Wednesday, December 21, 2016

Wednesday, December 21, Night Wall Street Roundup: Wall St. Loses Ground After Trump Rally

By Noel Randewich
December 21, 2016

U.S. stocks fell on Wednesday, with healthcare and real estate shares losing ground a day after the Nasdaq Composite and the Dow Jones Industrial Average hit record highs.

The Dow briefly rose to within 15 points of 20,000, a level it has never reached, but relinquished that gain and spent most of the session at a loss.

U.S. stocks have rallied since the Nov. 8 election, with the Dow up 9 percent and the S&P 500 gaining 6 percent on bets that President-elect Donald Trump's plans for deregulation and infrastructure spending will boost the economy.

Some investors worry that the so-called Trump rally has made stocks expensive and are concerned that legislators may resist strong tax cuts and other policies that could widen the federal deficit. The S&P 500 is trading at about 17 times expected 12-month earnings, well above the 10-year average of 14, according to Thomson Reuters Datastream.

"People are taking a pause and they want to see what's going to happen," said Chris Zaccarelli, chief investment officer for Cornerstone Financial Partners. "In his first 100 days in office, it will be interesting to see what legislation they can get through Congress and what regulations they will repeal."

Providing the market with a degree of support this week, expectations of lower capital gains tax rates under Trump gave investors an incentive to not sell stocks until January, according to Zaccarelli as well as to Randy Frederick, vice president of trading & derivatives at Charles Schwab.

"If you can hold back on capital gains for two weeks, why not?" Frederick said. "There's just no incentive to sell right now."

So far in 2016, the S&P 500 has risen 11 percent, topping the 8 percent gain for the year that strategists predicted on average in a Reuters poll 12 months ago.

The Dow Jones Industrial Average .DJI dipped 0.16 percent on Wednesday to end at 19,941.96 points and the S&P 500 .SPX lost 0.25 percent to 2,265.18.

The Nasdaq Composite .IXIC dropped 0.23 percent to 5,471.43.

The healthcare sector .SPXHC dipped 0.60 percent and the real estate sector .SPLRCR lost 1.32 percent.

Accenture (ACN.N) shares fell 5 percent after the consulting and outsourcing software services provider's revenue forecast missed estimates. The stock was the biggest drag on the S&P 500.

Twitter (TWTR.N) fell 4.69 percent after its chief technology officer said he would leave the social networking company.

FedEx (FDX.N) fell 3.33 percent after delivering quarterly results that missed analysts' expectations.

Declining issues outnumbered advancing ones on the NYSE by a 1.13-to-1 ratio; on Nasdaq, a 1.62-to-1 ratio favored decliners.

The S&P 500 posted 22 new 52-week highs and 2 new lows; the Nasdaq Composite recorded 192 new highs and 44 new lows.

With some investors already away for the end-of-year holidays, volume was very light. About 5.4 billion shares changed hands in U.S. exchanges, well below the 7.4 billion daily average over the last 20 sessions.

Article Link To Reuters:

Wednesday, December 21, Morning Global Market Roundup: Dollar Basks In Yield Allure, Nikkei Touches One-Year Peak

By Wayne Cole
December 21, 2016

The U.S. dollar held near 14-year peaks on Wednesday as global yield spreads shifted inexorably in its favor, while early weakness in the yen saw Japanese shares touch a one-year top.

Profit-taking set in as a slow pre-Christmas session dragged on and the Nikkei eased 0.2 percent .N225 in late trade. Spread betters pointed to a small opening loss for European exchanges after shares there hit an 11-month high on Tuesday.

Australia's main index finished at its best level in 17 months after Wall Street racked up more records.

The dollar has been reveling in its rapidly widening yield premium, with the Federal Reserve set on a tightening course even as its peers in Europe and Japan act to keep their short-term rates deep in negative territory.

"It is now clear that the U.S. dollar does have more yield fuel and we would not try to pick even an interim high," said Sean Callow, a senior forex analyst at Westpac.

"Dollar strength should keep pressure on G10 and Asian FX into the new year."

The dollar index, which measures it against a basket of currencies, stood at 103.110 having reached 103.65 .DXY, its highest since December 2002. [FRX/]

The U.S. currency eased a touch on the yen to 117.64 JPY=, but remained in easy reach of the recent peak at 118.66. The euro was a fraction firmer at $1.0409 EUR=.

On Wall Street, the Dow had ended Tuesday just 25 points shy of the magical 20,000 barrier helped by a 1.68 percent gain in Goldman Sachs (GS.N).

Stocks have been on a tear since the Nov. 8 presidential election, with the Dow up 9 percent and the S&P 500 6 percent on bets that President-elect Donald Trump's plans for deregulation and infrastructure spending might boost profits and growth.

The Dow .DJI rose 0.46 percent on Tuesday, while the S&P 500 .SPX gained 0.36 percent and the Nasdaq .IXIC 0.49 percent. Eight of the 11 major S&P sectors rose, led by a 1.23 percent jump in the financial index .SPSY.

After the bell, Nike (NKE.N) rose 3 percent on a strong quarterly report from the sports apparel seller.

Not Thrilled 

Emerging markets have not been nearly as thrilled by Trump's win, as the threat of tariffs has stirred fears of a trade war while rising U.S. yields have attracted funds away.

Benchmark 10-year U.S yields US10YT=RR have climbed almost 80 basis points since early November to reach 2.57 percent.

Data from the Institute for International Finance showed non-resident investors had pulled $23 billion from emerging market portfolios since early October.

The outflows have triggered the longest continuous "reversal alert" since the organization began issuing the notice in 2005.

Chinese markets have also been unsettled by Beijing's move to heighten supervision of shadow banking activities and on talk it may tighten liquidity to crimp the outflow of capital.

MSCI's broadest index of Asia-Pacific shares outside Japan .MIAPJ0000PUS inched up 0.3 percent on Wednesday, but that followed a string of losses.

In commodity markets, oil prices crept higher for a fourth session on expectations data due later in the day would show a U.S. crude inventory draw. [O/R]

U.S. crude futures CLc1 were up 19 cents at $53.49 a barrel, while benchmark Brent crude futures LCOc1 added 15 cents to $55.50.

Gold held at $1,135.40 XAU= an ounce as a firm U.S. dollar kept it near last week's 10-1/2-month low of $1,122.35.

Article Link To Reuters:

Lessons From Past Haunt BOJ As Yield Rise Sparks Talk Of Tightening

By Leika Kihara
December 21, 2016

For the first time in a decade the Bank of Japan is prepared to contemplate the possibility of a future rate rise – a radical shift for an extremely dovish central bank that now finds itself boxed into a corner by surging global bond yields.

But that doesn't mean the BOJ is anywhere close to pulling the trigger.

Not only Governor Haruhiko Kuroda and one of his deputy governors Kikuo Iwata - widely regarded as the architects of the BOJ's massive money-printing experiment, but many others on the nine-member board would need a significant change of heart.

And central bank officials haunted by their two failures since 2000 to exit zero rates would rather be late in tightening than be caught out, and criticised, again for taking the steam out of the economy.

"The last thing the BOJ wants is to be blamed for ruining a budding economic recovery and to be criticised yet again for doing too little to spur growth," said a source familiar with the BOJ's thinking.

Under a new policy adopted in September, the BOJ shifted its policy target to interest rates from the pace of money printing in the hope doing so would relieve it from maintaining its huge government bond-buying that many analysts see as unsustainable.

The BOJ believed it could achieve its new pledge of guiding 10-year bond yields around zero with less bond-buying. But containing yields have proven more difficult than expected, as Japanese government bond (JGB) yields rose in tandem with soaring global rates on bets the incoming U.S. administration led by Donald Trump will boost fiscal spending, growth and interest rates.

After holding policy steady on Tuesday, Kuroda shrugged off talk of a rate hike, saying maintaining the massive quantitative and qualitative easing (QQE) stimulus remained the priority while inflation was under 2 percent.

Sources have told Reuters that the BOJ is more open to discussing raising its 10-year bond yield target and could even contemplate doing it at some point in 2017.

But Kuroda was vague on whether it would be up for discussion before his five-year term ends in April 2018.

"There's a possibility we will debate it, and there's a possibility we will not," he said.

Bad Memories

Japan's economy is recovering moderately as factory output and exports show signs of life on a pick-up in emerging market demand. But inflation remains stubbornly low with core consumer prices falling for eight straight months in October.

When the BOJ raised interest rates to 0.25 percent from zero in August 2000, markets were confused because there had been no advance guidance. Only eight months later the BOJ was forced to adopt quantitative easing to battle a domestic banking crisis.

Things were much smoother when the BOJ exited QE in March 2006 and raised rates to 0.25 percent from zero four months later, as it had flagged its intention to withdraw stimulus when inflation had stably topped zero.

Still, the BOJ was criticised for hiking prematurely after the economy lost momentum.

