Tuesday, May 10, 2016

Tuesday, May 10, Night Wall Street Roundup: Stocks, Oil Surge As Yen Falls Back Again

By Lewis Krauskopf
May 10, 2016

Stock markets around the world rallied on Tuesday, helped by solid corporate earnings reports and higher oil prices supporting energy shares, while the yen again retreated sharply against the dollar.

MSCI's broad gauge of global stocks .MIWD00000PUS climbed nearly 1.1 percent, its best session in about a month. The three major U.S. indexes each ended up about 1.3 percent and the pan-European FTSEurofirst 300 .FTEU3 index advanced 0.9 percent.

The yen fell against the dollar for a second day as a Japanese economic adviser reiterated that the country was prepared to intervene in currency markets.

Against a basket of currencies, the dollar .DXY edged up 0.2 percent.

The Dow Jones industrial average .DJI rose 222.44 points, or 1.26 percent, to 17,928.35, the S&P 500 .SPX gained 25.7 points, or 1.25 percent, to 2,084.39 and the Nasdaq Composite .IXIC added 59.67 points, or 1.26 percent, to 4,809.88.

Equities globally benefited from investors' belief that the U.S. Federal Reserve is less likely to raise interest rates in June in light of recent weaker-than-expected economic data, said Peter Kenny, senior market strategist at Global Markets Advisory Group in Berkeley Heights, New Jersey.

"Markets are banking on an unchanged interest rate narrative, not only in June but for the foreseeable future, meaning certainly to the end of the summer," Kenny said.

The S&P 500 tallied its best day in two months, helped by Amazon (AMZN.O), following a bullish analyst report, and Allergan (AGN.N), after the U.S. pharmaceutical company posted strong earnings.

Results from Credit Suisse (CSGN.S) and jewelry maker Pandora (PNDORA.CO) helped the European index.

With U.S. corporate earnings season largely completed, the proportion of raised forecasts by companies to those that are lowered is the healthiest it has been since 2011, according to Thomson Reuters data.

"Perhaps there is a perception that there is some daylight ahead for corporate earnings growth," said Chuck Carlson, chief executive officer at Horizon Investment Services in Hammond, Indiana.

Greek shares .ATG hit 2016 highs after euro zone finance ministers offered to grant Greece some debt relief, causing Greek 10-year bond yields GR10YT=TWEB to fall below 8 percent for the first time since early December.

Brazil's benchmark Bovespa stock index .BVSP gained 3.8 percent and the country's currency jumped with impeachment proceedings against leftist President Dilma Rousseff back on track, fueling optimism that a new pro-market administration could take over on Thursday.

The yen slid 0.9 percent against the dollar as risk appetite improved for a second straight session, undermining traditional safe havens such as the Japanese currency.

"Risk appetite is naturally tied to the belief that we're in an ultra-low-yield environment and investment managers can't simply sit here," said Jeremy Cook, chief economist at payments company World First in London.

Repeated verbal warnings from Japan over the weekend and on Tuesday that it was prepared to step in to weaken the currency have also held off investors.

Oil prices jumped after a late burst of buying driven in part by expectations that record U.S. crude inventories would not swell by as much as they have in recent weeks. Crude supply outages in Canada, Nigeria and elsewhere also boosted prices.

U.S. crude CLc1 settled up 2.8 percent at $44.66 a barrel, while benchmark Brent crude LCOc1 settled up 4.3 percent at $45.52 a barrel. Oil prices have recovered some ground after touching 12-year lows earlier in 2016.

Benchmark 10-year Treasury notes US10YT=RR gained 2/32 in price to yield 1.7543 percent, down from 1.76 percent on Monday.

The U.S. government saw strong demand for its $24 billion auction of three-year notes.

Article Link to Reuters:

Brazil's Rousseff makes final survival bid as Senate poised to oust her

By Lisandra Paraguassu and Anthony Boadle
May 10, 2016

Brazilian President Dilma Rousseff took her battle to survive impeachment to the Supreme Court on Tuesday, in a last-ditch attempt to stay in office a day before the Senate will likely vote to try her for breaking budget laws.

Attorney General Eduardo Cardozo, the government's top lawyer, asked the Supreme Court to annul impeachment proceedings arguing they were politically motivated and had no legal basis.

"I will not resign, that never crossed my mind," Rousseff said in a speech to a conference hall full of women supporters who cheered when she vowed to keep fighting her removal.

But the leftist leader appeared resigned to leave the presidency after a Senate vote on Wednesday that is expected to suspend her, pending trial. In her office in the modernistic Planalto presidential palace, aides had packed her papers and cleared the shelves.

The political crisis has hit at a time when Brazil had planned to be shining on the world stage, as it prepares to host the Olympic Games in Rio de Janeiro in August.

Earlier in the day, the acting speaker of the lower house of Congress, Waldir Maranhao, withdrew his controversial decision to annul last month's impeachment vote in the chamber. That meant Cardozo's appeal to the top court may be the president's best hope of stopping the process from moving forward.

If a simple majority agrees to put her on trial, Rousseff will be suspended from office on Thursday, leaving Vice President Michel Temer in power for up to six months during her trial. If Rousseff were convicted and removed definitively, Temer would stay in the post until elections in 2018.

With the prospect looming of an end to 13 years of rule by Rousseff's leftist Workers Party (PT), anti-impeachment protesters blocked roads with burning tires in Sao Paulo, the capital Brasilia and other cities, snarling morning traffic.

The PT and labor unions have called for a national strike to resist what they call a "coup" against democracy.

The legality of Rousseff's imminent removal from office was questioned by the secretary general of the Organization of American States, Luis Almagro, who said he would seek the legal opinion of the Inter-American Human Rights Court.

Maranhao's surprise decision on Monday threw Brazilian markets into disarray and threatened to drag out a painful political crisis with a constitutional standoff that could have ended up at the Supreme Court.

Brazil's currency, the real, strengthened 1.6 percent and the benchmark Bovespa stock index .BVSP closed 3.8 percent higher, reflecting investor hopes that a more market-friendly government will soon take over the recession-hit country under Temer, who is forming a cabinet with pro-business figures.

Temer aides said on Tuesday that he will stick to plans to cut the number of government ministries to 22 from 32 to show his commitment to plugging a widening fiscal deficit that cost Brazil's its prized investment-grade credit rating.

Possible Thursday Handover

Senate President Renan Calheiros, a leader of Temer's PMDB party, disregarded Maranhao's decision on Monday and said the Senate would press ahead with Wednesday's vote. It is expected to take place at about 8 p.m. (7 p.m. ET) after an all-day session of speeches.

Rousseff's opponents have more than the 41 votes needed to launch her trial in the upper chamber, and they are confident they can muster two-thirds of the 81 senators, or 54, to unseat the unpopular president at the end of a trial.

If she loses Wednesday's vote, Rousseff will be served notice by the Senate on Thursday, at which point the suspended president must vacate the presidential palace. She can continue to live in the presidential residence during the trial.

Temer would step in as interim president as soon as she is given notice.

The impeachment process comes as Brazil is mired in its worst recession since the 1930s and shaken by the country's biggest-ever corruption scandal, which have paralyzed Rousseff's second term in office.

The impeachment process is unfolding as investigators pursue a separate, long-running probe into a vast kickback scheme at state-run oil company Petrobras (PETR4.SA).

"Operation Carwash", which was named for its beginnings as a money-laundering probe, has ensnared dozens of top politicians and jailed chief executives from Brazil's biggest construction firms for paying billions in bribes for bloated contracts.

China's Economy Is Past the Point of No Return

A crash is coming.

By Gordon G. Chang
The National Interest
May 10, 2016

After a near-disastrous start to the year and a one-month recovery in March, the Chinese economy looks like it’s now headed in the wrong direction again. The first indications from April show the country was unable to sustain upward momentum.

Even before the first dreadful numbers for last month were released, Anne Stevenson-Yang of J Capital Research termed the uptick the “Dead Panda Bounce.”

The economy is essentially moribund as there is not much that can stop the ongoing slide. A contraction is certain, and a severe adjustment downward—in common parlance, a crash—looks likely.

At the moment, China appears healthy. The official National Bureau of Statistics reported that growth in the first calendar quarter of this year was 6.7 percent. That is just a smidgen off 6.9 percent, the figure for all of last year. Moreover, the quarterly result cleared the bottom of the range of Premier Li Keqiang’s growth target for this year, 6.5 percent.

The first-quarter 6.7 percent was too good to be true, however. And there are two reasons why we should be particularly alarmed.

First, China’s statisticians appear to be just making the numbers up. For the first time since 2010, when it began providing quarter-on-quarter data, NBS did not release a quarter-on-quarter figure alongside the year-on-year one. And when NBS got around to releasing the quarter-on-quarter number, it did not match the year-on-year figure it had previously reported.

