Wednesday, May 4, 2016

Wednesday, May 4, Night Wall Street Roundup: Wall St. Falls As Data Adds To Growth Worries; Biotechs Down

By Caroline Valetkevitch
May 4, 2016

U.S. stocks declined for a second day on Wednesday, weighed down by tepid data on private sector U.S. jobs and a retreat in biotech shares.

Weaker-than-expected results from Priceline (PCLN.O) added to the bearish tone.

The Nasdaq Biotech Index .NBI dropped 2.9 percent, its seventh session of losses out of the last eight.

The ADP private sector employment report showed hiring in April fell to its lowest in three years. The report acts as a precursor to the more comprehensive government nonfarm payrolls data due on Friday.

A strengthening labor market is expected to influence the pace of future rate hikes, although traders are pricing in only one hike later this year.

An accommodative Federal Reserve along with a recovery in oil prices have helped U.S. stocks rally from sharp losses at the start of the year. The S&P 500 is up 0.3 percent since Dec. 31.

"The market is absorbing the move from the February bottom. Given the seasonality of the market and also that it had recently been within close distance of all-time highs, that's probably a point to consolidate, and I would expect that to continue for the short run," said Bruce Zaro, chief technical strategist at Bolton Global Asset Management in Boston. "I'm seeing a lot of comments on 'sell in May and go away'," a Wall Street adage that refers to stocks being less likely to make big gains in the summer months.

The Dow Jones industrial average .DJI ended down 99.65 points, or 0.56 percent, to 17,651.26, the S&P 500 .SPX lost 12.25 points, or 0.59 percent, to 2,051.12 and the Nasdaq Composite .IXIC finished 37.59 points, or 0.79 percent, lower at 4,725.64.

Shares of Priceline fell 7.5 percent to $1,253.04, among the biggest drags on the S&P and the Nasdaq. The online travel services company's forecast fell short of expectations.

After the bell, shares of Tesla (TSLA.O) rose 5 percent after it released results and said it was on track to deliver 80,000 to 90,000 electric vehicles this year. Whole Foods Market Inc (WFM.O) shares rose 3.2 percent after the bell after better-than-expected quarterly profit. The company's shares had closed down 0.8 percent at $28.51.

Other economic data on Wednesday showed the U.S. services sector expanded in April as new orders and employment accelerated, helping assuage some of those fears.

A Reuters survey of economists showed nonfarm payrolls likely rose by 202,000 in April after rising 215,000 in March. The unemployment rate is forecast to hold at 5 percent.

About 7.7 billion shares changed hands on U.S. exchanges, above the 7.2 billion daily average for the past 20 trading days, according to Thomson Reuters data.

Declining issues outnumbered advancing ones on the NYSE by 1,812 to 1,196, for a 1.52-to-1 ratio on the downside; on the Nasdaq, 1,882 issues fell and 928 advanced for a 2.03-to-1 ratio favoring decliners.

The S&P 500 posted 18 new 52-week highs and six new lows; the Nasdaq recorded 30 new highs and 64 new lows.

Article Link to Reuters:

Big Data Breaches Found At Major Email Services

By Eric Auchard
May 4, 2016

Hundreds of millions of hacked user names and passwords for email accounts and other websites are being traded in Russia's criminal underworld, a security expert told Reuters.

The discovery of 272.3 million stolen accounts included a majority of users of (MAILRq.L), Russia's most popular email service, and smaller fractions of Google (GOOGL.O), Yahoo (YHOO.O) and Microsoft (MSFT.O) email users, said Alex Holden, founder and chief information security officer of Hold Security.

It is one of the biggest stashes of stolen credentials to be uncovered since cyber attacks hit major U.S. banks and retailers two years ago.

Holden was previously instrumental in uncovering some of the world's biggest known data breaches, affecting tens of millions of users at Adobe Systems (ADBE.O), JPMorgan (JPM.N) and Target (TGT.N) and exposing them to subsequent cyber crimes.

The latest discovery came after Hold Security researchers found a young Russian hacker bragging in an online forum that he had collected and was ready to give away a far larger number of stolen credentials that ended up totalling 1.17 billion records.

After eliminating duplicates, Holden said, the cache contained nearly 57 million accounts - a big chunk of the 64 million monthly active email users said it had at the end of last year. It also included tens of millions of credentials for the world's three big email providers, Gmail, Microsoft and Yahoo, plus hundreds of thousands of accounts at German and Chinese email providers.

"This information is potent. It is floating around in the underground and this person has shown he's willing to give the data away to people who are nice to him," said Holden, the former chief security officer at U.S. brokerage R.W. Baird. "These credentials can be abused multiple times," he said.

Less Than $1

Mysteriously, the hacker asked just 50 roubles – less than $1 – for the entire trove, but gave up the dataset after Hold researchers agreed to post favourable comments about him in hacker forums, Holden said. He said his company’s policy is to refuse to pay for stolen data.

Such large-scale data breaches can be used to engineer further break-ins or phishing attacks by reaching the universe of contacts tied to each compromised account, multiplying the risks of financial theft or reputational damage across the web.

Hackers know users cling to favourite passwords, resisting admonitions to change credentials regularly and make them more complex. It's why attackers reuse old passwords found on one account to try to break into other accounts of the same user.

After being informed of the potential breach of email credentials, said in a statement emailed to Reuters: "We are now checking, whether any combinations of usernames/passwords match users' e-mails and are still active.

"As soon as we have enough information we will warn the users who might have been affected," said in the email, adding that's initial checks found no live combinations of user names and passwords which match existing emails.

A Microsoft spokesman said stolen online credentials was an unfortunate reality. "Microsoft has security measures in place to detect account compromise and requires additional information to verify the account owner and help them regain sole access."

Yahoo and Google did not respond to requests for comment.

Yahoo Mail credentials numbered 40 million, or 15 percent of the 272 million unique IDs discovered. Meanwhile, 33 million, or 12 percent, were Microsoft Hotmail accounts and 9 percent, or nearly 24 million, were Gmail, according to Holden.

Thousands of other stolen username/password combinations appear to belong to employees of some of the largest U.S. banking, manufacturing and retail companies, he said.

Stolen online account credentials are to blame for 22 percent of big data breaches, according to a recent survey of 325 computer professionals by the Cloud Security Alliance.

In 2014, Holden, a Ukrainian-American who specialises in Eastern European cyber crime threats, uncovered a cache of 1.2 billion unique credentials that marked the world's biggest-ever recovery of stolen accounts.

His firm studies cyber threats playing out in the forums and chatrooms that make up the criminal underground, speaking to hackers in their native languages while developing profiles of individual criminals.

Holden said efforts to identify the hacker spreading the current trove of data or the source or sources of the stolen accounts would have exposed the investigative methods of his researchers. Because the hacker vacuumed up data from many sources, researchers have dubbed him "The Collector".

Ten days ago, Milwaukee-based Hold Security began informing organisations affected by the latest data breaches. The company's policy is to return data it recovers at little or no cost to firms found to have been breached.

"This is stolen data, which is not ours to sell," said Holden.

Article Link to Reuters:

Kasparov: Trump Is Putin's 'Best Hope'

By Bryan Bender
May 4, 2016

One of Russia’s leading opposition activists Wednesday decried the rise of Republican presidential candidate Donald Trump as the United States' own version of “Putinism,” saying the New York real estate mogul's election would be the “best hope” for Russian President Vladimir Putin and his dictatorial regime.

Garry Kasparov, the former world chess champion and democratic political activist, said he's committed to “preventing the rise of Putinism, whether it is in Russia or this country.”

“I wish it would be a joke,” he told the Aspen Institute during a Washington forum. “It is not. What we are seeing in this election cycle is it’s an attack on the American way of life and democracy.”

Kasparov said he sees an assault on American ideals coming from both ends of the political spectrum.

"The fact is that in both parties you have very powerful trends that are pushing it to the opposite sides, sort of creating not a consensus but a conflicting field. It worries me. Economically, [it is] from [Bernie] Sanders' supporters, you know, reviving the socialism," he said of the Vermont senator's surprisingly successful insurgent campaign for the Democratic presidential nomination.

"As someone raised in a communist country, it is anathema," Kasparov said. "People seem to forget what socialism was. They don’t seem to realize that the luxury of talking about socialism was paid for by capitalism."

"On the other side," he continued, "you have, of course, the rise of Donald Trump," who has made admiring statements about the Russian leader. "That is an attack on liberty."

Trump's so-called "America First" foreign policy, in Kasparov's view, would be a disaster and only embolden Putin.

"Putin's biggest hope? Donald Trump," Kasparov said. "This is the way to weaken American democracy and the trans-Atlantic relations."

Kasparov, who lives in New York, was in Washington to discuss his new book, "Winter is Coming: Why Vladimir Putin and the Enemies of the Free World Must be Stopped."

He said the world desperately needs the kind of American leadership that was provided from both major political parties during the Cold War.

