Tuesday, December 20, 2016

Tuesday, December 20, Morning Global Market Roundup: Yen Eases As BOJ Keeps Policy Steady, Asia Stocks Mixed

By Nichola Saminather
Reuters
December 20, 2016

The Japanese yen edged down on Tuesday after the Bank of Japan held policy steady, shedding some gains made following deadly incidents in Germany and Turkey, while regional stocks were mixed after Federal Reserve Chair Janet Yellen's upbeat comments.

The BOJ maintained its pledge to guide short-term rates at minus 0.1 percent and the 10-year government bond yield around zero percent, while offering a more upbeat view of the economy than in its Nov. 1 assessment.

Stating that the economy continues to recover moderately as a trend, the central bank signaled its conviction that a generally weak yen and a rebound in overseas demand will lift prospects for a solid recovery.

The U.S. dollar advanced 0.1 percent to 117.335 yen, after closing 0.7 percent lower on Monday.

The greenback has risen 11.6 percent versus the yen since Donald Trump's surprise election victory, on his promises of increased fiscal stimulus. Trump formally won the U.S. presidency on Monday after receiving more than the 270 Electoral College votes required to be elected.

MSCI's broadest index of Asia-Pacific shares outside Japan .MIAPJ0000PUS pared earlier gains to trade little changed. Japan's Nikkei .N225, flat before the BOJ decision, rose 0.1 percent.

Reduced volumes ahead of the Christmas holidays tempered buying in some Asian markets.

China's CSI 300 index .CSI300 slid 0.6 percent, and Taiwan .TWII shares retreated 0.3 percent, as did Hong Kong .HSI stocks.

Wall Street ended higher on Monday, albeit below the session's highs, as optimism over Yellen's comments about the U.S. labor market offset some of the risk aversion following the deaths in Germany and Turkey.

"Yellen painted a very positive picture in her commentary overnight," said James Woods, global investment strategist at Rivkin Securities in Sydney.

"The (Federal Open Market Committee) has done a fantastic job preparing the market for this second and subsequent hikes. Importantly they have continued to stress that the FOMC remains data dependent, only hiking when the underlying fundamentals of the economy support this."

Still, markets were rattled after a truck ploughed into a crowded Christmas market in central Berlin Monday evening, killing 12 people and injuring 48 others in what Germany's interior minister said looked like an attack.

The euro EUR=EBS, which slid 0.5 percent to $1.0401 on Monday, recovered 0.1 percent to $1.0413 on Tuesday.

Pressure also came on the euro after the Russian ambassador to Turkey, Andrei Karlov, was shot and killed at an art gallery in Ankara, the capital.

The Turkish lira was steady at 3.5325 per dollar on Tuesday after falling 0.7 percent on Monday. The rouble was also little changed on Tuesday at 61.9048 per dollar. It slumped to as low as 62.0907 per dollar on Monday but recovered to end the day up 0.3 percent at 61.8475.

The dollar index .DXY, which tracks the greenback against a basket of six global peers, climbed 0.2 percent on Monday after Yellen's upbeat labor market assessment. It was steady at 103.11 on Tuesday.

Gold XAU, which rose 0.4 percent on Monday, was little changed at $1,138.20 on Tuesday.

Oil pulled back as traders began to unwind positions in the run-up to the holiday season.

U.S. crude CLc1 slid 0.4 percent to $51.91 per barrel after closing up 0.4 percent on Monday.

Global benchmark Brent LCOc1 slipped 0.2 percent to $54.82.


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Oil Eases As Traders Start Winding Down Positions In Run-Up To Holiday Season

By Henning Gloystein
Reuters
December 20, 2016

Oil prices eased on Tuesday as traders began to unwind positions in the run-up to the year-end holiday season.

U.S. West Texas Intermediate (WTI) crude oil futures CLc1 were trading at $51.97 per barrel, down 15 cents from their last settlement.

International Brent crude oil futures LCOc1 were down 1 cent from their last close at $54.91 a barrel.

Traders said the slight dip was a result of market players squaring their books ahead of the upcoming Christmas weekend and the week running up to New Year, during which many offices will be shut.

Analysts said they expected markets would likely remain tepid this week, with no fundamentals expected that could drive large price swings.

"With little data due, prices are likely to drift aimlessly in today's session," ANZ bank said.

Jeffrey Halley, senior market analyst at OANDA brokerage in Singapore, said "a light news week and the run-in to the holiday season" was keeping markets quiet.


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Oil Eases As Traders Start Winding Down Positions In Run-Up To Holiday Season

U.S. Acknowledges Drone Return, Calls On China To Obey International Law

By Lincoln Feast
Reuters
December 20, 2016

The United States said on Tuesday it had received an underwater drone "unlawfully seized" by a Chinese vessel last week and called on China to refrain from further efforts to impede its lawful activities in the South China Sea.

China had earlier announced it had returned the drone after "friendly" talks between the two countries.

The USS Mustin received the vehicle for the United States in international waters approximately 50 nautical miles northwest of Subic Bay in the Philippines, near where it was taken, Pentagon press secretary Peter Cook said in a statement.


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Virtual Butler 'Jarvis' Takes Up Residence In Facebook Founder's Home

By Deborah M. Todd
Reuters
December 20, 2016

Mark Zuckerberg on Monday introduced the world to "Jarvis", an artificial intelligence system the Facebook chief created in his spare time, which can choose and play music, turn on lights, and recognize visitors, deciding whether to open the front door.

Jarvis, named after the virtual assistant in the Iron Man movies, could be a step toward a new product, Zuckerberg wrote, although he cautioned that the system he had created in 100 hours over the last year was customized for his house. (Zuckerberg post: bit.ly/2h4tuN7)

Zuckerberg announced results of the project, a personal challenge he set for himself this year, as digital home assistants by Google Inc and Amazon.com Inc compete for holiday sales and are expected to outsell popular emerging gadgets such as virtual reality headsets and drones.

Creating Jarvis proved humanity is "both closer and farther off" from an AI breakthrough than we imagine, Zuckerberg wrote.

Computers are getting very good at pick out patterns, such as face recognition, but it is difficult to teach them new things, he wrote.

"Everything I did this year -- natural language, face recognition, speech recognition and so on -- are all variants of the same fundamental pattern recognition techniques," he wrote. "But even if I spent 1,000 more hours, I probably wouldn't be able to build a system that could learn completely new skills on its own."

By the end of the year, Jarvis was able to respond to text and voice commands and it could run music, air conditioning, doors, and other systems. It could recognize visitors, start a toaster and even shoot t-shirts from a cannon in his closet.

With more effort to broaden Jarvis' use beyond Zuckerberg's own house, the experiment "could be a great foundation to build a new product," he wrote.

A dearth of internet-connected devices, lack of common standards for connected devices to communicate and challenges related to speech recognition and machine learning were all obstacles, he said.

At the same time, he said challenges lead to eureka moments.

Adjustments made to help Jarvis recognize context in commands ultimately helped the system respond to less specific requests in a better fashion, such as asking the system to "play me some music".

"I've found we use these more open-ended requests more frequently than more specific asks. No commercial products I know of do this today, and this seems like a big opportunity," he wrote.


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Hamilton’s Electors Vote Trump

The pressure campaign fails, but Clinton has more faithless electors.


By Review & Outlook
The Wall Street Journal
December 20, 2016

The 538 members of the Electoral College met Monday in 50 state capitals, and nearly all followed the public will in the 29 states carried by Donald J. Trump by voting to make the Republican the 45th U.S. President. There will be no Electoral College coup.

On Election Day Mr. Trump won states (including Maine’s second congressional district) worth 306 electoral votes, comfortably more than the 270 needed for victory. While Monday’s final tally wasn’t known when we went to press, the count was headed toward 304 for Mr. Trump, with two dissenting GOP electors from Texas.

It is nonetheless worth noting the extraordinary lengths that Democrats and the progressive media have gone to attempt to lobby electors to vote for Hillary Clinton or a Republican alternative. “Electors under siege,” said a headline in Politico, reporting that many “have been inundated by harassing phone calls and hate mail,” even “death threats.”

So much for the calm deliberation that progressives claim to want as they lobbied electors under the rubric of Hamilton’s Electors. The spectacle of the last month has been an exercise in political intimidation, precisely the kind of pressure politics that Alexander Hamilton wanted an Electoral College to protect the country from. There’s a case for independent judgment by electors, but only in extraordinary circumstances—such as learning something new and disqualifying about a candidate.

The pressure tactics included a gambit by 10 electors, backed by Clinton campaign chairman John Podesta, for a special intelligence briefing on Russian hacking before they voted. The lobbying was also notable for the number of progressive pundits who urged the electors to deny the results on Election Day in favor of defaulting to 538 electors.

Their supposedly killer argument is that Mrs. Clinton won the popular vote by some 2.86 million votes, at last count. But everyone, including the Clinton campaign, knew that the victor would be determined by electoral votes. No one ordered Mrs. Clinton not to campaign in Wisconsin, which she lost by something like 22,000 votes.

A campaign based on the popular vote would have been very different, and Mrs. Clinton spent tens of millions of dollars to roll up her popular vote margins in states she was already going to win comfortably. She did this in part because her campaign feared she might lose the popular vote but win in the Electoral College.

Beyond this year’s vote, progressives want to undermine public confidence in the Electoral College more broadly. That’s why several Democratic electors voted for other candidates before they were replaced under state law; four electors from Washington State were able to cast faithless votes, though they had been pledged to Mrs. Clinton.

They want the popular vote to determine the outcome, even though it would mean a nightmare of a national recount if the election were close and disputed. At least the Electoral College confines recounts to one or more close states. It also has the virtue of producing a decisive majority winner even if the candidate wins a plurality of the popular vote. Mr. Trump won only about 46% of the popular vote but carried nearly 57% of electoral votes.

The larger cynicism at work is the continuing attempt to undermine Mr. Trump’s democratic legitimacy. First Democrats tried a recount, which failed when the Republican gained votes in Wisconsin. Then they turned to the Electoral College, whose vote won’t technically be official until the new Congress certifies the result in January. Look for Democrats to make speeches before the vote questioning Mr. Trump’s authority to be President.

Then there are the charges that Vladimir Putin elected Mr. Trump. Mr. Podesta—perhaps still trying to purge his conscience for not campaigning in Wisconsin—even suggested on Sunday that “Trump Inc.” advisers colluded with the Russians to hack Democratic emails. That would be some story, though we’ll wait for evidence. Meanwhile, Mr. Trump will be President, but he shouldn’t anticipate a honeymoon.


Article Link To The Wall Street Journal:

Five Things To Worry About After The Assassination Of Russia’s Ambassador To Turkey

By Robbie Gramer and Emily Tamkin
Foreign Policy
December 20, 2016

On Monday, Russian Ambassador to Turkey Andrey Karlov was assassinated at an art exhibit in Ankara, reportedly shot by Mevlut Mert Altinas, a police officer. According to at least one report, the gunman said “We’ll make you pay for Aleppo” before firing at the ambassador, likely referring to Russia’s backing of the Syrian government in its brutal siege of Aleppo.

So far, Russia and Turkey have said that this is a move meant to weaken ties between the two countries, and the U.S. Department of State said in a statement that it is ready to provide assistance to the two countries. It is unclear what will be said, or happen, next. But given tense relations between Ankara and Moscow over the past year, centuries of historical rivalry and animosity, and colliding foreign policies in the carnage of the Syrian civil war, there are a few potential escalatory scenarios to keep in mind.

1. Russian hackers target Turkey. Russia has a penchant for causing domestic political trouble in other countries through conveniently timed cyber hacks (just ask the United States). The Turkish government has been on the receiving end of such hacks before; on Dec. 7, Wikileaks released over 57,000 emails of Berat Albayrak, Turkey’s minister of energy and natural resources and also President Recep Tayyip Erdogan’s son-in-law. With indications of Russia cooperating with Wikileaks to publicize hacked emails in the past, Russian cyber surrogates could target Turkey, revealing more unflattering secrets about people in the orbit of President Recep Tayyip Erdogan.

2. The already fragile relationship between Russia and Turkey could fall apart, leading to renewed economic pressure on Turkey. This is what happened after November 2015, when Turkish F-16s shot down a Russian bomber on the border of Syria. In response, Russia embargoed many Turkish goods, Turkish exports to Russia fell $737 million. Further, the Turkish Stream natural gas pipeline, meant to be part of the two countries’ “strategic partnership,” was put on hold. The economic situation did not improve until Erdogan apologized in June 2016.

3. The assassination is used as an excuse for further democratic repression in both Turkey and Russia. Erdogan detained thousands after the failed coup against his government this July, a putsch that included an attempt on his own life. Putin came to power in part by cracking down against perceived insubordination by violence in Chechnya. Whatever else, the assassination does not bode well for Russian or Turkish civil society.

4. The ceasefire in Aleppo collapses
. Russia and Turkey are on opposite sides of the Syrian civil war, but both helped broker the latest ceasefire that allowed rebels and civilians to leave Aleppo. The assassination could cause the ceasefire collapse anew, or lead to renewed fighting elsewhere in Syria. Russian forces are operational in northeast Syria, not far from where Turkish troops have taken part in cross-border assaults on towns held by the Islamic State.

5. Russia plays the Kurdish card.
Turkey is a NATO member, making it highly unlikely that Russia would consider starting an out and out war with Turkey itself. Karlov is probably not, in other words, another Archduke Franz Ferdinand. But Russia could use its historical ties with disaffected Kurdish populations in Turkey, including possible support for Kurdish militants, spurring more Kurdish terror attacks. On Saturday, a car bombing in central Turkey killed 13 soldiers and wounded 55. And on Dec. 11, two bombs went off in Istanbul that killed 39 and wounded 154. A Kurdish militant group claimed credit for the Istanbul attacks.


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Russian Ambassador Shot Dead In Ankara Gallery

By Umit Bektas, Orhan Coskun and Tuvan Gumrukcu
Reuters
December 20, 2016

The Russian ambassador to Turkey was shot in the back and killed as he gave a speech at an Ankara art gallery on Monday by an off-duty police officer who shouted "Don't forget Aleppo" and "Allahu Akbar" as he opened fire.

President Tayyip Erdogan, in a video message to the nation, cast the attack as an attempt to undermine NATO-member Turkey's relations with Russia - ties long tested by the war in Syria. He said he had agreed in a telephone call with Russia's Vladimir Putin to step up cooperation in fighting terrorism.

At a special meeting at the Kremlin, President Putin ordered increased security at all Russian missions and said "the bandits" who committed the act would feel retribution.

"We must know who directed the killer's hand."

The assassination of an ambassador, not least of a major power such as Russia, marks a dangerous escalation of tension in the region and beyond. Security sources said he was off duty and some witnesses said there was no security scanning machine at the entrance.

The attacker was smartly dressed in black suit and tie and stood, alone, behind the ambassador as he began his speech at the art exhibition, a person at the scene told Reuters.

"He took out his gun and shot the ambassador from behind. We saw him lying on the floor and then we ran out," said the witness, who asked not to be identified. People took refuge in adjoining rooms as the shooting continued.

A video showed the attacker shouting: "Don't forget Aleppo, don't forget Syria!" and "Allahu Akbar" ("God is Greatest") as screams rang out. He paced about and shouted as he held the gun in one hand and waved the other in the air.

Russia is an ally of Syrian President Bashar al-Assad and its air strikes helped Syrian forces end rebel resistance last week in the northern city of Aleppo. Turkey, which seeks Assad's ouster, has been repairing ties with Moscow after shooting down a Russian warplane over Syria last year.

The gunman was killed by special forces. Three other people were injured.

"We regard this as a terrorist act," said Russian Foreign Ministry spokeswoman Maria Zakharova. "Terrorism will not win and we will fight against it decisively."

Gulen


Erdogan, who has faced a string of attacks by Islamist and Kurdish militants as well as an attempted coup in July, identified the attacker as 22-year-old Mevlut Mert Altintas, who had worked for Ankara riot police for two and a half years. CNN Turk TV said police had detained his sister and mother.

A senior security official said there were "very strong signs" the gunman belonged to the network of the U.S.-based cleric Fethullah Gulen, who Ankara says orchestrated the failed coup in July. Erdogan has denounced Gulen as a terrorist, but the cleric, a former ally, denies the accusation.

Gulen described the killing as a "heinous act of terror" that pointed to a deterioration of security in Turkey resulting from Erdogan's wide-ranging purge of police as well as the army, judiciary and media following the coup bid.

The government says Gulen, who has lived in self-imposed exile in the U.S. state of Pennsylvania since 1999, created a "parallel network" in the police, military, judiciary and civil service aimed at overthrowing the state.

Suspicion could also fall on a group such as Islamic State, which has carried out a string of bomb attacks in Turkey in the last year as Ankara has pressed a military campaign against the militants in Syria. The group has urged "lone" attacks in the West.

U.S. State Department

Turkish Foreign Minister Mevlut Cavusoglu was due to meet his Russian and Iranian counterparts in Russia on Tuesday to discuss the situation in Syria. Officials said the meeting would still go on, despite the attack.

"The attack comes at a bad time: Moscow and Ankara have only recently restored diplomatic ties after Turkey downed a Russian aircraft in November 2015," the Stratfor think-tank said.

"Though the attack will strain relations between the two countries, it is not likely to rupture them altogether."

However, both Russia and Turkey indicated that they were looking to work together to find the combat militant attacks.

The U.S. State Department, involved in diplomatic contacts with Russia in an attempt to resolve a refugee crisis unfolding around the city of Aleppo, condemned the attack, as did the United Nations Security Council.

Tensions have escalated in recent weeks as Russian-backed Syrian forces have fought for control of the eastern part of Aleppo, triggering a stream of refugees.


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Yen, Swiss Franc Firm After Incidents In Ankara, Berlin

By Hideyuki Sano 
Reuters
December 20, 2016

The yen dipped only briefly after the Bank of Japan stood pat as widely expected on Tuesday, keeping much of its gains after separate deadly incidents in Turkey and Germany raised security worries in the West.

The safe-haven Swiss franc also held firm near six-month highs versus the euro. The dollar was well bid after upbeat comments from Federal Reserve Chair Janet Yellen.

The U.S. currency last traded at 117.22 yen, showing only minor price action after the BOJ maintained its twin targets of minus 0.10 percent interest on some excess reserves and the zero percent 10-year government bond yield.

Some players remained cautious ahead of Governor Haruhiko Kuroda's news conference at 0630 GMT, where they suspect he could strike a more hawkish tone than before, given the sharp fall in the yen since the BOJ's previous meeting.

The dollar had slipped as low as 116.55 yen on Monday, falling more than two yen from a 10-1/2-month high of 118.66 touched on Dec 15.

Investors were rattled after the Russian ambassador to Turkey was shot dead by an off-duty police officer as the diplomat gave a speech at an Ankara art gallery.

Security fears deepened on news that a truck ploughed into a crowded Christmas market in central Berlin, killing 12 people, evoking memories of an attack in Nice, France, in July, in which 86 people were killed.

"Given that the yen was sold the most since the U.S. elections, it was inevitable to see some short-covering in the yen," said Masashi Murata, senior currency strategist at Brown Brothers Harriman.

Last week the yen was down about 11 percent since the U.S. election, edging out the Mexican peso and the Turkish lira to briefly become the worst performer after Donald Trump's surprise election victory.

Expectations that Trump's planed tax cuts and fiscal spending could lead to higher U.S. growth and inflation lifted U.S. bond yields and undermined the yen.

"The dollar is rising on expectations of Trump's policies and I think the rally will continue as long as there are uncertain elements to his policies," said Kazushige Kaida, head of foreign exchange at State Street.

"But markets are starting to take it as a fact, and that suggests the dollar's rising cycle is coming near an end. Those who got on the bus first will be starting to get off," he added.

The safe-haven Swiss franc was another strong performer. It stood at 1.0689 per euro, having hit a six-month high of 1.0680 on Monday.

The U.S. dollar remained supported against many other currencies, with the its index rising back to 103.08 from Monday's low of 102.52, coming within sight of its 14-year peak of 103.56 touched on Thursday.

The dollar was helped in part by upbeat comments from Federal Reserve Chair Janet Yellen on the U.S. jobs market.

The euro traded at $1.0412, having slipped 0.5 percent on Monday and edging near its Dec. 15 low of $1.03665, its weakest level since January 2003.

The British pound also dipped to $1.2355 on Monday, its lowest in about a month and last stood at $1.2383.

The Australian dollar fell to 6-1/2-month lows of $0.7240, turning negative for the year.

The Turkish lira dropped slightly to 3.5325 to the dollar ahead of its central bank policy announcement later in the day, but held above its record low of 3.6000 set earlier this month.


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U.S. Charges Platinum Partners Execs With $1 Billion Fraud

By Nate Raymond and Lawrence Delevingne
Reuters
December 20, 2016

Top executives of New York-based hedge fund manager Platinum Partners were arrested on Monday and charged with running a $1 billion fraud that federal prosecutors said became "like a Ponzi scheme" as its largest investments lost much of their value.

Led by Mark Nordlicht, Platinum was known for years for producing exceptionally high returns -- about 17 percent annually in its largest fund -- by taking an unusually aggressive approach to investing and fund management, as detailed by a Reuters Special Report in April. (reut.rs/1TRovwx)

Nordlicht, Platinum's founding partner and chief investment officer, was arrested at his home in New Rochelle, New York. Federal prosecutors accused him and six others of participating in a pair of schemes to defraud investors.

"The charges ... highlight the brazenness and the breadth of the defendants' lies and deceit," Brooklyn U.S. Attorney Robert Capers told reporters.

Capers added that the case was one of the largest and "most brazen" investment frauds ever and Platinum was ultimately exposed to have "no more value than a tarnished piece of cheap metal."

The U.S. Securities and Exchange Commission announced parallel charges Monday against the same executives and two Platinum entities for similar civil fraud charges.

A 48-page criminal indictment said since 2012, Nordlicht and four other defendants defrauded investors by overvaluing illiquid assets held by its flagship Platinum Partners Value Arbitrage funds, mostly troubled energy-related investments.

This caused a "severe liquidity crisis" that Platinum at first tried to remedy through high-interest loans between its funds before selectively paying some investors ahead of others, the indictment said.

"So to some extent, there is a Ponzi-esque aspect to this scheme," Capers said.

Fleeing To Israel


Founded in 2003, Platinum until this year had more than $1.7 billion under management, with more than 600 investors, authorities said.

Some of those investors came from the same New York-area Jewish community as Nordlicht and other Platinum executives. They have included a charitable trust set up by day-trading pioneer Aaron Elbogen; the Century 21 Associates Foundation, led by department store executive Raymond Gindi; and the SFF Foundation, a non-profit controlled by the Schron family, known for its real estate investments.

Avi Schron declined to comment; Gindi and Elbogen did not immediately respond to requests for comment.

The indictment describes how angry investors sought to take their money out in late 2015 and early 2016 as Platinum hinted to clients that some assets were in trouble. It also cites emails between Nordlicht and another unnamed executive in which the men discussed fleeing to Israel as pressure on the firm mounted.

Prosecutors said David Levy, Platinum's co-chief investment officer, and Uri Landesman, the former president of the firm's signature fund, also participated in the scheme, which prosecutors said allowed Platinum to extract more than $100 million in fees based on inflated asset values.

Nordlicht, Levy and Jeffrey Shulse, former chief executive officer of Platinum's majority-owned Black Elk Energy Offshore Operations LLC [BLCELB.UL], also schemed to defraud bondholders of Black Elk, a now-defunct Texas energy company, out of $50 million, prosecutors said.

The indictment said the scheme involved using a group of reinsurance companies called Beechwood, partially controlled by Platinum's principals, to rig a bond vote and pay the hedge fund manager ahead of creditors.

Nordlicht, appearing in court in a checkered shirt and blue jeans, pleaded not guilty to charges including securities fraud and was granted bail by U.S. Magistrate Judge Lois Bloom on a $5 million bond secured by $500,000 cash. Levy and Landesman also pleaded not guilty Monday.

A representative for Beechwood and Shulse, who was taken into custody in Houston, did not respond to requests for comment. A Platinum spokesman declined to comment.

This year, a series of investigations tied to Platinum came to a head. The firm hired an independent monitor in July to unwind its funds, and a Cayman Islands court in August placed its main offshore funds into liquidation.

Those moves came after the June arrest of Murray Huberfeld, a longtime Platinum associate, on charges in Manhattan federal court that he orchestrated a bribe to the head of the New York City prison guards' union, Norman Seabrook, to secure a $20 million investment with the firm.

Seabrook pleaded not guilty, as did Huberfeld who was also arrested.

Two weeks later, the Federal Bureau of Investigation and U.S. Postal Inspection Service raided Platinum's Manhattan offices in a separate fraud investigation that culminated in Monday's indictment.

Others indicted on Monday include Joseph SanFilippo, Value Arbitrage's former chief financial officer; Joseph Mann, a former Platinum marketing employee; and Daniel Small, a Platinum managing director. The three men also pleaded not guilty.

The U.S. Securities and Exchange Commission said on Monday that it was seeking a court-appointed receiver for funds managed by Platinum Credit Management, the firm's second-largest vehicle after Value Arbitrage.

The case is U.S. v. Nordlicht et al, U.S. District Court, Eastern District of New York, No. 16-cr-640.


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Better Rules, Long IPO Wait Mean Secondary Market Boom For 'Unicorns'

By Heather Somerville
Reuters
December 20, 2016

After the debacle that preceded the initial public offering of Facebook Inc (FB.O) in 2012, when the company's stock changed hands at wildly varying prices and with little oversight, the market in secondary trading in shares of hot startups has made a strong comeback.

Regulators and the startups themselves have gradually tightened rules governing buying and selling shares, while a growing number of startups delaying their IPOs amid a wash of eager private capital has created a huge swell of demand among both buyers and sellers.

"A lot of companies learned from the headaches that Facebook had to deal with," said Brian Feinstein, a partner at Bessemer Venture Partners, which has purchased early investor and employee shares in secondary transactions.

The market serves a few functions, allowing employees and founders at highly valued private companies, such as home-renting service Airbnb and ride-services firm Lyft, to cash in on some of their paper wealth, and letting institutional investors get a piece of the action. Early investors who are tired of waiting for a payout are selling shares in secondary trades, too.

With such demand, transaction volume on the secondary market has soared.

A new report to be published this week by Scenic Advisement, a San Francisco-based investment bank set up in 2013 to facilitate secondary stock transactions, pegs the total value of tradable shares among the top private U.S. companies at $35 billion. That is more than three times the $11 billion assigned to the asset class in 2011, Scenic said in the report. The bank is projecting a further jump to $38 billion next year.

Secondary market transactions more than doubled to $544 million in the first half of 2016 over the same period last year, according to Nasdaq Private Market, one venue for such trades, set up in 2014. It expects further growth in 2017.

Founders Circle, which has made secondary trades in shares of DocuSign, Pinterest and others, estimates a total of about $1.2 billion worth of secondary transactions this year, according to co-founder and managing director Chris Albinson. That is a dip from $1.6 billion last year, largely caused by a dearth in trading in the first quarter, but Albinson expects a year-on-year increase to $1.4 billion in 2017.

Why Now?


The transformation of a troubled market is down to several factors.

The U.S. Securities and Exchange Commission, charged with oversight of secondary trading and making sure the shares are authentic, has kept a closer eye on the market.

The heightened scrutiny has prompted more buyers and sellers to work with the company whose shares they want to trade, rather than circumvent them, industry watchers said. At the same time, companies themselves are facilitating more secondary trades, just on their own terms.

Since Facebook's IPO, a glut of highly valued startup companies - called 'unicorns' in Silicon Valley parlance - have stopped short of tapping public markets as a source of cash to fuel growth. The abundance of capital available from private investors has sustained startups that otherwise would need an IPO to raise the cash.

What is more, market uncertainties caused by the U.S. election as well as fear of taking a valuation cut in the public market, kept many highly valued startups on the sidelines this year.

The delay in filing for an IPO, the traditional way of turning ownership stakes into money, has left founders and early employees - who usually take a lower salary in exchange for stock options - impatient for cash.

The secondary market is a way for startups to keep their rank-and-file happy, especially workers who want to get married, buy a house, or send a child to private school, but are "cash-poor and paper-rich," said Howard Lee, managing director of Founders Equity Partners, which launched a year ago to make secondary market investments.

Another motivation for employees is that options generally expire after 10 years, and early hires may be forced to wait longer than that for their startup to go public.

On the other side of the trade, mutual funds, sovereign wealth funds, family offices and other investors are eager to buy shares of hot startups, given they may have difficulty gaining access to primary funding rounds by prestigious new companies such as Uber Technologies Inc [UBER.UL].

"They (the companies) realize that it is financially responsible to sell if 99 percent of your worth is tied up in your company and your IPO is still years out," said Michael Sobel, co-founder and managing director of Scenic Advisement.

In its report, Sobel's firm looked at 168 private companies, most classified as unicorns with valuations of $1 billion or more, and estimates 8 percent of all their shares will likely be traded in secondary deals.

Still Risks

To be sure, the secondary market still has risks, given that there is inherently less data available for non-public companies and valuations can change quickly.

Despite improvements, there are still fewer regulations than in the public markets. Some under-the-radar firms muddy the waters by helping set up loans against employee shares and use other risky methods to circumvent company restrictions on secondary trading.

Speaking to a Silicon Valley audience in March, SEC Chair Mary Jo White cautioned that secondary transactions could amplify "errors or misconceptions in valuation." She pointed to the lack of transparency in secondary deals as cause for concern.

In some cases, investors "are really just betting on a name and sometimes that works out and sometimes it doesn't," Bessemer's Feinstein said.

Despite the troubles at Facebook, secondary pre-IPO trading has become a more accepted practice for venture capitalists and startups, where before it might have been taken as a sign of weakness.

SharesPost Inc, a broker-dealer for secondary market trades, has completed $2.3 billion worth of transactions since 2009, and said volume is growing 50 percent to 60 percent quarter-over-quarter.

"Everybody knows someone who got some amount of secondary liquidity," said Greg Brogger, SharesPost founder and CEO.

Cash Off The Table

Airbnb, founded in 2008 and likely more than a year away from an IPO as it faces some legal battles and explores new markets, in July offered employees an opportunity sell a percentage of their stock. The company declined to comment on the transaction.

Buyers are even chasing shares of smaller companies, but not everyone is ready to sell. Jonathan Gray, founder and CEO of Cask, a Silicon Valley big data company, said he "gets approached all the time" by buyers with proposals for some of his shares, though he is not prepared to sell. He said he wants any inbound cash going into Cask's bank account, not his.

Early-stage investors are also more inclined to sell their stake on the secondary market so they can pay returns to their limited partners within the 10-year fund cycle.

David Hornik, an early-stage tech investor at August Capital, said he still has a fund from 2000 that has three investments that have yet to go public or find a buyer.

"It may be a very rational thing is to sell some portion of your shares to take some money off the table," Hornik said.


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How The Feds Are Fueling America’s Opioid Disaster

By Josh Bloom
The New York Post
December 20, 2016

Federal policy is unquestionably making the nation’s opioid problem worse — while also inflicting collateral damage on Americans in genuine need of pain medication.

And this disaster is being further driven by a myth that has gained additional credence from the Centers for Disease Control and Prevention’s latest guidelines for prescribing opioids.

The myth: that lax prescription of opioid drugs, such as oxycodone, is a primary driver of addiction. This notion has triggered a nationwide crackdown on these prescriptions in the name of preventing addiction and saving lives, an action that has been a catastrophe by almost any measure.

Dissenting opinions do exist. Physicians for Responsible Opioid Prescribing, a group that promotes strict control of prescriptions, admits that chronic pain patients have a “very legitimate fear” of restrictions. Yet the group, which was involved in formulating the CDC guidelines, nonetheless recommends a one-size-fits-all daily cap on the permissible opioid dose, regardless of the patient.

Reviewers have rightly criticized PROP for using shoddy evidence in support of its findings. In the past decade, more than a dozen professional papers — including a systematic analysis known as a “Cochrane Review” of 26 other studies, and a 38-study review in the journal Pain — have debunked the idea that addiction routinely starts with legal use. In most cases, it doesn’t; people who use prescription opioids properly and legally rarely become addicts.

Overwhelmingly, the ones who become addicted are those who start off using opioids for recreational purposes. The next stop is street drugs.

Paradoxically, the CDC guidelines managed to harm both addicts and patients with legitimate needs in one fell swoop. Consider OxyContin — a major drug of choice for addicts that in 2010 was reformulated to make it far harder to abuse.

Illegal OxyContin use did indeed plummet immediately — but abusers then switched in droves to heroin, which is far more dangerous, and deaths from heroin overdose soared from 3,000 in 2009 to 13,000 in 2015.

Worse still, black-marketeers are now blending fentanyl — a highly potent, synthetic version of heroin — with heroin itself, or substituting it outright for the “natural” drug. That’s responsible for much of the soaring ODs.

The Department of Health in Ohio — which has the highest number of opioid deaths in the nation — reported in 2015 that more than 80 percent of opioid deaths arose from heroin or fentanyl, up from 20 percent in 2010. Health agencies in Florida and Massachusetts report similar trends. It’s now indisputable that most recent opioid deaths result from heroin/fentanyl, not pain pills.

Another side of the equation is the cruel and needless suffering inflicted on blameless Americans who can no longer easily get pain medications. Just as addicts will do almost anything to feed their addiction, people in severe pain will do what is needed to escape it — even suicide.

Indeed, escaping pain is becoming increasingly difficult. People who have been treated appropriately and responsibly for years are now finding it difficult to obtain the relief they need, even from the same doctors. And you can’t blame the doctors.

Physicians rightly view the CDC “advice” as anything but voluntary. With the DEA looking over their shoulders, they fear losing their licenses for overprescribing. This creates just another wall between doctors and patients, many of whom are now forced to cope with their pain by using non-opioid, over-the-counter drugs such as Advil and Tylenol. These drugs are less effective and also carry their own risks, chiefly liver, kidney, stomach and heart toxicity.

But perhaps nothing illustrates the folly of government policies better than the rising number of pain sufferers who turn to street heroin because they can no longer get legal medication. What a travesty.

As a nation, we now find ourselves in a worse place than before this simple-minded crackdown began. While the most vulnerable suffer, rivers of the real killer drugs pour into our country illegally unabated.

“First, do no harm” is the essence of the Hippocratic Oath. Federal policymakers should honor that principle — and abandon their cruel and unconscionable war on pain medication.


Article Link To The New York Post:

UK Hedge Fund Lobby Group Outlines Brexit Wishlist

Reuters
December 20, 2016

A British hedge fund group on Monday laid out its wishlist for Brexit negotiations, with continued access to European Union investors and workers among its goals to limit the damage a UK exit from the bloc could have on the industry.

The comments came as UK hedge funds lobby the British government to ensure the country's exit from the single market does not end their so-called "passporting rights" to sell services freely across the European Union.

"The UK industry should continue to be able to access investors and provide investment management services to clients in the EU following Brexit," the Alternative Investment Management Association (AIMA), a global hedge fund industry association, said in a statement.

After Britain voted to leave the EU on June 23 AIMA said it was in the clear interest of its UK members to have access to EU markets and it would be heavily involved in Brexit negotiations.

"The UK industry should continue to be able to access skilled workers from the EU and beyond following Brexit," the group said, adding that about 20 percent of the UK hedge fund industry workforce was comprised of non-UK European Economic Area nationals.

AIMA said UK firms should be able to manage EU-based funds or accounts even after Brexit and the UK had to retain the flexibility to set its own domestic and international-facing regulatory regime.

"The relationship between the UK and the EU for financial services should be based on an overarching international agreement based on equivalence and reciprocal non-discriminatory access", the industry body said.

Appropriate transitional arrangements should be in place while this relationship is finalised, it added.

In July, the European Securities and Markets Authority (ESMA) said hedge funds from the United States, Singapore and Hong Kong should be allowed to market themselves in the European Union.

ESMA's recommendation to the EU's executive European Commission for endorsement was a taste of what Britain's financial services sector might face after it leaves the bloc.

AIMA said that new UK fund and securitization vehicles should be developed to keep hedge fund and private credit assets 'onshore'.


Article Link To Reuters:

The Quicken Loans Signal

Jeff Sessions can review and drop a bad anti-business prosecution.


By Review & Outlook
The Wall Street Journal
December 20, 2016

Faster than a Rocket Mortgage, Attorney General nominee Sen. Jeff Sessions can send a message that the Obama era of arbitrary, political prosecutions of business is over. Soon after confirmation, he and his new team should review and then kill the government’s dubious civil case against Quicken Loans.

The Justice Department last year sued the Detroit-based mortgage lender on charges that it knowingly approved loans that violated Federal Housing Administration rules for government mortgage insurance. The charges didn’t make Quicken Loans unique, as the Obama Administration has spent years wringing settlements out of lenders without having to prove its charges in court.

Last week Justice issued a press release celebrating that since January 2009 it has extracted more than $7 billion using a single legal technique—False Claims Act cases related to federally insured mortgages. In the larger campaign to blame the 2008 financial crisis entirely on private business—rather than federal housing and monetary policy—the government has raided banks for more than $100 billion.

So it was no surprise that Justice wanted a bite of Quicken’s earnings. What may have surprised the feds, given the normal corporate desire to write a check and make Washington go away, is that Quicken founder Dan Gilbert had no desire to settle.

Mr. Gilbert tells us that “it would lack integrity and ring hollow to our 17,000 employees to pay some large, unwarranted settlement and admit things we did not do just because a young lawyer walks in with a business card that says ‘DOJ’ on it.” Mr. Gilbert, who owns the National Basketball Association’s Cleveland Cavaliers, seems ready to compete in the courtroom, too.

The government’s case is built on a handful of internal Quicken emails with disparaging comments about particular loans. But if some great offense has been committed, it’s hard to find it in the records kept by the alleged victim.

A critical metric the FHA uses to judge lenders is known as the “compare ratio.” Specifically, it compares the rate of early defaults and claims generated by one lender with the rate generated by other lenders who cover the same area. A lender that never originates a bad loan would have a ratio of 0% and a lender with an average rate of defaults would be marked at 100%. According to the government’s own data, Quicken’s compare ratio is 35%—not merely better than average but the best score among all large national lenders.

Mr. Gilbert says his company offered to “step in to FHA’s shoes and take over providing insurance on our FHA loans; meaning we would collect the premiums on the loans and pay out any claims. Not surprisingly, they weren’t interested.”

Federal Judge Reggie Walton recently rejected the government’s attempt to hold a trial in Washington instead of Quicken’s home state of Michigan. But not holding a trial at all would be the wisest course, not least because Justice is likely to lose in court. By dropping the case, Mr. Sessions can show that the Justice Department is done extorting business for political show. All Trump cabinet officers should send similar tidings to ring in a new era of growth.


Article Link To The Wall Street Journal:

Coming Soon: Trump vs. Yellen

By Clive Crook
The Bloomberg View
December 20, 2016

The big question about President-elect Donald Trump is what happens when things start to go wrong. There's no doubt they will. Every president has to contend with unforeseen setbacks, and for Trump it will be worse. His outlandish and often contradictory promises guarantee he'll have plenty of bad news to explain away or blame on other people.

The economy will be high on the list -- and Trump already has a scapegoat-in-waiting. In one of the presidential debates, he attacked Federal Reserve Chair Janet Yellen for keeping interest rates low for political reasons, and said this would cause big problems once the Fed had to start pushing rates higher.

The fact is, this economy is not the kind a new president would choose to inherit. It's better to take over in a trough than at what might prove to be a peak. The stock market is testing the upper bounds of plausible valuation, the economy is at or close to full employment, a strong dollar is making life harder for exporters, and the Fed just resumed its effort to get interest rates back to a more neutral level. In short the stage is set for bad news, with Yellen in a starring role.

Soon, the issue will be whether Trump confines himself to squawking about monetary policy or tries to use the power of his office to fix what he says is the problem.

Yellen's term runs until February 2018, and Fed chiefs can't be removed except for cause. Still, one can imagine Trump responding to disobliging economic news by calling on her to resign. She shouldn't, but this would put her in a difficult position. One can even imagine him saying there's reason to fire her. Keeping interest rates low for political reasons, as he put it, would seem to qualify as cause. The charge is both unfair and absurd, but why would that stop Trump from making it?

It's actually typical of the president-elect that he accused Yellen not of getting policy wrong -- reasonable people can disagree about that -- but of acting in bad faith. And it would be equally Trump-like to then contradict himself by arguing that monetary policy is political by its very nature, and that the Fed should therefore be brought under (his) political control.

In short, these will be testing times for the idea of an independent Fed. It doesn't help that the case in principle for central-bank independence is far from self-evident. Monetary policy isn't narrowly technical, so handing it over to technocrats is questionable. In discharging the price-stability part of its mandate, the Fed makes choices about how much unemployment to tolerate and for how long. Its interest-rate decisions -- not to mention once-heterodox policies such as quantitative easing -- have big distributional consequences.

In addition, after the crash, most central banks, not just the Fed, were granted or gathered to themselves new regulatory powers. The concept of macroprudential policy has gained ground. That's a hybrid of monetary and regulatory policy -- encompassing, for instance, the idea that permitted loan-to-value ratios for some kinds of lending to be varied according to the state of the business cycle. The wider the remit of central banks, the harder defending the principle of their independence becomes.

Yet the practical common-sense case for independence is stronger than ever. It boils down to this: Yes, the Fed is being asked to do too much -- but no other branch of government is about to step forward if the central bank recuses itself.

Earlier this month a panel of scholars presented a volume of essays on the issue at the Hoover Institution in Washington. The book, "Central Bank Governance And Oversight Reform," is an excellent source for up-to-date thinking on the subject.

During the presentation, one of the authors, Kevin Warsh, responded to a questioner who asked, in effect, the crucial question: What use is it to tell the Fed to step back to a narrower role when Congress is unable and unwilling to step forward? Warsh answered by asking the audience to imagine the salutary effect on Congress if Yellen were just once to say: That isn't the Fed's job -- you'll have to take care of it.

Call me skeptical. You'd need a little more than that to budge Congress from its default mode of long-winded paralysis. As for Trump, I could easily imagine him firing back, "Fine. If you can't fix the problem, we'll name a Fed chair who can."

Central banks didn't get everything right before and after the crash, but things would have gone much worse if they hadn't acted so forcefully. Ben Bernanke and Janet Yellen deserve praise and thanks, not censure. To repeat, the case in principle for central-bank independence may be weak, but the practical case has never looked better. Today, you can sum it up in just two words: President Trump.


Article Link To The Bloomberg View:

Markets Shake Off Geopolitical Risk

From the South China Sea to Ankara, geopolitics are back; Troubling headlines have managed to slow the ascent in stocks.


By Dani Burger and Brian Chappatta
Bloomberg
December 20, 2016

The uncanny resilience that marked global financial markets in 2016 is getting one last test in the year’s final days.

From Ankara to Berlin and the South China Sea, troubling headlines are suddenly buffeting investors once more as 2016 winds down. While the flurry of bad news has kept traders on edge and been enough to cause currencies and stocks to stumble, nothing yet landed has put them down for the count.



About the worst that can be said is that equities are struggling to add to a month-long post-election rally that took major U.S. benchmarks to records while bonds get a respite from the fiercest selloff since 2009. Reactions may be exacerbated as volume thins before the holidays, but to call them violent would be an overstatement

“The market is certainly not as strong as we were earlier,” said Philip Orlando, who helps oversee more than $360 billion as chief equities strategist at Federated Investors Inc. in New York. “There are some investors who might see something like the assassination in Turkey and the potential terror attack in Berlin as opportunities to lock in profits with a couple of weeks left in the year.”

Investors seem loath to give up gains that came so hard in 2016. Sure, equity volatility is near a five-year-lows and the Dow Jones Industrial Average a whisker shy of 20,000, but few who traded through Britain’s secession vote or the U.S. presidential elections would call 2016 a tranquil year.

Lately it’s been a rapid-fire gut check for bulls. First came the seizure of an unmanned U.S. drone in the South China Sea. Then it was the assassination of Russia’s ambassador in Turkey’s capital. Late Monday a report said nine people died after a truck mounted the pavement and rammed into crowds at a Berlin Christmas market.



It’s not that the headlines had no market impact. Fueled by reports that China’s Navy seized a craft deployed by a U.S. oceanographic vessel in international waters, the benchmark 10-year U.S. yield dropped almost seven basis points in less than two hours, according to Bloomberg Bond Trader data. Japan’s yen halted a slide and gold rebounded from a 10-month low in the past two days.

The one-two punch in Ankara and Berlin sent 10-year U.S. yields down five basis points, the most in two weeks. The benchmark rate, even amid the heightened risks, remains close to the highest since 2014. It has climbed from 1.85 percent on Nov. 8, America’s Election Day.



“You might certainly see a big move downward on the assassination and what’s perceived to an terrorist attack on the same day, but we are just not seeing that,” Joseph Veranth, chief investment officer at Dana Investment Advisors in Brookfield, Wisconsin, which manages $7 billion, said by phone. “The market is staying in this narrow range. I’d say it’s more of market indifference than resilience. It’s a quiet market headed into the holiday already.”

Turkish assets proved vulnerable to the renewed tension in that country. The lira declined 0.6 percent against the dollar to a fresh low and a U.S.-listed ETF tracking equities in the nation slid almost 2 percent. A fund that follows German stocks erased gains to finish 0.3 percent lower.



That most markets should prove inured to shock should surprise nobody after the last 12 months. While strategists were breathless in their forecasts for calamity prior to both Brexit and Donald Trump’s election, neither event proved more than a temporary setback for bulls. More than $2 trillion has been added to global equity values in 2016 and the S&P 500 its sixth annual advance in eight years.

“You really have to start to question the crowd,” Fundstrat strategist Tom Lee said in a Bloomberg TV interview. “The consensus really spent most of this year thinking, ‘We’re going to have a recession. The expansion is over.’ It turns out after November, all of a sudden, everyone is excited about the economy. Nothing has changed.”


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