NBS’s 1.1 percent quarter-on-quarter figure for Q1, when annualized, produces only 4.5 percent growth for the year. That’s a long distance from the 6.7 percent year-on-year growth that NBS reported for the quarter.

Even China’s own technocrats do not believe their own numbers. Fraser Howie, the coauthor of the acclaimed Red Capitalism, notes that the chief of a large European insurance company, who had just been in meetings with the People’s Bank of China, said that even the Chinese officials were joking and laughing in derision when they talked about official reports showing 6 percent growth.

Second, the central government simply turned on the money taps, flooding the economy with “gobs of new debt,” as the Wall Street Journal labeled the deluge.

The surge in lending was one for the record books. Credit growth in Q1 was more than twice that in the previous quarter. China created almost $1 trillion in new credit during the quarter, the largest quarterly increase in history.

Of course, Chinese banks tend to splurge in Q1 when they get new annual quotas, but this year’s lending exceeded all expectations.

The Ministry of Finance also did its part to refloat the economy. Its figures show that in March, the central government’s revenue increased 7.1 percent while spending soared 20.1 percent.

All that money produced good results—for one month. In April, the downturn continued. Exports, in dollar terms, fell 1.8 percent from the same month last year, and imports tumbled 10.9 percent. Both underperformed consensus estimates. A Reuters poll, for instance, predicted that exports would decline only 0.1 percent, while imports would fall 5 percent.

Exports have now dropped in nine of the last ten months, and imports, considered a vital sign of domestic demand, have fallen for eighteen straight months.

Both figures show a marked deterioration from March, when exports jumped 11.5 percent and imports fell 7.6 percent.

The trade figures followed extremely disappointing surveys of the manufacturing sector. The official Purchasing Managers’ Index came in at 50.1, down from March’s 50.2, barely above the 50.0 that divides expansion from contraction.

The widely followed Caixin survey registered at 49.4, down from March’s 49.7. April was the fourteenth straight month of contraction in this more representative—and far more reliable—survey.

Beijing will release additional numbers in the next two weeks, but its reported figures—especially those showing consumer prices, retail sales and industrial output—have obviously become less accurate in recent months. By now, with the first indications for April, it’s clear the economy did not turn the March spike into a recovery.

That has grave implications for Beijing, as Chinese technocrats have evidently lost control of the economy. For one thing, they are no longer helped by strong external demand, and there is little prospect of relief in coming months. As Zhou Hao of Commerzbank told the Wall Street Journal, “China is on its own.”

And alone, Beijing can rely only on stimulus. Extraordinary spending in March produced only a one-month bump—and that blip came at a high price. The government in March piled up debt at least four times faster than it created nominal GDP.

Although debt does not work the same way in China’s state-directed economy as it does in freer ones, eventually rapid credit creation must produce a disaster. Already, the country’s debt-to-GDP ratio is well north of 300 percent, as Barron’s, referring to Victor Shih’s calculations, notes. Soros in January said the ratio could be as high as 350 percent, and Orient Capital Research in Hong Kong suggests 400 percent.

Whatever it is, China is just about at the limits of the debt it can bear, as growing defaults—and a stark warning from the Communist Party itself on Monday—indicate.

There are many problems, but state firms, backed by Beijing’s spend-like-there’s-no-tomorrow approach, are investing capital, and private ones are not. Leland Miller and Derek Scissors note that their China Beige Book survey of 2,200 Chinese businesses shows that in the first quarter, capital expenditure by lumbering state firms was “stable from a year ago” while private companies “cut back substantially.”

That is an issue because virtually no one thinks an even bigger state sector is a good idea. Yet Chinese leaders have opted for one because, as a practical matter, they have no choice. Structural economic reform, which everyone knows is necessary, would lower growth rates too far, well below zero. That’s politically unacceptable, so they continue with a strategy that must result in a crash, simply because it buys time.

It is no coincidence that Chinese leaders are now pressuring analysts and others to brighten their forecasts and not report dour news, to show zhengnengliang—“positive energy”—a sure indication Beijing has run out of real options.

China, therefore, has passed not only an inflection point but also the point of no return. There are no longer off ramps on the road leading over the cliff.

And that thud you just heard when the first April numbers were issued? That was the big black-and-white bear hitting the floor.

Article Link to the National Interest:

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Why Trump Won’t Get Sanders’ Supporters

He’s making a populist play for ‘Bernie Bros’ in the Midwest, but the ideological differences are too great.

By Bill Scher
May 10, 2016

For a presumptive nominee who’s well behind Hillary Clinton in most polls, Donald Trump doesn’t seem terribly worried about unifying the GOP behind him in the general election. Perhaps that’s because Trump has another strategy in mind: stitching together a bipartisan coalition by winning over the nearly 10 million supporters of his comrade in populist anger, Bernie Sanders.

In his first naked appeals to the Bernie left last week, Trump suddenly announced on CNN he is “open to doing something” with the minimum wage and hinted on ABC’s “This Week” that “I wouldn't mind paying more” in taxes. His campaign manager, Corey Lewandowski, uncritically lumped Sanders together with Trump, saying they “have reignited a group of people who have been disenfranchised and disappointed with the way Washington, D.C., and career politicians have run the country … and we will bring those people in.”

In some ways, the strategy makes sense. The only way for Trump to make up his national deficit to Clinton may be with a gang-buster performance in the white-dominated Midwestern Rust Belt, where the issue of jobs lost to trade—a touchstone for both Trump and Sanders—looms larger than elsewhere, and the appeal of another supposedly anti-Big Money candidate would be strong. Of the eight national trial heats conducted in April, six post a Clinton lead of from 7 to 13 percentage points. If you assume Trump can’t compete in the swing states with pivotal nonwhite voting blocs—Florida, Virginia, Colorado and Nevada—then perhaps he can add Ohio and Pennsylvania to the 2012 Mitt Romney states. He would still need two or three more in the north, such as Michigan, Iowa and New Hampshire. If Trump can’t snag Pennsylvania, he would need to add bluer Minnesota and Wisconsin—a near-sweep of the Midwest.

Various number-crunchers have concluded Trump would need to reach stratospheric levels of white support to run the table in the Midwest. Remember, Mitt Romney won 61 percent whites without a college degree, the best any Republican did with white working-class voters this century. Yet for Romney to have won the national popular vote, he would have needed to boost that to 66 percent. And since Trump performs worse than Romney with women—recent polls show Trump 10 points off Romney’s poor pace—Trump may need to win more than 75 percent of white men. Where will he find them? The “Reagan Democrats” have been Republicans for a long time; perhaps the only way for Trump to hit his targets is by poaching the white male Sanders supporters known as the “Bernie Bros.”

On the surface, Trump has a case to make that he’s a more natural home for frustrated “felt-the-Bern” voters than Clinton is. He is a more vociferous critic of global trade rules than she is. He does less big dollar campaign fundraising than she does. And he is a greater skeptic of military intervention than she is.

But Bernie’s revolutionaries are not now buying many tickets for the Trump Train, even as they confront the reality that Sanders can’t win the nomination. While Clinton may have struggled to win millennials—particularly white working class millennials—in the primary against Sanders, they appear ready to forgive. Harvard’s Institute of Politics, which specializes in surveying young voters, found Clinton trounces Trump 61 percent to 25 percent with voters under 30 years of age, a bigger margin than Obama had over Romney.

The problem for Trump is that the few areas of ideological overlap don’t come close to outweighing the long list of issues where Sanders and Trump are practically opposites. Sanders supports a carbon tax; Trump calls global warming a hoax. Sanders wants a $15 minimum wage; Trump has said “our wages are too high.” Sanders wants to jack the top income tax rate up to 54 percent; Trump wants to slash it to 25 percent.

Their foreign policies do not dovetail that neatly. Sanders’ anti-imperialist fans would not echo Trump’s call to “take the oil” in Iraq. Nor would they want to “authorize something beyond waterboarding” for suspected terrorists, let alone “take out their families.”

Then there is the enormous gulf on race. Sanders has linked Trump’s proposed ban on Muslims entering the country to Adolf Hitler’s Holocaust, as a reminder “what a lunatic can do by stirring up racial hatred.” While Sanders rails against excessive police violence and mass incarceration; Trump has said the police are “absolutely mistreated” and endorsed a beating of a Black Lives Matter protester at one of his rallies, saying “maybe he should have been roughed up.”

And when Donald Trump tried to hold a rally in Chicago, it was Bernie Sanders supporters, outraged by Trump’s racially divisive rhetoric, who took over the arena and chased Trump out of town.

That’s a lot of disagreement for a shared view of the Trans-Pacific Partnership to overcome.

Finally, the Sanders-Trump divide runs deeper than an issue checklist. The two camps live in different politico-sociological worlds. As the New York Times’Thomas Edsall explained, citing the research of political scientist Emily Ekins and social psychologist Jonathan Haidt, Trump and Sanders supporters register on opposite sides of the spectrum regarding their core values in the areas of authoritarianism, empathy and “proportionality” (the desire for people to “reap what they sow”). In contrast, the value sets of Clinton and Sanders supporters are fairly close to each other.

In turn, Trump would need to go beyond tweaks in his platform and emulate Sanders’ more compassionate worldview, even though doing so could risk a further fracturing of the Republican base. But the kind of “pivots” Trump displayed recently on economic issues falls well short of the mark. Trump’s thin talk of a minimum wage increase was quickly followed, on NBC’s “Meet The Press,” by a punt: “I'd rather leave it to the states. Let the states decide,” which makes his stance no different that any other Republican opposed to a federal increase. His feint on tax hikes came with the insistence that “we're giving a massive business tax cut.” For good measure, during a CNN interview last week, he threw in a dig that Sanders “could be beyond a socialist” before predictably bragging he can win his supporters.

Trump also can’t flip-flop in a vacuum. The Clinton campaign—perhaps with Sanders’ help—presumably is prepared to undercut Trump’s populist aura by savaging him as a billionaire phony who outsources the manufacturing of his products overseas, pays his casino workers below the Las Vegas Strip average and is refusing to negotiate a new contract with his newly unionized employees. And Trump’s other flip-flop this week—hiring a former Goldman Sachs partner to spearhead a big-dollar fundraising push—robs him of another opportunity to impress Sanders’ supporters who detested Clinton’s pursuit of Wall Street campaign cash.

Moreover Clinton, as she did with Sanders, is unlikely to cede issues like trade to Trump. Die-hard Sanders supporters didn’t believe her when she abandoned her past support of TPP, but she blurred the distinction with Sanders well enough to win where it counted: the Rust Belt states of Ohio andPennsylvania. In both contests, she split the white working class vote and won with voters who said global trade takes away American jobs. In fact, those are two of the eight states that Clinton won in both 2008 and 2016 primaries. Primary performance doesn’t predict general election performance—Obama’s Rust Belt primary losses meant nothing come November—but Clinton at least is experienced at downplaying her husband’s record in support of global trade agreements among the voters most bitter about it in the most critical swing states.

For Sanders supporters, trade is not a stand-alone voting issue—most of his base is too young to have lost a factory job because of NAFTA or Permanent Normal Trade Relation Status with China. Trade is part of a broader critique about how the rules are rigged for the billionaire class, of which Trump is a member. Trump’s promise to negotiate better deals doesn’t automatically signal to millennial democratic socialists that what he thinks is a better deal matches what they think is a better deal, if at the same time he’s on record supporting low wages and low top end tax rates.

True, Clinton heads into the general election with tenuous party unity. One quarter of Sanders voters said in a McClatchy-Marist poll last month they would not vote for her in November. While that number is likely overheated by the intensity of the primary, it would not be surprising to see Clinton lose some of her left flank, if not to Trump, then to the Libertarian Party’s Gary Johnson or the Green Party’s Jill Stein, both of whom are actively courting Sanders’ voters. Anyone who believes that Clinton is a war-mongering tool of Wall Street will at least be open to the argument that Trump is a lesser evil.

But Trump needs far more than a faction of protest votes. The 2016 race starts with more blue states than red states. The general election polls prove that, as of today, there are more #NeverTrump Republicans than #BernieOrBust Democrats. Trump must outright capture Bernie’s revolution to compensate for the damage he’s inflicted on Republican Party unity and swipe the Rust Belt from the Democrats. To pull that off, he’s going to have to sound a lot more revolutionary than he actually is.

Article Link to Politico:

Why Trump Won’t Get Sanders’ Supporters

Warren Buffett Underplays Election 2016

By Paul Mueller & Jared Pincin
Real Clear Markets
May 10, 2016

Warren Buffett's recent comments that a Trump or Clinton presidency won't be catastrophic for the economy surprised political pundits and market watchers alike. He expressed calm at a time when panic dominates campaign rhetoric. But while he may be correct in the short-run, Buffett is perhaps underplaying the possibility of debilitating, long-term harm from either presidency.

Both Trump and Clinton have proposed policies that would increase costs for U.S. companies to conduct business. Trump advocates trade restrictions while Clinton advocates higher investment taxes. The good news is that, due to government checks and balances, their most destructive policy proposals will probably die in Congress. So, we are unlikely to see much change in the immediate future.

The real danger with either presidency, however, isn't that their actions will wreck the economy today, it's that they will waste time and political capital on unproductive or trivial projects instead of addressing valuable long-term reforms.

In other words, fighting and gridlock over impossible or unimportant legislative initiatives will distract Capitol Hill from achieving meaningful policy changes necessary to give our economy the boost American citizens and taxpayers want.

We shouldn't be talking about tariffs, "beautiful" border walls, and $15 minimum wages. While popular to some members of the electorate, none of these policies will make the U.S. economy more dynamic and productive.

Instead, Trump or Clinton, as President, should focus on reforms that make the economymore productive, flexible, and resilient. Reducing regulation, overhauling the corporate tax code, reforming entitlements, and balancing the budget will improve the situations of average Americans and their families. The immediate benefits of these reforms may seem small, but those benefits will grow and compound year after year.

For example, consider the potential of regulatory reform. The more regulations a new business needs to comply with, the fewer businesses that will open. The Mercatus Center at George Mason University estimates that rolling back regulation to levels we saw in the late 1990s could lead to 6,000 more businesses and 100,000 more jobs each year. This is not surprising since new companies account for about twenty percent of total U.S. job creation.

The next president can also encourage job growth by reducing corporate income taxes. The U.S. has the second highest corporate tax rate in the OECD and ranks 32 out of 34 in tax competitiveness. U.S. companies have received unfair criticism over the past year for merging with companies overseas in order to avoid these high taxes. Rather than seek ways to punish them, we should fix what's driving them away: a harsh tax penalty.

Another problem is that the impossible promises of Social Security threaten to slow our economy as taxpayers have to bear the enormous costs of paying for them. The Social Security trust fund will be exhausted by 2035 and faces an additional $10.79 trillion in shortfall over the next 75 years. And, the hospital trust fund of Medicare will be insolvent by 2030. If we do nothing, taxes on hardworking people will skyrocket or benefits promised to our Senior citizens will be slashed.

Reform will be easier and less costly today than in the future. Reform proposals for solvency are abundant, but political will is lacking. Trump or Clinton could show real leadership by confronting these significant, albeit intractable, threats to our economic health if they can resist getting bogged down in futile, partisan squabbles.

The cost of getting nothing positive done on these fronts for the next eight years is high. The debt is poised to explode, new business formation rates have plunged, we have 6 million people involuntarily stuck in part-time jobs and an entire generation of young workers are being scarred by diminished expectations and lack of opportunity.

Presidents set priorities and agendas. They have the opportunity to highlight problems and propose solutions. Focusing on the wrong problems keeps us from fixing the real issues. Let's hope the presidential candidates take the long view-for our sakes and the sakes of our children and grandchildren.

Article Link to Real Clear Markets:

The Left’s Delayed Reckoning

By Noah Rothman
May 10, 2016

The manufactured controversies of commencement season are upon us. It’s that time of year in which a vocal minority of fatuous, self-indulgent students discover a source of identity and purpose in protesting the on-campus appearance of almost anyone accomplished in the field of public policy.

As the quixotic candidacy of the self-styled socialist Senator Bernie Sanders has demonstrated, American college students, who once took pride in their individuality, now value nothing so highly as lockstep political uniformity. The weeding out of conservative viewpoints and forcing them underground cannot achieve the consensus they seek; that mission was accomplishedlong ago. For the college-age Sandernista, in particular, nonconformist political views among their fellow liberals also represent an intolerable level of dissent.

Thanks to a successful series of protests, and a pitifully cowed cast of college administrators, American campuses have largely been cleansed of conservative speakers. Media outlets once chronicled high-profile campaigns to block speakers like Christina Hoff Sommers, Condoleezza Rice, and Ayaan Hirsi Ali from addressing graduating classes. The opponents of these women feared that they might preach a subversive brand of feminism that rejects the notion women must appeal to higher authorities in order to find empowerment or combat discrimination. In all three cases, college protest movements succeeded in convincing these conservative speakers that the costs of addressing a group of graduating students outweighed the benefits.

It seems prospective conservative speakers know when they are not welcome. According to Campus Reform, liberal commencement speakers will this year outnumber self-identified Republicans at U.S. News’ top 100 schools by a four-to-one ratio. That’s a trend, and it’s been getting worse.

