Bloomberg
“Beware the $500 Billion Bond Exodus.”
For years, the likes of Apple Inc. and Microsoft Corp. have stashed billions of dollars offshore to slash their U.S. tax bills. Now, the tax-code rewrite could throw that into reverse.
The implications for the financial markets are huge. The great on-shoring could prompt multinationals — which have parked much of their overseas profits in Treasuries and U.S. investment-grade corporate debt — to lighten up on bonds and use the money to goose their stock prices. Think buybacks and dividends.
It’s hard to say how much money the companies might repatriate, but the size of their overseas stash is staggering. An estimated $3.1 trillion of corporate cash is now held offshore. Led by the tech giants, a handful of the biggest companies sit on over a half-trillion dollars in U.S. securities. In other words, they dwarf most mutual funds and hedge funds.
The $14.5 trillion Treasury market, of course, can absorb the selling pressure of even the largest corporate holders. There’s little to suggest multinationals will immediately liquidate their investments. Many analysts say companies, rather than selling, could just let their holdings gradually mature.
Yet even at the margin, a drop-off in demand could add to the government’s burgeoning funding costs. Not only are interest rates on the rise, but the most sweeping tax cuts in a generation, which could end up mostly benefiting shareholders, risk leaving the government with trillion-dollar shortfalls for years to come — an expense that taxpayers would ultimately have to bear.
And since Treasury yields are the global lending benchmark, any upswing could also ripple through the real economy in the form of higher rates on everything from credit cards to mortgages. Since September, 10-year yields have climbed over a half-percentage point, hitting a high of 2.595 percent this month.
Reuters
“21 states sue to keep net neutrality as Senate Democrats reach 50 votes.”
A group of 21 U.S. state attorneys general filed suit to challenge the Federal Communications Commission’s decision to do away with net neutrality on Tuesday while Democrats said they needed just one more vote in the Senate to repeal the FCC ruling.
The state attorneys, including those of California, New York and Virginia as well as the District of Columbia, filed a petition to challenge the action, calling it “arbitrary, capricious and an abuse of discretion” and saying that it violated federal laws and regulations.
The petition was filed with a federal appeals court in Washington as Senate Democrats said on Tuesday they had the backing of 50 members of the 100-person chamber for repeal, leaving them just one vote short of a majority.
Even if Democrats could win a majority in the Senate, a repeal would also require winning a vote in the House of Representatives, where Republicans hold a greater majority, and would still be subject to a likely veto by President Donald Trump.
The FCC voted in December along party lines to reverse rules introduced in 2015 that barred internet service providers from blocking or throttling traffic or offering paid fast lanes, also known as paid prioritization. The new rules will not take effect for at least three months, the FCC has said. A trade group representing major tech companies including Facebook Inc, Alphabet Inc and Amazon.com Inc said it would support legal challenges to the reversal.
BBC News
“Koreas to march under single ‘united’ flag in Olympic Games.”
North and South Korea have agreed to march together under a single «unified Korea» flag at next month’s Winter Olympics in the South. They also agreed to field a joint women’s ice hockey team in rare talks at the truce village of Panmunjom. These are the first high-level talks between the two Koreas in more than two years. The Games will take place between 9 and 25 February in Pyeongchang in South Korea.
If the plans are realised, a hundreds-strong North Korean delegation – including 230 cheerleaders, 140 orchestral musicians and 30 taekwondo athletes – could cross into the South via the land border to attend.
It will have to be approved by the International Olympic Committee (IOC) meeting in Lausanne, Switzerland, on Saturday, because North Korea has missed registration deadlines or failed to qualify. South Korea will also need to find ways to host the North Korean delegation without violating UN Security Council sanctions outlawing cash transfers to Pyongyang, and blacklisting certain senior officials from Pyongyang.
Japan has viewed the latest detente with suspicion, with Foreign Minister Taro Kono saying the world should not be blinded by Pyongyang’s recent «charm offensive». «It is not the time to ease pressure or to reward North Korea,» Mr Kono said, according to Reuters news agency. «The fact that North Korea is engaging in dialogue could be interpreted as proof that the sanctions are working.»
The North has made rapid recent advances in its nuclear and conventional weapons programmes.
Bloomberg
“Fossil Fuels Are Facing a $1.4 Billion Solar Problem in Texas.”
A boom in solar power is threatening to wipe out $1.4 billion a year of summertime revenue for fossil-fuel generators in Texas.
Almost 15 gigawatts of solar power may crop up in the Lone Star state in the coming years, and every gigawatt stands to shave about $2.76 a megawatt-hour from wholesale electricity prices there when demand peaks in the summer, an analysis by Bloomberg New Energy Finance show. This could end up dealing a major blow to fossil fuel-burning generators that rely on those peak prices to weather the lulls in demand through the rest of the year.
The Texas market is “especially vulnerable to the impact of solar penetration because the region relies so heavily on a handful of high-priced hours each year — and because those hours tend to align with solar production,” BNEF analyst Joshua Danial said in the report.
The looming threat to natural gas- and coal-fired plants in Texas mirrors the shifts that renewable energy has brought on in other markets. During some hours, wholesale electricity prices in California dip into negative territory as solar power peaks, flooding the state’s grid with excess supplies. Such weakening economics for power plants have sparked debates at both state and federal levels over whether coal and nuclear resources need subsidies to keep running.
To be sure, the solar surge in Texas won’t happen overnight. BNEF projects 1.8 gigawatts of new solar capacity by 2020.
“Solar has a more perverse impact on power prices in later years,” Danial said in the report. Five gigawatts of solar “is enough to squash ERCOT’s peaky average price profile,” he said.