Tuesday, November 22, 2016

Trump’s Supposed ‘Muslim Registry’ Is Just More Fake News

By Rich Lowry
The New York Post
November 22, 2016

The first thing to know about Donald Trump’s alleged proposal for a Muslim registry is that it isn’t a Muslim registry.

This has been lost in a freakout that has some brave souls already promising acts of civil disobedience to disrupt and overwhelm the prospective registry. The controversy tells us much more about how the media will cover the Trump administration — i.e., through the lens of fact-free hysteria — than about the administration’s immigration-enforcement agenda.

The source of the fracas is a comment from Kansas Secretary of State Kris Kobach, a Trump immigration adviser and (excellent) candidate for Homeland Security director, to Reuters. Kobach noted that the administration might re-instate a Bush-era program tracking visitors to the United States from countries with active terrorist threats. This suggestion was spun into a first step toward herding our Muslim neighbors into internment camps.

Kobach was referring to the National Security Entry-Exit Registration System, or NSEERS, which placed special requirements on adult male visitors from countries like Saudi Arabia. Implemented after 9/11 — when, you might recall, adult male visitors from Saudi Arabia toppled the World Trade Center — it collected fingerprints and photographs when visitors from the select countries arrived and required them to check in periodically to confirm that they were abiding by the terms of their visas.

It also required that certain individuals from these countries who were already here go through a process of “special registration,” including an interview with immigration officials. This is a far cry from FDR’s notorious Executive Order 9066 setting in motion the Japanese internment of World War II.

It’s true, as the critics point out, that the selected countries all were, with the exception of North Korea, majority-Muslim. But any program concerned with international terrorism will, inevitably, focus largely on Muslim countries (although European countries like France and Belgium have developed an indigenous terror threat).

The 9/11 hijackers, notably, all came from majority-Muslim countries.

It is said that the Bush program didn’t lead to the prosecution of any terrorists. According to the Migration Policy Institute, “The New York Times reported in 2003 that, out of roughly 85,000 individuals registered through the NSEERS program in 2002 and 2003, just 11 were found to have ties to terrorism.”

Although tracking down anyone here who has ties to terrorism isn’t necessarily something to sniff at, the Bush program proved best-suited to identifying visa overstayers. Of the 85,000 initial registrants, nearly 14,000 were put into removal proceedings.

For the critics, this is an indictment. The liberal Web site Vox complains that the program “made it easier to deport someone who then overstayed his visa than it would have been to deport him if he’d refused to register at all.”

But why shouldn’t it be easier to deport visa-overstayers, who constitute about half of the population of illegal immigrants? If we’re serious about our immigration rules, our approach to visa overstayers from all countries should be much more restrictive and hard-headed.

The requirements of the Bush program were watered down over time until it was suspended by the Obama administration in 2011. But the program wasn’t illegal or unconstitutional (the Second Circuit Court of Appeals ruled in its favor). Nor was it immoral — foreign visitors should be subject to any reasonable strictures we impose in exchange for the privilege of coming here.

That the so-called Muslim registry is now a thing, a subject of high dudgeon and hot debate, is testament to how the same media that complains about “fake news” is committed to manufacturing and driving its own narratives only loosely connected to reality.

Whether the Trump administration revives a version of the Bush program or not, a similar campaign of obloquy will be directed at all of its immigration-enforcement measures. It will have to pursue its agenda against a backdrop of media hostility and constant misinformation.

Article Link To The New York Post:

Trump’s Neo-Nationalists

‘America first’ is not a policy or a motto. It’s an implicit accusation of disloyalty.

By Bret Stephens
The Wall Street Journal
November 22, 2016

“I’m an economic nationalist. I am an America first guy. And I have admired nationalist movements throughout the world, have said repeatedly strong nations make great neighbors. I’ve also said repeatedly that the ethno-nationalist movement, prominent in Europe, will change over time. I’ve never been a supporter of ethno-nationalism.”

So said Stephen K. Bannon,Donald Trump’s chief strategist, in a wide-ranging interview with my colleague Kimberley Strassel published in these pages on Saturday. Later in the interview Mr. Bannon inveighed against “the policies of globalism,” which, he said, had “severely hurt” the interests of America’s working and middle classes of every race.

Over the weekend, several friends told me they found the interview reassuring about Mr. Bannon. I found it chilling.

Start with economic nationalism, a shopworn idea commonly associated with Latin American governments such as Juan PerĂ³n’s Argentina. In its milder form, economic nationalism means state subsidies for national-champion companies, giant infrastructure projects, targeted tariff protections for politically favored industries, “Buy American” provisions in government contracting, federal interventions against foreign takeovers of “sensitive” companies.

The U.S. already does much of this on a bipartisan basis, so let’s assume that Mr. Bannon’s notion of “economic nationalism” doesn’t end by demanding that federal workers drive American cars. What else might it mean?

In France, it has meant bailouts for failing industrial giants like Alstom. In Japan, it has meant 800% tariffs on imported rice, decades of blowout spending on airports, roads and bridges, and chronic hostility to immigration. Russia passed more protectionist measures in 2013 than any other country, according to the Moscow Times.

What do these and other countries that practice variants of economic nationalism have in common? France, where the state accounts for 57% of the economy, hasn’t seen annual GDP growth top 3% since the turn of the millennium. Japan, which has the world’s oldest population along with the highest debt-to-GDP ratio, experienced no fewer than five recessions between 2008 and 2015. Russia’s GDP contracted by 40% between 2013 and 2015. Its economy is now half the size of Great Britain’s.

Economic nationalism, in other words, means economic ruin—along with all the political favoritism, crony capitalism and inefficiency that Americans usually associate with Solyndra, the Synfuels Corp., or the Port Authority of New York and New Jersey. Mr. Bannon wants to double down on this winning formula.

Mr. Bannon also says he’s “America first,” which—see if you can spot the difference—either is or isn’t “America First.” Either way, the animating impulse behind “America first” is that there are some Americans who put their country second, or last, presumably behind their ethnic loyalties, ideological affinities or economic interests. America first isn’t a policy program or a political motto so much as it is an accusation of disloyalty. What real American, after all, wouldn’t put “America first” in his political priorities?

Mr. Bannon’s answer, along with that of the alt-right movement he has proudly championed through his Breitbart website, is “the globalists.” The globalists are supposed to be the bankers at Goldman Sachs who paid Mrs. Clinton her handsome speaking fees. They are editorial writers at this newspaper, who champion the virtues of free trade and a liberal immigration policy. They are the “warmongers” demanding sanctions on Russia for invading Ukraine.

But the truth is that Wall Street bankers, recently naturalized immigrants and even mainstream journalists have as much right to advocate a view of the American interest as Mr. Bannon and his fellow travelers. That’s the American way, which disavows traditional concepts of nationalism in favor of a broader ideal of citizenship—identity defined primarily by participation and aspiration, not ancestry. Nationalism may be a fine idea for Japan or Iceland. America is exceptional because it’s built on a different premise.

As for Mr. Bannon’s admiration for nationalist movements, that might explain the odd way in which Breitbart has deployed anti-Semitic tropes to denounce “globalist” Jewish writers such as the Washington Post’s Anne Applebaum while being stalwart in its support for Israel. Whatever the case, the distinction between nationalism and ethno-nationalism is a slippery one.

As my colleague Bari Weiss pointed out in a recent article in Tablet, the foremost figure of today’s alt-right, Richard Spencer, dreams of “a new society, an ethno-state that would be a gathering point for all Europeans. It would be a new society based on very different ideals than, say, the Declaration of Independence.” Mr. Spencer’s vision may not be Mr. Bannon’s. But the newfound political power of the latter will inevitably open channels for the former.

In “The Second Coming,” Yeats asked, “What rough beast, its hour come round at last, slouches towards Bethlehem to be born?” The answer, it may yet turn out, is the likes of Steve Bannon and his ugly litter of neo-nationalists.

Article Link To The Wall Street Journal:

Donald Trump And The Sense Of Power

By Robert J. Shiller
Project Syndicate
November 22, 2016

US President-elect Donald Trump campaigned in part on a proposal to cut taxes dramatically for those with high incomes, a group whose members often have elite educations as well. And yet his most enthusiastic support tended to come from those with average and stagnating incomes and low levels of education. What gives?

Trump’s victory clearly appears to stem from a sense of economic powerlessness, or a fear of losing power, among his supporters. To them, his simple slogan, “Make America great again,” sounds like “Make YOU great again”: economic power will be given to the multitudes, without taking anything away from the already successful.

Those on the downside of rising economic inequality generally do not want government policies that look like handouts. They typically do not want the government to make the tax system more progressive, to impose punishing taxes on the rich, in order to give the money to them. Redistribution feels demeaning. It feels like being labeled a failure. It feels unstable. It feels like being trapped in a relationship of dependency, one that might collapse at any moment.

The desperately poor may accept handouts, because they feel they have to. For those who consider themselves at least middle class, however, anything that smacks of a handout is not desired. Instead, they want their economic power back. They want to be in control of their economic lives.

In the twentieth century, communists politicized economic inequality, but they made sure that their agenda could in no way be interpreted as creating alms or charity for the less successful. It was fundamentally important that communists take power by a revolution, in which workers unite, take action, and feel empowered.

Trump supporters call his triumph a revolution, too, though the violence – at least by the campaign itself – was limited to name-calling and insults. It was still nasty enough, apparently, to inspire those of his supporters who interpret aggressiveness as evidence of power.

It is certainly not just in America that people desire a sense of vocational accomplishment, rather than simply money to live on. In no country does it feel generally right to respond to rising economic inequality by imposing heavy taxes on the rich and transferring the money to others. That feels like changing the rules of the game after it has been played.

In their recent book Taxing the Rich: A History of Fiscal Fairness in the United States and Europe, Kenneth Scheve of Stanford and David Stasavage of New York University use two centuries of data on tax rates and on income inequality to examine outcomes in 20 countries. They found that there was little or no tendency for governments to make taxes more progressive when pretax inequality increased.

Katherine Cramer, author of The Politics of Resentment, gained some insight into this outcome in Wisconsin, where, like Trump, the state’s governor, Scott Walker, has been popular among working-class voters. After he was elected in 2010, Walker cut taxes on higher incomes, refused to raise the state minimum wage above the federally-mandated minimum, and rejected the insurance exchanges created by President Barack Obama’s signature 2010 health-care reform, which would benefit lower-income people. Instead, Walker promised measures that would take power away from labor unions, actions that usually are perceived as likely to lower working class incomes.

Cramer interviewed rural working-class voters in Wisconsin, trying to understand why they supported Walker. Her interviewees stressed their rural values and commitment to hard work, which have been a source of personal pride and identity. But they also stressed their sense of powerlessness against those perceived as unfairly advantaged. She concluded that their support for Walker, amid evidence of economic decline, reflected their extreme anger and resentment toward privileged people in big cities, who, before Walker, had ignored them, except to tax them. And their taxes went, in part, to pay for government employees’ health insurance and pension plans, benefits that they themselves often could not afford. They wanted power and recognition, which Walker seemed to offer them.

Such voters are also almost certainly anxious about the effect of rapidly rising information technology on jobs and incomes. Economically successful people today tend to be those who are technologically savvy, not those living in rural Wisconsin (or rural anywhere). These working-class voters feel a loss of economic optimism; yet, admiring their own people and upholding their values, they want to stay where they are.

Trump speaks these voters’ language; but his proposals to date do not seem to address the underlying shift in power. He stresses cutting domestic taxes, which he asserts will unleash a new flurry of entrepreneurism, and renegotiating trade deals in a protectionist direction, to keep jobs in America. But such policies are unlikely to shift economic power to those who have been relatively less successful. On the contrary, entrepreneurs may develop even more clever ways to replace jobs with computers and robots, and protectionism may generate retaliation by trading partners, political instability and, ultimately, possibly even hot wars.

To satisfy his voters, Trump must find ways to redistribute power over income, not just income itself, and not just by taxing and spending. He has expressed only limited ideas here, like subsidizing school choice to improve education. But powerful economic forces such as technological innovation and lower global transportation costs have been the main drivers of increasing inequality in many countries. Trump can’t change this fact.

If those who lack the skills that today’s economy demands refuse redistribution, it is hard to see how Trump will make them better off. The Trump revolution, as it has been presented so far, seems highly unlikely to deliver what his supporters really want: an increase in workers’ economic power.

Article Link To Project Syndicate:

Liberals Are Doubling Down On ‘Comedy News’

By Kyle Smith
The New York Post
November 22, 2016

There’s been a lot of discussion in the media whether the president-elect of the United States should be “normalized.” I’d say that point became moot when Donald Trump reached 270 electoral votes around 2 a.m. on Nov. 9.

Here’s a more relevant question: When will the media stop normalizing the political musings of Jon Stewart, Larry Wilmore, Trevor Noah and all the other late-night comics?

When will the leading news organizations stop mistaking court jesters for seasoned experts? Implicitly, the members of this crew boast of their lack of interest in understanding political issues every time they try to deflect criticism of their political humor by protesting, “I’m just a comedian.” Why not take them at their word?

Yet here they are, being treated as sober observers of the American scene. Stewart, on “CBS This Morning,” opined that Republicans have a “cynical strategy” to destroy government, then “use its lack of working” as evidence that it doesn’t work. Sure, Jon. Remind me — which party has controlled those notoriously super-functional governments in Baltimore, Chicago and Detroit for the last 50 years or more?

Stewart got no rebuttal for this absurd claim, because Stewart never does. The media give him the same hushed, respectful treatment they once gave church leaders, which is fitting enough in a way, since what Stewart delivers is Church of Liberalism dogma, not informed analysis.

Wilmore, who unlike Stewart doesn’t even have much of a fan base (his Comedy Central program, “The Nightly Show,” was canned after just 18 months because it was drawing only 150,000 viewers in the 18-34 demographic, a bit more than half of what Trevor Noah’s “The Daily Show” drew during that time), was welcomed this week to the pages of The New Yorker, which published his views on the election alongside those of eminent novelists Hilary Mantel, Toni Morrison and Junot Diaz.

Such is Wilmore’s stature at The New Yorker that the magazine’s legendary fact-checking department took the day off and allowed him (in arguing absurdly that Trump channeled the spirit of the Ku Klux Klan), falsely to attribute to Woodrow Wilson the statement that the film “The Birth of a Nation” was “like writing history with lightning.” (The New Yorker ran the quotation using the weasel word “reportedly” — shades of Trump’s “many people are saying.”)

Wilmore also was invited last week to Harvard’s Kennedy School of Government, where he gave the Theodore H. White Lecture on Press and Politics. Said Wilmore, “I do find it ironic that we elect a reality-show star as president, and you invite a fake journalist to give the Theodore H. White lecture on it,” Wilmore told the audience. Ha, ha. Here’s one difference between Trump and Wilmore. Trump has proven a huge success.

In his appearance on “CBS This Morning,” Stewart’s “Daily Show” successor, Trevor Noah, sputtered nonsensically, “I acknowledge a white working class that is something we can talk about, but we cannot deny that many of Donald Trump’s supporters were earning large amounts of money and doing great for themselves, but there are people who put two things above everything else — and that is whiteness and that is also sex and misogyny.”

So the majority of white women who voted for Trump did so because they hate women. Sure.

Political comics argue they don’t have to be fair to both sides, and they’re right. They’re not intellectually equipped to consider both sides of any issue. So let’s not ask them for their ideas on politics. How Stewart et al get laughs is by dealing in hyperbole, selective quotation, special pleading, question-begging and (when all else fails) dismissing an idea’s proponents as hypocrites: In other words, cheap shots.

When you offer insights like, “It’s pretty clear who ruined America: white people” (Samantha Bee) or call the mass murders of French citizens by radical Muslims a “pastry fight” (John Oliver), you’ve forfeited any right to be taken seriously.

The smartest move Stewart ever made was turning down NBC’s pleas that he take over hosting duties on “Meet the Press” in 2014: He knew he’d be an embarrassment to himself and to NBC.

“News and entertainment have melded in a way,” Stewart told Rolling Stone. “But they would be overcompensating on the entertainment side.”

No kidding.

Article Link To The New York Post:

Bitter Lessons Of Japan's 2011 Tsunami Put To Use With Latest Quake

By Elaine Lies 
November 22, 2016

When massive tsunami waves slammed into Japan's northeastern coast more than five years ago, about 18,000 people perished, prompting authorities to revise warning systems and evacuation plans to try to save more lives.

On Tuesday, when a magnitude 7.4 quake hit the same area, the country swung into action, using lessons learned in the 2011 disaster to ensure coastal residents evacuated well before the much smaller waves hit.

Prior to 2011, warning broadcasts were mostly limited to television, radio, and city officials on loudspeakers, with volunteer firemen in trucks roaming the roads, telling residents to flee to higher ground.

But on the day now known as "3/11," some of these failed due to power outages after the huge magnitude 9.0 quake, while many firefighters were killed when the waves - 30-metres (100-feet) high in places - rushed ashore.

"A lot of people told us they weren't able to hear any of the broadcasts, the waves were bigger than expected, and many went back after the first one to check things out," said Tsunetaka Omine, a disaster official in Iwaki, a city where around 460 residents died in 2011.

Iwaki now blasts warnings to every mobile phone in the area, sends email messages and broadcasts on local radio in addition to the older methods.

Previous elaborate systems designating specific evacuation centers have also been abandoned along the coast in many cases as too complicated. Some designated areas were too low and became death traps where scores seeking safety drowned.

"Now, we basically just tell people to stay away from the sea, to head to the highest possible ground," Omine said.

As a result, as sirens wailed shortly after dawn on Tuesday, ships headed out of harbors to deeper water and lines of cars snaked up nearby hills.

Public broadcaster NHK, always a key player in disaster prevention, revamped its broadcasts after 2011 in response to criticism that it had been too calm in its reporting, leading some to take warnings less seriously.

So on Tuesday, announcers abandoned their usual careful modulation for an unsettling note of urgency, repeatedly telling listeners, "Do not go near the water, a tsunami is coming!" as messages flashed on the screen in red saying "Tsunami! Run!"

And in a nod to a growing number of foreign residents, a dubbed version of the NHK channel broadcast warnings in English, Chinese and Korean. Several young foreign English teachers died in 2011, prompting speculation they had not known of the danger.

Kathy Krauth, a teacher with a Tokyo international school leading a dozen students on a study tour, was staying at a traditional Japanese inn in the coastal town of Ofunato and was evacuated to higher ground soon after the quake struck.

Four hours later, the group was finally allowed back to their inn - and were promptly relocated to a hotel at a higher, safer elevation.

"I felt like the lessons of 3/11 were really taken to heart," Krauth said. "The feeling was, we just don't know, but we're going to be as cautious as we can."

Article Link To Reuters:

Trump Foreign Policies Could Hurt, Help His Business Empire

By Tom Bergin 
November 22, 2016

Any moves by Donald Trump to ban Muslims from entering the United States or bring back waterboarding to interrogate suspects could have repercussions for some of his sprawling foreign business interests -- from his golf course in Scotland to luxury resorts in Indonesia.

A review of press releases published on the Trump Organization website shows that 15 of 25 new acquisitions or joint ventures announced over the past five years were overseas. These include the purchase of golf courses in Ireland and Scotland and deals to license his name to developers and manufacturers in Dubai, Indonesia, India, Azerbaijan, Brazil, Mexico and Panama.

The deals underscore the potential conflicts of interest Trump will face after he is sworn in as president on Jan. 20 and his vulnerability to criticism that he is open to foreign influence. Foreign governments could potentially seek to exploit Trump's business interests to affect his decision making, or to punish him through his pocket book for decisions they object to.

Trump's transition team declined to comment for this story.

In the 16 months to May, Trump earned up to $23 million from licensing his name to developers in emerging markets, according to a filing with the U.S. Office of Government Ethics.

“The licensing deals are the best of all because there’s no risk,” Trump told Reuters in an interview in June. “I have 121 deals right now, going forward, right now, 121, all over the world, in China, in Indonesia,” he added.

(Trump's foreign business interests: tmsnrt.rs/2gakiTQ)

Trump has said he will hand control of his company to his children.

However, when he met with his Indian business partners last week it prompted a chorus of criticism that the wall between Trump and his company was still too porous.

The Trump Organization has said a business structure will be set up that complies with "all applicable rules and regulations." Trump has yet to commit to setting up a blind trust that would formally sever his ties with his business.

"I'm very confident he's not breaking any laws," Kellyanne Conway, a senior adviser to Trump, told reporters at Trump Tower in New York on Monday.


Trump could face a backlash against his business interests in Middle Eastern and Asian markets if he follows through with his campaign promise to ban Muslims from entering the United States, and continues to be open to restoring waterboarding - a form of interrogation widely viewed as torture - or creating a national registry for Muslims, analysts said.

“If the Muslim registry is introduced, he will have serious issues finding Muslim local partners,” said Professor Koen Pauwels, a marketing specialist at Ozyegin University, Istanbul.

There would be a "backlash" if Trump substantially tightens visa restrictions on Muslim visitors, Pauwels added.

In December 2015, Trump's anti-Muslim comments cost him business in the Middle East when a major chain of department stores halted sales of his glitzy "Trump Home" line of lamps, mirrors and jewelry boxes in the region.

Trump has long identified the Middle East as a major growth market, and his company is working with Dubai-based real estate giant DAMAC Properties to build two golf clubs - including one with a course designed by Tiger Woods - and a gated island community outside the city.

His daughter Ivanka said last year the organization was in talks on deals in Qatar and Saudi Arabia.

Trump has a licensing deal with a developer for a Trump-branded retail complex in Istanbul. He also has signed deals in Indonesia, the world’s most populous Muslim country, to put his name on a redeveloped luxury golf resort in Java and a luxury cliff-top hotel and residential development in Bali.

And it is not just in the Middle East that Trump could face repercussions for any foreign policy decisions.

Trump’s $1.5 billion billion-pound golf and residential project north of Aberdeen in Scotland could also be affected, warned councilor Isobel Davidson, who sits on the panel responsible for approving planning applications for the project. If Trump proceeds with any anti-Muslim proposal, it could make it harder for him to advance his development, she said.

“Councilors are not supposed to take the character of the applicant into consideration when we are making a planning decision but sometimes it’s quite hard not to,” she said.

Net Impact Positive

Analysts said they saw more potential upside for Trump's business from his election than downside. Very simply, people would want to be associated with the personal brand of the U.S. president.

“It will have a boost because he has become more famous that he was before,” said Professor Chiranjib Sen, Azim Premji University in India's Bangalore.

One test case could be China, which the Trump Organization has identified as a “top priority among high-potential emerging markets,” according to a 2013 press release. On the campaign trail, Trump threatened to label China a currency manipulator and impose import tariffs on Chinese imports.

Suisheng Zhao, a China expert at the University of Denver, said if Trump did impose tariffs and more robustly challenged China’s interests in the South China Sea, Beijing could tell Chinese businesses to abandon any talks or deals with the Trump Organization.

Trump-branded property could also present a target for bombings or other kinds of attacks, said Professor Peter Neumann, of the International Centre for the Study of Radicalisation and Political Violence at King's College London.

“From a terrorist’s perspective, it’s a very attractive target,” he said.

What Trump does not do could also affect his foreign business interests.

Mehmet Ugur, Professor of Economics and Institutions, at the University of Greenwich Business School, said that Trump's businesses could benefit if he takes a softer line on countries accused of human rights violations.

Countries such as Turkey, China and Indonesia would "be more than happy to welcome Trump Organization," he said.

Article Link To Reuters:

Uniting For An Asian Century

By Lee Jong-Wha
Project Syndicate
November 22, 2016

There is no question that Asia’s standing in the global economy is stronger than ever. The region now produces about 40% of the world’s GDP, measured according to purchasing power parity. During the recent economic crisis, Asia accounted for more than half of global GDP growth. Add to that a massive population and growing political influence, and Asia finally appears ready to lead on a world stage long dominated by the West.

But it is too early to open the champagne. The United States and Europe maintain an advantage, in terms of global strategic influence, while Asian countries are facing major political, economic, and security challenges.

In fact, Asia’s growth momentum is declining. China is working overtime to achieve an economic soft landing, following decades of breakneck expansion. Japan is preoccupied with escaping slow growth and coping with population aging. Asia’s other economic powerhouses – India, Indonesia, and South Korea – each face their own set of economic and political problems. Across the region, rising income inequality, financial instability, and environmental degradation are hampering development.

More problematic, despite being deeply interdependent, the region’s countries struggle to act collectively. The persistence of power rivalries, historical resentments, and territorial disputes, together with pronounced disparities in economic and military might, create substantial obstacles to unity. A recent surge in coercive behavior by China, a nationalist revival in India, and a shift toward conservatism in Japan have exacerbated these challenges.

But, at a time when Western countries are moving toward isolationism – exemplified by the Brexit vote in the United Kingdom and the election of Donald Trump as US president – intra-regional trade and investment are more important than ever. Beyond the economic benefits, integration would yield important political benefits, with an integrated Asia enjoying more influence on the international stage. To reap those benefits, Asia must mitigate regional military and political conflicts and develop a long-term vision for regional integration.

Asia is home to some of the world’s most dangerous flashpoints. There is a risk of armed clashes in the East and South China Seas, and North Korea continues to develop nuclear weapons and ballistic missiles, despite tougher sanctions pushed by the United States and the United Nations. Stronger cooperation among Asian countries, together with the international community, could ease regional tensions and lead North Korea to abandon its nuclear weapons programs.

Some regional institutions have already been established, including the Association of Southeast Asian Nations (ASEAN), ASEAN+3 (the ten members of the ASEAN plus China, Japan, and South Korea) and the East Asia Summit (EAS). Such institutions will be critical to resolving conflicts and establishing a framework for peace that can support regional prosperity and global leadership.

But that is only the first step. And whether Asian leaders share a common vision for regional integration remains unclear. Judging by Europe’s experience – from the creation of the European Coal and Steel Community in 1951 to the establishment of the European Union in 1993 – there is no need to rush the integration process. But it will take a lot of time and effort.

Perhaps the best way to kick-start this process is to identify areas where the region can gain the most from integration, and take steps that will bring quick returns. For example, Asian countries can move toward a single market with common rules governing trade and free movement of workers, especially skilled ones. Launching the Regional Comprehensive Economic Partnership, a free-trade agreement currently being negotiated by ASEAN and six partners (Australia, China, India, Japan, South Korea, and New Zealand), would be an important step in this direction.

Given the vulnerability of cross-border capital flows, Asia must also pursue joint action on financial supervision, surveillance, and regulatory issues to prevent and manage crises. One specific goal should be to improve the Chiang Mai Initiative Multilateralization, a $240 billion currency-swap arrangement, and its surveillance unit, the ASEAN+3 Macroeconomic Research Office. Another should be to establish a de facto Asian Monetary Fund with a broader membership.

It should be noted that none of these efforts would aim to supplant existing sub-regional, regional, and global institutions. Rather, by making Asia a more effective and united actor, new regional trade and financial measures would complement and strengthen current arrangements.

For any of this to work, bureaucracies and the private sector, including business leaders and academics, must actively support high-level political commitments to integration. Such support should not be too difficult to muster. After all, integration would facilitate the exchange of valuable knowledge, from effective economic and social policies to technological and scientific insight.

Forums and dialogues on regional public goods could also prove valuable by promoting cooperation on cross-border challenges, including epidemics, natural disasters, and environmental degradation. Person-to-person connections would help to highlight for Asian societies their cultural commonalities and shared values, fostering progress in areas where particular countries might lag.

At a time when the global order is increasingly uncertain, Asia should take its fate into its own hands, by pursuing closer economic and political regional cooperation. If Asian countries can develop a shared vision for an economic community and a political association, this century could be theirs.

Article Link To Project Syndicate:

Tuesday, November 22, Morning Global Market Roundup: Asia Stocks At One-Week Highs On U.S. Cues; Oil Jumps

By Saikat Chatterjee
November 22, 2016

Asian stocks rose to one-week highs, helped by solid overnight gains on Wall Street, though investors were wary of chasing prices higher until President-elect Donald Trump picks his economic team. Oil extended gains.

Crude oil climbed in Asian trading with U.S. West Texas Intermediate (WTI) up 1 percent as the dollar pulled back and expectations of production cuts grew.

Prices surged 4 percent to a three-week high on Monday, after comments from Russian President Vladimir Putin raised hopes that producer countries will reach a deal at a meeting next week to limit output.

MSCI's broadest index of Asia-Pacific shares outside Japan was up 1.3 percent, pulled up by a 1.3 percent rally in Australian shares. Korean shares and Hong Kong stocks rose 0.9 and 1.3 percent each.

European stocks were also expected to open higher with gains seen around 0.5 percent for key markets.

"Most of the flow into stocks seems to be retail-oriented with institutional investors preferring to sit out the rally unless they get a clearer picture on Trump's economic team," said Andrew Sullivan, managing director, sales trading at Haitong International Securities Group in Hong Kong.

Trump met some officials and outlined plans for his first day in office on Monday, including withdrawing from the TPP Asia-Pacific free trade accord and investigating abuses of work visa programs.

Such actions may lead to retaliation by trade partners such as China and could potentially derail markets, noted Libby Cantrill, head of public policy at bond giant PIMCO.

But for now, expectations that Trump's administration will adopt expansionary fiscal policies have sent U.S. stocks to a record high, while a belief that such policies would fuel inflation and lead to higher interest rates pushed up bond yields and strengthened the dollar.

On Monday, U.S. stocks closed at a record high and European markets moved higher.

Investors in Japanese stocks appeared unfazed by Tuesday's e earthquake in northern Japan.

"Investors will react if more manufacturers halt operations in their factories in the region, but right now the impact from the earthquake is limited," said Hiroaki Mino, director of the investment information department at Mizuho Securities.

The benchmark Nikkei average was broadly steady and the yen ticked up a shade against the U.S. dollar, although still near the five-month low hit earlier in the session.

Trading volume was generally low ahead of the U.S. Thanksgiving holiday, with expectations of a U.S rate increase next month already priced in by markets.

The dollar, which has rallied over 5 percent against a trade-weighted basket of currencies since Trump's victory, consolidated its gains.

"There is a narrative that there will be strong leadership because Republicans took the White House and both houses of Congress. But we have to keep in mind that Trump also divided the nation as well as the Republicans," said Daisuke Uno, chief strategist at Sumitomo Mitsui Bank.

The dollar's mild weakness propped up gold prices with spot gold up 0.3 percent at $1217.70 per ounce. Gold prices have fallen 10 percent since the U.S. election outcome.

It also helped emerging market currencies trim some losses after a recent battering. The Chinese yuan rebounded from a near 8-1/2 low hit on Monday.

With markets moving higher, volatility indicators receded. The CBOE Volatility Index, a so-called "fear gauge", fell 3.4 percent.

Article Link To Reuters:

Oil Prices Hit Highest Since October On Hopes Of OPEC-Led Output Cut

By Henning Gloystein
November 22, 2016

Oil prices rose to their highest level since late October on Tuesday as the market priced in an expected output cut led by producer cartel OPEC, but analysts warned that a failure to agree a cut could lead to a deepening supply glut by early 2017.

International Brent crude oil futures rose as high as $49.63 a barrel on Tuesday, up 1.5 percent from the last settlement and the highest since Oct. 31. Brent was trading at $49.58 per barrel at 0525 GMT, up 68 cents, or 1.4 percent.

U.S. West Texas Intermediate (WTI) crude futures were up 69 cents, or 1.4 percent, at $48.93 a barrel.

The Organization of the Petroleum Exporting Countries (OPEC) is trying by Nov. 30 to bring its 14 member states and non-OPEC producer Russia to agree on a coordinated production cut to prop up the market by bringing production into line with consumption.

"With investors becoming more optimistic about OPEC reaching an agreement on production cuts, oil prices should continue to edge higher in trading today," ANZ bank said on Tuesday.

Goldman Sachs said in a note to clients that the chances of an OPEC cut had increased as producers needed to react to eroding supply and demand fundamentals, which the bank said "have weakened sharply since OPEC announced a tentative agreement to cut production."

Should OPEC and other producers, especially Russia, fail to agree a cutback, Goldman said it expected an oil supply surplus of 0.7 million barrels per day (bpd) for the first quarter of 2017.

Article Link To Reuters:

Trump's NAFTA Revamp Would Require Concessions, May Borrow From TPP

By David Lawder 
November 22, 2016

President-elect Donald Trump's plan to renegotiate the North American Free Trade Agreement (NAFTA) to make it "a lot better" for U.S. workers would not be a one-way street for his administration, as Canada and Mexico prepare their own list of demands that could require difficult U.S. concessions.

The 22-year-old NAFTA and other trade deals became lightning rods for voter anger in the U.S. industrial heartland states that swept Trump to power this month.

Trump -- who on Monday vowed to file notice of his intent to quit an Asia-Pacific trade deal on his first day in office -- has pledged to leave NAFTA if it can't be improved to his liking. But he has said little about what improvements he wants, apart from halting the migration of U.S. factories and jobs to Mexico.

Trade experts, academics and government officials say Canada and Mexico would also seek tough concessions and that NAFTA's zero-tariff rate would be extremely difficult to alter. And any renegotiation would likely take several years.

"In a renegotiation, one side can come in with requests, but the other side is going to expect concessions," said Wendy Cutler, a former deputy U.S. Trade Representative (USTR). "We need to know what we're going to ask for and what we can give."

When Cutler helped renegotiate a stalled trade deal with South Korea in 2010, USTR won concessions for U.S. automakers, but at the expense of a longer phase-out on steep Korean pork tariffs and allowing Korea to largely maintain a health care reimbursement system that favors domestic generic drugmakers.

Trump, who during the campaign called NAFTA the "worst trade deal ever" and threatened to levy a 35-percent tariff on Mexican-assembled autos and other goods, would have a hard time raising U.S. tariffs without scrapping the agreement, trade experts say.

"There is no precedent in free trade negotiations for one side raising tariffs more than the other," said Chad Bown, a senior fellow at the Peterson Institute of International Economics in Washington.

"If U.S. workers are more expensive than Mexican workers, the only way to level the playing field is to do things that raise costs in Mexico," Bown said.

Negotiating stronger environmental and labor protections would be one way of doing this, as it would increase manufacturing costs in a lower-income country like Mexico.

The Trump transition leader for trade, Dan Dimicco, declined Reuters' requests for comment. DiMicco, who is under consideration to be Trump's top trade negotiator, is a former chief executive of steel giant Nucor Corp. who has long fought for protections against unfairly traded imports.

In a YouTube video message published on Monday, Trump vowed to quit the Trans-Pacific Partnership (TPP), a proposed 12-country Pacific-rim trade bloc. Although the TPP terms were settled more than a year ago, the pact was never taken up by U.S. Republican leaders in Congress due in part to anti-free-trade rhetoric in the presidential campaign.

Calling it a “a potential disaster for our country", Trump said his administration would instead negotiate "fair, bilateral trade deals that bring jobs and industry back onto American shores.”

His comments would appear to snuff out any hopes among other TPP countries that the pact championed by President Barack Obama could be revived under the new administration.

Mexican President Enrique Pena Nieto said at a Pacific Rim summit on Saturday that he would be willing to discuss NAFTA with Trump to "modernize" the treaty -- but not renegotiate existing provisions.

He said that modernization could include adding environmental, labor and other provisions that weren't contemplated when NAFTA was being negotiated in the early 1990s.

Canadian Prime Minister Justin Trudeau, who met with Pena Nieto on the APEC sidelines, said he was "keeping our options open" on trade discussions with the U.S. president-elect.

But if NAFTA is reopened, Canada will insist that any renegotiation bring an end to a decades-old dispute over Canadian exports of softwood lumber, said David MacNaughton, Canada’s ambassador to the United States.

U.S. producers claim the Canadian wood is unfairly subsidized because it comes from federal lands and have threatened to seek billions of dollars in tariffs, which Canadian officials say would make a "mockery" of free trade.

For Mexico's part, any concessions that would favor U.S. industrial goods could be met with demands to increase U.S. import quotas for Mexican sugar and protections for Mexico's potato crop.

And both Mexico and Canada would likely demand greater access to compete for U.S. public sector procurements, now largely protected by "Buy America" laws. A major Trump administration infrastructure spending program would make this a more enticing target, Cutler said.

Borrowing From TPP?

Since NAFTA was enacted, total U.S. trade with Canada and Mexico has quadrupled to $1.3 trillion a year, but the U.S. combined goods trade deficit with Canada and Mexico has grown from $9.1 billion in 1993 to $76.2 billion in 2015.

(Graphic showing trend in U.S. trade deficit, imports: tmsnrt.rs/2gajLSa)

NAFTA's effect on U.S. jobs is disputed. Critics such as the left-leaning Economic Policy Institute charge that it has led to the loss of some 850,000 U.S. manufacturing jobs, while proponents such as the U.S. Chamber of Commerce claim the trade growth has added a net 5 million jobs in the United States.

The non-partisan Congressional Research Service concluded that NAFTA has had only a small positive effect on U.S. growth, but has helped U.S. manufacturers become more competitive due to more efficient supply chains.

A renegotiated NAFTA could, ironically, end up borrowing key elements from the TPP to stiffen provisions on environment, labor and digital economy standards, trade experts said.

Mexico and Canada have already agreed in the TPP to "fully enforceable" labor and environmental improvements, meaning that punitive duties could be imposed on countries that don't comply -- a major step-up from NAFTA.

TPP also included provisions governing e-commerce and cross-border data flows -- sectors that barely existed as NAFTA was negotiated in the early 1990s -- to better protect intellectual property and ensure a free and open internet. Officials in all three countries say NAFTA needs modernization in this area.

Trump economic advisers Peter Navarro and Wilbur Ross have suggested, however, that the TPP environmental, health and safety standards aren't strong enough.

In an economic white paper and various opinion pieces, Navarro, a University of California-Irvine business professor and Ross, a billionaire private equity investor who is being considered by Trump to lead the Commerce Department, said they want future U.S. trade deals to include "prompt triggers and automatic renegotiation if trade gains are not distributed fairly."

They also want "ironclad sanctions" against currency manipulation, and "zero tolerance" for intellectual property theft.

"In any negotiation or renegotiation, our guiding principle should be this: Enter into a free trade agreement only if it both increases total trade and reduces our trade deficit," they wrote.

Article Link To Reuters:

If Oil Refiners Crash, So Will The Economy

Biofuel regulations are ruining merchant oil refiners—bad for business and national security.

By Carl Icahn
The Wall Street Journal
November 22, 2016

A decade ago, the term “mortgage-backed securities” probably sounded to most people like made-up business-school nonsense. But then in 2008 the Wall Street engineers overreached and caused one of the largest financial crises in American history. Today the threat looming over the U.S. economy is similarly obscure: a shadowy, unregulated trade in electronic credits called Renewable Identification Numbers (RINs) that threatens to destroy America’s oil refineries, send gasoline prices skyward and devastate the U.S. economy.

This system of credits was created as part of the Renewable Fuels Standard, a biofuels mandate passed by Congress in 2005. RINs are generated when renewables, like ethanol, are blended into gasoline and diesel fuel. Oil firms that are not able to blend are required to purchase RINs to comply with the biofuels mandate. It’s sort of like a “cap and trade” scheme, but meant to encourage renewables.

The problem is that the EPA, in implementing the Renewable Fuel Standard, made the enormous mistake of regulating the wrong party. The obligation to blend biofuels was put on petroleum refiners and importers. This has been catastrophic for small and medium-size refiners, often called “merchant refiners,” most of whom cannot blend. The majority of fuel they produce goes into a common-carrier pipeline and is sold to blenders downstream.

Those blenders, often gas-station chains, earn windfall profits by generating RINs that the merchant refiners are forced to buy to comply with the law. Big integrated oil firms are practically exempt: Most of them blend more fuel than they refine, meaning they end up with excess RINs to sell.

This “blender loophole” is the downfall of the program. Any blender can generate RINs, and anyone, including Wall Street investors, can buy and sell them. So instead of being a small system for trading credits among oil firms, RINs have turned into a $15 billion market full of manipulation, speculation and fraud.

Because refiners and importers are required to buy these credits, they are captive customers. Wall Street, Big Oil and large gas-station chains have inflated the price of RINs far above their true value. In 2012 each credit cost a penny, but this July the price hit $0.98. Billions of dollars are being made selling compliance with the Renewable Fuel Standard.

The result is that many merchant refiners are cutting capital outlays to avoid bankruptcy. Some firms have lost up to 80% of their value since 2013. Philadelphia Energy Solutions, which operates the largest oil-refining complex on the East Coast, warned in September that its finances are “significantly stressed,” and it has cut pensions, benefits and jobs. Icahn Enterprises, of which I am chairman, indirectly controls CVR Refining, a merchant refiner that is losing hundreds of millions of dollars because of the Renewable Fuel Standard.

The RINs program is effectively doing for the Big Oil firms what the Federal Trade Commission would never allow them to do for themselves: destroy their competitors in the refining business. If merchant refiners go under, the Big Oil oligopolies will be strengthened and gasoline prices will go up, with ripple effects throughout the economy—lower consumer spending, decreased travel, higher shipping costs, increased unemployment, labor market monopsony, decreased consumer confidence, higher food prices, and less public funding for priorities like education. The failure of multiple refineries would absolutely wreck America’s economy.

It would undermine national security, too. Retired U.S. Navy Commander Kirk S. Lippold warned in October of “dire consequences” if the RINs market is not fixed. He added that a strong refining industry “provides the United States with significant and often under-appreciated national security benefits.”

The EPA claims that high RINs prices are an incentive to increase biofuel blending. But because of the “blender loophole,” the parties who are capable of putting more biofuels into America’s gasoline have no legal obligation or financial incentive to do so. They are pocketing the profits from selling RINs instead.

Further, the Renewable Fuel Standard’s blending targets, developed by Congress more than 10 years ago, were set under incorrect assumptions. Stringent standards for automobile fuel economy have kept demand for gasoline and diesel below forecasts. Most vehicle engines can only tolerate about 10% ethanol—a limitation usually called the “blend wall.” Each year the EPA admits that the mandate cannot be met, but it increases the blending targets anyway.

The problems with the RINs market are compounded by rampant fraud and abuse—largely fake credits being sold to refiners. The EPA’s former chief of criminal investigations, Doug Parker, estimates that total fraud approaches $1 billion. In a September report Mr. Parker said that “structural vulnerabilities in the regulations, limited agency oversight, and a lack of market transparency” have made the RINs program “a ripe target for massive fraud and illicit gain.”

The “wild west” RINs market must be cleaned up if merchant refiners are to survive. First, a moratorium on RINs trading should be put into place while the criminal activities and the black market are thoroughly investigated.

Second, the “blender loophole” should be eliminated. The biofuels mandate should apply equally to any company that blends, from big integrated oil firms to large gas-station chains. It shouldn’t apply to refiners and importers that are not able to blend.

The EPA has refused to fix a system that is clearly broken, ignoring obvious and repeated warnings. On Nov. 10, after years of inaction, the agency announced that it will open a regulatory docket and take public comment on changing the “point of obligation” to close the blender loophole. This move, in the waning days of the Obama administration, is a step in the right direction, but seems to be simply the EPA’s attempt to justify the failing status quo.

If the small and merchant refineries start shutting down, it will jeopardize the economy and national security alike. The Trump administration, with new leadership at the EPA, should move quickly next year to reform the biofuels mandate and forestall the crisis.

Article Link To The Wall Street Journal:

Trump Bond Sell-Off Should Scare Central Banks

By Christopher Wood
The Bloomberg View
November 22, 2016

The bond riot triggered by the election of Donald Trump, amid rising investor concerns about his aggressive pro-growth policies, means that a credibility test beckons Bank of Japan Governor Haruhiko Kuroda. This is because of the latest expression of unconventional monetary policy adopted by the BoJ at its September policy meeting. The key point for investors is that the BoJ has seemingly promised to buy enough Japanese government bonds so that 10-year yields remain more or less around zero.

The attempt at central bank price-fixing is an extraordinary development and has not received the attention it should have. In fact, it is the most important development in financial markets in 2016. With Kuroda unable to push further into negative rates because of political constraints, the Japanese central bank governor decided to steepen the yield curve by raising longer-term interest rates. The 10-year Japanese government bond yield was minus 0.06 percent before the BoJ's announcement, though this was “up” from the trough in negative yields of minus 0.29 percent in late July. The yield has since risen to about 0.03 percent. In adopting this latest policy, Kuroda took up one of the suggestions floated by Ben Bernanke in blog posts in March and April, namely targeting yields higher up the yield curve.

The point that investors should focus on is that the commitment by the BoJ to fix the price of 10-year money represents a massive hostage to fortune. In a world where government bond markets are selling off, the BoJ is seemingly committed to potentially unlimited balance-sheet expansion to hold the 10-year yield at zero. This is potentially very bearish for the yen since it would imply that the BoJ could soon run out of government bonds to buy in the secondary market, judging by the recent collapse in trading volumes. Monthly trading of Japanese government bonds by lenders and insurers has declined from a peak of 123 trillion yen in April 2012 to 16.1 trillion in October. It would also, importantly, put the Bank of Japan’s credibility directly on the line.

This is why a stress test is coming if bond markets continue to sell off in anticipation of Trump’s assumed pro-growth policies. Bond investors are concerned about his proposed $1 trillion infrastructure spending plan as well as aggressive tax cuts. It should be noted that the correlation between the U.S. 10-year Treasury bond yield and the 10-year Japanese bond since 1996 has been 0.85. Yet since Trump’s election on Nov. 8, the yield on the 10-year Treasury is up by 46 basis points but only nine basis points on the 10-year Japanese bond.

The result is that, sooner or later, markets are likely to challenge the BoJ’s pledge to hold the 10-year rate at zero. This process began last week, with the yield rising above zero for the first time since Kuroda announced his plan in September. This means the BoJ needs to increase its bond purchases if it wants to honor its commitment. That is, of course, unless Kuroda decides arbitrarily to change his yield target in light of the bond-market action triggered by Trump’s election. Still, a sudden decision to raise the price from 0 to, say, 0.2 percent could cause a loss of BoJ credibility, therefore accelerating a weakening of the yen.

For now it should be assumed that Kuroda means what he says. This suggests the BoJ will be forced to buy more government bonds if the Treasury market sells off more and puts pressure on the yen. That in turn means the BoJ would be easing more at a time when the markets are anticipating a Federal Reserve rate hike in December. This process has already started, with the BoJ offering on Nov. 17 to buy an unlimited amount of one- to five-year government bonds at fixed rates for the first time since Kuroda adopted the new policy. This drove down the 10-year yield to 0.01 percent from 0.03 percent a day earlier. Meanwhile, it is also worth noting that foreigners now own 10 percent of the securities in the Japanese bond market, including Treasury discount bills. This means foreigners are well positioned to test Kuroda should the U.S. bond market continue to sell off.

So the risk is that this latest version of Kuroda’s high-beta monetary policy could work too well if inflationary expectations finally surge on a plunge in the yen and a related inability of the BoJ to hold its target yield level. What credibility the central bank has left would finally be lost.

In this respect, Japan is set up for a potential hyperinflationary scare on a surge in velocity if inflation expectations suddenly soar precisely because of the extent to which the monetary base has grown after so many years of ultra-easy monetary policy. Japan’s monetary base has tripled from 135 trillion yen, or 28 percent of gross domestic product in March 2013, when Kuroda became BoJ governor, to 414 trillion yen, or 82 percent of GDP as of October. This surge in narrow money should be seen as the equivalent of the piling up of kindling wood on a fire. But, to continue the analogy, the kindling wood is only set alight if velocity takes off. For now, velocity, or the rate at which the money supply turns over, has declined since the 2008 financial crisis in the U.S., Japan and Europe despite the implementation of unorthodox monetary policy; though bond markets have started to worry that Trump’s policies, such as the infrastructure spending plan and a tax-amnesty deal with corporate America to encourage the repatriation of an estimated $2.5 trillion held offshore, might cause a surge in velocity.

This is why the issue of central-bank credibility is so important: It is a change in mass psychology, not an economic model, that will trigger a U-turn in velocity. In this respect, it is worth quoting Jens O. Parsson's historical study of great inflations: "At the beginning of an inflationary cycle, velocity declines while money quantity increases, thereby offsetting one another and masking the true inflation potential." This process is precisely what has been happening in Japan for many years and in the U.S. and Europe since 2008, as central bankers have embraced ever-greater doses of monetary expansion. But the game has gone on long enough, and the catalysts for a loss of credibility are now visible. It is time for investors to focus on the growing likelihood of an imminent loss of central-bank credibility and what that might entail.

Article Link To The Bloomberg View:

In Stock-Market Rally, Small Beats Large

Russell 2000 has climbed 11% since Election Day, outpacing the S&P 500’s 2.7% rise.

By Aaron Kuriloff 
The Wall Street Journal
November 22, 2016

Small companies, among the market’s biggest winners since Election Day, led a cascade of records for U.S. stock indexes Monday.

Investors betting that Donald Trump will roll back regulations and taxes while pumping money into infrastructure projects drove the Russell 2000 index of small-capitalization stocks to a record with its 12th straight session of gains, its longest winning streak since June 2003. The index has risen 11% since Election Day, outpacing the S&P 500’s 2.7% climb.

The Dow Jones Industrial Average, the S&P 500 and the Nasdaq Composite Index also closed at records on the same day for the first time since Aug. 15. The last time the four U.S. stock indexes closed at records on the same day was Dec. 31, 1999.

Hopes for a pro-business combination of a Trump presidency and Republican Congress have lifted stocks broadly. But some analysts think smaller companies could benefit even more, because they are less exposed if Mr. Trump takes a more-protectionist approach to trade and if the dollar continues to rise. Either development, along with the backlash against globalization seen in the Trump and Brexit votes, could hurt multinationals and leave smaller, domestic companies relatively better off.

“In each of these instances, small-caps benefit the most,” said Jason Pride, director of investment strategy at Glenmede, a firm that is considering adding to its holdings.

Stocks in the Russell 2000 had an average market capitalization of roughly $1.8 billion at the end of October, compared with the S&P 500’s average of nearly $40 billion, and they often swing more violently. Small-caps fell behind the S&P 500 when fears of a U.S. recession sent stocks plunging in January and early February.

The beneficiaries of the recent rally include Tutor Perini Corp., whose shares have surged 31% since the election. The Sylmar, Calif.-based construction firm is working on the Hudson Yards real-estate development on Manhattan’s West Side and helping dig a tunnel under the Seattle waterfront using “Bertha,” the world’s largest-diameter tunnel-boring machine. More than 95% of the company’s revenue comes from the U.S., according to FactSet estimates.

The bet on small caps is a speculative one, however. Little is known about how closely the incoming administration’s priorities will line up with Mr. Trump’s campaign rhetoric. Mr. Trump on Monday released a video outlining some moves he would make in his first days in office, including pulling out of the proposed Trans-Pacific Partnership trade agreement reached in 2015.

The sudden gains have raised concerns that investors are chasing returns rather than betting on the fundamentals, adding to worries that a number of popular trades since the election, such as selling in government debt and a surge in bank stocks, could reverse once there is more clarity about the direction of U.S. policy.

A similar dynamic is playing out among larger companies. Shares in S&P 500 companies with more than 90% of their revenue from inside the U.S., such as Kroger Co., have climbed 5.4% since the election. Shares in companies that generate the majority of their revenue outside the U.S., like International Business Machines Corp., have edged up 3.1% in the same period, according to research firm Bespoke Investment Group.

“If they get tough on trade policies, the price of imported goods goes up, and American businesses are more competitive,” Mr. Pride said. Deregulation and tax cuts can also disproportionately benefit small companies, as they tend to pay a greater share of revenue in taxes and regulatory costs, he said.

Then small-caps outperformed the S&P 500’s climb to highs after the U.K. vote in June to leave the European Union. The S&P 500 rose 6.8% from its June 27 trough to its first record close of the year on July 11. The Russell 2000 gained 9.2% over that time.

Mr. Trump’s proposal ​for $1 trillion in new infrastructure construction has lifted a range of companies. They include large-caps such as Caterpillar Inc. and Union Pacific Corp., as well as Scorpio Bulkers Inc., a smaller shipping company that could help carry the raw materials needed for an infrastructure buildout. Scorpio’s shares are up 44% since Election Day. They were down 64% in 2016 heading into the election.

Robert Bugbee, Scorpio’s president, said a postelection surge in commodities prices had also helped boost shares, as well as economic data showing growth in China and Japan.

Tutor Perini has also benefited from hopes of infrastructure spending, but it hasn’t been all smooth sailing. On Oct. 24, S&P Global Ratings revised the company’s outlook to “negative” citing its “weaker-than-expected operating performance over the past year,” in part because of a loss taken on its Hudson Yards project.

About a week later, Tutor withdrew a $500 million bond offering that would have been used to refinance existing debt after investors balked at the roughly 7% interest rate it had proposed as too low, according to people familiar with the situation.

The company cited “adverse market conditions,” though investors have generally been hungry for higher-yielding debt in recent months. A spokesman for Tutor Perini declined to comment Monday.

Several analysts said small-caps were poised to outperform for the rest of 2016, particularly as fund managers look to beef up year-end figures. George Young, partner at Villere & Co. in New Orleans, said he bought shares of First Hawaiian Bank and DST Systems Inc., a financial-technology company.

“There’s always going to be more volatility in small- and midcap stocks,” he said. “That’s what offers promise long term for those who can stand it.”

Article Link To The Wall Street Journal:

Facebook Experimental Drone Accident Subject Of Safety Probe

NTSB investigating aircraft’s structural failure on approach; Company founder Zuckerberg called June test flight successful.

By Alan Levin and Sarah Frier
November 22, 2016

A U.S. safety agency is investigating an accident involving a massive experimental drone Facebook Inc. is developing to bring the internet to remote areas of the world.

No one was hurt in the incident, which came during the unmanned aircraft’s first test flight on June 28. It marks the latest hiccup in Facebook’s plans to wirelessly connect the world, following an explosion earlier this year that destroyed one of its satellites and political resistance to the service in India.

The high-altitude drone, which has a wingspan wider than a Boeing Co. 737 and is powered by four electric engines, suffered a “structural failure” as it was coming in for a landing, according to a previously undisclosed investigation by the National Transportation Safety Board.

“We were happy with the successful first test flight and were able to verify several performance models and components including aerodynamics, batteries, control systems and crew training, with no major unexpected results,” the company said in an e-mailed statement.

While there has been no previous mention of the NTSB investigation or details about the incident, the company did say the drone, called Aquila, had had a structural failure in a July 21 web post.

‘Substantial’ Damage

The accident occurred at 7:43 a.m. local time near Yuma, Peter Knudson, an NTSB spokesman, said. The NTSB has classified the failure as an accident, meaning the damage was “substantial.” There was no damage on the ground, Knudson said.

The flying wing designed to eventually be solar powered so it can remain aloft for long stretches. The social-media company is seeking to boost the percent of people around the world who connect to the internet by leapfrogging ground-based infrastructure limitations.

Company Chief Executive Officer Mark Zuckerberg said he was "deeply disappointed" when a SpaceX rocket explosion Sept. 1 destroyed a Facebook satellite that would have helped spread internet access across Africa.

The company has also had political hurdles. In India, for example, Zuckerberg was surprised when people rejected the company’s offer of free web services that had Facebook at the center. Locals saw it as a poorly-disguised land grab of the Indian internet market, instead of a charitable project.

Interest In Indonesia

Indonesian Vice President Jusuf Kalla spoke to Zuckerberg in recent days at the Asia-Pacific Economic Cooperation summit in Peru about using the Aquila drone to beam internet to remote parts of the country, the Jakarta Post reported.

"If we make the right investments now, we can connect billions of people in the next decade and lead the way for our generation to do great things," Zuckerberg said in a Facebook post from the summit on Saturday.

Zuckerberg was so excited about the drone aircraft’s first flight that he flew to the test facility in Arizona early on June 28, according to an account in The Verge.

In a web post after the flight, he said it was so successful it was extended from 30 to 96 minutes. “We gathered lots of data about our models and the aircraft structure -- and after two years of development, it was emotional to see Aquila actually get off the ground,” Zuckerberg wrote.

The accident was the second involving an unmanned aircraft designed to fly for long periods as a less expensive alternative to satellites. An Alphabet Inc. drone known as the Solara 50 was destroyed May 1, 2015, at a desert landing strip in New Mexico after experiencing control problems as it flew in a thermal updraft, according to the NTSB.

Carbon Fiber

The aircraft are made with the latest carbon-fiber technology in an attempt to make them as light as possible so they can stay aloft with minimum power.

Facebook’s drone has a wingspan of 141 feet (43 meters) and weighs 900 pounds (408 kilograms). It has no traditional fuselage and is built almost entirely of thin, black wings. It flies slowly, using only the energy required to power three hair driers, according to Facebook.

Aquila is designed to fly for months at a time, using solar energy to replenish batteries at altitudes above 60,000 feet (18,288 meters). It will be equipped with a laser communications system that can deliver data 10 times faster than current technologies, Facebook said in a promotional video.

The NTSB hasn’t yet released any of its preliminary findings on the extent of the damage or the potential causes of the failure.

Article Link To Bloomberg:

New Yuan Fix 'Encourages Capital Flight' From China

By Winni Zhou
November 22, 2016

The new way China fixes the yuan exchange rate "encourages" capital flight and has led to a gradual depreciation of the currency, a former member of the central bank's Monetary Policy Committee said on Tuesday.

Yu Yongding wrote in the Shanghai Securities News that the new mechanism adopted by the People's Bank of China to set the yuan's midpoint rate did not allow for "true two-way volatility" in the exchange rate, and had hurt foreign exchange reserves as a result.

"Preventing the yuan from reaching market equilibrium is objectively a rejection of raising the cost of capital flight," wrote Yu, a former advisor to the PBOC and one-time member of its monetary policy committee.

"It even encourages capital flight."

Before the changes adopted in August, the PBOC set the daily fix by asking currency market makers for price quotations. The new mechanism to fix the yuan midpoint is based on the closing price from a day earlier and by reference to a basket of currencies.

The yuan CNY=CFXS has fallen 6.1 percent against the dollar so far this year, and hovered near an 8-1/2 year low on Tuesday. So far this month it has lost around 1.6 percent against the greenback.

Reuters reported last week that Chinese policymakers were prepared to slow the yuan's decline because they feared rapid capital flight if the currency fell too quickly, and especially if it fell through the psychologically important 7-per-dollar level.

It was trading around 6.89 per dollar on Tuesday.

Yu, an academic at the Chinese Academy of Social Sciences state think tank, wrote on Tuesday that the independence of monetary policy had been affected by the new yuan fixing mechanism and it had worsened the market distortions caused by capital controls.

However, Yu also noted that Chinese economic fundamentals did not support a sharp depreciation in the yuan.

"We have capital controls as the last line of defense. It is not necessary for us to worry too much about the short-term and volatile depreciation in the yuan," Yu said.

Article Link To Reuters:

NBCUniversal Doubles Stake In BuzzFeed With $200 Million Investment

By Rishika Sadam and Tim Baysinger 
November 22, 2016

Online media company BuzzFeed, best known for its list-based articles and quizzes, said Comcast Corp's (CMCSA.O) NBCUniversal had invested an additional $200 million in the company.

NBCU parent Comcast has pumped heavily into digital-native companies such as BuzzFeed and Vox Media, partly in an effort to better service existing advertisers. The new investment, which gives BuzzFeed a valuation of around $1.7 billion, ups NBCU’s stake to $400 million, following an initial $200 million investment last summer. NBCU also invested $200 million into Vox Media.

NBCU will take a larger role in selling ads for BuzzFeed with the ability to incorporate BuzzFeed’s inventory into its deals with advertisers; BuzzFeed will also have the same option to sell space on NBCU’s inventory to its advertisers.

Additionally, BuzzFeed’s Swarm and NBCU’s Symphony ad products will be offered as one package to advertisers. Both Swarm and Symphony allow advertisers to run campaigns simultaneously across all of their respective properties.

In the past year, NBCU and BuzzFeed have collaborated on several projects, most notably with the Rio Olympics, where BuzzFeed produced the content for NBC Olympics’ dedicated Snapchat Discover channel. In February, the two teamed with American Express to replace 30 minutes of national ad spots during primetime on Feb. 29 with sponsored content that was tied to NBC programming. BuzzFeed created content that was distributed on social media as part of that deal.

BuzzFeed will also take a bigger role in NBCU’s content studio, which produces advertiser-friendly content that is tailored to specific social media platforms, including creating and distributing the content on social media.

BuzzFeed will put more money into its food-themed business, Tasty, and beef up its digital video operations, which is becoming more of an emphasis for the digital media company.

In August, BuzzFeed split itself into news and entertainment divisions amid media companies' struggle for balance between covering news and politics, and lighter fare like social media, entertainment and lifestyle.

LionTree Advisors was BuzzFeed's financial adviser and Fenwick & West LLP its legal adviser. Davis Polk & Wardwell LLP was NBCUniversal's legal adviser.

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Citi And JPMorgan Top List Of Globally Systemic Banks

By Huw Jones 
November 22, 2016

Citi has joined JPMorgan at the top of global regulators' list of systemically important banks, replacing HSBC and meaning the U.S. bank will have to hold extra capital from 2019 to help preserve financial stability.

The group of 20 economies (G20) agreed after the 2007-09 financial crisis that top banks, whose size and complexity mean a collapse could wreak havoc in markets, should hold extra capital, according to the level of risk they present.

Members of the list of 30 lenders will also have to begin holding bonds from 2019 that can be written down to help replenish capital that is burnt through in a crisis.

In the annual update of rankings published on Monday by the G20's Financial Stability Board (FSB), Citi has replaced HSBC in the top "bucket" facing a 2.5 percent capital surcharge on top of global minimum requirements.

The measure announced by the FSB does not have an impact on any of Citi's binding regulatory metrics, the bank said in an e-mailed statement.

No lender joined or dropped out of the top 30 list this year.

Lenders on the list typically already meet or exceed the amount of capital they must hold due to pressure from regulators and markets to dispel any doubts about their resilience.

HSBC joins BNP Paribas and Deutsche Bank in the next category down, with a surcharge of 2 percent. Bank of America rose a category to join them.

Barclays dropped a category to the 1.5 percent surcharge group. Industrial and Commercial Bank of China and Wells Fargo rose a category to join the UK bank.

Morgan Stanley fell a category to the 1 percent surcharge group.

The FSB is also due to agree a higher leverage ratio for the 30 lenders.

The ratio, a broad measure of capital to non-risk-weighted assets, has been set at a minimum of 3 percent for all other banks across the world.

The FSB has yet to decide if the 30 should be subject to the same leverage ratio "surcharge" or whether it too should adopt a "bucket" approach.

The watchdog also updated its list of nine globally systemically important insurers, which was unchanged from last year.

Insurers still on the list in 2017 will be required to comply with tougher "loss absorbency" requirements from January 2019.

The list comprises Aegon, Allianz, AIG, Aviva, Axa, MetLife, Ping An, Prudential Financial, and Prudential.

The FSB's latest list makes no mention of reinsurers, a category still being considered for inclusion.

Global insurance regulators have said they may take into account the activities of insurers when they decide if they are globally systemic, rather than just focusing on size and global reach.

MetLife, the biggest U.S. life insurer, was also designated as systemically important by the Financial Stability Oversight Council, made up of the heads of U.S. financial regulators.

The insurer successfully challenged the U.S. designation in court, but the U.S. government has appealed with the outcome generally expected sometime in the next few months.

"MetLife is no longer designated as a systemically important financial institution in the United States, and believe we should not be designated as a global systemically important insurer, either," MetLife said on Monday.

Article Link To Reuters:

UK Wealth Falls $1.5 Trillion After Brexit FX Moves

By Joshua Franklin
November 22, 2016

Britain is $1.5 trillion poorer in dollar terms due to the fall in the pound since the vote to leave the European Union, a Credit Suisse study on global wealth found.

Since the referendum on June 23, the pound has weakened by around 16 percent against the dollar, meaning UK wealth is sharply lower expressed in dollar.

The Credit Suisse study also predicted that around 945 billionaires will be minted around the world in the next five years, bringing their number to nearly 3,000.

"More than 300 of the new billionaires will be from North America," the bank wrote in the report published on Tuesday. "China is projected to add more billionaires than all of Europe combined, pushing the total from China above 420."

China's population of millionaires is also expected to rise by more than 70 percent between 2016 and 2021 to just under 2,800.

Many banks, including Zurich-based Credit Suisse, are banking on continued growth in Chinese wealth to help pick up the slack from European markets.

Article Link To Reuters:

Tesla Shock Means Global Gasoline Demand Has All But Peaked

IEA forecast has ‘major implications’ for refining industry; Oil watchdog sees gasoline demand falling from now until 2040.

By Javier Blas and Laura Blewitt
November 22, 2016

After fueling the 20th century automobile culture that reshaped cities and defined modern life, gasoline has had its day.

The International Energy Agency forecasts that global gasoline consumption has all but peaked as more efficient cars and the advent of electric vehicles from new players such as Tesla Motors Inc. halt demand growth in the next 25 years. That shift will have profound consequences for the oil-refining industry because gasoline accounts for one in four barrels consumed worldwide.

“Electric cars are happening,” IEA Executive Director Fatih Birol said in an interview in London, adding that their number will rise from little more than 1 million last year to more than 150 million by 2040.

The cresting of gasoline demand shows how rapidly the oil landscape is changing, casting a shadow over an industry that commonly forecasts decades of growth ahead. Royal Dutch Shell Plc, the world’s second-biggest energy company by market value, shocked rivals this month when a senior executive said overall oil demand could peak in as little as five years.

The IEA doesn’t share Shell’s pessimism. While the agency anticipates a gasoline peak, it still forecasts overall oil demand growing for several decades because of higher consumption of diesel, fuel oil and jet fuel by the shipping, trucking, aviation and petrochemical industries. 

For Philip Verleger, president of the consultant PKVerleger LLC in Colorado and a veteran oil-market analyst, the IEA’s outlook is one of the more optimistic outcomes for the global industry.

“Refiners across the globe can only hope that this forecast turns out to be right -- because all the indications are today that consumption is going to begin dropping not in 2030, but probably in 2020,” said Verleger. “It’s the best news a dying patient can hope to get.”

The projections are part of the analysis the Paris-based IEA did for its “World Energy Outlook 2016” flagship report. The agency forecast that gasoline demand will drop to 22.8 million barrels a day by 2020 from 23 million barrels a day last year. By 2030, consumption will rebound slightly, reaching a peak of 23.1 million barrels a day, before falling again toward 2040.

The forecast is more pessimistic than the one released a year ago, when the IEA saw robust demand growth from now until 2030.

Gasoline has been the world’s choice to power automobiles. From the 1950s onward, when Henry Ford’s dream that every middle-class American could own a car became reality, gas stations sprung up next to drive-through restaurants and strip malls and transformed the landscape of America and economies across the globe.

Now, however, car companies -- most obviously Tesla, but also incumbents such as General Motors Co., BMW AG and Nissan Motor Co. -- are putting their money, and reputations, behind electric vehicles. With technology improving -- especially for batteries -- prices are falling. Tax breaks, particularly in China, are helping sales.

Global gasoline demand grew by nearly 20 percent between 1990 and 2015 despite competition from diesel in Europe, where the fuel benefited from tax breaks. In the next 25 years, gasoline consumption will drop 0.2 percent, according to the new IEA calculations. While the number of passenger vehicles will double to 2 billion by 2040, “the amount of oil we use for cars will be lower than today,” Birol said.

The biggest victim is likely to be refiners, which have spent billions of dollars over the last two decades to maximize gasoline output at the expense of other fuels. Birol said the changes in fuel-demand growth over the next 25 years will have “major implications” for the industry, which probably will have to re-tool their plants.

Diesel Ascendant

“Demand for gasoline will be much more affected than heavier fuels -- the refineries’ configuration will be affected," he said.

As gasoline demand sputters in advanced economies, middle distillates, fuels used to power trucks and jets, will continue to see growth in the next decade as economies expand. And new international rules will require that the heavy, dirty fuels currently used for marine transit be replaced with lower-sulfur diesel in 2020.

Refiners would be wise to target distillates such as diesel in lieu of gasoline as they grapple with fading consumption, said Michael Wojciechowski, vice president of Americas oil and refining markets research at Wood Mackenzie Ltd. in Houston.

"Diesel seems to be almost like a utility fuel going forward,” Wojciechowski said. “It’s got its ability to meet a lot of strategic objectives for refiners.”

Article Link To Bloomberg: