Tuesday, December 13, 2016

Tuesday, December 13, Morning Global Market Roundup: Asian Shares, Dollar Wobble As Investors Brace For Fed Outcome

By Ayai Tomisawa
December 13, 2016

Asian shares and the dollar were on tenterhooks on Tuesday as the Federal Reserve prepared to review rates later in the day, with financial markets focused on how the Fed steers monetary policy in the wake of Republican Donald Trump's surprise election win last month.

Crude oil prices pulled back after their surge to 18-month highs, while a raft of China data sent mixed signals and had little impact across asset markets.

CMC Markets chief market analyst Michael Hewson expects European bourses to post opening losses, and said U.S. investors "adopted a safety first attitude" as the Fed meeting looms.

"Markets in Asia appear to have picked up on the slightly softer theme from yesterday, and this could well translate into a softer open in Europe this morning," Hewson said.

CMC expected Germany's DAX .GDAXI and Britain's FTSE .FTSE to open lower.

MSCI's broadest index of Asia-Pacific shares outside Japan .MIAPJ0000PUS was nearly flat in late afternoon trading, while Japan's Nikkei stock index .N225 shrugged off losses as the yen pulled off its highs and managed to end 0.5 percent higher.

The Fed is widely expected to hike interest rates for the first time in 2016 at its two-day meeting, with markets pricing in a nearly 100 percent chance of a quarter percentage point increase to the Fed's target range of 0.25 to 0.50 percent.

What matters most to investors is the Fed's statement and economic projections, which will be examined for any signs of reaction to Donald Trump's surprise victory in the Nov. 8 U.S. presidential election.

"The big question is what sort of pace can we expect from the Fed for next year?" said Kaneo Ogino, director at foreign exchange research firm Global-info Co in Tokyo.

U.S. Treasury yields have recently spiked on expectations that the Trump administration will enact policies to spark growth and inflation. In addition to these expectations, surging crude oil prices have also stoked inflation expectations.

On Monday, the yield on benchmark U.S. 10-year notes US10YT=RR touched 2.528 percent, its highest since Sept. 29, 2014. It stood at 2.473 percent on Tuesday.

Higher yields in turn lifted the dollar, which climbed as high as 116.120 yen JPY= on Monday, its highest since early February. It was last up 0.2 percent at 115.28 yen, above a session low of 114.73.

"Many Japanese importers are far behind in dollar-buying, so they would like to buy on dips," Ogino said.

The euro was nearly flat at $1.0635 EUR=, while the dollar index, which tracks the greenback against a basket of six rival currencies, edged slightly lower to 101.010 .DXY.

China posted its strongest retail sales growth of the year in November, data showed on Tuesday, while surging steel production lifted factory output though private investment began to slow again, leaving the economy more reliant on state spending and mounting debt..

Crude oil prices came off their highs after surging on Monday to their highest since mid-2015 on the back of a weekend deal by OPEC and non-OPEC producers to curtail output.

U.S. crude futures CLc1 slipped 0.3 percent to $52.66 a barrel, while Brent crude LCOc1, the international benchmark for oil prices, was down 0.3 percent at $55.55.

Spot gold XAU= inched lower to $1,161.01 an ounce, but remained above 10-month lows hit on Monday as U.S. Treasury yields came off their highs and the U.S. dollar fell ahead of the Fed meeting. [GOL/]

Article Link To Reuters:

Frexit Would Be Tricky For A Le Pen Presidency

By Emmanuel Jarry and Andrew Callus
December 13, 2016

France's far-right National Front leader Marine Le Pen, who wants to become president in next spring's elections, celebrated Britain's vote to leave the European Union.

"Victory for freedom!" she said on her Twitter page in June after Britons voted for Brexit. "We now need to hold the same referendum in France and in (other) EU countries."

But unlike Britain, France has a written constitution, which states that "the Republic is part of the European Union". So a "Frexit" would require a constitutional change which experts say is difficult, but not impossible.

Pollsters say Le Pen is unlikely to become president, but if she does, she has promised to seek revised terms for France's EU membership, and then ask in a referendum if voters want to leave. She says EU membership has stripped France of autonomy, including on immigration, monetary and fiscal policy.

Given surging support for populists worldwide, the chance of an electoral upset in the euro zone's second largest economy is being taken seriously by financial market participants concerned about the future of the euro and the EU.

France's constitution says that proposed laws on the organization of state powers, reforms relating to economic, social and environmental policy, or a request for authority to ratify a treaty can be decided by referendums.

But it stops short of providing the power to withdraw France from an existing international agreement.

"So if a government or a president wants France to get out of the European Union, the constitution would have to be modified," said Alain Lamassoure, a former French European Affairs Minister.

Parliamentary Permission

Article 89 of the constitution says that to make any such change must first be approved the National Assembly and the Senate.

Then, a president can either put it to a referendum, or seek approval from a three-fifths majority in Congress - a combined sitting of both houses of parliament.

That would be a big ask for the National Front.

France's two-round electoral system has so far ensured there are only two far-right members of parliament and two senators among France's roughly 900 federal lawmakers.

This is despite a popular vote for Le Pen's party of 13 percent in the 2012 legislative elections' first round, and despite backing for it among over a quarter of the population in the first round of local elections last year.

"If Marine Le Pen wants to use article 89 she would need a very strong parliamentary majority... and she would not get that on such a subject," said Philippe Cossalter, a professor of government law.

However, governments have not always followed these rules. In 1962, President Charles de Gaulle proposed an electoral reform that was backed by a majority of voters and became law. He did not get the required parliamentary approval for it.

"He went straight to the French people. It was a revision of the constitution but he did not use the revision procedure because he knew the two chambers would be against it," said Agnes Roblot-Troizier, a specialist in constitutional and European law at the Sorbonne's Paris 1 university.

"The legal community is agreed that this was illegal in constitutional terms. Marine Le Pen could be tempted to do the same thing."

Legal Question

The first barrier to a "Frexit", though, is presidential power itself for Le Pen.

Polls in past months have shown her reaching the second round run-off next May, but they have also consistently shown her losing that run-off vote by a big margin.

The latest ones show center-right candidate Francois Fillon, who will likely face her, winning with a two-thirds majority.

Assuming she does get power, and can dodge the parliamentary vote as de Gaulle did, there is the referendum result itself to consider.

A poll published by Ifop in July found that 67 percent of French voters who expressed a view would vote to stay in the EU. Only 33 percent were against.

However, 21 percent did not offer a view. Taking these into account, the majority in favor of staying was slimmer, at 53 percent.

Whatever the constitutional technicalities, in the final analysis, a popular vote for or against "Frexit" would prove difficult for lawmakers and judges to ignore, according to Paris 1's Roblot-Troizier, "because it is the expression of national sovereignty expressed directly, and that has such political weight that in the end, strict legal logic must give way".

Article Link To Reuters:

Syrian Army Takes Over Aleppo Areas Quit By Rebels

By Laila Bassam and Angus McDowall
December 13, 2016

Syria's army and its allies have taken full control over all the Aleppo districts abandoned by rebels during their retreat in the city, a Syrian military source said on Tuesday.

On Monday rebel defenses collapsed, leading to a broad army advance across more than half of the remaining insurgent pocket in Aleppo and a retreat of opposition fighters to a few districts on the west bank of the city's river.

Recapturing the entire rebel pocket of Aleppo will constitute the biggest battlefield victory yet for Syrian President Bashar al-Assad and his military coalition of Russia's air force, Iran and Shi'ite militias.

For rebels, it will mark a sobering loss and leave them without a significant presence in any of Syria's main cities. They still hold much of the countryside west of Aleppo and the province of Idlib, also in northwest Syria.

After days of intense bombardment of rebel-held areas, the rate of shelling and air strikes dropped considerably late on Monday and through the night, a Reuters reporter in the city said.

The military official said the rebels were fleeing "in a state of panic", but a Turkey-based official with the Jabha Shamiya insurgent group in Aleppo said late on Monday that they had established a new front line along the river.

Celebrations on the government side of the divided city lasted into Monday night, with the Reuters reporter there describing the bullets coming "like rainfall" as fighters shot into the air in triumph.

As the frontlines quickly shifted on Monday, however, thousands more people fled the fighting, carrying what possessions they could carry and sometimes pushing relatives in wheelchairs, before a heavy rainstorm began in the night.

The International Committee for the Red Cross issued a plea in an emailed statement early on Monday for all sides to spare civilian life.

The U.N. Secretary General Ban Ki-moon was alarmed by unverified reports of atrocities in the wake of the army's advance, his spokesman said late on Monday.

"As the battle reaches new peaks and the area is plunged into chaos thousands with no part in the violence have literally nowhere safe to run," the ICRC statement said.

Zakaria Malahifji, another Turkey-based official for the Fastaqim rebel group fighting in Aleppo said early on Tuesday that there had been no further international contacts over a proposal to spare the city by allowing fighters to withdraw.

Article Link To Reuters:

Despotism And Donald Trump

Decrying Trump while ignoring the tyranny of the administrative state.

By William McGurn
The Wall Street Journal
December 13, 2016

Guess it depends on what you mean by “authoritarian.”

During the election, Donald Trump was routinely likened to Hitler.The headlines suggest not much has changed.

From the New Republic: “Donald Trump Is Already Acting Like an Authoritarian.” National Public Radio: “Donald Trump: Strong Leader or Dangerous Authoritarian?” The New York Times: “Beyond Lying: Donald Trump’s Authoritarian Reality.” The New Yorker: “Trump’s Challenge to American Democracy.”

What’s striking here is that the same folks who see in Mr. Trump a Mussolini in waiting are blind to the soft despotism that has already taken root in our government. This is the unelected and increasingly assertive class that populates our federal bureaucracies and substitutes rule by regulation for the rule of law. The result? Over the Obama years, the Competitive Enterprise Institute reckons, Washington has averaged 35 regulations for every law.

In the introduction to its just-released report on how to address this federal overreach, CEI President Kent Lassman puts it this way: “It is time for a reckoning.”

Philip Hamburger is a law professor at Columbia and author of “Is the Administrative State Unlawful?” He believes the president-elect’s cabinet selections thus far—Scott Pruitt for the Environmental Protection Agency, Betsy DeVos for Education, Ben Carson for Housing and Urban Development, Andrew Puzder for Labor—may give Mr. Trump a unique opening not only to reverse bad Obama rules but to reform the whole way these agencies impose them. If Mr. Trump really hopes to drain the swamp, says Mr. Hamburger, cutting these agencies back to constitutional size would be a terrific start.

For one thing, almost all these departments are legacies of some progressive expansion of government. While an uneasy William Howard Taft, for example, made Labor its own cabinet office on the last day of his presidency, Woodrow Wilson named its first secretary.

Meanwhile, HUD is a child of LBJ’s Great Society. The EPA was Nixon’s attempt to buy liberal approval for his administration. As for the Education Department, it was a reward from Jimmy Carter for the endorsement the National Education Association gave him in 1976. At the time this cabinet seat was established, even the New York Times called it “unwise” and editorialized against it.

There’s a good case that Americans would be better off without most of these departments meddling in our lives and livelihoods, however politically unfeasible this might be. The next best news, however, is that Mr. Pruitt, Dr. Carson, Mr. Puzder and Mrs. DeVos are not beholden to the orthodoxies that drive the rules and mandates these bureaucracies impose.

Mrs. DeVos, for example, has spent her life promoting school choice, and her husband founded a charter school. It is difficult to imagine an Education Department under Secretary DeVos ever sending out a “Dear Colleague” letter to bully universities into expanding the definition of sexual harassment and then encouraging them to handle allegations in a way that has turned many campus tribunals into Star Chambers. Not to mention making a federal case about bathrooms.

Ditto for HUD. Under President Obama, HUD bureaucrats, under the banner of “fair housing,” have taken it upon themselves to decide what the right mix of race, income and education is for your town—and will impose fines and punishments for communities that resist. Anyone remember the people’s elected representatives directing HUD to impose its ideas of social engineering on the rest of America?

Or take the EPA. Whether it’s some Ordinary Joe running afoul of wetlands laws or the department’s deliberate attempt to destroy the market for coal, the EPA needs more than good science. It also needs some honest cost-benefit analysis about the prescriptions it pushes.

And then there’s Labor. Under Obama Secretary Tom Perez, the department has so overstepped the authority Congress gave it (for example, on its overtime rule) that federal judges have stepped in to block it, notwithstanding the courts’ traditional deference. As an employer himself, Mr. Puzder appreciates the fundamental reality of labor: which is that you don’t help workers by making them too expensive to hire.

The good news is that Mr. Trump does not have to fight government by regulatory fiat alone. House Speaker Paul Ryan has a raft of legislation that would reassert the authority of the people’s elected representatives over an unaccountable bureaucracy—including a regulatory budget that would limit the costs an agency can impose each year.

Even without legislation, there are things Mr. Trump could do. Mr. Hamburger, for example, dreams of a president ordering federal agencies to submit all their rules to Congress for approval. He further believes the stars are in rare alignment for reform, with Mr. Ryan pushing it in the House, cabinet secretaries who appear sympathetic to the cause and a popular mandate against rule from above.

“Oddly enough, the danger is that Mr. Trump will not think big enough,” says Mr. Hamburger. “To paraphrase him, the impact of changing the way Washington issues rules would be YUGE—and it would make him a historic and transformative president.”

Article Link To The Wall Street Journal:

Russia Is Neither Friend Nor Foe

There is no basis for any claims about a “stolen” presidential election.

By Nikolas K. Gvosdev
The National Interest
December 13, 2016

There is no basis for any claims about a “stolen” presidential election. Nobody stole anything. No Russian operatives altered ballots or tampered with election machines, which is why the Obama administration itself has declared that state-by-state election results “reflect the will of the people.”

Was Russia able to—or intent upon—ensuring the victory of Donald Trump by, among other things, hacking into the Democratic National Committee computers? Meddling is one thing. Questions of intent and culpability, however, are not as easy to answer as some of Trump’s detractors would have it. Congressional investigations to explore what did, and did not, happen are perfectly appropriate, as long as they proceed in a genuine spirit of inquiry rather than attempting to ratify preexisting beliefs.

Indeed, any investigation would have to take into account that Washington itself has in the past tried to influence foreign elections, including in Russia during the 1990s. This is not to posit a symmetry between America, a democracy, and Russian, an authoritarian state. But it is notable that nearly all of the discussion about Russian hacking—with the exception of some experts who had been warning about these trends developing over the last several years—is taking place with an attitude that the November 2016 election is the equivalent of Captain Renault in Casablanca who is "shocked" to discover that gambling is taking place in Rick's CafĂ© Americain.

The most basic question is this: why is anyone surprised that the government of the Russian Federation might have had an interest in the outcome of the 2016 U.S. presidential election? This is basic International Relations 101—countries have interests in the choices other nations make in terms of their leadership and policies based on whether they think they will be good or bad for their own welfare. This is why President Barack Obama urged British voters to reject leaving the European Union and supported the referendum in Italy on constitutional reform backed by his political ally Prime Minister Matteo—because keeping the UK in the EU and strengthening the Italian central government were both important to U.S. efforts to stabilize European affairs. (In both cases, Obama’s preferred outcomes were defeated at the polls by British and Italian voters.) In the U.S. campaign, one candidate signaled an openness to searching for common ground with Moscow, while the other indicated that U.S. policy would take an even harder line against Russian interests.

Thus, former U.S. ambassador to Russia Michael McFaul noted that it was “very rational” that Vladimir Putin might prefer to see Donald Trump become President of the United States in place of Hillary Clinton, on the expectation that a Trump administration might pursue U.S. polices more amenable to Russian interests. Similar calculations seem to have been made by Prime Minister Binyamin Netanyahu in Israel, while, in a number of Central and East European countries, there was a strong preference for a Clinton victory.

The question becomes more problematic, however, when we move from the “interest” which another country may have in election outcomes to whether that country seeks to “influence” the outcome of the vote and the types of methods used to project that influence. When do steps taken beyond mere public statements of support for a candidate or policy position cross the line into illegitimate interference in the domestic political affairs of another country? While the United States does have laws on the books which address the question of direct financial support of U.S. candidates from overseas sources, what about support in the informational sector—particularly the use of media and cyber tools?

Much of the current discussion instead focuses on whether persons and entities either belonging to or working in the employ of the Russian government interfered in the campaign by intercepting and stealing private, confidential communications of U.S. officials and politicians and providing that material to media outlets, while simultaneously using other media organs under the control or patronage of the Russian state to disseminate a mix of fact and fiction into the overall international media bloodstream—all with the intent to damage the presidential campaign of Hillary Clinton and boost the electoral chances of Donald Trump.

To what extent this occurred, and to what extent it was responsible for Trump’s narrow victory, is what is now under debate. Given that Secretary Clinton lost an election she was overwhelmingly favored to win, the narrative of foreign interference may be a welcome balm to assuage a sense of failure among her supporters, but it should also not detract from the many missteps of her campaign—including ignoring former President Bill Clinton’s prophetic advice not to ignore key Rust Belt constituencies and the white working-class vote. Quantifying the effect that leaked e-mails from the Democratic National Committee and senior campaign staff or that news stories calling into question Clinton’s health had on the overall vote is difficult to accomplish. As best as can be ascertained, alleged Russian assistance in obtaining and forwarding information helped to confirm pre-existing American voters’ concerns about Clinton, notably her reliability and honesty. Against another prospective Democratic nominee—Vice President Joe Biden, for instance—such efforts would have had much less impact. Nevertheless, the existence of evidence pointing to Russian efforts needs to be clarified and assessed, and to be part of the calculus about the future of U.S.-Russia relations—as well as on U.S. government policy about its own efforts to influence other countries’ political systems.

It is unfortunate, however, that so much of this discussion occurs in such an ahistorical context. If the United States national security establishment and the mainstream media had a series of serious conversations a few years back—when a clear warning shot was fired across the bow—we might not be in this position today with the credibility of both U.S. political and media institutions on the line—and with the possibility that the prediction of a second Cold War between Moscow and Washington has now become a self-fulfilling prophecy.

In February 2014, a mobile telephone conversation between Assistant Secretary of State Victoria Nuland and Geoffrey Pyatt, the U.S. ambassador to Ukraine, having been intercepted by entities unknown but largely assumed to be acting on behalf of Russian interests, was leaked to the media. The Nuland-Pyatt exchanges, which the State Department, when given the opportunity, declined to characterize as "inauthentic", revealed that, contrary to public U.S. statements, Washington was playing more of a role in trying to direct the course of events in Ukraine, and in particular to guide the leadership of the Maidan protest movement. This included by-name discussions about which Ukrainian politicians the United States wanted to see in any new government—including prospective prime ministerial candidates. As the BBC’s diplomatic correspondent Jonathan Marcus commented, despite official proclamations that the United States would let the Ukrainian people decide their own future, the transcript demonstrated that “the US has very clear ideas about what the outcome should be and is striving to achieve these goals.”

The conversation was also personally embarrassing to Nuland, because it broadcast her use of colorful language to disparage the efforts of the European Union to bring about a peaceful settlement of the Ukraine crisis—and raised questions in both Brussels as well as many European capitals if there was indeed a gap between what the Assistant Secretary was saying publicly and to them versus what she really thought and was trying to achieve as a matter of policy. The leak even temporarily ruffled U.S.-European relations, with German chancellor Angela Merkel declaring that she found "these remarks totally unacceptable." It also suggested that the U.S. government was not going to let a Ukrainian political process work itself out but would play an active role in determining outcomes, and felt confident that it had levers at its disposal to ensure compliance.

In this incident, we saw several different factors coalesce. One was to put American officials on notice that it was foolhardy to place their trust in relatively flimsy cyber and digital defenses of their mobile and computing devices which could be overwhelmed by a determined party. The second was the effort to exposure the gap between public idealistic rhetoric and private, behind-the-scenes maneuvering. The Nuland disclosures would not have been found embarrassing or dishonorable by Prince Metternich or Talleyrand, who accepted as a matter of course that great powers should be able to move smaller states and their leaders around like pieces on a chessboard (after all, this is how the royal family of Greece was selected!)—but they posed problems precisely because they did not easily fit within a narrative of democracy promotion and American virtue. Finally, it was a warning—that Moscow was watching—and learning—from U.S. actions. After all, even prior to the Ukraine crisis of 2014, many Russians had had up front experience with how American operatives and media interventions (even if operating as private individuals and organizations) could sway elections in Russia, notably during the 1996 fight between Boris Yeltsin and Gennady Zyuganov. Moreover, the Russians—as well as many other countries around the world—do not recognize the niceties of a U.S. system where government grants are dispensed to quasi-non-governmental organizations (the various Institutes for democracy assistance or media outlets like the various “free radios”) but are inclined to view their activities as directed inspired by the U.S. government.

The Nuland affair demonstrated that Russia would be more inclined, in the future, to use these tools of shadowy interception and transmission against the United States—not only where America and Russia engaged in geopolitical competition in the former Soviet space, but ultimately in the West itself—including in both European and American politics. In other words, in the game of international political influence, Russia would no longer confine herself to the former Warsaw Pact and Soviet bloc nations.

Yet the Nuland leak was worth only a few days’ news stories, and then disappeared from consciousness. It apparently did not lead many in Washington to change their communication habits or to recognize that Russia might have an interest in finding more ways to publicize divergences between public statements and private realities of U.S. political figures in the hopes of generating embarrassment—in particular, in being able to expose to raw public view the private hypocrisy on which modern politics depends. It did not lead to any new appreciation for Russia’s ability to wield the tools of both cyber and soft power—based on a mix of dismissiveness of Russian capabilities and a misplaced faith that America was somehow an exceptional country in which such methods would somehow not work or bear influence.

Beyond that, this incident did not lead to any fundamental re-evaluation both of the utility of American efforts to influence the choice of leaders in other countries of the world or of the trajectory of U.S.-Russia relations. It is difficult to look at recent events in Ukraine, Iraq, Afghanistan, or even places like South Sudan—where U.S. diplomacy and pressure has been marshalled to encourage, cajole or prod the deposition or selection of leaders—and to see how precisely such efforts have benefited American strategic interests or even been successful in producing stable governments. Often, the long-term trajectory seems to be negative. Nor is there much assessment of the utility of U.S. support. Indeed, research released by Italy’s Banca Monte Dei Paschi suggests that Obama’s public statements of support for Renzi may in fact have contributed to the defeat of the recent referendum.

The Nuland incident should also have forced a serious conversation about U.S.-Russia strategic competition. That—along with Putin’s very revealing “spring” speech after the annexation of Crimea later that year—were very clear indications that the course of U.S. policy was at odds with Russian strategic preferences. If the clash was not desired, then a policy of recalibration was in order—including talks about new “rules of the road” for conduct in a variety of realms including cyberspace. If the clash was seen as unavoidable because of how U.S. interests were conceived, then actions taken afterwards were quite confusing. In Ukraine, the U.S. did enough to spoil relations with Russia but far too little to ensure the success of the Maidan movement. Efforts to combat Russian cyber and information operations were left unfunded or shut down. There were plenty of critiques about Russian behavior in Syria but nothing to change Moscow’s underlying calculus.

Similarly, the discussion today about how to respond lacks a certain strategic seriousness. Some political figures casually toss out grave consequences, up to even military strikes, to punish Russia for its supposed interference. Others continue to cling to fantasies that the U.S. can dispense sanctions on these matters yet retain complete Russian cooperation in other areas that are of importance to the United States.

Moving forward, the U.S. has several different options. After each major cyber incident over the past several years that is attributed to Russian sources, the Kremlin makes a call for codifying international practices that would restrict what countries can do in cyberspace. The U.S. has traditionally resisted such calls because preserving America’s freedom of action is more important for achieving U.S. interests and objectives. Accepting that Russia (and other countries) now have similar capabilities to influence U.S. developments may be one price to pay, just as the United States has had to accept the loss of its earlier monopoly on drone technologies. Alternatively, the United States could re-ramp up efforts to more effectively identify and combat such efforts at home, while enforcing stricter cyber and digital security and changing the habits of many Washingtonians who otherwise prefer to conduct their business via interceptable e-mails and mobile calls, to reduce vulnerabilities. The United States could make efforts by other government to influence U.S. elections in such fashion the central organizing principle of its relations—and to be prepared to pay the costs in other areas.

But in the end, the new Trump administration—as well as the U.S. Congress—need to come face to face with the difficult reality that Russia will not be a friend but does not need to be a foe. To repeat what I wrote in these pages two weeks ago, it requires an understanding of what areas of U.S.-Russia relations are essential to U.S. interests, and where such cooperation can be jettisoned because of Russian actions in other theaters. It also requires wrestling with difficult questions of where to seek compromises with Russia and where to stand firm. The review process can only be successful if the new team is willing to make these calls based on its assessment of U.S. values and interests, a sober assessment of Russian strengths and weaknesses and an understanding of where Moscow may be induced to show flexibility and where the Kremlin will stand firm. This requires, in the end, an understanding both of the costs America is willing to pay—and the limits of what can be demanded of Russia.

Article Link To The National Interest:

How Russia Wins

Vladimir Putin’s Russia has played a weak foreign-policy hand well, but a vigorous and resolute United States can still defend Western interests.

By David French 
The National Review
December 13, 2016

How does a nation with a weak and vulnerable economy and inferior military go on an international military and intelligence winning streak the likes of which haven’t been seen in years? How does a nation with a fraction of America’s striking power exert its will in the Middle East and Eastern Europe and sow doubts about the legitimacy of American democracy — further polarizing and dividing an already-divided superpower? How does Russia win?

During Barack Obama’s second term, Russian successes have occurred with such frequency that Americans could be forgiven for believing that we’re back in the era of the Cold War, when two colossal ideological, military, and cultural powers faced off in a battle for civilizational supremacy — with the outcome very much in doubt. But today’s reality is much different. Aside from its immense (and immensely important) nuclear arsenal, today’s Russia hardly resembles the old Soviet Union.

According to the World Bank, America’s economy is more than 13 times larger than Russia’s. Australia, Korea, and Canada have larger economies than Putin’s Russia. While Russia is modernizing its armed forces, much of its equipment is antiquated and no match for American aircraft, tanks, or ships. In many critical areas, America actually enjoys a decisive numerical superiority — a reversal from the Cold War years.

Yet, since 2012 — when Obama famously mocked Mitt Romney for declaring that Russia was our primary geopolitical foe — Vladimir Putin has gone on an extraordinary military and intelligence winning streak. He’s invaded Ukraine and annexed Crimea with minimal losses, intervened in Syria to stabilize a key ally, cemented an alliance with Iran that has boosted Russian power and influence in the Middle East, helped facilitate a refugee crisis that is disrupting western and central European politics, and interfered with the American election so successfully that he’s created the perception among millions of Americans that the results were tainted and illegitimate.

Even now, Putin is engaging in aggressive military moves in the Baltics and Eastern Europe that are alarming our allies and placing them at an immediate military disadvantage — in a place where geography dictates that allied help would likely be too little, too late.

Compounding it all, Russia’s dictator has achieved all of this while creating sympathy in elements of the Right that mirrors the sympathy the Soviet Union achieved in elements of the Left. In other words, Putin is expanding Russian power and influence while mounting a cultural critique that resonates with some American audiences, casting himself as a defender of Christian civilization against Islam and the godless, decadent West.

There’s no magic to Vladimir Putin: If you understand history you understand his strategy. You see, it turns out that foreign policy wasn’t “progressing,” history didn’t have a side or a pre-set trajectory, and classic great-power politics can be very, very effective when your opponent pretends that game no longer exists.

When John Kerry declared during the Ukraine crisis, “You just don’t in the 21st century behave in 19th century fashion by invading another country on completely trumped up pretext.” I knew America was at a profound disadvantage — because Putin had just done what Kerry had said you “just don’t” do, and he knew that no one would move him. American culture-war rhetoric doesn’t work on foreign dictators.

Putin has what America lacks — a comprehensive, long-term strategy that is built precisely and firmly around his own perceptions of his nation’s best interests. He wants to dominate Russia’s “near abroad,” the independent and quasi-independent countries of the former Soviet Empire that have attempted to move out of Russia’s orbit. He wants to place Russia firmly in the pantheon of the world’s great powers. He wants to destabilize NATO and make Russia a central player in European affairs. In other words, he wants to “Make Russia Great Again.”

Moreover, Russia advances behind the strength of an argument that resonates far beyond narrow nationalism and into the realm of civilizational, even eternal values. As the Observer’s John Schindler notes, “It’s not like Putin and his minions have been hiding what they believe.” And what do they believe? Here’s Schindler again, and he’s worth quoting at length:

"In [Putin’s] viewpoint, which I have termed Third Rome myth, which became very popular in 19th century Imperial Russia, postulating that it is Russia’s holy mission to resist the Devil and his work on earth.

Putin has reinvigorated such throwback thinking, making the Russian Orthodox Church — the de facto state religion — the ideological centerpiece of his regime. After Communism fell, the country needed a new ideological anchor, and Putinism found it in a potent amalgam of religion and nationalism which has far greater historical resonance with Russians than Communism ever did."

You won’t hear much about this argument in the media, dominated as it is by secular reporters who simply don’t “get” religious arguments or religious belief.

At the same time that Putin pursues a coherent strategy animated by a compelling argument, he confronts a fragmented enemy paralyzed by ideological stupidity. First, he understands exactly what his ally Iran understands — that the civilian leaders of his much stronger foes are the ones who are terrified of military conflict.

Iran negotiated an extraordinarily favorable nuclear deal with the Obama administration when American forces could have swept aside Iranian air defenses in an afternoon, then systematically and methodically reduced Iran’s nuclear program (and military, and economy) to rubble with minimal losses. Why? In part because our political leaders couldn’t tolerate the risk of Iran’s inevitable but (by comparison) pinprick response.

Russia is several orders of magnitude more powerful than Iran, and it displays a similar tolerance for risk. It’s thus capable of several orders of magnitude more international aggression. It’s proven that it can invade a European nation without meaningful military consequence. It’s proven that it can impose its will in a Syrian civil war that has flummoxed the Obama administration. It’s proven that with truly minimal effort it can cause millions of Americans to question the legitimacy of their own republic.

When one party creates the perception either that it’s willing to fight or not afraid to fight (and I think it’s only a perception — Putin knows he’d lose, badly) and the other party creates the perception that it would rather do anything but fight, then the advantage goes to the aggressor, regardless of the “true” balance of power. This was the lesson of the 1930s, when a weak Nazi Germany reoccupied the Rhineland, annexed Austria, and dismembered Czechoslovakia all while far stronger powers stood by, terrified of another European conflict. In reality, their terror only postponed the coming war — postponed it until it was far more terrible than they could have imagined.

Putin also understands that his opponents aren’t just weak — they’re foolish. In Western Europe especially, they’re willing to open their borders to millions of Muslim migrants even though they know that jihadists are seeking to radicalize Muslims within their borders, and they know that their existing Muslim populations have proven vulnerable to radicalization. The result is terror and strife that’s not sufficiently violent to launch true urban warfare but is dangerous enough to upend European politics, leading to the rise of nationalist parties that are far friendlier to Putin and far more willing to ease or lift sanctions against Russia.

None of this means that Russia truly has the advantage against the United States in a contest of great powers. We’re still so economically strong that sanctions that are largely irrelevant to our economy (and the economies of our leading allies) can cripple Russian growth. We’re still so militarily strong that Putin knows he could only hope to win conflicts that are precisely contained to brief, localized fights where he can bring overwhelming numbers to bear, then place his gains under his still-formidable nuclear umbrella (the Baltics come to mind).

In other words, we can assert our interests, and we can regain the international strategic initiative. It’s within the capabilities of the world’s most powerful nation, but it takes conviction, courage, and strategic vision. Eight years of American retreat have taught Vladimir Putin that he can exert his will on the international stage. Eighteen months of obvious Russian investment in the American political process has raised doubts that the new administration has the desire to reverse course. But until we regain our conviction, Russia will continue to advance, America will continue to retreat, and the world’s long period of relative postwar peace will grow ever-more precarious.

Article Link To The National Review:

The Empathy Trap

By Peter Singer
Project Syndicate
December 13, 2016

Soon after Barack Obama was elected President of the United States, he told a young girl: “We don’t have enough empathy in our world today, and it is up to your generation to change that.” Obama expressed a widespread view, so the title of a new book, Against Empathy, by Yale University psychologist Paul Bloom, comes as a shock. How can anyone be against something that enables us to put ourselves in others’ shoes and feel what they feel?

To answer that question, we might ask another: For whom should we have empathy? As Donald Trump prepares to succeed Obama, analysts are suggesting that Hillary Clinton lost last month’s election because she lacked empathy with white Americans, particularly Rust Belt voters yearning for the days when the US was a manufacturing powerhouse. The problem is that empathy for American workers is in tension with empathy for workers in Mexico and China, who would be even worse off without jobs than their American counterparts are.

Empathy makes us kinder to people with whom we empathize. That’s good, but it also has a darker side. Trump, in his campaign speeches, made use of the tragic murder of Kate Steinle by an undocumented immigrant to stoke support for his anti-immigrant policies. He did not, of course, offer any similarly vivid portrayals of undocumented immigrants who have saved the lives of strangers, although such cases have been reported.

Animals with big round eyes, like baby seals, arouse more empathy than chickens, on whom we inflict vastly more suffering. People can even be reluctant to “harm” robots that they know can feel nothing at all. On the other hand, fish – cold, slimy, and unable to scream – arouse little sympathy, although, as Jonathan Balcombe argues in What a Fish Knows, there is plenty of evidence that they feel pain just as birds and mammals do.

Likewise, empathy with a handful of children who are, or are believed to be, harmed by vaccines largely drives popular resistance to vaccinating children against dangerous diseases. As a result, millions of parents do not have their children vaccinated, and hundreds of children become ill, with many more affected, sometimes fatally, by the disease than would have suffered adverse effects from the vaccine.

Empathy can make us act unjustly. Subjects in an experiment listened to an interview with a terminally ill child. Some were told to try to be as objective as possible, while others were told to imagine what the child feels. All were then asked if they wanted to move the child up the waiting list for treatment, ahead of other children who had been assessed as having higher priority. Three-quarters of those told to imagine what the child feels made this request, compared to only one-third of those told to try to be objective.

“One death is tragedy; a million is a statistic.” If empathy makes us too favorable to individuals, large numbers numb the feelings we ought to have. The Oregon-based nonprofit Decision Research has recently established a website, ArithmeticofCompassion.org, aimed at enhancing our ability to communicate information about large-scale problems without giving rise to “numerical numbness.” In an age in which vivid personal stories go viral and influence public policy, it’s hard to think of anything more important than helping everyone to see the larger picture.

To be against empathy is not to be against compassion. In one of the most interesting sections of Against Empathy, Bloom describes how he learned about differences between empathy and compassion from Matthieu Ricard, the Buddhist monk sometimes described as “the happiest man on earth.” When the neuroscientist Tania Singer (no relation to me) asked Ricard to engage in “compassion meditation” while his brain was being scanned, she was surprised to see no activity in the areas of his brain normally active when people empathize with the pain of others. Ricard could, on request, empathize with others’ pain, but he found it unpleasant and draining; by contrast, he described compassion meditation as “a warm positive state associated with a strong pro-social motivation.”

Singer has also trained non-meditators to engage in compassion meditation, by thinking kindly about a series of persons, starting with someone close to the meditator and then moving outward to strangers. Such training may lead to kinder behavior.

Compassion meditation is close to what is sometimes called “cognitive empathy,” because it involves our thought and understanding of others, rather than our feelings. This brings us to the final important message of Bloom’s book: the way in which psychological science proceeds has led it to downplay the role of reason in our lives.

When researchers show that some of our supposedly carefully considered choices and attitudes can be influenced by irrelevant factors like the color of the wall, the smell of the room, or the presence of a dispenser of hand sanitizer, their findings are published in psychology journals and may even make headlines in the popular media. Research showing that people make decisions based on relevant evidence is harder to publish, much less publicize. So psychology has an inbuilt bias against the view that we make decisions in sensible ways.

Bloom’s more positive view of the role of reason fits with what I take to be the correct understanding of ethics. Empathy and other emotions often motivate us to do what is right, but they are equally likely to motivate us to do what is wrong. In making ethical decisions, our ability to reason has a crucial role to play.

Article Link To Project Syndicate: 

Oil Prices Stable, Supported As Output Cuts Hit Market

By Henning Gloystein
December 13, 2016

Oil prices were stable on Tuesday, buoyed by soaring demand in Asia and as signs of a crude production cut organized by OPEC and other exporters materialized, tightening a market that has been grappling with years of oversupply.

International Brent crude LCOc1 was trading at $55.67 per barrel at 0430 GMT, virtually unchanged from its last settlement.

U.S. West Texas Intermediate (WTI) crude CLc1 was down 10 cents at $52.73 a barrel, with U.S. producers not participating in production cuts.

Traders said there was some profit-taking after oil shot to mid-2015 highs earlier this week after the Middle East-led Organization of Petroleum Exporting Countries (OPEC) and other exporters led by Russia reached a deal to cut output by almost 1.8 million barrels per day to reduce oversupply and prop up prices.

But they added that oil markets were still broadly supported by the deal to crimp output.

"The market is putting a lot of importance on the commentaries coming out of OPEC and non-OPEC (and) the market is giving OPEC the benefit of the doubt that cuts will be implemented and achieved," said Michael McCarthy, chief market strategist at Sydney's CMC Markets.

However, he added that prices would "turn negative very quickly if the market feels compliance won't happen".

BMI Research said that the agreement would likely push Brent over $60 per barrel.

In a sign that producers are acting on their plans, Abu Dhabi National Oil Company (ADNOC) told customers it would cut supplies by 3-5 percent.

The producer from the United Arab Emirates (UAE) will reduce Murban and Upper Zakum crude supplies by 5 percent and Das crude exports by 3 percent.

ADNOC's cuts will mostly hit Asia, although refiners said they fell within contractual allowances under which ADNOC can alter agreed supply volumes.

Meanwhile, China's November crude output fell 9 percent on a year earlier to 3.915 million barrels per day, data showed on Tuesday, but recovered from October's 3.78 million bpd, which was the lowest in more than seven years.

That came as China's refinery throughput hit a daily record in November of 11.14 million bpd, up 3.4 percent year-on-year.

"Declines in Chinese ... crude oil output and expansion of its strategic crude reserves underpin our view for China's crude oil imports to strengthen over the coming quarters," said BMI Research.

In India, Asia's No.2 oil consumer behind China, fuel demand rose 12.1 percent in November compared with the same month last year, hitting 16.64 million tonnes (4.07 million bpd).

Article Link To Reuters:

Silicon Valley VCs Are Growing Wary Of On-Demand Delivery

By Paul Lienert, Heather Somerville and Alexandria Sage
December 13, 2016

Michael Moritz - chairman of Sequoia Capital and one of the most successful venture capitalists in history - says a simple vision led him to invest hundreds of millions of dollars in on-demand delivery startups.

"The movement of goods and services and people, by easier, more convenient means," he said in an interview. "That's a huge trend, enabled by smartphones."

Led by Sequoia and another blue-chip Silicon Valley firm - Kleiner Perkins Caufield & Byers - venture investors have poured at least $9 billion into 125 on-demand delivery companies over the past decade, including $2.5 billion this year, according to a Reuters analysis of publicly available data.

But that torrent of money has slowed to a relative trickle in the last half of this year, and many VCs have lost faith in a sector that once seemed like the obvious extension of the success of ride-services juggernauts such as Uber.

The bulk of this year's investment - about $1.9 billion - came in the first half of the year. Only $50 million has been invested so far in the fourth quarter, the Reuters analysis found. Several prominent Silicon Valley venture capitalists said in interviews that they now believe many delivery startups could fail, leaving investors with big losses.

"We looked at the entire industry and passed," said Ben Narasin, of Canvas Ventures. "There is more likely to be a big, private equity-style roll up than a venture-style outcome."

Reuters analyzed investment in on-demand delivery startups using publicly available data from the companies, their backers and third-party websites including Crunchbase, PitchBook and MatterMark. The analysis likely missed some investments because private firms and their investors do not always disclose funding details.

Delivery startups continue to grapple with fierce competition, thin margins and a host of operating challenges that have defied easy solutions or economies of scale, venture capitalists told Reuters. Widespread discounting and artificially low consumer prices have made on-demand delivery "a race to the bottom," said Kleiner Perkins partner Brook Porter in an interview.

That firm has not invested as heavily or broadly in the sector as Sequoia, but has backed U.S. startups DoorDash and Instacart and China-based Meican.

This year has seen high-profile failures, including U.S. meal delivery firm SpoonRocket, which went down in March, and PepperTap, an Indian grocery delivery service backed by Sequoia that folded in April. DoorDash, another of Moritz's investments, was able to close its latest venture funding round last March only by cutting the value of its share price by 16 percent, according to data from CB Insights.

The entry of Uber last year into the delivery business with UberEats, for food, and UberRush, for packages, promises to make life more difficult for smaller start-ups. Established logistics companies including Amazon and DHL [DHL.UL] are also exploring local on-demand delivery.

Sequoia has backed at least 14 local delivery firms, among them four in the United States, five in China and four in India. Sequoia did not respond to Reuters requests for a response to rising VC skepticism of delivery firms.

Venky Ganesan, of Menlo Ventures, said the sector has no clear way to cut costs or boost revenue.

"You can’t raise prices on consumers, and you can't cut labor costs," he said. "The core unit economics didn't make sense."

Dalton Caldwell, a partner at Y Combinator - the prestigious tech incubator that birthed a number of delivery startups - was also skeptical, though he thought companies with top-notch operational capabilities could succeed.

Many delivery startups, he said, "make the assumption that once you get bigger, things will get easier, and that's wrong. There is driver churn, operations people that cost money, more support costs."

Local Delivery "Dashers"

DoorDash, founded in 2013 by four students in a Stanford University dorm room, has raised nearly $200 million from top venture firms.

Focusing on food and alcohol delivery, DoorDash has agreements with local restaurants, including franchised outlets, in dozens of cities in the U.S. and Canada. But Doordash still has to figure out comparatively simple challenges - like how to economically deliver pizzas to the fifth floor of a college dorm with no easy street access.

"There is an opportunity to redefine local commerce in cities," says DoorDash co-founder Stanley Tang. "But we have to figure out, what are the operational challenges, and then how we can scale it up."

Deliv, a same-day small-package service aimed at online shoppers, uses a model similar to Uber's, with contractor drivers delivering packages. The company has venture investors and has also lured funds from United Parcel Service and some of the largest U.S. mall owners and operators, including Taubman Centers and Simon Property Group.

Founder and CEO Daphne Carmeli says that because Deliv does not maintain warehouses or a vehicle fleet, traditional couriers such as FedEx would be "challenged" to match the startup's low costs.

Uber, however, doesn't face those same challenges. The company has not said how much it has invested in UberEats or UberRush, or whether either turns a profit, and a spokesman declined to comment on those businesses.

But Uber does turn a profit on rides services in many cities across the globe and has amassed a war chest of $15 billion, providing ample resources to expand into delivery.

Carmeli is sanguine about the Uber challenge.

"Moving people is fundamentally different from moving packages," she said. "Predictability trumps speed."

Robots To The Rescue?

Silicon Valley veterans have long recognized the difficulty in the local delivery business. The online grocery firm Webvan and the urban delivery company Kozmo were two of the highest-profile flops in the late-1990s dot-com boom.

Technology was supposed to make things different this time, and smartphone apps that connect customers with fleets of independent drivers have helped.

But the technology that some believe could transform the sector - driverless vehicles and sidewalk robots - remains far from a practical reality, leaving many startups with no clear path to innovate their way to profitability anytime soon.

"We think automated deliveries can complement our human fleet of dashers," said Tang, of DoorDash.

But the company has no timetable for deployment.

Deliv's Carmeli is more skeptical.

"An autonomous vehicle is not going to pick up a package at your retailer, then walk the stuff up to the customer's doorstep and get a signature," she said.

Any delivery company looking to replace humans with robots will have to catch Uber. The company has hired robotics experts from Pittsburgh's Carnegie Mellon University and executives with deep automotive expertise, and is working with major automakers including General Motors and Toyota.

In August, Uber acquired Otto, a startup outfitting long-haul trucks with self-driving technology. Since the acquisition, the Uber-Otto alliance has delved into logistics, mapping and tracking, which can be deployed for delivery trucks even as work continues on self-driving systems, said Otto co-founder Lior Ron.

But delivery companies who can't find a business model that pays with human drivers aren't likely to find one that will work without them, Ron said.

"I don't think you can bank on the robots to come and save the day."

Article Link To Reuters:

Abandoned CBS, Viacom Merger Leaves Scale Issue Lingering

By Liana B. Baker and Jessica Toonkel
December 13, 2016

Sumner Redstone's holding company National Amusements Inc's decision to abandon a merger of its prized media assets, CBS Corp and Viacom Inc, leaves them under pressure to buy or partner with peers in an industry where scale matters.

Redstone's daughter Shari, who controls CBS's and Viacom's controlling shareholder National Amusements together with her father, told the New York Times Dealbook conference last month that scale was crucial for both companies, because it would give them greater pricing power in content distribution.

National Amusements, however, does not currently want to sell either company, according to people familiar with the matter who requested anonymity discussing confidential deliberations. The chief executives of CBS and Viacom are also currently not keen on making big acquisitions, because they are focused on executing their operational strategy, these people said.

Nevertheless, the two companies may be forced to consider acquisitions if they come under more competitive pressure, the sources said. They may also turn to partnerships with media companies as an alternative to outright acquisitions, the sources added.

"Should Viacom remain independent, we think it will need a strategic partner to help co-finance a larger and more expensive film slate," Brean Murray analyst Alan Gould said in a research note on Monday.

CBS, Viacom and National Amusements declined to comment.

Pressure on media companies to consolidate has increased in the last two months, as some industry giants have sought to merge with major distributors of their content, in a bid to expand their reach and profitability.

In October, U.S. telecommunications giant AT&T Inc agreed to acquire media conglomerate Time Warner Inc for $85.4 billion, while last week Rupert Murdoch's Twenty-First Century Fox Inc reached a preliminary agreement to acquire the 61 percent of Sky Plc it does not already own, valuing the British broadcaster at $23 billion.

Viacom has already been looking at some modest acquisitions. Last month it acquired Argentine broadcaster Telefe for $345 million in cash, and in 2014 it paid $760 million for British broadcaster Channel 5.

Were Bob Bakish, who was named on Monday as the permanent replacement of previous Viacom CEO Philippe Dauman, to explore more acquisitions, he could again look across the Atlantic for opportunities beyond the fiercely competitive U.S. media market, the sources said.

German broadcaster ProSiebenSat 1 and its main rival, RTL Group, would be logical targets, the sources said, as would ITV Plc in Britain and Entertainment One in Canada. However, Viacom's $12 billion debt pile makes it unlikely it would spend top dollar on acquisitions.

There may be smaller deals for Viacom to pursue, however, that could boost its Paramount movie studio. MGM, which owns a film library and has been exploring its options for some time following its emergence from bankruptcy six years ago, could help boost Paramount's margins if it was acquired, some media bankers suggested.

None of these companies offered a comment on the possibility of being acquired by Viacom.

Movie Studio Buy?

Jefferies LLC analyst John Janedis said in a research note that he thinks CBS should focus on buying "TV-centric content related assets, rather than cable networks and film."

However, CBS CEO Leslie Moonves' interest may be in buying a movie studio. Sources familiar with the matter said that CBS has approached Sony Pictures in recent weeks, although its owner, Sony Corp, has shown no interest in selling. Sony declined to comment.

Lions Gate Entertainment Corp, which has a movie and television studio, just closed its acquisition of Starz, and could also be an option for CBS, according to one media banker.

AMC Networks Inc, controlled by New York's Dolan Family, could also have operational synergies with CBS's cable channel, Showtime. Lions Gate did not respond to requests for comment and AMC declined comment.

To be sure, Moonves publicly has said CBS can do without any major acquisition.

"Will we ever be of a scale of a Disney or an Apple? I doubt it. We are able to play the game just fine as long as we keep doing what we do, which is produce great content for CBS, for Showtime, for whatever the platform is," Moonves told the UBS Global Media and Communications Conference last week.

An alternative to acquisitions may be partnerships, including between CBS and Viacom. Bakish has already been meeting with heads of Viacom affiliates talking about potential partnerships, one of the people said. Last month, he told Reuters finding ways to partner with affiliates was a priority for the company.

Article Link To Reuters:

Market Taking Trump Promises Seriously, Threats Not Literally

By James Saft
December 13, 2016

The stock market is taking U.S. President-elect Donald Trump’s promises of benefits like tax breaks seriously, but aren’t taking his Twitter threats and grandstanding literally.

Trump’s latest intervention, a Monday tweet slamming Lockheed Martin for costs on the Pentagon's F-35 fighter jet program wiped as much as $4 billion off of the value of the defense contractor’s stock and sent the iShares index of aerospace and defense contractors down 1.5 percent.

"The F-35 program and cost is out of control," Trump said on Twitter. "Billions of dollars can and will be saved on military (and other) purchases after January 20th."

Before concluding that Lockheed and its peers will actually be forced to pay for those savings once Trump is in the White House observe the pattern recently.

Trump tweets or sounds off about a company or sector, such as drug companies or Air Force One maker Boeing, hectoring about cost or value. The relevant stocks at first take Trump seriously and sell off. A day or two passes, sometimes not even that long. Then stocks go back up, confirming the upward trend they’ve mostly followed since the election.

Something is happening and it is not a straight discounting of having a hard-driving deal maker as U.S. procurement officer-in-chief.

Last Wednesday Trump said in a magazine article “I’m going to bring down drug prices. I don’t like what’s happened with drug prices,” repeating a theme of his campaign.

Shares of leading drug makers fell, taking the NYSE index of pharmaceutical shares down 2.0 percent. After hitting its post-election low at 11.15 AM New York time the day the interview was released, the drug sector has since rallied about 4.0 percent to stand now higher than it was before the election.

Aircraft maker Boeing came in for similar exemplary treatment last week after Trump tweeted that the Air Force One replacement project was “out of control” and that, “We want Boeing to make a lot of money, but not that much money.”

Boeing shares played their role in this kabuki theatre, falling sharply on the news, but rallying several percentage points from there to now be up 10.0 percent compared to the Monday before the election.

Whatever Trump will end up doing, and whatever impact this will have on companies doing business with the government, investors don’t seem especially scared.

Promises Over Threats

Or, if they are concerned, this is outweighed by other considerations, most likely Trump’s plan to cut corporate tax rates and allow for a one-off tax holiday for repatriated overseas profits. That flow of cash will likely largely wind up funding share buy backs, flattering earnings per share and more than outweighing any concessions.

After all, Trump is one guy with a twitter account, and he has the entire Republican establishment on board for the tax cuts, but far fewer tools to use in employing sharp-elbowed practices with suppliers.

And Lockheed Martin is not some poor guy selling pianos in Atlantic City. ( here )

So while it may introduce some volatility into stock prices once in a while, Twitter baiting is a relatively cheap way for Trump to give the impression he is acting as tribune on behalf of tax payers against corporate interests. The markets may be wrong, but they just don’t buy that story.

The market has got hold of a story it does buy though: Trump's proposed fiscal stimulus and tax cuts will help the market.

U.S. equity ETFs had their best ever month in November, attracting $50 billion, according to data from State Street Global Advisors.

“The lofty valuations and the vertical ascents in the major stock indexes strongly suggest that the mania phase of this bull market may be underway. It may have further to go once overseas cash actually does get repatriated and if retail investors start to pile into the market,” Ed Yardeni of Yardini Research wrote in a note to clients.

Behind that fund flow story, and the tax cuts and government spending story which touched it off, is the usual story in financial markets: people manage career risk.

Many fund managers are now badly lagging their benchmark indices. They usually do lag, but this year, a shock election followed by an unexpected and strong stock market rally, has left many managers especially far behind.

The momentum created by funds playing catch-up builds on itself, as funds buy in to try to avoid being left so far behind that their manager gets dumped.

Fund managers are the ones who Trump has truly frightened rather than corporate chiefs.

Article Link To Reuters:

Even Before Brexit, London Lost Its Status As Derivatives Center

London share of interest-rate derivatives fell to 39% from 50%; Rate divergence between U.S. and Europe will drive trend: BIS

By Will Hadfield
December 13, 2016

As London’s financial industry braces for Brexit, a new report shows the capital has already lost its leadership in at least one key market. New York has now eclipsed the city as the biggest center for off-exchange derivatives trading.

New analysis from the Bank for International Settlements shows that the country’s share of the $2.7 trillion a day interest-rate derivatives market fell to 39 percent this year from 50 percent in 2013. New York’s share of global trading has climbed to 41 percent from 23 percent.

New York usurped London because trading in U.S. dollar derivatives surged at the same time that trading in euro contracts collapsed. Traders are doing less business in London because they expect the European Central Bank to leave interest rates at record lows for the foreseeable future, while anticipating that the Federal Reserve will increase rates next year, compelling them to trade dollar-denominated derivatives, BIS said.

“Nothing is going to happen with interest rates in the euro zone, so no one should have to trade these derivatives,” said Andrea Vedolin, assistant professor of finance at the London School of Economics. “It’s natural that euro trades would go down quite a bit.”

New York could extend its lead over London if U.S. President-elect Donald Trump follows through on his vow to dismantle the Dodd-Frank Act. Part of the law requires banks to post collateral with clearinghouses for their derivatives trades, which increases costs. Similar rules in the European Union mean that trading expenses in both regions have risen in tandem.

“Clearing trades is expensive,” Vedolin said. “So if you do not have to clear anymore in the U.S., you would trade those derivatives in the U.S.”

The market shift revealed in the BIS figures may add to anxiety about the U.K. capital’s future as a financial center following the June vote to leave the EU. London needs to reach an agreement with the other member states to continue trading euro-denominated derivatives after Brexit.

While London’s share of global trading has dropped, its share of trading euro-denominated contracts rose to 75 percent from 70 percent in 2013. The turnover of euro contracts has fallen 43 percent over the last three years, while dollar-denominated derivatives have more than doubled.

French and German politicians have already said that they want to relocate clearing of euro-denominated derivatives to a euro-zone country after Brexit. The BIS survey shows that London is already struggling to hang on to its position as the biggest financial center in some key markets before contending with the uncertainty of Brexit. That jeopardizes the thousands of financial services jobs in London.

British Prime Minister Theresa May has said she will start the formal process to quit before the end of March. The negotiations have to be concluded within two years.

Article Link To Bloomberg:

Why China Can't Lure Tech Talent

By Adam Minter
The Bloomberg View
December 13, 2016

Donald Trump's campaign promise to crack down on visas for skilled foreign technology workers has a cheerleader in China. Robin Li, the head of Baidu, recently told a conference that he hopes talented workers who are no longer welcome in the U.S. will "migrate to China and help China play a more important role on the stage of global innovation."

He shouldn't get his hopes up. Whatever Trump's immigration policy turns out to be -- he may yet be swayed by the business luminaries he's meeting with this week -- China won't be luring foreign tech talent any time soon. And its struggles hold a lesson for every other country hoping to become the Silicon Valley of the future: The competition for global talent will be won by countries that foster the culture of openness -- to new ideas and new people -- that defined the American tech business for decades before Trump.

At first glance, China does seem like a logical destination for talented tech workers. For years, its government has offered them lucrative incentives to come to Chinese universities and companies. Its online population is the world's largest, and the local e-commerce market is booming. Private and public research budgets are increasing quickly. Recently, there's been steady growth in Chinese returning home after earning degrees overseas.

So what's not to like?

The biggest problem is government control of the internet. For a software developer, the inconvenience goes well beyond not being able to access YouTube during coffee breaks. It means that key software libraries and tools are often inaccessible. In 2013, China blocked Github, a globally important open-source depository and collaboration tool, thereby forcing developers to seek workarounds. Using a virtual private network to "tunnel" through the blockades is one popular option. But VPNs slow uploads, downloads and collaboration. That slowness, in turn, can pose security risks: In 2015, hundreds of developers opted to use infected iOS software tools rather than spend days downloading legit versions from Apple Inc.

And it isn't just developers who suffer. Among the restricted sites in China is Google Scholar, a tool that indexes online peer-reviewed studies, conference proceedings, books and other research material into an easily accessible format. It's become a crucial database for academics around the world, and Chinese researchers -- even those with VPNs -- struggle to use it. The situation grew so dire this summer that several state-run news outlets published complaints from Chinese scientists, with one practically begging the nationalist Global Times newspaper: "We hope the government can relax supervision for academic purposes."

The cumulative impact of these restrictions is significant. Scientists unable to keep up with what researchers in other countries are publishing are destined to be left behind, which is one reason China is having difficulty luring foreign scholars to its universities. Programmers who can't take advantage of the sites and tools that make development a global effort are destined to write software customized solely for the Chinese market.

And that's precisely what's happening. China's most successful innovations -- services like WeChat, its top social network -- have consistently failed to gain traction overseas, where competing services thrive. That leaves one internet for China and one for the rest of the world, with predictable results. WeChat, which dominates China, has 846 million monthly users; Facebook, which is blocked in China, has 1.79 billion. The latter is the more promising market, as any tech worker will quickly calculate.

Worse, China has made clear that foreign tech companies hoping to do business there will need to make concessions -- which those companies say would threaten security, brand value and intellectual property. A recent survey of American Chamber of Commerce members in China found that "three-quarters of respondents feel that foreign businesses are less welcome than before in China." Robin Li's warm words aside, foreign workers might wonder if the same goes for them, especially given China’s longstanding aversion to immigration.

Perhaps most crucially, tech workers contemplating a new home after Palo Alto have plenty of other places to go. India is home to one of the world's fastest-growing and most dynamic startup scenes. Southeast Asia, with 280 million internet users, a largely unhindered online culture, and generous government support for startups, also beckons. Canada has been trying to attract migrant tech workers from the U.S. with promises of easier visas, a business-friendly environment and a tolerant culture.

Around the world, countries and companies are fiercely competing to lure the very workers Trump seems intent on kicking out. To do so, they’ll need to convince those workers that they -- and their ideas -- are welcome, and not a threat. That's a lesson for Trump and China both.

Article Link To The Bloomberg View:

Trump's Tough Trade Talk Makes U.S. Firms Fear China Retribution

December 13, 2016

U.S. President-elect Donald Trump's challenges to China on trade and Taiwan are rattling American companies who have long benefited from stable relations between the two countries but now fear retaliation by Beijing if Trump were to act.

Trump jarred Chinese officials on Sunday by saying the United States did not necessarily have to stick to its long-standing position that Taiwan is part of "one China." Beijing expressed "serious concern" about Trump’s remarks.

Four U.S. industry sources who follow China policy closely said they were unsettled by any suggestion of abandoning the "one China" policy, which they said had served the business community well for several decades.

The sources, who spoke on condition of anonymity because of the sensitivity of the issue, stressed the importance of stability for businesses. They said Beijing could retaliate against U.S. companies that do business in China if Trump takes his tougher line too far.

"The Chinese are deeply concerned and we hear now from reliable sources in Beijing who suggest the Chinese government, the Communist Party, are developing lists of U.S. interests against which they could retaliate, commercial interests, and obviously one merely has to look at top U.S. exports to China to get a quick sense of whose heads may be on the chopping block," said one China trade policy expert who interacts closely with U.S. business.

The expert pointed out that more than 30 states have over $1 billion in exports to China and that there is over $500 billion in commercial engagements by U.S. companies in China. All of that would be at risk if China retaliated.

"That commercial engagement supports American jobs, many American jobs here in the United States," the expert said.

Another source said there had been "quiet outreach" by the U.S. business community to Trump's advisers but companies were wary of discussing their concerns about the China policy publicly for fear of becoming a target for the president-elect, who has singled out companies such as Carrier and Boeing.

From Detroit's car makers to Silicon Valley's technology champions, China is both a critical source of revenue and profits, and a vital link in global supply chains.

More than four decades after President Richard Nixon upset the status quo of his time with a surprise visit to Beijing, what's good for U.S.-China relations is good for General Motors and Starbucks and Apple and Wal-Mart Stores Inc.

China has hit U.S. goods with retaliatory tariffs in the past when disputes flared. China in 2011 slapped duties on U.S.-made large cars and sport utilities as part of a trade dispute.

The stakes are higher now.

More than one-third of the 9.96 million vehicles General Motors Co sold globally in 2015 were delivered to Chinese customers. Profits from Chinese operations, including joint ventures, accounted for about 20 percent of GM's global net income of $9.7 billion in 2015. Ford Motor Co's China JVs represented about 16 percent of its global pre-tax profit of $9.4 billion in 2015.

U.S. retail giant Wall Mart Stores Inc has 432 stores in China, while coffee chain Starbucks Corp has 2,500 stores there and outgoing CEO Howard Schultz told investors China will one day be a bigger market for the firm than the United States.

Aircraft maker Boeing Co plans to build a "completion" factory in China for its 737 jets, anticipating the country will need 6,800 new jetliners worth $1 trillion over the next 20 years.

"The United States and China are in a symbiotic relationship, we are wed to each other and do best when we grow together," said Susan Aaronson, a professor at George Washington University who teaches corruption and good governance.

The total value of U.S. trade with China was $599 billion in 2015, according to the U.S. Census Bureau, of which $116 billion was exports to China from U.S. producers, while U.S. companies imported $483 billion in goods from China.

Alan Deardorff, professor of international economics and public policy at the University of Michigan, said that if U.S.-China trade tensions were to reach a boiling point, "the pain would be widespread and deep” for U.S. businesses.

Trump and his advisers have said the U.S.-China trade deficit reflects bad trade deals and currency manipulation by the Chinese government, which they said justifies a tougher response than in the past.

George Washington University's Aaronson said that while Taiwan is a sensitive topic, if Trump pushes ahead with trade tariffs that is far more likely to translate into retaliation against U.S. firms in China.

"China's leaders need stability and Trump is totally disruptive," Aaronson said. "They will need to signal their strength in return."

Article Link To Reuters:

Trump Delays Announcement On His Business Until January

By Steve Holland
December 13, 2016

U.S. President-elect Donald Trump has delayed until January an announcement originally set for this week on how he plans to step back from running his business empire to avoid conflicts of interest, his spokesman said on Monday.

Among Trump's holdings are hotels and golf resorts from Panama to Scotland, besides a winery and modeling agency. Legal experts say the only way he could entirely avoid conflicts of interest would be to sell his global holdings.

Last month Trump said he would hold a news conference on Thursday to spell out how he would separate himself "in total" from his worldwide business holdings.

"The announcement will be in January," Trump spokesman Sean Spicer said on Monday, without giving any reason. The Republican president-elect has not held a news conference since winning the Nov. 8 election.

After Trump's victory, his company, the Trump Organization, said it was looking at new business structures with the goal of transferring control to Donald Trump Jr., Ivanka Trump and Eric Trump, three of his children who are involved with the company.

In a series of messages on social network Twitter, Trump said he would leave his businesses before taking office on Jan. 20, to focus on the presidency.

"Two of my children, Don and Eric, plus executives, will manage them," Trump tweeted late on Monday. "No new deals will be done during my term(s) in office."

The messages did not mention a role for Ivanka Trump in the businesses. Trump added that he would hold a news conference in the "near future" to discuss business matters, his cabinet picks and other topics.

In a series of tweets last month, Trump said, "Legal documents are being crafted which take me completely out of business operations." He did not say what the planned change might mean for ownership of his businesses.

Article Link To Reuters:

Five People Could Block Trump’s Pipeline Promises

Industry pushes to quicken approvals now averaging 429 days; Democrats with 5-year terms keep control despite Trump’s win

By Catherine Traywick
December 13, 2016

Donald Trump has said he’ll speed up approvals for energy infrastructure projects when he gets to the White House. Standing at least partly in the way: An obscure panel of technocrats he’ll have little sway over.

The Federal Energy Regulatory Commission, or FERC, is charged by law with approving new natural gas pipelines, an industry priority as gas unseats coal for power generation. While Trump can make some changes within the agency, his ability to quicken approvals is offset by the longstanding laws that drive the commission and its current makeup, with three Democrat-appointed members on a five-person board.

"Short of, literally, an act of Congress," making any big changes in how FERC operates is "wishful thinking," said Christi Tezak, managing director of ClearView Energy Partners, a Washington-based industry consultant, in a telephone interview.

Commissioners serve 5-year terms. The earliest any of the Democrats’ terms will end is seven months away. Beyond that, FERC operates under economic and environmental laws that carry specific approval guidelines that have been tough to overcome, even as pipeline opponents grow increasingly sophisticated in using them to their advantage.

Last year, a deeply-divided Senate didn’t even bother to take up a House-passed measure that would automatically approve pipeline applications still pending after a year. With an even slimmer majority post-election, Republicans may find it equally as difficult to pass similar legislation next year.

Aging Infrastructure

Builders say new natural gas pipelines are needed as locations of key energy sources change, and to replace aging infrastructure at a time when the shale boom has produced record levels of the fuel. A snail’s-pace approval process, however, is making project planning tougher, even as demand rises for use of natural gas as a cleaner, cheaper option for generating electricity.

Since the end of 2013, it’s taken almost 70 days longer on average to go from an initial FERC filing to notice of construction, according to a July report by Brandon Barnes, a Bloomberg Intelligence analyst. Overall, the average approval time was 429 days.

Trump has responded by vowing to expedite all energy projects.

With oil pipelines, overseen by a patchwork of federal agencies, he can make good on his promise. Trump is expected to approve the Keystone XL oil pipeline, rejecting a review of its cross-border siting by President Barack Obama’s State Department. And he has said he supports the Dakota Access project, delayed as the Army Corps of Engineers demands more study.

With natural gas, however, his authority is limited.

FERC’s independence within the Department of Energy was mandated when it was formed by the U.S. Congress in 1977, in the wake of the OPEC oil embargo.

Comment Mandates

Today, it licenses hydropower projects, regulates electricity markets and sites interstate gas pipelines as directed by the 1938 Natural Gas Act and the 1969 National Environmental Policy Act. Under the former, the agency is tasked with determining the market demand for a given proposal and dismissing those that aren’t seen as needed. Under the latter, FERC must weigh the ecological impact and reject projects found to be harmful. In each case, the laws mandate public comment and agency response.

While there isn’t much Trump can do to speed up this process, barring a change in law, there are things he can adjust.

In August, under President Barack Obama, the White House Council on Environmental Quality released guidance on the National Environmental Policy Act that urged federal agencies to consider the impact of regulatory actions on climate change. The guidance has been a matter of discord between FERC and the Environmental Protection Agency, which has adopted a more aggressive stance on FERC’s reviews since the guidance was issued.

Legal Challenges

While the guidance hasn’t significantly slowed the process, it lays the groundwork for legal challenges that could stymie proposals down the road, according to Marc Spitzer, a former FERC Chairman.

Trump could also name a new chairman for the panel, replacing Norman Bay. While Bay could continue as a commissioner until his term expires in June 2018, maintaining a Democratic voting majority, a Republican chairman would be able to dictate which initiatives FERC takes up pro-actively. Under Bay’s leadership, for example, FERC focused on integrating renewable energy technologies into electricity markets.

"Someone else could come along and say that’s not a priority," said FERC Commissioner Cheryl LaFleur, a former chairman.

A Trump-appointed chairman, for instance, could prioritize liquefied natural gas export terminals, a process less covered by existing law, giving commissioners more discretion. So far, FERC has only rejected one proposal for an export terminal, Veresen Inc.’s plan to build in Oregon.

‘Friendly’ To Ports

Under a Republican chairman, "FERC could move more in the direction of being friendly to those ports," said Ron Binz, an energy consultant and former Colorado regulator.

In some cases, though, a commissioner’s party affiliation doesn’t matter, according to Spitzer, who is a Republican. "There are some projects that should not be built," he said, referring to the decision to reject Veresen’s plans. "A Republican commission, I think, would do the same thing."

At the same time, analysts on both sides of the issue say the Trump administration could see even slower pipeline approvals than before as environmental groups, revved up by Trump’s pro-carbon campaign rhetoric, intensify their efforts to gum up FERC’s process.

U.S. laws allow public stakeholders to raise concerns about pipeline applications, which can create delays as FERC reviews the petitions or waits for companies to respond to the points raised. Among the latest permit delays are the Atlantic Sunrise pipeline, a 200-mile extension of Williams Partner’s Transco pipeline system, and the PennEast Pipeline Project, designed to transport natural gas from the Marcellus shale region to the Northeast.

Protests Rise

Protests have increased by at least threefold since 2008, driven by an increasingly sophisticated and science-based activist movement.

"The parties who are intervening have studied FERC, they have studied the laws, and they are raising points that have never been raised before," said Don Santa, president of the Interstate Natural Gas Association of America. "It’s putting an added burden on the commission, on the staff and on the applicants."

That’s not likely to change under Trump, according to ClearView Energy’s Tezak. "The quality of the challenges will continue to improve, requiring more time and money to address," she said.

Article Link To Bloomberg: