Friday, June 17, 2016

Friday, June 17, Night Wall Street Roundup: Sterling, Bond Yields Gain As Brexit Views Shift

By Carolina Valetkevitch
Reuters
June 17, 2016

Sterling and bond yields rose on Friday as traders tried to assess whether the killing of a pro-European Union British lawmaker may change the balance of opinions in Britain's upcoming referendum on EU membership.

U.S. stocks ended the day with losses, though MSCI's all-country world stock index .MIWD00000PUS was up 0.5 percent.

Campaigning for the June 23 referendum, which somewhat overshadowed this week's U.S. and Japanese central bank meetings, was put on hold after British Member of Parliament Jo Cox was shot dead on Thursday.

Concerns that a vote by Britain to leave the 28-country bloc would cause turmoil in the global economy and European politics rattled markets and caused the pound to tumble earlier this week.

"This is people adjusting positions because they don't know what's going to happen," said Marc Chandler, global head of currency strategy at Brown Brothers Harriman in New York. "People are unwinding the 'risk off' trades for the most part."

The pound GBP= was last up 1.06 percent against the dollar at $1.4350, after reaching a one-week high of $1.4387 on Friday. On Thursday, it hit a low of $1.4010.

U.S. benchmark Treasury yields rose for the first time in nearly two weeks as investor fears of a British exit from the EU eased somewhat.

The benchmark 10-year Treasury notes US10YT=RR fell 16/32 in price to yield 1.618 percent. It was the first increase in 10-year yields since June 6.

U.S. Stocks Slip, Oil Up

Shares of Apple Inc (AAPL.O) dragged down major U.S. stock indexes ahead of the EU referendum in Britain.

Worries over the vote undercut the S&P 500's momentum after the benchmark index came within about 12 points of its record closing high last week.

"We’re just going to be tied to those anxieties going up or down between now and the Thursday vote," said Jim Paulsen, chief investment strategist at Wells Capital Management in Minneapolis.

The Dow Jones industrial average .DJI was down 57.94 points, or 0.33 percent, at 17,675.16. The S&P 500 .SPX lost 6.77 points, or 0.33 percent, at 2,071.22 and the Nasdaq Composite .IXIC dropped 44.58 points, or 0.92 percent, to 4,800.34.

For the week, the three major U.S. indexes each posted declines of at least 1 percent. Apple shares fell 2.3 percent. It said its iPhone 6 and 6 Plus were still available for sale in China despite being blocked by Beijing's intellectual property regulators which said the designs had infringed a Chinese company's patent.

A rebound in battered bank stocks lifted European shares. The FTSEurofirst 300 .FTEU3 ended up 1.2 percent.

Oil, which has been a major driver of the sharp swings in global markets this year, also helped shift the mood as it rose for the first time in seven sessions.

Brent crude futures LCOc1 rose $1.98 to settle at $49.17 a barrel, while U.S. crude CLc1 advanced $1.77 to $47.98.

For the week, Brent was down nearly 3 percent and WTI dropped more than 2 percent.

Gold also advanced, with spot gold XAU= up 1.2 percent at $1,293.80 an ounce, supported by a softer dollar.


Article Link to Reuters:

Violin Memory -- Stock Symbol #VMEM -- is an Intraday Buy @ $.885; +/- .025

Eleven Biotherapeutics (Stock Symbol #EBIO) Is An Intraday Buy @ $2.365; +/- .035

This Friday's Stock In Play Is MGT Capital (Stock Symbol #MGT)

North Korea Steals U.S. Fighter Blueprints

The Hermit Kingdom now reportedly has the plans to the mainstay of the U.S. Air Force. What will Kim Jong Un do with the designs?


By David Axe
The Daily Beast
June 17, 2016

North Korean hackers reportedly infiltrated a computer network belonging to a South Korean aerospace firm’s computer network and made off with blueprints for the F-15 Eagle—the American-designed jet fighter that forms the backbone of the U.S. and South Korean air forces.

But don’t panic quite yet. There’s not much Pyongyang’s engineers can actually do with the blueprints. For sure, we won’t be seeing F-15s rolling out of some North Korean factory in the distinctive dark camouflage of the Korean People’s Air Force.

The hack began in 2014 and South Korean authorities first detected it in February this year, South Korea’s police cyber investigation unit told Reuters. In the meantime, the hackers gained access to the networks of two defense-industry conglomerates in South Korea and made off with some 42,000 documents.

Among the documents were blueprints for the wing design of the twin-engine, supersonic F-15, police told Reuters. Korea Aerospace Industries builds the Eagle’s wings under contract with Boeing, the number-two U.S. defense firm. Boeing has described KAI as a “valued supplier.” (PDF)

The U.S. Air Force operates hundreds of F-15s. Undefeated in air combat since its debut in the early 1970s, the Eagle is still America’s main air-to-air fighter. South Korea acquired 61 F-15s starting in 2005.

Although the F-15’s basic design is, by now, more than 50 years old, the Eagle is still leaps and bounds more sophisticated than any warplane North Korea’s tiny, impoverished air force possesses.

While Pyongyang manages to produce its own firearms, artillery, armored vehicles and warships, it’s never quite mastered the delicate art of designing and manufacturing military aircraft. The Korean People’s Air Force operates hundreds of jet fighters, but most of them are single-engine MiG-21s that North Korea bought from the Soviet Union in the 1960s, ‘70s and ‘80s and has maintained ever since.

While supersonic and highly maneuverable under certain circumstances, the MiG-21 is badly outclassed by more modern jets such as the F-15. In theory, Pyongyang would welcome a new fighter plane—and desperately seek the blueprints to build it.

But in practice, North Korea has neither the know-how nor the resources to copy the F-15 or even adapt the Eagle’s blueprints to its own design. “North Korea will never build a serious air force,” Dr. Robert Edwin Kelly, an associate professor at Pusan National University in South Korea, told The Daily Beast via email.

History bears this out. In the 1980s, North Korea established a fighter-jet factory—the Seventh Machine Industry Bureau in Panghyon—and even bought, from the Soviets, components for twin-engine MiG-29s that were, at the time, on the cutting edge of warplane technology.

But the Seventh Machine Industry Bureau only managed to assemble three MiG-29s. “The plan proved too ambitious for North Korea,” explained Stijn Mitzer and Joost Oliemans, independent military experts who write together at Oryx Blog.

Of course, it’s possible that North Korea could pass along the F-15 blueprints to a country that could make use of them. “The only option would be to try and sell the information, for which only China could be seen as a reasonable candidate,” Oliemans told The Daily Beast in an email.

Beijing’s own hackers have been implicated in the thefts of several U.S. weapons designs, including the F-22 and F-35 stealth fighters, the more modern successors to the F-15.

The F-35 hack was apparently the most damaging to the United States. In 2007, Chinese cyber spies reportedly hacked broke into servers belonging to U.S. aerospace firm Lockheed Martin and made off with design information on the F-35. Just a few years later, a Chinese firm unveiled a stealth fighter prototype, the J-31, that some observers suspect is at least partly based on the stolen F-35 data.

But Oliemans said he doubts the F-15’s wing would be of much interest to the Chinese. “If the hack only compromised the wing design, which isn’t exactly the most modern piece of data you’d want to acquire about the F-15, I wouldn’t suspect China to be interested at all.”

“In fact,” Oliemans continued, “given the amount of blueprints and other data China is reported to have hacked themselves of aircraft such as the F-35 and F-22, I wouldn’t be surprised if they already had access to the F-15’s wing design already.”

All that is to say—don’t worry about the wing blueprints. China probably wouldn’t want to copy the F-15, and North Korea probably can’t. But that doesn’t mean the alleged North Korean cyber theft isn’t alarming, in principle. Oliemans called it a “worrying development.”

Kelly seconded that notion. “They’ll try and try until they get through,” he said of the North Korean hackers. “Norms won’t restrain them, nor do they have an economics relationship with the U.S. or South Korea that would be jeopardized by this.”

The next time Pyongyang’s cyber spies attack, they might get something more useful than a 50-year-old wing design.


Article Link to The Daily Beast:

Did Trump Lie To The IRS, Or To Us?

The year that he emerged on the New York real estate scene as a playboy cash cow, Trump’s tax returns said he made zero income.


By Gideon Resnick
The Daily Beast
June 17, 2016

In 1984, Donald Trump constantly bragged to the press about how much cash he was raking in. That same year, as David Cay Johnston exclusively reported in The Daily Beast, he told the IRS he had made nothing at all.

Trump deducted $626,264 as expenses on his 1984 federal income tax return, and $619,227 on his New York City return. On both forms, he claimed no income.

It was a pivotal year for the 37-year-old magnate on the make, one in which he was celebrating the opening of his seminal Trump Tower, closing a casino-hotel deal in then-booming Atlantic City and angling to topple the NFL with his ill-fated purchase of the United States Football League’s New Jersey Generals. He’d made himself a near-daily figure in New York news and gossip pages, often depicted as an egomaniacal wild man who shot from the hip and raked in the bucks as he shoved and nudged his way to the top of the real estate world.

Young Trump wasn’t shy about talking up his income, either.

In a GQ profile that May, written by Graydon Carter, Trump plugged a hotel deal in which he partnered with Hyatt to build a new Manhattan hotel on land Trump just leased—with the help of Equitable Life Assurance Society.

“He and Equitable had split their first round of profits before any of the tenants had even moved in,” Carter wrote.

[[[OPEN BLOCK QUOTE]]]] "So we have about a $277 million sellout," says Trump, "just for the upper half of the building. And then we own the lower half for nothing." The partnership, unencumbered by mortgages, now collects the rents from thirteen floors of office space at $50 a square foot and the six levels of retail space at $150 to $450 a square foot. "It's a crazy deal," says Trump. "It's better than working." [[[[CLOSE BLOCK QUOTE]]]

On top of the hotel and the football team and the constant press clips, Trump also completed an A.C. casino-hotel deal with Harrah’s that was reportedly going to bring him millions in annual income.

“Just as the name Donald Trump is well-known to most New Yorkers, the name is now becoming recognized throughout the country,” William Geist wrote in a 1984 New York Times profile. “He is fast becoming one of the nation's wealthiest entrepreneurs, able to buy practically anything he wants. He controls a company with assets estimated—ome say conservatively estimated—$1 billion, and casino-industry analysts say his half interest in Harrah's may provide him with $40 million to $50 million more in annual income.”

Harrah’s eventually agreed to give Trump $220 million to build the project and offer him half the profits it made.

One more, remarkable source of income for Trump that year: New York Giants great Lawrence Taylor.

The linebacker had struck a secret deal with Trump, banking a million-dollar interest-free loan in exchange for agreeing to join the Generals when his contract with the Giants expired. But after the Giants extended and upgraded Taylor’s deal, he had to repay the million, the interest he’d collected on it and $750,000 more on top to the mogul to get Trump to agree to return Taylor’s option to the Giants.

Wrote the Times: “Trump, meanwhile, was described by an associate as ''delighted'’ to have been able to keep his team's name in the public eye while also getting a substantial profit.”

Again, this in a year where Trump appears to have claimed no income.

Trump, of course, could answer all such questions by releasing his full tax returns. Instead, he’s broken with a tradition kept to by every major party Presidential candidate in modern American history and prevented the public from judging his financial circumstance for itself until an alleged audit of his taxes since 2012 is completed. Even if such an audit is in fact underway, there is no law, rule or even tradition that would preclude him from releasing the documents.

And there’s nothing at all to stop Trump from releasing his taxes from 1980 through 2011 — and clearing up the question of how he can brag about so much income while, apparently, reporting none at all.


Article Link to The Daily Beast:

Was That Bernie's Way Of Saying 'Uncle'?

Thursday’s video address was Sanders clearly signaling, ‘I know I’m 74, and I hope what I’ve started here survives me.’


By Michael Tomasky
The Daily Beast
June 16, 2017

Was that Bernie’s way of saying “uncle”? I’d imagine that most people who watched his video address tonight to his supporters didn’t think so, because he did not officially concede or endorse Hillary Clinton. But I say it was an unexpectedly accommodating affair nonetheless.

I thought he was going to lay out specific demands for the Democratic Party going forward these next few weeks and insist the demands be met or else. He did some of that. But emotionally, his emphasis was on other things. Metaphorically, he pointed his gun not at the Democratic Party’s head, but at its orotund midsection.

Consider the speech’s structure. It came in four parts. Part one, how amazing are the things I/we have accomplished. Part two, how important it is to defeat Donald Trump. Part three, how the Democratic Party needs to change more in his image. Part four, how the people’s revolution must continue beyond this year and manifest itself in Bern-feelers running for office and staying involved in politics far beyond this campaign.

That is to say, only one part out of four was directly confrontational to the Democratic power structure, and even that part picked its spots quite carefully. He ticked off 15 matters on which he suggested the Democrats ought to follow him. But on 10 of them, Hillary Clinton already agrees (and indeed on a few of them, like guns and equal pay for women, she’s done more than he has and is more committed than he—I’d even add health-care-as-a-right to that list, since as first lady she helped lead the charge for health care for poor children, the S-CHIP program, which is free for poor children).

There were five that left room for platform committee fights: the $15 minimum wage (she backs that in more expensive cities but says it could be lower in less expensive areas); a fracking ban, which she does not support and which a president has no power to impose anyway; a “modern-day Glass-Steagall” to break up the banks; free college tuition; and health care as a right for all, which she would say she backs but not in the sense that he means it (everything free for everyone, financed by taxes).

He then did take on what he euphemistically called the “Democratic Party leadership.” He never mentioned chairwoman Debbie Wasserman Schultz by name, and never directly called for the removal of an unnamed chair. Instead he demanded that the Democratic Party pursue a “50-state strategy.” That probably comes from the people in the red states he won like Oklahoma and Idaho and so on, and it’s totally unobjectionable and even the right thing for the Democratic Party to do, as it was when Howard Dean proposed it as chair back in the mid-2000s (there’s an irony there all right, as there’s no love lost between these two Vermonters, and Dean is a Clinton endorser from the early days). But the important point is that it isn’t a confrontational demand, something that puts immediate pressure on the DNC. It’s a Beach Boys demand: wouldn’t it be nice.

Also basically unmentioned: any reform of the primary process. Sanders and Jeff Weaver—and maybe the media, to be fair—had led us to believe that reform of the voting process was going to be demand number one. But it wasn’t to be heard in Thursday night’s speech. I can’t imagine this was an oversight. It had to be a conscious decision to toss this demand overboard.

Then the last part of the speech, and the part that drew the most attention from Bernie people on Twitter, was the “the revolution must go on” part. This was the section that gave his people the signal that this was bigger than Bernie, and I give him credit for emphasizing it, because to me this was a campaign that had some cult-of-personality aspects to it from the start. But this was Sanders clearly signaling: “I know I’m 74, and I hope what I’ve started here survives me.”

So that’s how his people saw it. How actual Democrats saw it—and I don’t mean the banking lobbyist, I mean the state committeewoman from Illinois who is a public-interest lawyer in Evanston—I’m not sure. Less favorably, I’m sure. She no doubt hung on the key two sentences: “The major political task that we face in the next five months is to make certain that Donald Trump is defeated and defeated badly. And I personally intend to begin my role in that process in a very short period of time.” Those sentences, along with the election reform matter he left out, signaled a de facto endorsement of Clinton, whether his people want to admit that or not.

But I’m pretty sure my Evanston lawyer also heard the grandiosity that Sanders, a candidate who certainly did much better than expected but in the end lost by quite a large margin, assigned to himself. To her and to thousands like her—precisely the people forgotten in the Clinton-Sanders debate all these months, because they are representative of the “little people” who are for Clinton, which seems to most of the media oxymoronic, but they are real, and they number in the many millions—Bernie is now old news. And he’s just going to get older every week.


Article Link to the Daily Beast:

Iran Sows The Seeds Of War In Iraq

By Max Boot
Commentary
June 17, 2016

If you listen to administration spokesmen, from the president on down, you will hear all about the astounding progress being made in the battle against the Islamic State. As President Obama said on Tuesday: “Our coalition continues to be on offense. ISIL is on defense and it has now been a full year since ISIL has been able to mount a major successful offensive operation on either Syria or Iraq.”

That may be true, but let’s unpack that innocuous phrase “our coalition” a little bit. Just who is in the coalition that the U.S. is claiming credit for? What Obama refuses to acknowledge is that at the forefront of the anti-ISIS offensive in Iraq are Shiite militias that serve Iran’s interest, not America’s.

The Wall Street Journal has a horrifying report on what these militias were up to during the siege of Fallujah: “Anbar’s governor said an investigation by local officials into reports of abuses allegedly carried out by the Shiite militias since last month had found evidence that 49 Sunni men fleeing the area were detained and executed by Shiite fighters, and 643 men were missing or unaccounted for. Freed Sunnis told the officials that militiamen routinely tortured and beat detainees—revenge, they said, for atrocities carried out by Islamic State militants against Shiites.”

This is not how the Iraqi forces should behave if they are interested in winning “hearts and minds” among members of the Sunni community. But that’s not what the militias are interested in–they want revenge for various wrongs done to Shiites by groups such as ISIS and they see all Sunnis, no matter how innocent, as equally guilty. Such behavior will make it impossible for the government in Baghdad to pacify the country. Sunnis will resist this kind of oppression long after ISIS is defeated.

This type of sectarian violence does not serve Iraq’s interests, but it is very much in the interests of Iran, which has become America’s de facto partner in the anti-ISIS campaign. Former Ambassador Ryan Crocker, who visited Iraq in March, wrote that Iran is pursuing an agenda to permanently weaken Iraq:

The Iranian agenda in Iraq is shaped by the horrific Iran-Iraq war of 1980 to 1988. Few Americans remember it; no Iranian or Iraqi will ever forget. [Qassem] Sulaimani [commander of Iran’s Quds Force], for example, was commissioned as an infantry officer shortly before Saddam Hussein invaded his country, and was in combat for most of it. Imagine the impact on a British subaltern of enduring the Western Front not for four years, but eight. The 1988 truce was for Iran a “poisoned chalice,” as the late Iranian Supreme Leader Ayatollah Khomeini called it. Now, more than a quarter of a century later, Iran sees the opportunity to achieve the victory that eluded it then: an Iraq that is permanently divided, permanently unstable, and never again able to threaten Tehran.

Crocker has no doubt that Fallujah will fall before long, and Mosul will eventually fall, too. But he is worried that “the consequences are likely to be worse.” Worse than the Islamic State? That’s what he suggests. And what are those consequences? He submitted: “Many Shia fear that once Islamic State is defeated in Iraq, the militias will turn on each other and a Shia civil war will ensue, much as happened with the Afghan mujahidin factions after the Soviet defeat.”

Thus, like Syria, Iraq may be consigned to a semi-permanent state of civil war. That is terrible news for that country’s interests and our own, but it will suit Iran just fine. It will also be just fine for Sunni extremists, whether aligned with ISIS, the al-Nusra Front, or some other organization. Extremists thrive on turmoil.

It is tragic that the Obama administration is so narrowly focused on the goal of defeating ISIS that it is missing the bigger picture. As I’ve said before we shouldn’t make the mistake of defeating one Islamic state simply to make way for another one.


Article Link to Commentary:

One Last Chance To Stop China's Impending Debt Crisis

The 1997–98 Asian corporate debt meltdown could return.


The National Interest
June 17, 2016

On June 11, 2016, the International Monetary Fund’s number two, David Lipton, urged China to take steps to tackle its rising corporate debt or risk “dangerous detours” in the country’s transition to a consumption-oriented economy. He stated, “Corporate debt remains a serious—and growing—problem that must be addressed immediately and with a commitment to serious reforms.”

Lipton is hardly alone in warning about the buildup in Chinese debt. Indeed, the buildup in Chinese corporate debt since 2008 increasingly resembles the Asian financial crisis of 1997–98. Although China’s troubles are not an exact replay of what occurred in Thailand, Indonesia and South Korea in 1997–98, there are some similarities that are worth remembering.

Before China took off in the 1990s, a number of Southeast Asian countries, namely Indonesia, Thailand and Malaysia, as well as South Korea in East Asia, made substantial strides in their economic development. This process accelerated in the 1980s and the first half of the 1990s, characterized by rapid economic growth, rising living standards and large inflows of capital.

The problem was that easy access to credit was to have major consequences for much of Southeast Asia and South Korea. Many Southeast Asian governments maintained fixed exchange rates that sought to minimize foreign exchange risk for domestic and foreign investors. In turn, local banks borrowed offshore at low, short-term rates and turned around to lend the money for longer terms at a hefty premium to manufacturers and real-estate developers. The downside to this was that, as Johns Hopkins University’s Karl Jackson has noted, “Unfortunately, the abundance of inexpensive capital, in combination with local bank loans based on personal relationships rather than real business plans, resulted in the widespread misallocation of capital into speculative and noncompetitive sectors and enterprises.”

There were other problems: as economic growth slowed in a number of countries, the heavy level of debt in the corporate sector became onerous. Falling profits meant that Korean, Thai and Indonesian companies struggled to make payments, much of them in dollars. Trying to make up the difference, many Korean, Thai and Indonesian banks opted to make more loans to keep the struggling companies afloat. The result of this was that nonperforming loans rose, and as local economies struggled to maintain economic momentum, the situation in the financial sector became increasingly problematic. Indeed, a number of banks were insolvent before the run on the Thai baht in July 1997.

It is worth noting that one-third of the nonperforming loans in Thailand came from the property market. Another third came from manufacturing, which by the mid-1990s was suffering from overcapacity. Again, as Jackson noted: “Thailand’s automotive industry had an oversupply level of 192 percent; modern housing in Bangkok had an oversupply of 200 percent; petrochemicals an oversupply of 195 percent; and private hospital beds an oversupply of 300 percent.” China faces similar problems with overcapacity.

In many regards the pending crisis in 1997 should have been something that showed up on investor and policymaker radar screens. However, the lack of transparency and disclosure in the financial sector, government efforts to stave off the crisis (by defending their currencies and talking down perceived problems), and the closeness between governments and businesses concealed the increasingly dire nature of the situation as Asia stumbled into 1997.

By July, Thailand had almost depleted its foreign currency reserves, and South Korea was not far behind. When Thailand raised the white flag in turning to the International Monetary Fund, the panic rapidly spread to other economies with a similar profile—South Korea and Indonesia. Malaysia and the Philippines were also hit, and concerns were articulated about Japan, where the banks had long been dealing with zombie companies.

The Asian financial crisis was a brutal affair, pushing most economies in the region into recessions, bankrupting corporations and forcing banks to collapse, as well as helping to topple the Suharto government in Indonesia. However, the crisis also forced Southeast Asian governments and South Korea to adopt tough structural reforms, improve regulatory systems and build up large levels of foreign exchange reserves. Since the 1997–98 crisis, South Korea and Southeast Asian countries have worked hard to avoid a repeat of the crisis and thus far have been successful.

There is more than an echo in China’s current debt buildup of what transpired in Korea and Southeast Asia in 1997–98. China has problems with cooling economic growth, rising corporate debt and industrial overcapacity. Many industries, such as steel making, shipbuilding and mining, are inefficient, debt-laden and in dire need of rationalization. China has the added problems of an aging population, pollution and climate change.

It is the debt problem that is drawing attention to China. That problem is rooted in the Chinese government’s 2008 decision to pump billions of dollars into the economy and encourage banks to heavily lend, to offset the impact of the global financial crisis. The result was that as much of the world slid into recession, China managed to grow at a strong pace. Indeed, China played an important role in preventing the global economy slipping into another depression.

However, the cheap credit available to many Chinese companies resulted in heavy borrowing in projects that ultimately were based on unrealistic assumptions about global demand. Moreover, as the Chinese economy has slowed, the government’s inclination has been to periodically open the credit spigot, with the result being that Asia’s largest economy has a heavy corporate debt burden and overcapacity in a number of sectors. According to Goldman Sachs, the amount of debt in the Chinese economy accelerated from 130 percent of GDP in 2008 to 235 percent in 2015. Goldman analysts project that if the current trajectory continues, the debt-to-GDP ratio will climb to 344 percent by 2020.

Like Southeast Asia and South Korea in 1997, China’s government is facing an erosion in confidence in its ability to control the country’s economic direction. The central bank has been active in intervening in currency markets to maintain confidence. This has been a tough battle. China’s foreign exchange reserves fell from $3.9 trillion last June to $3.19 trillion in May 2016. Those reserves could well come under further pressure as confidence in the Chinese economy continues to erode.

The Chinese government is under considerable pressure to get things right. The past Asian crisis in 1997–98 left an impression, and part of the Chinese buildup in foreign exchange reserves in the aftermath of that crisis was meant to avoid the problem of running out of cash. With over $3 trillion in foreign exchange reserves, China still has considerable ammunition in that regard.

The problem is that the willingness of the Chinese authorities to maintain lines of credit to troubled companies, which keeps alive zombie companies that would fail under market conditions. Related to this is the apprehension Chinese authorities have about social unrest that could be sparked by higher unemployment if zombie companies are allowed to collapse. The weakness in all of this, as in 1997–98, is that the financial system becomes increasingly bloated with nonperforming loans. In turn, the opaque nature of Chinese banks and finance companies to some degree conceals the scope of the problem—until it is too late, and the wobbly financial system suffers a meltdown.

The Asian crisis of 1997–98 was a landmark in the region’s economic development. It forced a number of governments to make difficult changes that they otherwise would have probably been inclined to avoid. The issue for China is that it needs to make significant changes, some of them very difficult, that run the risk of stimulating social unrest. The country’s leadership, therefore, finds itself in a tough position between debt and overcapacity on one hand, and the need to restructure the economy and ride through the social upheaval that is likely to come. For China, the lesson from 1997–98 is that addressing reforms before a crisis is a good thing; having to implement reforms in the middle of a crisis is not optimal.


Article Link to The National Interest:

Pakistan's Crippling Strategic Isolation Is Its Own Fault

Islamabad’s approach to Afghanistan doesn’t work.


By Aziz Amin Ahmadzai and Mona Naseer
The National Interest
June 17, 2016

A sovereign state’s foreign policy changes with the times, and according to its domestic needs and external changes in global politics. Nations have national interests, and there are no permanent enemies and friendships in international politics. Neighboring states can be a boon or a bane, depending on the ability to recognize one’s long-term interests of sustainable peace on its borders.

Pakistan’s recent relations with Afghanistan have been one such example, with Pakistan as a state unable to define its foreign policy and national interests beyond a Cold War paradigm. An India-centric foreign policy has stalled Pakistan’s foreign-policy evolution and tainted its worldview of international politics. Pakistan currently has strained and difficult relations with all its neighbors except China.

Following the Kargil War in 1999 with India, Pakistan faced international isolation, and national anxieties shifted to its western border, in order to stave off the very real risk of nuclear escalation with India and continue with its proxy war in Afghanistan. Pakistani foreign-policy makers and mostly military elites thought that acquiring the upper hand in Afghanistan and containing the warring tribesmen next door would be a much easier task.

The post-9/11 involvement of the international community in Afghanistan and its commitment to quelling the Taliban-led insurgency have, however, left Pakistan regionally and internationally isolated, despite its involvement as a key ally in the War on Terror.

Pakistan has failed to utilize the shared cultural, linguistic, economic and ethnic realities of its western borders, while India has moved in to execute huge economic development, both real and symbolic, of the Afghan state. Despite having a Pashtun president in power in Afghanistan, and the Pakistani establishment’s claim of having forged closer ties with Afghanistan’s Pashtun population, ties could not move beyond the historic burden of Pakistan’s deep involvement in Afghanistan. Pakistan seems to trust only the regressive and fundamentalist forces of the Taliban as its foreign policy evolves.

Regionally, the leaders of Iran, India and Afghanistan have signed a historic deal to develop the strategic port of Chabahar in Iran, and agreed on a three-nation pact to build a transport-and-trade corridor through Afghanistan, which could not only help strengthen regional connectivity by boosting economic growth in the region, but by the same token reduce the time and cost of doing business with both Central Asia and Europe. Pakistan’s suspicion of India threatens to entrench relations of conflict and competition at the expense of cooperation and stability with all its neighbors. The knee-jerk reaction of Pakistan’s foreign policy to the Chabahar port was to close down the Torkham border crossing with Afghanistan and enforce visa restrictions for both sides of the Durand Line, leaving those on both sides in the lurch.

Many speculate that the tightening security at the Torkham border is a political move rather than a curb on militant activities, if the likes of Mullah Mansoor have been found with Pakistani passports, traveling in and out with more ease than genuine Pakistani passport holders.

Pakistan’s obsession with India has strained its western border, affecting its own Pashtun population on its side of the Durand Line, mainly in Khyber Pakhtunkhwa and FATA. Movement across the Afghan-Pakistani border generates revenue for both Afghanistan and Pakistan. The two countries exchange goods and services worth some 2.7 billion euros ($3 billion) annually across the Durand Line. Despite the illegal trade and smuggling, both countries benefit a great deal from cross-border movement.

Pakistani policymakers regard the instability of the western border and its Pashtun population’s sacrifices rendered easier to deal with and placate than any disturbance on its eastern border of Punjab, in the context of Pakistan-India relations and engagement with Afghanistan.

Foreign-policy makers interpret the shift in border hostilities from east to west as being in the broader national interest of Pakistan, and the consider tragedies like the Peshawar Army Public School attack, where 140 children were mercilessly killed, or the young lives lost at Bacha Khan University, as collateral damage in the pursuit of Pakistan’s core national interests and territory, particularly Punjab.

This Pakistani policy seems to have pushed the country toward regional and international isolation. As India’s power in Afghanistan expands, especially its soft power, Pakistan is losing its position of economic and strategic privilege. Since India’s Prime Minister Narendra Modi came to power, he has paid two visits to Afghanistan. On his first visit, he inaugurated the new Afghan parliament building that was built with the support of Indian government, while on his second visit on June 4, to the heart of Asia, he inaugurated the $290 million Indian-funded Salma Dam, one of the country’s biggest hydroelectric projects. Pakistan, on the other hand, has been dealing with the awkwardness of either stating its reputation or support for the Haqqani group or the Taliban insurgent leader Mullah Mansour, killed in a drone attack on its soil.

Pakistan’s powerful military elite needs to bury the bogeyman of the Cold War and understand the complexity of relations with Pakistan’s two neighboring states.

Pakistan has absolutely failed to maintain robust relations with its all neighbors. Surveying all its immediately neighboring countries except China, Pakistan has failed to sustain good relations with Afghanistan, China, India and Iran. This indicates a failure of Pakistani foreign policy in a region that gave rise to its isolation, which will have serious existential repercussions in the long run.

The Durand Line as a border is much less relevant to ordinary citizens than to the state. Poverty, poor infrastructure, healthcare and other important state functions tend to be precarious on both sides, and the weak presence of the state has left locals on both sides to provide for their own needs. Pakistan, with its India-centric policy, needs to realize that hostile relations with Afghanistan are unsustainable in the light of its growing regional isolation. Selling the idea of the China-Pakistan Economic Corridor might work for its eastern border but not for its western border with Afghanistan, whose own dynamics must be recognized.


Article Link to The National Interest:

Obama Has Turned Jihadist Terror Attack Into Personal Gun War

By John Podhoretz
The New York Post
June 17, 2016

On Thursday, when talking about the terrorist atrocity in Orlando in that city, President Obama acknowledged that Omar Mateen’s spree and the San Bernardino murders in December stemmed from the same root. But that root isn’t ISIS or jihad. The root is “derangement.”

These were “carried out, it appears, not by external plotters, not by vast networks or sophisticated cells but deranged individuals warped by the hateful propaganda that they’d seen over the Internet.”

The president could have placed Sunday’s attack in a different context — the context not only of San Bernardino but of the slaughter at the Bataclan club in Paris in November, and the Boston Marathon bombing in 2013, and the Fort Hood spree in 2009.

These are all the true precursors of Omar Mateen’s evil morning of slaughter — terrorist attacks in service of jihad, inspired by inciters and designers of jihadist violence.

But the president had a different villain in mind. His villain, the true object of his anger, was the political stalemate over guns. That is why he more precisely likened the Orlando atrocity to the killings at the elementary school in Newtown, Conn., and at the movie theater in Aurora, Colo.

Both of these mass shootings were the work of schizophrenic madmen, not determined fifth columnists. Indeed, to make the comparison to Adam Lanza of Newtown and James Holmes of Aurora all but explicit, Obama described Mateen not as a jihadist but as a “single deranged person.”

The president did so because he doesn’t want us to view Mateen as a volunteer in a war against the United States in which he served as a combatant against a cleverly chosen soft target. He wants us to view Mateen as another psychotic American with improper access to dangerous weaponry.

And one, moreover, whose reason for the attack was not to harm America as a whole but to act out his hatred against the LGBT community because of dangerous cultural messages he learned inside the United States.

This flies in the face of the phone calls Mateen made during the spree to 911 and to a local TV news producer, as well as the Facebook post he put up before he acted, all of which make it unambiguously clear he was acting in service of ISIS.

Indeed, the president all but dismissed Mateen’s reasons for action at the very moment he acknowledged the role of terror on Sunday morning. “Whatever the motivations of the killer,” the president said, the things we have to guard against are the sale of weapons and the hate in our hearts.”


Article Link to the New York Post:

Britain's Elites Ignore the Masses at Their Peril

By Megan McArdle
The Bloomberg View
June 17, 2016

This past weekend, I found myself in the British borough of Luton, pondering a British exit from the European Union. “How did you find yourself in Luton?” you will ask, and I will reply, “That is a long story, and alas, a very dull one, so let’s just proceed upon the assumption that I was indeed in Luton for good and sufficient reasons.” And why was I pondering Brexit? Because the penultimate chapter of this dull story involved many hours spent in a horrible third-tier European airport with middle-class Britons heading home from their holidays.

The airport was short on seats and power outlets even before flight-delayed travelers were stacked eight-deep along the floors. Perhaps a dozen of us middle-aged folk had wrested a single power outlet from the teenagers who had tethered themselves to all the other sources of battery-life-giving energy in the vicinity. We huddled around this small electric flame in the manner of travelers everywhere, taking what sustenance we could, drinking wine and swapping stories of our homelands. I was asked to explain Donald Trump. And by way of getting my own back, I naturally asked about the referendum on Brexit, which is now just days away.

The folks I talked to were from all over Britain, but they had middle age in common as well as, mostly, membership in the petit bourgeoisie. What did they think about leaving the EU?

“I still don’t know how I’m going to vote,” said an adult-education teacher from the Midlands, who then proceeded to deliver a long and earnest speech about the cost of providing social services to immigrants, which suggested that she wasn’t really so unsure. Her sentiments were echoed by other people I talked to during that endless layover.

These weren't racist diatribes; no one mentioned race or nationality, and, in fact, they were very sympathetic to the plight of immigrants. They just didn’t want to have to accept them into their country -- operative words “have to.” The dominant tone was what is often called compassion fatigue, and their arguments were not unreasonable.

Riding a refugee-crowded ferry back from the Greek island of Lesvos last fall, my heart broke for every one of the families I saw. But I couldn’t help but ask myself just how many such people Europe could absorb in a short period of time. The people in the airport were asking themselves the same question, and the answer they were getting was “no more, please.”

Around 1:30 Monday morning, a budget jet brought me to Luton, where I stayed overnight. The next leg of my travel did not begin until late afternoon, and so I took the opportunity to walk around the area near the Mall Luton, which turned out to be a very good place to think about Brexit.

Luton is a city of about 200,000 people on the outskirts of London. It was once known for its manufacture of hats, and in 1905, Vauxhall Motors opened a manufacturing plant in Luton. The company stopped making passenger cars there in 2002, and the town is now -- like so many places in Europe and America -- looking for its post-industrial future. EasyJet, a budget airline, is based there, but as you so often find in similar cities in the U.S., the biggest employers are the local government and the local hospital. It has also had a dramatic shift in population. The Luton council estimates that “between 50% and 75% of the population would not have lived in Luton or not have been born at the time of the 2001 Census.” It is now minority white British, and only barely majority white.

You can see it in the area around the mall. It’s not a notably prosperous place: multiple dollar stores, not much in the way of upscale retail. The Duke of Clarence pub is closed, having apparently run afoul of the local constabulary; one Polish food store appeared to be doing a land-office business. I wandered into several off-license shops in search of batteries and found that all of them appeared to cater to a significant foreign-born clientele. I bought some Polish sausage and pastry at an off-license, some Indian dumplings and Thai noodles at a couple of food trucks, and I sat on a bench in the mall, listening to people from three continents chat with each other in more than half a dozen languages, none of which I spoke.

As an American, this did not strike me as odd; this is what our cities have been like for centuries, particularly on the coasts. One group of immigrants moves in, creates an enclave, then gets rich, assimilates and moves out, making way for the next group that will throw a little of their food, their language and their customs into our vast melting pot. But this is not normal in most of the world. Nor is it necessarily welcome.

Most places in Britain are not like Luton, of course. But that’s not quite the point. Anti-immigration sentiment in the U.S. is often found in places that don’t have enormous immigrant populations, and wonks who proclaim this to be irrational seem not to grasp that those people may be looking at the places that have been transformed by immigration and responding with a fervent “No, thank you.” There’s a lot to be gained from globalism, the mixing of two or more cultures into something new. But something specific and local and much-loved is inevitably lost at the same time, and the people who feel that loss most keenly are the inward-looking people who stay in place, not internationalist elites.

So it’s not that my food was bad -- it was all quite good -- or that there was anything wrong with the immigrants serving and eating it. They all looked like quite nice people. But it was all very different from traditional British food, traditional British people. And no matter how hard we try to argue that it doesn’t matter, it does -- politically, if in no other way. Especially when things aren’t going all that well for the natives.

Somehow, over the last half-century, Western elites managed to convince themselves that nationalism was not real. Perhaps it had been real in the past, like cholera and telegraph machines, but now that we were smarter and more modern, it would be forgotten in the due course of time as better ideas supplanted it.

That now seems hopelessly naive. People do care more about people who are like them -- who speak their language, eat their food, share their customs and values. And when elites try to ignore those sentiments -- or banish them by declaring that they are simply racist -- this doesn’t make the sentiments go away. It makes the non-elites suspect the elites of disloyalty. For though elites may find something vaguely horrifying about saying that you care more about people who are like you than you do about people who are culturally or geographically further away, the rest of the population is outraged by the never-stated corollary: that the elites running things feel no greater moral obligation to their fellow countrymen than they do to some random stranger in another country. And perhaps we can argue that this is the morally correct way to feel -- but if it is truly the case, you can see why ordinary folks would be suspicious about allowing the elites to continue to exercise great power over their lives.

It’s therefore not entirely surprising that people are reacting strongly against the EU, the epitome of an elite institution: a technocratic bureaucracy designed to remove many questions from the democratic control of voters in the constituent countries. Elites can earnestly explain that a British exit will be very costly to Britain (true), that many of the promises made on Brexit’s behalf are patently ridiculous (also true), that leaving will create all sorts of security problems and also cost the masses many things they like, such as breezing through passport control en route to their cheap continental holidays. Elites can even be right about all of those things. They still shouldn’t be too shocked when ordinary people respond just as Republican primary voters did to their own establishment last spring: “But you see, I don’t trust you anymore.”

In some ways, the modernity that we thought was supposed to wash nationalism away on the tide of history made things worse for the cause of mass migration. For the first few centuries of its existence, America had a chronic labor shortage, which eased any frictions with new arrivals. We also lacked a modern welfare state, to which low-skilled immigrants are likely to be net costs rather than net contributors. I heard the strain on the National Health Service cited multiple times this weekend as a sore spot for Brexiteers, and though the “Remain” campaign says “You’ve got it all wrong, the problem is Conservative budget cuts,” this rather aggressively misses the point: When things are hard, immigrants compete with natives for scarce government resources, and the natives don’t like the competition.

I don't know whether Britain will end up leaving the EU; based on my conversations this weekend, and the polls, I’d put the chances at slightly above 50 percent. But that’s not a very educated guess, and I wouldn’t stake anything important, like money or the future of my country, on its correctness. Even if Remain wins, however, elites will face the question of what to do next. They can decide that they’ve skated by the crisis and may now return to business as usual while they wait for the populist storms to blow over. But there’s a real danger in doing so, in Britain or in any of the other countries that are currently being swept by populist movements. The storm may indeed pass, but it may blow up into a hurricane -- and the majority may go shopping for a new elite, one they trust to take care of people like them.


Article Link to The Bloomberg View:

Friday, June 17, Morning Global Market Roundup: Asian Shares Face Weekly Losses, Sterling Steadies As Brexit Risk Seen Ebbing

By Nichola Saminather and Lisa Twaronite
Reuters
June 17, 2016

Asian shares rose on Friday but were set for weekly losses as investors favored safe haven assets because of fears that Britain will vote to quit the European Union, though the killing of a pro-EU politician was seen swaying sentiment toward the "Remain" camp.

European shares are also poised for a strong start, with financial spreadbetter IG expecting Britain's FTSE 100 to open 0.8 percent higher and Germany's DAX to start the day up 1.1 percent.

Campaigning for Thursday's referendum, which overshadowed this week's U.S. and Japanese central bank meetings, was temporarily halted after a British member of parliament, Jo Cox, was shot and fatally wounded on Thursday.

The recently volatile pound rose 0.4 percent to $1.4255 with analysts noting the pro-membership MP's death could generate sentiment in favor of remaining in the EU.

MSCI's broadest index of Asia-Pacific shares outside Japan was up 0.6 percent, but was down nearly 2.7 percent for the week.

China's CSI 300 index advanced 0.5 percent, and the Shanghai Composite added 0.4 percent. That helped them shrink losses for the week to 1.7 percent and 1.5 percent respectively.

Hong Kong's Hang Seng gained 0.5 percent, but is set for a weekly decline of 4.3 percent.

Wall Street marked gains overnight, with the benchmark S&P 500 index erasing sharp intra-day losses to snap a five-day losing streak.

"Investors are considering the risk of Brexit to have been lowered, both by reports that European hedge funds believe Brexit will not get up and, secondly, that the shooting (of Cox) has played against the Brexit vote," said Angus Gluskie, managing director of White Funds Management in Sydney.

Japan's Nikkei stock index closed up 1.1 percent, taking back some of its steep losses. But Japanese shares still shed more than 6 percent in a week in which the safe-haven yen soared after the Bank of Japan decided against delivering additional stimulus to counter waning inflation and weak global growth.

"Continued inaction by the BOJ in the face of these risks only reinforces the market's suspicions that the central bank is running out of policy options, feeding back into a stronger yen," HSBC economist Izumi Devalier said in a note.

Japanese Finance Minister Taro Aso said on Friday that he was deeply concerned about "one-sided, rapid and speculative moves" seen in the currency market and would respond if necessary to ensure stability in currencies.

The dollar clawed back some lost ground on Friday, rising 0.1 percent to 104.36 yen, but it was still down 2.4 percent for a week in which it dropped as low as 103.555. That was its deepest low since August 2014.

The dollar index, which tracks the greenback against a basket of six major peers, also slipped 0.1 percent, and is set for a weekly decline of the same magnitude.

The euro added 0.3 percent to 117.395 yen, but was still down 2.4 percent for the week. On Thursday, it plumbed a three-year low of 115.51.

The Federal Reserve also stood pat on policy on Wednesday, though it signaled it still planned to raise rates twice in 2016. But it also downgraded its economic view, and said slower growth would slow the pace of future monetary policy tightening.

Crude oil prices rose for the first time in seven days as Brexit concerns ebbed, after losses of almost 4 percent overnight.

U.S. crude rose almost 1 percent to $46.66 a barrel, and Brent crude climbed 1.4 percent to $47.85. Both recorded losses of about 10 percent over the previous six sessions. [O/R]

Gold also advanced 0.4 percent to $1,283.33 an ounce following wild swings overnight. Spot gold surged to a near-two-year high of $1,315.55, but closed down 2.8 percent from that level as markets bet on growing support for Britain to remain in the EU. It is set to rise 0.8 percent this week, its third consecutive weekly gain.


Article Link to Reuters:

Crude Oil Rises For First Time In Seven Days

By Aaron Sheldrick
Reuters
June 17, 2016

Crude oil prices rose on Friday for the first time in seven days as markets took a breather from concerns about the impact of Britain's possible exit from the European Union.

Brent crude futures were up 59 cents, or 1.3 percent, at $47.78 a barrel at 0143 GMT after slumping 3.6 percent in the previous session. The contract is on track to fall nearly 5.5 percent for the week.

U.S. West Texas Intermediate crude futures rose 37 cents, or 0.8 percent, to $46.58. The contract fell 3.8 percent in the previous session and prices are down around 5 percent so far this week.

The British pound rose from a two-month low after campaigning for next week's so-called Brexit vote next week was suspended following the murder on Thursday of UK member of parliament Jo Cox, who was a vocal advocate for Britain to stay in the European Union.

Commodities across the board also posted gains, while equity benchmarks including Japan's Nikkei stock average rose.

"We need to brace ourselves for further volatility," said Ben Le Brun, market analyst at OptionsXpress in Sydney.

"We are seeing a bit of a recovery now with maybe some short positions being unwound. It is certainly going to be a wild ride for investors and traders going into the June 23 decision," he said.

Still, global oil majors Chevron Corp and Royal Dutch Shell Plc are putting small refineries on the auction block as they look to trim lower-margin assets in the face of headwinds from rising crude oil prices.

Chevron, the second largest U.S. oil company, is soliciting interest in its Burnaby, British Columbia, refinery and gasoline stations, the company told Reuters.

Shell is looking for buyers for its Martinez, California, refinery, two people familiar with the situation told Reuters. Shell declined to comment.


Article Link to Reuters:

State Department Officials Urge Military Strikes Against Syria's Assad

By John Walcott and Arshad Mohammed
Reuters
June 17, 2016

More than 50 State Department diplomats have signed an internal memo sharply critical of U.S. policy in Syria, calling for military strikes against President Bashar al-Assad's government to stop its persistent violations of a civil war cease-fire.

The "dissent channel cable" was signed by 51 mid- to high-level State Department officers involved with advising on Syria policy. It was first reported by The Wall Street Journal.

The cable calls for "targeted military strikes" against the Syrian government in light of the near-collapse of the cease-fire brokered earlier this year, the Journal reported, citing copies of the cable it had seen.

Military strikes against the Assad government would represent a major change in the Obama administration's longstanding policy of not intervening directly in the Syrian civil war, even as it has called for a political transition that would see Assad leave power.

One U.S. official, who did not sign the cable but has read it, told Reuters the White House remained opposed to deeper American military involvement in the Syrian conflict.

The official said the cable was unlikely to alter that, or shift Obama's focus from the battle against the persistent and spreading threat posed by the Islamic State militant group.

A second source who had read the cable said it reflected the views of U.S. officials who have worked on Syria, some of them for years, and who believe the current policy is ineffective.

"In a nutshell, the group would like to see a military option put forward to put some pressure ... on the regime," said the second source, who spoke on condition of anonymity.

While dissent cables are not unusual, the number of signatures on the document is extremely large.

"That is an astonishingly high number," said Robert Ford, who resigned in 2014 as U.S. ambassador to Syria over policy disagreements, and is now at the Middle East Institute, a Washington think tank.

"For the last four years, the working level at the State Department has been urging that there be more pressure on Bashar al-Assad's government to move to a negotiated solution" to Syria's civil war, he said.

Ford noted that this is not the first time the State Department has argued for a more activist Syria policy. In the summer of 2012, Secretary of State Hillary Clinton proposed arming and training anti-Assad rebels. The plan, which had backing from other Cabinet officials, was rejected by President Barack Obama and his White House aides.

The dissenting cable discussed the possibility of air strikes but made no mention of adding U.S. ground troops to Syria. The United States has about 300 U.S. special operations forces in Syria carrying out a counter-terrorism mission against Islamic State militants but not targeting the Assad government.

"We are aware of a dissent channel cable written by a group of State Department employees regarding the situation in Syria," State Department spokesman John Kirby said in an email. "We are reviewing the cable now, which came up very recently, and I am not going to comment on the contents."

Kirby said the "dissent channel" was an official forum that allows State Department employees to express alternative views.

Central Intelligence Agency Director John Brennan told a congressional hearing on Thursday that Assad was in a stronger position than he was a year ago, bolstered by Russian air strikes against the moderate opposition.

Brennan also said Islamic State's "terrorism capacity and global reach" had not been reduced.

The names on the memo are almost all mid-level officials - many of them career diplomats - who have been involved in the administration's Syria policy over the past five years, at home or abroad, the New York Times said.


Article Link to Reuters:

Krauthammer: Trump Is Running As Trump. Surprise!

What did you expect?


By Charles Krauthammer 
The National Review
June 17, 2016

When in his 1964 GOP acceptance speech Barry Goldwater declared that “extremism in the defense of liberty is no vice,” a reporter sitting near journalist/historian Theodore White famously exclaimed: “My God, he’s going to run as Barry Goldwater!”

Six weeks into Donald Trump’s general-election campaign, Republicans are discovering that he indeed intends to run as Donald Trump. He has boasted that he could turn “presidential” — respectful, respectable, reticent, reserved bordering on boring — at will. Apparently, he can’t.

GOP leaders who fell in line behind Trump after he clinched the nomination expected, or at least hoped, that he would prove malleable, willing to adjust his more extreme positions and tactics to suit a broader electorate.

Two problems. First, impulse control: Trump says what he actually feels, whatever comes into his head at any moment. Second, a certain logic: Trump won the primaries Sinatra-style, his way — against the odds, the experts, and the conventional rules. So why change now? “You win the pennant,” Trump explained, “and now you’re in the World Series — you gonna change?”

Hence his response to the Orlando terror attack. Events like these generally benefit the challenger politically because any misfortune that befalls the nation gets attributed, fairly or not, directly or indirectly, to the incumbent party (e.g., the 2008 financial collapse). And Hillary Clinton is running as the quasi-incumbent.

The textbook response for the challenger, therefore, is to offer sympathy, give a general statement or two about the failure of the incumbent’s national-security policy, then step back to let the resulting national fear and loathing, amplified by the media, take effect.

Instead, Trump made himself the (political) story. First, he offered himself unseemly congratulations for his prescience about terrorism. (He’d predicted more would be coming. What a visionary.) Then he went beyond blaming the president for lack of will or wisdom in fighting terrorism, and darkly implied presidential sympathy for the enemy. “There’s something going on,” he charged. He then reiterated his ban on Muslim immigration.

Why? Because that’s what Trump does. And because it worked before. It was after last December’s San Bernardino massacre that Trump first called for a Muslim ban. It earned him lots of opprobrium from GOP leaders and lots of support from GOP voters. He shot up in the polls, never to descend until he clinched. So why not do it again?

Because the general election is a different game. Trump assumes that the Republican electorate is representative of the national electorate. It’s not. Take the Muslim ban. Sixty-eight percent of GOP voters support it. Only 38 percent of Democrats do. And there are approximately 7 million more Democrats in the country. (Independents are split 51–40 in favor.)

The other major example of doing what’s always worked is the ad hominem attack on big-dog opponents. It worked in the primaries. Trump went after one leading challenger after another, knocking them out sequentially.

Hillary Clinton is a lousy campaigner but her machine is infinitely larger and more skilled than any of Trump’s 16 GOP competitors. More riskily, Trump is now going toe-to-toe with a sitting president.

Barack Obama is no Jeb Bush. He’s not low energy. He’s a skilled campaigner who clearly despises Trump and relishes the fight. And he carries the inestimable advantage of the gravitas automatically conferred by seven and a half years of incumbency. Moreover, he now enjoys an unusually high approval rating of around 53 percent. Trump’s latest favorability is 29 percent (Washington Post–ABC News).

It’s no accident that Trump’s poll numbers are sliding. A month ago, when crowned as presumptive nominee, he jumped into a virtual tie with Clinton. The polls now have him losing by an average of six points, with some showing a nine- and twelve-point deficit (Reuters/Ipsos and Bloomberg).

This may turn out to be temporary, but it is a clear reflection of Trump’s disastrous general-election kickoff. His two-week expedition into racism in attacking the Indiana-born “Mexican” judge. His dabbling in conspiracy, from Ted Cruz’s father’s supposed involvement in the Kennedy assassination to Vince Foster’s (“very fishy”) suicide. All of which suggests, and cements, the image of a man who shoots from the hip and is prone to both wild theories and extreme policies.

Reagan biographer Lou Cannon thinks that the Goldwater anecdote is apocryphal. How could anyone (even a journalist) have thought that Goldwater, who later admitted he always knew he would lose, was going to run as anything but his vintage, hard-core self?

Same for Trump. Give him points for authenticity. Take away for electability.


Article Link to The National Review:

Noonan: Hillary’s Gift And Britain’s Choice

On both sides of the Atlantic, voters weigh risks and opportunities.


By Peggy Noonan
The Wall Street Journal
June 17, 2016

Quickly on the presidential race, then to Brexit.

Hillary Clinton has been given a great gift by Donald Trump. She hadn’t been able to explain the purpose or meaning of her candidacy. She tried out various themes and slogans, but nothing ever took or seemed real. Everything came down to I’m Hillary and I deserve it. But now she has it, in only three words: “I’m not Trump.” I may have narcissistic personality disorder, but he’s got it worse and in spades. If I’m corrupt, he’s more corrupt. I have poor judgment? Everything he says is poor judgment. He endangers us!

Not long ago Mr. Trump was a phenomenon the Clinton campaign couldn’t quite grok. When she slammed him on women, her campaign was shocked that he came back harder and rougher. But he’s made himself predictable. His first response to the Orlando attack, while blood is still warm on the floor, is to note that people are congratulating him for being right about radical Islam. Mrs. Clinton knows exactly how to play it from there: calm, saddened, temperate.

He has righted her ship, too, by providing her with a new self-understanding. She’s not entitled and endlessly self-aggrandizing; she is on a mission for her country: Keep That Man Out of the White House.

Listless supporters are newly revitalized. They too have a mission. It is no longer “I must pull the lever for a woman even I find untrustworthy and corrupt”; it is “I will work for the one person who can keep an actual mental case out of the White House.”

From the Judge Curiel gaffe, if that’s the word, through Orlando, Mr. Trump has comported himself with the art and deftness of Broderick Crawford in “Born Yesterday.” I wonder if his supporters understand how much he is letting them, and their issues, down.

Washington Republicans have PTSD, Post Trump Stress Disorder. They don’t understand why he doesn’t broaden his reach, move on from what makes his rallies cheer, and start to persuade and reassure others. He needs to show maturity. Instead of reaching out, he’s doubling down. To political professionals this looks like political malpractice. Their new fear is not that Mr. Trump will not change but that he cannot change—doesn’t know how to, doesn’t have any sense of how a mature candidate would act.

Something tells me this story isn’t over—there will be more movement and action at the convention than we expect.

To Brexit. The question of whether Britain will leave the European Union, to be decided next Thursday in a referendum, is a political moment of the first order. It has been sharpened and made tragic by the apparent assassination of a member of Parliament.

My conclusion from four days in London talking to both sides, Leave and Remain, is that in spite of recent polls showing gains for Leave, no one knows what’s going to happen. Everyone has the eye-twitching expectation the voters will deliver a surprise, they just don’t know which one. My anecdote is that a London cabbie told me that for eight days he’s been asking his passengers where they stand: “37 Leave, 18 Remain.” That didn’t make sense—London is assumed to be heavily pro-Remain—but he showed me the yellow notepad on which he kept score.

No one knows what clich├ęs will hold. The old are said to be for Leave because they knew Britain before it joined Europe in 1973, know it can exist without it, and know what was gained—and lost—in joining. The young are said to be pro-Remain because being in the EU is all they’ve ever known, and they like what they’ve known and fear change. So if as a child you screamed for the Beatles you’re the rebel, and if you’re all about Kanye you’re the staid and prudent one.

The Leave forces believe the EU no longer works for Britain, if it ever did, and robs its sovereignty. They argue the EU’s reach and overbearing busybodyness damage both the idea and reality of democracy. There is a famous class element. Leave voters despise a high-handed Brussels elite. Remain forces argue that leaving after 40 years is a costly gamble with unknowable impact. As Matthew Parris argued in the Spectator, Remain is “the unexciting option,” Leave “a mystery door behind which lies a choice between many mystery doors.” If Britain votes Leave, the EU will set the terms of the departure. It is generally assumed the EU will be somewhat punitive, which gives the whole drama the feel of a jailbreak, with a vengeful warden punishing Britain to set an example for the other prisoners. Free advice to the EU: If Britain leaves, grit your teeth and fake graciousness. This would be statesmanlike and project a benign air. Also it would undermine the widespread impression of the EU as bullying, imperious and driven by self-interest.

It is rightly noted that the Remain campaign did a lot wrong, using dodgy claims to frighten voters. When the claims became increasingly hysterical—leaving might lead to war!—and their financial assertions came under scrutiny, they had nothing left. Leave’s numbers have been questioned, too, but they still have something—the argument that Leave is a vote to help and protect the country you love. No one loves a geopolitical landmass called Europe, and no one feels a special loyalty to it. Last week I heard an EU supporter make a sincere reference to the “European heart.” I thought: That’s wrong. There is an Irish heart, a Spanish soul, British guts. People do not emotionally affiliate with a Continentwide bureaucracy, they are loyal to their country. (I’d vote Leave if I were British.) Michael Gove, a member of Parliament who fully emerged as a Conservative leader in the debate, showed he understood this when he offered the testimony of his father, an Aberdeen fisherman who saw his industry almost collapse under EU directives and restrictions.

President Obama’s insertion of himself in the debate was, as they say, worse than a crime, it was a blunder. Visiting London in April, he warned Britain it would suffer in terms of future trade deals with America if it left—it would wind up “in the back of the queue.” Advice is one thing, a threat is another, and Mr. Obama’s was widely resented. That he said “queue” rather than “line” made it look orchestrated, even dictated, by Downing Street. If Remain loses, Prime Minister David Cameron will fall. What struck me this week is wherever Britons stand on Brexit, no one seems to love him.

In America and Europe, with Donald Trump and Brexit, the same issue predominates: immigration. It is mind-boggling that the elites of the West still struggle so haplessly with the idea that their way has failed. The intelligent, sturdy Angela Merkel of Germany—the EU’s staunchest defender, indeed its symbol—last summer made the decision to invite a million refugees to a Europe with no plans or even capacity to handle the influx. This decision gave a special boost to Brexit. If it passes, Britain’s exit may spark the slow—or not so slow—unraveling of the EU.


Article Link to The Wall Street Journal:

Hillary’s Gift and Britain’s Choice