"Recently I watched again this Kennedy-Nixon debate, in 1960, when candidates could disagree on means but they could agree on goals," Kasparov said. "Now, I am afraid we will be entering a very different kind of debate where substance will be totally trumped.”

He also didn’t mince words when discussing President Barack Obama and his secretary of state, John Kerry, who he described as a weak negotiator with Russian Foreign Minister Sergey Lavrov.

"I'm afraid if Kerry and Lavrov stay in the room too long, Kerry will give Alaska back to Russia," Kasparov said.

Asked whether there are specific steps he would recommend the U.S. take to confront Putin, Kasparov responded: "The answer is nothing. The only thing America can do is to use the credibility of the Oval Office. It has none today. At the end of the day, you don't want to start a war. Credibility helps you make a threat — a threat that scares bad guys."

"It is time to start thinking what will happen in five, 10, 15 years — a long-term vision has to be offered," he added. "Maybe, this administration still has a chance of laying down the agenda. It is very important that America has to restore its adherence to a credible and consistent foreign policy."

Article Link to Politico:

The Four Horsemen of the Republican Apocalypse

By Megan McArdle
The Bloomberg View
May 4, 2016

Last night, I commemorated Donald Trump’s victory in the Republican primaries by eating Mexican food in Utah, a redder-than-red state where he came in a distant third.

While I ate my very tasty beef taco, I mulled on the factors that have brought us to this pass. Other columnists may look forward, to the heat death of the Republican Party and the triumphant ascent of Hillary Clinton to the position of least popular Democratic president since Jimmy Carter. But I’d like to take a moment to remember the folks who have brought us to this strange pass -- the four horsemen of the Republican apocalypse, if you will.

We would not be in this situation if Republican primary voters had mostly rationally tried to pursue two goals: 1) nominate someone as conservative as possible and 2) win the general election. The field would have consolidated around Marco Rubio, and Democrats would now be anxious rather than openly celebrating the nomination of a no-hoper.

In fact, that’s usually the outcome we see in both parties: the field consolidates around the most ideologically congenial candidate who is capable of winning a general election. Why didn’t that happen? Blame the four horsemen.

1. Donald Trump. There are any number of explanations for what Trump is bringing out in the electorate. But the most compelling explanation also, curiously, gets the shortest shrift: He’s a celebrity candidate, and celebrity candidates break election models. Jesse Ventura in Minnesota, Arnold Schwarzenegger in California: these people bring out folks who don’t normally vote. In a low-turnout election, or a badly divided field, that’s enough to turn things in their favor.

Celebrity candidate voters aren’t normal voters. Normal voters care more about policy than normal non-voters, care more about party identification, care more about ideology. Simply trying to transfer analysis of normal voters over onto the new people that celebrity candidates bring out to the polls doesn’t work very well, because you’re searching madly for clues to things that aren’t really there. This is why such candidates often surprise political scientists by winning.

2. Jeb Bush. I have nothing against Bush as a man or a governor. But his decision to run for president in this cycle has to rank as one of the stupidest political bids of all time, simply because his last name is toxic. His brother left office after an unpopular war and an even more unpopular economic crisis, with an approval rating of 35 percent. Why on earth would anyone think that he had any chance at the nomination? Even if his brother’s presidency had ended better, it would have been folly, simply because voters don’t like the idea that they only get to have Republican presidents named Bush. Yet somehow, Jeb Bush not only threw his hat in the ring, but also managed to convince Republican donors to come along for the ride. To Bush, I am sympathetic. His brother gets unfair blame for things that are not really his fault, and it can be hard to see yourself, or your family, with the crystal clarity of an outsider. The Republican donors have no such excuse. These folks suddenly and for no apparent reason decided that it would be a great idea to donate a hundred million dollars to the cause of running a completely hopeless establishment candidate. And as soon as it became clear he couldn’t win, they incinerated the remainder of the bundle taking down Rubio, the only candidate who could plausibly unite enough of the party’s factions to stop Trump at the voting booth. When those donors are sitting in their living rooms, wondering how on earth their beloved party has come to this pass, I invite them to get up and take a long look in the nearest mirror.

3. Chris Christie. He should never have stayed in the race as long as he did. I think he was a pretty good governor of New Jersey, and at one point, I thought he was a plausible presidential candidate. But by well before New Hampshire, it was clear that the rest of the electorate did not agree, and it was time to drop out.

But as mentioned above, I do understand that it can be hard to see these things with perfect clarity when it’s your candidacy, your dreams on the line. So now we must address Christie’s somewhat odd decision, when the hopelessness of his cause became clear even to him, to use the remainder of his candidacy to help destroy Rubio, the aforementioned only candidate who could plausibly unite enough of the party’s disparate factions to stop Trump. That decision started looking less crazy when Christie dropped out and actually endorsed Trump. Only now we have to deal with the fact that a sitting governor burned immense political capital and tanked his own approval rating in order to endorse a man whose policy knowledge was oftentimes negative (consisting of more wrong "facts" than right ones) and who was prone to pro political moves like making fun of POWs and the handicapped.

Getting Christie’s endorsement helped Trump enormously at a time when he needed it. But it hurt the rest of the party, including Christie. In the annals of politics, this may go down as one of the strangest decisions of all time.

4. John Kasich. At this point, I have but two questions for the Kasich campaign: “What color is the sky on your planet?” and “On your visit to earth, why haven’t you bothered to get out and meet some actual human beings?” Kasich was never going to be president, primarily because he is not a particularly compelling candidate, lacking charm or a strong political base. This is why he was forced to fall back on selling himself as the least conservative guy on the debate stage -- a really terrible selling point in a Republican primary, which should have been obvious to his campaign long before the polls confirmed it.

But OK, yourself, your dreams -- I get it. What puzzles is his decision to stay in, splitting the establishment vote so that Trump could become the nominee. None of the stories his campaign told ever made the least bit of sense. The party would consolidate around him -- ummm-hmmm. Then he was gunning for a brokered convention, in which his party, out of exquisite gratefulness for his role in siphoning off just barely enough suburban voters to ensure that the non-Trump vote never consolidated around anyone else would, um, hand him the nomination. Or make him vice president. Or do something other than smuggle rotten fruit through convention security in order to pelt him with it if he dared to show his face on stage.

And why aren't Ted Cruz and Rubio ranked as the fifth and sixth horsemen? Certainly Cruz is a charmless candidate with little hope of winning outside the Bible Belt, and Rubio is a charming politician who failed to win many primaries, and shot himself in the foot making jokes about the size of Trump’s … hands.

But both of them behaved basically rationally throughout this campaign. Cruz executed by far the most masterful campaign this cycle, hoped that this would be enough to give him a chance outside the Bible Belt, and dropped out this week when it became clear things were hopeless. Rubio was a good politician facing impossible odds, as a series of completely irrational decisions by Bush, Christie and Kasich battered him, then siphoned off just enough of his voters to make it impossible to consolidate a lead. He made a Hail Mary pass by attacking Trump on Trump's own terms, and it didn’t work. And as soon as it became clear that it hadn’t, he left the race.

If everyone else had been behaving as rationally as these two, I suspect we would not be now looking forward to another six months of Donald Trump speeches. And perhaps then another four years of same.

Article Link to The Bloomberg View:

Today's Stock In Play Is Paragon Shipping (Symbol PRGN)

Dow futures briefly drop triple digits with earnings, dollar in focus

By Katy Barnato
May 4, 2016

U.S. stock index futures traded lower early Wednesday, following declines overseas and ahead of earnings and U.S. data.

European stocks traded more than half a percent lower, while Asian equities ended lower, with the Shanghai composite off only 0.05 percent. Japanese markets remained closed for a holiday.

Dow futures were last off about 90 points, while S&P and Nasdaq futures fell 12 points and 30 points, respectively.

Time Warner and Delphi Automotive reported first quarter results early in the day, with numbers due from Kraft Heinz, Tesla Motors and 21st Century Fox after the markets close.

In Europe, Royal Dutch Shell posted a sharp fall in earnings for the first three months of 2016, in its first earnings report since its purchase of BG Group.

The day will be a busy one for economic data, with the ADP employment report for April of interest ahead of non-farm payrolls on Friday. There will also be data on factory orders, productivity and the ISM services index.

Economists at Capital Economics forecast the trade deficit narrowed in March due to a decline in imports and the ISM non-manufacturing index rose in April.

According to Reuters, Pfizer has expressed interest in bidding for U.S. cancer drug maker Medivation. This raises the possibility of a bid to rival Sanofi's $52.50 per share cash offer.

The U.S. dollar index rose slightly against a basket of major currencies on Wednesday, building on Tuesday's slight recovery.

The Japanese yen held steady near 106.6 yen against the greenback, while the euro was near $1.15 as of 7:52 a.m. ET.

Oil edged higher, with WTI crude futures up slightly around $43.90 a barrel. Weekly EIA oil inventories are due later in the morning. Late Tuesday, the American Petroleum Institute reported U.S. crude stocks rose by 1.3 million barrels.

Donald Trump took a step closer to being the Republican presidential nominee on Tuesday, with a victory in Indiana's primary. Rival Ted Cruz suspended his campaign following the vote.

An Interesting Thought: Would a Republican like Senator John McCain actually throw his support behind Hillary Clinton?

Five Takeaways From The Indiana Primary

By Niall Stanage
The Hill
May 4, 2016

Donald Trump and Bernie Sanders won the Republican and Democratic primaries, respectively, in Indiana on Tuesday. The results from the Hoosier State had deep resonance across both parties. What were the big takeaways from the night?

Donald Trump will be the Republican nominee

Mocked as unserious when he first entered the presidential race 11 months ago, Trump is now the presumptive GOP nominee. It has been an extraordinary journey by any measure.

Trump’s only real rival, Texas Sen. Ted Cruz, withdrew from the race as results were still coming in from Indiana. Now, the complicated calculations about delegate numbers and a possible contested convention no longer matter.

Ohio Gov. John Kasich is set to remain in the race, but he is a marginal figure at this stage.

Barring some cataclysmic event, the 2016 presidential election will be between Trump and Democrat Hillary Clinton.

The effort to unify the GOP has begun

Reince Priebus, chairman of the Republican National Committee, tweeted on Tuesday night that Trump was now the presumptive nominee and that “we all need to unite and focus on defeating @Hillary Clinton.” He then added the hashtag “#NeverClinton,” a clear but implicit rebuke to the Never Trump movement of conservatives who have vowed to oppose Trump in all circumstances.

Trump, speaking at his election night event at Trump Tower in midtown Manhattan, insisted, “We are going to bring unity to the Republican Party.” The business mogul was also gracious to Cruz, who had withdrawn from the race only moments before, referring to him as “one hell of a competitor” with “an amazing future.”

Given the tensions between Trump and Cruz as late as Tuesday — and between Trump and Priebus — those are all hopeful signs for those in the GOP who want to present a unified front for the fall.

Still, real unity among conservatives will be hard to accomplish. Mark Salter, a close confidant of 2008 GOP nominee Sen. John McCain (Ariz.) tweeted criticism of Trump earlier on Tuesday and added, “I’m with her” — an apparent reference to his preference for Clinton in a general election. That’s just one example of the depths of the wounds Trump's campaign has inflicted on some in the party.

Ted Cruz will be back

Cruz’s decision to drop out came as a surprise to most observers. The Texas senator has never been known for an inclination to concede or compromise. But he said, amid sounds of distress from his supporters, that he saw no rationale to continue a quest when “that path has been foreclosed.”

But Cruz made a point of noting: “I am not suspending our fight for liberty.” He added, “I’m not suspending our fight to defend the Constitution, to defend Judeo-Christian values that built America. Our movement will continue.”

Cruz also invoked the memory of Ronald Reagan’s loss in his battle for the GOP nomination in 1976. That year, Reagan lost a close battle to oust incumbent President Gerald Ford. But Reagan came back four years later to win the nomination and the presidency. Cruz, who is just 45 years old, evidently has similar designs.

Bernie Sanders isn’t going anywhere

Sanders pulled off a sizable surprise, defeating Clinton in Indiana by around 5 points. That was unwelcome news for the Clinton campaign, which hoped Sanders was fading away as his chances of winning enough delegates became next-to-impossible and his fundraising began to flag. But now Sanders and his supporters have got a fresh jolt of momentum.

The delegate picture remains virtually unchanged. Sanders looks set for a net gain of around six delegates from the Hoosier State, a margin that hardly begins to dent Clinton’s advantage.

But it now seems clear that the Vermont senator will stay in the race at least until June 7, when California and five other states are set to vote. Indeed, Sanders vowed to pull off "one of the great political upsets in the history of the United States" and defeat Clinton.

That obstinacy will irk the Clinton campaign, which will have to expend some effort fending him off, even as the former secretary of State would much rather turn all her fire on Trump for the general election battle ahead.

GOP congressional leaders have a tightrope to walk

What do Senate Majority Leader Mitch McConnell (R-Ky.) and Speaker Paul Ryan (R-Wis.) do now?

At the least, the two men will be expected to make statements in support of their party’s presumptive nominee. Yet their calculations are complicated by the fact that many of their fellow Republicans believe Trump could be toxic to their chances of winning in November.

The dilemma is especially acute for McConnell, for whom the math is unforgiving. Republicans are defending 24 Senate seats this fall; Democrats are defending just 10. Deepening the peril for the GOP, seven of its contested seats are in states President Obama carried in 2012.

Every move McConnell and Ryan make regarding Trump will be intensely scrutinized — not least by their own colleagues.

Article Link to The Hill:

Wednesday, May 4, Morning Global Market Roundup: World Stocks In Retreat For Second Day On Growth Worries

By Sujata Rao
May 4, 2016

World stocks fell for the second straight day on Wednesday and metals prices declined, pressured by signs of a renewed and prolonged global growth downturn.

A deluge of lackluster manufacturing data from across the world set off this week's selling spree, notably Chinese factory activity shrinking for the 14th straight month, British output at three-year lows, Tuesday's surprise interest rate cut in Australia and the European Commission downgrading growth and inflation forecasts.

Adding to this, corporate earnings have been consistently undershooting expectations -- U.S. S&P 500-listed companies' first quarter earnings are down 5.4 percent versus year-ago levels and are set for a third quarter of declines.

"The deflationary pressures remain and it's hard to see markets making much headway at the moment," said Richard Griffiths, associate director at Berkeley Futures.

Investors are becoming increasingly convinced that the world's biggest central banks are powerless to stem the growth malaise despite cutting rates to zero or into negative territory and buying trillions of dollars worth of bonds.

MSCI's index of world stocks was down a quarter of a percent to 2-1/2 week lows after falling 1 percent on Tuesday for its biggest one-day fall in a month .MIWD00000PUS.

Emerging equities also extended losses, falling almost 1 percent .MSCIEF.

European stocks opened on a weak note, with the pan-European FTSEurofirst 300 index.FTEU3, hovering just off three-week lows hit on Tuesday when it slumped almost 2 percent.

Bourses in London, Paris and Frankfurt were flat to lower, dragged down by weak prices for growth-reliant commodities.

Shares in Dialog Semiconductor (DLGS.DE) slumped 9.5 percent after the maker of chips used in Apple and Samsung phones, reported a 58-percent drop in underlying operating profit, continuing the saga of underwhelming profits at tech firms.

"We may have the odd move higher, but we remain in a longer-term bear market," said Andreas Clenow, chief investment officer at Zurich-based ACIES Asset Management.


The worst of the near-term market angst may be dissipating, however.

The flight from risk had played out in forex markets with investors favoring currencies from economies with current account surpluses, such as Japan. But the yen JPY= slipped off 18-month highs against the dollar of 105.55.

The dollar rose a quarter percent against a basket of currencies .DXY, recovering from 15-month lows hit on Tuesday.

On bond markets too there were some signs of stabilization.

U.S. Treasuries and German Bunds, typically the assets of choice in a weak-growth environment, saw yields tumble this week, with the former hitting two-week lows while 10-year Bund yields posted their biggest daily fall of 2016.

Yields crept marginally higher on Wednesday, though the 10-year Bund yield stayed almost 10 bps above last Friday's levels when yields were nearing six-week highs DE10YT=TWEB.

Crude futures also inched higher after two days of losses LCOc1 CLc1 though Brent remains around 7 percent below 5-1/2-month highs hit at the end of April.

Copper, often viewed as a key growth barometer, also remained under the cosh as Shanghai copper futures slid more than 1 percent SCFcv1. London three-month copper however was just marginally weaker after Tuesday's 2.6 percent fall CMCU3.

Article Link to Reuters:

Hillary Clinton’s Growing Problem With Independents

By Rebecca Ballhaus
The Wall Street Journal
May 3, 2016

Democratic front-runner Hillary Clinton faces a mounting challenge among independent voters following months of attacks from rival Bernie Sanders.

An April Wall Street Journal/NBC News poll found that Mrs. Clinton’s favorability rating among independents had dropped 15 percentage points in the last four months alone. That poll found that 20% of independents viewed Mrs. Clinton positively, compared with 62% who viewed her negatively—a gap of 42 percentage points. In January, that same poll found her with a positive rating of 35% and a negative rating of 54%—a gap of fewer than 20 percentage points.

A year earlier, four months before she launched her presidential campaign, that gap stood at just four percentage points—35% positive to 39% negative.

Mrs. Clinton’s favorability ratings have also declined among Democrats. Her positive rating among Democrats dropped to 63% last month from 71% in January, while her negative rating rose six points to 20%. Last April, when she first announced she was running for president, 76% of Democrats viewed her positively while just 8% viewed her negatively.

While sinking favorability ratings are common for presidential candidates as voters learn more about them, the striking decline in independents’ view of Mrs. Clinton is indicative of the unexpected popularity of Mr. Sanders, who served in the Senate as an independent before running for president as a Democrat. The Vermont senator is far more popular among independents and has ramped up his criticism of Mrs. Clinton in recent months, even as his path to winning the nomination looks increasingly narrow. Mr. Sanders in recent days began laying off hundreds of field staffers but has said he plans to stay in the race until the July Democratic convention.

The nosedive Mrs. Clinton’s rating has taken among independents suggests she has a lot of work to do to win those voters over in a general election. Her campaign has already begun fretting about the lasting damage Mr. Sanders’s criticism of her could have in the general election, and has publicly encouraged the senator to rally his supporters behind her for the sake of the Democratic Party.

Already, Republican front-runner Donald Trump has begun crediting some of his attacks on Mrs. Clinton to her rival. At a rally in Indiana on Monday, the real-estate developer criticized Mrs. Clinton’s “bad judgment” and thanked Mr. Sanders for similarly targeting her.

In the April poll, just 3% of Republicans viewed the former secretary of state favorably, while 91% viewed her negatively.

Mr. Trump isn’t well-liked by independents, either. Just 19% of independents viewed him favorably in the latest poll, while 67% had a negative opinion. Democrats are nearly universally opposed to him, with 97% saying they had a negative view of him. And Republicans are split, 42%-42%, on whether they hold a positive or negative view of the New York businessman.

Article Link to the Wall Street Journal:

The United States May Have Just Quietly Deterred China

War On the Rocks
May 2, 2016

Critics are lining up to condemn the Obama administration’s apparent delay of a third freedom of navigation operation (FONOP) in the South China Sea as yet another sign of weakness, but there is larger strategic game underway that may explain the administration’s decision. Other simultaneous U.S. actions may have deterred China from occupying and reclaiming land at Scarborough Shoal, a disputed atoll only 140 miles from Manila. If this hypothesis is correct, the administration deserves praise, not blame, for taking effective, measured steps to deter a potentially destabilizing Chinese escalation.

Before explaining this hypothesis in detail, it is necessary to explain why a Chinese move to occupy or reclaim Scarborough Shoal would be so provocative. First, Scarborough is a uniquely valuable piece of (mostly underwater) real estate. It is geographically isolated in the northeastern quadrant of the South China Sea, far from the main Spratly and Paracel island groups. If China constructs facilities on Scarborough akin to those it built in the Spratlys, then Chinese radar, aircraft, and cruise missiles could one day easily cover Manila and several Philippine bases to which the United States recently gained access. An outpost at Scarborough would also give Beijing a “strategic triangle” of airstrips in the South China Sea.

Additionally, establishing a base on the shoal would be a clear violation of the 2002 ASEAN-China Declaration on the Conduct of Parties in the South China Sea, which prohibits the occupation of currently uninhabited features. China seized administrative control of Scarborough Shoal from the Philippines in 2012 following a failed U.S. effort to de-escalate a standoff, but the shoal has not been occupied by any claimant to date. Occupation of Scarborough would signal that China has little intention of ever concluding a binding Code of Conduct with its Southeast Asian neighbors, which has languished in negotiations for 14 years.

Finally, if it were to occur in the next few months, Chinese land reclamation at Scarborough would appear to be a deliberate challenge to the rules-based order. Observers are awaiting the result of a case that the Philippines has brought against China under Annex VII of the United Nations Convention on the Law of the Sea. Among other findings, the Permanent Court of Arbitration could invalidate much of China’s “nine-dash line,” so land reclamation around the time of the decision would demonstrate the limits of international law in restraining Chinese maritime assertiveness. For all these reasons, Scarborough Shoal is not just another reef, but a vital strategic feature. Indeed, preventing Chinese reclamation at Scarborough is now seen by many in the region as a litmus test for U.S. resolve.

In spite of the clear rationale for a strong U.S. stance against Chinese reclamation at Scarborough, observers have found many of the Obama administration’s recent statements and actions on the issue “confusing and befuddling.” Earlier this year, Chief of Naval Operations Admiral John Richardson publicly expressed concern that Scarborough might be a “next possible area of reclamation,” citing Chinese “survey” activity. However, President Obama conspicuously avoided mentioning both land reclamation and the South China Sea in joint remarks with Chinese president Xi Jinping shortly after Richardson’s comments. A senior U.S. official later explained that Washington sought to “lower the temperature” over Scarborough Shoal. Yet at the same time, Secretary of Defense Ashton Carterpostponed a visit to China, and the Stennis carrier strike group returned to the South China Sea just days after leaving, where it was very publicly visited by Carter and his Philippine counterpart, Defense Secretary Voltaire Gazmin. Notwithstanding Carter and other U.S. leaders repeatedly committing to “fly, sail, and operate wherever international law allows,” Washington then reportedly canceled a FONOP near Mischief Reef. Meanwhile, U.S. Pacific Air Forces openly reported conducting flights by four A-10 Warthogs “in the vicinity of Scarborough Shoal,” but Carter refused to confirm them before Congress. Amid these recriminations, a press story suggested that the White House had “muzzled” military leaders from speaking out against Chinese activities in the South China Sea, yet Pacific Command’s Admiral Harry Harris immediately denied the story’s veracity. What could possibly explain all these seeming inconsistencies?

Only one hypothesis seems to connect all these dots — and it makes the administration’s actions look coherent and strategic. A close reading of public statements suggests that earlier this year U.S. officials became aware of a potential Chinese plan to conduct reclamation at Scarborough Shoal. Around this time, press reports noted that Admiral Harris traveled to Washington for Scarborough-related discussions with other senior U.S. national security leaders, where they seem to have devised a sensible plan for deterring China at Scarborough. This plan relied on demonstrating not only that the United States would stomach some risk of military escalation to prevent reclamation there, but also that Washington would avoid overt public pressure and give Beijing a face-saving way to climb down the escalation ladder. U.S. intentions were likely plainly communicated to the Chinese behind closed doors. Since then, rumors have swirled that this pressure may have convinced Beijing to reevaluate its original plan for Scarborough, at least for the time being.

If this narrative is accurate, then we have a logical explanation for why the United States would send A-10s to Scarborough and a carrier strike group to the South China Sea while cancelling a FONOP. After all, while U.S. freedom of navigation operations are important signals for general deterrence, they have not deterred China from specific reclamation activities. Moreover, the most likely FONOP, one near Mischief Reef, would probably involve the conduct of normal military operations within 12 nautical miles of the reef, which could have triggered a major public reaction from Beijing. On the other hand, deploying multiple U.S. combat aircraft to a disputed feature is a highly unusual move, and the choice of the durable A-10 could signal the United States was prepared to take a hit.

Despite these strong U.S. moves, the A-10 flights near Scarborough Shoal were conducted with remarkably little publicity, particularly compared to the numerous leaks that preceded recent FONOPs. Avoiding a public spat with Beijing may have been important to give China an off-ramp to forgo reclamation at Scarborough. The Mischief Reef FONOP can always be conducted at another time once tensions have subsided. In the same vein, the so-called “gag order” on the military may have simply been an internal agreement to avoid public disclosure of this plan to maximize Beijing’s “political maneuvering space.”

If this reading of events is accurate, then the administration deserves credit for learning some important lessons from recent policy failures. First, it clearly communicated U.S. interests before Chinese activity began, rather than waiting for a Chinese fait accompli. Second, it practiced immediate deterrence by signaling that “specific actions will have specific consequences,” instead of trying to rely only on heretofore ineffective general deterrence. Third, and perhaps most important, Washington demonstrated that it was willing to accept some risk, by placing U.S. forces near Scarborough and elsewhere in the region to conduct operations continuously. Fourth, rather than drawing public red lines, the administration communicated its declaratory policy quietly — speaking softly but carrying a big stick, while still preserving some flexibility.

None of this suggests that competition over Scarborough Shoal is over. Only time will tell whether Beijing ultimately presses ahead to occupy or reclaim Scarborough. The full story may not be clear for some time, but after the failed negotiations in 2012, it appears Washington has adjusted its policies the second time around. Maintaining the status quo will require continued U.S. attention using this same sort of measured strategic approach. There may be tense exchanges ahead, but at least for now, reclamation at Scarborough Shoal is a dog that hasn’t barked.

Article Link to War On The Rocks:

Leaders Laugh But Should Also Fight

By Jonathan S. Tobin
May 3, 2016

Last weekend’s White House Correspondents Dinner was the usual celebrity circus mixed with barbed humor. Unlike his predecessor George W. Bush, who was the subject of nasty attacks by comedians hosting the show, Barack Obama had no such worries. Moreover, with the help of his media team, he produced another genuinely humorous speech in which he skewered opponents. This one will be best remembered for the comic video in which he ponders his post presidential future. The video co-starred a former adversary who has already retired, former House Speaker John Boehner, who jokes with Obama about the pleasures of retirement and even tempts the president with a cigarette.

The segment was funny (though not as funny as the scene where a Department of Motor Vehicles official demanded Obama’s birth certificate in order to give him a license). But it prompted more than laughs. The next morning on “Meet the Press,” host Chuck Todd (who had a cameo of his own in “Couch Commander”) lamented, “Wait a minute. Where was that when America needed it?” The other members of his panel agreed, but they were wrong. The battles between Boehner and Obama over a host of issues including the confrontations that led to a government shutdown (which Boehner blames on his personal “Lucifer” — Ted Cruz) were difficult but the notion that this comedy video should be the model for our leaders is a mistake.

There is, of course, nothing wrong with Boehner being a good sport and playing a role in Obama’s video. But in recent years the complaint that Obama and Boehner should have learned from the example of President Ronald Reagan and his generally friendly adversary House Speaker Tip O’Neill is a bit misleading.

It’s true that the ability of the pair to relax and share a joke and a drink didn’t harm their working relationship. But if deals were made during that administration it wasn’t primarily because the two knew how to be civil. It was because both were able to agree on legislation that they viewed as in the common interest.

Friendly relations between a speaker and a president are not in fact necessary for deals to be struck. A decade after Reagan and O’Neill, President Bill Clinton and House Speaker Newt Gingrich were not buddies. But they were able to cooperate on landmark legislation like the Crime Bill and Welfare Reform even though Clinton and his wife now often act as if they are ashamed of these achievements.

So what was lacking between Boehner and Obama was not enough playtime (they’ll be able to golf, drink, and smoke with each other as much as they like in the future). What divided them were principles about the size of government. The enormous gap between the ideas of the White House and Congressional Republicans regarding the size of government, how to balance the budget, and ObamaCare, could never be bridged by mere conviviality.

It’s possible that more trust engendered by personal contacts could have created a compromise. But despite the White House’s success in convincing its liberal mainstream-media cheering section to buy its spin that the disconnect was entirely the fault of obstructionist Republicans, the real fly in the ointment was always as much the rigid liberal ideology of the president as the insistence of members of Boehner’s caucus that he not discard the conservative principles upon which they had been elected.

As our Pete Wehner correctly noted yesterday, the impulse to “fight dirty” and to want a candidate who would eviscerate an opponent is not consistent with the civic aspirations that are needed to live as citizens in a republic. Too many of our politicians have gone down the road of demonization of the other side and, comic sidebars notwithstanding, President Obama has been among the worst offenders on this score.

At the same time we should be wary of too much coziness between the leading members of both party establishments. One of the primary attributes of Washington in the era before the Gingrich-led revolution of the 1990s was a sense that elites of both parties were too much in business together. The great sorting out of Republicans and Democrats, in which ideology and principle began to play as big a role on Capitol Hill as log-rolling and going-along-to-get-along, was not the decidedly bad thing the “no labels” advocates of inter-party harmony represent it to be. There was a reason things had to change. If we sometimes go too far in the other direction, it is not an argument for a return to that previous era as much as it is a reminder that the great issues of the day should be settled by the voters in elections rather than behind their backs in backroom deals.

So while we should by all means laugh along with Boehner and Obama, let’s hope that their successors understand that the anger that produced Donald Trump and Bernie Sanders was not about too little establishment hand-holding but about too much. Parties and leaders should stand for something and if a president demands that Congress should surrender, there is nothing wrong with standing your ground on points of principle so long as you can do so with civility.

Article Link to Commentary:

Four Tasks for Trump Before He's President

By Albert R. Hunt
The Bloomberg View
May 4, 2016

Donald Trump sealed his extraordinary march to the Republican presidential nomination with a victory in the Indiana primary. Now he faces what may be an even tougher challenge: persuading the Republican Party to coalesce behind his candidacy.

Trump won a landslide victory over Texas Senator Ted Cruz, though he's still almost 200 votes shy of the 1,237 necessary for the nomination. Cruz's last real hope was to win a showdown with Trump in the Hoosier state, and he dropped out of the race after his defeat.

In his victory speech, Trump praised Cruz -- only 12 hours after suggesting his father may have been in cahoots with the man who killed John F. Kennedy -- and made fewer nasty remarks than usual. However, he mainly recited familiar lines with his usual strong narcissistic tone.

On the Democratic side, Bernie Sanders scored a mild upset over Hillary Clinton. That doesn't really change the ultimate outcome where she almost certainly will be the nominee. But it gives Sanders added credibility in the final month of contests, and is slightly distracting to her efforts to pivot entirely to the general election.

Trump now needs to get Republican politicians, activists and donors to fall in behind him. No nominee in modern times has faced tougher hurdles; there are deep-seated, bitter divides and enormous anxiety in party ranks.

The billionaire New Yorker lacks both the inclination and liquidity to fund his own fall campaign and needs to tap into Republican big-money givers.

And he'll need many of the Republican politicians he's scorned over the past 11 months. There's already been some movement from even those deeply skeptical of his electability and qualifications; Senate Foreign Relations Committee Chairman Bob Corker, in a reach, praised Trump's foreign policy speech last week.

Strong resistance remains, though. Republican policy thinkers like Pete Wehner and Michael Gerson, as well as influential conservative pundits including George Will, David Brooks and Bill Kristol, have declared Trump unfit and unacceptable. Brooks wrote that this is a "Joe McCarthy moment" for Republican leaders to stand up to a demagogue. Will, who calls Trump the "most anti-conservative presidential aspirant" in memory, refers to Republican politicians now supporting him as "quislings."

The effort by Kristol and others to enlist an independent Republican candidacy has faltered. And while there still could be an effort to change the rules at the convention to threaten Trump's nomination, that, too, is doomed.

There is, however, an eclectic group of die-hard, anti-Trump Republicans. That includes Cruz, who yesterday called his opponent "utterly amoral," a "pathological liar," and a "narcissist," among other blasts. Some politicians have gone further and said they can't vote for him in a general election, including Senator Ben Sasse and several house Republicans. Others are close to joining them.

More Republicans, especially those in tough races, are likely to pay lip service to Trump's candidacy, and then when he comes to the state or district suddenly discover they have a dental appointment or a kid's soccer game.

On the activist side, it's hard to see many social conservatives or neo-conservative foreign policy hawks ever climbing aboard. They'll probably be joined by mainstream foreign policy experts who are horrified by Trump's lack of knowledge.

Some of this will surface in July at the Cleveland convention, where the party platform -- usually ignored and relegated to the dustbin of the junkyard -- will be front and center.

Will party regulars and activists accept Trumpism: deporting 11 million undocumented immigrants at a cost of $1 trillion; slapping a 45% tariff on Chinese goods; forcing Mexico to pay for an expensive wall along the Southern border; not touching entitlements while sidestepping Planned Parenthood and gay rights?

Trump dismisses the pervasive fear among many Republicans that he will cost the party the Senate, and conceivably the House majority. He claims his support is growing, that he will bring out new voters and attract enough independents and working-class Democrats to shake up the electoral map.

But Democrats seized on the likely Trump nomination as a bonanza. New Hampshire is one of the tightest Senate races with Republican incumbent Senator Kelly Ayotte facing Democratic Governor Maggie Hassan, who quickly put out a statement last night about the "Trump-Kelly Ayotte Republican ticket."

As for Trump, there's little to support his claim of winning over new voters. Doug Usher, a pollster for Purple Strategies, lists four difficult tasks the presumptive Republican nominee must achieve:

-- Reverse his record-high negatives with general election voters; Usher notes "one of hardest jobs in politics is to lower your candidate's unfavorable ratings."

-- Show clear progress in states where he claims he'll change the electoral map. "There's no data yet" supporting this, says Usher.

-- Strengthen his support among so-called Reagan Democrats, or working-class voters. Trump has done well with these voters in the primary, but it appears they're no longer Democrats and, so far, he doesn't do any better among working-class voters in a general election than Mitt Romney did four years ago.

-- Expand his support among women, where he's doing miserably. "He can win without winning women," notes Usher. "But he can't lose them at the rate he's losing them now."

Without demonstrable gains in these areas, Usher predicts that Trump, who has conquered a battered Republican party, will "lose handily" in November.

Article Link to The Bloomberg View:

The Taxi Drivers Turned Black-Market Nuke Smugglers

Six men were nabbed in Georgia for trying to sell uranium to an unknown buyer—just months after a criminal group was arrested for peddling a radioactive isotope on the black market.

By Anna Nemtsova
The Daily Beast
May 4, 2016

Only a few weeks after Georgia’s president attended the Nuclear Security Summit in Washington, D.C., law enforcement nabbed illegal uranium dealers in his own backyard, in the country’s capital of Tbilisi.

The arrests stoked fears of an underground nuclear market, of radiation leakage, and of terrorists working on a dirty bomb. With accounts of local Muslims in Georgia joining up with ISIS, not to mention a brewing conflict between neighboring Armenia and Azerbaijan, Georgians have good reason to be worried.

According to authorities, six men—three Georgians and three Armenians—were trying to sell a few kilos of uranium for $200 million. Four of the six were pensioners and the other two worked as taxi drivers. A Tbilisi court convicted all the smugglers and they face up to 10 years in prison.

The smugglers were arrested in a private apartment in a joint special operation by Georgian counterintelligence and special-ops departments ”for illegal handling of nuclear materials,” according to the State Security Service of Georgia.

What’s worrisome for Georgia is that this is the second known case of nuclear smuggling in less than six months. In January, the State Security Department detained three members of a criminal group “for the illegal handling and selling of nuclear material,” specifically the radioactive isotope Cesium-137, officials told The Daily Beast.

The Cesium-137 sellers had pocketed $100,000 when authorities caught up with them; the taxi drivers and retirees were looking for $200 million. According to the World Bank, up to 27 percent of the Georgian population and up to 37 percent of Armenians live below the poverty line. The Caucuses are full of men desperate to make money, even if that involves the risk of imprisonment.

Georgian authorities have been struggling to put the end to the underground radioactive market for years. ”The deals on nuclear materials happen here every year; people regularly smuggle radioactive substances from Russia via Georgia to Turkey or Iran,” a political expert, former Interior Ministry spokesman Shota Utiashvili, told The Daily Beast. Utiashvili pointed out that in 2010, Georgian authorities made two major seizures of highly enriched uranium (HEU). Tests at the time confirmed that the materials, enriched by 89.4 percent, could be used for making a nuclear bomb. The two smugglers, a businessman and a physicist from Armenia, pleaded guilty for smuggling the package with HEU by train from Yerevan to Tbilisi in 2010.

The head of the Nuclear Waste department at the country’s Agency of Nuclear and Radiation Safety, Georgiy Nabaxtiani, insisted that Georgia had been working hard to take control over radioactive deals since early 1990’s. ”We now have much stricter regulations—our borders are very well controlled, we scan both pedestrians and vehicles for radiation,” Nabaxtiani told The Daily Beast. ”This time the dealers did not cross the border, they were trying to sell a few kilos of Uranium-238 inside Georgian territory. The investigators are trying to find out where they had obtained the uranium.”

Chief among the concerns of nuclear watchdog agencies is the idea that terrorist groups such as ISIS could be trying to obtain radioactive material via the Georgian black market. “If there is a demand for enriched uranium among terrorists trying to build a bomb, this is very concerning, as there are still hundreds of tons of highly radioactive materials stored in Russia and post Soviet States,” an independent military expert based in Moscow, Alexander Golts, told The Daily Beast. ”But in any case they would need a complicated industrial technologies to make a nuclear bomb, ” he added.

So why is Georgia more in the news for radioactive deals than other post-Soviet countries? ”It is difficult to pinpoint why Georgia continues to be a hot spot for nuclear trafficking,” Yelena Sokolova, Deputy Director for James Martin Center for Nonproliferation Studies, told The Daily Beast. “It is due to its geographical location on the pathway from Europe to the Middle East, a long history of illicit trade, and trafficking in other goods in the region.

Sokolova added that so far, all seizures in Georgia have either been the result of police sting operations or accidental discoveries. “There have been reports about alleged buyers for nuclear and radioactive materials coming either from the Middle East or North Africa,” she said.

Authorities in both the North and South Caucuses regions have registered attempts by criminals to smuggle radioactive materials, but not all of the substances would be worth the risk of going to jail for 10 years. ”It is a continuing mystery how people can offer a few grams of a common material of no real value as a sample of tons of something they probably do not even have that has no real threat to society,” Robert Kelly, a senior research fellow within the SIPRI Nuclear Weapons Project, Arms Control and Non- Proliferation Program, noted to The Daily Beast.

Could one really sell a few kilos of Uranium-238 for $200 million? Today’s market price for Uranium-238 is about $27 per pound. If Georgian dealers were aware of the real prices, to make $200 million, they’d have to sell 3,700 tons of uranium, which would necessitate a long line of trucks full of the stuff, Kelly said.

“The bottom line is that only idiots would pay $200 million for Uranium-238 in any form and even if they succeeded in buying it, it is barely radioactive and would be of very little health hazard to anyone, except someone who would eat handfuls of it,” said Kelly, who is a veteran of over 35 years in the U.S. Department of Energy nuclear weapons complex.

Still, the fact that none of the buyers of the radioactive material have been identified or arrested seems concerning to local observers. The recent arrests have made Georgians feel vulnerable to the threat of international terrorism, especially considering the fact that dozens of their countrymen are joining ISIS each year ”I am not surprised that pensioners, who often do not have money for food and medicine were trying to sell uranium, risking their freedom for the money they were promised,” the executive director of Europe House, Maia Nikolaishvili, told The Daily Beast. “As a mother,” she added, “I am very worried of the terrorism threat.”

Article Link to the Daily Beast:

Did Rouhani Call For North Korea To Give Up Nuclear Weapons?

South Korean officials have welcomed Iranian President Hassan Rouhani’s comments about a Korean Peninsula free of nuclear weapons.

May 4, 2016

Since the implementation of the nuclear deal between Iran and the six world powers in January and the removal of international sanctions, Iran’s old trading partners from Europe and Asia are seeking to re-establish economic ties. The arrival of South Korean President Park Geun-hye in Tehran May 1, the first visit of a South Korean president since the two countries established diplomatic ties in 1962, not only held promising prospects for future economic relations, but could possibly have ramifications for each country's relations with North Korea.

An article headlined "Tehran, the bridge of reconciliation between the two Koreas," in Reformist Shargh Daily told about Park's historic May 2 meeting with Iranian President Hassan Rouhani. The South Korean delegation reportedly included more than 200 government officials and business leaders. The two countries signed deals and memorandums of understandings in the fields of infrastructure building, energy exploration, banking and technology. Rouhani said that business and economic ties would increase by threefold from the current $6 billion a year to $18 billion.

Park also met with Iran’s Supreme Leader Ayatollah Ali Khamenei, who praised the agreements between their two countries and called for "sustainable cooperation."

What attracted attention even in South Korean news agencies was Rouhani’s comments about nuclear weapons. "Security in the Korean Peninsula and the Middle East is important for both countries," Rouhani said. "We want peace and stability in the Korean Peninsula, and on principle we are opposed to any type of weapons of mass destruction. [Iran's] desires are a world free of weapons of mass destruction, especially a Korean Peninsula and the Middle East free of weapons of destruction, especially nuclear."

While Rouhani did not mention North Korea in his speech, his reference to a Korean Peninsula free of nuclear weapons leaves little doubt to which country he was referring. After years of touting its nuclear weapons, North Korea claimed to have tested its first nuclear device in 2006. In January, Pyongyang claimed to have successfully tested a hydrogen bomb.

Rouhani, who was secretary of Iran's Supreme National Supreme Council for 16 years, certainly must have understood the significance and sensitivity of his comments about nuclear weapons. South Korean officials welcomed the comments. "We believe that the message that Iran, a traditional partner of North Korea, sent at a leadership level probably communicated a strong warning to the North," Foreign Ministry spokesman Cho June-hyuck said during a press conference, according to Yonhap News Agency.

Iran's military relations with North Korea date back to the Iran-Iraq War of the 1980s, and they are believed to have continued to this day. Yonhap News Agency claimed that as recently as March, a North Korean firm sanctioned for arms trade visited Tehran.

While other officials have discussed Iran-North Korea military relations during the Iran-Iraq War, Iran's current ambassador to South Korea, Hassan Taherian, said that claims about North Korea helping Iran's missile industry are untrue. Regarding North Korea's nuclear tests, he also said, "Iran recommends to North Korea to learn a lesson from the comprehensive nuclear deal [between Iran and the six world powers] and to capitalize from it."

Despite South Korea's close relationship with the United States and Iran's close relationship with North Korea, Iran and South Korea have in the past been able to maintain economic ties, and these ties are now likely to increase. Iran's oil minister, Bijan Zanganeh, told reporters May 1 that since the international sanctions on Iran have been removed, oil exports have jumped from 100,000 barrels a day to 400,000 barrels.

Article Link to Al-Monitor:

Trump's Nuclear Arson In Asia

By David P. Goldman
The Asia Times
May 3, 2016

Late last year I spent some time with a former chief of China’s military intelligence, a bruiser with an ax to grind against the United States. Halfway through a long tirade about America’s alleged abuse of its global power, he interrupted himself and said: “There’s one thing we appreciate about America, though. You keep the Japanese away from us.”

Some Asian countries abhor American power, some like it, and some live with it reluctantly. But they all have one thing in common: They trust the United States of America more than they trust each other. There’s no regional balance-of-power arrangement that could replace America as a strategic buffer.

That’s why Donald Trump’s April 29 suggestion that Japan and South Korea should acquire nuclear weapons was the craziest single statement on foreign policy of any major American presidential candidate since the Second World War. “You have so many countries already — China, Pakistan, you have so many countries, Russia — you have so many countries right now that have them,” said Trump. “Now, wouldn’t you rather, in a certain sense, have Japan have nuclear weapons when North Korea has nuclear weapons?”

