Both Airbus (AIR. PA) and Boeing (BA. N) now offer aircraft that appear capable of flying non-stop commercial flights from Sydney to London – the “Holy Grail” for Australian carrier Qantas Airways Ltd (QAN. AX). As long as oil prices don’t go much higher than around $70 per barrel, the 20-hour flight can be financially viable, and could be on schedules within five years, aviation experts say. Airbus has increased the range of its A350-900ULR to 9,700 nautical miles (17,960 kms) from the 8,700 nautical miles announced when it sold the plane to Singapore Airlines (SIAL. SI) in 2015 for delivery next year, a spokesman told Reuters. Including headwinds, the Sydney-London flight is equivalent to 9,600 nautical miles.”These aircraft, we think, are potentially real goers on these routes,” Qantas CEO Alan Joyce told Reuters of the A350-900ULR and the bigger but less advanced Boeing 777-8. “You know from what they have done on other aircraft that Sydney-London and Melbourne-London has real possibility.”For Qantas, a non-stop Sydney-London route that cuts three hours off the flight time would allow it to charge a premium and differentiate its product from the around two dozen other airlines plying the so-called Kangaroo route with stop-offs in Singapore, Dubai and Hong Kong. The route accounts for only 13 percent of Qantas’ international capacity, but carries the prestige QF1 flight number and is important to its global brand. Qantas could charge around a 20 percent price premium for a non-stop Sydney-London flight as it would attract business and premium leisure travelers wanting to complete the trip as fast as possible, said Rico Merkert, a professor specializing in transport at the University of Sydney’s business school.”It’s something that can be presented as a unique selling point for Qantas,” he said. FUELLING DOUBTS Qantas begins non-stop flights from Perth to London next year, using the Boeing 787-9 Dreamliner. For this scheduled flight, the Dreamliner will have fewer seats than usual, will use the most advanced flight path modeling methods, and will reduce the weight in areas seemingly as minor as the dishes and forks.

The Perth flight will take 17 hours – a far cry from the four days and seven stops it took when Qantas created the Kangaroo Route to London in 1947. Qantas can offset the higher cost of carrying more fuel to complete the flight by saving on stopover costs, such as airport charges, ground handling, taxes, crew hotel rooms and lounge usage.”In terms of economics, much depends on fuel prices,” said Teal Group aerospace analyst Richard Aboulafia. “If they stay at $50 a barrel or less, it should be possible to keep costs reasonable. But as fuel goes up, the disadvantages of flying a very heavy plane begin to make ultra-long haul problematic.”He said the flight should remain economic at prices below around $70 a barrel, though Leeham Co analyst Bjorn Fehrm said the actual level could be far higher as one-stop rivals would also be squeezed by higher oil prices. Singapore Airlines ended its New York and Los Angeles flights using the four-engined A340-500 in 2013 when oil prices topped $107 a barrel. The carrier is now waiting for delivery of the far more fuel-efficient twin-engined A350-900ULR next year. HEADWINDS

Qantas is pushing the planemakers hard on a stretch goal of completing the Sydney-London flight with 300 seats to give it the highest possible revenue and fleet flexibility. However, Fehrm said the aircraft would likely fall short of that goal if Qantas wanted to avoid a fuel stop on the westbound leg when headwinds are strongest. If such stopovers became frequent enough, Qantas would lose its ability to charge a premium on the route. Two aviation industry sources said the Airbus A350-900ULR would fit more than 250 passengers on the Sydney-London route, up from the 170 mainly business-class seats on Singapore Airlines’ configuration for flights to New York and Los Angeles. Boeing’s 777-8, due to enter service early in the next decade, could carry around 280 passengers on the westbound leg of the Sydney-London flight, the sources said. The sources declined to be named because the configuration details are not finalised. Airbus and Boeing declined to comment specifically on the seat count.”We think our airplane has the legs and the capability,” said Dinesh Keskar, Boeing Senior Vice President Sales Asia-Pacific and India. “If the 787-9 can do Perth-London, we think that when the 777-8 comes out in the 2021 timeframe we will have a lot more improvement in technology.”

Airbus, Boeing and engine manufacturers are constantly investing to reduce fuel usage, extending a plane’s range and its ability to perform in hot conditions like the Middle East. That means the planemakers don’t have to invest specifically for any Qantas order, the size of which is still unclear. Pushing the seat count towards 300 would also give Qantas the flexibility to use these aircraft on other long routes, such as a mooted Sydney-New York flight, as it looks to replace six ageing 747-400ER planes and eventually its fleet of 12 A380s. BEST PRICING Qantas’ Joyce has raised publicly the possibility of ordering the 777-8 for ultra-long haul flights for the last two years, but the A350-900ULR has entered the equation more recently.”It has added competition, and we would be crazy if we didn’t do a competition at the right time,” Joyce said. “That gets you the best pricing and … the most capable aircraft.”Qantas has yet to launch a formal tender process for the prestige order, as it waits for Boeing to finalize the specifications on the 777-8. But the first Sydney-London flights are possible around 2022, Joyce said.”The Kangaroo route is probably the most competitive on the globe,” Joyce said. ”

In a White House marked by infighting, top economic aide Gary Cohn, a Democrat and former Goldman Sachs banker, is muscling aside some of President Donald Trump’s hard-right advisers to push more moderate, business-friendly economic policies. Cohn, 56, did not work on Republican Trump’s campaign and only got to know him after the November election, but he has emerged as one of the administration’s most powerful players in an ascent that rankles conservatives. Trump refers to his director of the National Economic Council (NEC), as “one of my geniuses,” according to one source close to Cohn. More than half a dozen sources on Wall Street and in the White House said Cohn has gained the upper hand over Trump’s chief strategist, Steve Bannon, the former head of the right-wing website Breitbart News and a champion of protectionist trade opposed by moderate Republicans and many big companies. Cohn is a key administration link to business executives and White House sources say he will lead the charge for Trump on top domestic priorities such as tax reform, infrastructure and deregulation. “Gary’s singular focus is tax reform and he’s working to try and get that done in 2017,” said Orin Snyder, a partner at law firm Gibson Dunn and a long-time friend of Cohn. “He is working to implement the president’s twin goals of economic growth and job creation. The tax plan will also include a reduction in the corporate rate, but also tax relief for middle- and low-income Americans.”Some conservatives fear Cohn may push through a tax plan that is unnecessarily complicated and argue that including tax relief for middle- and low-income Americans would not spur economic growth as much as cuts focused entirely or mostly on businesses and entrepreneurs. Adam Brandon, president of the conservative group FreedomWorks, is disappointed Trump is not charging ahead with a plan unveiled last year during his campaign that would slash taxes on businesses and wealthy individuals. That plan was shaped heavily by Stephen Moore, an economic policy expert at the conservative Heritage Foundation think tank, who advised Trump’s campaign. But it has since been shelved.

“I don’t like the idea of scrapping it and starting over again,” Brandon said. A senior administration official said the White House has started from scratch on the tax plan and, while setting business tax cuts as the highest priority, is consulting with lawmakers, economists and business leaders before taking it to the Republican-led Congress. Two administration officials said reports that the White House was considering a carbon tax and a value-added tax were incorrect, but that other ideas were on the table. “We are considering a multitude of options for tax reform,” a White House official said on Sunday. RAPPORT Associates of both Trump and Cohn say the two have developed a bond. People who have worked with Cohn say he is loyal, direct and assertive, traits that Trump likes.

Crucially, Cohn also has the trust of Jared Kushner, Trump’s adviser and son-in-law, and his wife Ivanka, Trump’s daughter. Cohn hired his staff more quickly than other top officials, building a reputation for competence in an administration hurt by early missteps over healthcare reform and a travel ban, the sources said.”Gary is a huge asset to the Trump administration. He’ll be of great help in eliminating unnecessary regulation, stimulating growth and reforming the tax code,” said billionaire hedge fund manager John Paulson, an early backer of Trump who knows Cohn through Wall Street circles. The son of middle-class parents in Cleveland, Ohio, Cohn overcame dyslexia and worked in sales before elbowing his way into a position as a Wall Street trader and rising to become president and chief operating officer at Goldman Sachs Group Inc (GS. N).     Kushner was a Goldman Sachs intern when he first crossed paths with Cohn. After Trump’s election victory, Kushner paved the way for Cohn to meet the president-elect, who had spent much of the campaign blasting investment banks as modern-day robber barons. Trump soon named Cohn his NEC director.

Apparently paying more heed to Cohn and other moderates on his team, Trump last week said he was open to reappointing Janet Yellen as Federal Reserve chairman when her term is up and he also held back from naming China a currency manipulator. Both stances marked a reversal from his campaign when Trump criticized Yellen and vowed to label China a currency manipulator on “day one” of his administration, a move that could lead to punitive duties on Chinese goods. Sources close to Cohn and inside the White House said there are sharp policy differences between Cohn and both Bannon and Reince Priebus, White House chief of staff. A White House spokesperson denied there was a power struggle inside the West Wing. Cohn has already put his stamp on regulatory policy by working with Kushner to successfully push Wall Street lawyer Jay Clayton for head of the Securities and Exchange Commission after billionaire investor Carl Icahn, an early Trump supporter, had vetted other candidates. Clayton’s nomination has been advanced to the Senate for a vote. The vacant Federal Reserve vice chairman’s seat is a key regulatory role Cohn and his colleagues on the economic team want to fill soon. Cohn has interviewed nearly two dozen candidates and has whittled the list down. Randal Quarles, a veteran of the George W. Bush administration is one of several candidates left, a source familiar with the process said. Cohn will also take a leading role in developing Trump’s infrastructure plan to rebuild airports, roads and bridges. The biggest challenge may be figuring out how to pay for the initiative, which Trump has estimated at $1 trillion. While conservatives are concerned by Cohn, they note that Bannon is still part of Trump’s mercurial administration and that Cohn could fall out of favor as quickly as he has risen.    “Whoever is up today,” Brandon said, “could be gone tomorrow.”

In the years since the 2008 financial crisis, this southern U.S. port city has attracted a new Airbus factory, seen its steel industry retool, and gained thousands of jobs building the Navy’s new combat vessel. Some 300 miles north in Huntsville, new businesses sprout in farm fields drawn by readily available land, low taxes, flexible labor rules and improving infrastructure. As President Trump faces pressure to deliver on his promise to revive manufacturing in the northern “rust belt” states that put him in the White House, his biggest challenge may not be Mexico or China, but the southern U.S. states that form the other pillar of his political base. States like Alabama have built a presence in the global supply chain in direct competition with the country’s Midwestern industrial heartland, and even if Trump coaxes jobs back to the United States they may well head south rather than north. Whether the “rust belt’s” expectations are met will be central to 2018 U.S. mid-term elections and likely frame the presidential race in 2020. The southern states are reliably Republican, but the party’s ability to repeat its success in Midwestern swing states, such as Michigan, Ohio and Wisconsin, may hinge on whether the Trump administration delivers on its economic promises. For a decade now, nine southern states – North Carolina, South Carolina, Georgia, Tennessee, Kentucky, Alabama, Mississippi, Louisiana, and Texas – together have accounted for a larger share of the U.S. economy than nine northern states that defined America as the 20th century’s industrial superpower, according to a Reuters analysis of federal data. The analysis compared gross domestic product, population and other factors among northern and Midwestern states that played a key role in Trump’s victory or are typically considered part of the industrial heartland, with those in the south and along the Gulf Coast that have become an emerging destination for auto and other investment. (For graphic on’ A battle for jobs’ click: tmsnrt.rs/2nHSda5) Florida, a state whose population has boomed under an influx of retirees, many of them from the north, was excluded. FREE LAND AND DEGREES Economists and industrial site consultants say the reasons behind the trend have moved beyond lower wages and lower levels of unionization. Per capita income in the south has now almost caught up with that in the Midwest, and its skilled workforce continues to grow as college graduates move in.

“Labor? Perceived advantages. Taxes? Some of these are fairly low (tax) states. Real estate? For big projects that are going to employ three, four, five thousand people, you can find free land – zero cost land,” said Darin Buelow, an industrial site specialist with Deloitte Consulting. In the south, business executives and development officials interviewed by Reuters were less likely to call for new tariffs and trade deals than to worry about how any new regime may disrupt a system they have learned to work with. David Fernandes, president of Toyota Motor Manufacturing Alabama, said that of the roughly 700,000 engines the factory made last year, half went to Mexico and Canada. The facility also makes engines for cars assembled at a Toyota plant in Georgetown, Kentucky. “Anything that hinders the opportunity to provide product to a customer is what is concerning,” he said. Plants in Kentucky and Indiana gave Toyota a U.S. foothold in the 1980s and 1990s, but in this century the Japanese carmaker turned to Alabama, Texas and Mississippi for expansion. Located on former cotton fields, the company’s Huntsville, Alabama, plant now employs more than 1,400 people and churns out about 3,000 engines a day. Gunmaker Remington Outdoor [FREDM. UL] came to Huntsville lured by $110 million in tax and other concessions. Its factory here is expected to eventually employ 2,000, and it has already begun shifting employees from elsewhere, including 100 from the town in upstate New York where the company was founded two centuries ago.

Jeremy Littlejohn moved his cloud computing start-up RISC Networks from Chicago to Asheville, NC, in 2012 for the less hectic pace, but has found the location a selling point as he grew from 6 to 33 employees. Many of those new workers came from out of state, contributing to North Carolina’s net annual influx of about 46,000 college degree holders. That migration of educated workers is the norm among the southern states. The rust belt by contrast saw a net outflow of more than 400,000 residents with college degrees between 2007 and 2014. The customers are heading south too. From 1990 to 2015, population in the nine southern and gulf states grew 43 percent, to more than 76 million, and passed that of the rust belt states in the late 1990s. Population in the rust belt grew 13 percent, to 63 million, over the same period. When the Minnesota-based Polaris Industries Inc. began planning a new facility for its line of outdoor vehicles, “there was no Minnesota play,” said Eric Blackwell, director of operations at the company’s new factory outside Huntsville. The market for Polaris’ machines, popular for farm work, hunting and sport riding, was growing in the south. Open land was available, and Alabama had programs to help recruit and train a workforce expected to rise to 1,500. FROM LAGGARD TO A RISING TIDE

Globalization hit both the north and the south hard. Between 2000 and 2010 each lost about a third of their manufacturing jobs. But employment rebounded faster and more broadly in the south. Between 2000 and 2015, combined private sector employment in nine southern and gulf coast states still grew 13.5 percent. In the nine northern states total private sector jobs as of 2015 remained 1.3 percent below their 2000 level, according to federal data. The transition dates back to the 1980s, when German and Japanese automakers began investing in what has become a sprawling, regional industry. Supplier networks followed, creating even stiffer competition in an industry already changing due to passage of the North American Free Trade Agreement

Can you count on your Social Security benefits when retirement rolls around?Most Americans worry about this – partly due to the nonsense they hear from political opponents of Social Security and ill-informed media. You will hear that the program is bankrupt, its reserves are nothing but a bunch of IOUs, or that Social Security is a Ponzi scheme. All of those claims are false, but there is one good reason for concern. Social Security faces a long-term financial imbalance that would force sharp benefit cuts in 2034 unless the government makes changes. The problem stems from falling fertility rates and labor force growth – which reduces collection of payroll taxes that fund the system – and also from the retirement of baby boomers, which increases benefit costs. Absent reform, Social Security could continue to pay roughly 75 percent of promised benefits. The cuts would mean that the typical 65-year-old worker could expect Social Security to replace 27 percent of pre-retirement income, down from 36 percent today, according to the Center for Retirement Research at Boston College. No surprise, then, that only 37 percent of workers are “very or somewhat confident” that Social Security will be able to maintain current benefit levels in the future, according to survey research by the Employee Benefit Research Institute (EBRI) – although confidence is much higher among older workers and retirees. From a math standpoint, potential solutions to the problem are straightforward. The cuts can be avoided through increased revenue, benefit reductions or some combination of the two. But the politics are another matter.

Republicans are far from holding a unified position on the issue. For example, U.S. Representative Sam Johnson, a Texas Republican who chairs the House Ways and Means subcommittee on Social Security, has proposed legislation containing two significant benefit cuts: gradually raising full retirement ages to 69 by 2030, and using a less generous annual cost-of-living adjustment formula known as the chained CPI. Meanwhile, President Donald Trump has so far held to his campaign promise of opposing cuts. He has suggested that economic growth will solve the problem by stimulating wage growth and payroll tax collections – a position most economists dismiss as unrealistic. REPUBLICAN ENTHUSIASM LACKING The last major Republican reform proposal dates back to the George W. Bush administration, which proposed shifting the program to personal savings accounts – an idea that aroused Republican passion but that went down in flames.

“That was an idea that got people excited, but there hasn’t been much enthusiasm for Social Security reform among Republicans since then,” said Andrew Biggs, resident scholar at the conservative American Enterprise Institute. Biggs worked on Social Security reform as an associate director of the White House National Economic Council. Meanwhile, Democrats are in no mood to work with the Trump administration on anything that forces a compromise on their core values – and they have shifted significantly to the left on Social Security reform. Representative John Larson has introduced legislation that would not only restore trust fund balance but expand benefits. That is by far the best approach, since roughly half of all households have saved less than $25,000, according to EBRI. Larson’s bill is cosponsored by more than 80 percent of the Democratic House caucus – more than any previous expansion bill. The bill would increase benefits by 2 percent across the board, shift to a more generous annual cost-of-living adjustment that reflects spending by seniors and set a new minimum benefit at 25 percent above the poverty line. It also would cut taxes for millions of retirees by boosting significantly the threshold for taxation of benefits. The plan raises revenue by gradually increasing the payroll tax rates that fund the program. The rate hikes would begin in 2019, and by 2042, workers and employers would pay 7.4 percent each, instead of the current 6.2 percent.

Larson, a Connecticut Democrat, also proposes changes to the payroll tax cap for very wealthy beneficiaries. Currently, payroll tax is collected only on wages up to $127,200; the plan would start collecting taxes again on wages above $400,000. That exempts more income than many earlier expansion plans, which either removed the cap entirely or resumed taxation at $250,000. The payroll tax cap feature played an important role in boosting support for expansion legislation, according to Max Richtman, CEO of the National Committee to Preserve Social Security and Medicare, a progressive advocacy group that supports the bill. “It brought many of the more conservative Democratic legislators on board,” he said. Of course, the Larson bill is going nowhere in the Republican-controlled Congress, so Social Security reform will not happen before the 2018 midterm elections at the earliest – and perhaps much later than that. But that does not mean beneficiaries should worry about draconian cuts in 2034. Even if reform is not achieved by 2034, Biggs thinks the problem likely would be solved at the 11th hour through tax increases – simply because benefit cuts must be enacted and phased in over long periods to give beneficiaries time to adjust. “If they were going to do this by cutting benefits, it should have been enacted 20 years ago,” he said. “If you want to do it by raising taxes you want to wait as long as possible, so that you get to the point where the only solution is to put more money into the program.”But the uncertainty on Social Security policy will continue to undermine public confidence in the program – and that is worrying. Meanwhile, the clock is ticking.

President Donald Trump’s tax plan, due to be unveiled on Wednesday and proposing to sharply cut rates for businesses and on overseas corporate profits returned to the United States, was likely to be treated by Congress as just an opening gambit. The Trump administration touted the blueprint, which also calls for raising standard deductions for individuals, as a landmark tax cut just days before the president marks his 100th day in office on Saturday. But the proposal will likely fall short of a comprehensive tax code overhaul long discussed by his fellow Republicans. And while Republicans control the House of Representatives and the Senate, the plan may be unpalatable to party fiscal hawks. Since it lacks proposals for raising new revenue, it would potentially add billions of dollars to the federal deficit. Trump’s proposals were expected to be unveiled at the White House at 1:30 p.m. ET (1730 GMT) on Wednesday by Treasury Secretary Steve Mnuchin and Trump economic adviser Gary Cohn. Mnuchin, spearheading the administration’s effort to craft a package that can pass Congress, described the plan as “the biggest tax cut” in U.S. history, telling a Washington breakfast forum he hoped it would attract broad support.”There’s multiple ways of doing this and the president is determined that we will have tax reform,” he said. “It was very important to the president that we put out the core principles. This is part of his big impact for the first 100 days.”Republican House Speaker Paul Ryan, a longtime champion of a major tax restructuring, expressed optimism about the plan, even though it is not expected to include a “border adjustment” tax on imports that he has pushed. The controversial idea was part of earlier initiatives floated by House Republicans as a way to offset revenue losses resulting from steep tax cuts.”We’ve seen a sneak preview. We like it a lot,” Ryan told a gathering of lobbyists and lawyers. “It puts us on the same page. We’re in agreement on 80 percent and on the (remaining) 20 percent we’re in the same ballpark.”Republican lawmakers generally greeted Trump’s plan as a single viewpoint that will start negotiations in Congress and will ultimately be modified if it becomes law.

“I welcome the White House’s initiative on this, it’s a good thing,” Republican Representative Peter Roskam, a member of the tax-writing Ways and Means Committee, told lobbyists. Senate Democratic leader Chuck Schumer slammed the plan and took a jab at Trump, a wealthy New York real estate developer.”If the president’s plan is to give a massive tax break to the very wealthy in this country – a plan that will mostly benefit people and businesses like President Trump’s – that won’t pass muster with we Democrats,” he said in a statement. U.S. stocks hovered near record levels on Wednesday ahead of the unveiling of the plan, a reflection of Wall Street’s optimism about corporate tax cuts since Trump’s election in November. Some analysts said investors were aware of the long road ahead before any tax bill is passed.

“We have a pretty good idea that he (Trump) is targeting lower corporate taxes, lower individual taxes and a simplification of the process, but all that is in an ideal world,” said Andre Bakhos, managing director at Janlyn Capital in Bernardsville, New Jersey. “The market will not interpret the plan negatively, but there are obstacles in that course, just like with anything that Trump says and does.” ‘TAX GIVEAWAY’ Trump’s plan would cut the income tax rate paid by public corporations to 15 percent from 35 percent and reduce the top tax rate assessed on pass-through businesses, including small partnerships and sole proprietorships, to 15 percent from 39.6 percent, Mnuchin said. While public corporations’ profits or losses are taxed directly, “pass-through” businesses are taxed under the individual income tax code. Schumer called the 15 percent proposal “a tax giveaway to the very, very wealthy that will explode the deficit,” although Mnuchin said rich individuals would not be able to use the lower business rate as a loophole.

Trump will also propose, according to a White House official, that corporations bring offshore profits into the country at a 10 percent tax rate, well below the current 35 percent rate. Trump made this proposal in his campaign. About $2.6 trillion in profits are being held tax-exempt abroad by U.S. multinationals under a rule that says they are only taxable if brought into the United States, or repatriated. Trump proposes requiring repatriation, but at the lower rate. If enacted, the measure would produce a one-time surge in revenue that could be dedicated to infrastructure spending, an idea that could attract votes from Democrats. Trump will also call for an increase in the standard deduction people can claim on their tax returns, an administration official confirmed on Wednesday. Democrats and fiscal-hawk Republicans will be concerned about how much Trump’s proposals would cause the deficit to balloon. To minimize that impact, Republicans will rely heavily on “dynamic scoring.” This is a controversial economic modeling method that attempts to predict economic growth and new tax revenues resulting from tax cuts. If a bill is deemed to increase the national deficit beyond a 10-year window that is covered by the budget, then it would need 60 senators to support the changes. Because there are only 52 Republicans in the Senate, Trump would need to win over at least eight Democrats to meet the higher bar. But Republicans have suggested they could skirt the 60-vote requirement by using expiration dates and dynamic scoring – a process that projects deficits while also arguing that tax cuts will grow the economy. The last thorough overhaul of the U.S. tax code, a much more comprehensive package than a collection of tax cuts, was accomplished in 1986 during the administration of former President Ronald Reagan, a Republican.

Four years ago, two analysts who liked to swap notes on numbers they thought looked odd took a fateful step and tipped off U.S. regulators about a company that one of them had watched for months. Orthofix International NV (OFIX. O) caught one of the analysts’ attention in 2012. The Texas-based medical device maker kept hitting ambitious earnings targets and many analysts had “buy” recommendations for the stock. But the analyst thought something was off. Its earnings reports showed it was taking longer than usual for the company to get paid by wholesale customers, invoices were piling up and executives struggled to offer a convincing explanation, saying logistical problems at foreign offices were partly to blame. He spent months tracking quarterly reports and earning calls, and using algorithms to compare Orthofix’s ratios and patterns of sales and inventory turnover with financial data of its peers stored in databases such as Compustat.”I am always on the lookout for something unusual, either just unusually good and under appreciated, or unusually bad,” the analyst told Reuters. “This one showed up as a company that looked like it had the potential to be unusually bad.”In the spring of 2013, he e-mailed his spreadsheets to a fellow analyst and a friend of more than a decade, with whom he regularly chatted about companies and sectors. “The way we work together is one person makes a suggestion and the other person challenges it,” that friend told Reuters.”It is like a war game.”Now both men stand to win as much as $2.5 million after Orthofix reached a $8.25 million settlement in January with the Securities and Exchange Commission and several former executives collectively paid $120,000 in penalties to resolve accounting fraud charges. The award might even be bigger, if the SEC also credits the analysts’ tip for leading to a second civil settlement concerning foreign corrupt practices charges. The pair declined to be publicly identified, citing concerns that it might jeopardize their current professional relations. Referring to its January settlement with the SEC, Orthofix spokeswoman Denise Landry said the company had self-reported to the regulator and fully cooperated with the government during the investigation.

“We are pleased these matters are behind us,” she said, declining to comment further. By entering the SEC whistleblower program the duo showed how outsiders with analytical skills and tools and time to spare can accomplish what is typically done by those with inside access to confidential information. The program, established in 2011 under the Dodd-Frank financial reform law, aimed to bolster the SEC’s enforcement program by encouraging insiders to report potential fraud. However, since its inception through Sept. 30, 2016, just over a third of the more than $111 million awarded to whistleblowers went to outsiders such as analysts or short-sellers, according to the SEC. “Sometimes outsiders have a particular expertise and they are able to independently piece things together that might not be as obvious to those close to the matter,” said Jane Norberg, the head of the SEC’s Office of the Whistleblower. “CHANNEL STUFFING”

In Orthofix’s case, what the two analysts pieced together suggested that Orthofix was goosing its earnings by “channel stuffing.” If not disclosed to investors, the practice of flooding distributors with more products than they can use or pay for is illegal. It lets the company smooth earnings by prematurely recognizing revenue, and pushing shortfalls into the future. As the SEC settlement later showed, Orthofix was sending various implants from its spine division to distributors in Brazil that either lacked regulatory approval, or lacked medical instruments needed to use the implants. It then was recording products that could not be resold as revenue, and also treating some of the price discounts as expenses instead of a revenue reduction, the SEC said. (Graphic: tmsnrt.rs/2pYNwgY)Even without such details, the analysts felt they had enough to try the SEC’s program. Their suspicions turned into near-certainty when in May 2013, Orthofix missed its first quarter earnings targets, reporting a 14 percent year-over-year drop in net sales that sent its share price tumbling 15 percent.

“That was when the light bulb really goes off,” the analyst who first started watching the company said. By then the two had already contacted Jordan Thomas, an attorney at the law firm Labaton Sucharow, which specializes in class action litigation and also takes on a limited number of whistleblower cases. The law firm gets paid for its services from a portion of the award, but it does not publicly disclose its share. A TIP AND A FOLLOW-UP In June 2013, Thomas submitted a tip to the SEC on his clients’ behalf, promising to follow up with a more detailed submission, records show. To bolster their case the analysts kept picking through the Orthofix’s financial statements, while Labaton’s investigators, led by a former FBI agent, hit the phones and scouted industry message boards looking for former Orthofix employees. One former employee they found revealed in an interview that in order for them to “make their numbers,” the company sent large orders to distributors, only to have them returned and then reshipped to other customers, according to the updated submission Labaton send to the SEC in August. The update included the analysts’ estimates by how much Orthofix would need to lower their earnings and sales for 2011 and 2012. Those numbers later turned out to be right in line with what the company ultimately restated in 2014 and 2015. The SEC still does not know the identities of the two analysts, but it will find out in May, when Thomas submits a claim on their behalf asking the SEC to consider giving them an award for their tip. The analysts, who live in different cities, said that the day the SEC charged Orthofix, they were just too far apart to get together and celebrate, but that an award would justify the trip. “If and when the actual award settlement is disclosed, then we can meet up for champagne,” one said.

Large drugmakers with piles of cash are on the hunt for promising medicines being developed by small companies to treat NASH, a progressive fatty liver disease poised to become the leading cause of liver transplants by 2020. The eventual market for the complex disease, formally known as Non-alcoholic Steatohepatitis, is forecast to be $20 billion to $35 billion as populations with fatty diets increasingly fall victim to a condition with no approved treatments. With intense competition and pricing pressure eroding sales of medicines for diabetes, rheumatoid arthritis and other lucrative disease categories, and an already crowded field for developmental cancer drugs, big pharma sees NASH as an enormous new market for future profit that will accelerate a wave of deal making. “We are actively looking on the outside for opportunities… to complement our internal program,” Morris Birnbaum, chief scientific officer for internal medicine for Pfizer (PFE. N), told Reuters. Pfizer currently has three early-stage drugs in the clinic aiming to block or reverse fat accumulation in the liver. “We believe that even though we’re a bit behind, we still might come out with the best-in-class molecules,” Birnbaum said. Bristol-Myers Squibb (BMY. N) also confirmed it is looking for additional assets to enhance its internally-developed NASH drugs. It presented promising data for its lead NASH candidate at the big European liver meeting in Amsterdam that ended on Sunday. “It’s early days, but keep your seatbelts fastened,” said Dr. Scott Friedman, dean for therapeutic discovery at Mt. Sinai Hospital in New York and one of the world’s leading liver disease experts. Estimates for the prevalence of NASH in nations with fatty diets range from 5 to 20 percent of the population with up to 15 million potentially affected in the United States alone. Driven by the obesity and diabetes epidemics, the disease guarantees an enormous pool of patients for decades, making it a prime target for deals for promising therapies for NASH and its consequences – advanced fibrosis and liver-destroying cirrhosis. The very early stages of many of the drugs, and the complicated nature of the disease itself, pose risks for drug developers and their investors alike. But the upside potential is still enticing to Raghuram Selvaraju, managing director and senior healthcare analyst at Rodman and Renshaw. He calls NASH one of the hottest spaces in the healthcare sector. “We anticipate that there will be more transactions, more licensing deals from big pharma involving emerging biotechnology companies,” he said. GILEAD A PIONEER

Just a few years ago, Gilead Sciences (GILD. O) was the lone large drugmaker talking about NASH. It was undeterred after its most advanced anti-fibrosis candidate failed, striking deals with two small companies to acquire additional NASH programs. Liver disease experts were impressed last year by Phase II data from a Gilead-developed drug that demonstrated fibrosis regression after just six months. Allergan (AGN. N) became a top NASH contender with its acquisition of Tobira Therapeutics and a deal with private Akarna Therapeutics on the same day last year. Other big drugmakers with licensing deals or options on future deals in the space include Novartis (NOVN. S), Merck & Co (MRK. N), Bristol-Myers and Johnson & Johnson (JNJ. N). While many of the drugs in development are two-to-five years from reaching the market if they get that far, betting on the feverish deal activity gives investors a chance to profit near term. Many small companies developing drugs with a wide variety of approaches across the disease spectrum do not have partners. They include Intercept Pharmaceuticals (ICPT. O), Galectin Therapeutics (GALT. O), Genfit (GNFT. PA) and Galmed Pharmaceuticals (GLMD. O), all with a chance to be among the first to market, as well as Enanta Pharmaceuticals(ENTA. O), Durect Corp (DRRX. O) and little-known U. K.-tradedTiziana Life Sciences (TILST. L) with assets much earlier indevelopment.

Galectin, which expects key data in December, has commenced preliminary partnership discussions, its chief operating officer told Reuters. Len Yaffe, who runs the StockDoc Partners healthcare fund and has long followed the liver disease space, said investors with tolerance for risk could do well to buy shares in several small-cap and micro-cap companies with promising NASH drugs in early development. He said if any one has stellar data, or lands a deal, the payoff could be considerable. When Allergan announced the $1.7 billion deal for Tobira, for example, that company’s shares jumped from under $5 to over $30. Yaffe, who had singled out Tobira to investors prior to its acquisition, said the Durect drug “looks incredibly promising as it relates to inflammation and fibrosis.” Enanta has the advantage of cash flow from its hepatitis C partnership with AbbVie (ABBV. N) to fund its NASH program. “You want to bet on companies that can survive even if they don’t get a partnership this year or next year,” Selvaraju said.

Enanta Chief Executive Jay Luly said companies in earlier stages of development may have an advantage over the first wave of experimental treatments as regulators’ thinking on clinical trial goals and what makes an approvable product in such a new market evolves. “When we get there, the development pathway could be not only more clearly defined, but more simplified,” Luly said.

Wal-Mart e-commerce investment arm names new retail startup CEO Wal-Mart Stores Inc , the world’s no.1 retailer, said its recently launched startup investment arm, Store No 8, has hired Jenny Fleiss as the chief executive of its first portfolio company.

U.S. Chamber of Commerce chief expects basic NAFTA deal by mid-2018 MEXICO CITY The United States, Mexico and Canada are likely to reach a basic accord over reworking the North American Free Trade Agreement (NAFTA) by the middle of next year, the head of the biggest U.S. business lobby group said on Sunday.

A high-stakes shareholder vote at Wells Fargo & Co (WFC. N) next week will determine whether the bank has done enough to retain investor confidence after its phony-account scandal, and whether a leading proxy adviser wields enough clout to help oust most of its board. In one of its toughest shareholder notes, Institutional Shareholder Services (ISS) recommended earlier this month that investors vote against 12 of the 15 directors on Wells Fargo’s ballot at the company’s annual meeting on April 25, including independent chairman Stephen Sanger. ISS argued they had all failed in their oversight duties. The recommendation was another blow to the country’s third-largest bank, which has been struggling for months to move past revelations that thousands of employees created as many as 2 million accounts in customers’ names without permission to hit lofty sales targets. ISS’s recommendation followed one by Glass Lewis, its closest competitor, which recommended votes against six directors for similar reasons. The ball is now in the shareholders’ court. A sampling of investors who spoke to Reuters were split on how to vote. It would be extremely unusual for most directors at a company the size of Wells Fargo to turn over suddenly, without pressure from an activist investor, but ISS’s scathing review was also rare. According to Proxy Insight, among the 2,780 meetings held by S&P 500 companies since 2012, ISS has recommended votes against 80 percent or more of directors in just seven cases besides Wells Fargo. Each involved a special circumstance, like only a few directors being up for re-election. ISS’s Wells Fargo recommendation was “among the harshest that I can recall,” said Bruce Goldfarb, president of proxy solicitation firm Okapi Partners. An ISS spokesman declined to comment. Wells Fargo representatives cited an April 7 statement calling the ISS recommendation “extreme and unprecedented.”ISS is the largest proxy adviser, with about 1,700 clients versus Glass Lewis’s 1,200, and has faced concerns it wields undue influence over corporate elections. On average, directors who ISS recommends “against” receive 17 percent to 18 percent less support, according to consulting firm Semler Brossy. Activists have criticized big fund managers for blindly following ISS. Institutional investors have built up large corporate governance departments in recent years and say they make their own judgments.

But breaking with ISS and supporting the whole Wells Fargo board could be difficult for fund firms, said Michael Goldstein, a Babson College finance professor.”This may be one of those cases where you don’t want to have to answer a lot of questions about why did you support these people,” Goldstein said. DONE ENOUGH? If shareholders do vote against some of Wells Fargo’s directors, it does not mean they will immediately leave. The bank’s guidelines require directors offer to resign if they fail to receive a majority of votes cast, but leaves the board wiggle room in deciding whether to accept a resignation. In other cases with fewer directors at risk, shareholder sentiment mattered. Some of JPMorgan Chase & Co’s (JPM. N) directors resigned in 2013 when they won only narrow majorities after the “London Whale” trading scandal.

Directors who fail to win majorities are in an even weaker position buy may not leave right away. For instance, two Chesapeake Energy Corp (CHK. N) directors received less than 30 percent support at its annual meeting in mid-2012 and offered to resign. The board accepted the resignation of one director two weeks later and did not accept the resignation of the other until the following March. Wells Fargo’s board and management have said the steps taken to fix problems and punish employees responsible for sales abuses show there is now strong oversight, and that directors nominated deserve to be elected. In an interview with Bloomberg TV on Wednesday, Wells Fargo Chief Executive Tim Sloan said ousting most of the board would be “crazy.”The San Francisco-based bank paid $190 million in a September regulatory settlement for the unauthorized accounts, igniting a public firestorm that hammered its shares and led to the resignation of then-Chairman and CEO John Stumpf. Since then, Sloan replaced Stumpf, and Sanger became the independent chairman. The board took steps like eliminating sales goals, revamping its compensation structure and withholding or clawing back tens of millions of dollars of bonuses. Shareholders interviewed in recent days voiced a range of views about whether Wells Fargo’s board needs an overhaul. Top investor Berkshire Hathaway Inc (BRKa. N) has already voted in favor of the board. Other big shareholders, including State Street Corp (STT. N) and Vanguard Group declined to comment or did not respond to questions.

Rhode Island Treasurer Seth Magaziner, who oversees funds that own Wells Fargo shares, said they will vote against directors flagged by ISS.”Directors are meant to be agents for the shareholders, and watchdogs for the investors,” he said. “Clearly that level of oversight was lacking at Wells Fargo.”Others were supportive. Gideon Bernstein, partner at wealth management firm Leisure Capital, said he plans to back the board. He was impressed with the bank’s April 10 report describing what went wrong, and actions taken in response.”The board has done a really good job drilling down,” he said. Thomas Russo, managing member at Gardner, Russo & Gardner, said he has not yet decided how to vote. He wants to see a smaller board with more banking experience.”There’s an elevated sense of urgency in a smaller board and a board that has more specific knowledge,” he said. Executives at American Century Investments also have not yet decided. Senior investment analyst Adam Krenn said the bank’s oversight and initial response was lacking. But portfolio manager Michael Liss praised the eventual response.”Even though they were late in reacting, they certainly came down strong,” he said.

As scores of investment bankers profit from the fee bonanza offered by Chinese companies hunting for deals in the United States, one group is conspicuously absent – Chinese banks. Despite their deep ties with Chinese firms, the country’s largest state-owned banks are missing out on the hundreds of millions of dollars that Wall Street banks and their European rivals earn advising Chinese companies on acquisitions and share and debt sales. What is holding the banks back is the way Beijing controls the top lenders to manage the supply of credit to the Chinese economy. Industrial and Commercial Bank of China, Bank of China, Agricultural Bank of China, and China Construction Bank all have China’s sovereign wealth fund, China Investment Corp (CIC), as the main shareholder. U.S. rules require the controlling shareholder – or CIC in this instance – to seek Federal Reserve clearance for investment banking operations. This poses a big hurdle to Chinese banks as they would need to coordinate their applications despite having separate managements and strategies, said a banker with a Chinese lender in New York. He declined to be named due to sensitivity of the matter. The setup means the four banks are only as strong as their weakest link and two of them come with significant baggage, having drawn Fed scrutiny over enforcement of anti-money laundering laws. The Federal Reserve declined to comment and the CIC and the “big four” banks were not immediately available for comment.”We’ve hit a bottleneck,” said another banker at a Chinese lender in New York. “As a commercial bank, we’ve done all we are meant to do. Why don’t we become an investment bank ourselves?” Without changes that would allow Chinese banks to act independently, or an agreement with the Fed to make an exception for them, those keen to expand in the United States will be in a limbo, that banker said.

Lending titans at home, the “big four” have invested in boosting their profile in New York. Industrial and Commercial Bank of China, for example, has an office in Trump Tower on Fifth Avenue, while Bank of China occupies a new mid-town Manhattan office tower it bought in 2014. They take deposits from savers and businesses and provide trade financing and foreign exchange trading services. Between December 2010 and September 2016, their assets in the United States soared over seven times to $126.5 billion, Fed data showed. Beijing so far has given no indication it is ready to relax its grip for the sake of overseas growth, even though some say state divestiture is the ultimate solution.”The leadership of China faces a choice. They control those institutions for their domestic purposes and I think that limits their ability to go international,” said David Dollar, a senior fellow in the John L. Thornton China Center at the Brookings Institution. “If those big banks really want to go international, I think China has to privatize them,” he said. The stakes are high.

Last year, Chinese companies raised over $22 billion in U.S. debt and stock markets, up 28 percent from 2010 and 12 percent higher than in 2015. The value of mergers and acquisitions involving Chinese firms soared to almost $27 billion last year from a previous high of $3.6 billion reached in 2013. (Graphic: tmsnrt.rs/2oyhl3r)To get a slice of that investment banking business, any foreign institution needs the Fed’s recognition as a “financial holding company” that is “well capitalized” and “well managed,” according to the Fed’s website.”ALARMING” TRANSACTIONS That poses a challenge for all four because the Fed took enforcement action against China Construction Bank in 2015 and Agricultural Bank of China last year for not doing enough to fight money laundering, according to the Fed’s website.

The central bank did not detail the banks’ problems. But when New York’s financial regulator in November fined Agricultural Bank of China $215 million for violating anti-money laundering rules, it cited “alarming” transactions including “unusually” large payments from Yemen to the southern Chinese province of Zhejiang. Public records showed the Fed has not raised similar concerns about the Industrial and Commercial Bank of China and Bank of China so far. A person familiar with the Fed’s thinking said the regulators believed Chinese banks should focus on tightening their procedures before expanding their U.S. businesses. The person, who declined to be named due to the sensitivity of the matter, said the Fed would never grant the “financial holding company” status to any bank with unresolved regulatory issues. Chinese banks have argued, without success, against being treated as one entity, the banker and the source familiar with the Fed’s thinking said. Now, bankers in New York plan to analyze the costs and risks of expanding into investment banking and present the findings to their respective boards in China, the banker said. If the banks’ headquarters in Beijing find the business worth pursuing they will conduct their own due diligence and start consulting various Chinese regulators on ways to overcome the regulatory hurdles, the banker said. Despite the challenges, the “big four” clearly has investment banking ambitions. All four have investment banking arms in Hong Kong or mainland China that target Asian deals. U.S. expansion would be the logical next step given that Chinese companies will continue investing overseas in search of growth opportunities and new technology, the banker said.”Should Chinese banks continue to miss out on this opportunity? That’s the question we should ask,” said the banker.

Mining companies chasing the kind of technological breakthroughs made long ago in the manufacture of cars and mobile phones have unveiled eye-catching innovations ranging from vast drills and remote-controlled trucks to second-by-second data analysis. Behind the scenes, however, there has so far been limited progress towards a transformation the companies say is more and more vital to their survival. They are being jolted into action by volatile commodity prices and the increasing difficulty and danger of accessing remaining reserves in hot, narrow seams several kilometers below ground.”There’a a big awakening in mining. The time is ripe for things to begin to change,” Anglo American’s head of technology development Donovan Waller said by telephone. A major obstacle is the massive upfront cost for innovation that firms such as Anglo, BHP Billiton and Rio Tinto <RIO. AX must pay off over the life of a mine in contrast to incremental upgrades common to mobile phones. Sandvik, one of the world’s biggest suppliers of mining equipment, told Reuters it had doubled its installation of automation systems between 2015 and 2016. But, asked what proportion of the loaders and trucks it sells are fully automated, it gave an estimate of 5 percent. While automation represents a potential threat to jobs the world over, it is particularly sensitive in an industry employing hundreds of thousands of blue-collar workers in nations where mining represents a major chunk of GDP. Extreme environments and logistical barriers to transferring technology from other industries were other issues experienced by three big mining companies, in South Africa, Chile and Australia, which shed light on the complexity of the task. LABOR RELATIONS

South Africa’s South Deep started ahead of the pack back in 2008. Now the only fully mechanized large underground gold mine in South Africa, it broke even for the first time last year after years of losses and unveiled a new turnaround plan in February which cut production targets. Mine owner Gold Fields blames unforgiving geology 3 km (2 miles) beneath the operation south west of Johannesburg, says it has not had to fire anyone over mechanization and points to staff members who have readily embraced change.”Our mining is going forward,” said employee Margaret Motaung, describing training for remotely operated rock-breaking equipment imported from Australia as easy and reporting that she had had a pay rise, which she declined to specify. The mine’s trade union leader, Victor Mphore, takes a very different view, saying miners were being replaced by outsiders.”We have seen a lot of forced dismissals in the form of constructive dismissals and high turnover in middle management at this mine,” he said, citing language and literacy barriers and what he said was insufficient training to overcome them.

At a national level, the union will not discuss mechanization. “We won’t participate in talks about mechanization because it will lead to job losses,” said National Union of Mineworkers spokesman Livhuwani Mammburu. “They (the mine owners) mustn’t rush only to make profits.”The chamber says some job losses are inevitable, but that without technology to extend the life of mines, some 200,000 people would lose their jobs by 2025, affecting 2 million people via families or related industries. Lack of engagement is a problem, it said. “It is obviously impacting on the pace and the scale at which this can be done,” said Sietse van der Woude, the chamber’s modernization specialist. “We hope that we can have a conversation in such a way that we can progress these matters and actually save those jobs.”Starting this month Pretoria is providing funding to develop ore processing techniques and related manufacturing to make up for lost jobs. But the sum, 150 million rand ($11 million) over three years, is modest. It declined to answer questions and is in a standoff with the mines over black ownership requirements that show the political sensitivity of an industry accounting for up to 60 percent of foreign export earnings and roughly 420,000 jobs.

HEIGHT AND DEPTH In Chile, the copper industry faces wage talks overshadowed by a long strike at BHP Billiton’s Escondida mine, alongside other challenges. At Anglo American’s Los Bronces operations in Chile, which announced 140 job cuts last year, the altitude can interfere with remote navigation systems, and the company’s Copper CEO Hennie Faul, is focused on systematic improvement of operations using data rather than on the latest drilling equipment. Describing mining as “the most challenging culture to pull in” he says dwindling supplies of ore means the industry must adapt fast to catch up with a technological shift it took the car industry decades to enforce. The company says an estimated four tonnes of earth now need to be moved to extract five kilograms of copper, increasing the need for the most efficient techniques. Unexpected outages for maintenance can make a 30 percent difference to productivity and cost. Using systematic analysis to conserve water is also crucial in an arid environment, Faul told Reuters at the CRU World Copper Conference in Santiago. The remote Pilbara region of Australia has already entered the space age as autonomous trucks the size of houses trundle through vast open pits controlled by operators more than 1,000 kilometers away in Perth. Rio says the change has improved productivity and put an end for many to a so-called FIFO (fly-in, fly-out) lifestyle as highly-paid workers were flown in to work the iron ore pits far from their homes. But the next stage – Rio’s $518 million autonomous train plan, under development since 2012 – has yet to be fully rolled out because of technical glitches, although Rio says it is confident it can expand use of autonomous trains this year and next.