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Beijing ‘Sweetens’ Cloud Computing Offer As Mnuchin Says Agreement Reached On ‘Enforcement Offices’

Yesterday, Treasury Secretary Steven Mnuchin confirmed during an interview with CNBC that the issue of enforcement of a US-China trade deal, believed to be one of the most troublesome obstacles to a final agreement, had finally been resolved after both sides agreed to open ‘enforcement offices’ in their respective countries. This followed reports last week that Trump would give China until 2025 to make good on its promises, including massive purchases of agricultural goods, effectively punting the task of enforcement to his successor.

Trump

The agreement was finally struck during a call with Liu He, the Chinese vice premier and head trade negotiator, on Tuesday. But just because the enforcement issue has been “pretty much” resolved, doesn’t mean that the deal will be completed within a month, as President Trump has said.

“We’ve pretty much agreed on an enforcement mechanism,” Mnuchin said during the interview. “We’ve agreed that both sides will establish enforcement offices that will deal with the ongoing matters. This is something both sides are taking very seriously.”

On Thursday, the Wall Street Journal published another optimistic trade update, claiming that China has ‘sweetened’ its offer to open up its market to US cloud computing companies following extensive lobbying by trade negotiators and – get this – Amazon CEO and Trump nemesis Jeff Bezos. US negotiators had rejected a previous proposal last week, saying it was “inadequate.”

Per WSJ, the new offer would involve issuing licenses for foreign businesses to operate data centers on the mainland, and lifting a 50% equity cap that requires foreign companies like Amazon to seek out domestic partners.

With the enforcement issue resolved, and Beijing having passed a law intended to stop forced technology transfers and IP theft, the main issues up for debate now focus squarely on access for American tech firms like Amazon, Microsoft and Apple. These companies have invested millions of dollars in China already, but have been hamstrung by restrictive regulations. The new proposal expands on an offer made by Premier Li Kequiang had proposed during a meeting with tech executives, which was panned as “weak and unrealistic.”

The second proposal followed a meeting earlier this week between US tech firms and China’s Ministry of Industry and  Information Technology, the country’s top tech regulator.

American tech firms like Amazon have already formed partnerships with Chinese firms to gain entree to the mainland economy.

Given the regulatory hurdles, some foreign companies have formed partnerships with local cloud companies, licensing technologies and have them run data centers in China.

Amazon Web Services, for example, partners with Beijing Sinnet Technology Co. to operate the AWS China cloud-computing service in the Beijing region. Sinnet owns the hardware while AWS says it provides technology, guidance and expertise to Sinnet.

Still, the new proposal didn’t address the issue of data transfers. Under current Chinese law, American tech firms must store data from their Chinese operations on the mainland. But the US is insisting that this rule be changed as part of a final deal.

Setting aside issues of market access, the biggest obstacle to a final deal remains Washington’s insistence that some of its trade war tariffs be maintained, at least in the near term, to ensure compliance with the deal. Beijing has repeatedly insisted that all tariffs be dropped.

As the two sides appear to have made little progress on the issue, it’s worth wondering: Will Trump cave on this to salvage his deal and secure a major PR victory as the 2020 race heats up?

via ZeroHedge News http://bit.ly/2Ie5MMS Tyler Durden

How to take advantage of the best tax deal ever, before it’s too late

You’ve heard me mention Puerto Rico’s amazing tax incentives about a million times by now.

Here I am, living in a beautiful place that’s part of the United States… yet I pay ZERO US federal income tax, only a 4% corporate tax for my businesses and ZERO capital gains and dividends tax.

And this is all perfectly legal.

I’m still a US citizen, but I’m not hiding out from the IRS, nefariously dodging Uncle Sam’s taxes. What I’m doing is 100% in line with tax codes and regulations. I’m simply using the existing rules to live a comfortable lifestyle in paradise.

You too can have this type of lifestyle and tax advantages… and we’ve just posted an in-depth article on how to take advantage of Puerto Rico’s tax incentives to our website.

Business owners, self-employed professionals, independent contractors, traders, consultants and investors: this is your rare opportunity to legally escape US taxes.

This opportunity is especially interesting for Americans, because the US is one of only two countries in the world that taxes its citizens on their worldwide income even if they aren’t residents. And Puerto Rico is one of the few legitimate ways around that.

But even non-US citizens could benefit from Puerto Rico’s incentives.

In this article I also share why right now is literally best time EVER to apply for Puerto Rico’s tax incentives. I know that might sound like a bunch of hype, but there are two very rational reasons why this is the case.

So if any of the above apply to you even just remotely, you owe it to yourself to check out Puerto Rico’s incentives right away.

Click here to read our in-depth article on Puerto Rico.

Source

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Banks Bruised As ECB Strawmans “Less Generous” Negative Rate TLTROs

While talking heads buy-the-dip because The ECB (et al.) will do whatever it takes, at least one ECB member is not as gung-ho about bailing out banks once again.

Governing Council member Klaas Knot, admittedly among the most hawkish members, warned that the European Central Bank’s new round of loans for banks needs to be “more conservative and less generous” than the previous one.

The ECB doesn’t “want to prolong dependence of the banking sector on longer-term funding from central bank any longer than necessary,” the Dutch governor said in a Bloomberg Television interview with Francine Lacqua at the International Monetary Fund gathering in Washington.

While European markets were shut by the time he spoke, there was a clear reaction in US stocks (contagiously)…

And EURUSD…

Knot also confidently proclaimed that:

“We were never out of ammunition,” he said. “If we need ammunition we can find ammunition.”

And as Bloomberg reports, the Dutchman also expressed his opposition to a potential move by the ECB to soften the effect of its negative interest rates on banks, insisting that the policy has actually stimulated credit growth.

“I would prefer stronger banks, but mainly for financial stability,” Knot said, adding that it was “a little bit outside the realm of monetary objectives.”

On negative rates, Bank of Italy Governor Ignazio Visco said,“we said that the side effects will be considered and obviously this is the time span that we have in mind.”

via ZeroHedge News http://bit.ly/2GfFpE5 Tyler Durden

Yet Another Conspiracy Theory Died Today

It bears repeating, given the nearly past three years of ‘Russiagate’ collusion hysteria which focused heavily and uncritically on the role of WikiLeaks in both Hillary’s defeat and the rise of Trump, and centrally the “Russian connection” supposedly tying it all together: there seems yet more daily and weekly evidence demonstrating how absurd the claims were and are. 

With Thursday’s dramatic UK arrest of WikiLeaks founder and leader Julian Assange, revealed to be based largely on a US extradition request, which we’ve all now learned has been pursued for the past two years by the Trump Department of Justice, another conspiracy theory bites the dust. Journalist Aaron Maté points out “over the last 2 years, just as Maddow et al were feverishly speculating that Trump and Assange secretly conspired, Trump’s DOJ was secretly trying to extradite Assange.”

Looking back in light of Thursday morning’s events, Maté says, “Assange’s arrest reminds us how moronic the Wikileaks aspect of the Trump-Russia conspiracy theory…”.

So much of it continues to unravel. Maté continues: “The conspiracy theory never slowed even after Roger Stone’s indictment revealed that a) Trump camp had no advance knowledge of WL releases b) they tried to find out from Stone, who also had no advance knowledge.

Maté adds that further “Stone had no such knowledge because he had no actual contact to WikiLeaks.”

And just last month here’s the aptly dubbed Russiagate Grand Wizard Rachel Maddow with her Glenn Beck style visuals to suggest a Trump-WikiLeaks-Russia conspiracy plot was thickening:

But as Maté also previously pointed out:

And then there’s this clear refutation of a key element of the narrative:

We noted earlier that if one believes Mike Pompeo’s warnings that Wikileaks is “an arm of Russian intelligence” then the prosecution of Assange would be another example of Trump acting contrary to Putin’s interests.

As The Intercept’s Glenn Greenwald also summarized, “The belief that Assange is a Russian agent has always been painfully stupid (and, I should note, completely without evidence). But if you’re someone who decided to believe that, then you’d have to see this as another case of Trump taking actions directly harmful to the Kremlin.”

via ZeroHedge News http://bit.ly/2P1jDab Tyler Durden

GAO: Current Federal Fiscal Situation Is ‘Unsustainable’

Just hours after Congress postponed a budget vote because lawmakers wanted even more spending, the Government Accountability Office (GAO) published a 67-page report warning of the “serious economic, security, and social challenges” that will face this country unless immediate action is taken to bring the national debt under control.

The share of debt held by the public currently stands at about 78 percent of gross domestic product (GDP), a shorthand measure of a country’s economic output in a single year. The GAO estimates that it is on track to surpass the all-time high of 106 percent of GDP within the next 13 to 20 years. (The numbers are actually worse than that, because “debt held by the public” accounts for only $15.8 trillion of the $21 trillion national debt. The rest is held by parts of the federal government, such as the Social Security trust fund.)

Tax revenue increased by $14 billion during fiscal year 2018, which ended on September 30. But that increase was buried beneath a $127 billion jump in spending.

Federal policy makers “face a federal government highly leveraged in debt by historical norms and on an unsustainable long-term fiscal path caused by an imbalance between revenue and spending that is built into current law and policy,” the GAO says in a letter to President Donald Trump and congressional leaders that accompanied the new report. “Decisions in the near term to enhance economic growth and address national priorities need to be accompanied by a long-term fiscal plan to put the federal government on a sustainable long-term path. This is essential to ensure that the United States remains in a strong economic position to meet its security and social needs, as well as to preserve flexibility to address unforeseen events.”

Congress and the president have been getting that same message from several sources recently. Unfortunately, no one seems to be listening.

The White House produced a budget plan earlier this year that called for hiking Pentagon spending while cutting non-military discretionary spending by 9 percent. Even with overly rosy assumptions about future economic growth, this budget would effectively lock in trillion-dollar deficits for the next several years and would not balance until the mid-2030s, long after Trump will be out of office. And that’s only if you believe the White House is serious about cutting spending. Given how quickly the president flip-flopped on his own administration’s plan to cut the feds’ miniscule contribution to the Special Olympics, that requires a leap of faith.

But what else would you expect from a president who has said that he doesn’t have to worry about the debt and deficit because things won’t get really bad until after he’s out of office?

Congress is no better at the moment. Republicans might have once been counted on to hold the line on spending, but under Trump they’ve abandoned even the pretense of fiscal responsibility. Democrats, meanwhile, want to spend trillions more on programs like Medicare for All and the Green New Deal.

Even if those big ideas don’t come to pass, spending is likely to increase. A budget bill that was supposed to get a vote in the House this week would have increased discretionary spending caps by $358 billion over the next two years—a total cost of more than $2 trillion in a decade, according to an analysis by the Committee for a Responsible Federal Budget. The planned vote never happened, because rank-and-file Democrats revolted and pushed for more spending.

It seems like the only way Congress might prevent America’s fiscal situation from getting worse is by failing to agree on how much worse to make it.

But time and tides and interest calculations wait for no one. “Over the long term, the imbalance between spending and revenue that is built into current law and policy is projected to lead to continued growth of the deficit and debt held by the public as a share of GDP,” the GAO warns. “This situation—in which debt grows faster than GDP—means the current federal fiscal path is unsustainable.”

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Polleit: How Central Banks Lift Stock Prices

Authored by Thorstein Polleit via The Mises Institute,

Financial markets seem to have a great deal of confidence in the effectiveness of central bank monetary policy — in the sense that by keeping interest rates low, or bring interest rates down, the economies will keep expanding and asset prices, in particular, will keep rising. There is, however, good reason for savers and investors alike to think very carefully about the truth value of such a proposition.

The key question is this: What is the actual relation between the interest rate and asset prices, stock prices in particular? To answer this question, it may be helpful to take a brief look at the well-known “Gordon Growth Model”. It shows the functional relation between a firm’s stock price and its profit level, the interest rate, and the firm’s profit growth rate. The formula is:

stock price = D / (i – g),

whereas D = dividend, i = interest rate, and g = profit growth.

If, say, D = 10 US$, i = 5% and g = 0%, the stock price is 200 US$ [10 / (0.05 – 0) = 200]. If g then goes up to 2%, the stock price rises to 333.3 US$. If the central bank lowered the interest rate to 4%, the stock price goes up further to 500.0 US$. Should g then drop to 1%, the stock price would decline back to 333.3, and if g falls even lower to 0,005%, the stock price falls to 285.7.

This little example shows that a central bank can drive up stock prices by lowering the interest rate. However, what about the effect the interest rate has on firms’ profit growth? From a Keynesian viewpoint one may argue: well, lower interest rates trigger new spending, and this should increase firms’ profits. While that may well be so in the short run, one might expect additional effects emerging in the longer term: namely that a policy of extremely low interest rates could sap the strength out of an economy.

For instance, artificially low interest rates keep unprofitable businesses alive, making it harder for better producers to gain market shares. This, in turn, slows down competitive pressure in factor and products markets, resulting in lower growth and employment, and ultimately deteriorating firms’ profit situation. Also, low credit costs invite governments to ramp up deficit spending, diverting scarce resources into unproductive projects. The material well-being of the people remains below potential.

The above points towards an uncomfortable scenario: Central banks, via their policy of extremely low interest rates, drive up stock prices to ever higher levels. Then, at some point, investors factor in the low rate policy’s counterproductive effect and revise their expectations regarding firms’ future profit growth downwards. Once a stock price decline starts, it would be fairly difficult to bring it to a stop – if and when interest rates have already reached rock bottom.

Needless to say that a decline in stock prices would also most likely be a drag on other goods’ prices – such as, say, raw materials, intermediate goods’ and housing estate prices. A general downward shift of prices would be a heavy burden on today’s unbacked paper money system – first and foremost because declining prices could trigger a massive round of credit default: As their nominal incomes decline, or fall below expectations, borrowers will find it increasingly difficult to service their debt.

In the extreme case, the unbacked paper money system could even come crashing down. For if the credit market, due to default concerns, drives up borrowing costs and makes credit less accessible for borrowers, a bust is very likely. This would actually explode the economy’s production and employment structure that has been set up in the period of artificially lowered interest rates.

Of course, governments and their central banks would want to prevent, by all means, such a price deflation and the ensuing crash. In this effort they can count on the support of the wider public: People simply don’t like recession and unemployment. One option monetary policy-makers might have in mind is pushing interest rates (even further) into negative territory, at least in real terms. However, this might not be as easy as it seems.

For there is something called the “zero bound of nominal interest rates”. It means that nominal interest rates cannot be pushed below zero. So if and when prices fall, interest rates remain positive, or even rise, in real terms. And this would certainly not stop a credit pyramid from coming crashing down. And so central banks will see just one way out: outright money printing – via asset purchases and/or issuing ‘helicopter money’.

But who shall get the newly issued money? Should it go into the hands of consumers, or entrepreneurs, or banks, or the government? Or to all of them? And how much money should be issued? Should it be issued early or later in the month? Should everybody get the same amount or, say, a 10 percent increase of his bank deposits? What is the proper principle for distributing new quantities of money? Welcome to socialism!

The monetary policy of extremely low interest rates is far from harmless – even though it seems to support the business cycle and props up asset markets in the short-run, suggesting that all is well. There is, in fact, sound economic reason to assume that central banks’ artificially low interest rate policy is self-defeating – and the risk that something will go terribly wrong increases, the longer interest rates remain at suppressed levels.

via ZeroHedge News http://bit.ly/2G9nA8q Tyler Durden

California Plastic Bag Bans Spur 120 Percent Increase in Sales of Thicker Plastic Garbage Bags

In March, New York became the second state to ban plastic bags—behind California, which banned them in 2016. Countless cities, towns, and counties have also either prohibited plastic bags or imposed fees or other restrictions on their use.

As always, New York’s ban was justified as a way to protect the environment. Gov. Andrew Cuomo declared that it will “reduce litter in our communities, protect our water and create a cleaner and greener New York for all.”

Or maybe it won’t. Far from weening us off hazardous single-use plastics, these bans may actually be encouraging people to instead use thicker garbage bags or other less-than-green alternatives.

So says a study from the University of Sydney economist Rebecca Taylor. She looked at retail scanner data on the purchase of garbage bags in cities before and after they implemented their bag bans. She found that while plastic bag bans got rid of their target, they did not eliminate people’s need for plastic bags in general: They still needed something to line their garbage cans or pick up after their pets. Prior to bag bans, this could mean just reusing the bags you carried your groceries home in. After the bans, folks turned to purchasing garbage bags, which are much more plastic-intensive.

They bought lot of them. Taylor’s study found that after the imposition of a bag ban, sales of small garbage bags (defined as 4-gallon-sized bags) increased by a full 120 percent, medium garbage bags (8 gallons) by 64 percent, and tall bags (13 gallons) by 6 percent.

The result? There was a 40 million pound drop in the consumption of normal carryout bags, but the consumption of garbage bags rose by 12 million pounds, erasing about 30 percent of the gains from the bag ban.

This unintended consequence is reminiscent of coffee chain Starbucks’ attempt to cut down on plastic usage by replacing the traditional lid/straw combo that tops many of their cold drinks with new strawless lids. The trouble, as Reason first reported, is that the new lids weighed more, meaning that Starbucks’ shift has resulted in the company using more plastic.

Taylor’s findings are not so damning for plastic bag bans on that front. Overall plastic consumption is still coming down.

But Taylor’s study also notes that many non-plastic replacements for traditional plastic grocery bags can in fact be far worse when considering their impact on climate change. “To have the same global warming potential as a traditional plastic carryout bag with zero secondary use, a paper carryout bag would need to be used 3 times, a non-woven polypropylene (PP) reusable bag would need to be used 11 times, and a cotton reusable bag would need to be used 131 times,” she writes.

All prohibitions have unintended consequences, and that includes prohibiting plastic products.

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Another “Bomb Cyclone” Hammers U.S. Plains And Midwest 

As the storm reaches “bomb cyclone” criteria on Thursday, more than 200 million people in the United States will feel the impact of this dangerous weather system sweeping across the Plains and Midwest.

Heavy snow has developed and will continue to fall on the northern Plains, a portion of the central Plains and Upper Midwest into Thursday night as arctic air rushes in, reported Reuters. 

Into the overnight, heavy snow will extend from northeast Colorado and northwest Kansas through Nebraska, South Dakota, southeast North Dakota, Minnesota, northern Wisconsin and part of the Upper Peninsula of Michigan.

“It is a bomb cyclone, the second we’ve had,” said Brian Hurley, a meteorologist at National Weather Service (NWS) in College Park, Maryland. “This is like a slow-moving snowstorm inside a hurricane.”

PowerOutage.Us shows 13,660 homes and businesses are without power in Minnesota, and about 9,500 in South Dakota around 7 am est.

Between 4 am and 8 am, there are 61 airport delays across the U.S., mostly seen at Minneapolis−Saint Paul International Airport, according to Flight Aware.

The region in focus is the Central U.S., the same area where a “bomb cyclone” hit last month and unleashed deadly flooding and blizzards. A little over $3 billion in damage was done to property, crops, and livestock in Nebraska and Iowa alone.

“The heaviest snow so far is piling up in South and North Dakota, with some areas getting 17 inches, and more is on the way,” Hurley said. “We’re expected another 10 to 15 inches before this is done.”

The snow adds new woes to Midwest farmlands which have been slammed by President’s Trade war and last month’s “bomb cyclone.”

NWS said this storm is a “historical springtime snowstorm.”

The storm is expected to crossover the Great Lakes area and northern Michigan on Friday, bringing more rain and snow to the East North Central U.S.

via ZeroHedge News http://bit.ly/2D8yk6p Tyler Durden

WTFed! ‘Hawk-o-Meter’ Signals End Of “Patience”

Authored by Wolf Richter via WolfStreet.com,

What’s the Fed Trying to Say?

My fancy-schmancy Fed Hawk-o-Meter jumped 18% from 22 to 26, after having been on a downtrend for four Fed meetings in a row. Something’s up.

The Fed Hawk-o-Meter checks the minutes of the FOMC meetings for signs that the Fed sees the economy as strong and that rates should rise; or that the economy is OK but not strong enough to raise rates further; or that the economy is spiraling down to where rates need to be cut. It quantifies and visualizes what the Fed wishes to communicate to the markets by counting how often “strong,” “strongly,” and “stronger” appear in the minutes to describe the economy. In the minutes of the March 19-20 meeting, released this afternoon, those words appear 26 times, up 18% from 22 times in the prior minutes:

The average frequency per meeting minutes of “strong,” “strongly,” and “stronger” between January 2013 and December 2017 was 8.7 times. The 26 mentions in the March-meeting minutes were 226% the pre-redline average.

The 18% jump in the March minutes from the January minutes is particularly striking because the Fed had spent the prior four meetings backing off ever so gingerly its bullish assessment of the economy. But in March, the direction changed.

Yet the reading still hasn’t jumped back to the peak levels of last August, when the Fed, with the economy running red hot, was telling the markets that it would raise rates four times in the year.

The current reading of 26 is just above the average over the past 11 meetings minutes of 25.2, starting with the December 2017 meeting, when the Hawk-o-Meter started redlining.

“Strong,” “strongly,” and “stronger” appeared in phrases like these:

  • “Labor market conditions remained strong…”

  • “Relatively strong increases in real federal defense purchases…”

  • “Gross issuance of both investment-grade and high-yield corporate bonds was strong…”

  • “Issuance of non-agency CMBS [commercial mortgage-backed securities] remained strong…”

  • “CRE [commercial real estate] lending by banks grew at a strong pace…”

  • “Credit card loan growth remained strong…

  • “Many participants expected consumer spending to proceed at a stronger pace in coming months, supported by favorable underlying factors, including a strong labor market…”

  • “Business conditions were favorable, with strong demand for labor…”

  • “In their discussion of the labor market, participants cited evidence that conditions remained strong, including the very low unemployment rate, a further increase in the labor force participation rate, a low number of layoffs, near-record levels of job openings and help-wanted postings, and solid job gains, on average, in recent months.”

  • “Asset valuations had recovered strongly…”

“Moderated” disappears:

In the January-meeting minutes, there were three references about the pace having “moderated,” such as, “Growth of business fixed investment had moderated from its rapid pace earlier last year.” Those references to anything having “moderated” have disappeared.

“Patient” gets slashed by 46%:

“Patient” was introduced with one mention in the December-meeting minutes: “The Committee could afford to be patient about further policy firming.” In the January-meeting minutes, “patient” was escalated to a cacophonous 13 mentions. It was all over the minutes in mind-numbing repetition.

But in the March-meeting minutes, “patient” was harshly slashed to just seven mentions. That’s a 46% reduction!

And the potential end of “patient” gets escalated.

Two of these seven mentions of “patient” pointed at potential U-turn, saying that “patient” was not a permanent institution but rather something that might be transitory:

  • “Several participants observed that the characterization of the Committee’s approach to monetary policy as ‘patient’ would need to be reviewed regularly…”

  • “A couple of participants noted that the ‘patient’ characterization should not be seen as limiting the Committee’s options for making policy adjustments when they are deemed appropriate.”

These two mentions of the potential end of “patient” was an escalation of just one such mention in the January meeting minutes.

It seems, according to my fancy-schmancy Fed Hawk-o-Meter, the March-meeting minutes have a message for the markets: The Fed is back-pedaling its over-reaction to the December market turmoil, now that markets have become euphoric all over again and that credit has become super-easy again.

Then there’s the Fed’s balance sheet. Read… Fed’s QE Unwind Reaches $535 Billion, Balance Sheet Drops to $3.94 Trillion, Old Autopilot Still Engaged

via ZeroHedge News http://bit.ly/2P3tmwE Tyler Durden