Thursday, November 10, 2016

Europe, Alone In Trump’s World

By Mark Leonard
Project Syndicate
November 10, 2016

Alone again. Since World War II’s end, Europe has looked at the world through a transatlantic lens. There have been ups and downs in the alliance with the United States, but it was a family relationship built on a sense that we would be there for each other in a crisis and that we are fundamentally like-minded.

Donald Trump’s election as US president threatens to bring this to an end – at least for now. He believes more in walls and oceans than solidarity with allies, and has made it clear that he will put America not just first, but second and third as well. “We will no longer surrender this country, or its people,” he declared in his one major foreign-policy speech, “to the false song of globalism.”

Europeans will not only have to get used to Trump; they will have to look at the world through different eyes. There are four reasons to expect that Trump’s America will be the single biggest source of global disorder.

First, American guarantees are no longer reliable. Trump has questioned whether he would defend Eastern European NATO members if they do not do more to defend themselves. He has said that Saudi Arabia should pay for American security. He has encouraged Japan and South Korea to obtain nuclear weapons. In Europe, the Middle East, and Asia, Trump has made it clear that America will no longer play the role of policeman; instead, it will be a private security company open for hire.

Second, global institutions will come under attack. Trump fundamentally rejects the view that the liberal world order that the US built after WWII (and expanded after the Cold War) is the cheapest way of defending American values and interests. Like George W. Bush after September 11, 2001, he views global institutions as placing intolerable constraints on US freedom of action. He has a revisionist agenda for almost all of these bodies, from the World Trade Organization to NATO and the United Nations. The fact that he wants to put the “Art of the Deal” into practice in all international relationships – renegotiating the terms of every agreement – is likely to provoke a similar backlash among America’s partners.

Third, Trump will turn all US relationships on their head. The crude fear is that he will be kinder to America’s foes than to its allies. Most challenging for Europeans is his admiration for Russian President Vladimir Putin. Should Trump, cozying up to Putin in search of a grand bargain, recognize Russia’s 2014 annexation of Crimea, the EU would be placed in a near-impossible role.

Fourth, there is Trump’s unpredictability. Even during the 18 months of the presidential campaign, Trump has been on both sides of almost every issue. The fact that he will say the opposite today of what he said yesterday, without admitting that he has changed his mind, shows the extent to which capriciousness is his method.

One of the benefits the US political system is that it provides a two-month grace period to prepare for Trump’s world. So what should Europeans do about it?

First, we need to try to increase leverage over the US. We know from Trump’s writings and behavior that he is likely to resemble other strongmen presidents and treat weakness as an invitation to aggression. We saw from the Iraq experience that a divided Europe has little ability to influence the US. But where Europe has worked together – on privacy, competition policy, and taxation – it has dealt with the US from a position of strength.

The same was true with the so-called E3+3 policy on Iran – when the big EU member states shifted the US stance by standing together. To get on the front foot, the EU now needs to launch a process to agree on common policies on security, foreign policy, migration, and the economy. This will be difficult, as Europe is deeply divided, with France fearing terrorism, Poland dreading Russia, Germany inflamed by the refugee issue, and the United Kingdom determined to go it alone.

Second, Europeans should show that they are able to hedge their bets and build alliances with others. The EU must reach out to other powers to help shore up global institutions against Trumpian revisionism. And it also needs to diversify its foreign-policy relationships. Rather than waiting for Trump to marginalize the EU over Russia and China, Europeans should fly some kites of their own. Should they, for example, begin consulting with the Chinese on the EU arms embargo to remind the US of the value of the transatlantic alliance? Could the EU develop a different relationship with Japan? And if Trump wants to cozy up to Russia, maybe he should take over the Normandy process on Ukraine?

Third, Europeans need to start to invest in their own security. From Ukraine to Syria, from cyber attacks to terror attacks, Europe’s security is being probed in different ways. Despite an intellectual understanding that 500 million Europeans can no longer contract out their security to 300 million Americans, the EU has done little to close the gap between its security needs and its capabilities. It is time to put meat on the bones of the Franco-German plan for European defense. And it will be important to find institutionalized ways of binding the UK into Europe’s new security architecture.

In all of these areas, Europeans must keep the door to transatlantic cooperation open. This alliance – which has so often saved Europe from itself – is bigger than any individual. And, in any case, Trump will not last forever. But the transatlantic relationship will be more likely to survive if it is built on two pillars that understand and defend their own interests.

This will be a tough agenda to adopt – not least because Europe is facing its own brand of populist nationalism. France’s far-right National Front leader, Marine Le Pen, was among the first to congratulate Trump on his victory, and Trump has said that he would put the UK at the front of the queue after Brexit. But even Europe’s most Trump-like leaders will find it harder to defend their national interest if they try to go it alone. To survive in Trump’s world, they should try to make Europe great again.

Article Link To Project Syndicate:

Thursday, November 10, Morning Global Market Roundup: Asia Shares Rally In Sharp Turnaround From Trump Shock

By Wayne Cole and Shinichi Saoshiro
November 10, 2016

Asian shares rallied on Thursday and the dollar firmed in a remarkable snapback from the shock of Republican Donald Trump's presidential victory, though the speed of the reversal left some market watchers scratching their heads.

Spreadbetters expected the upsurge in equities to continue in Europe, forecasting a significantly higher open for Britain's FTSE, Germany's DAX and France's CAC.

MSCI's broadest index of Asia-Pacific shares outside Japan bounced 2 percent after slumping 2.4 percent on Wednesday as global markets plunged on signs that Trump was sweeping to power.

The Nikkei emerged even stronger, jumping 7 percent at one point after sinking 5 percent on Wednesday.

Despite the initial sharp recoil in global markets, U.S. investors opted to focus instead on Trump's key policy priorities, which include generous tax cuts and higher infrastructure and defense spending, along with deregulation for banks.

"Investors are puzzled with their emotional investment decisions. They were risk averse yesterday, then after seeing that Americans were optimistic and chasing the market higher, they wasted no time reversing their positions," said Takuya Takahashi, a strategist at Daiwa Securities in Tokyo.

"Some of the investors must be thinking that they shouldn't have sold after all."

Australian stocks soared 3.3 percent in the largest daily gain since late 2011 and Shanghai rose 1.3 percent.

"An astonishing turnaround in risk appetite pushed equities and Treasury yields higher," said Imre Speizer, an economist at Westpac.

"Markets appeared to reassess the economic outlook under Trump, toward one of higher growth and higher inflation."

He noted that a key market barometer of 10-year inflation expectations had jumped to a 16-month peak of 1.87 percent.

Amid expectations of higher spending and inflation under Trump, yields on U.S. Treasury 10-year notes reversed an initial plunge to 1.716 percent and bolted to 2.09 percent overnight, the highest since January.

The net rise of 21 basis points was the largest daily increase since July 2013. [US/]

The dollar carved out a staggering range, rebounding along with the surge in U.S. yields from as low as 101.19 yen all the way to 105.96 early on Thursday. It last stood at 105.55.

Helping boost the dollar, investors again revised the outlook for U.S. interest rates in the wake of Trump's victory, with the probability of a December rate hike by the Federal Reserve going from as low as 30 percent to as high as 80 percent.

The dollar index against major currencies recovered from a trough of 95.885 plumbed on Wednesday to around 98.556.

Having stretched as high as $1.1300 in the early panic over Trump's win, the euro then slumped all the way to $1.0906 overnight - a move of roughly four cents.

The longer-term outlook for the dollar's weakening peers remained unclear, however.

"We expect a Trump Treasury to elevate the importance of the bilateral trade surplus with the U.S. in identifying currency manipulators and intensify pressure on trade partners to allow currencies to appreciate," Tim Condon, an Singapore-based economist at ING, said in a report.

Meanwhile the action was no less noteworthy on Wall Street, where the Dow jumped 1.4 percent and the S&P 500 and the Nasdaq both added 1.11 percent. Trading volume was the highest since June, when Britain voted to abandon the European Union.

The CBOE Volatility index, a gauge of investor anxiety, fell 23 percent and was on track for its biggest daily drop since late June. [.N]

S&P futures edged up 0.3 percent on Thursday.

Asia Wary On Trade, Alliances

Ratings agency S&P Global later affirmed the AA+ rating of the United States, but noted uncertainty over the future path of government debt would prevent any upgrade.

There were also lingering concerns about whether Trump would follow through with threatened punitive tariffs on Chinese and Mexican exports, potentially triggering a global trade war.

Among Asia's trade-reliant economies, China and South Korea are particularly exposed to any hostile U.S. measures as they run large trade surpluses with the United States, Credit Suisse said in a research note.

Mexico's peso trimmed losses but was still within reach of a life-time low seen overnight. [EMRG/FRX]

"Trump's protectionist policies may prove another big step back in the gradual unwinding of goods globalization that has defined the past 30 years," wrote analysts at Nomura.

"Another important factor is that a Trump presidency would bring with it uncertainty that could undermine the Pax Americana, with all the benefits this has brought to the world in general and, perhaps, Asia in particular since 1945."

For now, investors seemed willing to give the president-elect the benefit of the doubt, as witnessed by a broad advance in bulk commodity prices.

Copper rose to a near 16-month high on expectations that a Trump presidency could unleash a flood of infrastructure spending. [MET/L]

Iron ore surged 4.7 percent to its highest since January 2015.

Brent crude added to overnight gains made on the post-U.S. election surge in global markets, rising 0.3 percent to $46.50 a barrel. Partially weighed down by a rise in U.S. inventories, U.S. crude inched up 0.1 percent to $45.31.

Safe-haven gold pulled back sharply to $1,286.40 an ounce after rising to as high as $1,337.40 on Wednesday.

Article Link To Reuters:

Tough Reality Check For Trump's Pledge Of Better Heartland Jobs, Wages

By Howard Schneider
November 10, 2016

Donald Trump's promise to revive small town America faces a tough challenge in an economy that for decades has been wired to direct income and opportunities towards urban hubs and the better educated.

Little in the president-elect's so far sketchy economic plans indicates the trend can be reversed any time soon, according to interviews with experts on income inequality and as recent occupational trends.

The manufacturing jobs Trump pledges to bring back have disappeared as much because of automation as the trade deals he has promised to rewrite, and that process will only continue. A promised infrastructure revamp would boost middle wage jobs but for only as long as the programs last, economists point out.

During President Barack Obama's eight years in office incomes for the best off continued to diverge, despite nearly 10 million new jobs and recent strength in those paying middle-tier wages.

On a pre-tax basis, the share of income to the top fifth of households increased from 50.4 percent to 51.4 percent between 2008 and 2015 at the expense of all the others, according to census estimates. (

Without the sort of tax and redistribution policies Republicans have traditionally opposed, Trump may struggle to make good on his promise to help those left behind in the global economy, economists who study inequality trends say.

"We have 30 to 40 years to catch up on...Lots of money has gone to the top and to change that is going to be a long and slow process," said David Madland, a senior fellow at the Center for American Progress, a think tank with close ties to Democratic nominee Hillary Clinton's campaign.

Trump campaigned promising to shake up a Washington establishment he argued was responsible for destroying middle class jobs with bad trade deals. The message hit home across rural America and mid-sized cities, where voters felt they missed out on the fruits of the seven-year economic recovery that big cities may have enjoyed.

Charlotte has been growing fast as a financial hub that attracts college educated talent from around the country, and Democratic nominee Hillary Clinton did better there than Obama did in 2012, handily beating Trump by 137,000 votes.

But in the state's textile and furniture belt just northwest from here, Trump's promise of economic renewal and anxieties of a shrinking white majority more than offset Clinton's urban victory, giving him 76 out of 100 North Carolina's counties.

The Catawaba County region, one of the nation's hardest-hit by cheap imports from China, now has a more diverse economy and even the furniture industry has begun adding jobs. But many still live in poverty and rely on disability and social services for support.

"The trade argument was as prominent as any. That is certainly the bet that the Trump campaign has made," said John Dinan, a political scientist at Wake Forest University.

Taking Out Obamacare

Trump has not highlighted income inequality the way Clinton did, but to help low-wage industries such as textiles or offer a "new deal" for blacks, he would need to tackle the income gap.

Recent data show how hard it may be if Trump relies on economic growth alone: Despite a record jump in household income and a continued surge in middle wage jobs nationally, the effect on income inequality was "statistically insignificant" according to census estimates.

Under Obama, after tax income for the bottom fifth of households did increase by about 18 percent, or $2,200, according to a recent Council of Economic Advisers study.

But that was made possible by higher taxes on the wealthy, more benefits for the poor and, in large part, by an estimated $1,900 gain from health coverage extended under the Affordable Care Act. Trump has vowed to roll Obamacare back.

Instead, Trump has proposed to strike better trade deals and offered a familiar Republican recipe - tax cuts for businesses meant to spur investment and jobs. He has been ambiguous about a possible increase in the federal minimum wage typically opposed by Republicans, but advocated by many economists as a way to help the disenfranchised workers Trump focused on in his campaign.

Economists say that even if economic growth accelerates under Trump, it may not do much to counter the downward pressures on wages and middle income jobs from automation, technology and other longstanding trends.

Brookings Institution senior fellow Isabel V. Sawhill said researchers on inequality agree on one point: it is hard to move the needle.

"Even when you distribute all of the dividends from growth in a progressive fashion you don’t change things very much," Sawhill said. "You shift things at the margin."

Article Link To Reuters:

Oil Edges Higher As Markets Recover From Trump's Shock Victory

By Henning Gloystein 
November 10, 2016

Oil prices reversed some early losses to push higher on Thursday as markets recovered from their initial shock at U.S. President-elect Donald Trump's surprise victory, although traders said that crude fundamentals remained weak.

Trump's election win initially stunned markets and led Ian Bremmer, president of U.S. risk consultancy Eurasia Group, to warn that "the world is heading into a profound geopolitical recession."

However, markets shook off deep post-election losses and recovered on Thursday.

"After initially selling off as it became clear Donald Trump would be the next president, commodity prices rallied strongly as the flight to safety unwound," ANZ bank said on Thursday in a note on Trump's victory.

But the bank added that "there are still serious questions marks as to what it means for commodity markets."

U.S. West Texas Intermediate (WTI) crude futures were up 15 cents, or 0.3 percent, from their last settlement at $45.42 a barrel.

WTI was held back somewhat by a 2.4 million barrels rise in U.S. crude inventories to 485 million barrels last week, even though refineries hiked output and imports fell, the U.S. Energy Information Administration said on Wednesday.

International Brent crude oil futures were trading at $46.70 per barrel, up 34 cents, or 0.7 percent, from their last close.

BMI Research said Trump's expected pro oil and gas industry policies might mean that U.S. "production of oil and gas could recover at a faster rate in 2017 as developers grow more encouraged."

Goldman Sachs said a Trump presidency would likely result in higher investment and, in time, increased U.S. oil output as the new president-elect has said he would de-regulate fossil fuel production.

Internationally, the bank said Trump's threat of renewed U.S. sanctions against OPEC-member Iran would, in the short-term, lead to higher production as it "would further incentivize Iran to maximize production in the short term rather than comply to an OPEC freeze."

This confirmed traders' doubts over the ability of the Organization of the Petroleum Exporting Countries (OPEC) and other producers, especially Russia, to coordinate a planned output cut in order to prop up prices.

"The outcome of the U.S. election adds to the challenges for the oil exporters because it will likely lead to weaker economic growth in an already fragile global economy. And that means additional pressure on oil demand," said Daniel Yergin, vice-chairman of the IHS Markit think tank.

In physical oil markets, the Niger Delta Avengers (NDA) militant group said it had attacked the Forcados crude export line operated by oil major Royal Dutch Shell.

Shell said that it had also shut down an Escravos crude oil flow station in Nigeria's Niger Delta after villagers staged a protest demanding aid.

Article Link To Reuters:

Mexico Will Not Pay For Trump Wall, But Seeks Cooperation

By Michael O'Boyle and Noe Torres
November 10, 2016

Mexico said on Wednesday it would work with Donald Trump for the benefit of both nations after his surprise U.S. election win, but reiterated it would not pay for his planned border wall, which stirred up deep resentment during a fraught presidential campaign.

As Trump strode toward victory, the peso plunged 13 percent in its biggest fall since the Tequila Crisis devaluation 22 years ago, before paring losses to trade down 8.7 percent at 19.91 per dollar. Still, officials held back from taking action to support the peso despite it hitting lifetime lows overnight.

Trump's threats to dump the North American Free Trade Agreement (NAFTA) agreement with Mexico and Canada, and to tax money sent home by migrants to pay for the controversial wall on the southern border, have made the peso particularly vulnerable to events in the U.S. presidential race.

"Very hard times are coming to Mexico," said analyst Gabriela Siller of Mexican bank BASE.

Still, President Enrique Pena Nieto said he called to congratulate Trump, and had agreed to meet the New Yorker during the transition phase to discuss joint cooperation, which he hopes would strengthen the competitiveness of North America.

Welcoming Trump's victory speech pledge to seek "common ground" and partnership with other countries, Pena Nieto said in a televised statement that Mexico shared the same vision.

"Dialogue to make agreements is still the best route for Mexico, and my government will seek opportunities that benefit both nations in this new phase of bilateral relations," he said.

Nevertheless, Foreign Minister Claudia Ruiz Massieu reiterated that Mexico would not pay for Trump's proposed wall. The vow to make Mexico pay for the barrier was a key feature of his stump speeches.

Ratings agency Fitch said Trump's victory may add downside risks to Mexico's economic growth, while Moody's warned the government may not meet its goals of cutting its budget deficit if flows of trade or foreign investment wilt under Trump.

Growth Worry

Both Moody's and Standard & Poor's rating agencies put Mexico's credit rating on a negative view earlier this year.

Gabriel Casillas, an economist at Banorte, predicted Trump's victory will shave 0.3 percentage point from 2016 economic growth, and said the peso could suffer for months as the market tries to figure out what Trump could do in office.

"Because of the uncertainty of what Trump could do, consumers will postpone purchases, companies will postpone investments," Casillas said, but added that he thought Trump's actual policies will fall short of his rhetoric, not least because unwinding trade with Mexico is easier said than done."I don't think Trump will do a lot of the things he said he will do," he said.

Others were more pessimistic.

Morgan Stanley analysts said in a note that the fallout from a Trump presidency would have "deep ramifications" for the equity market and that foreign investment could stall.

"Risks of a hard landing in Mexico have clearly risen," the bank's analysts said.

But for now the market pulled back from its initial panic. The peso recovered from its low after Trump took a measured tone in his victory speech and did not invoke any of his threats against Mexico, analysts said.

Mexico's benchmark IPC stock index fell more than 3.0 percent initially, but pared losses and closed down 2.23 percent.

"The market has calmed down a bit and given the benefit of doubt to a more conciliatory Trump," said Marco Oviedo, an economist at Barclays in Mexico City.

Mexican-based economists had expected a snap interest rate rise, but central bank Governor Agustin Carstens told a news conference on Wednesday morning the bank would take any necessary measures pending market conditions.

He said it would hold a monetary policy meeting as scheduled on Nov. 17, but did not announce any immediate steps to support the currency. Mexico has already raised its benchmark interest rate three times this year to support the peso.

Finance Minister Jose Antonio Meade said authorities were monitoring the situation and would act if needed.

The central bank hiked its key interest rate in September by 50 basis points to 4.75 percent to anchor inflation expectations following the peso's creeping depreciation.

Mexico has more than $175 billion in foreign reserves, and Carstens said last month he would consider using a $90 billion International Monetary Fund flexible credit line "in the event of an external shock.

Article Link To Reuters:

For Canadian Trade Insiders, Trump Is All Talk On Killing NAFTA

Analysts see Mexico bearing brunt of president-elect’s wrath; But export agency warns of economic pain from any new tariffs.

November 10, 2016

Donald Trump’s victory and protectionist rhetoric drove some investors away from Mexico, prompting warnings of tariffs and slower growth while being met with a shrug by Canadian trade experts, who largely expect the status quo.

The Republican president-elect campaigned in part on the U.S. reopening the North American Free Trade Agreement with its second and third biggest trading partners. His victory also comes amid a brewing softwood lumber dispute with Canada and uncertainty over the Trans-Pacific Partnership.

With Trump, however, all Nafta members are not created equal. His pledges have targeted Mexico rather than Canada, which is the top trading partner for dozens of states and the biggest overall buyer of U.S. exports. Canada signaled it’s open to Nafta talks on Wednesday, while several officials familiar with the trade file said they don’t expect major changes along the northern border.

“Nafta’s alive and well and will survive,” said David Wilkins, a partner at law firm Nelson Mullins Riley & Scarborough LLP who served as U.S. ambassador to Canada from 2005 to 2009. “There’s so much synergy between the two countries, so much compatibility between the two countries -- workers on both sides of the border, jobs being created, families being fed. I don’t see that changing. In fact, I see that improving.”

Canadian stocks closed higher after Trump’s victory, with the S&P/TSX Composite Index adding 0.7 percent at 4 p.m. in Toronto. Some companies dependent on U.S. trade fell, including auto-parts maker Magna International Inc. and firms such as Canfor Corp. in the forestry sector, while TransCanada Corp. rose on hopes that Trump will approve the Keystone XL pipeline. Canada’s dollar, meanwhile, pared losses after falling to its lowest level since March.

Tariff Impact

Trump’s protectionist rhetoric has been aimed squarely south -- to Mexico, along with pledges of migrant deportations and building a border wall. As its citizens recoiled in horror at the U.S. election result, Mexico’s benchmark IPC index fell 2.2 percent in trading Wednesday. Even small tariffs imposed by the U.S., and certainly any collapse of Nafta, would have a sharp impact on Mexico’s currency and economy.

Canada’s trade ties are more balanced. Export Development Canada, in a study ahead of the U.S. vote, outlined three possible Nafta outcomes of a Trump victory. One included a 3.5 percent tariff on all Canadian goods and services, which the government-owned trade finance agency forecast would shrink the economy by C$38.3 billion ($28.5 billion) annually and cost 362,000 “person years,” or a 2 percent reduction in total employment. A 10 percent tariff, which EDC described as a more unlikely scenario, would lower Canada’s gross domestic product by C$79.5 billion and reduce employment by about 4 percent.

“The range of potential actions that could be taken at the moment is very wide,” said Peter Hall, EDC vice-president and chief economist. “Elections are full of rhetoric. You never know if that’s going to turn into reality, and that’s the big dilemma at the moment.”

There are 35 U.S. states that count Canada as their top export destination, he said, meaning any trade war with Canada could cost Trump the types of jobs he pledged to save. And yet any Nafta changes to Mexico will invariably be felt in Canada, according to Thomas Caldwell, chief executive officer at Caldwell Securities Ltd.

“This can have an impact on Canada, definitely, particularly if he’s focused on Nafta,” Caldwell said. “If he’s going to hit Mexico he’s going to hit us as well. That has significant ramifications.”

Trudeau’s Message

While German Chancellor Angela Merkel balked somewhat at Trump’s election, Canadian Prime Minister Justin Trudeau congratulated him and likened the Republican’s win to his own victory in Canada’s election last year. Trudeau -- a feminist who is pro-trade and pro-immigration -- and his Liberal Party base their core economic message around building Canada’s middle class.

“We’re hearing people on both sides of the border saying they just want a fair chance to succeed,” the prime minister said in a speech to an Ottawa conference Wednesday. David MacNaughton, his ambassador in Washington, said the U.S.-Canada trade relationship is deeply integrated and mutually beneficial. “I think the Trump people understand that,” MacNaughton told reporters on a teleconference.

Trudeau signed a trade pact with the European Union last month that could become a hedge against any U.S. protectionist measures. Canada could also see a boost in trade from any nations Trump freezes out, though it will have to negotiate bilateral trade pacts in the absence of new multilateral agreements, according to Stockwell Day, a former Canadian trade minister.

Despite the president-elect’s rhetoric, “I really think Canada is in an enviable position here,” Day said. “They’re going to treat trade differently, but we’ve never really heard him talking about massive numbers of factory jobs going to Canada.”

‘Business As Usual’

The Nafta countries are also members of the TTP. Signed last year, the 12-nation deal is due to be ratified no later than early 2018 and is opposed by the president-elect. “It will be interesting to see if Trump completely backs away from TPP, or tries to reopen negotiations in some way,” said Adam Taylor, a consultant at Ensight Canada who worked in the office of former Canadian Trade Minister Ed Fast. The previous Conservative government kept bilateral trade talks with Japan on the back-burner in case TPP fell through, Taylor said.

Nafta originally developed out of a bilateral pact between Canada and the U.S. If the deal is canceled, the previous Free Trade Agreement would come back into force, MacNaughton said, adding he “can’t imagine” Trump would want to toss out that pact as well.

“I think it’s going to be largely business-as-usual,” Taylor said, adding there’s a potential upside. “If Trump starts closing doors, an open, pro-investment, pro-trade country like Canada could do well.”

Article Link To Bloomberg:

Goldman Sachs Names 84 New Members To Partner Class, Six More Than Prior Group

By Olivia Oran
November 10, 2016

Goldman Sachs Group Inc (GS.N) elevated 84 employees on Wednesday to its prestigious partner class. The new group has six more people than the prior class, which was announced in 2014. The latest induction will bring the total number of partners to around 484, or 1.4 percent of Goldman's work force.

Nearly a quarter of the class is female, the highest percentage promoted from managing director to partner in the firm's history.

Goldman, which announces new partners every two years, has cut the number by almost a quarter since 2010, when it appointed 110 to the coveted ranks. The pullback comes as the bank looks to cut costs broadly as increased regulation after the financial crisis has made traditional profit areas, like bond trading, less lucrative.

Goldman embarked on a cost-cutting plan in the first half of the year intended to save $700 million a year.

Employee pay is Goldman's biggest expense and the title of partner comes with more responsibility and higher pay.

While Goldman went public in 1999, the partnership hearkens back to the bank's time as a private company in which partners pooled their own money to support trading and investment banking and split the resulting profits or losses.

Partner selection involves a rigorous process known as "cross-ruffing" - a reference to a move from the card game bridge - in which candidates are evaluated by Goldman employees who are not in their own divisions.

The new partners received a call from Goldman Chief Executive Officer Lloyd Blankfein or Chief Operating Officer Gary Cohn on Wednesday morning.

Goldman Sachs' Asia-Pacific business, which posted a 61 percent rise in pre-tax earnings in the third quarter from a sharp drop in the preceding three months, added 12 bankers in the partner class, a 50 percent jump from 2014.

The Asia-Pacific promotions, based in Hong Kong, China, Singapore and Australia, accounted for 14 percent of this year's global partner class, the highest share in recent years.

Goldman, which reported a 58 percent jump in third-quarter profit last month as bond trading rebounded, saw its September quarter pre-tax earnings in Asia rise to $543 million from $337 million, according to a regulatory filing last week.

The share of Asia in the Wall Street bank's overall pre-tax earnings grew to 19 percent in the July-September period from 16 percent a year ago and 10 percent in the first six months of this year.

Article Link To Reuters:

Vexation Gives Way To Pragmatism As Wall Street Girds For Trump

By David Henry and Olivia Oran
November 10, 2016

Wall Street power brokers may have rolled their eyes in private when ex-Goldman Sachs Group Inc banker Steven Mnuchin agreed to be Donald Trump's national finance chairman, but now they are lining up to meet him.

Financial lobbyists and their bosses are hoping that Mnuchin and others Trump has enlisted as advisers will help convey their views and act as interpreters of the president-elect's so far at times confusing messages.

"This is different from a lot of elections in the past where you could say, 'If so-and-so wins, this will be good for that industry and bad for that one,'" said Scott Bok, chief executive of investment bank Greenhill & Co Inc.

"It's not like Trump laid out a clear set of policies where you can say, 'This is good for these types of companies and bad for those.'"

Bankers and their lobbyists are hoping their path to influence will become clearer in the coming weeks with Trump's cabinet appointments.

"It is a matter now of getting to the people who are coming in and convincing them of the benefits of some moderate deregulation to foster economic growth," said one industry executive, who declined to speak publicly about Trump.

During the presidential campaign, many people on Wall Street had supported his Democratic rival Hillary Clinton viewing her as a pragmatist and a stabilizing force.

Despite castigating hedge fund managers for "getting away with murder" on their taxes and making a vague pledge to strip big banks of their profitable trading arms, Trump has surrounded himself with financiers including Mnuchin and hedge fund firm bosses John Paulson and Anthony Scaramucci.

At the time some of their peers thought they were taking an opportunistic punt as they viewed Trump as unpredictable and populist and were vexed by his snipes at the industry.

Six months later, government-relations executives for big banks are scrambling to secure meetings with them as well as key staffers on Capitol Hill's important financial committees, in hopes they can provide a sympathetic ear for the industry.

"That work begins immediately," said one industry lobbyist who was not authorized to speak publicly.

Trump's lack of political experience and his scattershot pronouncements have made him a wild card for big business, making private contacts with his inner circle especially critical.

On bank regulation, Trump has promised to repeal the Dodd-Frank financial reform law and implement a new, possibly tougher one, but offered few details on what it would look like.

SEC Appointments

Although Trump’s outsider status helped him win, he has turned to some well-known Washington insiders when looking to fill vacancies at U.S. financial regulators including the Securities and Exchange Commission (SEC).

Former Republican SEC Commissioner Paul Atkins, who founded and heads the regulatory consulting firm Patomak Global Partners LLC, is leading the transition team for financial regulation, according to a person familiar with the matter.

Come January, Trump is expected to designate SEC Republican Commissioner Michael Piwowar as acting chair. It is unclear if Trump will make the role permanent or later tap someone new.

SEC Chair Mary Jo White, an independent appointed by President Barack Obama in 2013, is expected to leave the agency when Obama’s term is over.

Mnuchin is seen as the likely pick for Treasury Secretary. He did not respond to a Reuters request for comment.

KBW policy analyst Brian Gardner predicts Vice President-elect Mike Pence will have a major influence on who gets appointed to key roles, and will choose "orthodox Republicans" who are equally familiar as some others in Trump's circle.

In an emailed statement, Scaramucci said Trump's reputation for unpredictability was undeserved.

"While spending time with President-elect Trump during the campaign I got to know a very analytical and compassionate person," Scaramucci, founder and a co-managing partner of investment firm SkyBridge Capital, said.

Several policy experts predicted Trump and the new Congress will water down some financial reform rules, such as the Durbin amendment that limits bank fees or the Volcker rule against proprietary trading. They uniformly expect diminished power, if not a gutting of the Consumer Financial Protection Bureau.

But the Trump administration may also propose regulations that are more problematic, such as extremely high capital requirements or a revival of the Depression-era Glass Steagall law that broke up big banks.

Mnuchin, however, was cited by many as a ray of hope.

Although he has not publicly expressed opinions on financial regulation or fiscal policy, bankers and lobbyists said they felt reassured by his experience on Wall Street.

"I can't imagine that his goal would be to destroy Goldman Sachs," said the industry executive, "which is better than some."

Article Link To Reuters:

Deutsche Bank Sees Revival In Mideast Deals After ‘Subdued’ 2016

Regional head says low oil price will drive consolidation; Bank won market share in region’s bond sales this year.

By Matthew Martin
November 10, 2016

Deutsche Bank AG expects mergers and acquisitions to pick up in the Middle East and Africa next year after a “subdued” 2016, according to the head of the company in the region, Jamal Al Kishi.

Deals and initial public offerings will add to accelerating debt sales as governments seek to fill budget gaps caused by the oil slump, Al Kishi said in an interview in Dubai. Rising borrowing costs and slower growth will encourage private sector consolidation and fundraising, he said.

Next year “looks promising and there is a healthy pipeline of debt capital markets deals, mergers and acquisitions, and even some initial public offerings,” Al Kishi said. By contrast, 2016 has “been a fairly subdued year for the investment banks in the region.”

Bond sales in the region have been among the bright spots for securities firms and Deutsche Bank in particular, as IPOs and deals have been declining. The lender’s market share for bond and Sukuk sales in the Middle East and Africa has increased even as the investment bank slid in its home territory. Deutsche Bank has struggled to stem a slide in its shares and maintain client confidence since the U.S. Department of Justice requested $14 billion in September to settle a probe tied to sales of mortgage-backed securities.

IPOs in the Middle East and Africa are on track for the lowest value in at least three years, with just $5.3 billion raised this year, according to data compiled by Bloomberg. The value of completed deals has dropped 48 percent from last year.

Bond sales, meanwhile, have benefited as energy exporters from Qatar to Abu Dhabi seek to buttress their finances. Debt sales in the Middle East and North Africa reached $73 billion this year, the most since Bloomberg began compiling data in 2005. Deutsche Bank was one of the bookrunners on Saudi Arabia’s debut $17.5 billion bond last month, the biggest emerging-market issue this year.

The bank is ranked seventh for debt sales from the Middle East and Africa, rising eight places from 2015, according to data compiled by Bloomberg. In contrast, the lender has lost market share across investment banking in Germany and Europe, Alasdair Warren, the head of Deutsche Bank’s corporate and investment bank in Europe, the Middle East and Africa, said in an interview on Bloomberg TV last month.

Clients in the region continue to have “esteem and affection” for Deutsche Bank and have an “unwavering desire to grow their long-standing partnerships with us,” Al Kishi said.

Saudi Bond Deal

The success of the Saudi bond deal -- it drew $67 billion of offers -- will help encourage more companies and financial institutions to sell bonds in the coming year, he said. Lower valuations as a result of slower economic growth in the region will also help drive M&A, he said.

The slump in crude prices is forcing spending cuts, privatizations and consolidation among state-owned firms. Abu Dhabi said in June it plans to merge sovereign investment fund Mubadala Development Co. with International Petroleum Investment Co.. That followed a plan to combine its two largest lenders, National Bank of Abu Dhabi PJSC and First Gulf Bank PJSC.

“Looking across M&A, debt capital markets, IPOs, hedging and financing transactions, the pipeline is looking fairly robust going into the new year,” Al Kishi said. “Government reforms, privatizations and the decline in oil prices are all driving that, coupled with the fact that liquidity from the international community is in decline.”

Deutsche Bank isn’t the only bank to express optimism. UBS Group AG’s investment banking business is set to have its best year advising on Middle Eastern deals and sees a continued revival in mergers and acquisitions, Alberto Palombi, the bank’s head of Middle East and North Africa investment banking, said this month. Omar Iqtidar, Citigroup Inc.’s head of investment banking in the Middle East, said Saudi Arabia’s restructuring “could translate into a fantastic wallet” for the banks.

Deutsche Bank is still hiring in some areas in the Middle East and Africa, Al Kishi said, even as the bank is eliminating about 9,000 employees globally from 2015 through 2018. Deutsche is introducing “extensive hiring restrictions,” CEO John Cryan wrote in a letter to staff last month.

“Over the course of the year we have grown headcount in some areas, and tweaked it in others,” Al Kishi said. “But nothing beyond what we normally do. Emerging markets have always been an area where we’ve done extremely well compared to our peers, and within that the Middle East and Africa is an important area.”

Article Link To Bloomberg:

'Crashing Waves' Of Jihadists Fray Soldiers' Nerves In Mosul Battle

By Dominic Evans and Ahmed Rasheed
November 10, 2016

A week after his tank division punched through Islamic State defenses on the southeast edge of Mosul, an Iraqi army colonel says the fight to drive the militants out of their urban stronghold is turning into a nightmare.

Against a well-drilled, mobile and brutally effective enemy, exploiting the cover of built-up neighborhoods and the city's civilian population, his tanks were useless, he said, and his men untrained for the urban warfare they face.

His Ninth Armoured Division and elite counter terrorism units fighting nearby seized six of some 60 neighborhoods last week, the first gains inside Mosul since the Oct. 17 start of a campaign to crush Islamic State in its Iraqi fortress.

Even that small foothold is proving hard to maintain, however, with waves of counter attacks by jihadist units including snipers and suicide bombers who use a network of tunnels stretching for miles (km) under the city.

They appear able to strike at will, often at night, denying the troops rest and rattling frayed nerves.

"We're an armored brigade, and fighting without being able to use tanks and with soldiers unused to urban warfare is putting troops in a tough situation," the officer told Reuters. He asked not to be named because he was not authorized to talk to the media.

A year ago, when his forces took part in an operation to drive Islamic State from the much smaller city of Ramadi west of Baghdad, they were tasked with holding territory outside while the counter terrorism forces entered the city.

Mosul, whose capture is a crucial step towards dismantling the caliphate Islamic State declared two years ago across large areas of Iraq and Syria, is too big for specialist forces alone.

"In Mosul, we have to advance inside residential areas, comb streets, clear houses from terrorists and deal with civilians. I'm afraid this job is too tough for us to handle".

He said it was impossible to differentiate between civilians and fighters who melt in amongst them. Islamic State has forced its dress code on the population during the two years it has controlled the city. Men are required to have long beards, something the militants are still policing.

"Our soldiers can't recognize them until it's too late, when the attacker either detonates his explosive vest or throws a grenade," the colonel said, adding that he lost two T-72 tanks and an armored vehicle in a single day's fighting on Tuesday.

"It's becoming a nightmare and it's nerve-wracking for the soldiers," he said.

Toughest Urban War

Even for the Counter Terrorism Service, or special forces, trained more specifically for the challenges in Mosul, the last week of fighting has been unprecedented.

"We are carrying out the toughest urban warfare that any force in the world could undertake", CTS spokesman Sabah al-Numani said on Sunday.

One CTS officer, in Baghdad on leave, told Reuters the biggest threat came from snipers. "You don't know where or when a sniper will strike," he said. That, combined with thousands of people trying to escape the fighting, was a constant source of stress.

As he spoke, a voice on his radio crackled - one of his men on the frontline. "Sir, there are so many civilians, they have these suitcases with them as well. How do I know what's in them? And they're coming towards me..."

Islamic State leader Abu Bakr al-Baghdadi, who declared a crossborder caliphate in Syria and Iraq from the pulpit of a Mosul mosque two years ago, told his fighters last week there could be no retreat in a "total war" with their enemies.

Hisham al-Hashemi, who advises the Iraqi government on Islamic State issues and has visited the frontlines, said all the indications from Mosul so far showed that Baghdadi's comments were no idle threat.

"Now Daesh (Islamic State) is really fighting," he said.

Hashemi said the jihadists had dug a 70 km (45 mile) network of tunnels just on the eastern side of the Tigris River, which runs through the center of Mosul, since they took over in 2014.

Using the tunnels they were able to surprise troops inside the city, striking between 2 am and dawn when their defenses are at their lowest. "They are not ready for these surprises - it's the tunnels which have caused our greatest losses," he said.

"Crashing Waves"

Hashemi said government forces were only in full control of two of the districts they entered last week.

The army says it has captured five other districts, but fighting continues in all of them and Hashemi said in some neighborhoods the army had been driven back three or four times - often at night - before reclaiming territory the next day.

With its tanks unable to navigate narrow city streets, the Iraqi army has called on U.S. Apache helicopters to target car bombers. The Pentagon said on Monday they would continue to be used "in what we expect will be tough fighting to come".

One of the most devastating tactics the militants employed, which helped them tie down a far greater force than their own, was to send consecutive waves of small units - about 50 strong - against the troops so they could never let down their guard.

The militants call the operation "crashing waves". Each unit includes suicide bombers, snipers, assault fighters, and what they call infiltrators, as well as logistics and mortar experts.

"Each one only fights for a short period and is then relieved by the next group - it exhausts the army," Hashemi said.

Although they face a coalition of Iraqi army, special forces, Kurdish peshmerga and Shi'ite paramilitary groups which may total around 100,000 fighters, the asymmetric war strategy has so far meant the 5,000-strong jihadists in Mosul have tied down the advancing troops, without using their full reserves.

Hashemi said an inner core of mainly Francophone foreign fighters, given the name 'al-Murabitoun' (Guards) had taken an oath to fight to the death defending strategic positions in the heart of the city.

"The only way they will leave is when they are dead," he said, adding they were also holding residents as human shields against air strikes.

So far the advancing forces have only breached eastern Mosul. Hashemi said two infantry divisions which have advanced close to its northern and southern limits were preparing to open two new fronts in the city, possibly as soon as Friday.

Ultimately, he said the superior numbers of the forces attacking on multiple fronts would wear down the militants. "We will win, without doubt. But it will be a costly victory".

Article Link To Reuters:

Facebook And Twitter Contend With Their Role In Trump's Victory

Former employees of both companies are grappling with Facebook's and Twitter's role as a news filter. 

By Sarah Frier
November 10, 2016

America just endured its first presidential election in which the majority of the electorate got its news from social media. And the outcome is already prompting soul searching by the companies that shaped it.

Facebook Inc. will have to contend with mounting dissatisfaction over its role as the most widely used news filter in history. Forty-four percent of American adults get their media through the site, many consuming news from partisan sources with which they agree. The proliferation of fake news on Facebook has also been a problem: false stories about the Clinton family committing murder and Huma Abedin being a terrorist flew fast and furious despite refutations from responsible news organizations. Those stories shaped public opinion, said Ed Wasserman, the dean of the University of California, Berkeley Graduate School of Journalism.

“This is a landmark,” he said. “Trump was able to get his message out in a way that was vastly influential without undergoing the usual kinds of quality checks that we associate with reaching mass public. You had a whole set of media having influence without really having authority. And the media that spoke with authority, the authority that comes after careful fact checking, didn’t really have the influence.”

In a statement, a Facebook spokeswoman said: “While Facebook played a part in this election, it was just one of many ways people received their information – and was one of the many ways people connected with their leaders, engaged in the political process and shared their views.”

Online (on Facebook, of course), current and former employees debated the company's role as an influencer. Bobby Goodlatte, a Facebook product designer from 2008 to 2012, according to his LinkedIn, today said the company's news feed was responsible for fueling “highly partisan, fact-light media outlets” that propelled Donald Trump's ascension to the presidency. “News feed optimizes for engagement,” Goodlatte wrote. “As we’ve learned in this election, bullshit is highly engaging.”

In the past, Facebook has pushed back publicly against these concerns with a simple premise: News feed is just an amplification of what people would experience in a world without it. In response to Goodlatte, Andrew Bosworth, a veteran Facebook executive who helped create news feed, defended the company: “News feed isn’t perfect but it is at least or more diverse than the alternatives which dominated consumption in the late nineties.”

Behind the scenes, Facebook has been studying and analyzing its effect on news consumption. The issue was tackled at high-level meetings this summer, leading to a revision of priorities for news feed to de-emphasize media posts, in favor of posts from friends and family. The company’s public relations department has worked to frame Facebook as a technology company rather than a media company, celebrating the "invention" of news feed on its 10-year anniversary, for example. Meanwhile, Facebook intensified its analysis of its role in creating an echo chamber and spreading fake news.

“We can’t read everything and check everything,” Adam Mosseri, the head of news feed, said in an August interview. “So what we’ve done is we’ve allowed people to mark things as false. We rely heavily on the community to report content.”

Of course, if false news is spreading in communities that want to believe it, few will mark it as false.

Echo chambers on Facebook may have helped Trump win, but Twitter Inc. gave him a way to reach American voters constantly and without an editor. Clinton also had her own Facebook and Twitter accounts, but Trump, with almost 14 million followers on the site, would often start his own news cycles with deeply opinionated and often incendiary posts. "I can’t think of another instance, in commercial or political communication, where Twitter was used as effectively,” Wasserman said.

Twitter's shares rose 4.1 percent Wednesday, boosted by investor recognition of its role in the election outcome. But it hasn’t all been good for the company. As Trump rose on the platform, so did a set of racist, misogynist harassers supporting him, and that caused a major headache for the company. These trolls, not officially endorsed by the campaign, would regularly attack Trump's critics, in many cases causing Twitter users to feel unsafe. The clashes highlighted Twitter’s inability to effectively address abuse on its platform -- a problem that was one reason The Walt Disney Company walked away from a potential bid for the social media site.

Twitter’s executives, when asked about these issues during the election, said that the site is a place for all ideas. If false information or hateful rhetoric surfaces, others on the site will tweet in response.

“We have the world talking on this thing about the world,” Chief Executive Officer Jack Dorsey said in an interview earlier this year. “So we see every spectrum of idea and conversation.”

Twitter, like Facebook, did not respond to requests for comment on Wednesday. One former software engineer, Ben Matasar, posted this tweet: "For my @twitter alum friends: What did we build?"

Article Link To Bloomberg:

Fed Is Nerdy, Geeky, And Politically Neutral: Policymaker

By Ann Saphir
November 10, 2016

A day after Republican Donald Trump was elected as the next U.S. president, San Francisco Federal Reserve Bank President John Williams said that the U.S. central bank is nerdy, geeky, but above all apolitical, and will remain so.

"Having that independence is very important," Williams said, adding that criticism of the Fed is part of democracy and is to be expected. "We are focused on the economy, focused on achieving our goals; it is not a partisan activity."

During his campaign Trump repeatedly accused the Fed of keeping rates low for political reasons, and said he would replace Fed Chair Janet Yellen, who ran the San Francisco Fed before Williams, once her term ends in 2018.

Speaking at the University of San Francisco, Williams said the U.S. economy is close to maximum employment and inflation is poised to rise back to the Fed's 2-percent target, and that therefore it is time for the central bank to increase rates gradually.

"It makes sense, I would say, to ease off on the gas a bit," Williams said. "We do want to run a hot economy for a while (but) we don’t want it to be too hot for too long."

Rate increases have been much slower than the Fed expected last year, when most policymakers thought they would raise borrowing costs four times in 2016.

Williams said the Fed did not raise rates as fast as expected because most policymakers over the course of the year changed their estimate of the neutral level of interest rates, and now believe that level is much lower because of factors like an aging population and slow productivity growth.

The neutral rate is the level of borrowing costs at which an economy can hum along at trend with full employment and low inflation.

"We are not making promises to raise interest rates," he said, adding the Fed's decisions are driven by economic data.

The Fed is widely expected to raise one time this year, at next month's policy meeting, a move that Williams supports.

Article Link To Reuters:

Big Oil Revels In Trump Victory, Expects Less Red Tape

By Ernest Scheyder
November 10, 2016

The U.S. energy industry on Wednesday reveled in Republican Donald Trump's presidential victory, expecting him to advocate for more oil and gas output and to cut red tape holding back billions of dollars of investment in new projects.

Shares of most oil and gas producers, energy construction firms and pipeline operators rose after the election results, while crude oil prices also settled higher.

Exxon Mobil Corp, the world's largest publicly traded oil producer, said it hoped Trump's administration would use "sound science" on future regulations.

Exxon has drawn fire from environmentalists who say the company misled investors and the public about the risks of climate change. Trump has previously called climate change a hoax.

"We intend to work constructively with the president-elect and his administration," said Exxon spokesman Alan Jeffers.

Exxon's shares were up about 1.0 percent, and shares of Chevron Corp rose about 0.3 percent.

The world's largest energy market saw an energy revolution under Democratic President Barack Obama's administration, as improved technology led to the rapid development of shale oil and gas reserves.

Even as shale expanded, the energy industry bemoaned environmental regulations that slowed development. Now, the industry expects Trump to roll back those restrictions. For one thing, Trump has promised to rescind the Environmental Protection Agency's Clean Water Rule, which the industry called an attempt to regulate fracking.

ConocoPhillips, the largest U.S. independent oil producer, said it would work with Trump to protect the environment but also to produce needed oil and gas.

"The American people have spoken and elected Mr. Trump as president and ConocoPhillips respects that choice," spokesman Daren Beaudo said.

While Trump has given few details on energy policy, he has surrounded himself with shale industry supporters and he backs development of infrastructure, including pipelines.

"We are looking forward to President Trump doing what he promised, which is to undo many of the onerous regulations that have plagued our industry throughout an Obama presidency," Harold Hamm, chief executive officer of oil producer Continental Resources Inc, said in a statement.

Trump has considered making Hamm the first energy secretary from the oil and gas industry since the position was created in 1977.

Trump's promise to create jobs and boost manufacturing could bode well for delayed energy projects across the United States, including the Dakota Access Pipeline, analysts said.

Share Movement

Shale oil-focused shares outpaced the wider oil and gas sector gains on Wednesday. Oasis Petroleum and Whiting Petroleum, spiked about 5 percent, a sign of optimism that the federal government would not impose more restrictions on fracking, and leave such regulation to individual states.

Shares of oil construction companies also jumped, including KBR Inc, Chicago Bridge & Iron and Jacobs Engineering Group .

Pipeline companies rallied, as the Trump victory gave a fillip to an industry whose growth prospects have been hit by environmental and native group activism as well as the steep two-year oil price slump.

TransCanada Corp, which wants to build the Keystone XL pipeline, rose more than 1 percent. During the election campaign, Trump said he would approve the pipeline if elected.

The Trump administration will not be able to change bearish oil fundamentals of oversupply and lagging demand. A rise in U.S. oil output could further pressure crude prices that remain around half of levels just over two years ago.

The energy stock rally on Wednesday "has little to do with fundamentals and leaves us more incrementally concerned than bullish," said Tim Rezvan, an oil industry analyst with Mizuho Securities USA.

The Organization of the Petroleum Exporting Countries meets to negotiate output cuts, and the election result could influence OPEC's meeting.

A Trump administration was not expected to oppose drilling on public lands and may be interested in advancing coal leases on public lands, with advice coming from the industry, said Scott Segal, co-head of the federal government relations practice at Bracewell LLP.

"I believe this administration will rely heavily on corporate America to understand the issues," Segal said.

In North Dakota, the No. 2 oil producing state, Trump's victory was seen as a boon for energy companies.

"Trump is bullish on the economy. He's bullish on energy. He's got the wherewithal to make it all happen," said Ron Ness, head of the North Dakota Petroleum Council trade group.

"This is a day of tremendous optimism for the energy industry."

Article Link To Reuters:

S&P Affirms U.S. Investment-Grade Ratings After Presidential Election

November 10, 2016

Ratings agency Standard & Poor's affirmed the United States' investment-grade 'AA+/A-1+' rating on Wednesday, a day after the presidential election, while maintaining its stable outlook.

Donald Trump won the U.S. presidential election in a stunning upset, and will take office in January, with the Republicans maintaining majority control of the House of Representatives and the Senate.

"We assume the longstanding institutional strengths and robust checks and balances of the U.S. will support policy execution in a Trump administration, despite the president-elect's lack of experience in public office, which raises uncertainty on policy proposals,” the ratings agency said.

But S&P added that the United States' high general government debt and increased uncertainty over its trajectory constrain the ratings of the world's largest economy.

There is a risk of policy uncertainty and potential missteps given the untested nature of the incoming Trump administration. If these risks eventuate, there could be downward pressure on the rating, S&P said.

S&P said it would raise the rating if it saw evidence that efforts point to more proactive fiscal and public policies that result in a lower debt burden.

Fitch Ratings said on Wednesday that Trump's victory does not have near-term implications for the United States' AAA/stable rating.

The medium-term impact of president-elect Trump's economic and fiscal policies would be negative for U.S. sovereign creditworthiness if they were implemented in full, the ratings agency said.

Moody's Investors Service said that Trump's victory will impact a range of companies operating in several different sectors.

Article Link To Rueters:

Twitter Management Merry-Go-Round Continues With Bain Exit

By Ari Levy
November 10, 2016

Twitter's already precarious management structure just took another major hit.

Adam Bain, the social media company's second-in-command and the person considered by many to be its future CEO, is leaving. Finance chief Anthony Noto will take over the role of chief operating officer, and Twitter said Wednesday that it's initiating a search for his successor.

Amid the chaos that Twitter has experienced since its IPO three years ago this week, Bain has served as a stabilizing force. He joined the company in 2010 and was a leading candidate to assume the top role after Dick Costolo suddenly resigned last year.

Instead, Jack Dorsey came back to the company he co-founded and served as a CEO while also leading Square.

Now Bain is off to "explore opportunities outside the company," according to a press release on Wednesday.

Twitter's growth has stalled of late, the company still can't turn a profit and the stock has been punished by Wall Street. Potential suitors including Alphabet and opted not to put forth bids, leaving Twitter to fend for itself in a market where ad dollars are consolidating into the hands of Google and Facebook.

Still, the timing of Bain's exit is somewhat awkward.

Throughout the presidential election that wrapped up Tuesday night, Twitter was home to non-stop political discourse, whether during debates or as a hub for breaking news. The debates were even streamed live on the mobile app, part of an initiative for airing live events including NFL games, Wimbledon and the Olympics.

Twitter Shares

Twitter shares rallied on Wednesday, gaining 4.1 percent to $19.13, but lost 2.9 percent in after hours trading after Bain's announced departure. The stock remains 26 below its IPO price from November 2013.

Dorsey spent a fair amount of time cleaning house earlier this year. In January, he overhauled much of the management team, with media head Katie Jacobs Stanton, product lead Kevin Weil, engineering executive Alex Roetter, and human relations head Brian "Skip" Schipper all leaving the company.

Article Link To CNBC:

The One Scenario That Could Still Get Hillary Into The White House

By Laura Italiano
The New York Post
November 10, 2016

For diehard Democrats holding out hope that they won’t have to live through a Trump presidency, there is a last, incredibly long shot for them latch on to — a surprise twist in the Electoral College.

Though Hillary Clinton won the popular vote by 200,000, Trump has won the minimum of 270 electoral votes necessary to be elected president. As of late Wednesday, he had 290 to Clinton’s 228.

According to the Constitution, chosen electors of the Electoral College are the real people who will vote for president, when they meet on Dec. 19 in their respective state capitals.

However, there is nothing stopping any of the electors from refusing to support the candidate to whom they were bound or by abstaining from voting.

There’s even a name for it: becoming a “faithless elector.”

Although the idea of the electors trying to reverse the vote is occasionally discussed — such as after the incredibly close 2000 election in which George Bush narrowly beat Al Gore — going “faithless” is exceedingly rare.

More than 99 percent of electors throughout American history have voted as pledged, according to an analysis done by the New York Times.

The last faithless elector reared his roguish head back in 2004, when a lone anonymous voter in Minnesota declined to vote for Democrat John Kerry and instead voted for Kerry’s running mate, John Edwards.

The rogue’s vote was purely ceremonial, as Bush already had 286 electoral votes ensuring his re-election.

Faithless electors are barred in only 29 states from ignoring the will of the voters, though the penalties are light. And a faithless elector has never swung an election.

The Founding Fathers created the Electoral College because they were actually “afraid of direct democracy,” according to

In fact, Alexander Hamilton thought the electors would make sure “the office of president will never fall to the lot of any man who is not in an eminent degree endowed with the requisite qualifications.”

Given the high dissatisfaction with Trump among Republicans, a few faithless GOP electors could well go rogue next month.

One Texas GOP elector, Chris Suprun of Texas, told Politico in August that he finds Trump so unpalatable he would consider voting for Clinton on Dec. 19.

Article Link To The New York Post:

Trump’s New World Disorder

By Philippe Legrain
Project Syndicate
November 10, 2016

So much for the end of history. Twenty-seven years to the day after the fall of the Berlin Wall heralded the collapse of communism in Europe, Donald Trump’s election as US president endangers the liberal international order that his wiser, broader-minded predecessors crafted.

Trump’s “America First,” anti-“globalist” agenda threatens protectionist trade wars, a worldwide “clash of civilizations,” the peace in Europe and East Asia, and further violence in the Middle East. His nativist and authoritarian views also undermine the shared values, faith in liberal democracy, and assumption of benign American hegemony on which the rules-based international system depends. Already in relative decline, the United States is now poised for an angry retreat from the world.

Optimists hope that Trump didn’t mean what he said during the election campaign; that he will surround himself with seasoned internationalist advisers; and that his wilder instincts will be tempered by the checks and balances of the US political system. Let’s hope so. But nothing in his temperament suggests as much. And with Republicans retaining control over both the Senate and the House of Representatives, Trump will have a freer rein than most presidents. That is especially true in trade and foreign policy, where US presidents enjoy much greater discretion – and where the damage he could do is potentially huge and enduring.

Start with trade. Globalization had already stalled in recent years. Now Trump threatens to throw it into reverse. At the very least, his victory kills off the faint hopes of concluding the two jumbo trade deals that Barack Obama’s administration had been negotiating: the completed but unratified Trans-Pacific Partnership (TPP) with 11 Pacific countries, and the stalled Transatlantic Trade and Investment Partnership (TTIP) with the European Union.

Trump has also pledged to renegotiate the North American Free Trade Agreement (NAFTA) with Canada and Mexico. Worse, he wants to slap tariffs on Chinese imports, which would doubtless provoke a trade war. He has even spoken of pulling out of the World Trade Organization (WTO), the multilateral rules-based trading system.

Such an agenda would not only threaten a global recession. It would also tempt regions to split into rival trading blocs – a worrying prospect for a post-Brexit Britain seemingly intent on tearing itself away from the European Union to go it alone. In Asia, the collapse of the TPP, from which the Obama administration unwisely excluded China, paves the way for the Chinese to build their own trading bloc.

Trump’s victory threatens East Asia’s security as well as its economy. By retreating from free trade and casting doubt on US security guarantees for its allies, he could prompt Japan, South Korea, and others to race to acquire nuclear weapons to protect themselves against a rising China. The Philippines is unlikely to be the last country in the region to conclude that cozying up to China is a better bet than relying on an increasingly isolationist America.

Trump’s victory also undermines Europe’s security. His admiration for Vladimir Putin, Russia’s authoritarian leader, is alarming. Putin laments the break-up of the Soviet Union, wants to recreate a Russian sphere of influence in the country’s neighborhood and has already invaded Georgia and Ukraine. Trump’s suggestion that his commitment to defending NATO allies is conditional invites Putin to go further.

The Baltic republics of Estonia, Latvia, and Lithuania, NATO members that were once part of the Soviet empire and have substantial Russian minorities, are most at risk. While a common external threat ought to drive the EU to increase defense spending and deepen its security cooperation, EU-skeptic, austerity-hit European voters may have little appetite for this. Indeed, many European governments seem tempted to seek to appease Putin, rather than stand up to him.

Trump’s outright racism, hostility to Hispanic immigrants, and Islamophobic rhetoric threatens a culture clash – and even violence – within America. It could also set the stage for the “clash of civilizations” of which the late Samuel Huntington warned. Bullying Mexico to try to force it to pay for the huge border wall that Trump wants to erect would be an act of hostility against all Latinos. Casting Muslims as enemies – and denying them entry to America, as he vowed during his campaign – would be a powerful recruiting sergeant for the Islamic State and al-Qaeda, as is suggesting that the US ought to seize Iraq’s oilfields for itself.

Perhaps the most enduring damage will be to America’s soft power and the appeal of its liberal democracy. The election of a racist president with fascist tendencies is an indictment of America’s political system. Trump himself has shown himself to be contemptuous of democracy, saying he would not accept the election result if he lost and threatening to jail his opponent. Chinese officials will not be alone in thinking that a system where lies, hatred, and ignorance trump sober deliberation is defective. America is no longer the “shining city upon the hill” that successive presidents have proclaimed it to be.

Anti-establishment insurgents now have the wind in their sails. In the wake of the financial crisis and wrenching economic change, many voters have understandably lost faith in Western elites, who seem incompetent, corrupt, and out of touch. They also, wrongly, blame immigrants for their problems and feel threatened by social liberalism. In the absence of positive alternatives to a deeply flawed status quo, the risk of an even greater backlash is high. Unlikely as polls now suggest it is, Marine Le Pen of the far-right National Front may well win France’s presidential election next May. That would deal a hammer blow to the euro, the EU, and the West.

Liberal internationalists cannot afford to be complacent. Trump’s victory is a disaster – and it can get much worse than this. We need to defend our open, liberal societies and offer positive changes to win back anxious voters.

Article Link To Project Syndicate:

Don't Despair, Liberals: Fight

By Mihir Sharma
The Bloomberg View
November 10, 2016

Welcome, American liberals. Welcome to the special torment of discovering that you do not know your country.

You thought, no doubt, you were exempt -- immune from the shocks that liberals throughout the world have felt in recent years. And I can understand why: Because while you have suffered defeats at the hands of Reagan and the Bushes, and it seemed at times like your country would bend back the arc of history, it never really did.

But this time, you know, is different. This is a different sort of defeat, and a different sort of victor. You, too, have lost to an authoritarian populist, a man who sees himself as the only answer. And you can find no handle with which to criticize him, for the weapons of reason and ridicule and horror that have always worked before seem to have been rendered useless and impotent.

Welcome, as I said, for this is how liberals across the world have felt as their countries one by one turned to populist strongmen who evoked the virtues of a vanished past, and who promised to vanquish evildoers and globalist elites in order to restore those glories. Welcome to the pain of the citizens of Istanbul, of New Delhi, and of London; of the embattled liberals of Russia or of Israel. In a day, you feel as if your countrymen have become strangers to you and your fond expectation of progress revealed as childlike fantasy. How can you cope with a president whose very existence is a repudiation of all you have hitherto believed?

Well, you will cope. We all have. And perhaps it will help if I share a few hints as to how.

First, do not tell yourself fanciful stories about what has happened. Do not seek to blunt the edges of your realization. Yes, your country is not what you imagined it to be. All around you, hopeful fellow-travelers will answer the questions this loss poses through the only story they are comfortable with: They will speak of “economic anxiety” and of globalization. You should know better. You should know that it was not the poorest who voted for the demagogue; they never do, and didn’t in this election.

Here in India, Narendra Modi’s sweeping victory in 2014 was about nationalism and pride. It was about jobs, too -- as was Donald Trump’s. But not in any way that should comfort you: Jobs and pride go together. People seek both, but pride is more potent and easier to deliver. In India, we have learned that when an authoritarian promises jobs, he actually promises status, and when he promises status, he promises pride.

So do not give in to attempts, from left and right, to legitimize an ethno-nationalist "take our country back" sentiment as a product of economics instead. Do not revisit the truths you have learned about progress. Trade and globalization have delivered long years of growth and cheap goods to the U.S., new jobs and a new way of living, just as economic liberalization in India has lifted millions out of abject poverty.

Revisit instead the assumption that people themselves are inevitably becoming more inclusive and tolerant. Do not deny that some of your fellow citizens feel the stress of dislocation and of dispossession; after all, working to address that is why you are a liberal. But do not for a moment deny they have freely chosen to blame that stress on those who have not caused it -- Muslims, foreigners, immigrants, women, those even poorer. To deny that choice would be condescending. To ignore that choice would be fatal. The choice needs to be fought, not wished away; the error corrected, not accepted.

Do not run to the left, or compromise with the right. Do not hanker after the reassuring ideological purity of your own populists -- for if they had any real answers, they and not their cousins on the right would’ve defeated you. Both, after all, hate you equally.

And do not seek to cozy up to ethno-nationalist politics; you will not defeat the authoritarian at his own game. In India, the social democratic Congress Party, roundly defeated in 2014, has tried both in opposition -- sometimes embracing left-wing economics and sometimes rounding on Muslims. As a consequence, it’s become an even less powerful party today than when it was thrashed two years ago. Be rational where the authoritarian is not; focus on progressive policy, not on words; defend the weak, even if they did not turn out for you. Be an alternative, not a weak clone or a has-been.

And do not deny the ruler his legitimacy. Praise him when praise is due -- lavishly, if necessary. This is not only just; it is wise. Many such leaders crave respect and recognition above all. Think of Recep Tayyip Erdogan; compare his first term with what he is now, and learn how leaders who feel they receive no cooperation are freed to follow their instincts. And seek out the bipartisan policies that might make your country more liberal -- those that encourage people in left-behind states to move to solidly blue ones, those that expand access and opportunity and education. Compromise on policy, not on principle.

You might never feel as good again as you did a few days ago; because you now understand more fully what your country is. But you will eventually feel better. And if you keep fighting to improve your country, one day your country will return to you.

Article Link To The Bloomberg View:

Donald Trump’s Presidency Might Buck Old Market Trend

U.S. stocks’ typically do worst during the first year of a presidential cycle.

By Steven Russolillo 
The Wall Street Journal
November 10, 2016

“The happiest place on Earth,” other than Donald Trump’s election headquarters, may put a smile back on investors’ faces when it reports earnings Thursday.

Predicting that growth stocks such as Walt Disney Co. will thrive in the early days of a new administration bucks historical evidence, though. U.S. stocks typically do worst during the first year of a presidential cycle.

Since 1833, the Dow Jones Industrial Average has averaged a 2.5% gain in the first post-election year, with more down years than up, according to the book ”Stock Trader’s Almanac.” If one must be in the market, then defensive yield payers offer some income and protection.

But past isn’t prologue. Much of stocks’ slow start is due to new presidents typically overpromising the implementation of new policies and reforms on the campaign trail and under-delivering once on the job. Mr. Trump has advocated for less regulation, lower taxes and more fiscal spending. If implemented, those policies should help juice an economy currently stuck in its slowest recovery of the postwar era.

With Trump advisers set on making a splash and Republicans retaining majorities in the Senate and House of Representatives, he might avoid the gridlock that has crippled predecessors. Any successful implementation of these measures could boost growth, which in turn should benefit cyclical stocks.

What could go wrong? Plenty, including how far along we are in this bull market and economic expansion. Equity valuations are elevated and earnings are only now showing a glimmer of growth following four consecutive quarters of contraction. Mr. Trump has even warned that equity prices are in a bubble and said in August that he “got out” of the stock market.

But he probably would like nothing more than a vote of confidence from financial markets after getting one from the electorate. A nearly 1,000-point rebound in Dow Jones Industrial Average futures in 12 hours Wednesday certainly is a good start.

The bond market sent an even more convincing signal: The benchmark Treasury note yield surged above 2% and reached its highest level since January. That might anticipate stimulus and perhaps even a whiff of inflation—which would benefit growth stocks.

Mr. Trump’s script for the American economy is still under wraps, but in two short months it will be “lights, camera, action.”

Article Link To The Wall Street Journal: