Tuesday, June 14, 2016

Tuesday, June 14, Night Wall Street Roundup: Wall St. Falls As Brexit Vote Becomes Major Fear

By Noel Randewich
Reuters
June 14, 2016

Wall Street dropped for a fourth straight session on Tuesday as central bank policymakers weighed the health of the U.S. economy and investors worried about an upcoming vote in Britain on whether to leave the European Union.

Investors launched a late-day rally but the major indices still ended with losses. The U.S. Federal Reserve began its two-day meeting to decide whether the U.S. economy has recovered enough to absorb an interest rate hike.

While traders have discounted a rate increase this month, they will parse Fed Chair Janet Yellen's comments on Wednesday for clues on the health of the economy and the trajectory of hikes.

Among banks that tend to benefit from higher interest rates, Wells Fargo (WFC.N) and JPMorgan Chase (JPM.N) took a hit and weighed most on the S&P 500.

Adding to angst on Wall Street, recent opinion polls indicated growing support for Britain's exit from the European Union, creating a rush by investors to safe-haven assets like gold and the yen.

The CBOE Volatility index .VIX, or Wall Street's fear gauge, reached its highest in over three months.

Over the past four sessions, the S&P 500 has lost 2 percent.

"We're trading on the Brexit polls," said John Canally, chief economic strategist for LPL Financial. "Markets are better priced for it today than a week ago, but they are still not fully priced for a 'leave' vote."

Four of the 10 major S&P sectors lost ground, with financials SPSY falling 1.45 percent. Wells Fargo declined 2.27 percent and JPMorgan Chase lost 1.88 percent.

Traders see virtually no chance of a rate hike on Wednesday, according to CME Group's FedWatch tool. They are pricing in a 21 percent chance of a rate hike in July, a 40 percent chance in September and a 59 percent chance in December.

"The focus will be on the number of hikes Federal Reserve participants see through the year," said Bill Northey, chief investment officer at Private Client Group of U.S. Bank.

One bright spot was a better-than-expected 0.5 percent rise in U.S. retail sales in May.

The Dow Jones industrial average .DJI fell 0.33 percent to end at 17,674.82 points and the S&P 500 .SPX lost 0.18 percent to 2,075.32.

The Nasdaq Composite .IXIC declined 0.1 percent to 4,843.55.

About 7.4 billion shares changed hands on U.S. exchanges, above the 6.7 billion average for the past 20 trading days, according to Thomson Reuters data.

Declining issues outnumbered advancing ones on the NYSE by 1,988 to 1,044. On the Nasdaq, 1,719 issues fell and 1,122 advanced.

The S&P 500 index showed 11 new 52-week highs and six new lows, while the Nasdaq recorded 24 new highs and 78 new lows.


Article Link to Reuters:

Russians Steal Research On Trump In Hack Of U.S. Democratic Party

By Dustin Volz and Emily Stephenson
Reuters
June 14, 2016

Hackers believed to be working for the Russian government broke into the Democratic National Committee's computer network, spied on internal communications and accessed research on presumptive Republican presidential nominee Donald Trump, the committee and security experts said on Tuesday.

Two separate groups entered the DNC's system, and one read email and chat communications for nearly a year before being detected, according to the committee and CrowdStrike, the cyber firm that helped clean up the breach.

Russian spies also targeted the networks of Trump and Democratic presidential candidate Hillary Clinton, as well as the computers of some Republican political action committees, the Washington Post quoted U.S. officials as saying, although details were not available.

A Clinton campaign official said there was no evidence the campaign's information systems had been hacked.

A Russian government spokesman denied involvement in the breach.

"I completely rule out a possibility that the (Russian) government or the government bodies have been involved in this," Dmitry Peskov, a Kremlin spokesman, told Reuters in Moscow.

The intrusion is emblematic of the sophistication of Russian hackers, who intelligence officials have long viewed as the most talented of U.S. adversaries in cyberspace.

The Democratic Party had been aware of efforts to hack Trump material for two months, and U.S. intelligence agencies were involved in efforts to find out who was behind the hacking, a source familiar with Trump opposition research said.

The source said Democratic Party operatives believed the hacking was conducted by the Russian government. The research includes material on Trump's business efforts in Azerbaijan, Georgia, Serbia and Russia, according to information made available to Reuters.

Cyber attacks against political candidates and organizations are common worldwide. U.S. National Intelligence Director James Clapper said last month he was aware of attempted hacks on campaigns and related groups and he expected to see more as the Nov. 8 presidential election nears.

U.S. Representative Jim Langevin, a Democrat and co-founder of the congressional cybersecurity caucus, said it was "disconcerting" that independent groups penetrated the DNC and that one was able "to stay embedded for nearly a year."

But the groups are extremely sophisticated, Langevin said, and have previously been implicated on attacks at the White House, the State Department and the German Bundestag, as well as a number of private companies.

Russian Bears On The Loose


The DNC contacted CrowdStrike in May and within 24 hours it began investigating unusual activity on the group's network, said Dmitri Alperovitch, the company’s co-founder and chief technology officer. It identified two hacking groups and both were kicked out this weekend, he said.

The first, which CrowdStrike named Cozy Bear, entered the DNC’s systems last summer, according to the firm. It primarily monitored email and chat conversations and may be working for Russia's Federal Security Service, or FSB, Alperovitch said.

Russian President Vladimir Putin once ran the FSB.

The second group, nicknamed Fancy Bear, is probably working on behalf of Russia's military, Alperovitch said. It gained entry in late April and “went straight to the oppo research ... on Donald Trump and exfiltrated some of it,” he said.

Alperovitch said both groups were among "the best threat actors that we’ve ever encountered" but they did not appear to be working together. He was not sure how the intrusions occurred but suspected the hackers may have leveraged "spearphishing" emails to trick DNC employees into downloading malicious code onto their network.

“When we discovered the intrusion, we treated this like the serious incident it is," Rep. Debbie Wasserman Schultz, chairwoman of the DNC, said in a statement. "Our team moved as quickly as possible to kick out the intruders and secure our network."

Trump's interest in Russia goes back to the 1980s, with a 1990 Vanity Fair article citing news program appearances in which Trump offered his own services as a negotiator with Russia.

Information made available to Reuters indicates Trump tried on at least three occasions - in 2004, 2008 and 2013 - to get involved in business deals in Russia.

In 2013, he and an Azerbaijani-Russian oligarch, Aras Agalarov, jointly put on a Miss Universe competition in Moscow, and Trump was photographed with Agalarov's wife, son and daughter.

The last two U.S. presidential cycles in 2008 and 2012 witnessed a barrage of cyber attacks from a range of adversaries targeting President Barack Obama's campaign and the campaigns of his Republican foes.

U.S. intelligence officials have said many previous assaults were linked to Chinese hackers.


Article Link to Reuters:

Lone Wolves With Guns

By Editorial Board
The Bloomberg View
June 14, 2016

The worst mass shooting in U.S. history provides Americans with yet another opportunity to talk past one another. Unfortunately, they seem to be taking it.

Even before the names of all 49 innocent people killed in Orlando had been released, the arguments had broken out. The shooting by 29-year-old suspect Omar Mateen shows the U.S. must be more vigilant about homegrown terrorism; Mateen was born in New York and lived in Florida. No, it shows the urgency of the fight against Islamic State; he was inspired (though not directed) by overseas terrorist groups. No, it shows how important it is to speak out against hate; he was a homophobe. No, it shows the necessity of better gun-safety laws; Mateen was armed with an assault rifle, a handgun, high-capacity magazines and many rounds of ammunition.

In truth, everybody has a point. But it’s the last one -- about guns -- that comes with clear legislative remedies. So-called lone-wolf terrorists may be hard to profile, but that work can continue while at the same time Congress passes smart gun laws to keep weapons out of dangerous people’s hands.

Guns, not bombs, have become the lone wolf’s weapon of choice, and assault-style rifles increase the lethal potential of any would-be attacker. Al-Qaeda has even celebrated how easy they are to obtain in the U.S.

There’s no understating the difficulty of passing better gun-safety laws, of course. Yet it would be easier than setting up a system to log and track lone wolves in the U.S. It’s more straightforward than battling the tangled network of terrorist groups in the Middle East and elsewhere. And it’s more tractable than fighting hatred.

The response of the gun lobby to the bad-guy-with-a-gun scenario -- a good guy with a gun -- is too simplistic. The more sensible option has always been not to let the bad guy get the gun in the first place, especially if he’s suspected of having ties to terrorists.

Sunday morning’s massacre presents opponents of safer gun laws with a truly chilling scenario: a lone wolf with a gun, and lots of ammunition. Surely they will want to join with the rest of America, and the world, in working to prevent that.


Article Link to The Bloomberg View:

Election 2016: Knowns And Unknowns

We still have five more months of Trump vs. Hillary. Then four or eight years of – what?


By Victor Davis Hanson 
The National Review
June 14, 2016

The Disaffected.
Will stay-home so-called establishment Republicans outnumber renewed Reagan Democrats, Tea Partiers, and conservative independents, some of whom likely sat out 2008 and 2012, but who now are likely to vote for Trump? The latter energized group will probably continue to support Trump even if he persists in his suicidal detours like the legal gymnastics of Trump University, or if he keeps repeating ad nauseam the same stale generalities he has served up throughout his campaign.

And will the ranks of the #NeverTrump holdouts, despite claims to the contrary in the spring, thin by autumn, should Trump change a few of his odious spots and become a more disciplined candidate? Will his populist message be recalibrated to appeal to minorities who, albeit less publicly than their white counterparts, resent illegal immigration and its effects on the poor and working classes, are angry about record labor nonparticipation and elite boutique environmentalism, and appreciate tough, even if crazed, El Jefe talk in place of politically correct platitudes?

If Trump comes up with a detailed, even if clumsily delivered, conservative agenda, and if a now-die-hard-leftist Hillary Clinton continues to deprecate and caricature the entire conservative tradition, will he who seems a buffoon in June prove preferable in November to ensuring a 16-year Obama–Clinton regnum?

Anti-Hillary vs. Anti-Trump. Will Sanders holdouts roughly approximate the number of Republican #NeverTrumpers? For now, it would be more socially acceptable for a Sanders supporter to vote for Hillary than for an anti-Trumper to give in and vote for Trump. Voting for Hillary would not entail the social and class costs for a Sanders supporter that voting for Trump would for a Republican of the “not-in-my-name” Romney or Jeb Bush wing. The Wall Street Journal is more likely to show repugnance for the idea of finishing the wall than an advocate of Sanders’s 70 percent top tax rate is to reject Hillary’s less radical, though radical enough, idea of upping the current 39.5 percent top rate. An oddity of the campaign is that the Republican establishment applies a higher standard to its own candidate than it has applied to either Barack Obama or Hillary Clinton, who, with a modicum of research, can be proven to have matched Trump, slur for slur.

Criminality. No one knows at this point whether Hillary will be indicted or, if she is not, whether her exemption will trigger outrage in the FBI ranks that will garner headline notoriety even in the liberal media. Almost daily, yet another detail in the e-mail scandal emerges that reinforces the narrative that everything Hillary has said so far about her e-mails has been demonstrably false. More importantly, the Clintons, especially post-2000, became a near-criminal enterprise. Almost weekly over the last few months, we have learned of a new wrinkle to the Clinton Foundation’s pay-to-play syndicate. Bill Clinton was apparently, at $4 million a year, the highest-paid “chancellor” in the history of American higher education, for steering toward the scandal-plagued Laureate “University” millions of dollars in business from the State Department, which was run by his wife. Because the Clintons became so rich so quickly, and without any apparent mechanism other than leveraging government service, there is a two-decades reservoir of scandals that is largely untapped — suggesting that Balzac’s aphorism should be amended to read in the plural, “Behind every great fortune there are plenty of great crimes.”

The Obama Matrix. Pollsters are still trying to calibrate to what degree Hillary will recapture Obama’s record minority registration, turnout, and block voting — and whether such pandering will in turn spike the white-male anti-Hillary vote to record levels. There is something foreign and uncomfortable about Hillary’s faux-accented performances; perhaps her shrill obsequiousness will strike at least some minority voters as a sort of elite white and repugnant condescension. No one likes a transparent suck-up, especially by someone whose past record of honesty and character is so disreputable. Conventional wisdom suggests that the supposed “new” demography will allow Hillary to replicate the Obama coalition, but that assumes that minority voters, who supposedly vote along ethnic and racial lines, are comfortable with Hillary’s tastes and with her disingenuous career, and will vote as they did in 2008 and 2012, more than making up for new white-working-class converts to Trump.

Trump Factor X. Will the so-called “Trump disconnect” continue, an intangible that for over a year has humiliated pundits who have made serially erroneous forecasts of his demise? In other words, no one has yet been able to calibrate the degree to which Trump has made politics irrelevant and substituted harsh, politically incorrect, and often crude expression and rhetoric for any kind of detailed agenda. No one knows quite how the weird Trump factor that propelled him through the primaries will play in the far wider arena of the general election, but all of us have met in our own circles the most surprising and unexpected Trump supporters, who cite no resonant political affinity with Trump other than shared furor over politically correct and censored speech, and the need for someone — almost anyone will do — to throw a wrecking ball through the politically correct glass houses of our society. No one knows how many of his supporters are silent, embarrassed to state publicly their support for one so uncouth; no one knows what he may say or do on any given day — or the full effect of his outbursts — and no one quite appreciates that what appears outlandish to elites may appear genuine and earthy to others. Today experts laugh that a supposedly buffoonish Sarah Palin sank the otherwise sober and judicious McCain campaign; but, in truth, polls at the times suggested that she was either not a factor or perhaps a plus to the ticket. In any case, the McCain–Palin ticket was ahead of Obama until the Wall Street meltdown in September of 2008. Elites who said they knew no one who liked Palin in truth must have known very few Americans at all.

The Media. Trump sailed to primary victories on a Machiavellian wave of media manipulation; he had Kardashian-like pull, and at very little cost could leverage network attention — either on the premise that his buffoonery was a ratings plus, or because leftist flutists were willing to play for Trump in the hopes of leading Republican lemmings over the cliff. What is certain is that in the general election, the media will revert to form and become an institutionalized extension of the Clinton campaign; Trump mania will no longer be useful to either their profits or their political objectives. Then we will see just how adroit Trump is as a media showman, when journalists are out to get him rather than to be entertained by him. Moreover, the billion-dollar-plus free publicity of early 2016 may have left the Trump organization complacent, expecting that it could glide to a general-election victory without massive fundraising and a serious ground game. That delusion might mean that Trump’s people will never quite catch up with Hillary’s money and get-out-the-vote machine.

Septuagenarians. Will the health of the 68-year-old Clinton and the nearly 70-year-old Trump hold up under the grueling next five months of summer and autumn campaigning? Actuarial tables suggest that both would likely be able to finish out two terms, but the point is not necessarily longevity, but robustness. In other words, which of the two elderly candidates — in combined age, they are the oldest nominees in two-party history — will be the more likely to crisscross the country and put in 16-hour days? While Trump — at about the same age as the hollowed-out, wraith-like Bill Clinton — does not seem to be a model of fitness, so far he exhibits an animal energy lacking in Hillary.

Obama — on the Back Nine or on the Stump? As long as Barack Obama keeps out of sight, and things run on autopilot, half the country likes the abstract idea that he is president. In contrast, when he campaigns, demagogues, slurs, and expresses his inner narcissism, his ratings dip to near 40 percent. If he slams Trump from abroad, delivers another stuttering, incoherent rant against Trump, offers the Clintons more snarky backhanded compliments (Hillary is “likeable enough”), or issues more end-of-the-regime executive orders, he will prove by November more a negative than a plus. For now, Hillary is flummoxed about how to win his allegiance (both political and legal) without having to defend a disastrous $11 trillion in additional debt, a mess overseas (in which, to be sure, she had a hand), Obamacare, and a sluggish economy of slow growth and record labor-force non-participation — or what Bill Clinton summed up succinctly as the “awful legacy of the last eight years.” Obama could help Hillary best by giving a pro-forma endorsement and then staying on the golf course until November. If, instead, Obama goes on the stump for her, it may be counterproductive — and in some subliminal fashion therefore preferable for the egocentric Obama.

The News. If Putin stays within his boundaries, if the Chinese and North Koreans refrain from doing something stupid, if Iran curbs its braggadocio and does not hijack another American boat, if ISIS fails to pull off another major terrorist operation, and if the economy continues to stagger along, then the superficial calm works to Hillary’s advantage. But if in the next five months we have a foreign crisis or an economic slowdown, then Hillary in relation to Obama replays the role of McCain in relation to Bush in 2008 — but squared, given Hillary’s tenure in the Obama administration. Obama, with massive defense cuts, lead-from-behind and reset diplomacy, and treating allies as neutrals and enemies as friends, has endangered America abroad and weakened it at home. The tab is coming due, but whether it will arrive before November is unclear. Certainly, the latest tragedy of the the mass shooting in Florida suggests that having a president and a would-be president who, for politically correct reasons, cannot utter the phrase “radical Islam” or “Islamic terrorism” in the context of Muslims who kill innocents out of religious zeal and hatred is not a sustainable proposition.

The Rot. We do not quite know to what the degree the public is sick of the New York–Washington rot, encompassing Obama’s petty identity politics, the Clintons’ grifter enterprises, the sanctimonious and ossified Republican establishment, the incestuous network of cable and media pundits, and the general sense that our elites of both parties never expect the consequences of their own ideologies to apply to themselves. The general repugnance for traditional politicians, cable-news wizards, and Wall Street profiteers fueled both Sanders and Trump, despite the contradictions of their own relationships with big money, big politics, and big media. But as Sanders drops out of the race, Trump alone will remain the more populist and anti-establishment of the final two candidates. The idea of socialist Sanders supporters flocking to Trump should seem wholly lunatic. But the same youthful incoherence that drew the naïve to Sanders might to some degree draw them now to Trump, on the basis that he dislikes Hillary, Inc., even more than did Sanders. The wonder (to paraphrase Dr. Johnson on female preachers and dancing dogs) is not that Trump might capture a fair number of Sanders voters, but that he could capture any at all.

Final thoughts: If Trump were to win, the Democratic/Clinton establishment would be mostly discredited and the party would move even further to the Left, in McGovern 1972 fashion, while its Republican establishment counterpart would wander in a post-1964-like wilderness.

If Hillary prevails, we will likely see a 16-year continuum of fundamental change, the likes of which have not been seen since the 20 years between 1933 and 1952 — though Obama has none of the redeeming virtues of FDR on foreign policy, nor Hillary those of Truman. Meanwhile the blame-gaming among Republicans that would follow a Clinton victory (with one wing arguing that stay-homes sabotaged Trump and the other wing saying it was Neanderthals who nominated him) might well destroy the party, given that its class fissures, first revealed in the defections to the 1992 and 1996 Perot campaigns, have now become an abyss.

In the meantime, perhaps #NeverTrumpers should adopt one rule for the sake of party unity: For each of their attacks on the Republican nominee, vow to match it with one attack on the Democratic nominee. And for each conservative guest editorialist in the New York Times or Washington Post deploring what the Republicans have done, perhaps a #NeverHillary liberal might write a commensurate critical op-ed about Clinton in The Weekly Standard or National Review.


Article Link to the National Review:

Trump Goes On The Attack In New Foreign-Policy Speech

It was a defiant Donald Trump who warned about a Muslim threat today.


The National Interest
June 14, 2016

It was a defiant Donald Trump who delivered his new foreign-policy address today. “The Muslims have to work with us,” he stated, “They have to work with us. They know what’s going on.”

This marked a polar opposite from the tones that Hillary Clinton sounded a few hours before Trump—and from the ones that leading Republicans such as House Speaker Paul Ryan and Senate Majority Leader Mitch McConnell would like him to adopt. Trump declared that he would not succumb to political correctness in battling radical Islamic fundamentalism. And he repeatedly invoked an omnipresent Muslim threat inside America that threatens to sap its liberties and freedoms, replacing them with terror, violence and fear.

In contrast Clinton used more emollient language. She said, “we should be intensifying contacts in those communities, not scapegoating or isolating them.” Throughout, Trump made it clear that he will depict President Obama and Hillary Clinton as wholly unfit to combat the grave perils emanating from inside and outside America. He sought to undermine Clinton’s support in the LGBT community by essentially arguing that her support was merely rhetorical. In practice, he suggested, she is endorsing policies that jeopardize its safety.

In contrast to Clinton—who did not mention Trump by name during her speech Monday and offered a three-part plan that included beefing up resources for first responders and law enforcement and intelligence officials—Trump repeatedly assailed her and Obama. He pointed to her support for intervention in Libya as helping to spawn terrorism.

Earlier in the day, Trump had suggested that Obama himself was either naïve or perhaps abetting terrorists. "Look, we're led by a man that either is not tough, not smart, or he's got something else in mind," Trump told Fox News. "And the something else in mind — you know, people can't believe it. People cannot, they cannot believe that President Obama is acting the way he acts and can't even mention the words 'radical Islamic terrorism.' There's something going on. It's inconceivable. There's something going on."

Trump did not specify in his speech just what he believes is going on with Obama. Trump devoted much attention to halting immigration into the United States by Muslims. He did not linger on the fact that the shooter in Orlando was born in America. But he did complain that Americans are told about “homegrown” terrorism. Trump suggested that the distinction between foreign and domestic terrorism is largely otiose. He pointed specifically to lax immigration policies as the culprit for the Orlando massacre: “The bottom line is that the only reason the killer was in America in the first place was because we allowed his family to come here.”

Trump did not offer a wealth of particulars about how he would proceed to strengthen American domestic defenses. He indicated that ISIS had to be defeated. He also said that he would appoint top-notch officials to intelligence positions, in contrast to the Obama administration. But Trump’s speech was more an outline of the perils that he divined for America than a blueprint for how he would proceed as president.

It would be hard to think of a starker contrast between two candidates. Instead of muting his positions, Trump clearly believes that the issue of Muslim terrorism is one that he can ride into the White House. Clinton, by contrast, is presenting herself as the anti-Trump. Her and Obama’s greatest vulnerability has been to refuse—only today did Clinton backtrack—to identify radical Islam as a direct threat to America.

Trump’s focus on Muslims has managed to unite liberal and conservative elites against him, a phenomenon underscored in a tweet today by Washington Post blogger Jennifer Rubin who observed, “Trump inneundo [sic] about Obama is vile stuff, unhelpful and indicative of a floundering narcissist in way over his head.” CNN’s David Gergen, by contrast, indicated that Trump’s combative speech will win him new adherents. Whether or not it does, Trump has made it abundantly clear that he will continue to go on the offensive in coming months, no matter how much what he says horrifies elite Republicans as much as Democrats.


Article Link to the National Interest:

What America Keeps Getting Wrong In The Middle East

Washington’s streak of blunders—and how to snap it.


The National Interest
June 14, 2016

I have been asked to speak about the geopolitical dynamics of the Middle East, the realignments occurring among states there and the prospects for the achievement of renewed stability in the region. I’m tempted to suggest that you read my latest book, America’s Continuing Misadventures in the Middle East. So much has gone wrong that it is hard to be either brief or optimistic.

Two hundred and eighteen years ago today, Napoleon was preparing to take Malta. His purpose was to clear an obstacle to his seizure of Egypt for revolutionary France. He was able to invade Egypt on July 1, 1798. Napoleon’s campaign there and in Palestine kicked off a two-century-long effort by the West to transform the Middle East. European imperial powers and, latterly, the United States, have repeatedly sought to convert Arabs, Persians and Turks to the secular values of the European Enlightenment, to democratize them, to impose Western models of governance on them in place of indigenous, Islamic systems, and more recently to persuade them to accept a Jewish state in their midst.

This experiment in expeditionary, transformative diplomacy has now definitively failed. The next administration will inherit a greatly diminished capacity to influence the evolution of the Middle East. Amidst the imbecilities of our interminably farcical election season, it has proven expedient to blame this on President Obama. If only he had bombed Syria, repudiated his predecessor’s agreement to withdraw the U.S. military from Iraq, refused to compromise with Iran on nuclear matters, knuckled under to Netanyahu, or whatever, the old order in the Middle East would be alive and well and the United States would still call the shots there.

But this is nonsense. Our estrangement from the Middle East derives from trends that are much deeper than the manifest deficiencies of executive and congressional leadership in Washington. Americans and our partners in the Middle East have developed contradictory interests and priorities. Where shared values existed at all, they have increasingly diverged. There have been massive changes in geoeconomics, energy markets, power balances, demographics, religious ideologies and attitudes toward America (not just the U.S. government). Many of these changes were catalyzed by historic American policy blunders. In the aggregate, these blunders are right up there with the French and German decisions to invade Russia and Japan’s surprise attack on the United States. Their effects make current policies not just unsustainable but counterproductive.

Blunder number one was the failure to translate our military triumph over Saddam’s Iraq in 1991 into a peace with Baghdad. No effort was ever made to reconcile Iraq to the terms of its defeat. The victors instead sought to impose elaborate but previously undiscussed terms by UN fiat in the form of the UN Security Council Resolution 687—“the mother of all resolutions.” The military basis for a renewed balance of power in the Gulf was there to be exploited. The diplomatic vision was not. The George H. W. Bush administration ended without addressing the question of how to replace war with peace in the Gulf.

Wars don’t end until the militarily humiliated accept the political consequences of their defeat. Saddam gave lip service to UNSCR 687 but took it no more seriously than Netanyahu and his predecessors have taken the various Security Council resolutions that direct Israel to permit Palestinians to return to the homes from which it drove them or to withdraw from the Palestinian lands it has seized and settled. Like Israel’s wars with the Arabs, America’s war with Iraq went into remission but never ended. In due course, it resumed.

The United States needs to get into the habit of developing and implementing war termination strategies.


Blunder number two was the sudden abandonment in 1993 of the strategy of maintaining peace in the Persian Gulf through a balance of power. With no prior notice or explanation, the Clinton administration replaced this longstanding approach with “dual containment” of both Iraq and Iran. For decades, offshore balancing had permitted the United States to sustain stability without stationing forces other than a very small naval contingent in the Gulf. When the regional balance of power was undone by the Iran-Iraq War, Washington intervened to restore it, emphasizing that once Kuwait had been liberated and Iraq cut back down to size, U.S. forces would depart.

The new policy of “dual containment” created a requirement for the permanent deployment of a large U.S. air and ground force in Saudi Arabia, Kuwait and Qatar as well as an expanded naval presence in Bahrain and the United Arab Emirates. The political and socioeconomic irritants this requirement produced led directly to the founding of Al Qaeda and the 9/11 attacks on New York and Washington. “Dual containment” was plausible as a defense of Israel against its two most potent regional adversaries, Iran and Iraq. But it made no sense at all in terms of stabilizing the Gulf.

By writing off Iraq as a balancer of Iran, dual containment also paved the way for the 2003 American experiment with regime removal in Baghdad. This rash action on the part of the United States led to the de facto realignment of Iraq with Iran, the destabilization and partition of Iraq, the destabilization and partition of Syria, the avalanche of refugees now threatening to unhinge the EU, and the rise of the so-called Islamic State or Daesh. With Iraq having fallen into the Iranian sphere of influence, there is no apparent way to return to offshore balancing. The United States is stuck in the Gulf. The political irritations this generates ensure that some in the region will continue to seek to attack the U.S. homeland or, failing that, Americans overseas.

The United States needs to find an alternative to the permanent garrisoning of the Gulf.

Blunder number three was the unthinking transformation in December 2001 of what had been a punitive expedition in Afghanistan into a long-term pacification campaign that soon became a NATO operation. The objectives of the NATO campaign have never been clear but appear to center on guaranteeing that there will no Islamist government in Kabul. The engagement of European as well as American forces in this vague mission has had the unintended effect of turning the so-called “global war on terrorism” into what appears to many Muslims to be a Western global crusade against Islam and its followers. Afghanistan remains decidedly unpacified and is becoming more, not less, Islamist.

The United States needs to find ways to restore conspicuous cooperation with the world’s Muslims.

Blunder number four was the inauguration on February 4, 2002—also in Afghanistan—of a campaign using missiles fired from drones to assassinate presumed opponents. This turn toward robotic warfare has evolved into a program of serial massacres from the air in a widening area of West Asia and northern Africa. It is a major factor in the metastasis of anti-Western terrorism with global reach.

What had been a U.S. problem with a few Islamist exiles resident in Afghanistan and Sudan is now a worldwide phenomenon. The terrorist movements U.S. interventions have spawned now have safe havens not just in Afghanistan, but in the now failed states of Iraq and Syria, as well as Chad, Lebanon, Libya, Mali, Niger, Nigeria, Pakistan, the Sinai, Somalia and Yemen. They also have a growing following among European Muslims and a toehold among Muslim Americans. We have flunked the test suggested by the Yoda of the Pax Americana, Donald Rumsfeld. We are creating more terrorists than we are killing.

The United States needs a strategy that does not continuously reinforce blowback.

Blunder number five was the aid to Iran implicit in the unprovoked invasion of Iraq on March 20, 2003. This rearranged the region to the severe strategic disadvantage of traditional U.S. strategic partners like Israel and Saudi Arabia by helping to create an Iranian sphere of influence that includes much of Iraq, Syria and Lebanon. It showed the United States to be militarily mighty but geopolitically naive and strategically incompetent. Rather than underscoring American military power, it devalued it. The U.S. invasion of Iraq also set off a sectarian struggle that continues to spread around the globe among the Muslim fourth of humanity. The U.S. occupation culminated in a “surge” of forces that entrenched a pro-Iranian regime in Baghdad and that only its authors consider a victory.

The United States needs to deal with the reality and the challenges to others in the region of the Iranian sphere of influence it helped create.

Blunder number six has been to confuse the motives for terrorism with the religious rationalizations its perpetrators concoct to justify its immorality. Many of those who seek revenge for perceived injustices and humiliations at the hands of the West and Western-backed regimes in the Middle East, or who are treated as aliens in their own countries in Europe, give voice to their anger in the language of Islam. But their political grievances, not heretical Islamic excuses for the mass murders they carry out, are what drive their attempts at reprisal. Islamism is a symptom of Arab anguish and rage. It is a consequence, not a cause, of Muslim anger.

Religious ideology is, of course, important. It is a key factor in justifying hatred of those outside its self-selected community. To nonbelievers, arguments about who is a Jew or whether someone is a true Muslim are incomprehensible and more than a little absurd. But to the intolerant people doing the excommunicating, such debates define their political community and those who must be excluded from it. They separate friend from foe. And to those being condemned for their disbelief or alleged apostasy, the judgments imposed by this intolerance can now be a matter of life or death.

In the end, the attribution of Muslim resentment of the West to Islam is just a version of the facile thesis that “they hate us because of who we are.” This is the opiate of the ignorant. It is self-expiating denial that past and present behavior by Western powers, including the United States, might have created grievances severe enough to motivate others to seek revenge for the indignities they have experienced. It is an excuse to ignore and do nothing about the ultimate sources of Muslim rage because they are too discomfiting to bear discussion. Any attempt to review the political effects of American complicity in the oppression and dispossession of millions of Palestinians and the hundreds of thousands, if not millions, of deaths caused by U.S. sanctions, bombing campaigns and drone warfare is ruled out of order by political correctness and cowardice.

The United States needs to work with its European allies, with Russia and with partners in the Middle East to attack the problems that are generating terrorism, not just the theology of those who resort to it.

Blunder number seven was the adoption after the 1973 Yom Kippur War of a commitment to maintain a “qualitative military edge” for Israel over any and all potential adversaries in its region. This policy has deprived Israel of any incentive to seek security through nonmilitary means. Why should Israel risk resting its security on reconciliation with Palestinians and its other Arab neighbors when it has been assured of long-term military supremacy over them and relieved of any concern about the political or economic consequences of using force against them?

Confidence in Israel’s qualitative military edge is now the main source of moral hazard for the Jewish state. Its effect is to encourage Israel to favor short-term territorial gains over any effort to achieve long-term security through acceptance by neighboring states, the elimination of tensions with them and the normalization of its relations with others in its region. U.S. policy inadvertently ensured that the so-called “peace process” would always be stillborn. And so it proved to be.

Israel’s lack of concern about the consequences of its occupation and settlement of the West Bank and its siege of Gaza has facilitated its progressive abandonment of the universalist Jewish values that inspired Zionism and its consequent separation from the Jewish communities outside its elastic borders. U.S. subsidies underwrite blatant tyranny by Jewish settlers over the Muslim and Christian Arabs they have dispossessed. This is a formula for the moral and political self-delegitimization of the state of Israel, not its long-term survival. It is also a recipe for the ultimate loss by Israel of irreplaceable American political, military and other support.

The United States needs to wean Israel off its welfare dependency and end the unconditional commitments that enable self-destructive behavior on the part of the Jewish state.

Blunder number eight has been basing U.S. policies toward the Middle East on deductive reasoning grounded in ideological fantasies and politically convenient narratives rather than on inductive reasoning and reality-based analysis. America’s misadventures cannot be excused as “intelligence errors.” They are the result of the ideological politicization of policymaking. This has enabled multiple policy errors based on wishful thinking, selective listening and mirror-imaging. Examples include:

• The conviction, despite UN inspections and much evidence to the contrary, that Saddam’s program to develop weapons of mass destruction was ongoing, representing an imminent danger, and could only be halted by his overthrow;

• The supposition that, despite his well-documented secularism, because he was an Arab, a Muslim and a bad guy, Saddam must be colluding with the religious fanatics of Al Qaeda;

• The assumption that the U.S. military presence in Iraq would be short, undemanding and inexpensive;

• The belief that the overthrow of confessional and ethnic balances would not cause the disintegration of societies like Iraq, Libya, Syria and Lebanon or ignite a wider sectarian conflict;

• The spurious attribution to people in Iraq of political attitudes and aspirations found mostly among exiles abroad;

• The ludicrous expectation that U.S. forces invading Iraq would be greeted as liberators by all but a few;

• The unshakeable presumption that Israel must want peace more than land;

• The impulse to confuse mob rule on the Arab street with a process of democratization;

• The confidence that free and fair elections would put liberals rather than Islamist nationalists in power in Arab societies like Palestine and Egypt;

• The supposition that the removal of bad guys from office, as in Libya, Yemen, or Syria, would lead to the elevation of better leaders and the flowering of peace, freedom and domestic tranquility there; and

• Imagining that dictators like Bashar al-Assad had little popular support and could therefore be easily deposed.

I could go on but I won’t. I’m sure I’ve made my point. Dealing with the Middle East as we prefer to imagine it rather than as it is doesn’t work.


The United States needs to return to fact-based analysis and realism in its foreign policy.


All these blunders have been compounded by the consistent substitution of military tactics for strategy. The diplomatic success of the Iran nuclear deal aside, the policy dialogue in Washington and the current presidential campaign have focused entirely on the adjustment of troop levels, whether and when to bomb things, the implications of counterinsurgency doctrine, when and how to use special forces, whether to commit troops on the ground, and the like, with nary a word about what these uses of force are to accomplish other than killing people. When presented with proposals for military action, no one asks “and then what?”

Military campaign plans that aim at no defined political end state are violence for the sake of violence that demonstrably create more problems than they solve. Military actions that are unguided and unaccompanied by diplomacy are especially likely to do so. Think of Israel’s, our and Saudi Arabia’s campaigns in Gaza, Iraq, Lebanon, Libya and Yemen.

By contrast, military interventions that are limited in their objectives, scale and duration; that end or phase down when they have achieved appropriate milestones; and that support indigenous forces that have shown their mettle on the battlefield can succeed. Examples include the pre–Tora Bora phase of the U.S. intervention in Afghanistan and the first round of Russian intervention in Syria.

The objectives of what was initially conceived as a punitive raid into Afghanistan in October 2001 were (1) to dismantle Al Qaeda and (2) to punish its Taliban hosts to ensure that “terrorists with global reach” would be denied a continuing safe haven in Afghanistan. The United States pursued these objectives by supporting mostly non-Pashtun enemies of the mostly Pashtun Taliban who had proven politico-military capabilities and staying power. A limited American and British investment of intelligence capabilities, special forces, air combat controllers and air strikes tilted the battlefield in favor of the Northern Alliance and against the Taliban. Within a little more than two months, the Taliban had been forced out of Kabul and the last remnants of Al Qaeda had been killed or driven from Afghanistan. We had achieved our objectives.

But instead of declaring victory and dancing off the field, we moved the goalposts. The United States launched an open-ended campaign and enlisted NATO in efforts to install a government in Kabul while building a state for it to govern, promoting feminism and protecting poppy growers. The poppies still flourish. All else looks to be ephemeral.

Mr. Putin’s intervention in Syria in 2015 relied for its success on ingredients similar to those in the pre–Tora Bora U.S. intervention in Afghanistan. The Russians committed a modest ration of airpower and special forces in support of a Syrian government that had amply demonstrated its survivability in the face of more than four years of Islamist efforts to take it down. The Russian campaign had clear political objectives, which it stuck to.

Moscow sought to reduce the complexities of Syria to a binary choice between life under the secular dictatorship of the Assad regime and rule by Islamist fanatics. It cemented a Russian-Iranian entente. It hedged against the likelihood that the Syrian Humpty Dumpty cannot be reassembled, ensuring that, whatever happens, Russia will not lack clients in Syria or be dislodged from its bases at Tartus and Latakia. Russia succeeded in forcing the United States into a diplomatically credible peace process in which regime removal is no longer a given and Russia and Iran are recognized as essential participants. It retrained, reequipped and restored the morale of government forces, while putting their Islamist opponents on the defensive and gaining ground against them. The campaign reduced and partially contained the growing Islamist threat to Russian domestic tranquility, while affirming Russia’s importance as a partner in combating terrorism.

Moscow also put its hands on the stopcock for the refugee flow from West Asia that threatens the survival of the European Union, underscoring Russia’s indispensable relevance to European affairs. It demonstrated its renewed military prowess and reestablished itself as a major actor in Middle Eastern affairs. And it showed that Russia could be counted upon to stand by protégés when they are at risk, drawing an invidious contrast with the American abandonment of Hosni Mubarak in 2011. The cost of these achievements has been collateral damage to Russia’s relations with Turkey, a price Moscow appears willing to play.

But state failure in Syria continues, as it does in Iraq, Libya, Somalia and Yemen. Jordan and Bahrain are under pressure. Tunisia and Turkey – once avatars of democratic Islamism – seem to be leaving democracy behind. Israel is strangling Gaza while swallowing the rest of Palestine alive. Saudi Arabia, the United Arab Emirates and Bahrain are in a near state of war with Iran, which is in the midst of a breakthrough in relations with Europe and Asia, if not America. Kuwait, Oman and Qatar are trying to stay out of the fight. Once the region’s Arab heavyweight, Egypt now subsists on handouts from the Gulf Arabs and cowers under martial law. Sudan has been partitioned, sidelined and ostracized by the West.

The Middle East kaleidoscope has yet to come to rest. We can see that the region’s future political geography will differ from its past and present contours. But we cannot yet say what it will look like.

“More of the same” policies will almost certainly produce more of the same sort of mess we now see. What is to be done? Perhaps we should start by trying to correct some of the blunders that produced our current conundrums. The world’s reliance on energy from the Gulf has not diminished. But ours has. That gives us some freedom of maneuver. We should use it.

We need to harness our military capabilities to diplomacy rather than the other way around. The key to this is to find a way to reenlist Iraq in support of a restored balance of power in the Gulf. That would allow us reduce our presence there to levels that avoid stimulating a hostile reaction and to return to a policy of offshore balancing.

This can only be done if Saudi Arabia and other Gulf Sunni states rediscover the differences between the varieties of Shiism in Iraqi Najaf and Iranian Qom. The Shiism of Najaf tends to be fatalistic and supportive of Iraqi nationalism. The Shiism of Qom is more assertively universalistic and activist. The Saudis and their allies need to make common cause with Shiite Iraqis as Arabs rather than castigate them as heretics. The limited normalization of Iranian relations with the West, including the United States, is an inevitability. The strategies of our Arab partners in the region need to anticipate and hedge against this. And we need to prepare them to do so.

Such an adjustment will take some very tough love from the United States. It will require the Saudis and their allies to back away from the policies based on Salafi sectarianism they have followed for the better part of this decade and re-embrace the tolerance that is at the heart of Islam. It will also require some measure of accommodation by them with Iran, regardless of the state of U.S.-Iranian relations. Without both a turn away from sectarianism and the achievement of a modus vivendi with Iran, the Saudis and their allies will remain on the defensive, Iraq will remain an extension of Iranian influence, and the region will remain inflamed by religious warfare. All this will spill over on Americans and our European allies.

Islamism is an extreme form of political Islam—a noxious ideology that invites a political retort. It has received none except in Saudi Arabia. There a concerted propaganda campaign has effectively refuted Islamist heresies. No effort has been undertaken to form a coalition to mount such a campaign on a regional basis. But such a coalition is essential to address the political challenges that Muslim extremists pose to regional stability and to the security of the West. Only the Saudis and others with credibility among Salafi Muslims are in a position to form and lead a campaign to do this. This is an instance where it makes sense for the United States to “lead from behind.”

For our part, Americans must be led to correct our counterproductive misunderstanding of Islam. Islamophobia has become as American as gun massacres. The presumptive candidate of one of our two major parties has suggested banning Muslims from entry into the United States. This is reflective of national attitudes that are incompatible with the cooperation we need with Muslim partners to fight terrorist extremism. If we do not correct these attitudes, we will continue to pay not just in treasure but in blood. Lots of it.

Finally, the United States must cease to provide blank checks to partners in the region prone to misguided and counterproductive policies and actions that threaten American interests as well as their own prospects. No more Yemens. No more Gazas or Lebanons. No more military guarantees that disincentivize diplomacy aimed at achieving long-term security for Israel.

The obvious difficulty of making any of these adjustments is a measure of how far we have diverged from an effective approach to managing our relations with the Middle East and how impaired our ability to contribute to peace and stability there has become. Our mainstream media is credulous and parrots the official line. Our politicians are devoted to narratives that bear almost no relation to the realities of the Middle East. Our government is dysfunctional. Our politics is, well . . . you pick the word.

Frankly, the prospects that we will get our act and our policies together are not good. But history will not excuse us for acting out Einstein’s definition of insanity: doing more of the same and expecting different results. We won’t get them.


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