Thursday, December 8, 2016

Thursday, December 8, Morning Global Market Roundup: Asia Stocks Extend Gains, Hit One-Month Peak On Upbeat China Trade Data

By Wayne Cole
December 8, 2016

Asian shares hustled to one-month highs on Thursday after Wall Street strode to another record, while bonds rallied on wagers the European Central Bank would extend its stimulus campaign at a policy meeting later in the session.

Risk appetite got an extra boost when China reported upbeat trade figures with exports and imports both beating forecasts. Resource imports were very strong, a major reason prices for bulk commodities have been going gangbusters.

"The improvement reflects a strengthening in global demand, with recent business surveys suggesting that developed economies are on track to end the year on a strong note," said Capital Economics' Julian Evans-Pritchard.

The resource-heavy Australian market jumped 1.2 percent, as did MSCI's broadest index of Asia-Pacific shares outside Japan.

An all time-peak for Samsung Electronics helped lift South Korea 1.2 percent. Japan's Nikkei put on 0.9 percent, brushing off a disappointing downward revision to economic growth for the third quarter.

The bullish mood outweighed news that Moody's had changed its outlook on Italy to negative, warning it may downgrade the credit rating if the country's deteriorating economic and debt outlook was not reversed.

The euro took the move with aplomb, edging up to $1.0776 from an early trough of $1.0750. European bourses were also tipped to open firmer by spread betters.

Markets have been surprisingly buoyant in the wake of Italy's "No" vote last weekend on a constitutional reform referendum, in part on hopes for continued support from the ECB which may widen the type of bonds it buys.

Also helping sentiment were reports Italy would step in to rescue troubled bank Monte dei Paschi, which lifted its shares by 9 percent.

All of which put downward pressure on yields of European peripheral debt, with buying spilling over to German bunds and U.S. Treasuries. Yields on 30-year Treasury debt fell by 6 basis points on Wednesday, the biggest daily decline since August.

That drop nudged the dollar down to 113.30 yen, while the dollar index dipped 0.2 percent.

Trading Inflation

Analysts also suspect the ECB may start preparing investors for an eventual tapering of its stimulus, which could underpin the euro even as the Federal Reserve prepares to raise U.S. interest rates next week.

The prospect of higher borrowing costs has certainly not fazed Wall Street, which hit fresh records on expectations the Trump administration will eventually deliver fiscal stimulus and deregulation.

"Investments and policies that have done well in a low-rate, low-growth world have reached their peak. Long-term winners could be supplanted in 2017," said analysts at BofA Merrill Lynch in their year ahead outlook.

"Expect inflation rather than deflation; Main Street to prevail over Wall Street; fiscal winners to beat out zero-interest winners; and real assets to triumph over financial assets."

The Dow ended Wednesday with gains of 1.55 percent, while the S&P 500 climbed 1.32 percent and the Nasdaq 1.14 percent.

In commodity markets, oil steadied after slipping on doubts that production cuts promised by OPEC and Russia would be deep enough to end a supply overhang. [O/R]

Brent futures were quoted up 1 cent at $53.01, while U.S. crude added 11 cents to stand at $49.88.

Commodities including iron ore and coking coal held recent hefty gains as Chinese demand drove steel prices to their highest since April 2014.

China's imports of iron ore, crude oil, coal, soybeans and copper all surged in November, customs data showed.

Article Link To Reuters:

Oil Prices Edge Lower Amid Doubts Over OPEC Output Cut

By Jane Chung and Keith Wallis
December 8, 2016

Oil prices gave up some early gains to turn lower in Asian trade on Thursday on mixed U.S. crude stocks data and doubts over OPEC's implementation of an output cut, although a weaker dollar put a floor under prices.

International Brent crude futures were trading down 16 cents at $52.84 a barrel at 0659 GMT from their last close. Prices rose to $53.20 a barrel earlier in Thursday's session.

U.S. benchmark West Texas Intermediate crude dropped 15 cents to $49.62 a barrel after climbing to $50.07 earlier on Thursday.

Crude oil inventories in the United States dropped 2.4 million barrels in the week that ended on Dec. 2, compared with analyst expectations for a draw of 1 million barrels.

But stocks at the Cushing, Oklahoma, delivery hub for U.S. crude futures, increased by a hefty 3.8 million barrels last week, the most since 2009, according to data from the U.S. Energy Information Administration (EIA) on Wednesday.

"Momentum continues to wane in crude with mixed EIA crude inventories data and shale producers hedging via futures," said Jeffrey Halley, senior market analyst at OANDA brokerage in Singapore.

Oil prices have rallied since the Organization of Petroleum Exporting Countries (OPEC) and Russia reached a landmark agreement last week to cut production to erode a global supply overhang and prop up prices.

The U.S. dollar index fell as Treasury bond yields eased and as investors eye next week's Fed meeting.

"A slightly weaker U.S. dollar is supportive of oil prices," Michael McCarthy, chief market strategist at Sydney's CMC Markets said. A weak dollar makes dollar-denominated oil less expensive for importing countries.

Oil prices initially rose on Thursday, supported by upbeat investor sentiment on the underlying strength in the U.S. economy, McCarthy said.

But doubts remain over whether OPEC will be able to comply with output cuts and whether those curbs will be enough to rebalance markets.

"Talk about OPEC compliance worries is a bit of a red herring. As in the past, OPEC compliance/non-compliance is a known unknown. What the crude rally really needs is new news to reinvigorate a speculative market already positioned long," added Halley.

OPEC and non-OPEC oil producers will meet again this weekend in Austria's capital to discuss the details of last week's agreement, which aims at an overall reduction in output of around 1.5 million barrels a day.

"Oil markets might see a pick-up in volumes as we enter the European trading session," McCarthy added.

China's crude oil imports rebounded strongly in November from the previous month and were up 18 percent on a year ago, while exports of refined fuel hit a record high as refiners rushed to ease an expanding domestic surplus.

Article Link To Reuters:

Eyeing Upswing, More U.S. Oilfield Service Firms Restructure

By Tom Hals and Tracy Rucinski
December 8, 2016

After two years of hunkering down, struggling U.S. oilfield service providers are preparing for an expected oil-price recovery in an unexpected way: filing for bankruptcy.

Companies that drill wells, haul water and provide other services to energy exploration firms have been waiting out a slump in oil prices by idling machinery, laying off workers and extending deadlines for repaying debts.

Now they are turning to Chapter 11 creditor protection to shed debt and raise cash so they can spend and invest again.

Without bankruptcy, many of small and medium-sized service companies risk missing out on any upturn that could follow President-elect Donald Trump's pro-drilling agenda or OPEC's plan to cut oil production for the first time in eight years, restructuring advisors said.

"You've got some zombie companies out there," said Jay Krasoff, a managing director with Chiron Financial in Houston. "You have to give counterparties confidence you'll be in business to do their work. That's what's going on."

Through the end of October, about 70 mostly private energy service companies have filed for Chapter 11 this year, up from 39 in all of 2015, according to Haynes & Boone, a law firm that specializes in energy restructuring.

As the pace of filings accelerates, the size of companies restructuring in bankruptcy is also increasing.

In June through October, nine companies with at least $100 million in debt filed for Chapter 11, with a total of $9 billion in liabilities, according to Haynes & Boone. That exceeded the total for the prior 18 months, which came to $8.2 billion in debt from seven filings with at least $100 million in debt.

In all, energy services companies have restructured about $18.7 billion in bankruptcy. By comparison, the 20 companies in the Dow Jones U.S. Oil Equipment & Services Index .DJUSOI have a combined $82.6 billion in debt, according to Thomson Reuters data. (Graphic:

Competitive Advantage

The biggest oilfield service providers - such as Halliburton Co (HAL.N) and Schlumberger Ltd [SLB.UL] - have the scale to ride out the production glut, despite losing more than 40 percent of their revenue since oil prices peaked in mid-2014.

In a recovery, they can also respond more quickly than smaller companies that spent the past two years hibernating through the downturn, according to restructuring advisers.

Hoping the energy sector has turned a corner, major U.S. producers such as Occidental Petroleum Corp (OXY.N), Chevron Corp (CVX.N), Pioneer Natural Resources Co (PXD.N) and ConocoPhillips (COP.N) are preparing to add rigs.

A bankruptcy filing allows a service company to restructure under a court-supervised process in as little as two months. Creditors generally take ownership of the companies in return for forgiving debt, and shareholders generally lose all or nearly all of their investment.

"From a competitive advantage a lot of the service companies had to do that," said Steven Person, the chief executive officer of exploration company American Standard Energy.

Person has served as an officer and director of energy service companies, including until 2004 at Basic Energy Services Inc (BAS.N), which completes oil and gas wells and transports and disposes of fluids.

Basic Energy filed for Chapter 11 in October with a plan backed by its creditors to convert $825 million in debt to equity and raise more than $100 million in cash. Its confirmation trial is on Friday.

David Johnston, a managing director of AlixPartners, has been advising Basic Energy and said in court papers the company opted to file for bankruptcy in part because competitors were.

"Several of Basic's competitors have delivered their own balance sheets through Chapter 11 processes, thus forcing even solvent companies to explore similar options to remain competitive," he said.

Two of Basic's main competitors, Key Energy Services Inc (KEGXQ.PK) and C&J Energy Services Inc (CJESQ.PK), filed for bankruptcy in recent months. Key won court approval on Tuesday to cut $1 billion of debt to $250 million and exit bankruptcy and C&J's confirmation trial is set for Dec. 16.

Seventy Seven Energy Inc (SVNT.PK), which provides drilling and hydraulic fracturing, or fracking, services, filed for Chapter 11 in June. By early August, the company had cut its debt by $1.1 billion and exited bankruptcy under the control of its creditors.

The company said in its recent quarterly results that it had doubled its rig count in the past six months.

About half of some 32 oilfield service companies still trading actively in major stock exchanges are distressed, including five or six that are severely distressed and likely to restructure, said Kim Brady, a partner and restructuring adviser at financial consultancy Solic Capital.

Restructuring advisers said the stigma previously associated with Chapter 11, which tended to hit companies with serious problems, has vanished, opening the door to more bankruptcy filings.

"Now it's almost in vogue to be going through Chapter 11," said Jerrit Coward, former CEO of fracking services provider US Shale Solutions LLC who is now advising energy investors.

Article Link To Reuters:

How Iran Closed The Mosul 'Horseshoe' And Changed Iraq War

By Dominic Evans, Maher Chmaytelli and Patrick Markey
December 8, 2016

In the early days of the assault on Islamic State in Mosul, Iran successfully pressed Iraq to change its battle plan and seal off the city, an intervention which has since shaped the tortuous course of the conflict, sources briefed on the plan say.

The original campaign strategy called for Iraqi forces to close in around Mosul in a horseshoe formation, blocking three fronts but leaving open the fourth - to the west of the city leading to Islamic State territory in neighboring Syria.

That model, used to recapture several Iraqi cities from the ultra-hardline militants in the last two years, would have left fighters and civilians a clear route of escape and could have made the Mosul battle quicker and simpler.

But Tehran, anxious that retreating fighters would sweep back into Syria just as Iran's ally President Bashar al-Assad was gaining the upper hand in his country's five-year civil war, wanted Islamic State crushed and eliminated in Mosul.

The sources say Iran lobbied for Iranian-backed Popular Mobilization fighters to be sent to the western front to seal off the link between Mosul and Raqqa, the two main cities of Islamic State's self-declared cross-border caliphate.

That link is now broken. For the first time in Iraq's two-and-half-year, Western-backed drive to defeat Islamic State, several thousand militants have little choice but to fight to the death, and 1 million remaining Mosul citizens have no escape from the front lines creeping ever closer to the city center.

"If you corner your enemy and don’t leave an escape, he will fight till the end," said a Kurdish official involved in planning the Mosul battle.

"In the west, the initial idea was to have a corridor ... but the Hashid (Popular Mobilisation) insisted on closing this loophole to prevent them going to Syria," he told Reuters.

The battle for Mosul is the biggest in Iraq since the U.S.-led invasion of 2003. In all, around 100,000 people are fighting on the government side, including Iraqi soldiers and police, "peshmerga" troops of the autonomous Kurdish region and fighters in the Popular Mobilisation units. A U.S.-led international coalition is providing air and ground support.

Iraqi army commanders have repeatedly said that the presence of civilians on the battlefield has complicated and slowed their seven-week-old operation, restricting air strikes and the use of heavy weapons in populated areas.

They considered a change in strategy to allow civilians out, but rejected the idea because they feared that fleeing residents could be massacred by the militants, who have executed civilians to prevent them from escaping other battles. Authorities and aid groups would also struggle to deal with a mass exodus.

Kill Box

Planning documents drawn up by humanitarian organizations before the campaign, seen by Reuters, show they prepared camps in Kurdish-controlled areas of Syria for around 90,000 refugees expected to head west out of Mosul.

"Iran didn't agree and insisted that no safe corridor be allowed to Syria," said a humanitarian worker. "They wanted the whole region west of Mosul to be a kill box."

Hisham al-Hashemi, an Iraqi analyst on Islamist militants who was briefed on the battle plan in advance, also said it initially envisaged leaving one flank open.

"The first plan had the shape of a horseshoe, allowing for the population and the militants to retreat westward as the main thrust of the offensive came from the east," he said.

About a week before the launch of the campaign, Lebanese Shi'ite Hezbollah leader Hassan Nasrallah, a close ally of Iran, accused the United States of planning to allow Islamic State a way out to Syria.

"The Iraqi army and popular forces must defeat it in Mosul, otherwise, they will be obliged to move to eastern Syria in order to fight the terrorist group," he said. Hezbollah is fighting in support of Assad in Syria.

Hashid spokesman Karim al-Nuri denied that Tehran was behind the decision to deploy the Shi'ite fighters west of Mosul.

"Iran has no interest here. The majority of these statements are mere analysis - they are simply not true," he said.

Nevertheless, securing territory west of Mosul by the Iranian-backed militias has other benefits for Iran's allies, by giving the Shi'ite fighters a launchpad into neighboring Syria to support Assad.

If Islamic State is defeated in Syria and Iraq, Tehran's allies would gain control of an arc of territory stretching from Iran itself across the Middle East to Lebanon and the Mediterranean coast.

Russian Pressure

Iran was not the only country pressing for the escape to be closed west of Mosul. Russia, another powerful Assad ally, also wanted to block any possible movement of militants into Syria, said Hashemi. The Russian defence ministry did not immediately respond to a Reuters request for comment.

One of Assad's biggest enemies, France, was also concerned that hundreds of fighters linked to attacks in Paris and Brussels might escape. The French have contributed ground and air support to the Mosul campaign.

A week after the campaign was launched, French President Francois Hollande said any flow of people out of Mosul would include "terrorists who will try to go further, to Raqqa in particular".

Still, the battle plan did not foresee closing the road to the west of Mosul until Prime Minister Haider al-Abadi agreed in late October to despatch the Popular Mobilisation militias.

"The government agreed to Iran's request, thinking that it would take a long time for the Hashid to get to the road to Syria, and during that time the escape route would be open and the battle would still proceed as planned," Hashemi said.

The Hashid move to cut the western corridor was announced on Oct. 28, 11 days after the start of the wider Mosul campaign. Fighters made swift progress, sweeping up from a base south of Mosul to seal off the western route out of the city.

Abadi "was surprised to see them reaching the road in just a few days," Hashemi said. "The battle has taken a different shape since then - no food, no fuel is reaching Mosul and Daesh (Islamic State) fighters are bent on fighting to the end."

Iraq Stronghold 

Once the Iraqi Shi'ite militia advance west of Mosul had begun, Islamic State leader Abu Bakr al-Baghdadi told his followers there could be no retreat from the city where he first proclaimed his caliphate in July, 2014.

Those tempted to flee should "know that the value of staying on your land with honor is a thousand times better than the price of retreating with shame," Baghdadi said in an audio recording released five days after the Shi'ite militias announced they were moving to cut off the last route out.

Since then his fighters have launched hundreds of suicide car bombs, mortar barrages and sniper attacks against the advancing forces, using a network of tunnels under residential areas and using civilians as human shields, Iraqi soldiers say.

A senior U.S. officer in international coalition which is supporting the campaign said that waging war amidst civilians would always be tough, but the Baghdad government was best placed to decide on strategy.

"They've got 15 years of war (experience)... I can't think of anyone more calibrated to make that decision and as a result that why as a coalition we supported the government of Iraq's decision," Brigadier General Scott Efflandt, deputy commanding general in the coalition, told Reuters.

"The opening and closing of that corridor, hypothetically, realistically, did not fundamentally change the plans of the battle," he added. "It changes how we prosecute the fight, but that does not necessarily make it easier or harder."

But the Kurdish official was less sanguine, saying the battle for Mosul was now "more difficult" and could descend into a long drawn out siege similar to those seen in Syria.

It could "turn Mosul into Aleppo," he said.

Article Link To Reuters:

Will The Trump Administration Start A War With Iran?

By Paul R. Pillar
The National Interest
December 8, 2016

The direct stakes in whether the Trump administration adheres to the agreement that restricts the Iranian nuclear program are important enough, in terms of nuclear nonproliferation. Also important are the opportunities to build on that agreement constructively to address problems of concern to both Iran and the United States. But at stake as well, as the new administration makes policy toward Iran, is the need to avoid a potentially disastrous turn, highly costly to U.S. interests, in the U.S.-Iranian relationship.

Recall how the policy options were being framed in American public debate as of about four years ago, before the negotiations that produced the nuclear agreement got under way. Amid much alarmist talk about an Iranian nuclear weapon being just around the corner, the “military option” was repeatedly and seriously discussed as the principal alternative to negotiations. In other words, people were talking about starting a war with Iran—although that is not how the option was commonly phrased.

A military attack, intended to damage the mere potential for producing weapons that others, including the attacker, already have would have been a naked and illegal act of aggression. It also would have been counterproductive in probably stimulating a decision by Iran to make a nuclear weapon that it had not previously decided to make. But that is how the alternatives were nevertheless discussed. Some who talked up the alternative of a military attack may have regarded it as more of a bluff, but for others war was an actual objective [3].

So in addition to the other setbacks to U.S. interests that would ensue [4] from the United States reneging on the agreement, a U.S.-Iranian war is a potential, and highly costly, additional possible consequence. The looming danger of such a war is not, however, only a function of how the nuclear agreement is handled. The danger looms because appointments that Donald Trump is making to senior national security positions are installing at high levels of the new administration a predisposition to stoke permanent conflict with Iran, a predisposition that is far more visceral than analytical and that embodies the kind of fervor and hatred that has the risk of leading to armed conflict.

The most important figure in this picture apart from the president-elect himself is his choice as national security adviser, Michael Flynn. Flynn’s attitude toward Iran [5] is a corollary of his broader Islamophobic view of the Muslim world [6], in that it involves perceptions that are out of right field if not downright bizarre. If his preconceived notions about such topics do not fit the facts, then he tries to make the facts conform. One incident [7]reported by the New York Times involved the attack on the U.S. diplomatic compound in Benghazi, Libya in 2012. Flynn insisted Iran had a role in the attack, and he told subordinates at the Defense Intelligence Agency, of which he was then the director, that their job was to find evidence that he was right. (No evidence of any Iranian role in the attack has surfaced.) We should not be surprised that someone who performed his duties as an intelligence chief in this manner has more recently shown an affinity for fake news [8] of other sorts that fits his political objectives, such as alleged involvement by the Democratic presidential nominee in pedophilia rings.

Other appointments made to date do not provide much hope of providing a corrective to Flynn’s proclivities on anything having to do with Iran. One cannot expect such a corrective from CIA director-designate Mike Pompeo, who comes to the job with a strongly stated political agenda [9] of trashing the nuclear agreement.

Nor can it be expected from the nominee for secretary of defense, James Mattis, even though he is more erudite than Flynn. Mattis has a thing about Iran that appears to let passion shove the erudition aside whenever Iran is involved. Mark Perry [10] may be right that the passion is a Marine Corps thing and stems from the truck bombing, by Iran’s client Lebanese Hezbollah, of the barracks in Beirut in 1983 in which 220 Marines and 21 other Americans died. Perry quotes another senior Marine officer as saying about Mattis, “It’s in his blood. It’s almost like he wants to get even with them.”

Whatever the underlying cause of his passion, the passion causes accurate and realistic appraisals of Iran to suffer. When Mattis asserts that Iran is not really a nation-state but instead a “revolutionary cause devoted to mayhem,” this indicates a failure to understand, or a refusal to understand, the history of Iranian politics and policy in the four decades since the Iranian revolution and the evolution of Iran’s relationship with the rest of the region. When he says that “Iran is not an enemy of ISIS” and that “I consider ISIS nothing more than an excuse for Iran to continue its mischief,” this flies in the face of fundamental realities about both ISIS and Iran and how the latter is combating the former, especially in Iraq.

Ingredients are falling, tragically, into place for a possible war with Iran. We have seen this play before, although some of the cast has changed. Flynn’s leaning on intelligence officers to scrape together evidence to support his predetermined, and false, assertion about Iranian culpability in Benghazi eerily resembles the leaning by the George W. Bush White House, led by Vice President Cheney, on intelligence officers to scrape together evidence to support the predetermined, and false, assertion that the Iraqi regime of Saddam Hussein was allied with Al Qaeda. Mattis’s statements about Iran and ISIS, some of which imply an alliance between the two, also have some of the same odor of the pro-war sales campaign of fourteen years ago.

The Iraq War came about partly because enough people who had been committed to that expedition for years were put in positions of power to get an inexperienced president—for whom the war served other role-defining purposes—to go along. Now we are about to get the least prepared president in U.S. history, with little capacity on his part for questioning whatever assertions are voiced by the retired generals or others around him. At least George W. Bush, although lacking foreign policy experience, could have learned something from his father, who had been president, envoy to the United Nations and to China, and director of central intelligence. Donald Trump’s father was, like Donald, a real estate developer.

9/11 made possible the change in the American public mood necessary to sell the Iraq War. It won’t, however, take anything on the scale of 9/11 (which, remember, had nothing to do with Iraq anyway) to help catalyze a war against Iran. A lesser terrorist attack, or maybe an incident at sea, could serve the purpose. Assertive, forward U.S. military operations would increase the chance of such an incident, and once an incident occurs, it can be exploited and slanted for war-making purposes beyond the facts of the incident itself. (See Gulf of Tonkin, 1964.)

Trump has more appointments to make relevant to policy on Iran. One can hope for appointees who will exhibit more analysis than ardor and will favor facts over fakery. But the trend so far is not promising. Some persons mentioned for important sub-cabinet posts have been dedicated to killing the nuclear accord.

Then there are the hard-core neo-cons, including ones who were crestfallen when it appeared that Trump’s nomination marked an end to neoconservative dominance of Republican Party foreign policy. Some of these people became declared never-Trumpers and a few even hitched their wagons to Hillary Clinton’s candidacy. But many of these people, upon hearing what the early appointees say about Iran, must now be licking their chops. In their view, the lesson for Iran of the U.S. invasion of Iraq (and never mind the subsequent eight-plus years of unpleasantness) has been: you’re next. “Take a number”—that’s how it was put by John Bolton [11], a neocon uber-hawk on Iran who has been to Trump Tower for a job interview and is one of the candidates for secretary of state.

A U.S. war with Iran would be disastrous for all interests except Iranian hardliners, ISIS and those who exploit Middle Eastern instability, others in the region doing ignoble things from which they would like to divert attention, and speculators who are long on the price of oil. Iran would strike back asymmetrically at times and places of its choosing, and the United States would help make enduring Iranian hostility a reality and not just a prejudicial preconception, and would do so not just among the hardliners. A messy and bloody Middle East would become messier and bloodier.

Those in the United States who correctly want to avoid such a calamity should take the early Trump appointments as a warning sign. The appointments especially ought to be a wake-up call for those who were too focused on Hillary Clinton’s hawkishness, or too encouraged by Trump’s utterances suggesting he would have a less interventionist foreign policy, or too inclined to dismiss both major party candidates as equally lost causes, to anticipate the current prospects regarding policy toward Iran.

None of this is a prediction that there will be such a war. But the danger of one is greater now than it was before November 8th and the appointments that followed. Vigilance is required to avoid further steps that would increase the chance of a war. The immediate issue to watch is the fate of the nuclear agreement, but that is not the only relevant issue (and Mattis, to his credit, has said that junking the accord now would be a mistake regardless of one’s previous views of it). Also to be watched for are any moves, such as aggressive U.S. military operations in the Persian Gulf, that could become steps down a slippery slope to conflagration.

Article Link To The National Interest:

Rove: Keith Ellison Will Help Republicans

The candidate to run the Democratic Party backed Farrakhan and always votes left.

By Karl Rove
The Wall Street Journal
December 8, 2016

To their Advent prayer list, Republicans should ask that Rep. Keith Ellison (D., Minn.) is elected the Democratic National Committee’s chairman early next year.

There are two reasons. The first is that Mr. Ellison’s selection would mean the Democratic Party would be led by a left-winger’s left-winger, handing an early assist to the GOP and the Trump administration for the 2018 midterms.

After cataloging every vote cast by every congressman, the nonpartisan National Journal ranks the five-term Minnesota Democrat as among the House’s most left-wing members during his 10 years in Congress, and tied for the most liberal congressman in 2013 , 2011 and 2008.

That’s why he went all-out for Sen. Bernie Sanders in the Democratic presidential primary. In return Mr. Ellison earned the backing of the avowed “democratic socialist,” as well as support from Sens.Elizabeth Warren and Harry Reid.

But this still leaves Mr. Ellison with a fundamental problem. This year’s exit polls found 28% of voters wanted the next president to continue Barack Obama’s policies while 47% wanted the new president to be more conservative. Only 17% said he should be more liberal. Mr. Ellison stands as the vanguard of that 17%, hardly the place to launch a decimated Democratic Party to political recovery.

He is unlikely to emphasize recruiting candidates who mirror the values of the flyover states that Democrats have been losing from the top of the ballot to the bottom. When then-Rep. Rahm Emmanuel led the Democratic Congressional Campaign Committee in 2006, he knew his party could not regain the House majority unless it nominated candidates who could win moderate and even mildly conservative districts. So he refused to insist on ideological purity, even on issues like abortion and guns that are articles of faith to the Democratic left. But Keith Ellison is no Rahm Emmanuel.

Nor is Mr. Ellison likely to craft a message that attracts middle-class voters in the political center. Instinctively, he’d rather appeal to avid readers of the Nation and Huffington Post.

Then there’s Mr. Ellison’s praise as a young man for the poisonous Nation of Islam leader Louis Farrakhan. In a Nov. 30 interview with NPR, Mr. Ellison dismissed criticism of his support for Mr. Farrakhan as a “smear,” while acknowledging “at the time I didn’t pay close enough scrutiny to some of the other things he was saying.”

Here’s the problem with his explanation: Mr. Ellison defended the Nation of Islam founder for a decade, even calling him in a 1997 statement before the Minnesota Initiative Against Racism “a tireless public servant of Black people.” Ten years is a long time for Mr. Ellison to fail to grasp he was praising a bigot and anti-Semite.

This leaves the impression Mr. Ellison is not only radical but also duplicitous, especially after a transcript of a 2010 fundraising speech surfaced in which he said that while the U.S. should “be friends with Israel,” the U.S. “can’t allow another country to treat us like we’re their ATM.” He also complained that America’s Middle East policy “is governed by what is good or bad through a country of seven million people.”

Given all this, Mr. Ellison’s selection would further strain the Democratic Party’s relationship with the Jewish community, one of the party’s most loyal constituencies.

Mr. Ellison’s appearance at a 2000 fundraiser for the Legal Defense Fund of domestic terrorist Sara Jane Olson of the Symbionese Liberation Army, and his opposition to seeking extradition from Cuba of convicted cop killer Assata Shakur, may have contributed to the unease of some labor leaders. Officials of the firefighters and some of the building trades and hospital industry unions have objected to the AFL-CIO’s efforts to jam through an endorsement of him.

Longer term, however, choosing Mr. Ellison as DNC chairman would likely catalyze a counter-reaction to the Sanders-Warren wing of the Democratic Party. It could lead more reasonable liberals to organize—sooner rather than later—an effort to reinvigorate their party as the Democratic Leadership Council did following Walter Mondale’s crushing 1984 defeat. That work eventually resulted in the 1992 election of Bill Clinton as president.

While the GOP might make short-term gains while Mr. Ellison is DNC chairman, the country would be better served in the long run by a healthy two-party system. That means Democratic Party leaders should pick a chairman who can actually rebuild the party instead of marching even further to the left and deeper into the political wilderness.

Article Link To The Wall Street Journal:

Trump’s Already Showing Strength — But Is That Enough To Govern?

By John Podhoretz
The New York Post
December 8, 2016

Since past presidencies and presidential candidates offer precious little understanding of what the Trump administration will be like, we’re better off seeking clues in the workings of the president-elect’s campaign — and what he believed he was doing and why he succeeded.

Interviews and discussions involving his senior campaign staff and the staffs of his rivals reveal one salient fact: Through all the bluster and the multifarious offenses that many of us mistakenly believed would derail him, Donald Trump himself reveled in simplicity. “We just stuck on the same message the entire time,” his first campaign manager, Corey Lewandowski, said last week. “It was so simplistic, and it didn’t target any specific demographic.”

Trump had a single, unified message: America had lost its way, and he would guide it again to greatness. In other words, the entirety of his campaign was conveyed through that red cap with the “Make America great again” slogan on it.

He made it clear he didn’t believe he could or should achieve this renewed American greatness by following a standard ideological playbook on the economy and foreign policy. His message was that everybody before him had screwed the place up, Democrats and Republicans alike, sitting politicians and retired politicians, and none of them was worth a damn, so how could their ideas be worth a damn?

He threw out the playbooks — the conservative playbook, the Republican playbook. He attacked George W. Bush very nearly as violently as he attacked Barack Obama. He said he didn’t care which bathroom anybody used.

Now that the election’s over he seems to be going back through the playbook and picking and choosing from what he takes to be its highlights, like low corporate taxes and fewer regulations — but these nods to conservative/Republican orthodoxy are just that, nods, and can be reversed at a moment’s notice.

He made that clear in the interview he gave to Time for its Person of the Year story when he used language on government intervention in the economy anathematic to conservative economics. “Sometimes you have to prime the pump . . . in order to get jobs going and the country going.”

But without a coherent playbook, how exactly was he, is he, going to make America great again? Again, the answer he offered then and is offering is simple and alluring. And, for some of us, highly problematic.

He promises to do so through the force of his personality.

He will be strong.

This personalized message certainly resonated with voters. Barry Bennett, who ran Ben Carson’s campaign, talked last week about the Iowa focus groups his campaign convened. Bennett was worried they would reject Carson because of his lack of experience, but they didn’t care about that. “What they wanted more than anything else was strength,” Bennett said. “And Trump was the one that they thought had that.”

This helps explain Trump’s choice of three recently retired generals for key positions at the head of the Pentagon, the National Security Council and, with Wednesday’s announcement, John Kelly at the Department of Homeland Security.

Considering Trump has largely peddled an anti-interventionist line in foreign policy, such choices seem off-brand until you consider this: What conveys strength more than having a general on your team?

The “strength” message was so central to the Trump primary campaign that his rallies featured three pre-teen girls called the USA Freedom Kids singing these discomfiting, caricaturish words: “Deal from strength or get crushed every time.”

Trump has no use for Teddy Roosevelt’s idea that presidents should “speak softly and carry a big stick.”

Trump’s big stick is his voice, and he loves how loudly he speaks — often in 140 characters that move markets, as we learned when his anti-Boeing tweet about the potential price tag for a new Air Force One temporarily tanked the company’s market value.

The Trump “strength doctrine” is the thread that connects the primary to the election and to the Cabinet selections, and it’s the one thing we know will carry through to the presidency. But we are a nation of laws, and our laws and our Constitution are intended in large measure to restrict the ability of our leaders to work their will without restraint.

Trump will need more than the strength doctrine to get things done. He will need good ideas, and he will need to secure public support for them through persuasion and implement them through competent management. Force of personality may have been enough to get him elected, but it won’t be enough when it’s time to govern.

Article Link To The New York Post:

Trump Vows To Bring Down Drug Prices, Doesn't Say How

By Bill Berkrot and Lewis Krauskopf 
December 8, 2016

President-elect Donald Trump took aim at drugmakers on Wednesday by promising in a magazine interview that "I'm going to bring down drug prices," sending shares of pharmaceutical and biotechnology companies lower.

In a cover story for Time magazine, which named him its Person of the Year, Trump said: "I don't like what has happened with drug prices."

The Republican U.S. president-elect, a wealthy real estate developer who ran a campaign with a populist appeal, did not state in the interview how he would reduce the cost of prescription drugs. Trump previously has suggested he was open to allowing importation of cheaper medicines from overseas.

Trump previously had taken aim at other industries, suggesting an interventionist stance toward business during his presidency.

Allergan Inc Chief Executive Brent Saunders last week cautioned drug companies against a false sense of security under Trump. [L1N1DW1Z9]

"If our industry can self-regulate on pricing, we can all focus on investing in innovative medicines and cures and move the pricing discussion to the back burner," Saunders said via e-mail on Wednesday.

Trump's Nov. 8 election victory was initially a boon for drug and biotech stocks, as investors relaxed knowing Democrat Hillary Clinton, who had been critical of rising drug prices, had not won the White House.

The Nasdaq Biotech Index rose as much as 12 percent in the two days after the election.

During the past few weeks, however, pharmaceutical stocks had given up the majority of those gains. The biotech index on Wednesday fell more than 3 percent to its lowest level since before the election. The NYSE Arca Pharmaceutical index of U.S. and European drugmakers was down 1 percent on Wednesday.

Chris Raymond, biotech analyst for Raymond James, said investors were unsure of how seriously to take Trump's latest comments. "Nobody that I have talked to who is an institutional investor has said that they are selling based on this," he said.

Continually rising drug prices have placed a heavy burden on consumers, many of whom cannot afford their medicines or face increasing co-pays on prescription drugs. Trump has vowed to repeal and replace President Barack Obama's signature 2010 healthcare reform law, but that pledge does not address drug prices.

PhRMA, the largest pharmaceutical industry trade group, in an e-mailed statement said government mandates and interventions are not the solution for patients when it comes to medicine costs.

"If the drug companies think that they're going to continue to have free rein to set and raise drug prices because of Trump, I think they're deluding themselves," said Erik Gordon, professor at the University of Michigan Ross School of Business. "Nobody who voted for him is in favor of high drug prices."

Cars, Planes, Then Pharma

The pharmaceutical industry is the latest targeted by Trump. On Tuesday he took aim at a leading aerospace company, urging the government to cancel an order with Boeing Co for a revamped version of the presidential plane due to its extremely high cost.

He previously targeted the auto industry, vowing to block Ford Motor Co from opening a new plant in Mexico and threatening to impose tariffs on cars shipped back across the border.

The heads of those companies have sought direct discussions with Trump.

Jeff Jonas, a portfolio manager with Gabelli Funds, said Trump has brought the idea of drug pricing reform back to life, but added, "I'm still skeptical that anything actually passes through Congress, but the overhang is clearly going to continue."

Len Yaffe, who manages StocDoc Partners healthcare fund, said that "companies that succeed in bringing transformative medicines to the market will continue to command a premium price."

Article Link To Reuters:

High Prices Today, Effective Drugs Tomorrow

By Megan McArdle
The Bloomberg View
December 8, 2016

A few days ago, Sarah Kliff of Vox published a sort of cartoon guide to pharmaceutical pricing, which I recommend. The basic arguments will probably be familiar to readers of this column, but her stick figures make an important point: When we talk about what to do about pharmaceutical prices, we have to think hard about the trade-offs we’re willing to make.

America pays higher prices for drugs because the government doesn’t negotiate with insurers. The government doesn’t negotiate with insurers in part because we have a powerful pharmaceutical industry that lobbies the government not to, but also in part because we’re not willing to have the government say, “Nope, we’ve decided you can’t sell your expensive treatment here,” which is a major way that other governments get their bargaining power. Telling Americans they can’t have stuff is really politically unpopular, so we mostly don’t do that. Instead, we pay some of the highest prices in the world for prescription drugs.

That sounds terrible! But it also has a benefit: Those profits give drug companies the necessary incentive for innovation.

This issue is often misunderstood on the left, where the argument goes: “If we slashed their profits by 90 percent, they’d still be making money, so obviously they don’t need such high profits in order to do research.” This is a fundamental misunderstanding of how profits function in the pharmaceutical industry, where funding research is not a budget problem; it’s an investment problem.

A budget problem is deciding whether you want to buy steak or tofu. You’re definitely going to eat; the question is only how much you’re going to spend to do so. An investment problem is how you decide how much you want to gamble on future gains, instead of spending that money on something you’d like to consume right now. One major consideration is not just how much you’d like to invest, but where you’d like to invest it. And when you start looking at investment, you quickly start thinking about risk versus reward.

You probably do this in your own financial life. You can buy a new flat panel television, which would definitely be nice. Or you could put that money in the bank, where it will earn you some nanofraction of a cent in interest and frequent e-mails from your bank urging you to “go green” and sign up for electronic statements. Or you could invest it in the stock market, where the potential returns are much higher but there’s also a greater possibility that you will lose your investment. When you decide how much of your money to put in each place, you’re making a trade-off between risks and potential rewards.

Investors also do this when they’re deciding which companies to invest in: a grocery store that offers razor-thin profit margins, but probably isn’t going to see demand for its product vanish any time soon, or something like a tech startup, where you could make a lot of money or you could end up with some commemorative stock shares from

Companies go through a version of the same process when they decide what internal projects get funded.

Pharmaceutical investment is a particularly risky move, because it requires a huge amount of money to research and develop a new drug. And unlike most markets, there’s a binary hurdle once you’ve finished developing the product: Either you get FDA approval, or you don’t. Most drug candidates don’t pan out, and all that invested money is a complete write-off.

So consider the math of our two potential investments: groceries or pharmaceuticals. If you invest in groceries, you get, say, a 5 percent return on your money, all but guaranteed. That same investment in pharmaceutical research may get, a 100 percent return on your money if their new drug candidate succeeds, but there’s a 90 percent chance of getting nothing.

If you just look at the profits, the biotech firm seems to be an obviously better option -- 100 percent returns! Once you add in risk, however, it doesn’t look nearly as exciting; the expected value of your biotech investment is only 10 percent (because of the likelihood of a whiff), while the expected value of your grocery investment is 5 percent.

The biotech firm still has a higher expected value, of course. Investments with highly variable returns need to pay a “risk premium” because people worry about losing everything, which is why stocks offer higher long-term returns than bonds and why pharmaceutical companies have higher profit margins than Wal-Mart.

America’s high pharmaceutical prices are what compensates pharmaceutical firms for the risk of developing drugs. If we drive them lower, we’ll get fewer new drugs. That makes for a hard trade-off: Higher prices drive up the cost of health care and mean that some folks may have trouble accessing the latest wonder drugs until they lose patent protection after a decade or so.

There’s certainly a conversation worth having about whether the innovations we’re getting are worth the cost we’re paying. At a time when we’re getting exciting new treatments for intractable diseases like cancer and Hepatitis C, I’d say the answer is “yes”; others will have different answers.

But as we’re having this conversation, there’s one thing we should keep in mind: the people who are missing from the discussion. Which is to say, the people, many of them unborn, who aren’t sick yet but will be, and who could be helped or even cured by treatments that haven’t yet been developed.

Pharmaceutical research is cumulative. With the notable exception of antimicrobials, whose usefulness degrades over time because strains of bacteria and viruses and fungi develop drug resistance, every new innovation goes into our disease-fighting arsenal and stays there to help every future patient. After a few years of obscene profits, most of these innovations will be pretty cheap and widely available. Every useful weapon we decide not to try to produce for that arsenal comes at a cost to future people's health.

This matters because there are a lot of future people -- more than there are current people. They don’t get a voice in today’s debates, but we should consider their interests when we talk about pharmaceutical pricing, as we do when we debate what to do about global warming or our entitlements crisis. We’re certainly leaving future generations enough problems. Let’s offer them some solutions as well.

Article Link To The Bloomberg View:

Don’t Buy The Lie That Obama’s Leaving Behind A Healthy Economy

By Seth Lipsky
The New York Post
December 8, 2016

After eight years of blaming America’s problems on George W. Bush, the press that got the election wrong is rolling out a new line — that President Obama is handing President-elect Donald Trump a booming economy.

That takes some brass.

The jobless rate is down to 4.6 percent, and the growth rate is up above 2 percent or even 3 percent, with housing prices getting back to pre-recession levels. Stocks are soaring. So the idea seems to be that Obama has solved the problem in the nick of time.

“Obama’s gift to Trump” is the headline on CNN. “Trump inherits healthy economy” is the way the Financial Times is headlining the yarn. Politico reckons that Trump is being handed an “Obama boom.”

Plus, the Economist magazine is out this week with a cover featuring George Washington’s image from the greenback. Except that he’s shirtless, with his arms crossed and biceps bulging, and the headline says “The mighty dollar.”

These geniuses remind me of Mark Twain trying to palm off the idea that “Wagner’s music is better than it sounds.” If the economy is so all-fired ducky, how come Americans just tossed out the party that’s claiming credit for it?

The truth is that the Obama years have been among America’s worst for the economy. His eight years will go down in history as the Great Recession, even though for much, even most, of the span, we weren’t technically in a recession.

It just felt that way. And no wonder. Obama’s is the only modern presidency that failed to show a single year of growth above 3 percent, a point Trump stressed during the campaign (and that was conceded even by the Web site Politifact).

Plus, the Obama economy failed to prosper even though the Federal Reserve had its pedal to the metal. Its quantitative easing, $2 trillion balance-sheet expansion and zero-interest-rate policy all produced zilch.

Except for pumping up Wall Street and producing what Trump calls a “false economy.” The recent declines in the unemployment rate are due less to the uptick in employed persons than to an increasing number of persons leaving the labor force.

In a “true economy” what people would boast about would be the number of employed persons rising faster than the size of an expanding workforce. In reality, the job participation rate is the lowest in decades, as millions are too discouraged to seek a job.

And the recent record Dow Jones average? It’s pumped up by the Federal Reserve. It’s nowhere near a record if the Dow is calculated in the most traditional measure of value. The gold value of the Dow peaked way back in 1999.

All this is why Bloomberg News has been reporting the “Rust Belt’s transformation into the Trump Belt.” It cites this week new research on “how bad things have become” in Michigan, Ohio, Pennsylvania and Wisconsin.

For older men in those states, Bloomberg reports, inflation-adjusted pay is below the level in — wait for it — 1979. That’s two generations lost. In those swing states the idea that Obama is handing back a booming economy will be seen there as an absurd boast.

Even if, in the last month or so, what economists call the “animal spirits” of economic activity have begun to stir. That’s because of the possibility that the credit already belongs to Trump.

Even though he’s not yet president. My own theory is that the millions of minds that make up the American electorate knew way before the pollsters that Trump was going to win this election.

They grasped that the Democrats’ high taxes and onerous regulation were drawing to an end. They’ve already begun betting that The Donald, no professional politician, will make good on his promises.

So when The New York Times runs out a headline, as it did Saturday, saying that “Obama is handing a strong economy to his successor,” it’s already behind on the story. Nice, but no cigar.

The economy is already Trump’s. And also his to lose, if he and the Republican Congress put fail to put through his promised strategic program — tax cuts, deregulation, monetary reform and a “big beautiful door” for legal immigration.

That’s the only way to turn the stirrings in the stagnant Obama economy into the kind of boom that really would be — how might Twain put it? — better than it sounds.

Article Link To The New York Post:

Why Apple Watch Is Losing To Fitbit

By Leonid Bershidsky
The Bloomberg View
December 8, 2016

Just two years ago, smartwatches -- especially the Apple Watch -- were expected to kill off simple fitness bands that only measure physical activity. Instead, fitness trackers are growing at smartwatches' expense. That makes sense: Users don't want to pay extra for unnecessary or duplicating functionality.

On Dec. 5, the tech market analytics company IDC released a report on wearables showing that Apple Watch's share of unit shipments was down to 4.9 percent in the three months through September. It was 17.5 percent in the same quarter of 2015. Apple sold 1.1 million of the gadgets, down from 3.9 million. Samsung almost caught up, selling 1 million smartwatches. All the other major wearable makers produce fitness bands, cheap smartwatches or both, rather than upscale, made-to-impress watches like Apple's or Samsung's.

Apple has contested the data, claiming that Apple Watch's sell-through -- actual retail sales, as opposed to the number of units the company gets into stores -- is at a record high. Coupled with IDC's numbers, though, that can only mean that Apple flooded retailers last year, and that's why it didn't have to supply as many units in 2016.

Although Apple, which makes the most expensive smartwatches, is capturing a much bigger share of the wearable market's monetary value than of its unit shipments, the Apple Watch and other premium watches are becoming niche products. Otherwise, Apple would be releasing sales data, which it has refused to do.

The wearables market leader in terms of unit sales, Fitbit, sells seven products -- all wristbands or clip-on activity trackers. Fitbit doesn't believe in watches. Bloomberg News reported this week that Fitbit is close to a deal with the smartwatch-maker Pebble -- one of the market's first movers, initially crowdfunded on But Fitbit isn't interested in any of Pebble's products, just in its software and the part of its team that works on it.

As recently as last summer, when there already were signs of trouble for smartwatch makers, the tech consulting firm Gartner put fitness wristbands close to the "trough of disappointment" in its "hype cycle" for wearable and smartwatches. Gartner believes that any innovation goes through a quick phase when expectations rocket, then underperforms, then moves up a "slope of enlightenment" to a "plateau of productivity." It appears Gartner was behind the curve on wearables, as are investors. The share price of Fitbit, a profitable company now unchallenged at the top of the market, is the lowest for the year, about $8.12 -- down from more than $32 a year ago.

Fitbit appears to have had the right idea from the start. It is geared toward a particular use -- exercise. Its most expensive device sells for $250, and it has GPS tracking, music controls and message notifications, but all its other functions are fitness-related. Most of the company's other products are about half the price or less. A Fitbit gadget doesn't pretend to be anything else than what it is, nor does it have hundreds of apps and various cute watch faces like the Apple Watch. It doesn't require a user to learn anything because it's simple and intuitive. An Apple Watch needs you to get used to it and learn some new moves. And its price range starts just about where Fitbit's ends.

It's possible that the smartphone has done irreparable damage to the good old watch. The Swiss watch industry is in freefall this year, and that's not because of the Apple Watch, as many predicted: That product is doing even worse. Market factors such as the strength of the franc and a decrease in European tourism are partly responsible, but, most likely, it's just that a watch is no longer a necessity, even for people who wear suits. It's normal to pull out a smartphone to find out the time.

To a growing number of people, the watch is a quaint accessory. And even though Apple's version (and Samsung's several versions) have all the activity-tracking functions of a Fitbit, many buyers see no point in all the extras -- nice design, pretty strap and a bunch of apps. A smartphone doesn't do what a fitness band does -- but it beats the smartwatch as a communication device and a portable computer.

Besides, many people buy wearable gadgets as gifts. That's where the price differential comes in. Call me cheap, but I'd rather buy a friend a $120 gift than a $350 one.

Even in this day and age, people sometimes still care about strict functionality and a low price. That resilient part of human nature will probably wreak havoc on hyped tech products in the near future. The so-called Internet of Everything is most likely to suffer: Smart faucets and light bulbs are not as functional to the average person as their makers and evangelists may think.

Article Link To The Bloomberg View:

Microsoft And Qualcomm Team Up On Tablets

Partnership will result in Windows 10 update that runs on chip in Qualcomm’s Snapdragon line of processors.

By Jay Greene and Don Clark
The Wall Street Journal
December 8, 2016

Microsoft Corp. is working with Qualcomm Inc. to spawn a new breed of tablets and notebooks that promise to diversify the software giant’s technology base and give the chip maker access to new markets. The partnership will result in an update of Windows 10 that runs on a chip in Qualcomm’s widely used Snapdragon line of processors, the first Windows 10-Snapdragon pairing.

However, those devices may not be able to handle every application developed for the company’s flagship operating system—recalling a blunder from a few years ago, when Microsoft rolled out a Windows variant that ran on mobile-friendly chips but wasn’t compatible with some Windows applications.

The collaboration, to be announced Thursday at the WinHEC hardware developer conference in Shenzhen, China, is meant to encourage hardware makers to build lightweight Windows devices that, unlike most tablets and laptops, have a cellular modem built-in. That means users will be able to connect to cell networks smartphone-style, without the need for additional hardware, Microsoft said. In addition, the devices will offer longer battery life than most laptops.

Windows 10 is being adapted to run Qualcomm’s forthcoming Snapdragon 835. That chip is widely expected to be used in smartphones, a market in which Microsoft has struggled. Terry Myerson, executive vice president of the Windows and Devices Group, didn't mention smartphones in a blog post announcing the news.

Qualcomm said in a statement that the first Windows 10 devices using its chip will be “commercially available in the second half of 2017.”

Nearly all versions of Windows run on chips that use technology developed by Intel Corp., a longtime partner that is announcing its own collaboration with Microsoft at WinHEC. Qualcomm’s Snapdragons use technology from ARM Holdings, which last summer was acquired by SoftBank Group Corp. for $32 billion. Collaborating with Qualcomm gives Microsoft an alternative supplier of chips that run its operating system and a new source of semiconductor innovation, as well as a beachhead in ARM-based devices.

For Qualcomm, the biggest maker of chips for smartphones, the partnership offers a new pathway into the tablets and laptops that have been an Intel stronghold. Those devices, though they sell in smaller volumes than phones, still represent a lucrative market—particularly the high-priced mobile computers purchased by many companies for their workers. The ability to run Windows 10 also will also bring compatibility with applications developed for PCs that hadn’t previously worked on Qualcomm-powered hardware.

Microsoft’s collaboration with Qualcomm isn’t the software giant’s first stab at running Windows on ARM processors. Microsoft introduced a previous ARM-compatible version, Windows RT, in 2012, but scuttled it three years later. Hardware makers shied away from making Windows RT devices, in part because of competition from Microsoft’s own initial Surface tablet, which ran the Windows variant. Critics panned Windows RT because it didn’t run applications developed for earlier versions of Windows.

Poor sales of Surface RT devices led Microsoft to take a $900 million charge in July 2013.

Microsoft said it would use so-called emulation technology to address the compatibility issue. The company expects the “overwhelming majority” of applications written for Windows PCs to run on the new Snapdragon-powered devices, a Microsoft spokesman said.

“Older apps that run under emulation will work great,” at speeds similar to their performance on similarly-priced PCs, the spokesman said in an emailed statement.

But Microsoft’s past stumble left Forrester Research Inc. analyst J.P. Gownder wary.

“Microsoft is going to get hammered on the ARM announcement if they don’t do it right,” Mr. Gownder said. “They are bringing back the ghosts of the RT experience.”

If Microsoft is successful, though, it could make Windows tablets and notebooks more competitive with Apple Inc.’s iPad Pro. It could even lead to new mobile computing form factors, he said.

Another question is whether Windows 10 will work with ARM chips made by companies other than Qualcomm. Pat Moorhead, an analyst at Moor Insights & Strategy, said that is likely to happen, but it may require a bit more programming work by Microsoft or its partners.

Microsoft declined to comment on the topic of other ARM chips.

At WinHEC, Microsoft also plans to strengthen its position in augment reality and virtual reality. Its HoloLens headset delivers augmented reality, superimposing digitally generated visual elements on the user’s view of the physical world. VR initiatives by Alphabet Inc., Facebook Inc. and others, on the other hand, immerse users in digitally generated sights and sounds.

Microsoft wants a piece of both areas. It plans to announce that it has submitted Microsoft HoloLens for government approval in China, hoping to offer the device to developers there in the first half of 2017.

The company also will announce that Chinese manufacturer 3Glasses plans to launch a VR headset that runs Windows. 3Glasses joins HP Inc., Dell Inc., Lenovo Group Ltd., Acer Inc. and Asustek Computer Inc., whose plans to offer Windows-based headsets were announced in October.

Microsoft’s new partnership with Intel, dubbed Project EVO, will focus on VR enhancements for PCs including support for a new headset design announced by Intel last summer, Intel said.

Article Link To The Wall Street Journal:

The Year Saudi Arabia Wants To Forget

For Saudi Arabia, 2016 has been fraught with many difficulties, including an ongoing war in Yemen, falling oil revenues, souring relations with allies Egypt and Pakistan, and the resurgence of Iran.

By Bruce Riedel
December 8, 20016

Saudi Arabia had a bad 2016. Only in the second year of King Salman bin Abdul-Aziz Al Saud's rule, the kingdom faced low oil prices, deteriorating economic conditions at home, a quagmire in Yemen and a resurgent Iran. The US Congress accused it of complicity in 9/11. Now the kingdom faces the uncertainty of a new US administration unlike any of its predecessors.

Salman fired his labor minister in the beginning of December. The normally careful Saudi press castigated the minister for growing unemployment, which is reported to be over 12% now. That is probably an understatement. The media suggested that this rise in unemployment will undermine the chances for the success of the king’s much ballyhooed Saudi Vision 2030. Vision 2030 promises Saudi Arabia will no longer be dependent on oil revenues by 2030, an incredibly ambitious promise.

The OPEC agreement in Vienna to reduce the cartel’s oil exports is another implicit defeat for the kingdom. The Saudis had resisted any cut in oil exports that did not include an Iranian cut as well. In the end, OPEC agreed Iran can increase exports while the kingdom must bear the bulk of reductions. The Iranians have lauded and rejoiced in the Saudi retreat. Saudi reserves have been drawn down all year to fill the gap in income, and Saudi consumers have paid the costs. It is far from clear that the OPEC move will significantly change the oil price slump.

The war in Yemen has also been a major cost for the kingdom. Saudi border towns have suffered from missile and rocket attacks. The military has expended huge amounts of munitions that have had to be replaced at high prices. The costs in terms of worn-out aircraft and other weapons systems are a closely guarded secret, but they must be substantial and will only get higher the longer the war goes on. Rather than being able to cut defense spending — a key to Vision 2030 — it will have to rise to pay for the long-term costs of the war.

Of course the Yemenis have paid a much higher price. According to the United Nations, more than 3 million Yemenis have been displaced by the war. Almost 20 million have inadequate access to water, and 15 million are getting insufficient food. Child malnutrition is rampant. The long-term humanitarian consequences are likely to be staggering for the Arab world's poorest country. So, too, will be the long-term enmity for Saudi Arabia and its Gulf partners in the war.

Salman is attending the Gulf Cooperation Council (GCC) summit this week in Bahrain. United Kingdom Prime Minister Theresa May is the guest of honor. The Saudi king will press for a closer union of the GCC, but only Saudi-occupied Bahrain will agree. The king's GCC tour skipped over Oman, which is the strongest opponent of making the GCC an ever closer union.

On the summit's eve, the Saudis sentenced 15 alleged Iranian spies to death. The GCC faces an Iran whose allies in Baghdad and Damascus are gaining considerable ground against their Sunni enemies. Tehran has also consolidated its alliance with Moscow.

Egypt was the kingdom's biggest success in the Arab Spring. With a big helping hand from Riyadh, the Egyptian army overthrew the Muslim Brotherhood government and restored military rule. But now Cairo is tilting away from Riyadh on Syria. Keeping the Egyptian generals in power may be too expensive in any case for the kingdom.

Saudi Arabia's relations with another key ally, Pakistan, have also deteriorated on Salman's watch. The Pakistani parliament voted unanimously against sending troops to the war in Yemen. If the Joint Comprehensive Plan of Action Iran nuclear deal collapses next year for whatever reason, the Saudis are going to need to rebuild their Pakistani connection if they want to project the impression that they have a credible source for getting their own nuclear weapons. That will be a high priority for the king.

The US Congress overwhelmingly overrode President Barack Obama's veto of the Justice Against Sponsors of Terrorism Act (JASTA) — the only override of his eight years in office. JASTA permits legal proceedings against the kingdom and Saudi officials for allegedly being involved in the attacks on America 15 years ago. It was a staggering setback for the kingdom's huge lobbying machine in Washington. Donald Trump supported JASTA.

Now Trump is on the verge of inauguration. The Saudis increasingly are pinning their hopes on former Central Command commander Gen. James Mattis. He is a well-known quantity for Saudis and a proven advocate of coalition warfare. The retired general has been lauded in the Saudi press for being tough on Iran and having a sophisticated understanding of the Middle East.

The elephant in the palace is the king's son, Deputy Crown Prince and Defense Minister Prince Mohammed bin Salman. Yemen is his war, as is Saudi Vision 2030. "Mr. Everything" is the king's darling. He is apparently the indispensable adviser to the 80-year-old monarch. The prince will survive the kingdom's disappointing 2016. How he does in 2017 may determine the kingdom's fate.

Article Link To Al-Monitor:

The Year Saudi Arabia Wants To Forget

Euro Edges Higher, Holds Near 3-Week High As Focus Shifts To ECB

By Masayuki Kitano and Yuzuha Oka
December 8, 2016

The euro edged up and traded near a three-week high against the dollar on Thursday ahead of a European Central Bank policy decision, as the greenback lost momentum from the recent pull-back in U.S. bond yields.

The euro has been the main focus for traders this week after Italian Prime Minister Matteo Renzi said he would resign after a stinging defeat in a referendum on constitutional reform.

After initially dropping on the referendum news, the euro rallied strongly on Monday and has since held below three-week highs against the dollar as investors wait on the ECB.

The ECB is expected to announce a six-month extension to its quantitative easing program on Thursday, while keeping the size of asset purchases unchanged at 80 billion euros, according to a majority of economists polled by Reuters.

"Markets are already expecting the ECB to extend its quantitative easing beyond next March," said Yukio Ishizuki, FX strategist at Daiwa Securities in Tokyo.

"The euro is less likely to fall, because bets against the euro have piled up and investors have tended to buy back the currency after the Italian referendum," Ishizuki added.

The euro edged up 0.2 percent to $1.0776 EUR=, trading within sight of Monday's peak of $1.0797, its highest level since Nov. 15.

On Monday, the euro had initially slumped to $1.0505, its lowest since March 2015 in a knee-jerk reaction to the outcome of the Italian referendum.

Emphasizing abundant risk, including from forthcoming elections in Europe, ECB President Mario Draghi is expected to argue that premature tapering - or slowly ending - bond-buying could abort a still timid recovery, unraveling the impact of the purchasing program.

Moody's changed its outlook on the country's bond rating to negative from stable, underscoring the financial risks that heavily indebted Italy faces, saying prospects for much-needed economic reform had diminished after Italians rejected Renzi's proposals to revise the constitution and streamline parliament.

While the market remains concerned about the risk of an early election being called in Italy, the immediate focus was on the ECB meeting, said Shinichiro Kadota, senior FX strategist for Barclays in Tokyo.

"I think the market will reassess the situation after seeing what comes out of the ECB," Kadota said.

The dollar index .DXY =USD, which measures the greenback against a basket of six major currencies, stood at 100.02, back near a three-week low of 99.85 set on Monday.

The dollar has lost some momentum after U.S. bond yields declined from their recent peaks. The 10-year Treasury yield now at 2.345 percent US10YT=RR, down from a 1-1/2 year high of 2.492 percent set on Dec. 1.

The dollar fell 0.3 percent to 113.41 yen. JPY=

Gains in equities and an improvement in risk appetite helped lift the New Zealand dollar, bolstered by upbeat comments on the economic outlook from the Reserve Bank of New Zealand.

The New Zealand dollar rose 0.6 percent to $0.7207 NZD=D4. It touched a high of $0.7223 at one point, its strongest level in about a month.

There was limited market reaction to Chinese trade data, which showed that China's November dollar-denominated exports unexpectedly rose by 0.1 percent from a year earlier while imports expanded 6.7 percent.

The Australian dollar was up 0.2 percent on the day at $0.7495 AUD=D4.

Article Link To Reuters:

Japan Inc Warns Of Global Trade Contraction Under Trump Presidency

By Tetsushi Kajimoto
December 8, 2016

Corporate Japan is bracing for a rocky ride under incoming U.S. President Donald Trump, a Reuters poll showed, with well over a third of firms seeing a contraction in global trade as concerns about a rise in U.S. protectionism threaten to shatter a fragile economic recovery.

Fully three-quarters of Japanese companies expect no expansion in world trade, highlighting festering anxiety that Trump's fiery protectionist rhetoric during campaigning might turn into growth-sapping policies through his four-year term that begins in January.

Throughout the campaign that led to his upset election win, the Republican president-elect pledged to redraw trade deals to win back American jobs. He has threatened Mexico and China with punitive tariffs that some economists have warned could spark a trade war that could potentially roll back decades of liberalization.

The Reuters Corporate Survey, conducted Nov. 22-Dec. 2, underscored such concerns.

The monthly poll of 531 big and mid-size firms found 40 percent expected global trade to shrink in the medium-term, 4 percent saw full-fledged trade friction, while 32 percent saw no change. Only one quarter predicted global trade will expand under Trump.

That would mark a deterioration in global trade, which has expanded at a modest rate below 3 percent in recent years after bouncing from a plunge in 2009 in the wake of the global financial crisis.

Trump has threatened to ditch the North American Free Trade Agreement, or NAFTA, between the United States, Canada and Mexico, arguing the agreement has sent U.S. manufacturing jobs to Mexico. He has also said he would withdraw from the Trans-Pacific Partnership, or TPP, an ambitious Asia-Pacific trade pact linking 12 countries including the United States and Japan.

In written responses, companies voiced concerns about the fate of TPP, NAFTA and Mexico, where Japanese automakers have plants, and how a waning American presence could pave the way for China to wield more influence worldwide.

"Reversal of free trade is a concern for our business, but what's more worrying is a weaker U.S. military presence in East Asia, which could embolden China to take control of the power vacuum in the region," wrote a manager at an electrical machinery company.

Trump "has declared exiting TPP and pushing bilateral trade pacts, and I'm worried about a shift in (global) trade regime towards one led by China," wrote a manager at a chemicals firm.

Managers answered on condition of anonymity in the survey, which was conducted for Reuters by Nikkei Research. Around 250 answered questions on the impact of a Trump presidency.

The uncertainty around Trump's trade policies adds to the risks for Japan's economy, which is struggling to mount a sustainable recovery amid slow global demand and sluggish domestic consumption.


The survey found that three-quarters of Japanese companies saw no change in their investment stance towards U.S., while 14 percent said it would wane and the remaining 11 percent saw it growing.

Previous Reuters surveys taken during the election campaign had shown a majority of firms believed Trump would be bad for business in the United States, and that Japanese corporate appetite for investing in the U.S. would wane.

"Expectation is rising that Trump will adopt business-friendly steps such as infrastructure investment, tax cuts and deregulation," said Hidenobu Tokuda, senior economist at Mizuho Research Institute, who reviewed the survey results. "That said, companies remain cautious about what he says and does, which is all uncertain and utterly unpredictable."

The survey also found that companies worried both about a strong yen and a weak yen under a Trump presidency, suggesting there's no consensus on what sort of currency changes are in store.

The yen has nearly reversed all of this year's gains since the U.S. election - easing concerns about Japan's export-reliant economy - on expectations that Trump's proposed reflationary economic policies would push up U.S. interest rates.

Sixty-two percent said the dollar would move in a 100-110 yen range next year - slightly stronger than around a 111-114 yen range seen during the survey period. Just 27 percent saw it in the 110-120 yen and 2 percent said it would weaken beyond 120 yen. Eight percent saw it strengthening to the 90-100 yen range.

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China November Exports, Imports Rise Unexpectedly, Commodity Purchases Soar

By Yawen Chen
December 8, 2016

China's imports grew at the fastest pace in more than two years in November, fueled by its strong thirst for commodities from coal to iron ore, while exports also unexpectedly rose, reflecting a pick-up in both domestic and global demand.

Imports expanded 6.7 percent from a year earlier, easily eclipsing economists' expectations for a drop of 1.3 percent and its strongest gain since September 2014, official data showed on Thursday.

Exports rose 0.1 percent from a year earlier, defying predictions for a 5 percent slide.

That left the country with a trade surplus of $44.61 billion for the month, the General Administration of Customs said, versus forecasts of $46.30 billion and October's $49.06 billion.

"The improvement reflects a strengthening in global demand, with recent business surveys suggesting that developed economies are on track to end the year on a strong note," Julian Evans-Pritchard, China economist of Singapore-based Capital Economics, said in a note.

Analysts polled by Reuters had expected a slightly more modest drop in November exports after a 7.3 percent contraction in October, while imports had been seen falling at roughly the same pace.

But China's imports of major commodities including iron ore, crude oil, coal, soybeans and copper all surged by volume in November, despite a sharp weakening in its yuan currency.

China imported 91.98 million tonnes of iron ore in November, up 13.8 percent from the previous month and the third highest monthly tally on record.

It also imported its largest volume of coal in 18 months, as utilities replenished stocks to cope with higher winter demand.

Copper imports surged 31 percent as traders stockpiled more metal amid robust construction demand.

"The rise in copper imports reflected in part a rise in Shanghai Futures Exchange inventories and stronger demand from the Chinese power and construction sectors," said Vivek Dhar, a commodities analyst with Commonwealth Bank in Melbourne.

"The debate dividing the market is whether this growth can be sustained into next year, or will things flatten out. This isn't necessarily clear just yet."

Performance Still Weak For 2016

Despite the upbeat November readings, the world's largest trading nation still looked set for another downbeat year.

Exports in the first 11 months of the year fell 7.5 percent from the same period a year earlier, while imports dropped 6.2 percent.

Weak exports have dragged on economic growth as global demand remains stubbornly sluggish, forcing policymakers to rely on higher government spending and record bank lending to boost activity, at the risk of adding to a mountain of debt.

Recent data had suggested the world's second-largest economy was steadying as the government rushed to launch new infrastructure projects and the housing market boomed, fuelling demand for building materials from steel bars to cement.

The official Purchasing Managers' Index (PMI) showed factory activity expanded at its strongest pace in more than two years, though a private survey pointed to more modest growth.

But analysts have warned that a property boom which has generated a significant share of the growth may be peaking, dampening demand for raw materials

China could also be heavily exposed to protectionist measures next year if U.S. President-elect Donald Trump follows through on campaign pledges to brand it a currency manipulator and impose heavy tariffs on imports of Chinese goods.

However, Chinese Customs said on Thursday that pressure on exports is likely to ease at the beginning of 2017.

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New Number-Crunching Gets Japan's GDP Closer To Premier's Goal

By Leika Kihara
December 8, 2016

Japan's economy just grew by $278 billion - about the size of South Africa's entire gross domestic product - thanks to an accounting change (and some better data).

This massive burst of statistical growth came about via the government's adoption of a new base year and incorporation of international accounting standards, such as adding research and development spending to capital expenditure figures.

Prime Minister Shinzo Abe vowed last September to raise nominal GDP by nearly a quarter to 600 trillion yen by 2020 to show voters he was focusing on reviving the economy ahead of an upper house election in July 2016.

Revised data out on Thursday showed nominal gross domestic product reached 532.2 trillion yen ($4.7 trillion) in the fiscal year ending in March 2016 - getting remarkably close to Abe's goal of 600 trillion yen.

The size of the economy had rebounded to its levels before the collapse of Lehman Brothers in 2008 and was just shy of a record hit in fiscal 1997, the Cabinet Office data showed.

Stronger-than-expected private consumption as well as Japan's first use of United Nations' System of National Accounts boosted the GDP calculation.

Most of the upward revision came from using detailed data on private consumption, which was not available when preliminary figures were released.

The data offers some relief for policymakers struggling to reflate a stagnant economy with dwindling policy options.

It also underscores the view held by some Bank of Japan and private economists that private consumption may be stronger than monthly government data suggests.

Private consumption rose 0.5 percent in fiscal 2015, revised up from a preliminary 0.1 percent decline.

Some policymakers complain that household spending data, used to calculate preliminary GDP, is distorted due to its small sample size and underestimates the strength of consumption.

Still, many analysts say the revision does not change the challenges Japan faces in sustainably emerging from deflation.

"Achieving (Abe's) target merely because of adjustments to the statistical methodology rather than through genuine economic growth is meaningless," said Marcel Thieliant, senior Japan economist at Capital Economics.

The BOJ began releasing its own private consumption index that takes into account supply-side data, such as retailers' sales. That index showed household spending rise for a second straight month in October.

The Cabinet Office said on Thursday Japan's economy grew at a 1.3 percent annualized rate in July-September 2016, a stark revision from the 2.2 percent annualized growth first estimated and barely over half the median estimate for a 2.4 percent annualized expansion.

($1 = 113.4900 yen)

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