Friday, September 23, 2016

Friday, September 23, Morning Global Market Roundup: Asian Shares Hold Near 14-Month Peak On Fed Relief, JGB Yields Fall

By Hideyuki Sano
September 23, 2016

Asian shares held near 14-month highs on Friday on revived bets the Federal Reserve is settling into a phase of very gradual interest rate rises while Japanese bond yields fell after the Bank of Japan's new policy scheme.

MSCI's broadest index of Asia-Pacific shares outside Japan .MIAPJ0000PUS was steady and within sight of its highest levels since July 2015 that it hit in early September.

Japan's Nikkei .N225 dipped 0.1 percent, reflecting the yen's gains during Japan's market holiday on Thursday.

On Wall Street, the S&P 500 Index .SPX gained 0.65 percent, led by a 1.9-percent gain for the real estate sector .SPLRCR.

The S&P 500 capped its best two-day performance in more than two months, while the Nasdaq closed at a record high.

The rallies began after the Fed on Wednesday maintained the low-interest rate environment that had helped underpin the bull market for stocks since the global financial crisis in 2008.

"Because the Fed is shying away from tightening, there will be liquidity sloshing around in the world's financial markets as well for another few months," said Tatsushi Maeno, senior strategist at Okasan Asset Management.

Fed Chair Janet Yellen did say U.S. growth was looking stronger and rate increases would be needed to keep the economy from overheating and fuelling high inflation.

But that hardly changed the market's perception on the outlook of the Fed's policy, with interest rate futures <0> pricing in roughly a 60 percent chance of a rate increase by December, little changed from before the Fed meting.

Crucially, the Fed also projected a less aggressive rise in rates next year and in 2018, fanning expectations bond yields will stay low in the foreseeable future.

"Fed officials have downgraded their forecasts for rate hikes in their projections. The Fed's meeting has confirmed that low interest rates will last longer than previously thought," said Shuji Shirota, head of macro economic strategy at HSBC in Tokyo.

The 10-year U.S. Treasuries yield US10YT=RR dropped to as low as 1.608 percent, down sharply from Wednesday's high of 1.738 percent and hitting its lowest level in almost two weeks.

The German Bunds yield also fell about 10 basis points to minus 0.093 percent DE10YT=TWEB from plus 0.005 percent on Wednesday.

The 10-year Japanese government bond yield JP10YTN=JBTC fell 2.0 basis points to minus 0.050 percent while the 30-year yield fell 5.0 basis points to 0.460 percent JP30YTN=JBTC, hitting a two-week low.

The BOJ said on Wednesday it would seek to guide the 10-year JGB yield around zero percent in an unprecedented move, but investors were left wondering exactly where and how the BOJ would be able to exert control on the bond yield.

Many market players think long-term bond yields are likely to fall if the BOJ continues the current pace of massive bond buying.

In the currency market, the dollar was softer on the Fed's policy outlook, with the dollar's index against a basket of six major currencies .DXY =USD slipping to its lowest level in nearly two weeks on Thursday.

The index last stood at 95.530, off Thursday's low of 95.048 but down 0.5 percent on the week.

The euro fetched $1.1196 EUR=, recovering from Wednesday's three-week low of $1.1123.

The yen stepped back to 101.10 to the dollar from a four-week high of 100.10 touched on Thursday after Japan's top currency diplomat warned Tokyo will take action if needed.

Oil prices rallied to a two-week high on Thursday, helped by U.S. government data that showed a surprising crude inventory drop.

But they gave back some gains after Reuters reported that a two-day expert-level meeting of the Organization of the Petroleum Exporting Countries on production cooperation had yielded no major breakthrough.

The meeting was held in advance of Sept. 26-28 talks in Algeria between OPEC and other major oil producers to discuss a potential output freeze.

Brent crude futures traded at $47.27 per barrel, after having climbed to $47.83 on Thursday.

Elsewhere, copper CMCU3 rallied to a six-week high on Thursday despite worries about slow demand growth, supported by the Fed's policy. It last traded at $4,830.5 per tonne, after having risen to as high as $4,858.5

Article Link To Reuters:

Oil Dips On Technical Selling After Two Days Of Strong Rises

By Henning Gloystein
September 23, 2016

Oil prices eased on Friday, pulled down by a technical sell-off following two sessions of strong rises and on caution ahead of a gathering of OPEC ministers next week in Algeria to discuss possible production cooperation to rein in global oversupply.

U.S. West Texas Intermediate (WTI) crude oil futures CLc1 were trading at $45.80 per barrel at 0151 GMT (9.51 pm ET), down 52 cents, or 1.12 percent, from their previous close.

International Brent crude oil futures LCOc1 were down 43 cents, or 0.9 percent, at $47.22 a barrel.

Traders said that the declines were largely down to technical chart indicators and also selling following strong price gains in the previous two trading sessions.

Reuters technical chart analyst Wang Tao said that WTI prices may test support at $45.65 per barrel, and Brent was likely to retrace to $46.93 per barrel in the near future.

The price falls may also be related to an increase in crude supplies, with global production already exceeding consumption almost without interruption since mid-2014.

War-torn Libya, a member of the Organization of the Petroleum Exporting Countries (OPEC), exported its first cargo from its Ras Lanuf port since at least 2014 this week, contributing to OPEC's record production PRODN-TOTAL of 33.5 million barrels.

"Supply has increased again," said London-based commodity brokerage Marex Spectron, adding that at the same time "a significant amount of refining capacity is out of the market, which puts a lid on the demand for crude oil."

OPEC could see a new push to clinch a first deal to curb output since 2008 next week when the group meets informally in Algeria next week, although most market observers say an agreement that would significantly cut record output was unlikely.

Article Link To Reuters:

Clinton Proposes 65 Percent Tax On U.S. Billionaire Estates

By Emily Stephenson
September 23, 2016

Democratic U.S. presidential nominee Hillary Clinton on Thursday proposed raising taxes on inherited property to 65 percent for the largest estates as she bolstered plans for tax hikes on the wealthiest Americans.

Known by conservative opponents as the "death tax," the estate tax, levied on property such as cash, real estate, stock or other assets transferred from deceased persons to heirs, currently is imposed only on inherited assets worth $5.45 million or more for an individual.

Clinton's plan, posted on her campaign's website, would raise the estate tax from the current 40 percent to 45 percent, the rate that existed in 2009. But the biggest estates would face rates of up to 65 percent for property valued at more than $500 million for a single person or $1 billion per couple, under her proposal, an update of an earlier plan.

Clinton's proposed top rate of 65 percent would be the highest estate tax since the 1980s, and is in line with a proposal made during the Democratic primaries by her former rival for the party's presidential nomination, U.S. Senator Bernie Sanders.

Her campaign said the boosted estate tax and a change in the rules to tax capital gains associated with inherited assets would help pay for other proposals to benefit middle-class people, such as expanding a tax credit for working parents.

Clinton's campaign said the plan would hit only the wealthiest people.

"Hillary Clinton has made a commitment throughout this campaign to make sure there is a plan to pay for the progressive policies we have laid out," said Mike Shapiro, an economic adviser to Clinton.

The Committee for a Responsible Federal Budget, a nonpartisan group focused on budget issues, said Clinton's new tax proposals including the estate tax changes, taxes on capital gains of inherited assets and other provisions would together raise $260 billion in revenue over a decade.

Republican presidential nominee Donald Trump, a wealthy real estate developer, wants to eliminate the estate tax. Clinton's proposal prompted criticism from conservatives ahead of her first debate with Trump on Monday night at Hofstra University in Hempstead, New York.

Jason Miller, a Trump spokesman, issued a statement decrying Clinton's "dramatic hike in the death tax."

Republicans want to eliminate estate taxes altogether because they believe the system penalizes families who want to pass down businesses, said U.S. Representative Kevin Brady, chairman of the tax-writing House of Representatives Ways and Means Committee.

Brady said in a statement that Clinton's plan was "dead on arrival."

The nonpartisan Center on Budget and Policy Priorities said this month that only the estates of the wealthiest 0.2 percent of Americans, about two out of every 1,000 people who die, currently owe any estate tax because the first $5.45 million per person is exempt. Clinton would lower that exemption to $3.5 million.

Article Link To Reuters:

OPEC In New Push To Clinch First Deal To Curb Output Since 2008

By Rania El Gamal and Alex Lawler
September 23, 2016

As far as OPEC decision-making is concerned, Algeria, which plays host to oil ministers next week, has always been the land of surprises.

The last two meetings of the Organization of the Petroleum Exporting Countries (OPEC) held in Algeria -- in 2004 and 2008 -- shocked the market with unexpected production cuts to prop up prices.

The stars could align for OPEC again next week when its ministers return to Algiers and look ready to curb output for the first time in eight years, according to OPEC officials and sources.

Saudi Arabia and Iran, arch-rivals in oil markets and in politics, are sending conciliatory signals that they want to work together, along with Russia which is involved in talks although not a member of OPEC. This comes despite their backing for different sides in conflicts in Yemen and Syria.

Behind the scenes, OPEC experts are trying to work out last-minute details for an output-limiting deal that would impress the market but also allow oil ministers to claim victories at home in front of their respective domestic audiences.

"This time I think (things are) a little bit different because circumstances are a little bit better, helping (producers) to reach a deal," Iraq's OPEC governor Falah Alamri said on Thursday.

He said OPEC had to act when it meets Russia on the sidelines of an energy producers and consumers conference in Algeria next week simply because current oil prices at $45-50 per barrel were not acceptable to the group's members. [O/R]

Iraq, Saudi Arabia, Iran and Russia have all ramped up output to historic highs over the past year to fight for market share with higher-cost producers such as the United States where production has been declining due to low oil prices.

Iraq is seen as one of key stumbling blocks to a global oil production deal given that it wants to increase output further next year, while Russia and Iran have probably both hit peak capacity and Saudis have never tested higher production levels.

But Alamri said Iraq would not kill the deal: "We are not intending to flood the market, we are intending to support the market.... we will not participate in any action that will reduce the price."

OPEC Experts Meeting

OPEC last reduced supply in 2008 when the global economic crisis crippled demand.

The first attempt at an output freeze deal between OPEC and Russia collapsed earlier this year after the Saudis said Iran needed to contribute to it as production recovered following the end to Western sanctions in January.

Tehran has argued its production needs to reach pre-sanction levels before it agrees to any action. In the past three months, Iranian oil output has stagnated but Tehran is still insisting on certain exemptions from any OPEC deals to curb supplies.

Saudi Arabian and Iranian OPEC officials are meeting in Vienna this week, according to sources, to try to figure out the shape of a possible output deal.

"It seems that they all want to get some sort of consensus in Algiers. You can see that in the amount of meetings and diplomacy taking place. There is a real push," an OPEC source said.

Other sources said the main debate was about baseline production figures from which output could be frozen or cut.

OPEC has two sets of figures, estimates by countries themselves and estimates by independent market experts known as secondary sources.

The latter estimates have recently been lower and a more accurate reflection of actual production numbers. Gulf producers are insisting on using these in any output deal, according to sources, in order to help better monitor supply levels.

One OPEC source familiar with discussions suggested that if output was frozen at levels seen at the start the year or the average of the first six months of 2016, it would effectively represent a cut from current real production levels.

"Logically speaking, it could be viewed as a cut if (all) agreed on using secondary sources," the OPEC source said.

Several other OPEC sources said that Libya and Nigeria could be granted exemptions as their output is curtailed by unrest.

Scene of Surprises 

OPEC's last two meetings in Algeria produced surprise, bullish outcomes.

In the city of Oran in December 2008, ministers emerged from hours of talks to announce a huge supply cut of 4.2 million barrels per day (bpd), causing prices to jump. The number actually included earlier cutbacks from previous meetings in the year.

And in 2004, when growing Chinese demand was straining supply, OPEC met in Algiers and announced a surprise supply cut. Prices jumped and within weeks the decision was reversed.

Now, OPEC produces a third of global crude or around 33.5 million barrels per day with Russia and the United States producing around 10-11 million bpd each.

Record OPEC production has led to a massive spike in global oil stocks, currently standing at over 3 billion barrels.

The International Energy Agency said this month oil supply will outpace demand at least until the second half of 2017, meaning prices will remain depressed and further stretching the budgets of OPEC producers and Russia.

Several OPEC officials have publicly suggested levels by which global output shall drop to help prices recover.

Algeria's oil minister said this week supply should be reduced by at least one million bpd. Russia said it was in theory ready to cap output by 5 percent.

OPEC's secretary general has said the output freeze deal shall last to October 2017.

"It is the closest OPEC has come to a deal in a long time but of course challenges remain and the elephant in the room is Iran and to a certain extent Iraq," said Amrita Sen from Energy Aspects.

She said that if OPEC cut output by 1 million bpd it would help rebalance the market as it would reduce stocks by 290-330 million barrels over the course of the year, even if U.S. production started to recover due to higher oil prices.

Article Link To Reuters:

Time To Privatize Immigration

By Mihir Sharma
The Bloomberg View
September 23, 2016

The West, it's obvious, faces a migration crisis. Across the aging, stagnating economies of the developed world, citizens are revolting against what many perceive as an uncontrolled influx of foreigners. The U.S. apart, most of these economies are also facing a prolonged crisis of growth. Under other circumstances, the solution would be obvious: restore vitality by taking in more creative and productive people from India, China and other parts of the developing world.

But how to do so, given the fraught politics of immigration? There's clearly something unsustainable about the West’s current approach -- the idea that countries won't seek immigrants, but will by default take in whoever lands up on their shores or games the system to stay. Ironically, one answer may be found in a nation historically as opposed to immigration as any blood-and-soil European polity: Japan.

While Japan's immigration numbers remain minuscule, especially compared to countries like the U.S. and Australia, they're rising. Under Prime Minister Shinzo Abe, the number of foreigners living in Japan has increased by 10 percent. Japan’s leaders have tried to dilute opposition by using a controversial program to bring “technical interns” into Japan; their ranks have expanded 27 percent in the same period.

Other countries have work permit systems of this sort, of course. Indian companies have long demanded more intra-company transfers to the U.K, for example. And the U.S. has the H1-B visa program, in which corporations sponsor skilled employees. But companies are using the Japanese internship program differently, training future employees in their home countries before they even leave. There’s a vast difference -- politically and culturally -- between Indian IT service providers shipping cheap workers across national boundaries and “national champion” companies bringing employees from other countries back home.

Indeed, resistance to the use and abuse of work permit programs by Indian IT companies is quite understandable. Firms have exploited the H1-B program to import low-wage software engineers for specific projects -- pejoratively known as "body-shopping." While this may improve efficiency overall, it does little for long-term productivity and innovation in either the U.S. or India.

The comprehensive immigration reform package that almost passed a few years ago would have substantially reformed the U.S. program, allowing individual migrants to change jobs rather than depending on a single employer. This would have been good for everyone -- except, that is, the IT companies who would've seen their business model evaporate.

An even more crucial reform, surely, would be for multinational companies to help select the kind of immigrants that their home countries really want and need, and prepare them in advance for life there. Logically, those that thrive in a particular multinational’s corporate culture -- so often shaped by the attitudes and instincts of the company's home country -- should do especially well once they relocate. There’s even a word for these employees in the management literature: “inpatriates."

Once they arrive, the companies they work for can do what liberal governments would struggle to do -- introduce the newcomers to local customs that help them build cross-cultural bridges. At Sweden’s Sandvik, for example, the country’s famed coffee breaks or “fika”served that purpose for Indian inpatriates.

There are few other options. Points-based systems such as those used in Australia and Canada -- which grade possible immigrants on the basis of their age, whether they speak English, their level of education and so on -- are inherently elitist. They'd likely struggle in countries where egalitarianism is a crucial part of the national self-image. In addition, Australia and Canada already have relatively successful multicultural societies. More homogenous countries might implicitly prefer that those whom they put on a path to citizenship be selected with an eye towards whether they can assimilate effectively.

Its recent troubles apart, the U.S. had probably developed the most effective pathways to citizenship in the West, especially for skilled workers. Its higher education sector, the best in the world, served as a magnet for the talented; a year’s grace period after they finished their schooling allowed students to find companies willing to hire them. The university experience aided their assimilation, and the job-seeking process served as a filter for useful skills.

Yet few places have as attractive a higher education system as the U.S.; the task of screening possible future citizens can't be left to local colleges. Nor should it be left to bureaucrats, for that would require them to differentiate between various seekers after citizenship, something that violates deeply-felt liberal principles.

Companies are better suited to the task. They'll be quicker to identify the skills that will be useful and productive than governments ever could be. They can pick and choose possible immigrants in their home countries, which no government can do. And the ability to succeed in a particular company’s corporate culture is a good proxy for how well immigrants will adapt to their new country. Perhaps the next thing that needs to be privatized is migration.

Article Link To The Bloomberg View:

Obama Kept Military Out Of The Loop On Cash Payments To Iran

By Eli Lake
The Bloomberg View
September 23, 2016

One might think President Barack Obama would have asked his top military officials to weigh in on his administration's decision in January to send $400 million in cash to Iran. After all, Iran is the world's leading state sponsor of terrorism, and terrorists prefer cash to wire payments because it's so difficult to track. And its armed forces have both directly and indirectly threatened the U.S. military in the Middle East.

But Obama and Secretary of State John Kerry did not consult Secretary of Defense Ash Carter or the Chairman of the Joint Chiefs of Staff, General Joseph Dunford.

This news came out of a hearing Thursday before the Senate Armed Services Committee. In response to a question from Republican Senator Ted Cruz about the cash payment to Iran, Carter made it clear that he had been out of the loop.

"We weren't involved in this," Carter said, adding that it was part of the settlement of a decades-long legal dispute between Iran and the U.S. over arms sales. "I don't know all the details of it, and the chairman and I were not involved in that. It is a decision that was taken by the law enforcement and diplomatic and I would refer you there."

When Dunford was asked about the cash payments, he responded: "I am not trying to be evasive but I don't know the details of that arrangement and it really was a political decision that was made to provide that money and I don't think it's appropriate that I comment on that."

Christopher Sherwood, a press officer at the Pentagon, later told me pretty much the same thing. "It was worked out through the administration. The Department of Defense had nothing to do with that."

All of this is important for a few reasons. For starters, in response to repeated questions about the cash payment, which coincided with an intricate deal to release Americans detained in Iran, the State Department defended the decision by saying it went through an inter-agency process. At an August 4 briefing, State Department Deputy Spokesman Mark Toner was asked about whether the payment was a form of ransom. Toner began by saying, "There's always an interagency discussion around any decision like this, and every relevant agency weighs in."

The disclosure that the Pentagon did not participate in the decision-making process also comes after reports that at least some lawmakers were not consulted about other payments to Iran. This week, the Weekly Standard reported that key members of the Senate Foreign Relations Committee, including its chairman Senator Bob Corker, were not told about wire payments to Iran, even after Obama last month said the U.S. had to send cash because such wire payments were not possible. Politico reported this week that the U.S. had been wiring cash to Iranian banks long before the cash payments were flown to Iran.

The disclosure is also the latest example of how U.S. military leaders have been distancing themselves from Kerry's Middle East diplomacy. Senior military leaders could barely disguise their opposition to Kerry's latest cease-fire plan for Syria, which would have resulted in the U.S. cooperating with Russia to select bombing targets had a cessation of hostilities held for a week. It didn't. At the hearing Thursday, Dunford said the Pentagon had no plans to share any intelligence with Russia.

Most important in all of this, though, is that the fissures between the military and the White House, which have been growing since Obama's first term, are coming out in the open in his presidency's final months. Since leaving office, all three of Obama's prior defense secretaries have talked publicly about their frustrations with the White House.

Robert Gates, who was Obama's first secretary of defense, wrote a scathing memoir where he complained about being ordered around by senior White House staff. Leon Panetta, who headed the Pentagon between 2011 and 2013, told the New York Times Magazine earlier this year that he never saw the letters Obama sent to Iran's Supreme Leader, when he served as CIA director or secretary of defense. Panetta's successor, Chuck Hagel, told Foreign Policy last December that he believed the White House had set out to destroy him.

We'll have to wait, but if recent public testimony is any indication Ash Carter will write a lively memoir once he leaves office.

Article Link To The Bloomberg View:

Helicopter Money Is In The Air

By Robert Skidelsky
Project Syndicate
September 23, 2016

Fiscal policy is edging back into fashion, after years, if not decades, in purdah. The reason is simple: the incomplete recovery from the global crash of 2008.

Europe is the worst off in this regard: its GDP has hardly grown in the last four years, and GDP per capita is still less than it was in 2007. Moreover, growth forecasts are gloomy. In July, the European Central Bank published a report suggesting that the negative output gap in the eurozone was 6%, four percentage points higher than previously thought. “A possible implication of this finding,” the ECB concluded, “is that policies aimed at stimulating aggregate demand (including fiscal and monetary policies) should play an even more important role in the economic policy mix.” Strong words from a central bank.

Fiscal policy has been effectively disabled since 2010, as the slump saddled governments with unprecedented postwar deficits and steeply rising debt-to-GDP ratios. Austerity became the only game in town.

This left monetary policy the only available stimulus tool. The Bank of England and the US Federal Reserve injected huge amounts of cash into their economies through “quantitative easing” (QE) – massive purchases of long-term government and corporate securities. In 2015, the ECB also started an asset-buying program, which ECB President Mario Draghi promised to continue “until we see a sustained adjustment in the path of inflation.”

QE has not been a magic bullet. While it helped stop the slide into another Great Depression, successive injections of money have yielded diminishing returns. The ECB’s announcement of its policy narrowed the gap in bond yields between Europe’s core and periphery. But a study by Thomas Fazi of the Institute for New Economic Thinking emphasizes QE’s lack of influence on bank lending, the increase in non-performing loans, and the dire output and inflation figures themselves. Moreover, QE has undesirable distributional consequences, because it gives money to those who have already have it, and whose current spending is little influenced by having more.

Policymakers should have been alert to the likelihood of this mediocre outcome. When central banks try to reduce inflation by pumping liquidity out of the system, their policy is subverted by commercial banks’ ability to pump it back in by making loans. In today’s deflationary environment, the reverse has happened. Central banks’ attempt to pump in liquidity to stimulate activity is subverted by commercial banks’ ability to pump liquidity out by augmenting reserves and refusing to lend.

That leaves fiscal policy. The logic of current economic conditions implies that governments should be taking advantage of ultra-low interest rates to invest in infrastructure projects, which would both stimulate demand and improve the structure of the economy. The problem is the climate of expectations. As the Oxford economist John Muellbauer says, treasuries and central banks have been “hammering into the consciousness of the private sector the importance of reducing gross government debt relative to GDP.”

This orthodoxy arises from the idea that borrowing is simply “deferred taxation.” If the private sector believes that taxes will have to rise to pay for government borrowing, according to this view, people will increase their savings to pay the higher taxes, thus destroying any stimulative effect. The orthodoxy mistakenly assumes that government spending cannot generate any extra income; but so long as it prevails, debt-financed fiscal policy is ruled out as a means to revive economic growth.

As a result, analysts and policymakers have started mooting ideas for unconventional fiscal policy to supplement unconventional monetary policy. In particular, they are debating variations of so-called helicopter money, following a famous thought experiment by Milton Friedman in 1969, in which “one day a helicopter…drops an additional $1,000 in bills from the sky.” Former Federal Reserve Chairman Ben Bernanke, among others, has offered influential support for “helicopter drops” to revive flagging economies.

Helicopter money comes in two forms, which could (and should) be dropped together. The first is to put purchasing power directly into the hands of consumers – for example, by issuing each voter or citizen with smart cards worth $1,000 each. The Swiss economist Silvio Gesell, who originally proposed a scheme of “stamped money” at the start of the last century, added a stipulation that balances unspent after a month should be taxed, to discourage hoarding.

Alternatively, helicopter money could be used to finance infrastructure spending. The advantage of such “monetary financing” is that such spending, while adding to the deficit and leading to a permanent increase in the money supply, would not increase the national debt, because the government would “owe” the money only to its own banker. This would eliminate the offsetting negative expectation of higher taxes.

Surely, issuing debt that never has to be repaid is too good to be true, right? There is indeed the obvious danger that governments might easily become addicted to monetary finance to pay for private and public spending, which is why it is unlikely to be tried openly unless economic conditions worsen significantly. But the political risk of doing nothing if we stumble into another recession (as seems quite likely) is worse. Like it or not, unconventional fiscal policy could well be the next game in town.

Article Link To Project Syndicate:

Why The Fed Is Losing Credibility

How often can Fed lay out case for rate hike and then not follow through, asks observer.

By Greg Robb
September 23, 2016

For the second time this year, Federal Reserve officials pointed to a looming rate hike and then pulled back, actions which have left the central bank “perilously close” to losing its credibility with the markets.

“There are only so many times you can lay out the case to act and then do nothing and still expect to maintain your credibility,” said Richard Moody, chief economist at Regions Financial Corp. in Birmingham, Alabama.

“If not there yet, the Fed is perilously close to being there,” he added.

The Fed on Wednesday kept interest rates unchanged but Chairwoman Janet Yellen said one increase is “appropriate” this year barring any major new risks to the economy.

While many analysts argue Yellen’s statement lays the groundwork for a rate hike in December, doubts remain. Minutes of the Fed’s April meeting pointed to a rate hike in June but the central bank pulled back after a weak May job report.

While Yellen’s statement may be the intended to point to a move by the end of the year, “we can’t help but think leaving a three-month window simply leaves three months for something to go wrong and preclude a December rate hike,” Moody said.

Economists at Goldman Sachs agreed that a December rate hike was not a done deal.

“As [Wednesday’s] decision showed, when faced with conflicting signals, a committee focused on risk management will be inclined to hold fire,” said Zach Pandl, a senior economist for Goldman Sachs.

Tom Porcelli, chief U.S. economist at RBC Capital Markets, said, in order to hike in December, the Fed will have to be able to say, as it did in its statement Wednesday, that the labor market “has continued to strengthen” and the consumer has been “growing strongly.”

“If that materializes you theoretically get a hike - unless, of course, something pops up that derails them.”

“For those with short memories, please keep in mind this Fed is easily derailed.”

Article Link To MarketWatch:

Probe Of Leaked U.S. NSA Hacking Tools Examines Operative's 'Mistake'

By Joseph Menn and John Walcott
September 23, 2016

A U.S. investigation into a leak of hacking tools used by the National Security Agency is focusing on a theory that one of its operatives carelessly left them available on a remote computer and Russian hackers found them, four people with direct knowledge of the probe told Reuters.

The tools, which enable hackers to exploit software flaws in computer and communications systems from vendors such as Cisco Systems and Fortinet Inc, were dumped onto public websites last month by a group calling itself Shadow Brokers.

The public release of the tools coincided with U.S. officials saying they had concluded that Russia or its proxies were responsible for hacking political party organizations in the run-up to the Nov. 8 presidential election. On Thursday, lawmakers accused Russia of being responsible.

Various explanations have been floated by officials in Washington as to how the tools were stolen. Some feared it was the work of a leaker similar to former agency contractor Edward Snowden, while others suspected the Russians might have hacked into NSA headquarters in Fort Meade, Maryland.

But officials heading the FBI-led investigation now discount both of those scenarios, the people said in separate interviews.

NSA officials have told investigators that an employee or contractor made the mistake about three years ago during an operation that used the tools, the people said.

That person acknowledged the error shortly afterward, they said. But the NSA did not inform the companies of the danger when it first discovered the exposure of the tools, the sources said. Since the public release of the tools, the companies involved have issued patches in the systems to protect them.

Investigators have not ruled out the possibility that the former NSA person, who has since departed the agency for other reasons, left the tools exposed deliberately. Another possibility, two of the sources said, is that more than one person at the headquarters or a remote location made similar mistakes or compounded each other's missteps.

Representatives of the NSA, the Federal Bureau of Investigation and the office of the Director of National Intelligence all declined to comment.

After the discovery, the NSA tuned its sensors to detect use of any of the tools by other parties, especially foreign adversaries with strong cyber espionage operations, such as China and Russia.

That could have helped identify rival powers’ hacking targets, potentially leading them to be defended better. It might also have allowed U.S officials to see deeper into rival hacking operations while enabling the NSA itself to continue using the tools for its own operations.

Because the sensors did not detect foreign spies or criminals using the tools on U.S. or allied targets, the NSA did not feel obligated to immediately warn the U.S. manufacturers, an official and one other person familiar with the matter said.

In this case, as in more commonplace discoveries of security flaws, U.S. officials weigh what intelligence they could gather by keeping the flaws secret against the risk to U.S. companies and individuals if adversaries find the same flaws.

Critics of the Obama administration's policies for making those decisions have cited the Shadow Brokers dump as evidence that the balance has tipped too far toward intelligence gathering.

The investigators have not determined conclusively that the Shadow Brokers group is affiliated with the Russian government, but that is the presumption, said one of the people familiar with the probe and a fifth person.

One reason for suspecting government instead of criminal involvement, officials said, is that the hackers revealed the NSA tools rather than immediately selling them.

The publication of the code, on the heels of leaks of emails by Democratic Party officials and preceding leaks of emails by former U.S. Secretary of State Colin Powell, could be part of a pattern of spreading harmful and occasionally false information to further the Russian agenda, said Jim Lewis, a cybersecurity expert at the Center for Strategic and International Studies.

"The dumping is a tactic they've been developing for the last five years or so," Lewis said. "They try it, and if we don't respond they go a little further next time."

Article Link To Reuters:

Yahoo Says Hackers Stole Data From 500 Million Accounts In 2014

By Dustin Volz
September 23, 2016

Yahoo Inc (YHOO.O) said on Thursday that at least 500 million of its accounts were hacked in 2014 by what it believed was a state-sponsored actor, a theft that appeared to be the world's biggest known cyber breach by far.

Cyber thieves may have stolen names, email addresses, telephone numbers, dates of birth and encrypted passwords, the company said. But unprotected passwords, payment card data and bank account information did not appear to have been compromised, signaling that some of the most valuable user data was not taken.

The attack on Yahoo was unprecedented in size, more than triple other large attacks on sites such as eBay Inc (EBAY.O), and it comes to light at a difficult time for Yahoo.

Chief Executive Officer Marissa Mayer is under pressure to shore up the flagging fortunes of the site founded in 1994, and the company in July agreed to a $4.83 billion cash sale of its internet business to Verizon Communications Inc (VZ.N).

"This is the biggest data breach ever," said well-known cryptologist Bruce Schneier, adding that the impact on Yahoo and its users remained unclear because many questions remain, including the identity of the state-sponsored hackers behind it.

On its website on Thursday, Yahoo encouraged users to change their passwords but did not require it.

Although the attack happened in 2014, Yahoo only discovered the incursion after August reports of a separate breach. While that report turned out to be false, Yahoo's investigation turned up the 2014 theft, according to a person familiar with the matter.

Analyst Robert Peck of SunTrust Robinson Humphrey said the breach probably was not enough to prompt Verizon to abandon its deal with Yahoo, but it could call for a price decrease of $100 million to $200 million, depending on how many users leave Yahoo.

Steven Caponi, an attorney at K&L Gates with a practice including merger litigation, said that Yahoo's breach could fall under the "material adverse change" clause common in mergers allowing a buyer to walk away if its target's value deteriorates.

"That would give Verizon the opportunity to renegotiate the terms or potentially walk away from the transaction if it is a material change. Whether it is a material change will depend in large part on what kind of information was compromised," Caponi said.

Still, it is rare for mergers to fall apart over material changes. Verizon said in a statement it was made aware of the breach within the last two days and had limited information about the matter.

"We will evaluate as the investigation continues through the lens of overall Verizon interests," the company said.

Shares of Yahoo stock closed a penny higher at $44.15, while shares of Verizon, were up about 1 percent.

Rising Attacks

The Yahoo breach follows a rising number of other large-scale data attacks and could make it a watershed event that prompts government and businesses to put more effort into bolstering defenses, said Dan Kaminsky, a well-known internet security expert.

Retailers and health insurers have been especially hard hit after high-profile breaches at Home Depot Inc (HD.N), Target Corp (TGT.N), Anthem Inc (ANTM.N) and Premera Blue Cross.

"Five hundred of the Fortune 500 have been hacked," he said. "If anything has changed, it's that these attacks are getting publicly disclosed."

Three U.S. intelligence officials, who declined to be identified by name, said they believed the attack was state-sponsored because of its resemblance to previous hacks traced to Russian intelligence agencies or hackers acting at their direction.

Yahoo said it was working with law enforcement on the matter, and the FBI said it was investigating.

"The investigation has found no evidence that the state-sponsored actor is currently in Yahoo's network," the company said.

While the breach comprised mostly low-value information, it did include security questions and answers created by users themselves. That data could make users vulnerable if they use the same answers on other sites.

A former Yahoo employee said the Q&A were deliberately left unencrypted, which allowed Yahoo to catch fake accounts more easily because fake accounts tended to reuse questions and answers.

News of the massive breach at one of the nation's largest email providers may fan concern that U.S. companies and government agencies are not doing enough to improve cyber security.

Democratic Senator Mark Warner said in a statement he was "most troubled by news that this breach occurred in 2014, and yet the public is only learning details of it today."

Technology website Recode first reported Tuesday that Yahoo planned to disclose details about a data breach affecting hundreds of millions of users.

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Rove: When Presidential Debates Matter

With so many voters unhappy, a mistake by Trump or Clinton could scramble it all.

By Karl Rove
The Wall Street Journal
September 23, 2016

For all the importance attached to presidential debates, they tend to confirm existing trends. President Gerald Ford may have mistakenly denied Soviet domination of Eastern Europe in a 1976 exchange with Gov. Jimmy Carter. But Ford was already whittling away at Mr. Carter’s lead before that encounter, and afterward the race kept tightening.

It happened again in 1980. Before their single debate, polls showed Gov. Ronald Reagan gaining against President Carter. Reagan’s debate performance affirmed the growing perception that he was up to the job, and he won in a landslide.

The exception was 1984. In the first debate that year, President Reagan, then 73 years old, looked confused and out of it. As a result, he dropped eight points. But in the second debate, he delivered the devastating comeback to his opponent, the 56-year-old former Vice President Walter Mondale. “I am not going to exploit for political purposes,” Reagan said, “my opponent’s youth and inexperience.” He quickly regained those eight points and then some, winning 49 states.

When Donald Trump and Hillary Clinton meet Monday for the first of their three debates, how much is at stake? With so many unhappy voters, a big mistake on either side could scramble the contest. But don’t count on it.

Both candidates should walk out onto the debate stage understanding what Americans think of them, good and bad. Their task is to reinforce their individual strengths, exploit each other’s weaknesses and mitigate their own shortcomings.

For Mr. Trump this mission is simpler. He’s the outsider, and voters thirst for change. Yet most Americans believe he lacks the character and temperament to be president. Mr. Trump must reassure them. He talks in short, powerful sentences, which is a strength. He should pair it with a presidential tone, as he did during his news conference in Mexico City, where he was restrained and humble rather than angry or rude.

Mr. Trump should know that Monday’s debate will be much different from the ones in the GOP primary. Because so many candidates were on stage, those were essentially serial news conferences, with contenders delivering one-liners in turn. When in-depth policy discussions intruded, Mr. Trump could recede into silence or offer even shorter answers, as his competitors grabbed for the freed-up time.

By contrast, Monday’s debate will feature a lot of back-and-forth between the candidates on policy. Mr. Trump cannot match the depth of Mrs. Clinton’s knowledge, but to appeal beyond his base he must avoid coming across as ignorant and shallow.

He should be careful not to overdo his attacks. Mr. Trump promises to keep questioning Mrs. Clinton’s fitness for the presidency by pushing on her email server, health, conflicts of interest with the Clinton Foundation, and record in office. But if he appears too aggressive, he could make her a sympathetic figure.

Mrs. Clinton, though a more accomplished debater, has a tougher task. Voters believe she has the experience, qualifications and temperament to do the job. But by emphasizing these traits, she underscores that she is the status quo. The more voters believe she will be only a third term for President Obama, offering nothing new, the steeper her road to victory.

Mrs. Clinton must persuade Americans that she favors reasonable but far-reaching change and that her experience equips her to achieve it. Easier said than done. Mrs. Clinton has shown that she can deliver laundry lists of policies, but she can’t prioritize them and finds it hard to articulate a vision. Still, she comes across as optimistic and more of a unifier than Mr. Trump, important advantages in this dispiriting election.

The former secretary of state is likely to have many opportunities to fact check Mr. Trump but must do so without sounding condescending. She should aim to provoke Mr. Trump, to cause him to lose his cool and lash out with personal attacks. If she does, she will start social media chattering and win the post-debate coverage.

Good moments can be more important than good arguments. Few people who watched the first debate in 2000 remembered who prevailed in what policy dispute. But George W. Bush won the moment, and the debate, with his curt, dismissive nod when Vice President Al Gore attempted to menacingly invade his space. Body language, tone and appearance can be as consequential as what’s said. Richard Nixon learned that the hard way against John F. Kennedy.

Having three debates scheduled means candidates can recover from a bad performance. Both George W. Bush and Barack Obama survived mediocre first outings. But with an estimated 100 million people likely to watch, Monday’s matchup is a golden opportunity for this year’s flawed candidates to begin taking control of the race.

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Noonan: The Year Of The Reticent Voter

People seem to feel that if they express a preference, they’re inviting others to inspect their souls.

By Peggy Noonan
The Wall Street Journal
September 23, 2016

The signature sentence of this election begins with the words “In a country of 320 million . . .” I hear it everywhere. It ends with “how’d it come down to these two?” or “why’d we get them?”

Another sentence is a now a common greeting among Republicans who haven’t seen each other in a while: “What are we gonna do?”

The most arresting sentence of the week came from a sophisticated Manhattan man friendly with all sides. I asked if he knows what he’ll do in November. “I know exactly,” he said with some spirit. “I will be one of the 40 million who will deny, the day after the election, that they voted for him. But I will.”

A high elected official, a Republican, got a faraway took when I asked what he thought was going to happen. “This is the unpollable election,” he said. People don’t want to tell you who they’re for. A lot aren’t sure. A lot don’t want to be pressed.

That’s exactly what I’ve seen the past few weeks in North Carolina, New Jersey, Tennessee and Minnesota.

Every four years I ask people if they’ll vote, and if they have a sense of how. Every four years they tell me—assertively or shyly, confidently or tentatively. This year is different. I’ve never seen people so nervous to answer. It’s so unlike America, this reticence, even defensiveness. It’s as if there’s a feeling that to declare who you’re for is to invite others to inspect your soul.

“I feel like this is the most controversial election ever,” said a food-court worker at La Guardia Airport. She works a full shift, 4 a.m. to noon, five days a week, then goes full-time to a nearby college. We’d been chatting a while, and when I asked the question she told me, carefully, that she hasn’t decided how she’ll vote, and neither have her family members. I said a lot of people seem nervous to say. She said: “Especially Trump people. They’re afraid you’ll think they’re stupid.”

Which is how I knew she was going to vote for Donald Trump.

It’s true: Trump voters especially don’t want to be categorized, judged, thought stupid—racist, sexist, Islamophobic, you name it. When most of them know, actually, that they’re not.

Voters who talk about 2016 are very careful to damn both sides, air their disappointment, note that they’ve been following the election closely. They know each candidate’s history.

In Tennessee I asked a smart businessman who he’s for. He carefully and at length outlined his criticisms and concerns regarding both candidates. Then, as I started to leave, he threw in, from nowhere: “So I think Trump.”

When I talk to strangers—which I do a lot, and like it—I sometimes say dour, mordant things, to get them going by establishing that anything can be said. I say if Hillary Clinton is elected there will be at least one special prosecutor, maybe two, within 18 months, because her character will not be reborn on crossing the threshold of the White House; the well-worn grooves of her essential nature will kick in. If Mr. Trump is elected there will be a constitutional crisis within 18 months because he doesn’t really know what a president does, doesn’t respect traditional boundaries, doesn’t reflect on implications and effects. I always expect pushback. I am not getting it! I get nods, laughs and, in two recent cases, admissions that whoever wins they’d been wondering how soon impeachment proceedings would begin.

Oh, my pained and crazy country.

A final observation, underlying all. Under the smiles and beyond the reticence it is clear how seriously Americans are taking their decision, how gravely. As if it’s not Tweedledum and Tweedledee but an actual choice between two vastly different dramas, two different worlds of outcome and meaning. The cynic or the screwball? Shall we go to the bad place or the crazy place?

I returned knowing I was wrong about something. I thought everyone has been watching the election more than a year, everyone knows their opinion of Mrs. Clinton and Mr. Trump, this thing is pretty much settled. No, it’s fluid. This cake is not baked.

I talked to Peter D. Hart, the veteran Democratic pollster. Are things as much in play as I think? Yes and no, he said. People do have a firm opinion of the two candidates, the clich├ęs are set: “Hillary competent and cold, Trump an incompetent loose cannon.” But “the part that is evolving is a sense of what we need to do and where we need to go.” Everyone wants change, but people are deciding, “constructive change or radical change?”

Pollster Glen Bolger of Public Opinion Strategies says nothing is settled. “Voters are angry at Clinton because she can’t tell the truth and they’re scared of Trump because they’re afraid he’s gonna start a war. There are times her un-truthiness outweighs their concern about him overreacting and starting a war. It goes back and forth.”

He disagrees with the “unpollable” premise: “It’s pollable. But if anyone says their results are cast in concrete, that’s a mistake. There’s a lot of fluidity.”

The veteran pollster Kellyanne Conway, now Trump campaign manager, says: “This thing is fluid in a way we don’t understand.” She is a close student of Barack Obama’s 2008 campaign in all its aspects. Like Mr. Obama, she says, Mr. Trump is “a candidate built for the 21st century. . . . The most fundamental truth of politics is there’s no substitute for a great, magnetic, compelling candidate.”

She speaks of “undercover” Trump voters. “To call them hidden is a mistake. They’re undercover because they’ve gotten to the point they’re tired of arguing. . . . Some have been voting Democratic all their life, they voted for Obama, they’re tired of defending and explaining themselves” to family and coworkers. “They don’t want to proselytize.”

Mr. Hart said the debates are unusually important this year. “Trump is the central character—it’s his last opportunity to get a fresh look from voters. A debate is an open window. Voters suspend opinions and look afresh. Attitudes toward Trump have not changed—temperament questions, can he do the job?” This is a chance for him to “establish credibility at this stage of the game.” By contrast, “Hillary’s problems are not professional but personal—can I like her, does she understand me. . . . It’s an opportunity for her to get voters saying, ‘You know something, she’s not a bad egg.’ ”

Ms. Conway too says the debates are key. “People like a clash of the titans. They like a contest. These debates are the ultimate reality show—the stakes have never been higher.” After the Democratic convention the Clinton campaign, in a major miscalculation, “lowered the bar” for Trump, “calling him unfit, unpresidential.” That turned him into the underdog. “Americans love an underdog.”

Ms. Conway remembered what happened in 2008 when John McCain referred to his long experience. “Obama said if experience means you got us into this mess overseas and tanked the economy, maybe experience is overrated. We are turning this around on Clinton now.”

Mr. Trump’s advantage? “Americans love to say they think outside the box. Trump lives outside the box. Hillary is the box.”

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