A movement animated by the intoxicating righteousness of victimization needs victimizers. There can never be victory; there must always be enemies, and they need not necessarily be external. In fact, as conservative entertainers have learned, mobilizing true believers against perceived wreckers and saboteurs within their ranks could be an even more effective means of rallying supporters to a cause. To that end, the mobs of students dedicated to the Orwellian pursuit of social justice have begun to turn on their own.

The latest campus controversy to make a splash is that which occurred at the all-women Scripps College campus in Claremont, California. The student-led committee tasked with selecting a commencement speaker thought they landed a catch when they secured Bill Clinton’s former Secretary of State Madeleine Albright, but their peers were not so thrilled.

The Los Angeles Times reported that students objected to Albright’s record in office, calling her a “war criminal.” Others objected to her fealty to Hillary Clinton over Bernie Sanders. Albright had previously insisted that those women who support the latter candidate earn for themselves “a special place in hell.” The L.A. Times observed that Albright joined fellow liberal and International Monetary Fund chief Christine Lagarde as a target of socially conscious campus activists. Lagarde was run off of the campus of Massachusetts-based all-women Smith College in 2014 for the alleged crimes of “strengthening of imperialist and patriarchal systems that oppress and abuse women worldwide.” No word yet on Lagarde’s likely Trotskyite Right Deviationism, but the accusers at her forthcoming struggle session should sort it all out.

When it comes to domestic politics, Albright is no diplomat. She long ago alienated American conservatives with her blunt, partisan demeanor, and that is what once earned her a special place in liberal hearts. That’s only part of what should make this episode a disturbing one for Democrats, who are increasingly reliant on a radicalized sisterhood to serve as a key pillar of their party’s electoral coalition. Buried in the L.A. Times dispatch was a revelatory aside that portends a liberal version of the Trumpian purge presently unraveling the GOP. Albright, you see, wasn’t anyone’s first choice. “There was a lot of support for Ellen [DeGeneres], for example, but we didn’t have the connections,” said one student on the selection committee.

Celebrities are, of course, always in high demand on college campuses, but they have to be the right kind of celebrity. Matt Damon will have the honorof addressing Massachusetts Institute of Technology’s 2016 graduating class in recognition of his accomplishments playing a scientist in 2015’s “The Martian” and a “mathematically gifted MIT janitor” in 1997’s “Good Will Hunting” (not to mention being a prolific donor to liberal causes). Harvard’s graduating class will hear from the award-winning director and Hillary Clinton donor Steven Spielberg. “Hamilton” actor Lin Manuel-Miranda will speak to the students of Pennsylvania University. Director Spike Lee will grace the campus of Johns Hopkins University. “Late Night” host Seth Meyers will address Northwestern University’s graduates. The list goes on.

It is certainly possible to overstate reverence for celebrity and the dangerous tendency toward political purges in the name of purity. These may merely be the fleeting trappings of youth. But the toxic nature of this mix was arguably understated among conservatives. When prominent in a core faction of a leaderless institution like the GOP, these are traits that can lead to a Trump-like phenomenon. And regardless of the results in November, the reality television star’s success in capturing his party’s presidential nomination guarantees that he will have celebrity imitators.

A revolt within Democratic ranks has long been delayed, and Sanders’ attempt to commandeer a party of which he was not even a member until September came within an ace of being successful. Minus control of the White House, Democrats are near the nadir of their political power in terms of elected offices. The party is so contemptuous of its recent history that Hillary Clinton has been forced to repudiate or disavow nearly all of her husband’s most popular achievements in office. The Black Lives Matter movement is an expression of raw frustration with the results of decades of practically unanimous African-American support for Democratic officeholders, and their concerns are strikingly out of step with those of their more establishmentarian elected representatives. Hillary Clinton is about as beloved by the next generation of Democrats as acute trichinosis. In the end, the former first lady’s most potent challenge in 2016 might not be her general election opponent but the concerns her fellow Democrats had in her fitness for the presidency. Since the end of World War II, no political party has managed to win four consecutive terms in the White House. As Republicans learned, these insurrectionary sentiments can only be bottled up for so long.

Donald Trump might serve as a cautionary tale for restless Democrats who may find themselves swayed by the promise of a celebrity who tells them everything they want to hear and demonizes their own as ideologically suspect vandals. Given the party’s experience in 2008, however, few should be surprised if the Democratic Party succumbs to celebrity worship. The cracks in the foundation of the Democratic coalition have for years been papered over by their hold on the White House. The party may be lucky enough to avoid the worst in 2016. Will they be so fortunate in 2020?

Article Link to Commentary:

Uncle Sam’s Crackdown On E-Cigs Will Make It Harder To Quit Smoking

By Rich Lowry
The New York Post
May 9, 2016

Down through all the millennia that mankind has smoked tobacco, no one would have believed (or even imagined) that a battery-powered contraption with no tobacco would one day be considered a tobacco product.

We’ve long had smokeless tobacco; now we have tobacco-less tobacco.

This conceptual breakthrough is the work of federal bureaucrats who are bringing the regulatory hammer down on e-cigarettes in a misbegotten extension of the war on smoking.

The Food and Drug Administration has issued new rules so onerous that they will likely suppress the manufacture of e-cigarettes and kill off small companies making them. Health and Human Services Secretary Sylvia Burwell hailed the action as “an important step in the fight for a tobacco-free generation” — never mind, of course, that e-cigarettes are tobacco-free.

The problem that regulators and so-called public-health advocates have with e-cigarettes is that, unlike nicotine gum or patches (which have proven ineffective as substitutes for smoking), they are a simulacrum of actual cigarettes. People puff on them and emit clouds of aerosol. For all that the experts want to reduce smoking, they can’t abide the idea that people might do it by consuming nicotine in a pantomime of old-fashioned smoking.

It is a strange country that is simultaneously moving to legalize marijuana and to crack down on vaping. But here we are.

There is no doubt that cigarettes are a great cause of human misery; they kill almost 500,000 people a year in the United States. This is why e-cigarettes, with their potential to diminish smoking, could be a boon to public health.

They deliver nicotine without the truly harmful part of cigarettes, the tar and chemicals. Regulators purport to fear what is still unknown about e-cigarettes, while ignoring all the evidence that they are vastly safer than analogue cigarettes (if cigarettes were only nicotine, they wouldn’t be so problematic). It’s like trying to prove to environmentalists who hate all fossil fuels that fracking is safe.

The FDA is evidently operating on the basis of a regulator’s reverse Hippocratic Oath: First, do harm to a burgeoning industry — then hope to find some evidentiary justification for it at some later date.

The new rules are crafted so that every vaping product currently on the market will have to go through an onerous FDA review process. Any new products will have to do the same.

The American Vaping Association maintains that submitting an application will cost more than $1 million and take more than 1,700 hours. The regulatory burden will swamp small companies that lack the resources to pour into compliance costs. (The big tobacco companies, in contrast, will be fine.)

The small firms have driven innovation in e-cigarettes. The products have gotten better, with more variety, since their introduction in 2007. That’s manifestly a good thing. The more satisfying e-cigarettes are, and the more they replicate the real smoking experience, the more likely it is that smokers will switch over — or at least use fewer cigarettes.

The highly respected Royal College of Physicians in Britain gets the logic. It issued a report emphasizing the enormous promise of e-cigarettes, which it estimates are 5 percent as dangerous as the real thing. An authority who worked on the report explained to The New York Times that e-cigarettes “have the potential to help half or more of all smokers get off cigarettes. That’s a huge health benefit, bigger than just about any medical intervention.”

The United States is rejecting that common-sense approach to harm reduction. It is against vaping no matter how safe it is or how many people it might coax into giving up smoking.

The famous line attributed to Mark Twain is that nothing is as easy as quitting smoking — he’s done it thousands of times. Of course, Twain didn’t have the option of vaping. If the FDA has anything to say about it, neither will anyone else.

Article Link to the New York Post:

Facebook’s faked ‘trending news’ is a warning not to trust Silicon Valley

By Post Editorial Board
The New York Post
May 10, 2016

Well, so much for Facebook’s claims to be an honest information broker: Turns out its list of “trending” topics comes with a hefty political bias.

The site Gizmodo on Monday reported what it had heard from some of the “news curators” who actually create the “trending” feed — which only starts with topics flagged by a computer algorithm as to what users are actually posting about.

The exposé reveals one level of bias imposed by management — and another from the peons hired to do the work.

Several curators cited routine nixing of right-of-center topics — news about Mitt Romney, Wisconsin Gov. Scott Walker and even Lois Lerner, the face of the IRS scandal.

Ironic: IRS employees used their power to suppress righty speech, and Facebook then suppressed the fact its users cared about it . . .

Why did the curators censor? Well, the folks hired to do the work came largely from elite private colleges — you know, the ones now plagued by demands for “safe spaces” where “threatening” ideas are forbidden.

Plus, Facebook reportedly ordered up some censorship — by telling the curators to link trending topics only to stories from “respectable” sources like The New York Times and the BBC (Something’s on Drudge? Blacklist it!)

They even got told to “inject” news that wasn’t actually trending on Facebook at all. It turns out “Black Lives Matter” didn’t score on its own with users — it needed Facebook management’s thumb on the scale.

Naturally, Facebook issued a flat-out denial Monday, citing its “rigorous guidelines.” You can believe that when you see Post stories on the “trending” list.

Meantime, don’t think it’s safe to trust Silicon Valley with the future of the news industry.

Article Link to the New York Post:

Change the Philippines Doesn't Need

By Editorial Board
The Bloomberg View
May 10, 2016

Like Donald Trump, to whom he's often compared, the Philippines'apparent president-elect Rodrigo Duterte won over voters with a crude and bombastic persona -- or, if you will, his big mouth. What the country he may soon inherit needs most, however, is a steady hand.

Duterte, a mayor who hasproudly advertised his links to vigilante death squads in Davao City and threatened a "bloodbath" for criminals once he's in power, has tapped into a deep vein of frustration with the political status quo. In truth, though, the Philippines are in better shape than they've been in for years. The country is forecast to grow faster than its neighbors this year, aided by low oil prices and continued healthy consumption. Remittances are strong, while a booming outsourcing sector couldsoon replace them as the country's largest source of dollar revenues.

Outgoing President Benigno Aquino can't take credit for all this good fortune. But he's unquestionably leaving the country on a stronger footing than he found it six years ago. The Philippines, the former "sick man of Asia," now boasts a current account surplus, aninvestment-grade credit rating, improved competitiveness and steady growth in foreign investment. Aquino has gone after tax cheats and scored notable victories against official corruption.

Aquino, the son of former President Corazon Aquino, is a likable but diffident leader. He has built his record on sober and unflashy reforms. His successful efforts to widen the tax base have helped shrink the budget deficit. Changes such as introducing online bidding for government contracts helped convince ratings agencies to give the country its first investment-grade rankings. He's rolled out a cash-transfer program for the poor and boosted infrastructure spending to around 5 percent of gross domestic product this year.

Certainly growth hasn't trickled down enough: A quarter of Filipinos still live in poverty, and Manila's crumbling and traffic-choked roads remain a nightmare. But change will require patient work and coalition building. Duterte will need Congress's help if he wants to pursue land reforms that would spread growth beyond Manila, or if he's to open up more sectors of the economy, including mining, to greater foreign investment. He can't fix the power sector -- critical if the country is to build up its manufacturing industries -- on his own. Yet much like Trump in the U.S., Duterte has done nothing to improve his standing among legislators, whom he largely derided during the campaign as "trapos," or traditional politicians sucking the country dry.

Geopolitically, his election comes at a fraught moment. A U.N. tribunal is set to rule soon on a case the Philippines brought against China's expansive maritime claims in the Spratly Islands chain. Even as the Philippines has welcomed U.S. military forces back to its shores for the first time in decades, Duterte has issued provocative and contradictory policy statements -- in one breath threatening to ride a jet ski out to a disputed reef to plant the Philippine flag, in another offering to negotiate concessions with China in return for infrastructure investment. Either move would undermine U.S. efforts to build regional support for the rule of law in the South China Sea.

As Indonesia's President Joko Widodo, himself a successful former mayor, might attest, skills that are effective locally don't always translate at the national level. A single figure, no matter how determined, can't dictate outcomes the way he or she might in a city or town. What Filipinos need from their next leader isn't brute strength but consistency and pragmatism, to reassure markets and to make deals possible. While Duterte hasn't shown those abilities to date, part of his appeal is his unpredictability. He should aim to surprise everyone.

Article Link to the Bloomberg View:

Hillary Clinton’s Oily Exxon Connections

Bernie Sanders has hammered Hillary Clinton for her connections to fossil fuels—a charge she has wholeheartedly rejected. However, ExxonMobil’s climate scandal could again bring her ties to big oil to the forefront at an inconvenient time.

By Betsy Woodruff 
The Daily Beast
May 10, 2016

Environmental issues have taken a backseat in this campaign—so far. But a multi-jurisdictional investigation may shift the national focus to the question of corporate culpability for climate change—in particular, whether oil colossus ExxonMobil should be dragged into court.

And that focus could make life a little complicated for Hillary Clinton.

Her family and campaign have ties to ExxonMobil that worry many climate change activists.

The connections have spurred a steady stream of protests, event-interruptions, and general shin-kicking for the Clinton campaign from activists—and Exxon’s growing legal scrutiny means they’re unlikely to abate.

At issue, as Politico reported on Monday, is whether Exxon executives knowingly suppressed information about fossil fuels’ contribution climate change—and whether the company should face legal consequences the way tobacco corporations did.

Attorneys general in New York and the U.S. Virgin Islands have subpoenaed corporate communications. The efforts present “the biggest existential threat the company has faced in decades,” Politico wrote.

For Clinton, the timing isn’t exactly ideal. The likely Democratic presidential nominee has long struggled to win the trust of groups and activists calling for more government action on climate change. And that’s in part due to her history of accepting campaign contributions bundled by oil companies’ lobbyists. The Clinton Global Initiative has also taken hefty sums from oil companies (including Exxon), drawing calls for divestment.

But Clinton hasn’t been silent on public policy issues involving Exxon. When an activist with 350.org pressed her on the subject last October—after Bernie Sanders and then-competitor Martin O’Malley took the same position—she voiced support for a Department of Justice investigation of ExxonMobil. But that won’t be enough to quell some environmental activists’ doubts, especially given her family foundation’s openness to Exxon’s largesse.

The company gave the Clinton Global Initiative between $1 and $5 million, according to Clinton Foundation’s publicly available numbers. Their willingness to take oil money has drawn unstinted criticism from activists, who hold the foundation legitimizes Exxon and other cohorts by essentially selling them good PR.

“It green-washes them, especially with the trouble that Exxon is having now with all of its past history coming to light—showing that they’ve known about climate change for decades,” said Wenonah Hauter, the executive director of consumer rights group Food & Water Watch, an offshoot of Public Citizen.

“I think if you take a hard look at the Clinton Foundation and how they’ve addressed climate change, I do think it leads to some skepticism about the sincerity of really dealing with these problems,” she added.

The Clinton campaign did not respond to a request for comment.

Hauter and other activists hold that the Clintons and their foundation take too gradual an approach to climate change—and that the fossil fuel money they get makes it hard for activists to trust them.

“I think that the foundation is compromised in its climate work by how much money it has taken from Exxon and other oil companies as well,” said Catherine Thomasson, who heads Physicians for Social Responsibility, the U.S. affiliate of the Nobel prizewinning International Physicians for the Prevention of Nuclear War.

“Everyone should keep these companies at arms’ length,” said Bill McKibben, one of the most influential environmentalists of the past 50 years. “They are, after all, working hard to make sure no government stops them from wrecking the planet.”

Contributing to the foundation isn’t the only way Exxon has financially supported the Clintons. Ursula Burns, a member of the company’s board of directors, gave the maximum contribution of $5,400 to Clinton’s campaign—making Clinton one of a very small number of Democratic candidates to get any financial support from an ExxonMobil board member.

More significantly, in terms of cash, only three Republican presidential candidates got more money from the oil and gas industry as a whole than Clinton did, according to OpenSecrets. And, as Politico noted, the corporation’s senior lobbyist Theresa Fariello is a Clinton bundler. GreenPeace has also dinged Clinton for the fact that at least seven Exxon lobbyists bundle contributions for her campaign.

On the trail, activists have tried to needle Clinton over her connections to oil and gas companies. And sometimes, they’ve successfully gotten under her skin.

“I do not have, I have money from people who work for fossil fuel companies,” Clinton said on March 31, snapping at a protester who challenged her on the issue at a campaign stop.

“I’m so sick—I’m so sick of the Sanders campaign lying about me,” she continued. “I’m sick of it.”

Clinton’s fossil fuel ties have also been a source of disturbance at some of her fundraising events. Earlier this month, two activists affiliated with McKibben’s group, 350.org, crashed a Women for Hillary fundraiser with banners that read “Women Against Fossil Fuel Money.”

“Any politician who accepts money from lobbyists of an industry whose business model is predicated on digging up fossil fuels can’t be expected to protect our climate and our communities,” said one participant, Lilly Daigle, in a press release from the group. “There is a new standard for fossil fuel interests in politics: no amount of money is acceptable.”

If that zero-tolerance-for-oil-money argument takes root among a large enough swathe of climate change voters, Clinton may have to win over a whole bunch of Republicans to compensate.

Article Link to The Daily Beast:

The Scariest Reason Trump Won

By Dennis Prager 
The National Review
May 10, 2016

There are many reasons Donald Trump is the presumptive Republican presidential nominee. The four most often cited reasons are the frustrations of white working-class Americans, a widespread revulsion against political correctness, disenchantment with the Republican “establishment,” and the unprecedented and unrivaled amount of time the media afforded Trump.

They are all valid.

But the biggest reason is this: The majority of Republicans are not conservative.

Conservatives who opposed Trump kept arguing — indeed provided unassailable proof – that Donald Trump is not a conservative and has never been one. But the argument meant little or nothing to two types of Republicans: the majority of Trump voters who don’t care whether he is a conservative, and the smaller number of Trump voters who are conservative but care about illegal immigration more than all other issues, including Trump’s many and obvious failings.

So, then, what happened to the majority of Republicans? Why aren’t they conservative?

The answer lies in America’s biggest – and scariest – problem: Most Americans no longer know what America stands for. For them, America has become just another country, a place located between Canada and Mexico.

But America was founded to be an idea, not another country. As Margaret Thatcher put it: “Europe was created by history. America was created by philosophy.”

Why haven’t Americans over the past three generations known what America stands for?

Probably the biggest reason is the influence of left-wing ideas.

Since its inception, the Left has opposed the American idea, and for good reason. Everything the American idea represents undermines leftist ideas. And the Left, unlike most Americans, has always understood that either the Left is right or America is right.

America stands for small government, a free economy (and therefore capitalism), liberty (and it therefore allows for liberty’s inevitable consequence, inequality), the “melting pot” ideal, and a God-centered population rooted in Judeo-Christian values (so that a moral society is created by citizens exercising self-control rather than relying on the state to impose controls).

Only America was founded on the idea of small government. But the Left is based on big government.

America was founded on the principle that human rights come from the Creator. For the Left, rights come from the state.

America was founded on the belief that in order to maintain a small government, a God-fearing people is necessary. The Left opposes God-based religions, particularly Judeo-Christian religions. Secularism is at the core of Leftism every bit as much as egalitarianism is.

The American Revolution, unlike the French Revolution, placed liberty above equality. For the Left, equality is more important than all else. That’s why so many American and European leftists have celebrated left-wing regimes, no matter how much they squelched individual liberty, from Stalin to Mao to Che and Castro to Hugo Chávez. They all preached equality.

It took generations, but the Left has succeeded (primarily through the schools, but also through the media) in substituting its values for America’s.

While the Left has been the primary cause, there have been others.

The most significant is success.

American values were so successful that Americans came to take America’s success for granted. They forgot what made America uniquely free and affluent. And now, it’s not even accurate to say “forgot,” because, in the case of the current generation, they never knew. While the schools, starting with the universities, were being transformed into institutions for left-wing indoctrination, American parents, too, ceased teaching their children American values (beginning with not reading to their children the most popular book in American history, the Bible).

Schools even stopped teaching American history. When American history is taught today, it is taught as a history of oppression, imperialism, and racism. Likewise, there is essentially no civics education, once a staple of the public-school system. Young Americans are not taught either the Constitution or how American government works. I doubt many college students even know what “separation of powers” means, let alone why it is so significant.

So, then, thanks to leftism and America’s taken-for-granted success, most Americans no longer understand what it means to be an American. Those who do are called “conservatives” because they wish to conserve the unique American idea. But conservatives now constitute not only a minority of Americans, but a minority of Republicans. That is the primary reason Donald Trump — a nationalist but not a conservative — is the presumptive Republican nominee.

As I noted from the outset, I will vote for him if he wins the nomination — because there is no choice. But the biggest reason he won is also the scariest.

Article Link to The National Review:

U.S. Sails Warship Near Chinese-Claimed Reef In South China Sea

By Michael Martina and Greg Torode
May 10, 2016

A U.S. navy warship sailed close to a disputed reef in the South China Sea on Tuesday, a U.S. Department of Defense official said, prompting anger in Beijing which denounced the patrol as illegal and a threat to peace and stability.

Guided missile destroyer the USS William P. Lawrence traveled within 12 nautical miles of Chinese-occupied Fiery Cross Reef, Defense Department spokesman Bill Urban said. The so-called freedom of navigation operation was undertaken to "challenge excessive maritime claims" by China, Taiwan, and Vietnam which were seeking to restrict navigation rights in the South China Sea, he said.

"These excessive maritime claims are inconsistent with international law as reflected in the Law of the Sea Convention in that they purport to restrict the navigation rights that the United States and all states are entitled to exercise," Urban said in an emailed statement.

Beijing and Washington have traded accusations that the other is militarizing the South China Sea as China undertakes large-scale land reclamations and construction on disputed features while the United States has increased its patrols and exercises in the region.

Facilities on Fiery Cross Reef include a 3,000-metre (10,000-foot) runway and Washington is concerned China will use it to press its extensive territorial claims at the expense of weaker rivals.

Chinese Foreign Ministry spokesman Lu Kang said the U.S. ship illegally entered Chinese waters and was tracked and warned.

"This action by the U.S. side threatened China's sovereignty and security interests, endangered the staff and facilities on the reef, and damaged regional peace and stability," he told a daily news briefing.

Sensitive Area

China claims most of the South China Sea, through which $5 trillion in ship-borne trade passes every year. The Philippines, Vietnam, Malaysia, Taiwan and Brunei also have overlapping claims.

The Pentagon last month called on China to reaffirm it has no plans to deploy military aircraft in the disputed Spratly Islands after Beijing used a military plane to evacuate sick workers from Fiery Cross.

"Fiery Cross is sensitive because it is presumed to be the future hub of Chinese military operations in the South China Sea, given its already extensive infrastructure, including its large and deep port and 3000-metre runway," said Ian Storey, a South China Sea expert at Singapore's ISEAS Yusof Ishak Institute.

"The timing is interesting, too. It is a show of U.S. determination ahead of President Obama's trip to Vietnam later this month," Storey added.

Speaking in Hanoi ahead of Obama's visit, Daniel Russel, the Assistant Secretary of State for East Asia and the Pacific, said freedom of navigation operations were important for smaller nations.

"If the world's most powerful navy cannot sail where international law permits, then what happens to the ships of navy of smaller countries?," Russel told reporters before news of the operation was made public.

"If our warships can't exercise its legitimate rights under international law at sea, then what about the fishermen, what about the cargo ships? How will they prevent themselves from being blocked by stronger nations?"

China has reacted with anger to previous U.S. freedom of navigation operations, including the overflight of fighter planes near the disputed Scarborough Shoal last month, and when long-range U.S. bombers flew near Chinese facilities under construction on Cuarteron Reef in the Spratlys last November.

U.S. naval officials believe China has plans to start reclamation and construction activities on Scarborough Shoal, which sits further north of the Spratlys within the Philippines claimed 200 nautical mile (370 km) exclusive economic zone.

The move also comes as tough-talking city mayor Rodrigo Duterte looks set to take the Philippines' presidency. He has proposed multilateral talks on the South China Sea.

Criticism of China over the South China Sea will rebound like a coiled spring, a Chinese diplomat said on Friday, as a U.S. warship visited Shanghai against a backdrop of rising tension in the region.

Oil Prices Gain As Supply Disruptions Outweigh Brimming Storage

By Henning Gloystein
May 10, 2016

Oil prices rose on Tuesday as supply disruptions in Canada and elsewhere that have taken some 2.5 million barrels of daily production off the market outweighed worries over brimming inventories and a looming refined products glut.

International Brent crude futures LCOc1 were trading at $44.10 per barrel at 0702 GMT, up 47 cents, or 1 percent, from their last settlement.

U.S. crude futures CLc1 were trading at $43.65 per barrel, up 21 cents, held back more than Brent by record U.S. oil stocks.

Canadian officials got their first glimpse of the oil sands town of Fort McMurray since a wildfire erupted and knocked out vast amounts of crude production there, and they said almost 90 percent of its buildings were saved.

Despite the improving conditions, producers expect shutdowns of several weeks as facilities like pipelines that were close to the fires need to be inspected, while evacuees need to leave production plants before staff can return.

Outages in Canada, which consultancy Energy Aspects said now totaled 1.6 million barrels per day (bpd), have pushed global disruptions to more than 2.5 million bpd since the beginning of the year. This has at least temporarily wiped out a glut that emerged in mid-2014 and pulled down prices by around 70 percent before a recovery started early this year.

Goldman Sachs said it expected a decline in U.S. oil production by 650,000 bpd this year, while BMI Research said that production in Asia would fall by 4.9 percent in 2016, equivalent to 331,500 bpd. Production in Latin America and Africa is also stalling.

Despite the output reductions, U.S. crude and Brent are down 2.3 percent and 2.8 percent respectively since last week's close due to concerns about more than ample U.S. inventories, which are expected to hit records even with the disruptions in Canada.

"Despite some significant supply disruptions, most notably in Canada, ongoing bearish fundamentals precipitated a modest retracement in prices," Societe Generale said in a weekly note to clients.

U.S. commercial crude stockpiles have likely risen for a fifth straight week, a Reuters poll showed, with crude inventories expected to have built by 500,000 barrels to a record above 543 million barrels.

Some traders said a $40-$50 per barrel price range may reflect a balanced market with plentiful stocks.

With plenty of crude available, refiners have produced large volumes of gasoline and diesel, threatening to overwhelm demand despite the coming U.S. summer driving season.

"Crude cannot go up without support from products, and that support is not there at the moment, and more refineries are coming out of turnarounds so there will be more products and tanks are getting full," said Oystein Berentsen, managing director for crude at Strong Petroleum in Singapore.

Article Link to Reuters:

Tuesday, May 10, Morning Global Market Roundup: Asian Stocks At Two-Month Lows As Oil Weighs; Dollar Up

By Saikat Chatterjee
May 10, 2016

Asian stocks slipped to two-month lows on Tuesday as weak oil prices weighed on sentiment while the dollar got a lift against its peers as the differences in policy directions between the world's top central banks became starker.

MSCI's broadest index of Asia-Pacific shares outside Japan .MIAPJ0000PUS was down 0.2 percent, its lowest since Mar. 11. Hong Kong and Chinese stocks led regional markets lower.

European stocks were expected to open slightly higher with spreadbetters picking Britain's FTSE 100 .FTSE to open up 0.4 percent, Germany's DAX .GDAXI 0.5 percent and France's CAC 40 .FCHI 0.3 percent.

China's April consumer inflation and producer price data painted a mixed picture of deflationary pressures in the world's second largest economy.

Expectations of further monetary policy easing had already been dented by strong March China data, but economists are divided over whether that was just a blip or a more sustainable trend.

"I think monetary policy will be kept steady with structural easing - targeted easing for some sectors," said Nie Wen, economist at Hwabao Trust in Shanghai.

Cuts in reserve requirement ratios (RRR) are likely although the People's Bank of China has been relying on other tools such as medium-term funds to inject liquidity, he said.

The moderate price data came after the official People's Daily quoted an "authoritative person" on Monday saying China may suffer from a financial crisis and economic recession if the government relies on too much stimulus.

Shen Weizheng, fund manager at Shanghai-based Ivy Capital, said that he was now much less bullish on stocks, interpreting the article as a sign that Beijing will rein in credit expansion after the first quarter's lending surge.

Noting the yen's fresh weakness, investors flocked to Japanese stocks .N225, pushing them up 1.5 percent though the likelihood of weak first-quarter earnings kept broader sentiment in check.

"It will probably take a few months to price the bad news in, so the market is likely to stay weak for a while," said Masashi Oda, general manager at strategic investment department at Sumitomo Mitsui Trust Asset Management.

In the Philippines, the main index .PSI initially fell as tough-talking mayor Rodrigo Duterte looks almost certain to become the country's next president, but then reversed to be up 0.5 percent.

Wall Street put in a mixed performance overnight, undercut by tumbling oil prices amid expectations that U.S. crude inventories would again build to record highs.

In the currency markets, the dollar extended gains on Tuesday, pushing above 108.74 against the yen JPY= and 1.137 against the euro EUR= despite a broad-based pullback in U.S. Treasury yields.

With U.S. officials suggesting markets are under-pricing rate hikes and Tokyo warning it was prepared to step in to weaken the yen, traders are growing more bullish on the dollar.

"Don't underestimate the power of short covering," Kathy Lien, managing director at BK Asset Management, said in a note to clients.

While the dollar is "still a sell on rallies" against the yen, Lien said the currency could soar to 110 yen quickly if the 20-day simple moving average at 108.83 were broken.

"When a currency... squeezes higher quickly, causing investors to panic and abandon their positions, the rally could be sharp and aggressive particularly when positions are skewed so heavily in the opposite direction," she said.

In the wake of the yen's surge, Finance Minister Taro Aso on Monday said Tokyo is ready to intervene to weaken the currency if moves are volatile enough to hurt the country's trade and economy. Aso reiterated the message on Tuesday.

U.S. crude oil CLc1 was down 0.3 percent in early Asian trade at $43.31 a barrel, after shedding 2.8 percent on Monday. Brent crude LCOc1 dropped 3.8 percent overnight to settle at $43.63 before edging higher.

The dollar's gains pushed gold prices lower with the precious metal XAU= falling to a 1-1/2 week low on Tuesday. Prices have flatlined after rallying in the last week of April.

Article Link to Reuters:

Sorry, Paul Ryan, It's Donald Trump's Party Now

The Ryan era was over before it began.

The National Interest
May 9, 2016

Paul Ryan last week spoiled Donald Trump’s brief honeymoon as the Republican Party’s presumptive nominee. As former rivals like Rick Perry, Rand Paul, and Marco Rubio offered their support for the man who beat them—they all had pledged to back the nominee, whoever it might be—Ryan issued what amounted to an informal ukase directed at Trump: when it came to accepting his candidacy, Ryan declared that he was not there yet.” Trump may have millions of voters behind him. No matter. So now Trump is threatening to do to Ryan what he did to Jeb Bush earlier this year--severing the head from what’s left of the GOP establishment. Trump’s declaration Sunday that he and other wealthy Americans are ready to pay higher taxes was a direct shot at Ryan and GOP conservative orthodoxy. “I may have to increase it on the wealthy—I’m not going to allow it to be increased on the middle class,” he told CNN on Monday. Trump also appears open to raising the minimum wage. He is further signaling to working-class Americans that he will not govern as a conservative in the mold of Ryan or his hero Ronald Reagan. Trump is a populist who holds no brief for traditional conservative tenets. He aims to turn the GOP into his own political party on both domestic and foreign policy, radically breaking with the party’s longstanding positions.

It’s not that Trump will cause Ryan to lose his House primary in August, although Trump surrogate Sarah Palin said Sunday that she “will do whatever I can” for his opponent, Paul Nehlen. “Paul Ryan and his ilk … feel so threatened at this point that their power, their prestige, their purse will be adversely affected by the change that is coming with Trump, and with someone like Paul Nehlen, that they're not thinking straight right now,” she told CNN’s Jake Tapper. Ryan, she warned, “is soon to be 'Cantored,' as in Eric Cantor,” referring to the House majority leader from Virginia who lost his seat in a primary upset two years ago. But even with Trump and Palin against him, Ryan is more secure than Cantor was—the latter fell afoul of redistricting that left him with a still very Republican district, but one without any emotional attachment to its representative. In a year when Donald Trump can become the Republican nominee, it might seem like absolutely anything can happen—but Ryan is still about as safe as any incumbent can be.

Trump himself on Sunday raised the prospect denying Ryan his expected role as chairman of the Republican National Convention in Cleveland. Ryan, however, might well relish the opportunity to distance himself—and his potentially jeopardized House majority—from the controversial nominee. In any event, the convention is largely symbolic. It’s what lies behind the symbolism that poses the threat to Ryan: the reality that Trump is prepared to defy any authority in his push to remake the GOP in his own image.

“I’m going to do what I have to do—I have millions of people that voted for me, so I have to stay true to my principles also,” Trump said on ABC’sThis Week. “And I’m a conservative, but don’t forget, this is called the Republican Party. It’s not called the Conservative Party.”

Trump’s success so far in co-opting or crushing every major right-wing ideological bloc in his march to the nomination has been astonishing to behold. He not only ended, for now, the Bush political dynasty that personified the Republican establishment from the day Reagan left office, he also routed the neoconservatives’ golden boy, Marco Rubio; the libertarians’ champion, Rand Paul; and, most impressive of all, the candidate around whom all movement conservative opposition coalesced, Ted Cruz. Trump marshaled more votes within the party than any of the movements and ideological interests long supposed to hold a commanding grip on the GOP. Trump has done to the GOP what Attila the Hun did to a crumbling Roman Empire.

Ryan, by contrast, is no conqueror: if he didn’t quite inherit his position, he was heavily sponsored and promoted all along the way by kingmakers inside the party. He was hailed by conservative pundits as the new Jack Kemp—a flattering comparison, until you consider how far short of presidential expectations Kemp, at bottom a political loser who fancied himself a new Gipper but was nothing of the kind, fell.

Like Kemp, Ryan has been also been a vice presidential nominee on a Republican ticket that no one would point to as an example of how conservatives should win elections. Ryan was marketed in 2010, after Republicans retook the House of Representatives, as one of three “Young Guns” who held the party’s future. (Fred Barnes had given them this name three years earlier in a cheerleading story for the Weekly Standard.) Unfortunately, the other two of these three amigos happened to be Eric Cantor and the man who succeeded Cantor as House majority leader, Kevin McCarthy, whose aspirations to the speakership collapsed suddenly last year, leaving Ryan—reluctantly, so he insisted—to take up the gavel.

That reluctance stemmed in part from the ungovernable character of the Republican Party these days, even as it exists within the halls of Congress. Ryan’s predecessor, John Boehner, resigned when it became apparent he could not indefinitely fend off attacks from the party’s right. Ryan can take some comfort from the fact that Trump seems ideologically incompatible with the House Freedom Caucus that played a large role in toppling Boehner—but then, Ryan himself fell short of receiving the Freedom Caucus’s formal endorsement for speaker last year. (Most Freedom Caucus members supported him, but the lack of full endorsement from the group served as notice not to take its loyalty for granted.)

Trump and Ryan are antitypes: Trump is unorthodox where Ryan is a party-line conservative; Ryan has a reputation as a policy wonk, while Trump is a rumbustious improviser; and Trump has wrested leadership away from the party elite in the most hard-fought presidential contests in the party’s modern history, while Ryan has been groomed for leadership over a decade or more. Who wins when they clash—not just over the convention or Ryan’s tardy endorsement, but over their visions for the party and the country? Ryan has to look with apprehension not only at Trump’s successes but also at the foreshortened leadership careers of Cantor, McCarthy, and Boehner.

Trump might prove to be a passing fad, gone from the national stage after losing to Clinton in November. Maybe the GOP reacts to such a loss by turning to Ryan—and returning to Romney-Ryan conservatism—as its savior. But looking at everything that’s happened to the party since the George W. Bush administration, how appetizing, let alone likely, does that seem?

By stages, the Republican Party is inexorably evolving from a conventional Ryan-like conservative party into something very different. Karl Rove, call your office. With the Tea Party, the GOP remained conservative in ideology but became radically anti-establishment in temperament. Trump has capitalized on that anti-establishment temper while jettisoning the old policy priorities, and voters have embraced the change.

Is there a place for Paul Ryan in this new party? The answer will depend on how many of Ryan’s House colleagues are already prepared to make the switch. Dozens have the Trump temperament already. How long before they adopt the Trump program, too? The answer to that may be the same whether Donald Trump or Hillary Clinton is sworn in next January. The Ryan era was over before it ever began.

Article Link to the National Interest:

US Officials Circle Globe To Explain Iran Policy But Fail To Persuade

Obama administration officials are making strenuous efforts to convince foreign banks that they can return to Iran, but are failing to overcome fears of heavy fines and new sanctions.

May 10, 2016

ZURICH — Since a landmark nuclear deal went into effect in January, US officials have conducted roundtables with banking officials in more than 15 countries, but failed to reassure major foreign banks that it is OK for them to return to Iran, Al-Monitor has learned.

A business source briefed on the issue told Al-Monitor at a May 3-4 business conference in Zurich on condition of anonymity that two Swiss banks — Credit Suisse and UBS — were among those approached by officials from the US Department of State and the US Treasury. Most big foreign banks have so far rejected a return to Iran for a host of reasons, including heavy fines paid to the US government for past sanctions violations and concerns that the sanctions environment could change again for the worse.

Gregg Rosenberg, a spokesman for UBS, told Al-Monitor that his bank was not going to handle Iran business. “At this time there are no changes to our global sanctions policy, which restricts business activity with or involving Iran, including client activity such as payments or trading that involves Iran," Rosenberg said in an email.

A Credit Suisse spokeswoman had a similar reply: “As a global bank Credit Suisse complies with various national and international sanctions programs. While the international community has recently lifted a part of the sanctions against Iran, other Iran sanctions that impact our Bank’s international operations remain in place. Credit Suisse maintains its general policy to abstain from conducting business with or involving Iran. We continue to closely monitor the situation.”

UBS suspended Iran business in 2005 after paying a $100 million fine to the US government for providing new US banknotes to the Islamic Republic.

In 2009, Credit Suisse agreed to pay $536 million for concealing the identity of Iranian clients it did transactions for, including the Atomic Energy Organization of Iran and the Aerospace Industries Organization. Both were blacklisted by the United States for nuclear-related activities.

Iranian businessmen have expressed frustration that US reassurances are failing to persuade large European banks that they may legally finance trade with and invest in entities in Iran that do not face sanctions.

Mostafa Beheshti Rouy, an executive board member and director of international affairs for Bank Pasargad, Iran’s largest bank, told Al-Monitor that only third-tier European banks have shown any willingness to re-enter the Iranian market.

Since the Joint Comprehensive Plan of Action (JCPOA) was implemented Jan. 16, the Obama administration has sent officials to explain the situation to Switzerland, Britain, Germany, France, Italy, Spain, Turkey, the United Arab Emirates, Kuwait, Oman, Japan, South Korea, Singapore, Thailand and Hong Kong, Al-Monitor has learned. In addition, US officials have held video conferences with bankers from other countries, including Afghanistan, Malaysia and Indonesia.

Before meeting with Iranian Foreign Minister Mohammad Javad Zarif in New York on April 22, Secretary of State John Kerry told reporters that the United States has “no objection and we do not stand in the way of foreign banks engaging with Iranian banks and companies, obviously as long as those banks and companies are not on our sanctions list for non-nuclear reasons.”

Kerry added that these banks shouldn’t “assume that activities still prohibited by the primary [US] embargo are also prohibited for foreign actors” and that his message was, “when in doubt, ask.”

In addition, a spokesman for the Obama administration told Al-Monitor on condition of anonymity, “Iran has kept its end of the deal, and we have upheld ours and are committed to continuing to do so.” The official added, “Iran is already seeing real benefits from the sanctions lifting that occurred in January — nearly doubling its oil sales, beginning to access funds abroad and starting to reconnect to the international banking sector.”

The official acknowledged, however, that “questions remain” about what foreign companies can and cannot do, which is why “Treasury and State officials have traveled worldwide to meet with government and private sector partners to provide clarity on our sanctions. … While we are committed to providing clarity on the sanctions issues that are within our control, the reality is that there are factors beyond our control that also continue to slow Iran’s economic engagement — including corruption and lack of transparency in its financial and business sectors. These are issues that have nothing to do with sanctions, and Iran has its own work to do to address these and earn the confidence of international companies and financial institutions.”

Iran has acknowledged that it needs to do more to clean up its banking sector, which was saddled with nonperforming loans and other unorthodox transactions under the administration of President Mahmoud Ahmadinejad. Visiting Washington in April for the biannual meetings of the International Monetary Fund and World Bank, the governor of the Iranian Central Bank, Valiollah Seif, told Al-Monitor that Iran has held meetings with the Financial Action Task Force (FATF), an international intergovernmental body based in Paris, to show the steps Iran has taken to counter abuses that FATF cited in designating Iran a high-risk jurisdiction for money laundering and noncooperative in countering financial terrorism.

The record of the last few months shows that it is far harder to unwind financial sanctions than to impose them.

George Kleinfeld, a sanctions expert at the law firm Clifford Chance, told the Zurich conference that there remains a “primal fear” of Iran on the part of Western banks because of “years of hyperactive enforcement” of sanctions by the US government.

In addition, there is uncertainty surrounding the future of sanctions because of US presidential elections.

Donald Trump, the presumptive Republican nominee, has called the JCPOA “incompetent” and “disgusting,” while Hillary Clinton, his likely Democratic opponent, has urged stringent actions to counter other Iranian policies disliked by the United States.

Concerns are growing among Iranians who want a better relationship with the United States and Europe that without more tangible economic benefits, support for the Iran deal — and for the government of President Hassan Rouhani — will wane.

Iran’s Supreme Leader Ayatollah Ali Khamenei, who allowed the JCPOA to go forward, has taken an increasingly hostile tone toward Washington in recent weeks. Meanwhile, Rouhani’s predecessor, Ahmadinejad, has been hinting that he will try to run again when Rouhani seeks re-election in 2017.

Kleinfeld said it was up to European countries to defend their economic interests and make clear that they would not accept new sanctions or a snapback of old US secondary sanctions if Iran continues to abide by its nuclear obligations.

“Where are the European voices saying there is no way we will allow Congress to reimpose sanctions?” Kleinfeld asked.

Article Link to Al-Monitor:

US Officials Circle Globe To Explain Iran Policy But Fail To Persuade