Monday, April 11, 2016

Monday, April 11, Night Wall Street Roundup: Wall Street closes lower as investors ready for earnings

By Lewis Krauskopf
Reuters
April 11, 2016


Wall Street closed slightly lower on Monday, with gains in materials and banks countered by declines in consumer staples shares, as investors girded for the start of an earnings season expected to be gloomy.

Equities gave up gains late in the day with the three major indexes finishing in negative territory after posting losses last week.

Investors were looking for cues from the first-quarter earnings season, beginning with Alcoa's (AA.N) report after the bell.

The metals company reported a lower quarterly profit, with results hurt by low alumina and aluminum prices, and its shares fell more than 2 percent in extended trading.

Profits at S&P 500 companies are expected to have fallen 7.7 percent in the first quarter, according to Thomson Reuters I/B/E/S.

"This is just all jitters and anticipation of the beginning of earnings season," said Jonathan Corpina, senior managing partner with Meridian Equity Partners in New York. "The expectations aren’t that high for earnings this quarter, so I think investors are starting to feel a little uneasy about that."

A rocky start of the year was followed by a sharp rebound since mid-February and stocks are now little changed for 2016.

Financial shares .SPSY, the worst performing group this year, were among the leaders on Monday. JPMorgan (JPM.N), Citigroup (C.N) and Bank of America (BAC.N) all gained ahead of their quarterly reports later this week.

"I don’t really read too much into the action today because I just think people are waiting to see what the earnings outlook is, particularly with the banks,” said Walter Todd, chief investment officer at Greenwood Capital Associates in Greenwood, South Carolina.

The Dow Jones industrial average .DJI fell 20.55 points, or 0.12 percent, to 17,556.41, the S&P 500 .SPX lost 5.61 points, or 0.27 percent, to 2,041.99 and the Nasdaq Composite.IXIC dropped 17.29 points, or 0.36 percent, to 4,833.40.

Of the 10 S&P sectors, only financials and materials closed higher.

Norfolk Southern (NSC.N) shares fell 2.7 percent to $79.28 after Canadian Pacific (CP.TO) said it was giving up on its $28 billion bid to buy the railroad.

National Oilwell Varco (NOV.N) dropped 6.1 percent to $27.32 after the oilfield equipment maker said it would cut its quarterly dividend.

About 6.5 billion shares changed hands on U.S. exchanges, below the 7 billion daily average for the past 20 trading days, according to Thomson Reuters data.

Advancing issues outnumbered declining ones on the NYSE by 1,801 to 1,224, for a 1.47-to-1 ratio on the upside; on the Nasdaq, 1,437 issues fell and 1,388 advanced for a 1.04-to-1 ratio favoring decliners.

The S&P 500 posted 21 new 52-week highs and 3 new lows; the Nasdaq recorded 38 new highs and 28 new lows.

A late afternoon Buy -- Synthetic Bio. should rebound nicely in the last 90 minutes of trading -- Buy SYN @ $2.345; +/- .03

Today's Stock in Play is Eagle Bulk Shipping -- Symbol #EGLE

Look to Wall Street to find out who our next president will be

By Jonathon M. Trugman
The New York Post
April 11, 2016


Next week is primary week in the capital of the world, New York.

All of the candidates are here, but they are staying far away from Wall Street because none dares to acknowledge the economic models that have an almost perfect record predicting presidential political outcomes.

Today, most of Wall Street’s predictive models call for a GOP victory in November, based on the anemic gross domestic product growth.

Interestingly, the primary modalities of predictive analysis are each done differently, but the major ones all do have at least one common thread: economic growth.

Ray Fair, economics professor at Yale and author of “Predicting Presidential Elections and Other Things,” has one of the leading economic models predicting elections, and has been doing it the longest — since 1978.

The model he uses has the enviable record of correctly forecasting all but three presidential races since 1916. One instance when it was incorrect was in 2012, when Barack Obama beat Mitt Romney.

Fair’s model relies on three primary points of analysis: the per capita growth rate of gross domestic product in the three quarters before an election, inflation over the entire presidential term, and the number of quarters during the presidential term in which growth per capita exceeded 3.2 percent.

Moody’s has the Dems in the lead in the fall. But it seems to be an outlier with obviously flawed reason, in my opinion.

The Moody’s report — which came out last week from economist Dan White — for the first time ever weighs the sitting president’s approval rating, even though neither he nor his veep are up for election.

Strangely, the economists over at Moody’s — whose model hasn’t missed an election since it was created in 1980 — chose to tinker with success by adding a volatile variable that sometimes can be personality-driven and completely devoid of economics.

But, hey, Moody’s will get its report card come November.


Article Link to the New York Post:

Monday, April 11, Morning Global Market Roundup: Asia shares shrug off losses, dollar wallows

TOKYO | BY LISA TWARONITE

Reuters
April, 2016

Asian stocks erased early losses and edged up on Monday as Chinese inflation data fanned optimism Beijing will continue with loose monetary policies, while Japanese shares slid as the dollar notched a fresh 17-month low against the yen.

Financial spreadbetters expected subdued openings for European bourses, with Britain's FTSE 100 .FTSE seen down around 0.2 percent, Germany's DAX .GDAXI expected to open down as much as 0.3 percent, and France's CAC 40 .FCHI seen opening 0.4 percent lower.

MSCI's broadest index of Asia-Pacific shares outside Japan .MIAPJ0000PUS added about 0.2 percent, after Wall Street ended with modest gains on Friday even as the S&P 500.SPX still suffered its biggest weekly decline in two months.

Japan's Nikkei stock index .N225 was off its session lows but still ended down 0.4 percent. In addition to a stronger currency, data released early on Monday showed Japan's core machinery orders fell 9.2 percent in February from the previous month, in a sign that business investment remains subdued.

"While February's machinery orders fell less than anticipated, Japan markets remain weighed down by a strengthening yen and uncertainty surrounding when, or if, the Bank of Japan will intervene," said Andrew Meredith, co-managing director at Tyton Capital Advisors.

Chinese data released earlier on Monday showed that country's consumer price inflation was less than expected in March, while wholesale prices declined less than anticipated, in a sign that deflationary pressure in the industrial sector may be easing.

While the figures pointed to stabilizing prices, they also underscored that the central bank's prolonged easing campaign begun in late 2014 has yet to result in substantial price increases and raised hopes of more stimulus steps.

"The CPI data is lower than expected, so investors now expect further monetary easing to come," said Zhu Bin, analyst at Southwest Securities Co.

Chinese shares were higher, with the blue-chip CSI300 index .CSI300 up 1.7 percent, while the Shanghai Composite Index .SSEC added 1.8 percent.

The greenback's recent slide against the yen prompted a chorus of warnings from officials in Tokyo and put investors on alert for direct yen-selling intervention, though many believed Japan would stay its intervention hand.

Japan's top government spokesman, Chief Cabinet Secretary Yoshihide Suga, said on Monday that recent currency moves were one-sided and speculative and that the government would take steps as needed.

The dollar wallowed close to lows notched last week, as investors mulled the outlook for U.S. monetary policy, with the Federal Reserve seen as being more cautious on hiking interest rates than some investors had believed.

The dollar index, which tracks the U.S. unit against a basket of six major currencies, fell 0.1 percent to 94.136 .DXY, within sight of last week's low of 94.015, which was its lowest since October.

The euro EUR= was up about 0.1 percent at $1.1407, not far from last week's high of $1.1454, its highest since October.

The dollar slipped about 0.2 percent to 107.89 yen JPY= after earlier nudging down to 107.63, which was its weakest since October 2014.

Oil prices edged down as investors took profits after crude soared more than 6 percent on Friday. They also marked gains of about 8 percent for the week, as drawdowns in U.S. crude stockpiles fed hopes that the end was in sight for the global supply glut that has plagued the industry for nearly two years. [O/R]

U.S. crude futures CLc1 edged down 0.3 percent to $39.60 a barrel after jumping 6.6 percent on Friday, while Brent crude LCOc1 was down about 0.2 percent at $41.85, after settling up 6.4 percent.

The weaker dollar helped lift spot gold to its highest in nearly three weeks. Gold XAU= rose to $1,252.26 an ounce, its highest since March 22. It was last up about 0.7 percent at $1,249.11.


Article Link to Reuters:

The Myth of Saudi Power

The 'Salman Doctrine' can't back up its tough talk.


By Mohammed Nuruzzaman
The National Interest
April 11, 2016


Analysts from the Gulf Arab states are generally upbeat about Saudi Arabia’s possible military dominance in the Gulf neighborhood and the Middle East region. A Saudi commentator has recently argued in an online feature published by the National Interest that Riyadh, in collaboration with Sunni Arab and Muslim allies, stands poised to fill the strategic void created by America’s move to disengage from the Middle East. The kingdom, by means of the “Salman doctrine,” would militarily defeat the ISIS terrorists and Shia extremist groups in Iraq and Syria, subverting Shia Iran’s regional ambitions to challenge 1,400 years of Sunni dominance. The commentator seems animated with sectarian firepower, driven more by rhetoric and less by realities on the ground.

The buzz about Saudi Arabia’s ascendant military role started with King Salman bin Abdulaziz Al Saud’s ascension to the throne in January 2015. The new king’s approach to foreign policy was marked by a big shift—a shift from the traditional policy of restraint to a more assertive role in regional affairs, what the press has branded a “muscular foreign policy.” Just two months after being crowned as the new king, he launched an air offensive on Yemen in late March 2015 to punish the Iran-backed Houthi rebels, who forced the Saudi-supported government of President Abdu Rabbu Mansour Hadi to flee Yemen, and deny Iran a foothold in the southern edge of the Arabian Peninsula. He also doubled down support for the pro-Saudi Islamic Army rebels, a loose alliance of forty-three Islamist groups committed to establishing sharia law in Syria, to topple the Bashar al-Assad government, Iran’s only Arab ally.

But the Saudis were hardly close to achieving their stated objectives either in Yemen or in Syria. And there are indications that Riyadh is losing the bid for regional dominance, putting its credibility as a counterweight to Iran at risk. President Hadi is still heading the Yemeni government-in-exile, mostly operating from Riyadh. Disappointingly, though, the Saudis are now secretly negotiating with the Houthis to bring the abortive invasion to an end. They appear ready to emerge from Yemen as the losers, leaving their Houthi opponents to cheer victories and probably control Yemeni politics in the future.

In Syria, the Assad government was nowhere close to falling, despite consecutive defeats at the hands of diverse rebel groups in the first half of 2015. But recently, Russia’s direct military intervention, starting in September of last year, gave the Assad government a new lease on life, mostly by eliminating or downsizing the rebel groups backed by Saudi, Turkey, Qatar or the United States. President Bashar al-Assad’s survival now looks more guaranteed than at any previous point in the five-year civil war.

The “Muscular Foreign Policy” Approach

At the center of Saudi Arabia’s current bid for regional dominance lies King Salman’s muscular approach to foreign policy. This policy banks more on military might than on the use of diplomatic tools, cash or even religious influence, which Riyadh has traditionally employed to protect and promote Saudi interests. This assertive policy started with the late King Abdullah’s counterrevolutionary actions against the pro democracy movements in the Arab world better known as the Arab Spring. King Abdullah, defying U.S. concerns and in a show of strength against Iran, sent troops to Bahrain in March 2011 to trample the Shia-led movements for democratic rights. In September 2013, he also decided to arm and fund the Islamic Army in Syria to simultaneously beat Al Qaeda and ISIS forces and turn the tide of the Syrian civil war to eventually dislodge the Assad government. King Salman has followed King Abdullah’s policy more vigorously, adding to it a high degree of military assertiveness. The bombing of Yemen remains a signpost in his approach.

Challenging Shia Iran, however, remains the central part of King Salman’s policy. There is no denying that the Arab prodemocracy movements have directly or indirectly expanded Iran’s regional sphere of influence, even if only by default. They paved the way for Iran and the Iran-backed Lebanese militia Hezbollah to become militarily involved in Syria to defend their ally, the Assad government. Across the border in Iraq, Shia Iran and various Iraqi Shia political groups and militias solidified their ties after the United States brought down the Saddam Hussein regime in May 2003. The rise of Islamic State (ISIS) in late June 2014 further cemented those ties, putting them on the same strategic page to confront ISIS, which views the Shia as heretics, as do the Saudi Wahhabi clerics. A scared Saudi Arabia, after Syria and Iraq had largely slipped into Iranian hands, saw the Houthis as simply another Iranian proxy to spread Iran’s influence in the Arabian Peninsula, thus enlarging the so-called “Shia Crescent” from Beirut to Sanaa via Damascus and Baghdad.

What was equally scary to the Saudis was the United States’ gradual policy shift towards Iran, seemingly at the expense of Washington’s Arab allies. To their dismay, the Obama administration negotiated a nuclear deal with Iran in July 2015, whereby Iran agreed to scale back, not destroy, its nuclear program in exchange for sanctions relief. The Saudis perceived the deal as a destabilizing development, as did the Israelis, with the potential to upset the regional political and military balance. Viewed realistically, the deal strengthens Tehran’s regional economic and military positions, offering it opportunities to reengage in global trade and commerce and reintegrate itself into the global economy. That’s an outcome Israel and the Gulf Arab states unsuccessfully tried to stop.

The Saudis were already complaining that the United States did not come to the defense of the now fallen Egyptian strongman Hosni Mubarak or intervene in Syria to unseat the Assad government, expectations that did not match America’s interests in the region. President Obama recently dubbed the Gulf Arab allies “free riders” who want “to drag the United States into grinding sectarian conflicts that sometimes had little to do with American interests.” For the United States, facing a rising China in East Asia and cultivating good relations with other important world regions were more important than getting involved in sectarian feuds in the Middle East, driven by Iran and Saudi Arabia.

Saudi Strategies to Achieve Dominance

The Saudi response to these unfavorable developments took two dimensions: reducing dependence on the United States, and forming alliances to face Iran and its proxies resolutely. Both dimensions ultimately proved ineffective or defective.

First, Riyadh approached China, Russia and India to enhance its economic and diplomatic clout. But the first two states were already more aligned with Iran, and the third enjoys no significant leverage in Middle Eastern affairs. It was hard to find an alternative ally. Instead, close trade, military and diplomatic relations prompted the Saudis to avoid completely jumping out of the U.S. orbit.

Second, Riyadh decided to flex its military muscles and contain Iranian influence by forming new Arab and Muslim military alliances—the Arab coalition to eliminate the Houthi rebels in Yemen, and the thirty-four-nation Islamic military alliance to defeat terrorism and extremism.

Both appear to be more “paper alliances” than realistic military blocs, however. The anti-Houthi coalition suffered a massive blow after the Pakistani parliament voted in April 2015 to stay out of the conflict in Yemen. GCC member Oman refused to be a party to the conflict, while Egypt, mindful of its military debacle in the Yemeni civil war of the 1960s, was dragging its feet on the issue of sending troops to aid the Saudi ground offensive in Yemen. Sudan agreed to contribute troops after securing a much needed financial lifeline of $2.2 billion from Qatar and Saudi Arabia; Egypt won oil concessions and $8 billion investment commitment from Riyadh for its participation. The Saudis won Arab support for the war on the Houthis, but at a big cost.

Equally unimpressive is the alliance of thirty-four Sunni Muslim countries Saudi Arabia announced in December 2015. This alliance not only shuts out the Shia-majority states but also excludes the Muslim Central Asian republics and Afghanistan. Oman is not a member of the alliance; neither is Algeria, the largest North African Muslim country with a modern army. There are also real, perhaps insurmountable, difficulties in making this alliance an effective military bloc, such as the limited military capabilities of many of its members; problems of commitment; wide geographic distances (from Morocco in North Africa to Malaysia in Southeast Asia); domestic, political and religious fissures; and so on. There is no common strategic thread other than the Sunni brand of Islam that ties them together.

Limitations to Saudi Dominance


Saudi Arabia has its own fundamental weaknesses, mostly in its economic and military systems, to overcome before it can assert its regional dominance. The Saudi economy is awfully dependent on oil exports—approximately 80 percent of national revenues and 90 percent of export earnings come from the oil sector. The economy remains less diversified with a narrow industrial base, despite a massive modernization program initiated by the late King Faisal in the early 1960s. High dependence on oil has often made it vulnerable to wide fluctuations in global oil markets, such as the drop from $116 per barrel of oil in June 2014 to today’s price below $40.

Recent downticks in oil prices forced the Saudis to declare a deficit budget in 2015, estimated at 20 percent of GDP, a condition likely to persist a few more years. On top of that, the war on Yemen and support for the rebels in Syria have taken a toll on the Saudi economy. Riyadh is incurring a cost of $6 billion every month, or $200 million daily, for war operations in Yemen, a price that the ailing Saudi economy can hardly afford for long. A parallel example is the United States’ high military spending in Iraq, with a total cost of $2 trillion and military expenditures claiming 4.75 percent of GDP in 2011. The United States eventually opted for withdrawal, giving the Iraq dossier to Iran. One might wonder whether a similar fate awaits the Saudis in Yemen.

Another area of serious concern is Riyadh’s recent military expansion, which looks fraught with defects, if not impending dangers. The kingdom keeps importing foreign military hardware, from sophisticated multirole fighter jets to guided missiles. It became the world’s largest arms importer in 2014, with a total of $6.4 billion spending on defense. Between 2011 and 2015 arms imports by Riyadh rose by 275 percent compared to the previous five years. This is part of a general trend in arms purchases by Middle Eastern states, whose imports increased by 61 percent over the same period as a whole. The question is whether a state like Saudi Arabia can assert its military dominance on the regional scale based on imported arms, while its nemesis Iran has achieved remarkable self-sufficiency in armaments. Great and rising powers are also major arms exporters, though they import arms on a limited scale. Saudi Arabia produces no major arms or weapon systems, having instead built up an arms dependency relationship with the West, China and Russia. This makes it susceptible to pressures from exporters, particularly during times of regional military crises. One example is the European Parliament’s recent decision to call for an arms embargo against Riyadh in response to humanitarian disasters in Yemen created by Saudi bombings.

Overall, it looks like that Saudi Arabia is engaging in brinkmanship that it lacks the power to back up. Its bid to emerge as the region’s preeminent military power and control regional affairs may come up short.


Article Link to the National Interest:

Will taxpayers be left holding the bag for student-loan deadbeats?

The New York Post Editorial Board
April 11, 2016


Taxpayers who got socked by the 2008 housing crash may soon have to pony up again — for student-loan deadbeats.

Some 43 percent of Americans with government student debt are behind or not making payments at all, The Wall Street Journal reports. That could leave taxpayers holding the bag — to the tune of more than $200 billion.

Will Washington never learn?

The feds are rightly worried about defaults and unpaid bills — not just because of the hit on taxpayers but also the damage to borrowers’ own credit. They’re stepping up efforts to reach out to delinquents and offer easier payment plans.

But that’s not likely to ease the crisis. Loan servicer Navient says it already sends out 230 to 300 letters, e-mails or texts, on average, in the year leading up to a default. Nine out of 10 borrowers never respond; more than half make no payments.

Attempts to garnish wages and tax refunds offer more promise. But rather than try to recover money after the fact, why not avoid bad risks from the start?

Today, government loans often come with virtually no credit checks and require no ­co-signers. There’s not even an attempt to figure out if a borrower is ready for college-level work.

“On what planet does a financing vehicle with those kinds of terms . . . make sense?” asks higher-ed economist Carlo Salerno.

Sound familiar? It should: After the housing crash, everyone asked similar questions about the easy mortgages that had been given to poor-credit homeowners.

And these days, lending to high-risk students is even more dubious, given increasing evidence that for some people college just isn’t worth the cost.

Meanwhile, Hillary Clinton and Bernie Sanders would both make things worse: She’d sock Americans with a $35 billion-a-year tab to aid students; he’d shell out at least $75 billion — to make college “free.”

Great idea: Not only would taxpayers suffer; so, too, would those lured to college even when they may be wasting their time.


Article Link to the New York Post:

Accusing Bernie Sanders of ‘blood libel’: The future of US-Israel relations

According to fivethirtyeight.com, those under 29 have a more favorable view of the label “socialist” and aren’t bothered by Sanders’ perceived radicalism that has even The New York Times whining.


By Seth J. Frantzman
The Jerusalem Post
April 11, 2016


‘He accused us of a blood libel. He accused us of bombing hospitals. He accused us of killing 10,000 Palestinian civilians. Don’t you think that merits an apology?” asked former ambassador to the US and current MK Michael Oren. He was reacting to an April 4 interview with US Democratic presidential hopeful Bernie Sanders in The New York Daily News in which Sanders made chopped liver of the facts regarding death tolls in Israel’s 2014 war with Hamas in Gaza.

Like some scene from the ‘80s classic A Fish Called Wanda, more Israeli politicians jumped on the “apologize!” bandwagon. On Saturday Ofir Akunis, science, technology and space minister, told attendees at a cultural event in Rishon Lezion, “Sanders has spread horrible lies against the State of Israel and he needs to apologize as soon as possible.”

Listening to the way some Israeli politicians talk about Sanders one gets the sense they have an outsized view of Israel’s importance in the US political landscape. That view is fed by events like recent AIPAC conference in Washington where 18,000 pro-Israel supporters turned out and all the candidates except Sanders wooed them. While it’s easy to listen to the kind words of Ted Cruz and Hillary Clinton, or Donald Trump and John Kasich, the reality is that Israelis and pro-Israel supporters should be listening to Sanders, not because he is right, but precisely because he is wrong and his supporters don’t care.

Since the Sanders phenomenon caught on last year, the Brooklyn-born Jewish candidate from Vermont and avowed socialist has been romping home the youth vote. In Iowa he won 84 percent of the vote among those age 17-29. According to ABC Sanders has won 70% of the vote among those under 29 in all primaries through April 9. Clinton’s support is a mirror image – she does better among older voters, African- Americans and women. Even though the under- 29 demographic won’t bring Sanders victory in the Democratic convention which Clinton is still likely to win, the generational trend is important. According to Nate Silver at fivethirtyeight.com, those under 29 have a more favorable view of the label “socialist” and aren’t bothered by Sanders’ perceived radicalism that has even The New York Times’ Paul Krugman whining.

The generation of voters born between 1982 and 2000 consists of 83 million people. It is powerful and it will eventually become more so. When Sanders skipped AIPAC after his offer to provide a televised address was panned by the organizers, his supporters didn’t care. His March 21 press release on the “speech not given” is interesting. “I am probably the only candidate for president who has personal ties with Israel.

I spent a number of months there when I was a young man on a kibbutz,” read the release. While he said Israel deserves security, he argued Palestinians deserve “self-determination, civil rights and economic well being.” He noted that “I, along with many supports of Israel, spoke out strongly against the Israeli counterattacks [on Gaza in 2014] that killed nearly 1,500 civilians.”

But how did this Jewish candidate for president who lived in Israel become a maligned “blood libeler” whom a Jewish Press oped derided as “not a Jew”? How did he end up being described as “seven times worse than Hamas” by an Israeli online newspaper and illustrated as being hit in the face with a bagel by The Village Voice as a Jewish heretic? He has “Israel hating advisers,” the Free Beacon claims. Evidence? He sought advice from J Street.

Most observers characterize Sanders as uninterested in foreign policy and say Sanders has been “taken in,” as Yair Rosenberg noted, by some bad advice. J. J. Goldberg felt that Sanders was simply being co-opted and portrayed as an anti-Zionist, when in fact he is a “Labor Zionist.” But the Daily News interview seemed to indicate that Sanders’ disinterest in foreign affairs might lead to dangerous claims.

“My recollection is over 10,000 innocent people were killed in Gaza. Does that sound right?” he asked the interviewer. More odd than the inflated figure, Sanders twice claimed Israel’s “attacks against Gaza were indiscriminate.”

This sets off alarm bells in the pro-Israel community.

The Anti-Defamation League expressed displeasure, and Sanders admitted he erred. His spokesman claimed that no candidate supported Israel’s “right to exist” as strongly as the man from Vermont.

The problem for those concerned about Israel-US relations remains that although Sanders might have clarified his statements, his supporters are not deeply troubled by them. There is only one poll of Jewish support for Sanders, which shows it at around 18% last September. However there is evidence that among young American Jews, his brand of progressive values strike a cord. So for those shouting “apologize” and “blood libel,” they should be wondering how many Sanders supporters have changed their minds over the “10,000” error? A candidate who doesn’t care and won’t apologize? In some ways that’s the most worrisome thing for Israel and the pro-Israel community. The ease with which any comment critical of Israel, or mistake in characterizing its wars, is melodramatically labeled anti-Semitism has the potential to do long-term harm to Israel’s relationship with young Americans.

When I posted the Sanders comments on Facebook some of the replies against them compared his comments to having sold out Jews during the Holocaust.

It is part of this knee-jerk “anti-Semitism” refrain that has been cultivated in Israel circles, where exaggerating every criticism of Israel into anti-Semitism is seen as a good way to defend Israel. But accusing the one Jewish candidate for president, someone who lived in Israel and has always supported Israel, of committing a “blood libel” shows how out of touch Israelis are becoming. How long will accusations of anti-Semitism against Jewish candidates, against Jewish left-wing groups and Jews who have a radical critique of Israel or even loathe the country the way Tony Judt did, continue to be greeted with relevance? Sanders and his supporters seemed to greet them with a shrug.

For some reason many in the pro-Israel community have become addicted to the flattery of candidates who promise them outright lies, such as “I will move the US embassy to Jerusalem.” Instead of seeing sycophantic speeches for what they are, they want more. It would behove this crowd to listen more to Sanders and his supporters. They likely won’t win this election, but just as Eugene McCarthy inspired many people to get into politics in 1968, it’s probable the Sanders phenomenon will have long-term impact. If the impact is that more politicians decide they will be more ambivalent on Israel and not be afraid of accusations of “blood libel,” there will be long-term consequences. More Israel supporters should listen to Ze’ev Elkin’s response to Sanders: Politicians make mistakes, “what is important is what candidates do and not what they say.”


Oil dips after analysts pour cold water on output freeze prospects

By Henning Gloystein
Reuters
April 11, 2016


Crude prices dipped on Monday as analysts, including Goldman Sachs, poured cold water on the prospects of a planned oil producer meeting successfully reining in global oversupply, although a firm demand outlook checked losses.

U.S. crude eased to $39.50 by 0600 GMT, off the day's high of $40.47 and down 22 cents from the prior session. Prices had rallied more than 6 percent on Friday after data showed U.S. energy firms had cut oil rigs for a third straight week to the lowest since November 2009.

Brent was down 26 cents at $41.68 a barrel, also after sharp gains late last week that were fuelled by production outages in the North Sea and West Africa and hopes a planned meeting in Doha on April 17 of producers will lead to an output freeze. Global overproduction is currently estimated at about 1 million barrels per day (bpd) in excess of demand.

But Goldman Sachs cautioned that the results of the April 17 meeting may end up being bearish for the market.

"A production freeze at recent production levels would not accelerate the rebalancing of the oil market as OPEC (ex. Iran) and Russia production levels have this year remained close to our 2016 average annual forecast of 40.5 million bpd," it said.

"We see greater odds that the Doha meeting delivers a bearish catalyst for oil prices... (and) we continue to believe that the balancing of the oil market requires sustained low prices with our 2Q16 forecast of $35 per barrel," it added.

Barclays also said that the "current expectation is for their actions to have limited impact."

Additionally, Morgan Stanley warned that current oil prices reflected temporary outages and that this "does not necessarily imply upside for flat price or evidence of a faster recovery in the global imbalance".

However, the longer-term outlook for oil seemed less bearish, with analysts forecasting a pick up in demand.

Researchers at Bernstein expect global oil demand to grow at a mean annual rate of 1.4 percent between 2016 and 2020, versus an annual growth of 1.1 percent over the past decade.

"We expect oil markets to rebalance by the end of 2016. This will allow oil prices to recover towards the marginal cost of $60 per barrel," Bernstein said, adding that global demand would reach 101.1 million bpd by 2020 from 94.6 million bpd now.

Bernstein's strong demand outlook was underpinned by Chinese data, where vehicle sales in March rose 7.8 percent from a year earlier, with car sales totalling 1.92 million.


Article Link to Reuters:

Putin Gets His Own Army

By Leonid Bershidsky
The Bloomberg View
April 11, 2016


President Vladimir Putin has overhauled Russia's law-enforcement operations to create a domestic army that ultimately would answer to him personally, not to one of the government ministers. It was the clearest demonstration in years of the Russian leader's concern about preserving his power.

On April 5, Putin submitted a bill to the Russian parliament that carved out a National Guard from the Interior Ministry's Interior Troops. The Interior Ministry is essentially the police force; the 170,000-strong Interior Troops are the crack riot police and counterinsurgency units. During Putin's first two presidential terms, they bore the brunt of the fighting in the formerly secessionist region of Chechnya, and they have dispersed many unsanctioned rallies.

In addition to the Interior Troops, all of the ministry's elite units, nicknamed "cosmonauts" by opposition activists for their round helmets and "Star Wars"-like gear, will also be included in Putin's army, with the potential for further expansion. Immediately, the number of National Guard personnel will exceed 15 percent of the Russian armed forces that are supposed to deal with external threats.

This powerful, well-trained force will operate outside the ministry under the command of Viktor Zolotov, a long-time Putin associate, whom the president appointed head of his personal bodyguard immediately after moving into the Kremlin in 2000. Like many Putin friends in government service, he is far wealthier than his official income could ever allow, and he is far more personally loyal to the president than Interior Minister Vladimir Kolokoltsev. Zolotov will report directly to Putin.

As the political scientist Tatyana Stanovaya wrote for the Russian Carnegie Center, regardless of whether the interior minister is a close associate of Putin's, or even one of his judo sparring partners, "at a hypothetically possible moment of high tension, his hand will tremble when orders must be followed. Zolotov enjoys maximum protection from such hesitation. Putin -- and Zolotov as an extension of Putin -- will have no more intermediaries."

In the same way, the National Guard's loyalty is more certain than that of the Defense Ministry, run by the popular -- and, reportedly, increasingly independent -- Sergei Shoigu.

The new National Guard has its own intelligence service and thus investigative powers. It also has been granted authority to issue firearm licenses to private individuals and security firms -- almost 10 million people, from hunters to elite bodyguards. The National Guard also has been granted the right to fire without warning "in special cases" and to not introduce themselves when making an arrest.

The Interior Ministry will be severely weakened by the reform. Whenever it needs muscle, it will have to ask Zolotov. As a consolation prize, Kolokoltsev, not a member of Putin's inner circle, gets the 27,000 employees of the Federal Service for the Control of Narcotics and most of the former Federal Migration Service, which issues passports. The ministry is handed all the routine police work, and it loses its status as the Kremlin's most powerful protector.

Putin last reshuffled the "power ministries" in 2003, mostly to bring them closer in line with the Soviet institutions of his youth. The new moves appear to be more significant, both because Russia's ruler is personally taking control of an army and because of the timing. Parliamentary elections will be held in September -- though it won't be a significant event because the resulting legislature will likely rubber-stamp Kremlin decisions just as the current one has, but if the vote is as blatantly rigged as it was in 2011, protests could break out again. Although pollsters still report high levels of support for Putin after the military actions in Ukraine and Syria, Russians also are under stress because of a continuing economic slump. According to the Russian Central Bank, the country's economic output shrank about 1 percent in the first quarter of 2016, compared with a year earlier.

Putin, who appears to believe that the U.S. and its Western allies are out not just to destabilize his regime but to bring about Russia's break-up, is taking no chances. He clearly is timing the reorganization to be completed well ahead of the election. By the time of the presidential election in 2018, the National Guard will have ironed out its kinks. It will have all the powers and functions necessary to counteract a putative Western plot and do away with any overly loud or violent dissent.

Once again, instead of opening up and liberalizing, the embattled Putin regime is closing in on itself, and the man sitting on top of it is taking on more and more direct powers. The National Guard is a manifestation of Putin's mistrust of Russia's remaining institutions: He feels more confident surrounded by old friends and in control of a large fighting force.


Article Link to the Bloomberg View:

Austria to Seize Hitler’s House

By Ivo Oliveira
Politico EU
April 11, 2016


Austria said Saturday it plans to seize Adolf Hitler’s house in which Hitler was born from its private owner to end a legal dispute and to prevent it from becoming a gathering point for Nazi sympathizers.

“We are currently examining the creation of a law, which would force a change of ownership and pass the property to the Republic of Austria,” Interior Ministry spokesman Karl-Heinz Grundböck told AFP.

Hitler was born in the house located in the town of Braunau am Inn in April 1889. The building has been empty since 2011 when a dispute broke out between the Austrian government and the house’s owner Gerlinde Pommer.

The plan to seize the house would involve a compensation to the Pommel family, who has owned the house for more than a century.

In the early 1970s, the government signed a lease with Gerlinde Pommer and turned the house into a center for people with disabilities. The deal ended five years ago when Pommer unexpectedly refused to grant permission for much-needed renovation works.

“We have come to the conclusion over the past few years that expropriation is the only way to avoid the building being used for the purposes of Nazi” sympathizers, the interior ministry spokesman said.

The Austrian interior ministry also offered to purchase the house, which Pommer refused. Braun am Inn, a town of around 17,000 residents, has been debating what to do with the house.

According to the BBC, Hitler’s name does not appear in the house but outside there is a stone inscribed with the words: “For Peace, Freedom and Democracy. Never again Fascism. In memory of millions of dead.”


Article Link to Politico EU:

The Case for a Really Open GOP Convention

The man who defeated Wisconsin prosecutors now says party delegates have the right to choose any nominee they want, and they should use it.


By Kimberley A. Strassel
The Wall Street Journal
April 11, 2016


As the odds rise of a contested Republican presidential convention, Donald Trump’s and Ted Cruz’s camps are insisting that one of them must be the nominee. The Trump argument is that even if he falls short of the 1,237 delegates needed to secure the nomination, denying it to him at the convention would amount to antidemocratic theft. Mr. Cruz appears to think that finishing second means finishing first if the guy who beat him can’t win on the initial convention ballot.

Eric O’Keefe is here to say: whoa. The veteran Republican grass-roots activist sees a contested convention as a once-in-a-lifetime opportunity for the delegates of a private political party to assert their power. The results of the GOP primaries are hardly representative of the party’s will, Mr. O’Keefe says, because state parties have been wrecked by domineering state legislatures. Why should Republicans bow down, for instance, to the results of state-mandated open primaries that allow liberal and independent voters to bum-rush what is supposed to be a private poll?

“There’s nothing that special or even good about the government-run primary process,” Mr. O’Keefe says. Relishing the opportunity for Republican delegates to stand up for themselves, he is gearing up a campaign to educate and encourage them to exercise their prerogatives at the convention and to ignore specious insistence that they follow some imaginary obligations.

“The delegates have been going to conventions for years and treating them like Super Bowl parties because there was nothing else to do,” he says. “But this year they have the opportunity to practice a great national tradition, to exercise their legal, historical right to defeat a man who opposes most of what they believe in, and instead nominate a candidate who represents them.”

As you might suspect, the “man” Mr. O’Keefe referred to is Donald Trump.

“I hate bullies, and of late I’ve come to hate them more,” Mr. O’Keefe says. “Trump means institutionalized bullying. Tyranny grows from ambitious people grabbing whatever levers of power are available.”

The 60-year-old Mr. O’Keefe has plenty of experience with pushing back against bullying—in Wisconsin. The state that helped make his dream of an open Republican convention look like it could become a reality is also the state that not too long ago sought to throw him in jail for exercising his constitutional rights.

Mr. O’Keefe—who skipped college, had a brief stint in business and then got swept up in libertarian politics—by the mid-1980s had become disillusioned with how politicians of all types rig the system to maintain their hold on power. He turned to issue-oriented politics instead, and took up causes like promoting term limits, fighting against eminent-domain abuse and other ways of restoring the influence of citizens over how they are governed.

“I am not interested in driving policy or candidates,” he says. “I’m interested in self-governance, in having people learn what it is that they own, and then exercising that power. Our citizens have been turned into spectators—it’s what the left wants.”

Mr. O’Keefe ran many of his issue-oriented campaigns from his adopted home of Wisconsin (he was born in Michigan), where he heads the Wisconsin Club for Growth, a self-described “state-wide network of thousands of pro-growth Wisconsinites.” After Scott Walker was elected governor in 2011, Mr. O’Keefe was impressed when Mr. Walker pushed through Act 10 legislation to reform the state’s public unions.

This was exactly the sort of government-limiting reform that Mr. O’Keefe believed in, and when Republicans in the state Senate came under recall threat, he stepped in. He fired up his fundraising networks, and the Wisconsin Club for Growth ran issue ads extolling Act 10, ads that became the main counter to a union-funded anti-Act 10 advertising juggernaut. The GOP kept the Senate in 2011, and Mr. Walker beat back a recall vote a year later.

The left-leaning permanent government in Wisconsin was furious about how things turned out. In particular, the Democrat-infused state prosecutor’s office wanted payback. John Chisholm, the state district attorney in Milwaukee County, launched a secret grand jury-like probe known as a “John Doe” against Mr. O’Keefe, the Wisconsin Club for Growth, and 29 other conservative groups in an attempt to pin a crime on somebody, anybody, for violating campaign-finance laws. The investigation included predawn house raids, subpoenas and the imposition of a gag order on the targets.

District Attorney Chisholm picked the wrong guy to try to gag. Having spent years fighting against entrenched political power, Mr. O’Keefe found himself in government crosshairs and ordered not to talk about it. Risking legal sanctions, he spoke on the record to this newspaper’s editorial board in 2013 about the John Doe and what he believed was a story of political revenge.

Mr. O’Keefe still gets teary when he recalls the worst moments of the probe, but it left him with some lessons. “One is that no one should ever underestimate how easy it is for government to slip into terrifying abuse,” he says. “If they did this in Wisconsin, there are literally hundreds of government employees around the country ready and willing to attack their citizens too.”

It took two years, many Journal editorials, and the state Supreme Court to exonerate the targets of Mr. Chisholm’s vendetta. Some are seeking justice to discourage future such abuses. On Wednesday, Mr. O’Keefe’s lawyer, David Rivkin of the Washington, D.C., law firm Baker Hostetler, will step into federal court in Wisconsin to pursue a civil-rights suit on behalf of Cindy Archer, another victim of the probe. Despite the collapse of the Wisconsin John Doe investigation, similar campaign-finance assaults on conservatives have spread to Montana, Texas and Missouri.

Make no mistake: Mr. O’Keefe isn’t a fan of campaign-finance laws, which he regards as attempts to muzzle speech. Laws limiting political contributions “are created by the politicians, to cripple challengers, who are the equivalent of startup companies,” he says. “Imagine if IBM was the only company in the country, and you had a limit of $1,000 of venture capital to any competitor. You’d never have another business.” Mr. O’Keefe helped found the Center for Competitive Politics to fight against laws impinging on speech rights.

Which brings him back to the Republican National Convention in Cleveland. Mr. O’Keefe has been researching the history of conventions and collecting material for meetings with GOP convention delegates to present his case. He will tell them that they have an obligation to nominate a better general-election candidate than Mr. Trump—not merely to spare the country from Mr. Trump’s policies, but to reassert the party’s constitutional right to operate as a wholly private, autonomous political actor.

Mr. O’Keefe was particularly offended by Mr. Trump’s recent threat to sue the Louisiana Republican Party to force more of its delegates to support him. “These delegates are exercising a core aspect of political freedom. They don’t need government permission to speak or government regulation of how they vote,” Mr. O’Keefe says. “He’s behaving like a tyrant when he doesn’t even yet have power.”

What about the argument that letting the delegates decide the nomination at a contested convention would mean a return to the smoke-filled backroom bargaining of the past? “And what’s wrong with that process?” Mr. O’Keefe replies. “It worked well. Those rooms were full of engaged citizens—people who had an interest in the success of their party and their country. They vetted the nominations, they imposed accountability, they shook up the system.”

Voters are angry today, he adds, because they feel disenfranchised. A contested convention invites engagement.

The problem, he says, is that the GOP over the years has become “flaccid organizationally, and structurally.” It has forgotten its authority and its role in the constitutional system, forgotten that its own rules refer to what technically takes place in each state as nothing more than a “presidential preference vote.”

“This is about taking back the private party system,” says Mr. O’Keefe. “The states took away the rights of private nominations long ago. But in the case of the national party—it is a voluntary organization and it sets its own rules.” Part of his campaign to educate the GOP delegates and the media will be this reminder: The only rules that count are those the convention itself adopts at the outset of the gathering—rules that can also be changed as the convention unfolds. For the record, he says he isn’t acting on behalf of any candidate, and he could live with any number of nominees other than Mr. Trump.

Mr. O’Keefe’s bet is that once the delegates embrace that freedom, Mr. Trump can’t win because about “75% of those delegates in Cleveland are anti-Trump.” And imagine how “wonderful” it could be, Mr. O’Keefe says, if the delegates exercised their liberty on the national stage.

“There they are in Cleveland, grasping their legal and historical right to nominate the most powerful person in the world,” he says. “The delegates may not know it, but they will not only be saving the Republican Party and the country—they’ll be reviving a tradition of self-governance.”


Article Link to the Wall Street Journal:


Obama Under Pressure to Declassify the 9/11 Report’s Secret 28 Pages

Ten days before Obama heads to Saudi Arabia, a new report explores the making of the 28 pages that reveal Saudi support for the 9/11 hijackers—and shows why they should be made public.


By Eleanor Clift
The Daily Beast
April 11, 2016


One of the ongoing mysteries in Washington is why the Obama administration is still classifying 28 pages of a congressional report written in 2003 that documents Saudi support for the hijackers who carried out the 9/11 attacks.

The bipartisan co-authors of that report have long called for its release to the public, and President Obama on two separate occasions over the last several years promised the 9/11 families that he would declassify the 28 pages.

Now pressure on Obama to make good on his promise is mounting. Advocates claim there is no longer any reason to protect the Saudis 15 years after the attacks. Government insiders argue there’s nothing in the 28 pages that they don’t already know, and making them public will only roil an important strategic relationship at a time when it’s already under significant strain.

Into this volatile mix marches 60 Minutes, the venerable CBS News show, with a hard-hitting report Sunday on the making of those 28 pages, and a renewed push by those with the most direct knowledge of what they contain to finally make them public. As the 60 Minutes segment points out, Obama is traveling to Saudi Arabia in 10 days, a trip that comes in the midst of his administration’s review of whether to go ahead with the de-classification.

Former Florida senator Bob Graham chaired the Senate Intelligence Committee and co-chaired the joint congressional committee that looked into the attacks. He told 60 Minutes correspondent Steve Kroft, “I think it is implausible to believe that 19 people, most of whom didn’t speak English, most of whom had never been in the United States before, many of whom didn’t have a high school education, could’ve carried out such a complicated task without some support from within the United States.”

An exchange between Kroft and Graham goes to the heart of the dispute. “You believe that support came from Saudi Arabia?” Kroft asks. “Substantially,” Graham replies. “And when we say, ‘The Saudis,’ you mean the government…rich people in the country? Charities?”

“All of the above,” Graham replies.

It has long been the Saudi position that support for the hijackers did not come from the government, and the congressional report contained a line that seemed to exonerate the government. “It’s not an exoneration,” says former senator Bob Kerrey, a member of the 9/11 Commission who has filed an affidavit in support of a lawsuit brought by the 9/11 families seeking redress from the Saudi government for the loss of their loved ones.

The families don’t want another 9/11 anniversary to pass without fully understanding the complicity that led to the attacks. By turning its media megaphone on the impasse, 60 Minutes showed viewers the extraordinary range of high profile former officials on both sides of the political aisle who wish to see this matter resolved. Porter Goss, who co-chaired the congressional inquiry with Graham and then became CIA director under President Bush, recounted asking then FBI Director Robert Mueller why the 28 pages were classified and basically being told, “Because we said so.”

Withholding them during the Bush years made a certain amount of sense because the attacks were still so fresh, and the Bush family had long-standing close ties with the Saudi royal family. Making those pages public would be embarrassing. Obama has more freedom to make a decision based on national security considerations, but he may be reluctant to strain U.S. ties with the kingdom further.

Former Democratic congressman Tim Roemer, who was a member of the joint committee, says the 28 pages contains information that will surprise people, including, he suggests, leads that were not sufficiently pursued. He mentions an imam at a San Diego mosque, Anwar al-Awlaki, who years later would be taken out by a U.S. drone in Yemen. “Those are a lot of coincidences, and that’s a lot of smoke. Is that enough to make you squirm and uncomfortable, and dig harder—and declassify these 28 pages? Absolutely,” he said.

60 Minutes opened its report with an image of a locked door on Capitol Hill, behind which the 28 pages are kept under top security. Members of Congress can go and read the pages, but they cannot take notes or bring along a staff member. A relatively small percentage of lawmakers have availed themselves of the opportunity. A bipartisan effort led by Republican Walter Jones of North Carolina and Democrat Stephen Lynch of Massachusetts is urging members to read the pages, and once they’ve done that, to sign on to a resolution calling for their declassification.

John Lehman, secretary of the Navy in the Reagan administration and another member of the 9/11 Commission, told 60 Minutes: “We’re not a bunch of rubes that rode into Washington for this commission…We’ve seen fire and we’ve seen rain and the politics of national security. We all have dealt for our careers in highly classified and compartmentalized in every aspect of security. We know when something shouldn’t be declassified. And this, those 28 pages in no way fall into that category.”

There are real-life implications for the 9/11 families in these 28 pages and their potential impact on a lawsuit being heard in New York. The U.S. government holds the position that a sovereign government cannot be sued, and that has so far shielded the Saudi government. Lehman told 60 Minutes that he has no doubt some high Saudi officials knew assistance was being provided to al Qaeda, but he doesn’t think it was ever official policy. He also doesn’t think it absolves the Saudis of responsibility, Kroft said in his commentary.

“It was no accident that 15 of the 19 hijackers were Saudis. They all went to Saudi schools. They learned from the time they were first able to go to school—of this intolerant brand of Islam,” Lehman said, referring to the ultra-conservative form of Islam known as Wahhabism. After oil, Kroft says, Wahhabism is one of the kingdom’s biggest exports. Saudi clerics have billions of dollars to spread the faith, and the mosques and religious schools that the Saudi government builds all over the world are recruiting grounds for violent extremists.

It’s long past time that someone blew the whistle on what the Saudis are doing inperpetrating extremism. There are no secrets here. It’s what everyone knows is going on but few dare to disrupt. Shining a light on this long-standing protection racket could make some people squirm. It could also interrupt a very vicious cycle of behavior.


Article Link to the Daily Beast:

The Time America Almost Invaded OPEC

In 1973, Washington considered stealing the Gulf's oil.


By Michael Peck
The National Interest
April 10, 2014


Thirty years before America invaded Iraq, it almost invaded Saudi Arabia.

The last months of 1973 were a desperate time. The Arab oil-producing states had embargoed the United States in October, ostensibly in retaliation for U.S. military aid to Israel during the Yom Kippur War. By the time the embargo ended in March 1974, the damage had been done. World oil prices had quadrupled, triggering years of recession and inflation. No American who lived through the seventies will ever forget the long lines at gas stations that flew red or green flags to signal whether they had fuel in their pumps. With today’s oil market glutted and gas prices plummeting, it’s hard to remember that there was a time when Americans could only buy gas on certain days, depending on whether their license plates had odd or even numbers.

The world had been turned upside down. From being mere resource producers at the mercy of Western states and big oil companies, the oil-rich nations became global kingpins overnight, flush with so much cash that they could barely spend it all, and armed with the most expensive weapons, which they barely knew how to use. The world trembled before the Organization of the Petroleum Exporting Countries (OPEC), whose mostly Middle Eastern members controlled the lifeblood of the global economy.

Like the rest of the world, the United States tamely paid the inflated oil prices. But rather than forking over the money, what if America had chosen to take the oil by force? In 2004, declassified British government documents revealed that the United States had considered a military seizure of Middle Eastern oil.

Though no explicit military plan was mentioned, the documents do show that British leaders were worried by a conversation between U.S. Secretary of Defense James Schlesinger and Lord Cromer, the British ambassador to the United States.

Schlesinger told Cromer that “it was no longer obvious to him that the US could not use force. An interesting outcome of the Middle East crisis was that the notion of the industrialized nations being continuously submitted to whims of the underpopulated under-developed countries, particularly of the Middle East, might well change public perceptions about the use of the power that was available to the U.S. and the Alliance.”

British Prime Minister Edward Heath was worried enough by Schlesinger’s tough talk, as well as hints of military action from Secretary of State Henry Kissinger, to order a British intelligence estimate of U.S. intentions. The report concluded that the United States “might consider it could not tolerate a situation in which the US and its allies were at the mercy of a small group of unreasonable countries. We believe the American preference would be for a rapid operation conducted by themselves to seize oilfields. . . The force required for the initial operation would be of the order of two brigades, one for Saudi operation, one for Kuwait and possibly a third for Abu Dhabi.

“The build-up would require the presence of a substantial US naval force in the Indian Ocean, considerably more than the present force. After the initial assaults. . . two [extra] divisions could be flown in from the USA.”

Britain’s Joint Intelligence Committee calculated that seizing oil fields totaling twenty-eight billion tons in reserves would have been sufficient to supply the United States and its allies. However, the report warned that “the American occupation would need to last 10 years as the West developed alternative energy sources, and would result in the ‘total alienation’ of the Arabs and much of the rest of the Third World.” British analysts also worried about the Soviet reaction, though they concluded that Moscow would be more likely to respond with propaganda than force.

America could have seized the oil fields with little problem. With the U.S. military now out of Vietnam, a couple of divisions could have been spared for the Middle East while still maintaining a force to guard against Soviet attack in Europe. In 1973, the Saudis lacked all those high-tech American and European weapons, such as F-15s and AWACS, that the oil windfall would buy them a few years later. Even now, there are grave doubts about the ability of the Saudi military to use sophisticated arms. As for Kuwait’s military, it couldn’t stop Saddam Hussein in 1990, and wouldn’t have stopped the U.S. Marines in 1973.

Had this been the British Empire in the nineteenth century, or Teddy Roosevelt’s "gunboat diplomacy," force would almost certainly have been used. But in the end, the United States and the world did nothing but pay more at the pump (those who want to see how a military operation might have fared are advised to find a copy of the 1975 paper war game Oil War).

The fact was that the oil embargo came at the worse possible time. U.S. oil production had been declining since 1970, inflation was soaring, President Nixon was embroiled in the Watergate scandal, America had just withdrawn from Vietnam, the U.S. military was in a shambles and the last thing the American public wanted was another war. A long-term occupation of the Middle East might have required the reintroduction of the draft, which would have brought back the draft riots of the sixties.

If the United States had occupied the Arabian oil fields, it would probably have done so alone. The British clearly had no appetite for it. NATO’s reaction can be gauged by the fact that America’s allies, except for Portugal, denied overflight and refueling rights to U.S. transport aircraft engaged in airlifting supplies to Israel during the Yom Kippur War. The Third World, still emerging from its anticolonial liberation struggles, could hardly have endorsed it. Ironically, the one nation that might not have been unfavorable was Iran, America’s major ally in the Persian Gulf at the time.

Ultimately, the test case for a 1973 invasion of Saudi Arabia came thirty years later, with the 2003 invasion of Iraq. The conditions were far different: Saudi Arabia had a much smaller population than Iraq, and the U.S. goal would have been occupation of natural resources rather than regime change. Yet what might have ensued was an early version of the War on Terror. There was no Al Qaeda, and Osama bin Laden was just a spoiled Saudi rich kid. But in the early 1970s, there was Arab nationalism, Pan-Arabism, Arab leftists who still believed in Communism, and a plethora of terrorist groups in the Middle East, Europe and Japan just looking for a cause to fight for. Instead of suicide bombers, there would have been guerilla warfare, terrorism and perhaps even a pre–bin Laden surge in Islamic fundamentalism.

In the end, just like Iraq, the question would have remained: What do you do with the territory after you’ve taken it? A permanent occupation that would have turned the Saudi oil fields into another Guantánamo Bay enclave? Or do you return the oil fields only if OPEC lowered prices, which would have left embittered relations between the world and its biggest oil producers?

The best solution then is still the best solution today: find another energy source that doesn’t rely on foreign oil.


Article Link to the National Interest:

The Unintended Consequences of the Panama Papers

By Mohamed A. El-Erian
The Bloomberg View
April 11, 2016


The revelations about offshore accounts that came to light in the so-called Panama Papers will reinvigorate government efforts to rein in not just tax evasion, which is illegal, but tax avoidance, too.

They will also add to popular frustration that will challenge the authority of some government officials. The uproar will bring about enhanced enforcement measures. yet there also will be unintended consequences that will further erode the credibility and effectiveness of the political establishment, including its ability to govern from the center, which is already being tested.

In the wake of the global financial crisis, and given the alarming surge in wealth inequality, the governed will prove far less accepting of the legal distinction between tax evasion and tax avoidance. Both are now viewed not just as "tax dodges," but also as the unfair perks of the better-off and more-connected members of society in many countries.

Enter last week's "Panama Papers," the trove of more than 11 million pages of documents from Mossack Fonseca, a Panama-based law firm. The documents suggest that in both advanced and developing countries, some of those who hold power, and those with access to them along with the "rich and famous," used the firm to establish and manage offshore entities that are designed to protect capital and minimize taxation.

The political repercussions were immediate, and are likely to spread. Already, the scandal has led to the resignation of Iceland's prime minister, to a political outcry that has required U.K. Prime Minister David Cameron to release his tax returns (a first for Britain's top elected official), and has abruptly ended the political honeymoon of Argentina's new president, Mauricio Macri.

In addition, countries including Germany are stepping up efforts to look into curbs on legal, but morally questionable tax avoidance schemes that benefit the wealthiest. As with earlier steps to limit money laundering, the focus will be on more stringent reporting requirements, better international sharing of data, and more closely coordinated cross-border verification and enforcement efforts.

These changes will be quite visible; and will have a meaningful impact for those who, until now, have found it easy to use offshore financial vehicles to reduce their tax payments. The measures' effects on politics and governance, while they will be less visible, could be more consequential for broader segments of society.

The Panama Papers are yet another blow to the political establishment. They amplify popular resentment toward governments that already are perceived by a significant segment of the population as turning a blind eye to tax-dodging. That anger is stoked by disclosures that some high-ranking officials also availed themselves of the shelters. And though no laws were broken in most cases, the documents will feed the perception that the privileged are allowed to play by different rules.

Indeed, for many, the Panama Papers are reminiscent of a broader phenomenon that played out in the run-up and the aftermath of the 2008 global financial crisis: The perception of a system run and managed by a political establishment that serves the rich and connected and fails to hold these elites accountable for the damage they cause to the rest of society. There is still notable residual resentment that very few bankers were brought to justice for their role in a financial debacle that caused significant misery and almost tipped the world into a devastating multiyear depression.

By stoking residual anger and fueling anti-establishment movements, the Panama Papers will make it even harder for the established parties to come together and implement policies aimed at overcoming years of sluggish economic growth, worsening inequality and artificial financial stability.

In addition, two other developments last week also eroded the credibility of the political establishment: the failure of the Dutch government to convince citizens to back European Union membership for Ukraine, and the turnaround of a growing number of members of the Republican establishment (including Lindsey Graham, Mitt Romney and Scott Walker) who lined up behind Ted Cruz as their preferred candidate.

There will be even less appetite to govern from the bipartisan political center, thus making it more difficult to secure sufficient buy-in for pro-growth structural reforms, better demand management and more timely solutions for excessively high levels of over-indebtedness.

There's no doubt that the Panama Papers will produce greater efforts to reduce tax minimization (whether through legal avoidance or illegal evasion). That is good news for liberal democratic systems that rely on a rule of law that is viewed as fair and credible. But in the short-term this will be accompanied by even stronger resistance to the kind of political unity that is needed in several countries to deliver high growth and genuine financial stability.


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