Tuesday, October 4, 2016

Europe Unimpressed By May’s Tough Talk On Brexit

From Paris to Brussels to Prague, EU governments say they won’t let Britain have its way.

Politico EU
October 4, 2016 

Across Europe, reaction to Theresa May’s chest-thumping promise to her Conservative Party to deliver “a deal that works for Britain” largely amounted to a collective shrug.

The non-response from the European Commission in Brussels Monday was typical of the tone — a classic bureaucratic rejoinder by the EU machinery that made clear the U.K. could issue whatever wish list it wanted, but would dictate nothing. A spokesman for President Jean-Claude Juncker simply repeated EU leaders’ longstanding position that negotiations over the U.K.’s departure would begin only upon formal, written notification.

“We will work constructively on the basis of a notification, not of a speech,” the spokesman, Margaritis Schinas, said in the Commission’s daily press briefing. “Until this letter arrives, there will be no negotiations.”

Schinas, however, said the Commission’s own chief negotiator would soon take up new office space on the fifth floor of the institution’s headquarters in Brussels, hire a staff of 10 to 20 people, and begin traveling the Continent for consultations with leaders in the 27 remaining EU countries.

Reaction to May was particularly muted in Germany, which was celebrating a national holiday commemorating the country’s reunification.

"May telephoned Juncker as well as President François Hollande of France, and presumably other senior leaders, to give them a personal preview."

If there was any doubt that the pressure of Brexit remains squarely on the U.K., the currency markets quickly dispelled it: The pound fell Monday morning to a three-year low against the euro as the global financial system digested May’s announcement in her speech on Sunday that she would trigger formal negotiations by the end of March 2017.

EU officials said May had made some efforts to be sure that her counterparts abroad were not surprised by her remarks. Before her speech to the Tories at their conference in Birmingham, May telephoned Juncker as well as President François Hollande of France, and presumably other senior leaders, to give them a personal preview.

‘A Lot Of Work To Do’

But in European capitals, views among leaders on Brexit remained mostly unmoved from where they were after the June 23 referendum — though with some new annoyance at May’s one-sided rhetorical grandstanding, particularly in her insistence that Britain would have access to the EU’s single market without allowing the free movement of European workers and travelers across its borders.

“Let me be clear,” May said. “We are not leaving the European Union only to give up control of immigration again.”

In France, where officials have suggested the sooner Britain leaves, the better, May’s declaration that she would invoke Article 50 of the Lisbon Treaty early next year seemed welcome news Monday — shifting the focus to more substantive issues rather than the question of when talks would start.

“They have a lot of work to do,” a senior French official said. “She’s narrowing down the scope, so everybody is focusing on substance instead of timetable.”

But the official added that May did not sound particularly realistic in her speech about potential concessions the U.K. would have to make. “Yes, we’ll have access to the single market but not the circulation of people,” the French official said. “That’s a way to not look at the real issues. Now that she has six months maximum, she has to look at the whole debate, what to propose, and that would mean to focus on realistic options.”

Lithuania’s foreign minister, Linas Linkevičius, reflected a view shared in many smaller EU countries, saying he hoped for an outcome that would keep the U.K. as close to the EU as possible. But he also underlined that Britain would have to make its own intentions clear and would need to show a willingness to compromise.

He said Lithuania did not believe Britain should be punished for its decision but nor should citizens of other EU countries see their rights or interests diminished.

“We definitely said we’re really sad about this decision and we’re still convinced it’s not good for Europe but also probably not good for the U.K.,” Linkevičius said in an interview in Brussels. “We have to make sure that negotiations will start and will end with a result which will be rational and good for both sides.”

Informal Talks

Linkevičius said he was not sure how willing Britain was to negotiate. “They are talking about the single market, for instance, which is important for us but also important for the U.K.,” he said. “So definitely they have to take into account all these liberties that we are discussing and make a decision: Are they ready to have this deal or not? Are they ready to sacrifice free trade which is very difficult for their economy?”

He added, “First of all they should make it clear what they are going to do, how far they are going to go … that is not yet answered to my knowledge.”

In Prague, there were also raised eyebrows at some of May’s rhetoric, as well as an expectation that she and her negotiators would face up to reality sooner or later.

“On the question of how she imagines a new partnership … May has once again left things completely open” — Manfred Weber, EPP Parliament leader

“Looks like the Brits still have not found a way to explain their promises were completely unrealistic,” said Tomas Prouza, the Czech Republic’s state secretary for European affairs. “But in the end, I doubt they will sacrifice their banking and financial sector that would lose their access to the European market.”

Manfred Weber, leader of the center-right European People’s Party bloc in the European Parliament, welcomed May’s relatively specific timeline. “It’s good that the British government is finally getting on with it,” he said, noting it could resolve Brexit before the 2019 European elections.

But Weber also slapped at May for being too vague. “On the question of how she imagines a new partnership between the EU and the U.K., Prime Minister May has once again left things completely open,” he said. “The British government has a lot on its plate. For now it is clear that the four fundamental freedoms are the DNA of the European Union. They are non-negotiable.”

Schinas, the European Commission spokesman, said Juncker would meet with May on the margins of an EU summit in Brussels later this month, but he emphasized that there would be no back-channel discussions on Brexit terms. Preparations for the negotiations, Schinas said, would be handled by the Commission’s chief negotiator, Michel Barnier, who he said will soon hire a team of 10 to 20 people and begin traveling around Europe for consultations.

The French official noted that May and other British officials have indicated they do not necessarily want to replicate the arrangements the EU has with Norway or with Switzerland, but that logic suggested the final arrangement would be something similar. “It would be strange,” the French official said, “to have better relationships with Canada than the U.K.”

But more illustrative of the EU’s blasé reaction was a statement, mustered Sunday in a tweet by European Council President Donald Tusk: “PM May’s declaration brings welcome clarity on start of Brexit talks. Once Art. 50’s triggered, EU27 will engage to safeguard its interests.”

Article Link To Politico EU:

Why Donald Trump Gets Pulled Off Course

The usual explanations focus on the Republican presidential nominee’s self discipline and temperament, but there are two other possibilities

By Gerald F. Seib  
The Wall Street Journal
October 4, 2016

You could argue that Donald Trump had the strongest 30 minutes of his presidential campaign at the beginning of the first presidential debate, when he delivered a direct and succinct summary of his argument that American jobs are being shipped overseas by trade deals and big-business defections and can be lured back.

And then…

Well, after those opening minutes the debate shifted away to his comments about women and why he pursued for years the debunked assertion that President Barack Obama was born overseas. In the days since, the focus has been, bizarrely, on how he assailed weight gains by a Miss Universe and, more substantively, the performance and tax treatment of his businesses. It culminated in a Saturday night rally in which, among other things, he mocked unkindly the way Hillary Clinton walked to her car while suffering a bout of pneumonia.

Since about 9:30 last Monday night, in short, the campaign agenda has been more or less the kind the Clinton campaign would have wanted.

This is a recurring pattern in Mr. Trump’s world, raising the question of how it keeps happening—and whether it is destined to continue happening over the next five weeks.

The usual explanations are that the candidate lacks the self-discipline to avoid being lured down dead-end alleys, and has a temperament that allows him to be baited into self-defeating controversies. There is obvious credence to both arguments, though they also held true while the same style was succeeding during the Republican primary season.

But there are two other, more subtle explanations for this pattern.

The first is that Mr. Trump has over time planted some time bombs in his own pathway that now are starting to go off. The most obvious one has to do with his tax returns. The conversation now under way—what those returns show about his actual income, what they might show about the state of his business empire, the amount of federal taxes he has or hasn’t paid—would have been better held five months before the election, not five weeks before the election.

Mr. Trump decided, though, to resist calls then, not from Democrats but from fellow Republicans, to release his returns. Now the conversation is being driven instead by a leak to the New York Times,timely or untimely depending on your point of view, of portions of his 1995 return showing a staggering business loss of almost a billion dollars, providing a tax carryforward that likely reduced or eliminated Mr. Trump’s federal tax liability in the years since. Calmly explaining that would have been difficult months ago, but it’s twice as difficult in the general-election hothouse.

As a consequence, Mr. Trump now gets the worst of both worlds on the tax front. He is taking hits because of the presumption he’s paid very little in federal income taxes for the last decade, while still suffering from the perception that he may be hiding something else by not releasing the returns.

The same time-bomb phenomenon is at work, on a lesser scale, with some of the cruder comments and scenes from Mr. Trump’s past and his primary-season campaign. One thing is certain: The Clinton campaign knows how to take advantage.

The second, more subtle explanation is that Mr. Trump may be paying the price now for not having a fully-formed policy platform. The long stretches in a one-on-one debate, and the long open spaces in a general-election campaign, can be filled either with these kinds of controversies, or with more serious policy conversations.

Mr. Trump has the outlines of a platform that has special resonance with many voters in the current climate of economic uncertainty and anger. It says that what the experts have claimed about the effects of trade deals and immigration doesn’t hold water for a lot of working-class Americans, and that special interests have benefited from Washington policy-making in a way that average Americans haven’t. And he has told those average Americans that they shouldn’t have to see their Social Security or Medicare benefits trimmed to deal with the fallout.

Those arguments have a visceral appeal to many voters, and on a couple of fronts—notably taxes and energy—he has fleshed them out with detailed policy meat. But others remain vague or incomplete with details rarely discussed. So after the top lines are laid out, say in a 90-minute debate, the empty spaces tend to get filled in with discussions of the ideal weight of a Miss Universe.

All of which raises the question of whether it would be better now for Mr. Trump to do what some of his allies are suggesting, which is to turn the focus to Bill Clinton’s marital infidelities—or to go back to the more substantive points made in the first minutes of that first debate.

Article Link To The Wall Street Journal:

Colombia Needs A Plan B For Peace

By Editorial Board
The Bloomberg View
October 4, 2016

To widespread dismay, Colombians voted on Sunday to reject an agreement that might have ended Latin America’s longest-running armed conflict -- a decades-long insurgency that has taken more than 220,000 lives, displaced more than 10 percent of the country’s people, and inflicted enormous economic damage.

The upset underlines the risks of government by referendum -- as if further proof of those hazards were needed. The important questions for Colombia now are these: What went wrong, and what happens next?

Many Colombians apparently felt that the deal struck by President Juan Manuel Santos and the FARC rebels was too generous to the insurgents. Rather than punishing the widely detested group, the proposed agreement guaranteed it political representation.

Such concessions when conflicts are wound up are always hard to swallow, but are often the lesser evil -- as in this case. The alternative to coming to terms with the rebels was not victory, but more years of violence. Colombia’s army has been capturing and killing FARC revolutionaries for half a century, yet the war has ground on. Despite some recent gains, a military end to the conflict was not in sight. Setting aside 10 seats out of 272 in Colombia’s parliament for two terms was an affordable price to pay for peace.

And it’s unclear, in fact, that most Colombians disagree. The turnout for the referendum was low -- roughly two-thirds of the electorate stayed home -- and the margin of victory for the No side was narrow. Hurricane Matthew didn’t help, depressing turnout in areas that had earlier helped Santos win re-election. Official complacency also played a part: Pre-referendum signing ceremonies and hoopla featuring the likes of Bono, Ringo Starr, and numerous heads of state may have led Colombians to think their votes didn’t matter.

The result is hard to read for another reason. The underlying politics is complicated -- no simple matter of elite opinion clashing against populist anger, or of FARC’s victims on one side against the blithely unaffected on the other. The No voters included wealthy landowners, led by ex-President Alvaro Uribe, whose families and fortunes have suffered in the fighting, and whose economic interests were threatened by the agreement’s provisions. At the same time, in some of the areas that had suffered the worst FARC massacres, the rural poor voted overwhelmingly for peace.

The fact remains, an agreement reached after four years of talks, with the widespread support of the international community, is now in limbo. Santos has reached out to leaders of the No campaign and ordered his negotiators back to Cuba, which hosted the talks and helped to broker the deal. For now, the FARC’s leaders have pledged to maintain a cease-fire. There’s hope the agreement can be modified and revived.

If so, the government would be wise to seek a way for the legislature to consider it without another popular vote. With or without another referendum, though, any revised agreement will need to be sold more effectively to a country paying closer attention.

Colombia has many other problems to address, from a burgeoning cocaine trade to a yawning budget deficit. Economic inequality, a forbidding geography, and the vast gap between those who live in the cities and the countryside all cry out for attention. Without a peace agreement, healing those divisions will be not just difficult but impossible.

Article Link To The Bloomberg View:

The West On The Brink

By Joschka Fischer
Project Syndicate
October 4, 2016

This year and next, voters in leading Western democracies will make decisions that could fundamentally change the West – and the world – as we have known it for decades. In fact, some of these decisions have already been made, the main example being the United Kingdom’s vote in June to leave the European Union.

Meanwhile, Donald Trump in the United States and Marine Le Pen in France could very well win their countries’ upcoming presidential elections. A year ago, forecasting a victory by either would have been considered absurd; today, we must admit that such scenarios are all too possible.

The tectonic plates of the Western world have started to slip, and many people have been slow to realize the potential consequences. After the UK’s Brexit referendum, we now know better.

The UK’s decision was a de facto decision against a European order of peace based on integration, cooperation, and a common market and jurisdiction. It came amid growing internal and external pressure on that order. Internally, nationalism has been gaining strength in nearly all EU member states; externally, Russia is playing great-power politics and pushing for a “Eurasian Union” – a euphemism for renewed Russian dominance over Eastern Europe – as an alternative to the EU.

Both of these forces threaten the EU’s structure of peace, and the bloc will be weakened further without the UK, its traditional guarantor of stability. The EU is the linchpin of European-Western integration; so its weakening could cause a European reorientation toward the East.

This outcome would become even more likely if Americans elect Trump, who openly admires Russian President Vladimir Putin and would accommodate Russian great-power politics at the expense of European and transatlantic ties. Such a Yalta 2.0 moment would then fuel anti-Americanism in Europe and compound the geopolitical damage suffered by the West.

Likewise, a victory for the far-right nationalist Le Pen next spring would signal France’s rejection of Europe. Given France’s role as one of the EU’s critical foundation stones (along with Germany), the election of Le Pen would most likely mean the end of the EU itself.

If the UK and the US turn to neo-isolationism, and if France abandons Europe in favor of nationalism, the Western world will become unrecognizable. It will no longer be a bastion of stability, and Europe will descend into chaos indefinitely.

In this scenario, many would look to Germany, Europe’s largest economy. But, though Germany would pay the highest economic and political price if the EU collapsed – its interests are simply too interwoven with the EU’s – no one should hope for German re-nationalization. We all know what destruction and calamity that can bring to the continent.

Geopolitically, Germany would be consigned to an uncertain man-in-the-middle status. While France is clearly a Western, Atlantic, and Mediterranean country, Germany, historically, has oscillated between East and West. In fact, this dynamic was long a constitutive element of the German Reich. The East-or-West question wasn’t finally decided until after Germany’s total defeat in 1945. Following the establishment of the Federal Republic in 1949, German Chancellor Konrad Adenauer chose the West.

Adenauer had witnessed the full scope of the German tragedy – including two world wars and the collapse of the Weimar Republic – and he considered the young Federal Republic’s ties with the West to be more important than German reunification. For him, Germany had to abandon its man-in-the-middle position, and thus its isolation, by irreversibly integrating with Western security and economic institutions.

The post-war Franco-German rapprochement and European integration under the EU have been indispensable elements of Germany’s Western orientation. Without them, Germany could return to a strategic no man’s land, which would endanger Europe, stoke dangerous illusions in Russia, and force Germany itself to deal with unmanageable challenges confronting the continent.

Germany’s geopolitical orientation will be a central underlying issue in next year’s general election. If German Chancellor Angela Merkel’s own Christian Democratic Union ousts her because of her refugee policy, the party will likely tack to the right in an effort to win back voters it has lost to the anti-immigrant, populist Alternative for Germany (AfD).

But any move by the CDU to cooperate with the AfD, or to validate its arguments, would spell trouble. The AfD represents German right-wing nationalists (and worse) who want to return to the old man-in-the-middle position and forge a closer relationship with Russia. Cooperation between the CDU and AfD would betray Adenauer’s legacy and be tantamount to the end of the Bonn Republic.

Meanwhile, there is similar danger from the other side of the aisle, because any prospective CDU-AfD coalition would have to rely on Die Linke (the Left Party), some of whose leading members effectively want the same thing as the AfD: closer relations with Russia and looser or no integration with the West.

One hopes that we will be spared this tragic future, and that Merkel will retain her office beyond 2017. The future of Germany, Europe, and the West may depend on it.

Article Link To Project Syndicate:

How The Nuke Deal Is Funding Iran’s Darkest Forces

By Benny Avni
The New York Post
October 4, 2016

Even the Iran deal’s most ardent supporters are beginning to suspect it won’t mellow the mullahs. Alas, that’s not the worst of it — because the deal is actually boosting Iran’s darkest forces.

According to a study to be released Tuesday by the Washington-based Foundation for Defense of Democracies, Iran’s Revolutionary Guards — and not ordinary Iranians or the country’s much-vaunted “moderate” cleric-politicians — are the ones who’ll gain the most from the Joint Comprehensive Plan of Action, the deal the mullahs signed with six world powers one summer ago.

“As the 2015 nuclear deal is implemented, it is the [Guard Corps] that is poised to benefit most,” concludes the 48-page painstakingly detailed study by four FDD researchers.

Titled “How the Nuclear Deal Enriches Iran’s Revolutionary Guard Corps,” the study surmises that the IRGC controls as much as 40 percent of the country’s economy, including sectors related in one way or another to the very nuclear program the deal is meant to curb.

Look out: Your tax dollars were recently transferred to Iran by the Obama administration. And much of that dough will make the Iranians who wish “death to America” very, very rich.

The cash will also help them tighten their hold on power at the expense of politicians who think engagement with us is the way to save the Khomeini revolution.

The IRGC was established in 1979 by Ayatollah Khomeini as a militia to spread the revolution’s ideology and consolidate its hold on power. It eventually grew into a formidable army that operates in parallel to the Iranian military.

The corps’ al Quds unit has been zealous exporting the revolutionary ideology around the globe, one way or another. It’s now active in such theaters of war as Yemen, Lebanon and Syria, where it abets President Bashar al-Assad’s bloodbath and is the main reason he’s still in power.

In the Persian Gulf, IRGC boats often buzz US Navy vessels. In January, the corps kidnapped 10 American sailors who accidentally strayed into Iranian waters. Several incidents since then have nearly led to direct confrontation between America and Iran.

Another IRGC arm, the Basij, is charged with enforcement at home. Women (including participants in this week’s world chess championship there) must be “properly” covered. Elections must have the “proper” results; in 2009, the Basij forcefully suppressed a popular uprising and beat to submission those who were angry over a stolen presidential election.

As the FDD study documents, the corps also has extended its tentacles through every corner of the economy. Khomeini’s heir, the current supreme leader Ayatollah Khamenei, is mostly responsible for the IRGC’s financial growth.

In 2005 Khamenei issued a decree that would seem on its face to be a reformist’s dream: 25 percent of the economy was to be transferred to the private sector within 5 years. But there was a catch: According to the FDD study, a “significant portion” of the transfer would go to the IRGC, rather than the private sector. By now, the Guards control much that matters in Iran.

The Treasury Department has sanctioned 25 companies, 25 individuals and two academic institutions for being controlled by the IRGC. Yet the FDD researchers identified at least 229 companies over which the IRGC has “significant influence.”

True, the nuclear deal did leave some sanctions over the IRGC intact, at least for the time being. But many of those will expire in the coming stages of the deal. Meanwhile, the IRGC is raking it in from the easing of other sanctions.

And though the group is behind extensive global terrorist activity — including a foiled plot to assassinate the Saudi ambassador with a bomb in the heart of Washington, DC — the State Department has yet to designate the IRGC, or even its external arm, the al Quds force, as a foreign terrorist organization.

The FDD study recommends Washington take that step — along with several others to beef up sanctions and other levers that will increase pressure on Iran’s most dangerous organization.

As one of the study’s authors, Emanuele Ottolenghi, tells me, “The Guard’s growing economic clout is an end in itself and a tool to support its nefarious activities throughout the region.”

“Negotiate with Iran, fight the Guards” was the course that a Reagan administration veteran, Abraham Sofaer, advised just before the Iran deal was signed. In his legacy-setting diplomatic achievement, President Obama instead strengthened the Guards.

The study urges the next president and Congress to change that course and to force foreign investors to realize there’s a huge risk of doing business with Iran’s worst of the worst.

Question is: Will Hillary Clinton or Donald Trump listen?

Article Link To The New York Post:

Meet Planned Parenthood’s Tim Kaine

The long campaign to make America safe for pro-choice Catholic Democrats.

By William McGurn
The Wall Street Journal
October 4, 2016

In his classic “Brideshead Revisited,” Evelyn Waugh famously bemoans what he calls “the age of Hooper.”

The reference is to Lieutenant Hooper, the hapless junior officer who appears at the novel’s beginning and end. Though a bit character, he plays an indispensable role. In his unquestioning embrace of the dominant pieties of his day, Hooper is a stand-in for the vapidity of the society Waugh saw emerging from the rubble of World War II.

Tim Kaine is our Hooper.

When he walks onstage Tuesday night for this year’s vice-presidential debate, the junior senator from Virginia will carry with him a résumé that shouts respectability. By all accounts, he is affable. And he boasts all the amulets of modern diversity—fluency in Spanish, a stint as a Jesuit volunteer in Honduras—needed to mitigate the otherwise glaring liability of white maleness.

In sum, Mr. Kaine is a garden variety Catholic Democrat of the early 21st century. In this capacity, the orthodoxies that now define his party and might once have disturbed a practicing Catholic bother him not at all. These include abortion on demand, underwritten with taxpayer dollars.

In some ways Mr. Kaine’s rise represents the yielding of the old pro-choice Catholic Democrat represented by Mario Cuomo—“I am not implying that we should stand by and pretend indifference to whether a woman takes a pregnancy to its conclusion or aborts it” said he at Notre Dame in 1984—to the brave new world where son Andrew Cuomo says that those who oppose abortion “have no place in the state of New York.” Whatever else this is, it marks a comedown from the high hopes of liberal American Catholicism in those heady days before JFK became the first Catholic president.

Those were the years when Paul Blanshard could write a best seller arguing Catholicism was fundamentally incompatible with America. And ultimately find himself answered by Jesuit John Courtney Murray, whose own book—“We Hold These Truths”—argued that Catholicism offered America a firmer philosophical grounding for the self-evident truths about God and man that undergird the American understanding of freedom.

These many years later, Mr. Kaine has proved both men wrong. Blanshard could hardly object to a Catholic who campaigns on the proposition that his faith is so personal it will never influence his political positions. JFK at least promised those preachers in Houston he’d resign in the event of a clash between the two. As for Father Murray’s hopes of leavening the American experiment, Mr. Kaine’s recent assurance on same-sex marriage—the church, he says, will eventually come ’round to the Democratic Party’s view—reflects the Hillary Clinton principle that religious conviction must yield when it collides with secular dogma.

In this sense, Mr. Kaine might be best understood as the byproduct of a decades-long effort by liberal Catholicism to make the world safe for pro-choice Catholic Democrats. This endeavor has been a major public enterprise of institutions such as Georgetown and Notre Dame. It has also been successful.

Ah, but Mr. Kaine protests! He is not pro-choice; he is “personally opposed.”

But what can this mean? For Mr. Kaine, it meant a giant evolution once he reached the Senate. There he opposed limits he once supported as governor, fighting efforts to cut off tax dollars for Planned Parenthood, voting against a 20-week abortion ban, and co-sponsoring legislation aimed at nullifying state laws limiting abortion. Now he is running on a ticket committed to overturning the Hyde amendment’s restrictions on federal funding. Small wonder both Planned Parenthood and Naral Pro-Choice America now deem his voting record 100% pro-choice.

In short, the reason Mr. Kaine’s “personally opposed” position is no obstacle to a slot on the Democratic national ticket is because, much like Barack Obama’s original claim that he believed marriage was between a man and a woman, everyone understands that has no meaning.

Here’s a test: Put politics and policy aside. When do those who proclaim themselves “personally opposed” ever speak about the violence to the most defenseless among us? Or question a definition of compassion that is reduced to showing women with an unplanned or unwanted pregnancy the cold front door of an abortion clinic?

Has Mr. Kaine ever raised his voice to say he dissents from a worldview in which one life can be taken if it is deemed inconvenient to another’s? To the contrary, Mr. Kaine is that new model of Catholic politician who believes it is the church that must take its creed from the secular culture.

How humdrum and disenchanting. Back in the 1950s and 1960s, the liberal promise was that an American Catholicism coming into its own would help rescue the world’s most hopeful experiment in liberal democracy from the emerging excesses of materialism, relativism and militant secularism. This new birth of freedom would be led by a new generation of modern Murrays and Tocquevilles.

Instead, we got Tim Kaine.

Article Link To The Wall Street Journal:

Book Details How Team Obama Schemed To Let Hillary Skate

By Edward Klein
The New York Post
October 4. 2016

In his new book, “Guilty As Sin” (Regnery), out Tuesday, Edward Klein claims officials in the Obama administration decided before the first witness was interviewed that Hillary Clinton would not face prosecution over the handling of classified e-mail. An excerpt:

Bill Clinton’s private jet was cleared for takeoff and was taxiing toward the active runway at Phoenix Sky Harbor International Airport when a Secret Service agent informed him that Attorney General Loretta Lynch’s plane was coming in for a landing.

“Don’t take off!” Bill barked.

As his plane skidded to a halt and then headed back to its parking space, Bill grabbed a phone and called an old friend — one of his most trusted legal advisers.

It was June 27, 2016 — one year into the FBI investigation of Hillary Clinton’s e-mails.

“Bill said, ‘I want to bushwhack Loretta,’ ” the adviser recalled. “ ‘I’m going to board her plane. What do you think?’ And I said, ‘There’s no downside for you, but she’s going to take a pounding if she’s crazy enough to let you on her plane.’

“He knew it would be a huge embarrassment to Loretta when people found out that she had talked to the husband of a woman — the presumptive nominee of the Democratic Party — who was under criminal investigation by the FBI,” the adviser continued. “But he didn’t give a damn. He wanted to intimidate Loretta and discredit [FBI Director James] Comey’s investigation of Hillary’s e-mails, which was giving Hillary’s campaign agita.”

Bill hung up the phone and turned to a Secret Service agent.

“As soon as her plane lands,” he said, “get the Attorney General on the phone and say the president would like to have a word with her.”

Once inside Lynch’s plane, Bill turned on the Clinton charm. He gave Lynch’s shoulder an affectionate squeeze and shook hands with her husband, Stephen Hargove.

“Bill said he could tell that Loretta knew from the get-go that she’d made a huge mistake,” his adviser said. “She was literally trembling, shaking with nervousness. Her husband tried to comfort her; he kept patting her hand and rubbing her back.

“Bill made small talk about golf and grandchildren and [former Attorney General] Janet Reno, and he kept at it for nearly a half hour. It didn’t make any difference what they talked about; all he wanted to do was send a message to everyone at Justice and the FBI that Hillary had the full weight of the Clinton machine, the Democratic Party, and the White House behind her.

“It was clearly tortuous for Loretta. Bill told me later that he noticed there were beads of sweat on her upper lip.”

One week later, Barack Obama invited Hillary to fly with him to North Carolina for a campaign rally. He wouldn’t have let her use two of the greatest symbols of presidential power — Air Force One and the podium with the Seal of the President of the United States — if he thought there was even the slightest chance she was going to be indicted. But Attorney General Lynch had privately assured him that she wouldn’t let that happen, and that the fix was in.

Many members of the mainstream media thought that FBI Director Comey was hell-bent on indicting Hillary. They called him the Eliot Ness of his time — squeaky clean and untouchable.

But that was a complete misreading of Comey.

He was affable, had a good sense of humor, and might come across as a straight arrow, but he didn’t get to be director of the FBI by falling off the turnip truck. It took huge ambition and an instinct for political survival.

Comey knew that if he recommended an indictment of Hillary — something that was fiercely opposed by the President, the Attorney General, the Democrats in Congress, and the mainstream media — he’d ignite a firestorm and go down in history as the man who traumatized the country’s political system. What’s more, if after all of that, Hillary was found not guilty by a jury, it would blacken Comey’s reputation for all time to come.

The day after Obama and Hillary flew to North Carolina, Comey held a televised press conference in the FBI auditorium. Dressed in a blue shirt and gold tie, which matched the colors of the FBI flag standing behind his lectern, Comey methodically laid out a bill of indictment against Hillary Clinton.

He said that Hillary and her top aides at the State Department — Huma Abedin, Cheryl Mills, and Jake Sullivan — had been “extremely careless in their handling of very sensitive, highly classified information.”

On and on he went, for a full 10 minutes, making an iron-clad case that Hillary was guilty of gross negligence in her handling of classified material, and that she had violated a federal statute that did not require evidence of intent to prove her guilty.

Attorney General Lynch sat in her office, along with her top aides, watching Comey deliver his blistering rebuke of Hillary Clinton.

Lynch had promised President Obama and Valerie Jarrett that Hillary would not be indicted. But here was the director of the FBI on national TV laying out what appeared to be an unassailable case for prosecuting her.

How could this have happened? What had gone wrong? Would she be forced to resign?

All these thoughts went through Lynch’s mind, as she later recalled to a friend, as she listened to Comey drone on.

She was livid.

Finally, she couldn’t stand to watch him anymore. She covered her eyes with her hands and let out a string of curses aimed at Jim Comey. And then, three quarters of the way through his news conference, Comey dropped a bombshell.

Hillary, he said, shouldn’t be prosecuted for her handling of classified information — even though it wasn’t his job to make prosecutorial decisions. That was up to the prosecutors in the Justice Department. There was no evidence, he said, that Hillary had intentionally transmitted or willfully mishandled secret documents in order to harm the United States.

“Our judgment is that no reasonable prosecutor would bring such a case.”

Hillary was clearly guilty as sin, and the right thing would have been for Comey not only to say so — which he did — but to make her pay for her sins.

But he didn’t.

Article Link To The New York Post:

The Apology Of Donald J. Trump

To those who don’t get why Clinton isn’t ahead by 50 points—here’s the answer.

By Bret Stephens
The Wall Street Journal
October 4, 2016

What follows is a draft of a speech Donald Trump is scheduled to deliver Tuesday, Oct. 4 in Prescott Valley, Ariz. We haven’t confirmed its authenticity because, like the rest of the corrupt media, we’re totally dishonest.

Thank you, everybody, thank you. It’s good to be back in Arizona. And you know we’re going to win, right? The polls say we’re going to win in Arizona, and we will.

The polls also say we’d lose the general election if it were held today. But they’re wrong. So wrong. You know how pollsters work? They guess who will show up to vote on election day, and then they poll these “likely voters.”

But let me tell you something. The pollsters have no clue. None. They don’t have a clue who the electorate is, and they don’t have a clue of what’s going on in America. Believe me, folks, on election day they’re going to find out.

The other day, in Colombia—I’m talking about the country in South America—they held a vote. A referendum. President Santos staked his reputation on a, quote-unquote, peace deal with the terrorists of the FARC.

Now the FARC, they’re the worst people in the world. They’ve killed tens of thousands of people. They make their money through drug trafficking and kidnapping. They’ve been terrorizing Colombians for 50 years.

Along comes Santos, and he makes this terrible deal that says to the FARC: We’re not going to send you to jail. We’re going to sentence your leaders to community service. We’re even going to guarantee you seats in the Congress.

And all the polls said the deal was going to win in a landslide. Obamaand Kerry lined up behind it. Santos told Colombians they had no choice, that it was the only road to peace.

Guess what? The polls were wrong. The Colombians knew a bad deal when they saw one. They weren’t going to let killers get away with their crimes. The only deal they want with the FARC is the same deal Reagan got from Russia: We win, they lose.

Folks, it was the same story with the Brexit vote in June. All the polls said the Brits wouldn’t vote to leave the European Union. They did. All the experts said the sky would fall if the Brits voted to go. It didn’t. These geniuses said that Britain was too small to be the master of its own destiny. The British people believe otherwise, and I’m with them!

What happened in Britain, in Colombia, it’s going to happen here. Because, like them, we’re sick of it.

We’re sick of hearing ObamaCare is working when even the New York Times admits it’s a total disaster. We’re sick of hearing how great the economy is when it’s floating on a big wave of cheap credit that benefits Wall Street at the expense of savers. We’re sick of hearing how great the Iran deal is, then watching our sailors being humiliated while we secretly fork over pallets of cash.

You know what we’re also sick of? Liberal hypocrites.

I’m not supposed to say the name I’m about to say. Well, two words: Alicia. Machado.

Who is this Alicia Machado, other than a political prop for Hillary? She was a beauty queen for a business I helped run called “ Miss Universe.” The business of beauty queens is to be beautiful, just like it’s the business of athletes to be fit. Duh! And when she gained some weight, I insisted she lose it. Did I call her “ Miss Piggy”? Boo hoo. Get over it.

For this I’m being treated very badly. Let me ask you something: Other than Lena Dunham, when was the last time Anna Wintour ran a fat person on the cover of Vogue? And when was the last time Hillary said no to one of Ms. Wintour’s big fundraisers because of Vogue’s “lookism”?

So spare me the sensitivity lectures. Spare me the business lectures, too. Those tax returns someone stole and the New York Times published? The ones that showed I once lost nearly a billion dollars and used every legal trick in the book to stage a comeback?

All of you here understand this is how business is done in America. Some years you make money. Some years you lose. You take advantage of every tax break you can because the government is trying to screw you every other way.

That’s the real world. It’s only in the unreal world that Hillary lives in that you can make a fortune by being a failed secretary of state and then cash in on obscene speaking fees, or arrange for Bill to get an $18 million salary to be “honorary chancellor” at a for-profit college while the Obama administration destroys every other for-profit. That’s called corruption, no matter whether it’s legal or not.

Folks, there’s a giant wave coming. A tsunami of Americans who won’t stand for being told we don’t know what’s good for us. Who refuse to be lectured by political grifters about how to make an honest buck. Who don’t need our morals improved by Hillary Macbeth and Billy Caligula. And who refuse to accept that we have to make lousy deals, or make do with less, or that America can’t ever be great again.

To all the liberals and Never Trumpers who don’t get why Hillary isn’t ahead by 50 points—I just explained it. To all of you, get ready for Nov. 8. It’s going to be a beautiful thing. Believe me.

Article Link To The Wall Street Journal:

Trump's 1995 Return Shows Good Tax Policy At Work

By Megan McArdle
The Bloomberg View
October 4, 2016

The big news this weekend was the leak of Donald Trump’s 1995 tax returns to the New York Times. The returns showed that in that year, Trump claimed $916 million worth of business losses; those losses, said the Times, “could have allowed him to legally avoid paying any federal income taxes for up to 18 years.”

Liberal social media dissolved into an ecstatic puddle; conservative social media, at least the part that is supporting Trump, angrily denounced the Times for publishing this tripe.

A few sensible people tried to explain that while the story might have well show that Trump was a bad businessman, it didn’t really show any sort of interesting tax shenanigans. And since we had long known that Trump lost a bunch of money in Atlantic City, a story that has been amply and ably covered by folks like our own Tim O’Brien, it didn’t even really offer much news.

Why did people see scandalous tax avoidance in this case? At issue is the “net operating loss,” an accounting term that means basically what it sounds like: When you net out your expenses against the money you took in, it turns out that you lost a bunch of money. However, in tax law, this has a special meaning, because these NOLs can be offset against money earned in other years. You can use a “carryforward” to offset the losses against income made in future years (as many as 15 future years, under the federal tax law of 1995). You can also use a “carryback” to offset those losses against income you made in past years (three in 1995, which when added to the 15-year carryforward term, gives us the 18 years the Times refers to).

To judge from the reaction on Twitter, this struck many people as a nefarious bit of chicanery. And to be fair, they were probably helped along in this belief by the New York Times description of it, which made it sound like some arcane loophole wedged into our tax code at the behest of the United Association of Rich People and Their Lobbyists. They called it “a tax provision that is particularly prized by America’s dynastic families, which, like the Trumps, hold their wealth inside byzantine networks of partnerships, limited liability companies and S corporations.”

Every tax or financial professional I have heard from about the New York Times piece found this characterization rather bizarre. The Times could have just as truthfully written that the provision was “particularly prized by America’s small businesses, farmers and authors,” many of whom depend on the NOL to ensure that they do not end up paying extraordinary marginal tax rates -- possibly exceeding 100 percent -- on income that may not fit itself neatly into the regular rotation of the earth around the sun.

Take a simple example, offered to me by Joe Kristan, a CPA who writes one of my favorite tax blogs. A meatpacking business loses a million dollars in one year, and then the next year it makes a million and a half. Without the ability to carry forward the losses from year one, then over the two years, it would pay perhaps $600,000 worth of state and federal income taxes, on $500,000 worth of actual money that it could spend to pay those taxes.

And did this scenario correspond to real-world clients of his firm? Absolutely, he said; it’s common in commodity businesses, where prices can fluctuate wildly from year to year.

“If someone has a $20 million gain in one year and a $10 million loss in the second year, that person should be treated the same as someone who had $5 million in each of the two years,” says Alan Viard, a tax specialist at the American Enterprise Institute, who like all the other experts, seemed somewhat surprised that this was not obvious.

“There are definitely tax provisions narrowly targeted to various industries that you could take issue with,” says Ron Kovacev, a tax partner at Steptoe and Johnson. “The NOL is not one of them.”

I mean, the Times story is true as far as it goes: Losing $900 million dollars may save you $315 million or so on future or past taxes. But astute readers will have noticed that it is not actually smart financial strategy to lose $900 million in order to get out of paying $315 million to the IRS. Most of us would rather have the other $585 million than a tax bill of $0.

Of course, it would be lovely if you could generate a year’s worth of huge losses in your wildly overleveraged real-estate empire, and then somehow get out of paying your debts, which would leave you a lovely write-off against your suddenly much higher income. The theory that Trump somehow managed to do just that was circulating widely on Twitter yesterday, thanks to a blog post by John Hempton, the chief investment officer of Bronte Capital. The idea seems to be that Trump could have bought his debt for pennies on the dollar, and then parked it in a third-party offshore firm that never collected on it. This theory seemed to have a lot of credibility among folks on social media. Among the tax professionals I spoke to, it had none: the IRS would treat this sort of structure just as it would if a third party had forgiven the debt.

“Look,” says Kovacev, “you put a $900 million loss on your tax return, that’s audit bait. The IRS is going to look into it. The notion that you could just move the money and the IRS wouldn’t ask questions?” There was a sort of incredulous pause before he finally said: “That’s hard to fathom.”

But are there perhaps ways to generate paper losses that could inflate the size of your NOLs? Well, the tax law surrounding real estate development is an arcane and wonderful thing, and it offers more scope for, let us say, artistic interpretation of your income picture than most industries. Those rules gave Trump more scope to, for example, delay paying taxes on any debt forgiveness he got, than he would have if he’d been a manufacturer of stereo equipment.

But ultimately if he got substantial forgiveness, he’d probably eventually have to pay taxes on it, clawing back a lot of the benefit of the NOLs. As Kristan put it: “You have to die to eventually get out of the taxes. And few people are willing to take that step.”

Rich people do manage their income to minimize their taxes, and some of the means they use to do so should probably be written out of the tax code. But the wealthy individual who manages to make a lot of money while paying absolutely no taxes on it is more a creature of myth than reality. That myth, like many myths, has some basis in fact: It used to be eminently possible to do, thanks to loopholes in the tax code that allowed people to take advantage of real estate losses, among other things. Those loopholes, however, were mostly closed by that notorious liberal crusader Ronald Reagan, during the 1986 tax reform package.

If Trump managed to pay no taxes for years, the most likely way he did this was by losing sums much vaster than the unpaid taxes. This is fair, it is right, it is good tax policy. There are many valid indictments of Trump as a candidate and as a businessman. But on the charge of unseemly tax avoidance, if this is all the evidence we have, then the grand jury would have to return … no bill.

Article Link To The Bloomberg View:

Zika Vaccine Race Spurred By Crisis And Profit Potential

By Bill Berkrot
October 4, 2016

The race to find protection against the Zika virus is fueled by something often missing from tropical disease research: the potential for big profit. The prospect of a blockbuster vaccine against a mosquito-borne virus has accelerated the pace of development and attracted the interest of big drugmakers, including Sanofi SA (SASY.PA), GlaxoSmithKline Plc (GSK.L) and Takeda Pharmaceuticals (4502.T).

Although Zika infections are mild or asymptomatic in most people, demand for a vaccine is expected to be strong because it can cause devastating birth defects, pharmaceutical executives and disease experts said.

The most lucrative market is seen in travelers seeking inoculation against the virus that has moved rapidly across the Americas and is the only mosquito-borne disease also spread through sex.

"It scares people," said Scott Weaver, a virologist with the University of Texas and chairman of the Zika task force for the Global Virus Network. "Europeans and Americans can pay a pretty high price for these kinds of vaccines."

A vaccine could come to market in as little as two years. Even if the current outbreaks in Latin America and the Caribbean burn out by that time, people living in those regions are expected to want protection against a return of Zika.

Tens of millions of travelers from United States and other wealthy nations, including people on business trips with corporate-sponsored health coverage, are expected to get vaccines before visiting areas where Zika is circulating. "If you consider just a portion of the U.S. traveler population, we can conservatively envision a Zika market opportunity exceeding $1 billion" a year, said Joseph Kim, chief executive of Inovio Pharmaceuticals (INO.O), a Pennsylvania company that is farthest along in the development path with human testing of a vaccine candidate underway in hard hit Puerto Rico.

Drugmakers and disease experts also envision the vaccine becoming standard care for girls before puberty to guard against birth defects in future pregnancies. Boys also could be candidates to protect eventual sexual partners.

"Hopefully a vaccine can be developed that's sold for a low cost in endemic areas," Weaver said.

Zika's Difference 

Blockbuster sales for vaccines against mosquito-borne viruses are unheard of. Sanofi's dengue vaccine, approved in nine countries, is generating near-blockbuster expectations, the biggest in the market by far. Analysts forecast annual sales for Dengvaxia reaching about $900 million by 2020, according to Thomson Reuters data.

Efforts to find a malaria vaccine are purely philanthropic. The Bill and Melinda Gates Foundation has contributed significantly to GSK's decades-long effort to produce a vaccine for children in Africa. Development is ongoing, and GSK expects no profit.

The U.S. National Institutes of Health (NIH) developed a potential vaccine for West Nile virus, but it failed to find a commercial partner because the virus did not inspire enough public alarm to generate big sales. West Nile leads to serious complications in less than 1 percent of people infected.

In February, the World Health Organization declared a global public health emergency because of Zika's apparent link to microcephaly, a birth defect marked by small heads and serious developmental problems. That, and evidence of other severe fetal brain abnormalities linked to Zika, have galvanized efforts to speed vaccine development.

The NIH is negotiating with companies to produce Zika vaccines but has its own pilot plant that can make enough for early clinical testing, which began with its first candidate in August.

"We're not dependent on a company until you prove it works and then you need somebody to manufacture millions of doses," said Dr. Anthony Fauci, director of the NIH's National Institute of Allergy and Infectious Diseases (NIAID).

The first NIH candidate is a DNA vaccine containing no actual virus, in which genetically engineered cells produce an antigen that triggers an immune response, similar to the West Nile vaccine. By early 2017, the agency expects to be able to decide whether to begin enrolling thousands of patients in an efficacy study, or move on to the next candidate.

The size of the Zika outbreak may help development efforts. If it remains widespread, it will be easier to tell if a vaccine is effective.

"If the infections die down, then it's going to take much longer to find out if it works," Fauci said.

A second NIH candidate contains inactivated viral material, while a third utilizes attenuated, or weakened, live virus.

DNA-based candidates are most likely to prove safe, but they typically require multiple doses to work. Vaccines that contain live virus are considered most effective with one dose, but have a far higher safety hurdle, particularly if they are intended for pregnant women, and so they take longer to get to market.

Industry Piles In

Inovio's DNA vaccine is injected along with a brief low voltage electronic pulse that induces cell membranes to open, making them more receptive, in theory, to accepting the vaccine's genetic material.

Privately-held Protein Sciences Corp built its Zika vaccine using technology similar to its already approved Flublok flu vaccine. The drugmaker has partnerships with companies in Argentina, Brazil, Japan and Mexico and plans to seek funding from Brazil and the NIH. It expects to start human trials by January.

Chief Executive Manon Cox estimated the cost of developing and securing approval for a vaccine could be as high as $1 billion. Without government funding, "that product has got to have a market of a few billion dollars," she said.

With the help of $43 million in initial funding from the U.S. government, France's Sanofi is developing a candidate using live attenuated virus. The company is not as far along as some other efforts, but it aims to start human trials next year and is confident it can catch up.

"We've got technologies, infrastructure, experience dealing with regulators in this field. All of that gives us a jumpstart," said Nick Jackson, head of research for Sanofi's vaccine unit.

Another French vaccine maker, Valneva SE (VLS.PA), generated an inactivated Zika vaccine candidate using the same process as its already approved Japanese encephalitis vaccine.

GSK is working with NIAID on a new type of vaccine technology. Japan's Takeda also secured U.S. government funding to help develop a vaccine using killed Zika virus and plans to begin human testing in the second half of 2017.

"If there is a huge need," said Dr. Rajeev Venkayya, president of Takeda's global vaccine unit, "there will be a business model that works."

Article Link To Reuters:

Tuesday, October 4, Morning Global Market Roundup: Asian Shares Rise, Dollar Firms After Upbeat U.S. Data

By Lisa Twaronite 
October 4, 2016

Asian shares shrugged off a sluggish start and pushed higher on Tuesday, with Japanese markets leading the way after an upbeat U.S. manufacturing survey bolstered the dollar.

Australian shares slipped 0.2 percent after Australia's central bank kept its cash rate steady at 1.5 percent on Tuesday, a widely expected decision as it assesses the impact of its May and August rate cuts.

"We think the case for no more cuts is strengthening," says Paul Bloxham, chief economist Australia at HSBC. "Economic growth is strong, commodity prices have risen, and the drag from the mining investment decline is set to fade."

MSCI's broadest index of Asia-Pacific shares outside Japan .MIAPJ0000PUS was up 0.2 percent, while Japan's Nikkei stock index .N225 gained 0.8 percent as the dollar rose against the yen.

Markets in China are on holiday this week.

The Institute for Supply Management (ISM) said on Monday that its index of U.S. national factory activity rose to 51.5 in September from 49.4 in August, indicating that the sector is now expanding.

"The upbeat U.S. data is lifting expectations for a strong dollar trend, which helps earnings concerns recede for Japanese exporters," said Hikaru Sato, senior technical analyst at Daiwa Securities.

U.S. stocks slumped overnight, with Deutsche Bank (DB.N) shares resuming their slide as hopes faded that Germany's largest lender would reach a swift deal with the U.S. Department of Justice over a fine of up to $14 billion for mis-selling mortgage-backed securities.

The upbeat U.S. factory numbers had a mixed impact on U.S. shares overnight. While strong data reassures investors worried about the strength of the U.S. economy, it also adds to bets that the Federal Reserve is on track to raise interest rates as early as this year. Higher rates, while good for the dollar, could pressure equities markets.

"Firmed prospects for a December rate hike were not taken well in the equity markets," Angus Nicholson, market analyst at IG in Melbourne, wrote in a note. "The prospects of higher interest rates makes the present value of steady cash flow producing assets such as property and utilities correspondingly less valuable."

Fed funds futures imply that investors slightly favor the chance for an interest rate increase in December.

The dollar index, which tracks the greenback against a basket of six major peers, added 0.2 percent to 95.899 .DXY.

Against the yen, the dollar added 0.5 percent to 102.13 JPY=, while the euro was 0.1 percent lower at $1.1197 EUR=.

The main economic indicator this week is Friday's non-farm payrolls report. Employers are expected to have added 170,000 jobs in September, according to the median estimate of 59 economists polled by Reuters.

Sterling wallowed close to 31-year lows and was last at $1.2834 GBP=, plunging after the UK set a March deadline to begin the formal process for Britain's exit from the European Union.

Crude oil futures took a breather following sharp gains overnight after Iran urged other oil producers to join OPEC in supporting the market.

U.S. crude CLc1 was down 0.5 percent at $48.55 a barrel after closing up 1.2 percent on Monday. Brent LCOc1 was down 0.4 percent at $50.71 after gaining 1.4 percent overnight.

Article Link To Reuters:

Oil Prices Dip On Surging Iran Sales, But Looming OPEC Deal Offers Support

By Henning Gloystein
October 4, 2016

Oil prices dipped early on Tuesday, weighed down by a rise in Iranian exports that adds to a global supply overhang, although a planned OPEC-led supply cut later this year has lent crude some support.

International Brent crude oil futures LCOc1 were trading at $50.79 per barrel, down 10 cents from their previous close.

U.S. West Texas Intermediate (WTI) crude CLc1 was down 15 cents at $48.66 a barrel.

Traders said prices were dented by the latest rise in Iranian crude and condensate sales, which likely reached about 2.8 million barrels per day (bpd) in September, almost matching a 2011 peak in shipments before sanctions were imposed on the OPEC producer.

However, analysts said Iran will struggle to boost output further and reaching pre-sanctions levels makes it more likely Tehran will agree on some form of production constraint with other members of the Organization of the Petroleum Exporting Countries (OPEC), including its regional rival Saudi Arabia, which is also pumping oil near record levels.

There was optimism that OPEC producers, and perhaps also exporters outside the club like Russia, would find some form of agreement by the time the producer club meets in November, although the risks of failure remain.

"For now, optimism has returned and the market will anxiously await any confirmation of the agreement or additional non-OPEC participation," Morgan Stanley said in a note to clients.

It added that "the risk of disappointment is high, and fundamentals remain challenging/unchanged in the interim."

The U.S. bank said important price factors to watch for in coming weeks include talks on output with non-OPEC members, most notably with Russia, production within OPEC as its members try to squeeze out oil before any potential cut or freeze, hedging activity by producers into 2017 as forward price guidance, and U.S. inventory and import data.

Article Link To Reuters:

Is The Fed Playing Politics?

By Kenneth Rogoff
Project Syndicate
October 4, 2016

In his recent debate with his opponent Hillary Clinton, Republican presidential candidate Donald Trump pressed his claim that US Federal Reserve Chair Janet Yellen is politically motivated. The Fed, Trump claims, is applying overdoses of monetary stimulus to hypnotize voters into believing that economic recovery is underway.

It’s not a completely crazy idea, but I just don’t see it. If Yellen is so determined to keep interest rates in a deep freeze, why has she been trying in recent months to talk up longer-term rates by insisting that the Fed is likely to hike rates faster than the market currently believes?

Central bankers have of course been known to help incumbents before elections, by allowing inflation to drift up and keep employment booming. During US President Richard Nixon’s 1972 re-election campaign, he sternly lectured Fed chair Arthur Burns on the need for pump-priming the economy to help him defeat his Democratic challenger, George McGovern. Nixon won resoundingly, but Burns’ policies helped set off the worldwide inflation of the 1970's and brought forward the breakup of the post-war system of fixed exchange rates. The long-term effects were catastrophic.

Will Yellen launch a rerun of the bad old 1970's, when US inflation hit double digits? I doubt it. Although it is not hard to imagine that Yellen privately holds Trump in the same low regard he holds her, most observers see no signs that inflation is just around the corner.

True, some people still insist that if the Fed doesn’t urgently raise interest rates and rein in the money supply, the US economy will go the way of Zimbabwe (where inflation far exceeded 25,000% in late 2008). But the argument that Fed balance-sheet expansion will translate into high inflation has been colossally wrong for the past six years. Inflation in the US has been consistently below target and, even today, bond yields reflect deep skepticism about whether the Fed has the will or the capacity to sustain price growth at the official 2% target on a consistent basis.

Indeed, those central banks that have tried raising interest rates prematurely, including the European Central Bank and the Swedish National Bank, have been forced to reverse course, and the Fed wants to avoid that fate. The US economy is performing far better these days, and the moment for raising rates further is likely near.

But to infer that an immediate start to further hikes is a no-brainer is ludicrous. In fact, there is still a worldwide downward draft on interest rates, with the ECB and the Bank of Japan still very much in easing mode, as are many smaller central banks. The Fed is already allowing some tightening simply by not playing along, and letting the US dollar appreciate.

To be fair, central banks are not immune to manipulation, and fighting off political pressures is an endless battle. During the financial crisis, the monetary authorities were called on to assume temporary emergency powers, including massive purchases of government and private-sector bonds. For most, including the Fed, there is still no clean exit in sight, and this has made the problem of political insulation more difficult, with or without an election.

Some believe the only salvation is a return to the gold standard era of the late 1800's, when governments fixed the price of their currency in gold, leaving little scope for political interference. Unfortunately, gold bugs seem surprisingly – or perhaps willfully – ignorant of the chronic financial crises and deep recessions of that era. Ultimately, the gold standard collapsed, after governments were forced to abandon it during World War I and thereafter were never able fully to re-establish public trust.

More forward-looking thinkers point to private cryptocurrencies like Bitcoin as the future of money, arguing that they take politics out of the equation entirely. But this, too, is very naive. Governments already can block cryptocurrencies from circulating in the legal economy by restricting bank access, imposing tax laws, and by also impeding retail stores’ ability to accept it. (And, as I explain in my new book The Curse of Cash, Bitcoin can hardly be considered a long-term substitute for large-denomination bills.)

Yes, blockchain technology is very exciting and will likely have many applications in banking, finance, and across the economy. But it is no guarantee against political influence on inflation. In the long history of currency, from coinage to the advent of paper money, the private sector may innovate, but ultimately the public sector appropriates. At the end of the day, the government will always be able to control the rules.

Ironically, the best way to insulate central banks from political pressure would be to expand their toolkit to allow for effective negative-interest-rate policy, though this will take time (as I also discuss in my book). In the meantime, the Fed and other central banks will have to keep walking a tightrope that leaves them especially vulnerable to outside pressure. Fortunately, the Fed has a chair right now who is able and willing to stand up to it.

Article Link To Project Syndicate:

Google Expected To Unveil New Phones At San Francisco Event

By Julia Love
October 4, 2016

Alphabet Inc's Google is expected to unveil new smartphones at an event on Tuesday, the company's latest effort to sell consumers on a Google-branded device and to challenge Apple Inc at the high end of the market.

Analysts predict the San Francisco product launch will also showcase other Google hardware initiatives, including a voice-controlled speaker system called Home to challenge Amazon.com Inc's Echo device, and a virtual reality headset.

The most eagerly expected offering is a pair of smartphones released under the Pixel brand, replacing the Nexus line. While most vendors other than Apple use Google’s Android operating system, the company has for years toyed with various approaches to building its own hardware without alienating manufacturers.

Google has sold Nexus phones since 2010, but the devices have gained little traction in a market dominated by Samsung Electronics.

Analysts attribute the lackluster sales to poor distribution, as the phones typically are not available through network carriers, the channel most U.S. consumers rely on. Google also owned the Motorola smartphone business briefly before selling it to Lenovo Group.

Because its mobile software is available so widely, Google has struggled to distinguish its own devices, said analyst Jan Dawson of Jackdaw Research.

Google “wants to have this end-to-end experience, but it’s not clear that people really want that,” Dawson said.

The new Pixel phones are expected to cost more than $600, putting them at the high end of the market, where Apple is the leading player.

Dawson is more optimistic about the Home device - unveiled at the company’s developer conference this year - which works with home entertainment systems and responds to voice commands.

The device represents an important move in an intensifying battle between Google and other tech giants to establish the dominant "digital assistant."

Google Assistant, Amazon's Alexa and Apple's Siri are vying for supremacy as more people search the web and make purchases online through voice commands, which may eventually supplant keyboards and touchscreens as the primary means of controlling some digital devices.

Although Amazon was first to market, Google can capture plenty of sales in the nascent category, Dawson said. But as with smartphones, distribution may pose a challenge.

“Amazon has the advantage of being able to put this on the home page of the biggest e-commerce site in the world,” he said.

Analyst Ben Bajarin of Creative Strategies said he also expects Google to discuss its virtual reality headset, Daydream, at the event. He said the company may also reveal plans to combine its Chrome operating system for laptops and its Android mobile software, helping developers build for more devices.

Article Link To Reuters:

U.S. Apartment Vacancy Rate Stays Flat In Third Quarter

By Ankit Ajmera
October 4, 2016

U.S. apartment vacancy rate was unchanged at 4.4 percent in the third quarter from the second, while rent growth decelerated in a period that generally sees the strongest increase, real estate research firm Reis Inc (REIS.O) said on Monday.

Asking and effective rents both expanded 0.9 percent during the quarter, compared with a 1.1 percent growth rate in the second. This was the third consecutive quarter of decelerating year-over-year rent growth.

"Developers had enjoyed healthy rent growth and significant pre-leasing just a few short years ago when the housing market was struggling to gain footing. But since then developers have been overbuilding in some markets as demand has ebbed somewhat," Reis economist Barbara Denham said in a statement.

New construction fell to 37,744 units delivered in the third quarter, a sharp decline from 53,587 units in the second, suggesting that developers were not rushing to complete construction.

However, Reis cautioned that the new construction figure for the third quarter was preliminary, and the number could be revised upward as construction data is finalized.

Net absorption totaled 37,693 units in the third quarter, the lowest level since mid-2013, likely reflecting a delayed response to the slowdown in employment at the start of 2016, Denham said.

New York remained the most expensive market with effective rents registering $3,441 per unit per month, followed by San Francisco at $2,481 per unit per month, the report said.

Sacramento, California remained the tightest market in the United States, having the lowest vacancy rate of 2.1 percent.

Reis said it expects the national vacancy rate to continue to increase in 2016, and rent growth to stay muted to below the 4 percent level on an annual basis until after the Presidential elections in November.

Article Link To Reuters:

Why Japan’s Godzilla-Sized Stimulus Is A Threat To Investors

Deutsche Bank: Central banks are out of ammunition.

By Sue Chang
October 4, 2016

The Bank of Japan’s desperate struggle to keep the Japanese economy on life support via trillions of yen in stimulus has done little other than to create a monster that is emerging as a major risk to investors, according to a strategist at Charles Schwab & Co.

Jeffrey Kleintop, chief global investment strategist at Charles Schwab, on Monday discussed the futility of the BOJ’s losing battle against economic malaise within the context of Japan’s most famous postwar villain.

“The BOJ’s growth of Japan’s monetary base, the amount of currency directly supplied to the economy, has been proportional to the growing size of Godzilla as he appeared in various films over the past 52 years, culminating in 2016’s towering monster,” said Kleintop.

“Godzilla Resurgence,” the latest installment in the popular franchise, is slated for release in the U.S. on Oct. 11.

Kleintop notes that the numerous quantitative easing measures introduced by the Japanese central bank over the years have bloated the country’s monetary base to the equivalent of the U.S. — a country whose economy is four times as large as Japan’s. But for all the money that the central bank has supplied, it is essentially waging a losing battle as the population continues to age.

“The growing monetary base seems to have had little in the way of lasting success, with growth remaining soft, but poses rising risks of becoming a monster that wreaks havoc on the country by becoming the biggest owner of Japanese bonds and stocks,” said the strategist.

At this rate, the BOJ could run out of bonds to buy by the end of 2017 and is on track to becoming the largest shareholder in more than half of all companies in the Nikkei 225NIK, +0.84%

The BOJ’s Godzilla-sized QEs pose several risks, most notably increased financial market volatility and depressed trading in Japanese bond market. The central bank’s ownership of stock also raises questions about corporate governance, according to Kleintop.

“If, in the future, the BOJ chooses to promote social or economic goals and not simply act as a passive investor, sudden changes that could take place at companies may not be in the interests of other shareholders,” he said.

Japan is not alone in its futile campaign against anemic growth, according to Torsten Slok, chief international economist at Deutsche Bank.

The economist shared the following graph to illustrate how ineffectual quantitative easing has been globally.

“Central bank policies are not working very well. They are out of ammunition,” Slok told MarketWatch.

Other than the first QE in the U.S., a majority of subsequent stimulus packages have failed to have the desired effect. Tepid economic growth, and in some instances, contractions, is proof that negative rates do not work, he added.

“It is time for politicians to give the economy a boost with fiscal policies,” said Slok.

Even the U.S., which is faring comparatively better than Japan and Europe, will become more vulnerable to shock the longer it remains in its low-growth rut.

In that sense, the election could be an unexpected tailwind for the economy as both Democratic nominee Hillary Clinton and her rival Republican Donald Trump have indicated a desire to expand infrastructure spending.

“The ball is with the politicians,” he said.

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Europe Could Fine Google Up To 10% Of Annual Global Revenue

By Anita Balakrishnan
October 4, 2016

Google could face fines of up to 10 percent of the company's annual global revenue for formal charges from European regulators, The Wall Street Journal reported on Monday.

Europe's competition regulator, the European Commission, is "intent" on changing Alphabet's business practices and levying "significant" fines, according to the Journal. Documents show the Commission intends to establish that Google and Alphabet have infringed EU antitrust rules, Journal reporter Natalia Drozdiak wrote.

The report comes after Reuters reported that regulators planned to order Google to stop paying financial incentives to smartphone-makers to pre-install Google Search exclusively on their devices. Separately, Google may have to rank rival shopping services the same as its own, Reuters reported.

Google told Reuters: "We look forward to showing the European Commission that we've designed the Android model in a way that's good for both competition and consumers, and supports innovation across the region."

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Bass Pro Shops Hooks Cabela's In $5.5 Billion Deal

By Abhijith Ganapavaram and Sruthi Shankar
October 4, 2016

Bass Pro Shops said on Monday it will acquire Cabela's Inc (CAB.N) for $5.5 billion, combining two meccas for outdoor enthusiasts, even as the deal may face antitrust scrutiny given that the hunting and fishing retailers overlap in several U.S. states.

The deal, first reported by Reuters, will combine Cabela's 85 stores, which have a stronger U.S. Northwest presence, with Bass Pro's roughly 100 stores that are concentrated in the U.S. Southeast.

Their overlap in Texas, Missouri and Kansas will likely raise antitrust concerns.

"Both Cabela's and Bass Pro Shops used promotions to drive store traffic and market share, especially in contested geographic regions. As a combined entity, we see potential for a more rational promotional environment to emerge, benefiting all industry participants, "D. A. Davidson & Co said in a research note.

Cabela's had said it would explore a sale last December after pressure from activist hedge fund Elliott Management Corp, which said the shares were undervalued.

Cabela's shares ended up 15 percent at $63.18 on the New York Stock Exchange, close to the $65.50 per share in cash that the deal with Bass Pro values the company.

Elliott now stands to make a profit of $419.2 million, nearly double what it paid to buy an 11.1 percent stake in the company, according to regulatory filings.

Sydney, Nebraska-based Cabela's and Springfield, Missouri-based Bass Pro have been serving outdoor enthusiasts since their respective foundings in 1961 and 1971.

As the broader industry has struggled to compete with internet retailers such as Amazon.com Inc (AMZN.O), Bass Pro and Cabela's have been targeting customers seeking a one-stop shop for entertainment, expert advice and shopping.

Cabela's has grappled with declining sales of apparel and footwear and has reported same-store sales growth in only one quarter in more than three years. Still, the company maintains a loyal following, with many customers willing to drive miles to shop at stores, as well as dine at its restaurants and visit its shooting ranges.

The companies have at times also benefited from their significant hunting-gun businesses, but the industry has seen steep swings in sales amid uncertainty around gun law changes.

Both companies are closely associated with their founders, Johnny Morris at Bass Pro and Dick, Mary and Jim Cabela at Cabela's. Dick Cabela died in 2014 and was succeeded by his brother Jim as chairman of Cabela's. Johnny Morris, who still owns a majority of Bass Pro, will be chief executive of the combined company.

Cabela's also agreed to sell its credit card business called "World's Foremost Bank" to Capital One Financial Corp (COF.N), which will forge a 10-year partnership with Bass Pro to issue credit cards to Cabela's customers.

Bass Pro will finance the acquisition through preferred equity financing commitments of $1.8 billion from Goldman Sachs Group Inc (GS.N) and $600 million from buyout firm Pamplona Capital Management.

JPMMorgan Chase & Co (JPM.N) advised Bass Pro Shops and Guggenheim Securities advised Cabela's on the deal.

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China September Data Seen Tipping Mild Pickup In Economy

By Sue-Lin Wong and Shaloo Shrivastava
October 4, 2016

A flurry of data from China in coming weeks is expected to point to modest improvement in the economy in the third quarter as a government infrastructure spree and a housing boom boosts demand from steel and glass to furniture and appliances.

Exports are expected to remain, weak, however, while fixed asset investment is likely to hover near 17-year lows, leaving the economy imbalanced and highly reliant on a rebound in heavy industry and government spending for growth.

"Firmer manufacturing activity points to faster GDP growth," ING's chief Asia economist Tim Condon wrote in a note on Tuesday, pointing to factory surveys last week.

"We revised our second-half GDP forecast to 6.8 percent from 6.5 percent and our full-year growth forecast to 6.7 percent from 6.6 percent."

Improving growth would reinforce views that the People's Bank of China will be in no hurry to cut interest rates this year and could even keep them on hold through 2017, he added.

China's steel demand should continue to strengthen on strong investment in housing and infrastructure, analysts at ANZ believe.

But the property market is showing signs of overheating, with a growing number of cities imposing restrictions on home purchases to curb soaring prices.

The September data deluge will kick off with foreign exchange reserves on Friday, followed by trade and inflation on Oct. 13 and 14, respectively.

Industrial output, investment and retail sales will be released on Oct. 19 along with second-quarter gross domestic product. Loan and money data will be released Oct. 10-15.

Economists polled by Reuters expected forex reserves dipped again to $3.18 trillion after dropping to the lowest since 2011 in August after the central bank intervened to support the yuan currency as it weakened to near six-year lows.

September exports likely fell 3 percent from a year earlier, slightly worse than in August and pointing to still sluggish global demand.

Imports may have grown 1 percent, after unexpectedly rising 1.5 percent in August for the first time in nearly two years, boosted by coal and other commodities and stronger domestic demand.

China's trade surplus is forecast to have expanded to $53 billion in September, versus August's $52.05 billion.

The consumer inflation rate may have picked up slightly to 1.6 percent on-year after falling in August to 1.3 percent, the slowest since October 2015.

Producer price deflation will continue to ease thanks to higher commodity prices, driving stronger profits for industrial firms. Economists predict a decline of only 0.3 percent after a drop of 0.8 percent in August.

And despite concerns about rapidly rising debt, policymakers likely remained generous about supplying credit.

New yuan loans likely rose to 1 trillion yuan ($149.96 billion) in September, after more than doubling in August to 948.70 billion yuan.

However, analysts warn much of the growth was likely due to strong mortgage demand, highlighting the risks to the banking system if property prices pop.

Growth in outstanding loans likely dipped to 12.9 percent, while M2 money supply is expected to have risen 11.6 percent in September, picking up from 11.4 percent in August.

In recent months money supply data has suggested many Chinese companies are hoarding cash rather than investing it, adding to views that further central bank easing would not be as effective in spurring economic growth as in the past.

Fixed asset investment growth for Jan-Sept is expected to edge up marginally to 8.2 percent but remain around the weakest pace since December 1999.

Strong government spending would likely contrast with further weakness in private investment, which grew just 2.1 percent in the first eight months of the year, remaining at record lows.

Growth in industrial output likely ticked up to 6.4 percent in September from August, while retail sales growth likely remained steady at 10.6 percent.

Article Link To Reuters: