides the capacity cuts, "the strong pipeline of infrastructure investment will continue to underpin material prices in the coming months," ANZ's Qu said.

Shares in state-run Aluminium Corp of China (Chalco) have surged 63 percent since the start of July, while shares in Shenzhen-listed Yunnan Aluminium have rallied 67 percent.

Tighter Credit

Inflation has been sluggish in major economies including the United States, Europe and Japan despite brightening growth.

China's consumer price index slowed slightly to 1.4 percent in July from a year earlier, missing market expectations, pressured by a 1.1 percent annual fall in food prices. Analysts had predicted consumer inflation to have remained unchanged at 1.5 percent for the third month in a row.

"The current level of consumer inflation is so mild that the PBOC will be comfortable resuming the deleveraging process in the financial sector," Iris Pang, ING economist wrote in a note ahead of the data.

Chinese policymakers have clamped down on expansion of the money supply, and broad credit growth has also moderated, which could weigh on any further industrial recovery in China.

The world's second-largest economy has defied expectations for a slowdown and expanded at a solid pace in the first half, as a government-led infrastructure push has kept construction humming, though the broad consensus is for growth to cool slightly in coming quarters as authorities continue to crackdown on financial risks.

Any weakness in factory price inflation could start to weigh on profits at China's large - and often heavily indebted - industrial firms, who have benefited from a strong commodities reflation cycle over the last year.

While China's manufacturing sector has shown solid activity, a potential slowdown in profit growth would impact their ability to trim debt levels, which remain a concern for policy makers.

"We expect the central bank to keep liquidity either as tight as in July or even slightly tighter, and push interbank interest rates higher, especially at the short-end to reduce leveraging activities by interbank participants, which include banks and non-bank financial institutions," ING's Pang said.

China has set its inflation target at 3 percent and economic growth of around 6.5 this year, which suggests policy makers still have room to tighten controls to rein in financial risks from years of debt-fueled stimulus.

Article Link To Reuters:

Uber Plans To Wind Down U.S. Car-Leasing Business

Move by the ride-hailing company is due to unsustainably high losses.

By Greg Bensinger
The Wall Street Journal
August 9, 2017

Uber Technologies Inc. is winding down its U.S. auto-leasing business, according to people familiar with the matter, after the ride-hailing company discovered it was losing 18 times more money per vehicle than previously thought.

The Xchange Leasing division—begun two years ago to attract drivers whose credit prevented them from getting their own cars—had been estimating relatively modest losses of $500 per vehicle on average, these people said. But managers recently informed Uber executives and board directors that the losses were actually around $9,000 per car, or at least half the sticker price of a typical leased vehicle.

After investing billions to rapidly expand its ride-hailing app into more than 70 countries, Uber has sought to tame losses that totaled more than $3 billion last year alone. Last month, Uber merged its unprofitable Russian operations with the more-popular app in that country, Yandex.Taxi.

Investors have exerted pressure on Uber to rein in costs and prepare for a possible initial public offering following the ouster of Travis Kalanick as chief executive in June. As Uber’s board searches for a new CEO, a 14-member executive committee is making weighty decisions while also dealing with the aftermath of a months-long investigation into its culture, a trade-secret lawsuit from Alphabet Inc. and fierce ride-hailing battles around the world.

News of Xchange Leasing’s planned shutdown follows a report from The Wall Street Journal that exposed safety problems at Uber’s rental-car operation in Singapore, which the company began in 2013 and has since extended to Vietnam and India.

Uber launched the U.S. car-leasing program in 2015 under Mr. Kalanick, and had high hopes for it, investing some $600 million in the business, according to the people familiar with the matter. The idea was to offer leases to new drivers who otherwise may not be able to get cars because of spotty credit histories, in an attempt to maintain a healthy supply of vehicles, crucial to keeping fares and wait times low.

But executives in recent weeks decided to phase out the auto-leasing unit after realizing the extent of their expected losses, culminating in a board committee briefing in late July, the people said.

The ride-hailing company is aiming to close out or sell most of the business by year-end, these people said. As many as 500 jobs could be affected by the exit of the Xchange Leasing program, representing roughly 3% of Uber’s 15,000-employee staff.

Uber struggled to control losses at Xchange Leasing despite rates of more than $500 a month—well above an equivalent lease price from a regular dealer. The high lease fees pushed many drivers to work longer hours and return the vehicles in poor shape, damaging their resale value, these people said. A fickle pool of drivers mixed with inconsistent earnings made it a challenging business to maintain, they said.

Uber’s financing operations have run into trouble before. Early this year, Uber settled for $20 million a Federal Trade Commission lawsuit that alleged, in part, that the ride-hailing firm falsely claimed it offered the “best financing options available,” irrespective of drivers’ credit history. The FTC found Uber’s advertised rates of between $119 and $140 a week were actually between $160 and $200 a week during a period running from late 2013 and April 2015.

The FTC also alleged Uber gave its drivers worse rates than those with similar credit could get elsewhere. Uber admitted no guilt in settling the claims with the FTC.

For Xchange Leasing, Uber had relied on a network of established dealers to offer leases, but soon found they were pushing drivers into more expensive vehicles, lowering their likelihood of turning a profit, according to a person familiar with the business. So Uber decided to start opening leasing facilities of its own, where it could better control the lease terms and streamline the process of registering new drivers.

Another person familiar with the matter said Uber might try to sell off the vehicles or the whole division and has held some preliminary discussions already. Uber may move some of the 500 workers into other divisions of the company such as customer service, this person said.

Subprime auto leasing can be highly lucrative because of the starkly higher monthly fees, larger down payments and other tacked-on charges dealers can demand in exchange for taking a risk on drivers with poor or no credit history.

But subprime lessees are also more likely to miss payments or abandon their vehicles altogether, which can cut into profits or even turn a lease into a money-loser.

Uber has said Xchange Leasing was never meant to be profitable on its own, though executives were scrambling to bring the program closer to break-even, the people said. Vehicle depreciation and costly repossessions cut into Xchange Leasing’s profits, they said.

Unlike the Asian car-leasing program—which involves Uber buying cars from importers and leasing them to drivers—with Xchange Leasing, Uber holds titles in a trust rather than on its balance sheet. Uber has titles to nearly 40,000 vehicles through Xchange Leasing and would need to sell the vehicles. The San Francisco company has leased a variety of vehicles through the program, including Ford Focus, Hyundai Elantra and Nissan Sentra sedans.

A 2014 Toyota Corolla was recently being offered for a term of 130 weeks at $122 a week, totaling roughly $500 a month, according to marketing materials distributed by Uber. Leases for current-model Corolla sedans, by comparison, can be had for around $150 a month after a $1,500 payment, according to Toyota’s website, though generally for customers with high credit ratings.

A 130-week lease for a base-trim 2014 Corolla would end up costing a driver over $16,000, which compares with the Kelley Blue Book fair purchase price of about $11,700. As Xchange Leasing is only two years old, no driver has yet gone through to the end of a vehicle lease.

Unlike more-traditional leases, Uber allowed drivers to return vehicles with just two weeks’ notice after the first month and didn’t restrict mileage, a bid to keep the vehicles racking up rides. If a driver isn’t logging shifts, payment obligations continue to pile up.

Uber keeps a $250 deposit that drivers pay if they turn in their cars early, which is a fraction of typical termination fees. Drivers’ earnings are deducted through the app to help pay for the lease, which also gives them a disincentive to drive for rival Lyft Inc. or small competitors. Uber installs tracking devices on many of the vehicles, which can help them repossess the vehicles from drivers who miss multiple payments.

Uber is plagued by constant turnover among its drivers, who may find wages are less than anticipated or simply grow tired of the work.

As a result, Uber has tried a host of programs to get more drivers on the road, including a recent partnership with Avis Budget Group Inc.’s Zipcar allowing for hourly rentals. Last year it reached deals with Toyota Motor Corp. and General Motors Co. to offer leases or rentals to potential drivers.

Article Link To The WSJ:

Google’s Diversity Problems

Progressive cultural taboos have migrated from campus to business.

By The Editorial Board
The Wall Street Journal
August 9, 2017

Google professes a commitment to diversity, inclusion and openness, so there is no small irony that it now finds itself in the hot center of America’s diversity culture wars. The tech giant’s dismissal of a contrarian software engineer this week also raises deeper questions about the atmosphere of ideological conformity in corporate America.

Google computer scientist James Damore triggered the uproar when he published a memo last week blasting the search company’s “politically correct monoculture” and progressive gender policies. After his cri de coeur went viral, Google CEO Sundar Pichai fired Mr. Damore for violating the company’s code of conduct by “advancing harmful gender stereotypes in our workplace.”

Mr. Damore, who says several times that discrimination exists and is a problem, could have used an editor to soften his stridency and to fact-check some of his many pop-psychology claims about emotional differences between men and women. But even Mr. Pichai wrote that “much of what was in that memo is fair to debate,” and posts on Google’s internal messaging board support Mr. Damore for some of the issues he raised.

His main argument is that Google’s policies have created a conformist culture. Silencing alternative viewpoints, he says, “has created an ideological echo chamber where some ideas are too sacred to be honestly discussed.” He writes that “discrimination to reach equal representation is unfair, divisive and bad for business.” That, essentially, is Supreme Court Justice Clarence Thomas’s criticism of racial preferences.

Mr. Damore proposes steps Google could take to increase intellectual diversity, such as “stop alienating conservatives,” “confront Google’s biases,” “de-moralize diversity,” and “reconsider making Unconscious Bias training mandatory.”

To what extent Mr. Damore’s former colleagues would agree or disagree with any of this in the privacy of their cars on the way home is unknowable. But what got him tossed out the door were his musings on women in the workplace.

In a note to employees, Mr. Pichai wrote that “we strongly support the right of Googlers to express themselves,” but “to suggest a group of our colleagues have traits that make them less biologically suited to that work is offensive and not OK.” In other words, it’s OK to express views as long as they are not antithetical to Google’s political culture.

Mr. Pichai’s note sounds like an increasingly familiar form of legal cover. Mr. Damore doesn’t belong to a union, and private companies aren’t bound by the First Amendment, so Google was within its right to fire him. But before his firing, Mr. Damore had complained to the National Labor Relations Board about superiors “misrepresenting and shaming me.” Now he is arguing that his dismissal constitutes retaliation. This is a stretch, since the labor board’s purview doesn’t extend to individual workplace disputes. But Mr. Damore could still try to take Google to court.

Google’s lawyers, on the other hand, may have noted the Justice Department’s definition of sexual harassment as “activity which creates an intimidating, hostile, or offensive work environment for members of one sex.” Once female workers complained, Google may have felt it had a legal obligation to fire Mr. Damore.

The liability imperative doesn’t stop there. Google is under pressure from an Obama-era Labor Department investigation of its pay practices, which then-Labor Secretary Tom Perez initiated and the Trump Administration has continued. In April, Labor officials claimed they had uncovered “systemic compensation disparities” and “compelling evidence of very significant discrimination against women.” In this brave new legal world, a James Damore is collateral damage.

One irony, though, is that Google in its defense against the government has advanced one of Mr. Damore’s arguments—that gender disparities to the extent they exist are a result of factors unrelated to discrimination. As to the underlying reality: The American Enterprise Institute reports that more than 80% of computer science and engineering majors are men, but women receive about 60% of biology and 75% of psychology degrees. Enforcing gender parity by the numbers could inadvertently cause more discrimination.

Google’s leftwing biases are hardly news. Recall YouTube’s censorship last fall of PragerU’s conservative educational videos on topics such as university diversity and the Iraq war. The Google subsidiary deemed the videos “potentially objectionable.” Potentially?

The Damore firing underscores why so many don’t think Google should be trusted as an arbiter of content. Google enjoys a quasi-monopoly in search, which it uses to subordinate paid content to free media. Its algorithms are secret and supposedly aim to make information useful. Determining utility, however, invariably involves value judgments. So the question: Does Google deprioritize content it deems objectionable or antithetical to its values?

Many on the left are dismissing Mr. Damore as an alt-right nut. But the monolithic progressive culture incubated on college campuses clearly has spread to corporate America. The emergence of a backlash is no surprise.

Article Link To The WSJ:

Facebook And Twitter Are Too Big To Allow Fake Users

They should be regulated in the same way as TV stations and newspapers, which vet the information they publish.

By Leonid Bershidsky
The Bloomberg View
August 9, 2017

There's something in common between amazing story of "Nicole Mincey," the pseudonymous Twitter user with 146,000 followers who was retweeted by President Donald Trump and then disappeared overnight along with a few other online personae, and a recent prank by a Berliner frustrated with his inability to get Twitter to remove hate speech. The common element is the obvious solution to both problems, which rarely surfaces in discussions of trolling, fake news and cyberbullying.

Social networks should be obliged to ban anonymous accounts. If they refuse to do so voluntarily, government regulators should force the issue.

Nicole Mincey was apparently a fake African American identity that helped sell Trump-related merchandise online. It was part of an enterprise supported by pro-Trump social media posts from several fake accounts representing people whose backgrounds, looks (illegally used stock photos, actually) and views might appeal to potential buyers. The whole scam blew up after the Trump retweet prompted the owner of the photo stock to look into the matter. But how many other pro-Trump and anti-Trump accounts on Twitter and Facebook are actually fake? How do we figure out which of the famous internet echo chambers are even real? Is there a way to make sure real people are not regularly misled and confused by the purveyors of fake opinions who are just trying to sell a bootlegged MAGA cap?

The German story also involves a retweet by a top government official -- Justice Minister Heiko Maas. In a video Maas tweeted this week, Shahak Shapira, an Israeli-born satirist and musician living in Berlin, explains that he tried to flag about 300 tweets violating Germany's hate speech laws to Twitter, but the few replies he received alleged that the posts didn't go against the platform's policy. Shapira then traveled to Hamburg, where Twitter's German office is located, and spray-painted the tweets on the pavement in front of the office building. "Jewish pigs," one said. "If you hate Muslims, retweet," said another. The accounts that tweeted this used pseudonyms, of course.

Germany has a recently-passed law obliging social networks to delete hate speech within 24 hours of it being reported. With the link to Shapira's video, Maas also tweeted a report from a government-funded study showing that Twitter only deletes 1 percent of hate-speech posts after they're reported by users, while Facebook erases 39 percent of such posts and YouTube 90 percent. All three platforms delete almost 100 percent of the posts after being contacted again via e-mail. "#HeyTwitter, that's not enough!" Maas wrote.

Both with Mincey and with the racist tweets in Germany, it took particularly persistent users to draw attention to spurious and offensive content. The networks, though they profess a willingness to fight fakes, cyberbullying and other abuses, aren't particularly proactive about it, and they have a plausible explanation: They cannot police their vast user bases, and they need a lot of help.

But there's an easy answer to that defense. Neither "Mincey" nor most of the tweets Shapira sprayed on the pavement in Hamburg would have been possible had Twitter required identifying information from users before creating accounts. The platform's anonymity -- its privacy policyspecifically allows pseudonyms and multiple accounts -- gives bigots, swindlers and bullies a sense of impunity. It's not clear what else it does for users; after all, the accounts with the most followers -- those of public personalities and journalists -- are, as a rule, verified by Twitter. People don't attach much value to anonymous opinions. They may appreciate an account that specializes in a certain kind of content or even an interesting bot -- but what would be the harm in identifying their creators?

Facebook, unlike Twitter, has a strict policy against multiple personal accounts and pseudonyms -- which it doesn't enforce. If an account has been reported as using a fake name or impersonating someone, it may require an image of a government-issued ID. But the company vehemently protests when people try to force it to identify users. A U.K. court case in 2013 is a great example. When the parents of an underage girl who had repeatedly used Facebook to hook up with men proposed the pre-identification of users, Facebook made a number of surprising statements.

"Facebook cannot proactively prevent an individual from registering and creating a Facebook account and profile," the company testified. "It is simply not feasible to review over 1 billion profiles to locate a single user who may be lying about his or her name. No technical program or mechanism exists to prevent an individual from lying about his or her identity and/or age." All it could do, Facebook said, was shut down the girl's accounts -- the new ones she set up every time -- after the fact.

The judge sided with Facebook.

In reality, both Facebook and Twitter would be able to identify users if they wanted to. It would be enough for them to require a valid credit or debit card, the way one does in application stores or on Amazon, and require regular updates to the card information. That way, all accounts linked to one card would be tied to their actual owner, and underage users' accounts would be tied to their parents' identities.

This would immediately resolve the problems of fake names, anonymous bullies, troll armies and hate-speech law violations. There would still be cases of identity theft, but the platforms could easily alert a user if a new account attempted to use his or her card data.

Such identification, of course, would hurt whistleblowers and opposition activists in oppressive regimes. But, for their own safety, those of them who want to hide their identities should stay off Facebook and Twitter, anyway: There's a greater chance that a hostile government or corporation will track them down there than on more secure, encrypted messaging platforms or on the Dark Web. As for the world's unbanked, one could argue they are of little value to the advertisers who fund the social networks and thus non-essential to their business models.

There's plenty of anonymity to be had on the internet for those who need it. There is, however, no reason the huge corporate platforms which essentially trade in our personal information should be allowed to get on a high horse as defenders of privacy. These platforms are huge media companies that have as little to do with the internet's early ideals as today's Apple has with the company Steve Jobs and Steve Wozniak launched in a garage in the 1970s. They should be regulated in the same way as a TV station or a newspaper, which always knows the authors of the information it publishes.

The social platforms hold on desperately to anonymity because it's the basis for their inflated user numbers, which they sell to advertisers and the stock market. If they give it up -- in reality, not just on paper like Facebook -- competitors will spring up to offer it. These are not good reasons for the advertising market's dominant players. They should face up to their responsibility and start caring whether their users are real -- and why they might not want to give their real names if they are.

Article Link To The Bloomberg View:

Disney To Pull Movies From Netflix, Plans Own Streaming Service

By Lisa Richwine and Aishwarya Venugopal
August 9, 2017

Walt Disney Co (DIS.N) will stop providing new movies to Netflix Inc (NFLX.O) starting in 2019 and launch its own streaming service as the world's biggest entertainment company tries to capture digital viewers who are dumping traditional television.

Disney's defection, announced on Tuesday alongside quarterly results showing continued pressure on sports network ESPN, is a calculated gamble that the company can generate more profit in the long run from its own subscription service rather than renting out its movies to services like Netflix.

In turn, Netflix and rivals such as Inc (AMZN.O) and Time Warner Inc's (TWX.N) HBO are spending billions of dollars to buy and produce their own content and stream it straight to consumers.

Disney's entry into a crowded subscription streaming market and the cost of technology to support its own online services could weigh on earnings, Wall Street analysts said.

Disney stock fell 3.8 percent in after-hours trade. Shares of Netflix fell 3 percent.

The new Disney-branded streaming service will follow a similar offering from ESPN that will be available starting in 2018, the company said.

The streaming services will give Disney "much greater control over our own destiny in a rapidly changing market," Chief Executive Bob Iger told analysts on a conference call after earnings, describing the moves as an "entirely new growth strategy" for the company.

Disney has some experience with the direct-to-consumer model in Britain and could make more money in the long run from its own service, but the move could be "financially less advantageous" in the near term, said Pivotal Research Group analyst Brian Wieser.

The new ESPN service will feature about 10,000 live games and events per year from Major League Baseball, the National Hockey League, Major League Soccer and others, Disney said. It will not offer the marquee live sporting events shown on its cable channels.

Streaming Tech Deal

Disney said its new services would be based on technology provided by video-streaming firm BAMTech, and announced it would pay $1.58 billion to buy an additional 42 percent stake in that company, which it took a minority stake in last year.

The BAMTech deal will modestly dent earnings per share for two years, the company said.

Disney is one of the most recognized names on Netflix, but it is not the company first to pull away. Starz Entertainment in 2011 pulled roughly 1,000 films in the Starz catalog on Netflix at the time.

By ending the Netflix movie deal, Disney will keep movies such as "Toy Story 4" and "Frozen 2" for its own offering. The company has not yet decided where it will distribute films from superhero studio Marvel and "Star Wars" producer Lucasfilm after 2018, Iger said.

Netflix said it would continue to do business with Disney globally, including keeping its exclusive shows from Marvel television.

"U.S. Netflix members will have access to Disney films on the service through the end of 2019, including all new films that are shown theatrically through the end of 2018," the company said in a statement.

The announcement came as Disney reported a near 9 percent fall in quarterly profit, pulled down by higher programming costs and declining subscribers at ESPN, as viewers ditch costly cable packages in favor of cheaper online offerings.

The company's revenue fell marginally to $14.24 billion in the third quarter ended July 1 from $14.28 billion a year earlier.

Net income attributable to the company fell to $2.37 billion, or $1.51 per share, from $2.6 billion, or $1.59 per share.

Article Link To Reuters:

Apple’s Expensive Game Of Catch-Up

iPhone maker’s R&D bill has grown substantially but still lags big tech peers.

By Dan Gallagher
The Wall Street Journal
August 9, 2017

Apple Inc.’s AAPL 0.80% new 10th Anniversary iPhone is still sight unseen, yet a glance at the company’s latest quarterly results also raises the question of what else may be coming.

Apple’s spending on research and development totaled $2.9 billion for the third fiscal quarter ended July 1, rising 15% year-over-year against a revenue gain of just 7% for the same period. That brought Apple’s R&D spending to $11.2 billion for the trailing 12 months, which is about 5% of the company’s revenue for the period. Apple hasn’t expended a greater portion of its revenue on R&D on an annual basis since 2004—three years before the first iPhone launched.

That suggests other big things on the horizon, though what exactly is anyone’s guess. Apple only claims “an increase in headcount-related expenses to support expanded R&D activities” in its quarterly filing. The company is widely reported to be working on projects related to self-driving cars, health-care monitoring and augmented reality, to name just a few.

Apple, of course, is always loath to discuss any products it has in the works. But the company’s pipeline is a salient question for investors who may rightfully be wondering what to do with the stock once this year’s new iPhones see the light of day. Apple’s market value has surged 35% this year to $820 billion—adding $45 billion since last week’s earnings report, which all but confirmed that some new iPhones will indeed launch this quarter. And it is hard to forget that the stock has seen significant downturns twice in the past five years following big iPhone launches.

It is also worth noting that Apple is competing with other deep pockets willing to dig even deeper. The company’s R&D spending over the past 12 months trails that of Microsoft , and Google-parent Alphabet Inc . As a percentage of revenue, Apple’s R&D expenditures rank the lowest among big tech companies save for HP Inc. Of course, spending gobs of money now is never a guarantee of future success, but Apple has a distinct need to make its billions count.

Article Link To The WSJ:

Wisconsin Won't Break Even On Foxconn Plant Incentives For 25 Years

By Julia Jacobs
August 9, 2017

Wisconsin is not projected to break even on a $3 billion incentive package for a proposed LCD screen plant by Taiwan's Foxconn for at least 25 years, a legislative analysis showed on Tuesday.

Foxconn hopes to open a $10 billion plant in 2020 at a 1,000-acre site in southeastern Wisconsin and state leaders, including Republican Governor Scott Walker, have touted the incentives as a boon because of the jobs that will be created.

Critics have attacked the plan as too expensive and potentially harmful to the environment.

Officials have said Foxconn, formally known as Hon Hai Precision Industry Co Ltd, will employ about 1,000 people in the second half of 2017 and employment will grow to 13,000 by 2021.

Based on estimates from the non-partisan Legislative Fiscal Bureau, Wisconsin will not receive a return on its investment in the project until about 2042. The bureau provides fiscal analysis for the state legislature.

Walker's spokesman Tom Evenson said in a statement that the Foxconn factory is a "once-in-a-lifetime opportunity" that includes the large company investment and $10.5 billion in new payroll.

Wisconsin Representative Peter Barca, the state Democratic minority leader from Kenosha, said the report proves legislators need more time to examine the deal.

"The fiscal analysis released today creates new questions on the state’s cash flow and on the state’s ability to ensure a good return on the investment for taxpayers," Barca said in a statement.

The projections in the report depend on Foxconn following through on several commitments, including an average annual salary of about $54,000, said Rob Reinhardt, a bureau program supervisor.

"Any cash-flow analysis that covers a period of nearly 30 years must be considered highly speculative," the report said.

The bureau based its analysis on Foxconn reaching its threshold of 13,000 employees, Reinhardt said. If the actual employment number was 3,000, the break-even point would be so far in the future that it is "silly to talk about," he said.

The report said if 10 percent of projected new jobs from the project were filled by Illinois residents, a concern of several lawmakers, the state would not break even until about 2044.

The state would see a positive cash flow in the first three years of the project because of an initial delay in state payments as well as tax revenue from construction workers, Reinhardt said.

The analysis factors in thousands of indirect jobs associated with the project, which state officials have said will solidify the Foxconn project as a net win.

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Dutch Students Grow Their Own Biodegradable Car

By Jim Drury 
August 9, 2017

What's made of sugar, can carry four people and travel at 50 miles (80 km) per hour? A biodegradable car, whose inventors say could be the next step in environmentally friendly motoring.

The lightweight electric car, created by students in the Netherlands, is made of a resin derived from sugar beets and covered with sheets of Dutch-grown flax.

"Only the wheels and suspension systems are not yet of bio-based materials," said Yanic van Riel, one of the developers from the TU/Ecomotive team at the Eindhoven University of Technology.

The structure of the car they have called Lina has a similar strength-weight ratio to that of fibreglass and weighs only 310 kg (about 684 pounds).

But the prototype has not yet passed crash tests, because the material "will not bend like metal, but break", said the team's leader Noud van de Gevel.

Demands to reduce air pollution and tackle climate change have pushed auto companies towards alternative designs, but most are still require a great deal of energy to make.

"Energy that is saved while driving the car is now spent during the production phase," van de Gevel said.

The TU/Ecomotive team plans to test drive Lina later this year, once given the green light by the Netherlands Vehicle Authority.

Article Link To Reuters:

Americans Are Dying Younger, Saving Corporations Billions

Life expectancy gains have stalled. The grim silver lining? Lower pension costs.

By John Tozzi
August 9, 2017

Steady improvements in American life expectancy have stalled, and more Americans are dying at younger ages. But for companies straining under the burden of their pension obligations, the distressing trend could have a grim upside: If people don’t end up living as long as they were projected to just a few years ago, their employers ultimately won’t have to pay them as much in pension and other lifelong retirement benefits.

In 2015, the American death rate—the age-adjusted share of Americans dying—rose slightly for the first time since 1999. And over the last two years, at least 12 large companies, from Verizon to General Motors, have said recent slips in mortality improvement have led them to reduce their estimates for how much they could owe retirees by upward of a combined $9.7 billion, according to a Bloomberg analysis of company filings. “Revised assumptions indicating a shortened longevity,” for instance, led Lockheed Martin to adjust its estimated retirement obligations downward by a total of about $1.6 billion for 2015 and 2016, it said in its most recent annual report.

Mortality trends are only a small piece of the calculation companies make when estimating what they’ll owe retirees, and indeed, other factors actually led Lockheed’s pension obligations to rise last year. Variables such as asset returns, salary levels, and health care costs can cause big swings in what companies expect to pay retirees. The fact that people are dying slightly younger won't cure corporate America’s pension woes—but the fact that companies are taking it into account shows just how serious the shift in America’s mortality trends is.

It's not just corporate pensions, either; the shift also affects Social Security, the government’s program for retirees. The most recent data available “show continued mortality reductions that are generally smaller than those projected,” according to a July report from the program’s chief actuary. Longevity gains fell short of what was projected in last year’s report, leading to a slight improvement in the program’s financial outlook.

“Historically, mortality rates annually have tended to come down year-over-year,” says R. Dale Hall, managing director of research at the Society of Actuaries. The professional association compiles mortality data that many private pension plans use in their projections. “There really has been a little bit of slowdown in mortality improvement in the United States,” Hall says.

Absent a war or an epidemic, it's unusual and alarming for life expectancies in developed countries to stop improving, let alone to worsen. “Mortality is sort of the tip of the iceberg,” says Laudan Aron, a demographer and senior fellow at the Urban Institute. “It really is a reflection of a lot of underlying conditions of life.” The falling trajectory of American life expectancies, especially when compared to those in some other wealthy countries, should be “as urgent a national issue as any other that’s on our national agenda,” she says.

Actuaries use two main factors to project death rates into the future: They start with current mortality levels—the percentages of people who die at a given age—and then make predictions about how those percentages might change with developments such as new medical treatments or changes to smoking or obesity rates. For instance, the widespread prescribing of cholesterol-lowering statins in the 1990s was “a huge driver of mortality improvement,” says Eric Keener, senior partner and chief actuary at Aon’s U.S. retirement practice. If medical science produces new treatments for Alzheimer’s disease or cancer, they could have similar effects.

Death rates for Americans over the age of 50 have improved, on average, by 1 percent each year since 1950, according to an analysis by the Society of Actuaries, though there’s a lot of variation in any given year. From 2000 to 2009, that long-term trend seemed to be accelerating, with annual improvements of 1.5 to 2 percent—but then those gains stalled. From 2010 to 2014, death rates were only improving by about half a percent per year.

In 1970, a 65-year-old American could expect to live another 15.2 years on average, until just past their 80th birthday. By 2010, a 65-year-old could expect to live to 84.

But the increases have slowed down since then. Life expectancy at 65 rose by just about four months between 2010 and 2015—half the improvement recorded between 2005 and 2010.

In 2014, the Society of Actuaries updated its baseline mortality tables for the first time since 2000 to reflect significant gains in life expectancies seen through 2008—a major revision that predicted future improvements based partly on that trend. That led many companies, expecting their retired employees to live longer and longer, to revise their estimates of pension obligations upward.

But as it turned out, those assumptions were too optimistic about how fast death rates would keep improving. Updates in the last two years, based on more recent mortality data, have pulled down companies’ estimates of what they’ll owe future retirees. The 2016 update would lower pension obligations by about 1.5 percent to 2 percent, all else being equal, according to the Society of Actuaries report. (The group draws on data from the Social Security Administration, the Centers for Disease Control and Prevention, and the Centers for Medicare and Medicaid Services.)

And because accurate death records take a long time for the government to compile, the revised estimates published in 2016 incorporated mortality data only through 2014. The picture for 2015 looks bleaker still: The overall U.S. death rate increased that year, the CDC has since reported.

It’s still unclear exactly how Americans’ waning life-expectancy gains will mean for public-sector pension obligations, but the effect will likely be similar. The Society of Actuaries’ tables are designed for private-sector retirement plans; the group is still working on an update for public-employee pensions.

There’s no simple answer for why longevity gains are slowing. For years, economists and public health experts have been trying to ascertain what’s behind America’s troubling death trends, among them a rise in death rates for certain demographic groups. A much-discussed 2015 paper suggested that mortality was rising for middle-aged white Americans, citing suicides, drug overdoses, and alcohol, collectively sometimes referred to as “deaths of despair.” Women have been particularly affected.

While overall mortality rates are influenced by deaths from infancy to old age, pension payouts primarily reflect how long people survive after retirement. But looking just at people over 65, the death rate worsened in 2015 for that group as well, according to a July report published by the Society of Actuaries. That was the first reversal for retirement-age Americans since 1999.

“That’s actually rather remarkable,” says Keener, the Aon actuary. “Even in the previous years, you’ve seen a slower degree of improvement for the pensioners, but you haven’t seen a decline in life expectancy.”

The broader trend isn’t unique to the U.S. A July publication from the Institute and Faculty of Actuaries in the United Kingdom found that the U.S., Canada, and Britain have all experienced similarly slowing gains since 2011. That report suggested the combination of the recession and cuts to social safety-net programs may have played a role. “These signs should be taken as warnings that worsened health care, behaviour and environment can reverse decades of success in health and longevity,” wrote Joseph Lu, chair of the Institute’s mortality research committee.

Changes to life expectancy in the U.K. could cut 310 billion pounds from British private-sector pension obligations, or 15 percent of the total liability, PwC estimated in May, although other actuaries have called that figure “relatively extreme.”

The question actuaries can’t yet answer is whether the slowdown is a short-term blip or a more permanent shift. If mortality improved by 1 percent a year for most of the past 70 years, might the U.S. revert to that soon? Or, Keener asks, “is this really a new reality that we’re living in?”

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