Thursday, October 27, 2016

Oil Prices Rise On Venezuela Protests, Strong Asian Demand

By Henning Gloystein
October 27, 2016

Oil prices rose on Thursday, lifted by concerns over Venezuela's stability as well as by firm demand in Asia, although doubts over OPEC's ability to organize a coordinated production cut still weighed on markets.

International Brent crude oil futures LCOc1 were trading at $50.16 per barrel at 0620 GMT (2:20 a.m. ET) on Thursday, up 18 cents, or 0.36 percent, from their last close.

WTI futures CLc1 were at $49.33 per barrel, up 15 cents, or 0.31 percent, from their previous settlement.

Traders said concerns over political stability in Venezuela, a major oil producer, had lifted markets.

In Asia, South Korea's S-Oil Corp (010950.KS) said on Thursday that it expected refinery demand to rise in the region.

As crude is the main feedstock for oil refineries, strong refining activity tends to be price supportive of crude.

In the United States, WTI futures received support from a 553,000-barrel draw in crude inventories to 468.16 million barrels. [EIA/S]

But some analysts said that the drop in stocks was misleading.

"The decline of 553,000 barrels last week was centered on the west coast, which is isolated from the rest of the network. Inventories actually increased along the East and Gulf Coasts," ANZ bank said on Thursday.

Traders also said that oil prices were being held back on doubts that the Organization of the Petroleum Exporting Countries (OPEC) and non-OPEC producers like Russia will be able to effectively coordinate curbs in output to prop up prices.

"Investors remain uncertain as to whether OPEC can implement the tentative agreement to cut production," ANZ bank said.

A cut is being pushed by Saudi Arabia, OPEC's biggest producer, and it is being supported - at least by word - by Russia, not a member of the cartel but the world's biggest oil producer.

However, OPEC's No.2 producer, Iraq, has said it would not cut output, arguing it needs the revenue to fight Islamic State, and the government is trying to lure investors to boost output further from its current record 4.43 million barrels per day.

Article Link To Reuters:

Trump’s Final Humiliation Of The GOP

By John Podhoretz
The New York Post
October 27, 2016

When the news hit on Tuesday that the Trump campaign has washed its hands of fund-raising efforts two weeks before the election, the humiliation of the traditional Republican Party at the hands of Donald Trump was all but complete.

His refusal to help fill party coffers just as the last push for voters commences — which is an expensive process and requires cash on hand — is the perfect capper to 16 months in which Trump has gleefully terrorized weak-kneed Republican officials, forced them to comply with his wishes and then screwed them.

And it’s probably not the capper, not really; with 12 days to go until the election, who knows what final blows Trump will deliver to the kneecaps of Republican National Chairman Reince Priebus and all the elected Republican officials who have been doing the “yes, I endorsed you but I don’t really like you” two-step?

Loyalty is a one-way street in Trump World. Priebus has likely sacrificed his future being loyal to Trump in the present, since the candidate to whom he has sworn his allegiance is now effectively turning on the Republican Party’s efforts to elect candidates down-ticket — which is Priebus’ primary responsibility as RNC chair.

Priebus has no right to be surprised. From the moment the mogul came down the escalator, Trump has played him like a piano.

At first, Priebus made nice in order to secure Trump’s guarantee that he wouldn’t bolt the party after a primary-season defeat and run as an independent candidate who would split the vote on the right and thereby elect Hillary Clinton.

Trump did so in September 2015, but when it looked like he was on his way to defeat in the Wisconsin primary five months later, he explicitly reneged on it because, he said, “I have been treated very unfairly . . . by basically the RNC, the Republican Party, the establishment.”

He hadn’t been; he was sore that his faulty organization had not read the rules governing the primary processes in certain states and that Ted Cruz had gotten more delegates out of them than Trump thought he should have.

But right there, in reneging on the pledge, Priebus had a chance to save his dignity and his honor by confronting Trump with his bad faith. He didn’t, and from that moment on, Trump owned him.

Trump owned Priebus so badly that his consistent aggression against Priebus’ close friend Paul Ryan earned not so much as a syllable of public complaint or distancing. He owned Priebus so lock, stock and barrel that the suggestion of any effort to use existing Republican Party rules to challenge Trump’s domination of the Republican National Convention led to the mouse-like Priebus suddenly roaring lion-like about financial punishments and excommunications for anyone who dared cross the nominee.

Priebus was, of course, not alone in responding to Trump’s hyper-aggressiveness by cowering in fear. Most of the Republican field did so as well. Jeb Bush was so startled by Trump’s personal insults during the debates that he could do little but sputter. Ted Cruz tweeted that he would not get into it with Trump just because the media wanted him to and that Trump was “terrific,” which did not spare him from Trump calling his wife ugly and saying his father was involved in JFK’s assassination.

And, of course, after making a scene at the convention by failing to endorse Trump, Cruz later did so in a fashion that was at best distastefully conniving and at worst an act of sniveling cowardice.

As the last days approach, Priebus and others are left to wonder whether Trump is going to follow the ideological wishes of his campaign chairman Steve Bannon and try to burn the Republican Party down so that Bannon and others like him can more easily occupy the ruins. Now there’s nothing they can do to prevent the arson, and there’s nowhere for them to go to avoid being singed themselves.

All this was possible from the minute Trump became a candidate. Priebus knew it, because otherwise he wouldn’t have thought it necessary to court Trump so assiduously in the summer of 2015. That was his first mistake, and, in politics, very likely his last.

Article Link To The New York Post:

The U.S. Cyber War With Russia Will Wait For President Hillary Clinton

American officials keep talking about how they’ll hit back at Russia for hacking the DNC. But any counter-strike will have to wait until after the election.

The Daily Beast
October 27, 2016

After U.S. intelligence agencies and the Homeland Security Department publicly blamed Russia for a campaign of cyber espionage designed to interfere with the presidential election, the Obama administration promised a response “to protect [the country’s] interests at a time and place of our choosing.”

But that response seems unlikely to come before Election Day. The question of how to retaliate for Russia’s unprecedented meddling in the U.S. political system has been the subject of meetings among national security officials, but as of now those plans are still being worked out, according to four officials knowledgeable about the deliberations.

Rather, the administration is likely to work in concert with the president-elect to fashion a response, one official said, like the others speaking on condition of anonymity to discuss sensitive internal deliberations. It would, after all, fall to that new commander-in-chief to deal with the repercussions or retaliating against Russia.

If polls are predictive, that person is likely to be Hillary Clinton, who is sure to have her own thoughts on how to respond to an espionage campaign that was partly designed to undermine her candidacy. Handing her a cyber campaign in progress—without her input—wouldn’t be that wise. Nor would dumping an ongoing cyber war in President Donald Trump’s lap be the brightest idea considering he has consistently denied any link between the hackers and the Kremlin, despite 17 intelligence agencies’ claims to the contrary.

In an interview, Rep. Adam Schiff, the top Democrat on the House Intelligence Committee, said that he was not aware of the administration’s plans for responding to Russia or how it might coordinate with the president-elect. But he urged the White House to hold its fire until after Nov. 8.

“I wouldn’t want to take any step that might provoke [Russia] into a further escalation,” Schiff told The Daily Beast. That escalation, he said, would likely consist of Russia posting of forged emails or documents online that couldn’t be easily refuted in the runup to the vote.

“I don’t think we want to take any steps in the next two weeks to provoke that response,” said Schiff, who added that the ultimate decision should be made soon after the elections are decided. “It’s not something I would want to see drag out too long.”

With Trump alleging that the election has been “rigged” against him, officials and experts fear that voters could be misled by false information. This so-called disinformation campaign may have already begun. Earlier this month, the person, or people, going by the name Guccifer 2.0 posted documents said to have been stolen from the Clinton Foundation, but officials there said the files weren’t theirs. And Clinton campaign staff have refused to verify the authenticity of some emails purportedly stolen from the account of John Podesta, the campaign chairman.

In an interview with NBC News, Vice President Joe Biden said the U.S. is “sending a message” to Russian President Vladimir Putin that there will be consequences for his country’s actions.

“He’ll know it,” Biden said. “And it will be at the time of our choosing. And under the circumstances that have the greatest impact.”

But there are no indications that the United States has taken any response, overt or covert.

Officials emphasized that Obama is not checking out early or shoving his problems off on his successor. Rather he is giving the next president a chance to gradually adjust to the role of commander-in-chief, at a time when the world that doesn’t stop for a peaceful transfer of power.

For the candidates’ part, Trump has said he would seek to repair deteriorating relations with Russia. And given that he doesn’t share the intelligence community’s view about the hacks, he would be unlikely to pursue punitive sanctions or other measures.

Clinton, on the other hand, has signaled a far tougher stance toward the Kremlin. Earlier this week, one of her advisers wrote a column spelling out a more aggressive Russia policy.

It is neither unprecedented nor particularly unusual for a serving president to consult with his successor. And that doesn’t shield him from the political implications of any decision.

“If the policy doesn’t turn out well, Obama would still be responsible,” said Lawrence Korb, a senior fellow at the Center for American Progress and a senior adviser to the Center for Defense Information, who has worked on political transition teams.

Past U.S. presidents have maneuvered the murky period between the election to Inauguration Day with mixed results. One month after the 1992 election, George H.W. Bush ordered 28,000 troops into Somalia as part of a humanitarian mission, even as he left the exit strategy to his successor, Bill Clinton.

Nine months after Clinton took office, 19 U.S. troops died during the Battle of Mogadishu, and with that U.S. support of the effort there quickly became unpopular. Clinton ordered U.S. troops to withdraw in March 1994.

Four months before the end of the Clinton administration, the USS Cole was attacked, killing 17 sailors. Some critics charged that the lack of a forceful response by Clinton, and subsequently by the George W. Bush administration, emboldened al Qaeda, which attacked the United States less than a year later, on Sept. 11, 2001.

President Carter communicated with his successor, President Reagan, about efforts to free U.S. hostages from Iran, which notably happened the moment Reagan took the oath of office Jan. 20, 1981.

More recently, both presidential candidates in the 2008 race said they supported President George W. Bush and economic bailout plan in October of that year. The effects of the bailout, and the economic crisis that emerged from that period, fell to Obama to address throughout much of his presidency.

Addressing the question of what to do about Russian hacking, Schiff, the intelligence committee member, said decisions of such great consequence ought not to be made without regard to who has to deal with them.

“It makes all the sense in the world to coordinate that response with the president who’s not only going to have to see it though but deal with the repercussions,” Schiff said.

Article Link To The Daily Beast:

Is Pakistan Really Isolated?

The current Pakistani government has put the country back on track—economically as well as on the foreign policy front.

By Muhammad Daim Fazil
The National Interest
October 27, 2016

A country’s geographical location and strategic significance, despite its internal incompetency and inadequacy, can attract regional or extra-regional players. Case in point is Pakistan. While dealing with decades-long homegrown malfunction like corruption, bad governance, load shedding, militancy and political hassles, it still holds strategic geography with plenty of ingredients to appeal to global powers.

In the past few years, rumors have been roaming about that Islamabad’s foreign policy is nothing but a disaster. The United States’ Indian romance — it not only signed several economic ventures but also concluded defense agreements such as the 2016 Logistics Exchange Memorandum of Agreement and the Indo-U.S. Nuclear Deal in 2008 — hints at a shift in South Asian policy and a possible goodbye to Pakistan. Moreover, Washington’s “do more” demand has again surfaced and its discomfort with Islamabad is evident from the cuts in military aid (Coalition Support Fund) and its refusal to subsidize the purchase of F-16 aircrafts. The United States has also employed pressure on Pakistan after the Mumbai Attacks of 2008 and Uri Attack of 2016, demanding Pakistani cooperation with India in hunting down the perpetrators of these incidents.

The other signs of isolation stem from Islamic countries like Saudi Arabia and Iran. Saudi Arabia kept cordial connections with Pakistan in times of trial and has been lending a hand in tackling financial woes. However, the Saudis have found it hard to digest Pakistan’s decision to remain neutral in the Yemen war. Although there was no dramatic response from Riyadh, the level of bilateral engagements has shrunk. Earlier this year Saudi King Salman bin Abdul-Aziz Al Saud warmly welcomed Prime Minister Modi and showed a possible tilt towards New Delhi and against traditional ally Pakistan. Non-payment of dues and detention of thousands of Pakistani laborers in Saudi Arabia can also be seen as Saudi discomposure with Islamabad.

Iran may not be as valuable a contributor to Pakistan, but it is still significant since it shares a long border with Pakistan. Tehran, in its latest bid to come back to the international arena after the successful conclusion of the nuclear deal with the West, is employing all obtainable means for fostering regional trade. Iran and India signed a $500 million agreement under which both will work in the assemblage of the Chabahar port of Iran. Chabahar is not as important as the Gwadar port of Pakistan, but it still can become a major competitor to Pakistani aspirations for taking the lead as a regional trade route provider.

Pakistan is host to 3 million Afghan refugees and it recently extended the stay of refugees until December 2017. Additionally, Islamabad could offer a political solution to the Afghan imbroglio, though the current Afghan President Ashraf Ghani is eager to establish more affable terms with New Delhi. Indian aid to Afghanistan has surpassed $2 billion together with defensive agreements.

This picture makes it easy to believe that Pakistan is really facing international isolation. However, the last month witnessed some significant developments that have mitigated Islamabad’s isolation to a considerable extent. The most striking development was the first ever Pak-Russia military drill which commenced in Pakistani territory at a time when Indo-Pak tensions are on the rise. Russian troops landed in Pakistan despite repeated propaganda from the Indian side that Moscow has cancelled joint exercises in a bid to please India. This is a major innovation in Islamabad’s Moscow connection in a period when Washington’s allegiance to India is expanding. This joint drill seems to be a continuation of Pak-Russia military ties that are growing since the visit of Russian Army Chief General Vladimir V Chirkin to Pakistan in 2013 and Naval Commander Admiral Viktor V Chirkov in 2014.

China meanwhile has come to revamp the feeble Pakistani economy with the injection of $51 billion through the China-Pakistan-Economic-Corridor (CPEC). Beijing is not only empowering Islamabad to make this joint venture materialize despite some political hassles and security issues, but it is equally supportive of the Pakistani defense narrative. Twice in 2016, China vetoed the Indian resolution in the UN labeling Pakistani citizen Massod Azhar a terrorist — an endorsement of the Pakistani stance and a serious blow to New Delhi. Additionally, Beijing plunged into burgeoning Indo-Pak tensions after the Uri Attack and emphasized the need to start a dialogue.

There was an uproar in Pakistan in response to India’s decision to invest in Chabahar. Many felt that this strategic and economic move by New Delhi could allow it to wield pressure against Pakistan from the southwestern border. The Indo-Iran joint endeavor is materializing but a surprising development arose when Tehran expressed an interest to partake in CPEC. Iranian President Hassan Rouhani, on the sidelines of the 2016 UNGA meeting, told Prime Minister Nawaz Sharif that Iran wants to be part of CPEC. Last week, the Consul General of Iran Mohammad Hossein Bani Assadi also confirmed that “CPEC is a great economic development project and Iran wants to be part of it.”

Where Islamabad should really feel like it is in hot waters is Afghanistan. Indian diplomatic, economic and lately defensive maneuverings inside Afghanistan put Pakistan in a difficult position. However, since Afghanistan has not been able to tackle its internal political strife, the Taliban-led militancy, and its weak economic fabric; it actually is not in a position to really intimidate Pakistan. Despite being the recipient of substantial economic aid from India and the international community, Afghanistan in many ways is still dependent on Pakistan for smooth economic going.

It may be an Indian desire to isolate Islamabad — as expressed by Indian Prime Minister Narendra Modi — but Pakistan is not completely out of the scene, either regionally or internationally. In fact, the current government has put the country back on track; economically as well as on the foreign front. Islamabad has brought huge Chinese investment and genial ties with Russia at the same time that the Pakistani military is wiping out decades-old militant movements. These vibrant civil-military efforts are just the dawn of a bright future.

Article Link To The National Interest:

Blowing Up the Islamic State’s Oil Company

The United States has dramatically stepped up attacks on the caliphate’s oil production. But to win this battle, it’s going to have to go scorched earth.

Foreign Policy
October 27, 2016

Just a year ago, the Islamic State was riding high on a wave of crude oil and hard cash. The jihadi group was increasing oil production and recovering quickly from U.S.-led coalition strikes designed to “disable” — not destroy — its infrastructure. According to its own records, the Islamic State was producing more than 50,000 barrels a day after the first wave of airstrikes. It earned $40 million to $50 million a month in early 2015.

But today the Islamic State’s oil business is fighting for its life. A year of relentless airstrikes against targets that were once off-limits, combined with territorial losses in Iraq and Syria, has badly undercut the group’s fortunes. In June, the United States flattened the Islamic State’s oil ministry headquarters in Mosul. In August, Kurdish forces took credit for killing the Islamic State’s oil minister, Sami al-Jabouri, in a joint raid with U.S. forces near the Iraqi-Syrian border.

The so-called caliphate’s national oil company is still in business, but volumes and revenues are down significantly. By exactly how much, we don’t know. We do know, however, that fuel prices have spiked wildly across Islamic State territory over the last year, suggesting that oil is in short supply. We also know that the Islamic State adopted austerity measures this year after revenues plummeted. Even well-paid oil professionals are calling it quits as the group cuts pay and provisions.

All these setbacks are the result of Operation Tidal Wave II, which ushered in a far more aggressive and expansive campaign against the Islamic State’s oil network when it began on Oct. 21, 2015. The operation, which was the culmination of a fierce debate inside the U.S. government about the effectiveness of the first year of strikes against the group’s oil production efforts, was made possible by a huge trove of Islamic State documents captured by U.S. commandos last year when they slipped into Syria to raid the group’s most lucrative oil field.

The Omar oil field doubled as the headquarters for Abu Sayyaf, the man then responsible for the Islamic State’s day-to-day oil operations. Abu Sayyaf and two of his deputies were killed in the May 2015 raid — but American troops walked away with the single largest intelligence haul in special operations forces history. The information seized consisted of seven terabytes of spreadsheets, personnel files, receipts, and communications that fleshed out the network like never before.

Throughout the summer of 2015, intelligence agencies translated these documents and combed through them for clues. What they found forced the coalition to go back to the drawing board.

The intelligence trove left no doubt about the resilience of the Islamic State’s oil business. The group’s repair teams were out in the oil fields fixing equipment just a few days or weeks after a U.S. strike. It also demolished old assumptions about the group’s oil economy, which had prompted the United States to be overly cautious. U.S. officials had previously assumed that the oil facilities were staffed by desperate locals rather than Islamic State members. But Abu Sayyaf’s records revealed that the Islamic State had a small army of highly professional and ideologically committed workers and managers, all of whom were vetted. Local or foreign, many if not most of these professionals had pledged allegiance to the Islamic State’s leader, Abu Bakr al-Baghdadi.

Amos Hochstein knows the Abu Sayyaf intelligence was a game-changer. As the special envoy and coordinator for international energy affairs at the State Department, he’s been at the center of U.S. efforts to dismantle the Islamic State’s oil business. “It answered a lot of questions about how they recruit people and who’s working in the fields,” he told me in his office last month. “But it also gave us a much clearer understanding of the monetization. Where do they make the money, and how do they make the money?”

By late summer 2015, the United States was looking at the Islamic State’s oil network with new eyes — Abu Sayyaf’s. Washington slowly began to recognize that the network’s resilience was undeniable: The “surgical” strikes on control rooms and other infrastructure had little or no effect; many of the “civilians” running the group’s oil operations were in fact combatants; and too much equipment was being left intact.

The facts overrode old arguments for restraint. Going back to 2014, U.S. officials had warned that an aggressive campaign was too risky because it might cause grave environmental damage. No more. “If you don’t take [the oil infrastructure] out, they will make more money next year than they’re making this year…. This is what’s fueling the ISIL global machine,” Hochstein said, using the U.S. government’s preferred acronym for the jihadi group.

Initially, U.S. officials also held out hope that the Syrian civil war would be resolved sooner rather than later. The United States pulled its punches as a result, assuming that the oil sector would be essential to Syria’s postwar recovery. By late 2015, however, peace was no closer, and the Islamic State was still thriving. Washington sobered up. A strategy shift was underway.

Operation Tidal Wave II launched a year ago this month. Armed with a better understanding of the network, U.S. warplanes began targeting production sites in October 2015, destroying wellheads, pump jacks, and drilling rigs in bunches, along with cranes and other heavy equipment, seemingly on a daily basis.

Strike reports from the U.S. Defense Department show a huge shift in the variety of targets and the volume of strikes over this period. In the 12 months starting September 2014, the United States focused almost exclusively on Islamic State refineries and oil storage sites. It rarely hit those places where oil reached the surface. But in the 12 months since Tidal Wave II started, the vast majority of strikes have hit oil-producing sites, including plants that separate oil from natural gas, thus complicating the extraction process.

A declassified selection of Abu Sayyaf’s personal records shows that he controlled a total of 253 oil wells in Iraq and Syria shortly before his death. By my count, the coalition has destroyed at least 224 of them over the last year, though some may have been rebuilt or replaced and hit again later. Prior to Tidal Wave II, the Pentagon reportedly hit just four oil wells during the first year of strikes.

Besides production sites, the United States also started targeting the middlemen who make the Islamic State’s oil trade possible. These middlemen buy from the Islamic State and sell to a variety of groups, including locals who run very simple refineries, Syrian rebel groups, and even some customers outside of Syria and Iraq. On Nov. 16, 2015, three days after Islamic State gunmen and suicide bombers murdered 130 people in Paris, the coalition for the first time hit tanker trucks waiting to load the group’s oil. Because the drivers are considered civilians, they were warned with leaflets, text messages, and targeted radio transmissions — but they were given only minutes to abandon their trucks. U.S. forces watched from above as drivers fled the scene on foot.

The result? One hundred and sixteen oil trucks were destroyed that day alone, and the total number destroyed is now well over 1,000 trucks. “The risk premium [for a driver] just went up significantly,” Hochstein said. “And what changed was, first, no truck driver wanted more than three trucks next to him.”

That meant the Islamic State was forced to carefully manage and schedule each loading. It also had to lower the price of oil it charged at the wellhead to attract middlemen who might otherwise be scared away. Even then, the drivers started keeping their distance from the source, Hochstein confirmed. “They moved further and further away from the wells so they had to be called to come in and get it. You just slowed down the operation,” he said.

These days, the Islamic State is adapting rather than rebuilding. The distinction matters. It’s trying to avoid huge losses by spreading out its network and trying to conceal it. Truckers aren’t lining up like they used to, and the group is burying pipelines and storage tanks in the hopes that the United States will have less luck finding them.

Until last year, Abu Sayyaf ran a profitable oil company, providing a huge influx of funds for the terrorist state. This year, his successor is running an industrial triage unit, cutting losses and concentrating on the most productive assets. He’s salvaging what he can — even hauling away tens of miles of pipe from the old Iraq-Turkey pipeline, which linked fields in Kirkuk to the Mediterranean Sea before it was closed two years ago.

Fortunately for the Islamic State, the group still has customers inside and outside its borders. Some daring middlemen still load oil, even if there’s less of it available. It’s a safe bet that Syrian President Bashar al-Assad’s regime is still buying, too. As in years past, we’ve seen curious, unexplained gaps in official Syrian Oil Ministry data: Imports from Iran continue, averaging roughly 50,000 barrels a day, while the regime is producing less than 10,000 barrels a day. For their part, the Russians supply refined fuels rather than crude oil. But we’re left guessing where the regime gets another 30,000 barrels of crude it says it refines every day. This might be trivial, if we didn’t already know that Syria’s natural gas industry is essentially run as a joint venture between Assad and Baghdadi.

In spite of the damage done by the coalition, natural underground pressure pushes oil to the surface no matter what. If it’s not captured at the wellhead where it can be controlled, then the Islamic State collects all the oil it can in “flow pits” above ground. The United States is hitting these oil pits, too, but the scheme could hardly be more basic. “You gotta throw away all the manuals,” Hochstein assured me. “They can operate things that based on every manual is inoperable.”

The effect is that the Islamic State’s oil is being moved in smaller and smaller batches. Again, this increases costs and consumes time, making oil less profitable. But it’s still being produced. And even though the caliphate’s borders keep shrinking, the Islamic State hasn’t loosened its grip on the eastern Syrian province of Deir Ezzor, where more than half of its oil wells are located. By contrast, territorial losses in Iraq haven’t cost the Islamic State much, because its assets there were few and the quality was poor.

Today, a year after Tidal Wave II started, the question facing the coalition — and the next occupant of the White House — is whether or not to double down. To finish the job, the mission may have to take an even more aggressive turn.

That decision may be easier to make now that the Islamic State has established its modus operandi wherever it retreats from oil-rich territory. In Qayyarah, Iraq, the group torched several wells that it was forced to abandon. “[The] one thing we’ve now learned for certain is that whenever we take over territory [and the Islamic State retreats], they don’t leave much behind — especially not energy infrastructure…. They blow up everything,” Hochstein said. What the Islamic State doesn’t destroy, it cannibalizes for operations elsewhere.

If scorched earth is the order of the day, there’s no reason to hold back now.

Article Link To Foreign Policy:

The Warren-Sanders Presidency

Elizabeth Warren is barnstorming so she can co-run the government from Capitol Hill.

By Daniel Henninger
The Wall Street Journal
October 27, 2016
The useful cliché that is pounding like a bad headache through the frontal lobe of millions of voters is the one about choosing between the devil and the deep blue sea.

The presidential devil vote may already be over. But choosing the deep blue sea—also known as the U.S. Senate—is very much in play.

That fact may be found by scrolling down to question 11A in the most recent NBC News/Wall Street Journal poll:

“Thinking more about the election for U.S. Congress, would you be more likely to vote for a Republican candidate who will be a check-and-balance to Hillary Clinton . . . or a Democratic candidate who will help Hillary Clinton and Congressional Democrats pass their agenda?”

A Republican: 53%

A Democrat: 40%

From that 13-point gap an obvious question flows: If Democrats regain control of the Senate, would you be happy with Elizabeth Warren and Bernie Sanders as co-presidents of the United States? Ignore the Senate and voters will pay a price even bigger than a Clinton presidency.

Do not for a moment think Elizabeth Warren is barnstorming the country now only to elect Hillary Clinton. She’s getting out the vote to make sure Elizabeth Warren is in position next year to co-run the government from Capitol Hill.

Sens. Warren and Sanders remember what happened in 2008. The Democratic presidential primaries that year were the historic battlegrounds for control of the Democratic Party’s direction. The Clinton machine, which had captured the party’s policy and donor apparatus, was considered unbeatable. Until a freshman Illinois senator pulled progressives together into an astonishing political force that overthrew the Clintons.

That happened because progressives didn’t like what they believed the Clintons represented—cynical centrism—and they don’t like it now. There is no way the left now lets the Clinton Foundation and the politics it embodies recapture control of the party.

Elizabeth Warren, the Democrats’ Madame Defarge, and Bernie Sanders, winner of 22 millennial-fueled primaries, are going to guarantee the revolution’s purity in any Clinton presidency.

For starters, they have a list. Politico reported in early September that Sen. Warren and progressive policy groups such as the Roosevelt Institute are “developing a hit list of the types of people they’ll oppose—what one source called ‘hell no’ appointments—in a Clinton administration.”

The Warren veto over the next Treasury Secretary is well known. But any such “list” will extend to the people put in charge of the government’s powerful enforcement bureaus in the departments of Justice, Labor, Education and the regulatory agencies. The Warren wing will appoint the people who, as they did in the Obama years, tell the rest of America what to do. Under this system, your role is to salute—or get sued by federal lawyers.

It is assumed that in return for dropping his opposition to Mrs. Clinton, the Vermont socialist will become chairman of the Senate budget committee. Days ago, Sen. Sanders tweeted that becoming budget chairman “sounds good to me.”

Sen. Warren sits on the banking committee, which many people think she already runs. The Democratic chairman would be left-wing Ohio Sen. Sherrod Brown.

As to Majority Leader Chuck Schumer arbitrating all this, Ms. Warren and Mr. Sanders can turn the masses against anyone they want, including Chuck Schumer.

The basis of their beliefs aside, a Clinton-Warren-Sanders government would extend and expand administrative-agency policies that have suppressed economic activity the past eight years.

One example is the EPA’s Clean Power Plan, finalized in 2015. Donald Trump got support in places like West Virginia and western Pennsylvania because of the destructive effect of the Obama “climate-change” policies on their livelihoods.

Mrs. Clinton’s solution, stated in the first debate, was replacement jobs making “a half a billion more solar panels.” Most displaced workers know this is pie in the sky, like “free” college tuition.

Many voters in the Republican suburbs of battleground states such as Pennsylvania, North Carolina, Wisconsin, New Hampshire or Missouri likely think life is good for them and will remain so no matter who runs the Senate. One big news story this week—about what is happening to ObamaCare—should make anyone who is complacent about their Senate vote think again.

Insurers have dropped hundreds of thousands from health plans. If a person doesn’t find a plan by Dec. 15, the federal government will assign them to a plan in a letter that includes their estimated subsidy for it.

Where does this “subsidy” come from? The 1%? Of course not. One way or another, it will get pulled out of the incomes of middle-class Americans—through higher premiums on their plans, indirect taxes or forgone wage gains.

In the world of Sens. Warren and Sanders, “fairness” requires Americans being pitted against each other by their own government. No wonder 63% of them feel the country’s going in the wrong direction.

A few days ago, Hillary Clinton said to a campaign rally, “I could listen to Elizabeth Warren go on all day.” Whether the country wants to remains to be seen.

Article Link To The Wall Street Journal:

The Black Hole Of Trumponomics

By Ramesh Ponnuru
The Bloomberg View
October 27, 2016

Wilbur Ross and Peter Navarro, two advisers to Donald Trump, argue in the Wall Street Journal that the federal government would have just as much revenue with Trump’s big tax cuts as it would have without them (and so those tax cuts will neither increase the deficit nor require large spending cuts). They claim that even organizations which tend to find that tax cuts on investment boost economic growth, such as the Tax Foundation, are underestimating the benefits of Trump’s plan because they are not taking into account the pro-growth effects of his trade, energy and regulatory policies.

Ross and Navarro refer readers to a paper they wrote for the campaign to get a more accurate picture of how these policies would affect the economy. The paper’s method is to start with the Tax Foundation’s lowest estimate of how much revenue the Trump plan would lose, which is $2.6 trillion over 10 years, and then explain how each ignored factor -- energy, trade and regulation -- would eat away at that estimate.

One problem: The Tax Foundation’s lowest estimate assumes Trump would not really follow through on his statements that he would apply his proposed 15 percent tax rate on corporations to businesses that pay taxes under the individual income tax. How Trump would handle this issue is a black hole from which no information can escape. If Trump makes good on his promises, the Tax Foundation’s revenue-loss estimate rises to $3.9 trillion.

It’s trade, more than regulatory or energy policy, that drives the Ross-Navarro analysis. The alleged growth benefits of Trump’s trade policy are responsible for nearly three-fourths of the improvement in their deficit estimates.

Their methodology on this point is simple: They assume that Trump will negotiate better trade deals so that the current $500 billion U.S. trade deficit drops to zero, and assume further that this change in our trade balance is accomplished without reducing consumption or investment. Every dollar in reduced imports, that is, would instead go to an American producer, and nothing we do to reduce imports would hurt the U.S. economy at all.

All of these assumptions are extremely dubious. Take the argument by Ross and Navarro that it would be easy to eliminate the trade deficit. They rest this argument heavily on the claim that other countries’ tax systems are an unfair trade practice that we just need to combat. But as I explained earlier, they completely misunderstand those tax systems, which are not, as they claim, “backdoor tariffs” on American products.

I’m left with two questions. First, why the conservatism? If it’s so easy and beneficial to eliminate a $500 billion trade deficit, why didn’t Ross and Navarro promise Trump would work twice as hard and create a $500 billion trade surplus? Second, why did they produce a paper at all?

They could have just said that Trump is a great man and will make everything work out just fine. Take away the verbiage and the spuriously precise numbers, and that’s all they have done.

Article Link To The Bloomberg View:

Rove: Trump Bets On The ‘Missing Five Million’

Some say Republicans can win by turning out disaffected whites—but is it working?

By Karl Rove
The Wall Street Journal
October 27, 2016

Amid this dreary campaign’s daily back-and-forth about his alleged groping and her embarrassing emails, the strategic premise of Donald Trump’s presidential bid is being tested.

Mr. Trump and his managers assume that victory depends on turning out whites who did not vote for Mitt Romney in 2012. This theory holds that President Obama won re-election by 4.9 million votes only because five million whites stayed home, unenthused by Mr. Romney, who didn’t connect with them or wasn’t harsh enough on Mr. Obama.

On the surface, the “missing five million” sounds plausible. Although 129 million Americans—55% of the voting-age population—cast ballots in the 2012 presidential election, 106 million people didn’t. Among them, according to the website FiveThirtyEight, were 47 million whites without a college degree, including 24 million men.

Exit polls from 2012 show that Mr. Romney won 59% of white voters, and that whites constituted 72% of the turnout. The Trumpers say their man can win by boosting those figures only slightly. Increase the GOP’s share of the white vote a few points, say to 62%. Raise the white turnout to 74% or 75%. VoilĂ , President Trump.

In the GOP primaries, two Republicans based their campaigns on the “missing five million,” but they differed on who the absent voters were. Texas Sen.Ted Cruz contended that they were white evangelicals. Mr. Trump argued that they were white blue-collar workers. But the two agreed that the path forward was to adopt a populist antiestablishmentarianism.

Sen. Cruz and Mr. Trump hurled almost as much abuse at what they said were pusillanimous Republican leaders as they threw at Mr. Obama. Mr. Trump won the nomination by arguing that the “missing five million” would turn out for hard-line immigration policies, anti-trade rhetoric and a neo-isolationist foreign policy that put “America First.”

How’s that working out so far? The Trump camp’s first strategic premise—that he can do better among whites than Mr. Romney did—isn’t being borne out. The Oct. 17 poll from Fox News is representative: Among registered voters, Mr. Trump drew 49% of whites and Mrs. Clinton 38%. Other polls also show Mr. Trump lagging Mr. Romney’s performance among whites. Perhaps he could match or exceed it on Election Day if he converts virtually every undecided white voter, but that isn’t likely.

We can’t evaluate the second strategic premise—that Mr. Trump can increase the white turnout—until after the election. But recent history doesn’t suggest a dramatic increase in the offing. Exit polls show that whites were 81% of turnout in 2000; 77% in 2004; 74% in 2008; and 72% in 2012. The country is becoming more racially diverse. It will be nearly impossible for Mr. Trump to keep the white share flat, let alone increase it.

This election is also testing the messages being used to energize the “missing five million.” Is Mr. Trump’s support built on nativism, protectionism and neo-isolationism? Or is it based more on vociferous opposition to Mr. Obama’s unpopular policies (like ObamaCare), as well as the country’s overwhelming demand for change?

Do most voters really believe that Mr. Trump will somehow make Mexico pay for a wall on the southern border? Or that he will deport millions of illegal immigrants? Perhaps that over-the-top rhetoric is hiding his real appeal: that voters believe he would secure the border and get violent illegal aliens off the streets. After all, in every general-election poll and virtually every exit poll from the GOP primaries, a majority of voters want to provide a path to legal status for illegal immigrants.

Do most Americans want to rip up trade agreements and start trade wars? Or has Mr. Trump simply tapped into a sentiment that America plays by the rules while other countries don’t? There is a big difference between wanting to slap tariffs on imported goods, so Americans pay more for life’s necessities, and wanting other nations to remove obstacles to U.S. goods and services.

Do most voters really believe in a neo-isolationist foreign policy? Or is it that many think the world has become much more dangerous—and the U.S. much less secure—under Mr. Obama’s feckless leadership? If the latter, the electorate is unlikely to support a full-scale retreat from the world.

In 12 days, voters will render their verdict, not only on Mr. Trump’s conduct and character, but also on his strategic framework, message and policy agenda. If the “missing five million” fail to reappear, Republicans will have to find another road to political dominance and 1600 Pennsylvania Ave.

Article Link To The Wall Street Journal:

Why An ObamaCare Fix Won’t Happen

By Jonathan S. Tobin
October 27, 2016

As the nation absorbs the news that ObamaCare premiums will undergo a massive increase (making it clear how badly misnamed the Affordable Care Act turned out to be), there’s a point that should be kept in mind: Both Donald Trump and Hillary Clinton believe that fixing it will be easy. Trump will do so by simply repealing and replacing it with some as yet unspecified market-based solution. Clinton says the law just needs some adjustments. Both are dreaming. One thing that you can count on not happening in 2017 is an ObamaCare fix.

Assuming that a President Trump would listen to House Speaker Paul Ryan’s ideas about reforming health care, there’s a chance the GOP might be able to implement some sort of scheme with which the country could live. But the chances of there being a President Trump who could sign an ObamaCare repeal and replace bill are dwindling (since Trump’s flaws have overshadowed the bad news for Democrats about ObamaCare), along with Republican hopes of retaining control of both chambers of Congress. A more realistic scenario is one in which President Hillary Clinton asks either a divided Congress or one still controlled by the GOP to clean up the mess that President Obama shoved down the country’s throat in 2010. In which case, a fix is just as unlikely.

Clinton is trying to play the bipartisan good-government card by saying that Republican leaders will be honor-bound to come to the table and work out a reasonable compromise after the election. Nothing short of a Republican sweep of the White House and Congress will make repeal possible. So if Clinton wins the presidency, the GOP dream of repealing ObamaCare will be over.

Though, even negotiations over a bipartisan set of fixes to the health-care law are almost certain to fail for the following reasons: First, a simple fix at the margins won’t work. The system is flawed in its conception and execution. There will never be enough healthy young people foolish enough to purchase insurance in the numbers that will pay for all of the sick and elderly who have benefited from the ACA. ObamaCare apologists say the skyrocketing rate hikes are no problem because they will be offset by government subsidies. But, as Bill Clinton helpfully pointed out earlier this month, millions of working and middle-class Americans make too much to get those subsidies. Even if you ignore that glaring flaw, what Democrats are really saying when they use the word “fix” is that they will simply demand that the government pour increasingly vast sums into the program to ensure that this new entitlement stays afloat.

Do liberals expect re-elected Republicans, especially if they have a majority, to acquiesce in a fix that simply means creating a new taxpayer-funded sinkhole? Even if all Republicans were infused with a pure spirit of bipartisanship this would be a bridge too far for almost all of them. Nothing short of a willingness on the part of Democrats to rethink the entire structure of the ACA would induce enough GOP members to allocate more funds to save it, and we know that won’t happen.

Second, even if there will be some in the GOP caucus who think negotiating about ObamaCare’s future is the right thing to do, the party’s current dynamic won’t let the leadership get away with it. While liberals will denounce this as a sign of extremism, the fact is that after six years of fighting the concept, the spectacle of GOP members not merely admitting defeat but being willing to further sink the country into debt to pay for a health-care plan is unthinkable. A restive base of Trump supporters who will be wrongly blaming the party establishment for their hero’s defeat will also render any movement toward Clinton on the issue impossible.

Third, most Republicans as well as most Democrats (if they were being honest) know that a marginal fix isn’t the liberal objective. Having gone this far toward their goal of universal health care with Obama’s flawed scheme, left-wing Democrats won’t be satisfied with merely a blank check to keep ObamaCare temporarily solvent or even to fund more subsidies. They want a government single-payer option and will continue to push Clinton to move in that direction. That pressure will increase as the ACA’s troubles mount and more Americans continue to suffer from its high costs and poor coverage.

Unless the Democrats take both Houses of Congress along with the White House (in which case, the debate about single payer will start sooner rather than later), what we’re likely to see is even more political combat over the ObamaCare disaster in the next four years. Obama’s legacy will not only be a failed plan but the continued partisan strife he first fomented in putting that plan into place.

Article Link To Commentary:

Britain’s GMO Liberation

London is unshackled from green hysteria on the Continent.

By Review & Outlook
The Wall Street Journal
October 27, 2016

The promise of Britain’s exit from the European Union is to liberate the U.K. from the shackles of damaging EU regulations. So congratulations to Theresa May’s government for scoring its first Brexit victory by getting away from one of Brussels’s worst food obsessions.

“As part of the preparations for EU exit,” Agriculture Minister George Eustice wrote to Parliament last week, “the Government is considering possible future arrangements for the regulation of genetically modified organisms.” He added: “The Government’s general view remains that policy and regulation in this area should be science-based and proportionate.”

This represents a significant shift from when London’s food policy was hostage to GMO-phobia across the EU. To allow GMOs to be regulated like other food products means that they will no longer be a taboo product in Britain.

Mr. Eustice’s emphasis on “science-based” decision making is especially welcome, since the anti-GMO hysteria prevalent in the rest of the EU has no scientific basis. The European Food Safety Authority has ruled repeatedly that genetically modified soybean, maize and cotton, among many other products, are safe for human and animal consumption. Numerous other medical and scientific bodies on both sides of the Atlantic have reached the same conclusion.

Yet the European Parliament has resisted the introduction of GMO products approved by the EU’s executive arm, the European Commission, while the Green lobby continues to fan hostility to GMOs in Germany and France especially.

The Green movement always insists it has a lock on good science. Its opposition to GMO products is a reminder that it doesn’t. The May government’s good sense on the subject should set a precedent for future liberations from other Continental manias—and the bad rules they inspire.

Article Link To The Wall Street Journal:

ISIS Holds Up Iraqi Army South Of Mosul

By Babak Dehghanpisheh and Saif Hameed 
October 27, 2016

Islamic State fighters kept up on Wednesday their fierce defense of the southern approaches to Mosul, which has held up Iraqi troops there and forced an elite army unit east of the city to put a more rapid advance on hold.

Ten days into what is expected to be the biggest ground offensive in Iraq since the U.S.-led invasion of 2003, army and federal police units aim to dislodge the militants from villages in the region of Shora, 30 km (20 miles) south of Mosul.

The frontlines in other areas have moved much closer to the edges of the city, the last major stronghold under control of the militants in Iraq, who have held it since 2014.

The elite army unit which moved in from the east has paused its advance as it approaches built-up areas, waiting for the other attacking forces to close the gap.

"As Iraqi forces move closer to Mosul, we see that Daesh resistance is getting stronger," said Major Chris Parker, a coalition spokesman at the Qayyara airbase south of Mosul that serves as a hub for the campaign. Daesh is an Arabic acronym for Islamic State, also known as ISIS or ISIL.

The combat ahead is likely to get more deadly as 1.5 million residents remain in the city and worst-case U.N. forecasts see up to a million people being uprooted.

A Reuters correspondent on the southern front met villagers and police who said their relatives had been taken as human shields to cover the fighters' retreat from the area.

The militants have been using suicide car-bombs extensively to fight off the advancing troops, according to Major General Najm al-Jabouri, the commander of the Mosul operations.

He said his soldiers had destroyed at least 95 car bombs since the battle started on Oct. 17.

Outside the village of Saf al-Tuth, Jabouri directed heavy machine-gun fire at a sparse concrete building on a ridge where his men believed a sniper was hunkered down. Volleys of rockets flew over the ridge with a whoosh and pounded the village itself with loud booms.

U.N. aid agencies said the fighting has so far forced about 10,600 people to flee.

"Assessments have recorded a significant number of female-headed households, raising concerns around the detention or capture of men and boys," said a news release from the office of the U.N. humanitarian coordinator for Iraq, Lise Grande.

Grande told Reuters on Tuesday that a mass exodus could happen, maybe within the next few days.

In the worst case scenario, Grande said, it was also possible that Islamic State fighters could resort to "rudimentary chemical weapons" to hold back the impending assault.

The fall of Mosul would mark Islamic State's effective defeat in Iraq. The city, sometimes described as Iraq's second largest, is many times bigger than any other Islamic State has ever captured, and it was from its Grand Mosque that the group's leader Abu Bakr al-Baghdadi declared a "caliphate" that also spans parts of Syria. U.S. Defense Secretary Ash Carter said on Tuesday an attack on Raqqa, Islamic State's main stronghold in Syria, would start while the battle of Mosul is still unfolding. It was the first official suggestion that U.S.-backed forces in both countries could soon mount simultaneous operations to crush the self-proclaimed caliphate once and for all.

Shi'ite Militias Joining Soon

A senior U.S. official said about 50,000 Iraqi ground troops are taking part in the offensive, including a core force of 30,000 from the government’s armed forces, 10,000 Kurdish fighters and the remaining 10,000 from police and local volunteers.

Iraqi army units are deployed to the south and east, while Kurdish fighters are attacking from the east and the north of the city where 5,000 to 6,000 jihadists are dug in, according to Iraqi military estimates.

Roughly 5,000 U.S. troops are also in Iraq. More than 100 of them are embedded with Iraqi and Kurdish peshmerga forces advising commanders and helping coalition air power in hitting targets. They are not deployed on frontlines.

Every power in the Middle East has claimed a stake in the fight against Islamic State, making the Mosul operation a strange coalition of nations and groups that are otherwise foes.

The attacking forces are set to increase soon if Iranian-trained Shi'ite militias join the U.S.-backed Iraqi forces. The militias' presence is contentious because of concern that they could alienate mainly Sunni Muslim residents of the area.

The militias, known collectively as Hashid Shaabi, or Popular Mobilisation Forces, said last week they would help the army take back Tal Afar, a mainly ethnic Turkmen city west of Mosul on the road linking Iraq to Syria.

Iraqi defense ministry spokesman Brigadier-General Yahya Rasool told Al-Sumariya television channel on Wednesday that the PMF would open a new front in Mosul in the coming days.

Hadi al-Amiri, head of Badr, the most powerful group within the PMF, appeared to play down the suggestion that the group would soon join an advance in Tal Afar.

"We will not go to Tal Afar now," he said. He also said the PMF intended to enlist both Sunnis and Shi'ites from Tal Afar to fight against Islamic State.

Turkish Foreign Minister Mevlut Cavusoglu said on Wednesday Turkey would take measures should the Iranian-backed militias attack Tal Afar.

Turkey and Iraq's Shi'ite-dominated central government are at loggerheads over the presence - unauthorized by Baghdad - of Turkish troops at a camp in northern Iraq. Ankara fears that Shi'ite militias, which have been accused of abuses against Sunni civilians elsewhere, will be used in the Mosul offensive.

U.S. President Barack Obama told Turkish President Tayyip Erdogan in a phone call on Wednesday that he welcomed continued talks between Iraq and Turkey to seek agreement on Ankara's participation in the drive against Islamic State, the White House said.

Both leaders affirmed their support for Iraq's sovereignty and territorial integrity, the White House said.

Iran's Influence

In a sign of Iran's influence, Kurdish political analyst Ranj Talabany tweeted a picture purportedly showing General Qassem Soleimani, the head of the al-Quds force, the extra-territorial arm of Iran's Revolutionary Guards, touring the frontline held by the Kurds north of Mosul.

The picture was said to be taken in Bashiqa, the region where Turkey is maintaining troops to train local Sunni forces.

Islamic State fighters have tried to divert combat from the main front near Mosul by launching attacks on other cities.

The Iraqi army said on Wednesday it had regained full control of the western town of Rutba on Wednesday, three days after Islamic State attacked it, in an apparent effort to divert Iraqi government troops from the assault on Mosul.

The militants at one point controlled half of the town on a key route to Syria and Jordan in Anbar province, a hotbed for the largely Sunni insurgency against Shi'ite-led government.

Article Link To Reuters:

Thursday, October 27, Morning Global Market Roundup: Asia Shares Extend Losses, Dollar Off Highs

October 27, 2016

Asian shares extended losses on Thursday after disappointing earnings from technology giant Apple dragged on Wall Street, while the dollar remained shy of this week's nearly nine-month highs.

MSCI's broadest index of Asia-Pacific shares outside Japan .MIAPJ0000PUS was down 0.9 percent in afternoon trade.

Adding to the already subdued mood, data showed profit growth in China's industrial firms slowed last month from the previous month's rapid pace as several sectors showed weak activity, suggesting the world's second-biggest economy remains underpowered.

"Although industrial profits have gone back on track with more stable growth, unfavouring factors still exist," He Ping, a NBS official said in a note accompanying the data, noting weak market demand from both home and aboard, and fast-rising receivables that weigh on firms' cash flow.

The Hang Seng index .HSI fell 1.2 percent, while the China Enterprises Index .HSCE lost 1.6 percent.

Besides Apple (AAPL.O), results and forecasts from some other major U.S. companies also weighed on U.S. markets overnight. The S&P 500 .SPX and the Nasdaq Composite .IXIC both skidded, though a standout performance by Boeing (BA.N) lifted the Dow Jones industrial average .DJI.

Tokyo's Nikkei stock index .N225 percent slumped 0.5 percent, though a weaker yen underpinned shares.

"Market participants welcome recent yen weakness, and this supports Tokyo stock prices today," said Hiroki Allen, chief representative of Superfund Japan in Tokyo.

"Investors appear to be taking profits in the afternoon, selling stocks that have risen in recent days," he said.

Later on Thursday, market participants will parse the latest data on U.S. durable goods, jobless claims and pending home sales.

"These reports are not expected to have a dramatic impact on the dollar but with USD/JPY eyeing 105, stronger reports could give the pair the push that it needs to make a run for this key level," wrote Kathy Lien, managing director at BK Asset Management.

The dollar edged down 0.1 percent to 104.41 yen JPY=, moving away from this week's high of 104.87 yen touched on Tuesday, its highest level since late July.

The euro inched down slightly to $1.0901 EUR=, while the dollar index stood at 98.675 .DXY, within sight of Tuesday's nearly nine-month high of 99.119.

Expectations for a year-end rate hike by the Federal Reserve remained intact, and have bolstered the greenback. In recent weeks, market participants have been pricing in more than a 70 percent chance that the U.S. central bank would hike interest rates in December, according to CME Group's FedWatch program.

U.S. growth figures scheduled for release on Friday could reinforce or temper Fed hike expectations.

Crude oil futures nursed losses after settling down more than 1 percent on Wednesday even after a surprise drawdown in U.S. crude inventories, as traders remained cautious that OPEC would be able to cut production come late November. [O/R]

U.S. crude CLc1 edged up 0.1 percent to $49.23 a barrel, while Brent crude LCOc1 added 0.1 percent to $50.05.

Spot gold XAU= was nearly flat at $1,266.34 an ounce.

Article Link To Reuters:

Wall Street's Take On Possible Impact Of U.S. Elections

By Tenzin Pema and Geetha Panchaksharam
October 27, 2016

U.S. Democratic presidential candidate Hillary Clinton and Republican candidate Donald Trump are in a tight race ahead of the Nov. 8 U.S. presidential election.

Following is a weekly roundup of financial market analysts' views on the likely outcome of the U.S. elections and the possible implications of a Trump or Clinton win on financial markets.


"The probability of either a Republican or a Democratic sweep of both the Executive and Legislative branches is low, but certainly not negligible. We think these scenarios would be more volatile for stocks."

REPUBLICAN SWEEP: Positive for devices, pharma, biotech, tools and pharmacy benefit managers (PBMs). Negative for managed care, facilities and digital health stocks

DEMOCRATIC SWEEP: Positive for managed care, facilities and digital health stocks. Negative for devices, pharma, biotech, tools and PBMs


"With Trump's chances fading, and Clinton's lead growing, the 'Democratic Sweep' now carries greater -- albeit still small -- odds, raising the prospects for increased infrastructure spending (a positive bias for risk assets) and for heavier regulation of the financial and pharma sectors (a negative bias for both)."


"We think short-term risk for the broader U.S. equity market has been reduced, but not eliminated. In many investors' minds, the perceived risks associated with a Trump victory in the Presidential race have been replaced with concerns about the implications of a Democratic sweep of leadership in Congress (for both the Senate and House to flip)."

CLINTON WIN: "Near-term, the increased chance of a Clinton victory seems good for stocks with high international exposure and industrials. In the case of industrials, we see a fundamental underpinning of support from a Clinton victory in the form of plans to increase infrastructure spending. The fundamental picture for consumer discretionary is a bit trickier, given Clinton's support for an increase in the minimum wage and the likely increase in operating expenses that would result for many companies."

TRUMP WIN: "The financials and health care sectors have been trading more in line with Trump's prospects for victory this year, which we think is due to fears over increased regulatory pressures for both sectors under a Clinton-led White House. That being said, we think any future election-driven weakness in these sectors could be short-lived and note that the relationships between these sectors and Trump's polling numbers may already be starting to break down a bit."


"A Democratic sweep, though still unlikely, might be met with concern on Wall Street as the prospect of higher taxes enters the fray."

"Republican control of the House would stymie legislation that raised taxes across a wide swath and thus Democratic control of Congress alongside the resident of the Oval Office could lead to laws that might not be well received and could be seen as divisive (similar to the Affordable Care Act). Notably, moves to broaden entitlements including free college education could be passed with single party control but most likely would be blocked by a Republican Speaker of the House."

"One would expect Secretary Clinton to want to be a successful president and thus a more forceful economic agenda will be necessary to achieve that aim. While attempts at bipartisanship are likely specifically where there is some meeting of the minds, including areas like infrastructure spending and some tax reforms, there are several areas that may be controversial such as some of the planned tax increases. Nonetheless, most political observers think Clinton would be far more willing to reach out for compromise than Obama did."


"A Brexit-style surprise in the U.S. presidential election is very unlikely... comparisons between the surprise outcome in the UK referendum vote earlier this year and the upcoming U.S. presidential election are hard to avoid, but we think the differences outweigh the similarities. Most importantly, polling in the UK was much closer, and much less consistent, than it has been in the us presidential campaign this year."


BANKS, HOUSING POLICY: "Sec. Hillary Clinton and Donald Trump have now faced off in three presidential debates without a material discussion of banks or housing. This tells us that Congress will likely shape banking policy with either Sen. Elizabeth Warren or Rep. Jeb Hensarling taking (the) lead, depending on the winner. For housing, we see both candidates as a positive, though Trump may be better for Fannie and Freddie."


MARKET OUTLOOK: "The S&P 500 futures rose by 0.71 percent during the debate window in response to a 6 percent increase in Clinton's victory probability. This implies that market participants believe that the S&P 500 will be worth 12 percent more under a President Clinton. Movements in other U.S. stock indices tell a similar story. A 12 percent difference is large both in absolute terms, and relative to how previous political shocks have moved the market."

MARKET VOLATILITY: "During the debate, futures tracking expected future U.S. stock market volatility fell sharply, suggesting that markets are more uncertain about outcomes under a Trump presidency. Oil prices rose, gold prices fell and Treasury prices declined slightly. Roughly speaking, these movements suggest that a Clinton presidency is expected to lead to stock market volatility that is 15-30 percent lower, Treasury yields that are 25 basis points higher, and oil that is $4 per barrel more expensive."

GLOBAL MARKETS: "Movements in overseas markets suggest that the U.S. election is expected to have significant global implications. The debate led the British FTSE 100 to rise by as much as U.S. stocks did. The same is true of many Asian markets, too... The currencies of Mexico and Canada — both of which are partners in NAFTA, which Trump has threatened to end or renegotiate — rose sharply, as did those of other nations with which the U.S. has free trade agreements... All told, these movements suggest that financial markets expect a generally healthier domestic and international economy under a President Clinton than under a President Trump."

Article Link To Reuters:

What Could Go Wrong In America?

By Martin Feldstein
Project Syndicate
October 27, 2016

Although the United States economy is in good shape – with essentially full employment and an inflation rate close to 2% – a world of uncertainty makes it worthwhile to consider what could go wrong in the year ahead. After all, if the US economy runs into serious trouble, there will be adverse consequences for Europe, Japan, and many other countries.

Economic problems could of course originate from international political events. Russia has been acting dangerously in Eastern and Central Europe. China’s pursuit of territorial claims in the East and South China Seas, and its policies in East Asia more generally, is fueling regional uncertainty. Events in Italy could precipitate a crisis in the eurozone.

But within the US, the greatest risk is a sharp decline in asset prices, which would squeeze households and firms, leading to a collapse of aggregate demand. I am not predicting that this will happen. But conditions are becoming more dangerous as asset prices rise further and further from historic norms.

Equity prices, as measured by the price-earnings ratio of the S&P 500 stocks, are now nearly 60% above their historical average. The price of the 30-year Treasury bond is so high that it implies a yield of about 2.3%; given current inflation expectations, the yield should be about twice as high. Commercial real-estate prices have been rising at a 10% annual pace for the past five years.

These inflated asset prices reflect the exceptionally easy monetary policy that has prevailed for almost a decade. In that ultra-low-interest environment, investors have been reaching for yield by bidding up the prices of equities and other investment assets. The resulting increase in household wealth helped to bring about economic recovery; but overpriced assets are fostering an increasingly risky environment.

To grasp how risky, consider this: US households now own $21 trillion of equities, so a 35% decline in equity prices to their historic average would involve a loss of more than $7.5 trillion. Pension funds and other equity investors would incur further losses. A return of real long-term bond yields to their historic level would involve a loss of about 30% for investors in 30-year bonds and proportionately smaller losses for investors in shorter-duration bonds. Because commercial real-estate investments are generally highly leveraged, even relatively small declines in prices could cause large losses for investors.

The fall in household wealth would reduce spending and cause a decline in GDP. A rough rule of thumb implies that every $100 decline in wealth leads to a $4 decline in household spending. The return of asset prices to historic levels could therefore imply a decline of $400 billion in consumer spending, equal to about 2.5% of GDP, which would start a process of mutually reinforcing declines in incomes and spending leading to an even greater cumulative impact on GDP.

Because institutional investors respond to international differences in asset prices and asset yields, the large declines in US asset prices would be mirrored by similar declines in asset prices in other developed countries. Those price declines would reduce incomes and spending in other countries, with the impact spread globally through reduced imports and exports.

I must emphasize that this process of asset-price declines and the resulting contraction of economic activity is a risk, not a prediction. It is possible that asset prices will come down gradually, implying a slowdown rather than a collapse of spending and economic activity.

But the fear of triggering a rapid decline in asset prices is one of the key reasons why the US Federal Reserve is reluctant to raise short-term interest rates more rapidly. The Fed increased the overnight rate by just 0.25% in December 2015 and is likely to add just another 25 basis points in December 2016. But that will still leave the federal funds rate at less than 1%. With the inflation rate close to 2%, the real federal funds rate would still be negative.

Market participants are watching the Fed to judge if and when the process of interest-rate normalization will begin. Historical experience implies that normalization would raise long-term interest rates by about two percentage points, precipitating substantial corrections in the prices of bonds, stocks, and commercial real estate. The Fed is therefore trying to tamp down expectations concerning future interest-rate levels, by suggesting that changes in demography and productivity trends imply lower real rates in the future.

If the Fed succeeds, the decline in asset prices may be diminished. But the danger of sharp asset-price declines that precipitate an economic downturn should not be ignored.

Article Link To Project Syndicate:

Oil Lingers Below $50 Over Doubts OPEC Can Coordinate Output Cut

By Henning Gloystein
October 27, 2016

Oil prices were stable on Thursday, but remained below $50 a barrel, as doubts over OPEC's ability to organize a coordinated production cut weighed on markets, while firm demand and concerns over Venezuela's stability offered support.

International Brent crude oil futures LCOc1 briefly pushed above the psychological $50 a barrel mark, but had dipped back to $49.95, 3 cents below their last closing price.

WTI futures were trading at $49.17 per barrel, down 1 cent from their previous settlement.

Traders said Brent was struggling to break above $50 due to doubts that the Organization of the Petroleum Exporting Countries (OPEC) and non-OPEC producers like Russia will be able to effectively coordinate curbs in output to prop up prices.

"Investors remain uncertain as to whether OPEC can implement the tentative agreement to cut production," ANZ bank said on Thursday.

A cut is being pushed by Saudi Arabia, OPEC's biggest producer, and it is being supported - at least by word - by Russia, not a member of the cartel but the world's biggest oil producer.

However, OPEC's No.2 producer, Iraq, has said it would not cut output, arguing it needs the revenue to fight Islamic State, and the government is trying to lure investors to boost output further from its current record 4.43 million barrels per day.

In U.S. crude markets, West Texas Intermediate (WTI) futures CLc1 received early support from a 553,000-barrel draw in crude inventories to 468.16 million barrels. [EIA/S]

But some analysts said that the drop in stocks was misleading.

"The decline of 553,000 barrels last week was centered on the west coast, which is isolated from the rest of the network. Inventories actually increased along the East and Gulf Coasts," ANZ bank said.

Other factors, however, prevented prices from falling.

In OPEC-member Venezuela, spreading and increasingly violent protests against the government sparked fear in the oil industry that the country's oil production could be affected.

In Asia, South Korea's S-Oil Corp (010950.KS) said on Thursday that it expected refinery demand to rise in the region.

As crude is the main feedstock for oil refineries, strong refining activity tends to be price supportive of crude.

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Oil Prices Are Too Gloomy On Chance Of OPEC Deal

By Andy Critchlow
October 27, 2016

Oil producers can start fixing their credibility problem without too much effort. Crude prices have wilted after Iraq joined Nigeria, Iran and Libya in asking for exemptions from proposed production cuts. But Baghdad’s demands need not be the death knell of a deal to reduce output. Even a small reduction in production would balance a market that is now only narrowly oversupplied.

The global oil market is oversupplied by around 800,000 barrels per day (bpd) heading into the winter, when demand in the major northern hemisphere consuming market usually increases, according to figures from the 14-member Organization of the Petroleum Exporting Countries (OPEC). Other, independent, estimates show the gap between supply and demand may have shrunk to 500,000 bpd, equivalent to about 1.5 percent of OPEC’s total official output in September.

Saudi Arabia and its neighboring Gulf Arab states – which together account for over half of the cartel’s production – normally produce more crude in the summer to meet higher domestic demand for air conditioning. They could feasibly shoulder the majority of the cartel’s proposed cuts without suffering a significant drop in government revenues or losing market share overseas.

After all, Iraq and Iran probably won’t be able to increase output significantly in 2017, while output from Nigeria and Libya will remain unreliable at best. OPEC figures show that Baghdad has raised output by about 36 percent since 2014, but that performance will be hard to replicate unless it can significantly expand capacity at its main export port on the Al-Faw Peninsula. And any exemptions from production cuts handed out when OPEC next meets, on Nov. 30, would in any case be reviewed within six months.

Iraq’s demand therefore hardly warrants an intraday decline of 1 percent that has pushed the price of a barrel of Brent crude close to $50 on Oct. 26. The bigger barrier to a deal is the fractious politics being played out in Syria and northern Iraq.

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China Courier ZTO Delivers Year's Biggest U.S. IPO

By Lauren Hirsch
October 27, 2016

Chinese package delivery company ZTO Express said it raised $1.4 billion in the biggest U.S. initial public offering of the year on Wednesday as its backers cashed in on China's booming online-shopping industry.

The stock market debut, the biggest by a Chinese company since the $25 billion IPO of e-commerce giant Alibaba Group Holding Ltd (BABA.N) in 2014, gave the Shanghai-based company a market value of more than $12 billion.

ZTO's U.S. listing is a head start over rivals in the world's largest express delivery market because it gives the company faster access to cash to expand.

The company wants to use $720 million of its IPO proceeds to buy more trucks, land, facilities and equipment.

Its Chinese competitors SF Express, YTO Express, STO Express and Yunda Express have all unveiled plans for listings in Shenzhen and Shanghai but with a backlog of about 800 companies waiting for approval to go public in China and frequent changes to the rules, a New York listing is regarded as a quicker and more reliable way of raising funds and tapping a broader mix of investors.

ZTO's existing shareholders, including private equity firms Warburg Pincus, Hillhouse Capital and venture capital firm Sequoia Capital will also get much more leeway and flexibility to exit their investment under U.S. market rules. In China, they would be locked in for one to three years after the IPO.

ZTO priced 72.1 million shares at $19.50 a share, above its previously indicated range of $16.50 to $18.50 a share.

That price is about 27 times its expected 2017 earnings per share, according to people familiar with the company's financials.

By comparison, rivals SF Express, YTO Express, STO Express and Yunda shares trade between 43 and 106 times earnings, according to Haitong Securities estimates.

U.S. rivals, United Parcel Service Inc (UPS.N) and FedEx Corp (FDX.N), which are growing at a much slower pace, are trading at multiples of 17.8 and 13.4 times expected 2017 earnings.

International Acquisitions

As concerns grow about a weakening Chinese currency, the New York IPO also gives the company more stable dollar-denominated shares it can use for international acquisitions, according to people close to the company.

ZTO will have a dual-class share structure that will give its founder Lai Meisong 80 percent voting power in the company, even though he will only hold 28 percent of the stock after the IPO.

Most of Lai's shares are Class B ordinary shares carrying 10 votes, while Class A shares, including the new U.S. shares, have one vote. China's markets do not allow shares with different voting power.

China's express delivery firms handled 20.7 billion parcels in 2015, shifting 1.5 times the volume moved in the United States, according to consulting firm iResearch data cited in the ZTO prospectus.

The market will grow an average 23.7 percent a year through 2020 and reach 60 billion parcels, iResearch forecasts.

Domestic rivals STO Express and YTO Express have unveiled plans to go public with reverse takeovers worth $2.5 billion and $2.6 billion. The country's biggest player, SF Express, and rival Yunda Express, are working on similar deals worth $6.4 billion and $2.7 billion respectively.

ZTO said the American depositary shares will begin trading on the New York Stock Exchange on Thursday under the ticker symbol ZTO.

Morgan Stanley (MS.N) and Goldman Sachs Group Inc (GS.N) are the lead IPO underwriters.

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To Applause And Boos, Kerry Urges Congress To Ratify TPP

By Dave McKinney 
October 27, 2016

Failure to approve the Trans-Pacific Partnership trade deal would be a major setback for U.S. interests in Asia as Washington seeks to deepen alliances in the region, Secretary of State John Kerry said on Wednesday, urging Congress to ratify the pact.

The 12-nation Pan-Pacific trade deal championed by President Barack Obama has been pilloried by both major-party nominees in the U.S. presidential race, Democrat Hilary Clinton and Republican Donald Trump.

While Republicans have traditionally backed free trade deals, Trump has blamed them for U.S. job losses and threatened to rip them up or renegotiate them if he wins the Nov. 8 election.

"If we see the TPP rejected, it would be a gigantic self-inflicted wound – a setback to our own interests in the region," Kerry told the Chicago Council on Global Affairs, in remarks that drew a smattering of applause and boos.

"It would amount to a conscious turning of our backs on the Asia Pacific at the very moment that we ought to be linking arms – it would be an act that will hurt American workers, slow our economy, hinder our ability to advance the full range of U.S. objectives" in the fast-growing region, he added.

Republican leaders have said there is no point in bringing the trade deal for a vote in the "lame-duck" session of Congress after the election.

But Kerry urged Congress to approve the deal after the election, saying: "It's the right thing to do for America – and no matter what the loudest voices may be shouting – it is also the popular choice."

There are concerns in Washington that failure to pass the TPP would prompt Southeast Asian nations to turn to China and Russia.

Kerry said the trade deal was a "litmus" test of Washington's capacity to lead and was necessary if the United States wanted a steady and reliable presence in the region.

His comments came amid tensions with China over the disputed South China Sea, increased concerns over North Korea's missile and nuclear weapons programs, and questions over the future of the U.S.-Philippines alliance.

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