Trump’s April 29 foreign policy address made some good points, or rather points that would have been good if they had been in a different speech by a different candidate. But the core of the speech was Trump’s narcissistic claim that he would negotiate a “great deal” for the United States with its Russian and Chinese rivals. You don’t start negotiations by pouring gasoline around the conference table and flicking a cigarette lighter. Trump can’t un-ring that bell. Any negotiations he were to undertake in Asia would be a disaster.

The Japanese and South Koreans were horrified, with good reason. As CNN reported, “So high was the level of concern, Japan’s Prime Minister Shinzo Abe felt the need to respond publicly, saying, ‘whoever will become the next president of the United States, the Japan-U.S. alliance is the cornerstone of Japan’s diplomacy.’ Japan remains the only country to have had nuclear weapons used against it and has had a non-nuclear policy and pacifist constitution since the end of World War II. Foreign Minister Fumio Kishida added, ‘It is impossible that Japan will arm itself with nuclear weapons.'”

Trump doesn’t read books, except the ghostwritten tomes that have appeared under his name, and probably doesn’t know that that the Japanese army killed about 25 million Chinese during the Second World War, the vast majority of them civilians. The scale of Japanese atrocities makes the mind reel, and China remains traumatized by the memory. Japan has never acknowledged the scale of its wartime misdeeds, unlike Germany. Japan and China fear each other and take extraordinary measures to keep provocation below the threshold of danger. 

As Kyle Mizokami wrote in The National Interest:

"It is perhaps China’s greatest nightmare: a nuclear-armed Japan. Permanently anchored off the Asian mainland, bristling with nuclear weapons, a nuclear Japan would make China’s security situation much more complex than it is now, and force China to revise both its nuclear doctrine and increase its nuclear arsenal. To be perfectly clear, Japan has no intention of building nuclear weapons. In fact, it has a strong aversion to nukes, having been the only country to actually be on the receiving end of a nuclear strike on its cities. Japan’s strategic situation would have to grow very dire for it to undertake such a drastic and expensive option. At the same time, China has no interest in provoking Japan into building them. China’s nuclear “no first use” policy is in part aimed at reassuring Japan that, unless it were attacked first with nuclear weapons, it will not use them in wartime."

China grudgingly respects the United States for acting as a superpower in East Asia. By keeping Japan under the American strategic umbrella, Washington in effect told China that it did not have to prepare for war with Japan. Trump has now told China to prepare for a nuclear-armed Japan.

Trump understands nothing about China. “China respects strength and by letting them take advantage of us economically, which they are doing like never before, we have lost all of their respect,” he said on April 29. The merits of this claim are beside the point (China’s real effective exchange rate has risen by 40% since 2009, not fallen as Trump alleged). China’s first three priorities are security, security, and security. Its economy comes far down the list. If China believes that it faces an existential threat by the adversary that devastated it between 1931, when Japan invaded Manchuria, and 1945, when America won the Pacific war, it will make any sacrifice it thinks necessary in order to prevail.

China has invested massively in its strategic forces, including carrier-killer surface-to-ship missiles, satellite-killer missiles, ultra-quiet diesel electric submarines, a new generation of ICBM’s, as well as cyber war capabilities. Trump presumably would threaten to restrict Chinese exports; China would respond by massively shifting resources to its military sector. America’s interest lies in persuading China that it can feel security within its borders without projecting power in such a way as to destabilize the region around it, as it threatens to do by constructing artificial islands for military use in the South China Sea. The worst possible thing would be to introduce the wild card of a Japanese nuclear threat into the discussion.

Beijing will never believe that Trump is merely a blithering, blathering ignoramus. In China’s imperial system, every public statement is weighed carefully, for words cannot be retracted. The Chinese will remember that Trump proposed to put nuclear weapons into the hands of the Japanese and treat him as a dangerous enemy. And the consequences for Asian and American security will be dire.

Article Link to the Asia Times:

Libya's New Unity Government is Anything But

Chaos continues, in Tripoli and beyond.

The National Interest
May 3, 2016

On March 30 the Presidential Council, the executive body of the UN-backed Government of National Accord (GNA), Libya’s presumptive unity government, landed in Tripoli by sea, following several months of being forced to convene in Tunis since its formation as part of the Libyan Political Agreement (LPA) in January. Since that time, the council has worked to gain political power in the divided country, including by appropriating government facilities in Tripoli, such as the Central Bank and the National Oil Corporation, as well as freezing the assets of political opposition members. While the international community hailed the Presidential Council’s arrival as the coming of Libyan unity, events on the ground suggest this is far from reality.

The mere arrival of the Presidential Council sparked fierce fighting between various militia groups that support it, and those that support the Tripoli-based General National Congress (GNC), which still intermittently occur. On April 5, dissident members of the GNC unilaterally announced the body’s dissolution and reformation as the State Council, its designated role under the LPA. However, on April 6, the GNC announced that these members do not represent the GNC, which is still functioning and opposes the GNA. So while the GNA’s political power and support have undoubtedly grown in recent weeks, it is still a far cry from having substantial control over anything. It is still politically challenged in its own intended capital city by a rival government that is at least partially active, and which enjoys the armed support of some of the militias in and around Tripoli.

Furthermore, for months now, the Tobruk/Bayda-based House of Representatives (HoR), the GNA’s designated legislative body, has been unable (or unwilling) to hold a voting session to authorize the body, as the LPA requires through numerous constantly renewed “deadlines,” most recently on April 18. In fact, the HoR failed to approve the LPA to begin with, which prompted the Presidential Council, growing impatient with the HoR’s lack of resolve, to start implementing it unilaterally. This further exacerbated the objection of some of the HoR’s opposition to the GNA, which sees the Presidential Council as marginalizing and circumventing its own legislative body.

But more importantly, this form of “passive objection” also allowed the HoR to postpone the implementation of the GNA without publicly rejecting it outright. This way HoR members that object to the GNA, seeing it as a challenge to their own aspirations of sovereignty, block its formation without attracting the negative international attention and potential ramifications that will accompany an official vote against what the UN, at least, considers a unity government. This creates a recurring cycle in which the Presidential Council continues constructing the GNA without ratification, as they are operating on borrowed time—but by doing so also discredit its own domestic status, by sanctioning political opposition from the HoR, which has time working in its favor.

To make matters worse, Gen. Khalifa Hifter, the commander of the Libyan National Army (LNA), one of several armed factions in the country, announced on several occasions that he will not support the GNA until it is ratified by the HoR. While Hifter is a very controversial figure among Libyans, he still rallies support from more armed groups compared to anyone else in the country, not only via his role but also through personal loyalties, making him a key element for any future political progression. Hifter is unlikely to forfeit his public role, and will therefore expect to maintain his primacy as a military commander even under the GNA, either by commanding a future Libyan Army, or by being appointed the defense minister.

However, he has not been offered either of these roles so far—precisely because of his divisiveness. So the intricate HoR-Hifter relationship, in which the former grants legitimacy to the latter in return for armed support for its interests, makes the two mutually dependent, contributing to the passive objection to the GNA. The major successes the LNA experienced in Benghazi over recent months, after more than a year of stalemate, as well as the expulsion of ISIS from the majority of Derna (at least partially attributed to the LNA) significantly boosted the prestige of the LNA and HoR, and therefore may build their desire to strive for political hegemony and continue procrastinating the GNA vote.

It is premature, to say the least, to hail newfound unity in Libya. While the GNA has gained significant traction, it still faces two major formal political obstacles: the need for the GNC to relinquish control in Tripoli, and the ratification of its status by the HoR. Even if it will be able to pass these political hurdles, it will still need to address numerous other obstacles on the ground; chief among these is bridging the wide array of conflicting ideologies and interests among the country’s various political and armed groups.

Therefore, the best possible outcome for Libya, and the one that seems least likely at the time of writing, will see a single domestically and internationally recognized government which struggles to exert its full control over a country in which various competing groups will still fight each other to maintain their interests. The worst, which currently appears the most likely, is the formation of yet another competing government that will only aggravate Libya’s chaos.

Article Link to the National Interest:

The Threat Of Foreign Terrorist Fighters And Turkey’s Efforts To Combat Them

Turkey’s borders with Syria and Iraq run some 800 km.

By Dean C. Alexander and Mehmet Nesip Ogun
The Jerusalem Post
May 4, 2016

In summer 2015, Turkish authorities captured Belgian Ibrahim El Bakraoui along the Turkish-Syrian border.

He was removed to the Netherlands after being suspected of intending to be a foreign terrorist fighter (FTF).

Bakraoui was one of the Islamic State-cell suicide bombers at the Brussels airport in March 2016. Bakraoui’s expulsion from Turkey rekindles the need to reexamine the FTF phenomenon and the roles that Turkey is undertaking to combat FTFs.

According to the UN Security Council Resolution 2178 (2014) FTFs are individuals who travel to countries other than that of their residence or nationality in order to prepare, plan, or participate in terrorism, such as obtaining terrorist training in conflict zones. In January 2016, the US National Counterterrorism Center estimated the number of FTFs in Iraq and Syria was 36,500, from at least 120 countries, including at least 6,600 Westerners.

According to a December 2015 Soufan Group report, the principal sources of FTFs in Iraq and Syria are: Tunisia (6,000), Saudi Arabia (2,500), Russia (2,400), Turkey (2,100) and Jordan (2,000). Among the approximately 4,000 European Union-sourced FTFs, an estimated 2,800 come from just four countries – France (900), Germany (720-740), United Kingdom (700-760) and Belgium (420-516), finds an April 2016 International Centre for Counter-Terrorism – The Hague report. Per capita, Belgium, Denmark, Austria, France and Sweden offer the highest number of FTFs.

The risks arising from FTFs are manifold. Besides contributing varying skills to terrorist groups – mainly Islamic State (ISIS) – they may also contribute funds and legitimize the cause. In addition, assuming FTFs return with lingering violent dispositions, they may participate in a “lone wolf” attack, recruit others to undertake a larger- scale attack, develop networks for multiple future operations, participate in the sourcing of funds and weapons and scope future targets for other operatives.

It is estimated that ISIS has sent at least 400 FTF to conduct attacks in Europe. Other figures suggest the number of returning FTFs to Europe is 1,200. The November 2015 Paris and March 2016 Brussels terrorist attacks included cells comprised of returning FTFs as well as home-grown violent extremists.

Turkey’s borders with Syria and Iraq run some 800 km. and 320 km., respectively. Due to those geographical characteristics, and other factors, Turkey has become a main transit for FTFs in the region.

With varying levels of success, Turkey has aimed to disrupt or stop the flow of FTFs.

Since 2011, Turkey has been co-chairing the presidency of Global Counter Terrorism Forum (GCTF), a new multilateral counterterrorism body comprising dozens of countries.

Through this forum, Turkey has highlighted the threat of FTFs to the international community. In this regard, GCTF embarked on an FTF Initiative, taking steps to adopt best practices policies to respond to FTFs, and aiding in passage of the first UN Security Council Resolution (2178) addressing the FTF phenomenon.

Moreover, Turkey has developed two main strategies to stop flow of FTFs. First, it seeks to stop FTFs reaching the first point of entry. No-entry lists of potential FTFs were established bilaterally with other countries as well as other lists through INTERPOL. Additionally, Turkey established risk analysis groups that identify potential FTFs at borders, ports and airports. Too, Turkey has sought for source countries to take measures to prevent departure and travel of FTFs from their countries.

Second, Turkey’s second focus is to stop FTFs entering Syria and Iraq.

Additional personnel, patrols, and equipment have enhanced security at the Turkey- Syria and Turkey-Iraq borders.

The number of Turkish border security forces along the Syrian border rose from 12,000 in 2014 to 20,000 in 2016. New Turkish air defense and reconnaissance units have been added to the battalions, including the active use of unmanned air vehicles. Furthermore, Turkey is establishing a “Syrian border physical security system” that includes construction of 190 km.-long wall, about half of which has already been completed.

The threats arising from FTFs in exacerbating current conflicts in Iraq and Syria are coupled by the menace of returning FTFs targeting their home or third countries.

Intertwined among these challenges sits Turkey, which will likely continue to face various spillover effects of FTFs in the coming years, along with the resettlement of millions of Syrian refugees, ISIS- and Kurdish-sourced terrorist attacks, geopolitical consequences arising from regional and global powers in the Syrian and Iraqi conflicts, and multifaceted political, social and economic dynamics.

Article Link to The Jerusalem Post:

U.S. Oil Industry Bankruptcy Wave Nears Size of Telecom Bust

By Ernest Scheyder and Terry Wade
May 4, 2016

The rout in crude prices is snowballing into one of the biggest avalanches in the history of corporate America, with 59 oil and gas companies now bankrupt after this week's filings for creditor protection by Midstates Petroleum MPOY.PK and Ultra Petroleum UPL.NL.

The number of U.S. energy bankruptcies is closing in on the staggering 68 filings seen during the depths of the telecom bust of 2002 and 2003, according to Reuters data, the law firm Haynes & Boone and

Charles Gibbs, a restructuring partner at Akin Gump in Texas, said the U.S. oil industry is not even halfway through its wave of bankruptcies.

"I think we'll see more filings in the second quarter than in the first quarter," he said. Fifteen oil and gas companies filed for bankruptcy in the first quarter.

Some oil producers appear to be holding on, hoping the price of crude stabilizes at a higher level. In February, oil slumped as low as $27 a barrel from peaks above $100 a barrel nearly two years ago. U.S. crude has recovered somewhat, and on Tuesday was trading a little below $44 a barrel. [O/R]

Until recently, banks had been willing to offer leeway to borrowers in the shale sector, but lately some lenders have tightened their purse strings.

A widely predicted wave of mergers in the shale space has yet to materialize as oil price volatility makes valuations difficult, and buyers balk at taking on debt loads until target companies exit bankruptcy.

The telecom and energy boom-and-bust cycles have notable parallels. Pioneering technology brought an influx of investment to each industry, a plethora of new, small companies issued high levels of debt, and a subsequent supply glut sapped pricing just as demand fell sharply.

Neither this crash nor the telecom crack-up in the early 2000s rival the housing and financial bust in 2007-2009 in terms of magnitude and economic impact. But losses for energy investors in the stock and bond markets in the last two years are significant. It remains unclear how long it will take to get through the worst of the declines, and who will be left standing when it is over.

A 60 percent slide in oil prices since mid-2014 erased as much as $1.02 trillion from the valuations of U.S. energy companies, according to the Dow Jones U.S. Oil and Gas Index .DJUSEN, which tracks about 80 stocks. This has already surpassed the $882.5 billion peak-to-trough loss in market capitalization from the Dow Jones U.S. Telecommunications Sector Index in the early 2000s.

In the debt market, there are also signs that lots of money could be lost this time around, especially in high-yield bonds.

During its boom, U.S. oil and gas companies issued twice as much in bonds as telecom companies did in the latter part of the 1990s through the early 2000s.

Between 1998 and 2002, about $177.1 billion in new bonds were sold in the U.S. telecommunications sector; less than 10 percent were junk bonds. U.S. oil and gas companies sold about $350.7 billion in debt between 2010 and 2014, the peak years of the oil-and-gas boom, with junk bonds making up more than 50 percent of all issuance, according to Thomson Reuters data.

Article Link to Reuters:

Oil Stable After Two-Day Decline On Stalling Global Growth

By Henning Gloystein
May 4, 2016

Oil prices stabilized on Wednesday after falling for two straight days on concerns that slowing economic growth and rising Middle East output would extend a global supply overhang.

Brent crude futures LCOc1 were trading at $45.02 per barrel at 0703 GMT, up 5 cents from their last settlement.

U.S. crude CLc1 was up 11 cents at $43.76 a barrel.

Wednesday's dips followed two trading sessions in which Brent fell nearly 7 percent and WTI nearly 5 percent from end-April levels, pulled down by rising output from the Middle East and renewed signs of economic slowdown in Asia.

"Asia's big markets continue to disappoint: Japan sank further, China relapsed, and India slipped," said Frederic Neumann of HSBC in Hong Kong, adding that exports were "stuck below the waterline" and "local demand looks wobbly, too."

In the United States, the economy is also stuttering.

"Factory orders dropped for a 16th straight month," said the U.S.-based Schork Report. "The U.S. is set for sub-3 percent growth for a record 11th year," it said.

Despite this, most analysts expect markets to firm towards the second half of the year.

Barclays said that "unplanned outages look unlikely to abate in the next couple of months, which have contributed to a tighter 1H16 oil market" and that "lower spare capacity, heightened disruption risk in Iraq and Venezuela, and lower supply ex-U.S. mean prices will likely average higher in Q4 than previously forecast."

The bank said that it expected Brent to average $44 per barrel this year, an upward revision of $5 from its previous outlook, and U.S. crude to average $42 a barrel this year.

In oil production, U.S. output has fallen from a peak of over 9.6 million barrels per day (bpd) in summer last year to just over 8.9 million bpd currently, triggering one of the biggest wave of bankruptcies in American corporate history.

Despite falling output, U.S. crude inventories rose by 1.3 million barrels in the week to April 29 to 539.7 million barrels, according to data from the American Petroleum Institute, enough to meet global demand for almost a week.

Still, strong demand for refined products reduced stockpiles of gasoline, diesel and heating oil.

"We expect some support from the U.S. (summer) driving season. Bloated crude stocks will thus unwind in the coming months," BMI Research said.

"We believe prices will strengthen above $50 per barrel, trading in a range of $50-$60 per barrel until the end of the year," it said.

In the Middle East, Iraqi exports are expected to rise in April to 3.4 million bpd, while Saudi Arabian production could return to 10.5 million bpd. Iranian exports have nearly doubled since the start of the year to almost 2 million bpd.

Article Link to Reuters: