In which the Deplorable White Van Brigade show their animal spirits, and the natural economic surplus is diverted from chocolate onions to productive investment.  A very contrarian scenario.

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Commodity Intelligence Q1 2017 (1).pdf

The worst news for Trump's Wall Street supporters is neither the Obamacare delay, nor infrastructure spending hiatus, but his tax reform, arguably the single biggest driver behind the powerful market rally. Alas, as Reuters reports, things here too may be about to get indefinitely delayed into the future, to the point where the market may finally start asking itself if it has gone up too high, too fast.

The reason for this was revealed last week in Philadelphia, when the reality of Trump's aggressive fiscal spending agenda hit the brick wall of Congressional Republicans. According to Reuters, "as congressional Republicans gathered for an annual policy retreat in Philadelphia on Wednesday, the 100-day goal morphed into 200 days. As the week wore on, leaders were saying it could take until the end of 2017 - or possibly longer - for passage of final legislation."

And while Trump had a different idea when he spoke to lawmakers in Philadelphia, "telling them: Enough talk. Time to deliver", he may have no recourse when dealing with the bitterly polarized and fragmented House of representatives:

barely visible in Philadelphia, there are potential flashpoints of disagreement within the Republican rank-and-file in Congress as well as between Republican lawmakers and the unorthodox new president.

These include how and when to replace Obamacare if Republicans succeed in their quest to repeal it; how to revamp the multi-layered tax code, whether to build a wall on the U.S. border with Mexico and the nature of the U.S. relationship with Russia.

But the most troubling revelations was the following: "When it comes to tax reform, senior congressional aides said the spring of 2018 might be a more likely time than this year for the passage of legislation."

http://www.zerohedge.com/news/2017-01-29/first-big-shock-wall-street-republicans-warn-no-trump-tax-reform-until-spring-2018

House Republicans, led by Paul Ryan, have been trying to give President Donald Trump an outlet for his protectionist impulses while avoiding any increase in tariffs. They hit on a clever plan — but on Thursday a series of remarks by Trump spokesman Sean Spicer and reports by journalists showed that it might have been too clever.

The House Republican idea is to cut the corporate-income tax to 20 percent and modify it. Crucially, the new corporate tax would have a feature in common with most of the value-added taxes (VATs) that other countries use: It would apply to imports but not exports. The idea is to tax all domestically consumed goods, whether those goods are produced here or abroad.

This "border adjusted" tax wouldn't be a tariff, because it wouldn't discriminate between imports and goods produced in America for Americans. It therefore wouldn't bias a consumer's choice between a domestically produced good and a competing import.

Some Republicans think that other countries' VATs help to reduce their trade deficits and that we could reduce ours by adopting a border-adjusted tax. They are probably wrong about that: Most economists believe that when countries adopt such taxes, their currencies appreciate and their total imports and exports end up roughly unchanged. (How fast this happens is an open question.)

But since we import more than we export, applying taxes to imports but not to exports also raises money for the federal government. The economist Martin Feldstein estimates that border adjustment could raise $120 billion a year. That's another reason House Republicans like it: They could use the revenue to offset some of the tax cuts they want to enact.

The best argument for border adjustment is that it is a way for free traders to tell Trump that they are going to discourage imports and encourage exports, while at the same time they avoid outright protectionism. That rationale depends on Trump's not quite grasping what's going on.

Problem No. 1 with this plan is that Trump's understanding of it is a little too poor. He recently said that border adjustment was "too complicated" and sounded as if it could be a "bad deal" — sounding as if he thought it had something to do with international trade negotiations, when it is actually something Congress could simply legislate. But later he said it would be an option.

On Thursday, Trump spokesman Sean Spicer introduced more confusion. He told reporters that it was possible to make Mexico pay for the border wall by "using comprehensive tax reform as a means to tax imports from countries that we have a trade deficit from, like Mexico." He said, "That's really going to provide the funding."

Spicer didn't describe the plan correctly. The reform in question would tax all imports, not just imports from countries with which we have a trade deficit. And reporters garbled things further. The New York Times, for example, erred early on in reporting that the tax would apply to all countries but that "initially" it would apply just to Mexico. Spicer had mentioned Mexico because he was making a point about the border wall, not because it would be singled out by the tax.

And then Spicer explained that the administration wasn't, after all, endorsing the border-adjustment idea, which he said was just one of several options under consideration. In making this clarification, he repeated his misleading assertion that border adjustment would tax imports from countries with which we have a trade deficit.

Meanwhile, Rep. Chris Collins, R-New York, a critic of free trade, went on MSNBC to defend border adjustment. He called it a "surcharge" on imports that would improve our competitiveness.

It's not a surcharge on imports, since it's the same tax that would be applied to American companies selling to Americans. It probably wouldn't change the trade balance, either, because it would cause the dollar to appreciate. Supporters of free trade, meanwhile, were aghast at what they took to be another sign of protectionism coming from the Trump administration.

Border adjustment may be a good idea. It has some very smart supporters. But the list of people who do not understand it currently includes congressional advocates of it, critics of it, some journalists reporting on it, the president who would have to sign it into law and his spokesman. Some of this misunderstanding is the result of the special chaos that policy formation in this administration involves.

But maybe Trump was right the first time, and this idea is indeed too complicated for our political system to handle.

http://magicvalley.com/news/opinion/columns/other-view-gop-s-clever-tax-plan-managed-to-baffle/article_7ae68aad-e19d-5f6a-ae8d-7c3fb28a1d67.html

The U.S. economy decelerated in the final three months of 2016, returning to the familiar pace of growth that has marked the long but lackluster postrecession expansion.

Gross domestic product, a broad measure of the goods and services produced across the economy, expanded at an inflation and seasonally adjusted annual rate of 1.9% in the fourth quarter, the Commerce Department said Friday. That was a slowdown from the third quarter’s 3.5% growth rate, which had been the strongest reading in two years.

Economists surveyed by The Wall Street Journal had expected a 2.2% growth rate in the final three months of 2016.

The economy’s expansion last quarter reflected decent consumer spending, a rebound for home-building and stronger business investment in both new equipment and research-and-development projects.

Two volatile categories buffeted the headline growth figure: Private inventories contributed a full percentage point to the fourth quarter’s growth rate, but a wider trade deficit subtracted 1.7 percentage points.

Economic output also rose 1.9% in the fourth quarter compared with a year earlier, matching its growth during 2015 and close to the 2.1% average annual growth rate since the recession ended in mid-2009. The current expansion has lasted longer than the historical average, but its average rate has been the weakest since at least 1949.

That unspectacular trend may continue in the coming years. The nonpartisan Congressional Budget Office this week projected GDP would grow 2.3% in 2017 and 1.9% in 2018. The agency said structural trends, including baby-boomer retirements, are driving a slowdown in economic growth compared with past decades.

Nick Fanandakis, DuPont Co.’s chief financial officer, told analysts Tuesday that the chemicals company expects stronger U.S. growth in the coming year, “but we remain cautious amid economic uncertainty and the stronger dollar.” A strong dollar can hurt manufacturers by making U.S. exports more expensive for foreign customers.

President Donald Trump, who took office this month, has set a goal of generating 4% annual growth by overhauling the tax code and rolling back federal regulations, among other measures. Some forecasters have raised their projections for U.S. growth this year and in 2018 in anticipation of tax cuts and infrastructure spending.

“We look at the talk of stimulus with some anticipation of a positive boost to the economy,” Texas Instruments Inc. CFO Kevin March told analysts this week. “But frankly we think it’s probably too early to figure out what that might be and how it might manifest itself.”

Economists have warned it will be difficult to significantly boost the economy’s sustainable growth rate due to projected slow growth in the size of the workforce and the recent sluggish trend for labor productivity.

Economic growth “has been restrained in recent years by a variety of forces depressing both supply and demand, including slow labor force and productivity growth, weak growth abroad and lingering headwinds from the financial crisis,” Federal Reserve Chairwoman Janet Yellen said last week. “Although I am cautiously optimistic that some of these forces will abate over time, I anticipate that they will continue to restrain overall growth over the medium term.”

But in the short term, GDP growth fluctuates from quarter to quarter due to changes in household outlays, government spending, trade patterns and other factors.

Friday’s report showed consumer spending, which accounts for more than two-thirds of overall economic activity, rose at a 2.5% annual rate in the fourth quarter compared with 3.0% growth in the third quarter. Outlays were led last quarter by a 10.9% growth rate for spending on durable goods such as automobiles, the third straight quarter of strong growth in the category.

Business investment continued to pick up in late 2016. Fixed nonresidential investment increased at a 2.4% annual pace in the final three months of the year, the third consecutive quarter of growth. Companies pulled back last quarter on structures spending, but ramped up expenditures on equipment and intellectual property products like software and R&D.

Net exports subtracted 1.7 percentage points from the fourth quarter’s GDP growth rate, reflecting a drop in exports and a large rise in imports. It was the largest trade-related drag on overall growth since the second quarter of 2010. A temporary surge in soybean exports during the third quarter had helped narrow the overall trade gap, and net exports boosted the headline GDP growth rate that quarter by 0.85 percentage point.

The housing sector rebounded last quarter, with residential investment growing at a 10.2% annual pace following two straight quarters of decline. Mortgage rates remain low but have risen in recent months, posing a potential headwind for buyer demand in 2017.

Government spending supported growth in late 2016, rising at a 1.2% pace in the fourth quarter. The federal government reduced military spending compared with the third quarter, but state and local governments ramped up their investment spending.

Private inventories added 1.0 percentage point to last quarter’s GDP growth rate, after contributing 0.49 percentage point to the third quarter’s growth rate. Previously, inventories had been a drag on growth for five consecutive quarters.

Inflation picked up in the fourth quarter, partly reflecting the recent rise in gasoline prices. The Fed’s preferred price gauge, the personal consumption expenditures price index, rose an annualized 2.2% in the fourth quarter. Excluding the often volatile categories of food and energy, so-called core prices rose at a more modest 1.3% pace.

The Fed has set a goal of 2% annual inflation, and the U.S. central bank said in mid-December it expected long-subdued U.S. price growth would firm to that level “over the medium term as the transitory effects of past declines in energy and import prices dissipate and the labor market strengthens further.”

http://www.wsj.com/articles/u-s-gdp-grew-1-9-in-fourth-quarter-1485524015?mod=e2twcb

Tougher law enforcement has reduced the number of environmental offenders in Beijing in recent years, but more companies need to adapt to the emissions standards in China's capital, its environmental inspection squad says.

    Beijing has been on the frontlines of a "war against pollution" declared by Premier Li Keqiang in 2014, as part of a central government promise to reverse damage done by decades of growth, and strengthen powers to shut down and punish polluters.

    With more than 500 environmental inspectors working to identify offenders, thousands of companies have been investigated and punished in the past four years.        

    But beyond simply enforcing standards, the squad faces the critical task of persuading more firms of the value of protecting the environment, said Wang Yankui, the chief of Beijing's central environmental inspection squad.

"The difficulty we face now is how to influence more companies to actively make improvements for the sake of environmental protection," Wang added. "Some companies have this intention, but they don't know how to do it."

    Besides dealing with violators, the inspectors also keep tabs on "model" companies that have already adopted city standards.

The squad runs a hotline for city residents to report potential polluters, who could eventually join its network of identified offenders.

    "If we don't obey the rules, then we might be penalized, or shut down," said Li Qiang, an official of a car finishing factory on the outskirts of Beijing, which has managed to keep pace with changing environmental standards for several years.

"As a business, survival needs profits, and profits are made under the pre-condition that we abide by the provisions or requirements of the government."

    Cars, not industries, are Beijing's primary polluters, the national environmental protection bureau said this month, blaming vehicles for more than 31 percent of harmful emissions.

Authorities have responded by clamping down on the number of vehicles on the road when smog alerts are issued.

    But most of the smog originates from polluting industries in surrounding provinces that must be convinced of the need to obey the law, said Greenpeace campaigner Dong Liansai.

    "If we only rely on the basic law enforcement authorities and polluting companies to play some sort of cat-and-mouse game, then there may be no way of solving the current pollution problems," he added.

    While many of Beijing's polluting industries have moved to other provinces, Wang said local authorities have jurisdiction and enforcement is up to them.

    Some Beijing residents fear the government's environmental policies will fail if they ignore polluters in surrounding areas.

    "I think (Beijing's) current policies are to treat the symptoms but not the cause," said Zhou Gesun, a technician working in the information technology industry.

There is only minor payoff from efforts such as odd and even license-number curbs on vehicle use, and halting work on construction sites, he added.

"The big factors are the areas surrounding Beijing, for instance, heavy industrial factories in Hebei. I think they should bring these factories under their control."

    Besides the squads, Beijing will set up a police force to specifically target environmental offences and polluting activities including open-air barbecues and garbage and biomass burning, the capital's acting mayor, Cai Qi, said this month.

http://www.reuters.com/article/us-china-pollution-inspection-idUSKBN15B0IB

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