"The hurdles for raising the target are higher than what most people think, and the BOJ understands this well," said one source, a view echoed by at least three other officials.

The sources said the BOJ will likely only take baby steps toward any withdrawal of stimulus. Even then, any increase in its 10-year government bond yield target would be telegraphed as a minor fine-tuning of ultra-easy policy.

Takehiro Sato and Takahide Kiuchi, the two BOJ board members who have consistently raised doubts on the feasibility of QQE and could have spearheaded the drive toward higher rates, will step down when their terms end in July next year.

If the BOJ were to move up its 10-year yield target, it would most likely be in response to rises in market long-term interest rates reflecting broad improvements in the economy.

Some BOJ officials say they could explain the rate hike as neutral to the economy because the real cost of borrowing, adjusted for inflation, would not rise if inflation and inflation expectations are heightening.

"The BOJ probably won't raise the target easily. It would take an unexpected, sustained increase in Japanese yields or inflation expectations to justify such a move," said Mari Iwashita, chief market economist at SMBC Friend Securities.

Article Link To Reuters:

U.S. Government Loses To Russia's Disinformation Campaign

By Joseph Menn
December 21, 2016

The U.S. government spent more than a decade preparing responses to malicious hacking by a foreign power but had no clear strategy when Russia launched a disinformation campaign over the internet during the U.S. election campaign, current and former White House cyber security advisers said.

Far more effort has gone into plotting offensive hacking and preparing defenses against the less probable but more dramatic damage from electronic assaults on the power grid, financial system or direct manipulation of voting machines.

Over the last several years, U.S. intelligence agencies tracked Russia's use of coordinated hacking and disinformation in Ukraine and elsewhere, the advisers and intelligence experts said, but there was little sustained, high-level government conversation about the risk of the propaganda coming to the United States.

During the presidential election it did - to an extent that may have altered the outcome, the security sources said. But U.S. officials felt limited in investigating Russian-supported propaganda efforts because of free speech guarantees in the Constitution.

A former White House official cautioned that any U.S. government attempt to counter the flow of foreign state-backed disinformation through deterrence would face major political, legal and moral obstacles.

"You would have to have massive surveillance and curtailed freedom and that is a cost we have not been willing to accept,” said the former official, who spoke on condition of anonymity. "They (Russia) can control distribution of information in ways we don't."

Clinton Watts, a security consultant, former FBI agent and a fellow at the nonprofit Foreign Policy Research Institute, said the U.S. government no longer has an organization, such as the U.S. Information Agency, that provided counter-narratives during the Cold War.

He said that most major Russian disinformation campaigns in the United States and Europe have started at Russian-government funded media outlets, such as RT television or Sputnik News, before being amplified on Twitter by others.

Watts said it was urgent for the U.S. government to build the capability to track what is happening online and dispute false stories.

"Those two things need to be done immediately," Watts said. "You have to have a public statement or it leads to conspiracy theories."

A defense spending pill passed this month calls for the State Department to establish a "Global Engagement Center" to take on some of that work, but similar efforts to counter less sophisticated Islamic State narratives have fallen short.

The U.S. government formally accused Russia of a campaign of cyber attacks against U.S. political organizations in October, a month before the Nov. 8 election.

U.S. 'Stuck'

James Lewis, a cyber security expert at the Center for Strategic & International Studies who has worked for the departments of State and Commerce and the U.S. military, said Washington needed to move beyond antiquated notions of projecting influence if it hoped to catch up with Russia.

"They have RT and all we know how to do is send a carrier battle group," Lewis said. "We're going to be stuck until we find a way deal with that."

Watts, who said he has tracked tens of thousands of pro-Russia Twitter handles since 2014, believes many of the most effective stories stoke fear of war or other calamities or promote a narrative of corrupt Western politicians, media and other elites.

He and others said Sputnik shows the intensity of the Russian effort.

Launched two years ago as a successor to the official Russian wire service and radio network, Sputnik does not merely parrot the Kremlin political line, according to experts. It has gone out of its way to hire outsiders with social media expertise, including left and right-leaning Americans who are critical of U.S. policies.

Sputnik News did not respond to a request for comment.

During the election campaign, one of the most prominent fulltime Sputnik writers and commentators, Cassandra Fairbanks, shifted from an ardent anti-police protestor and supporter of socialist U.S. Senator Bernie Sanders to a vocal backer of Republican Donald Trump.

Fairbanks said in an interview with Reuters that Sputnik had not told her to advocate for Trump, now president-elect. She said she was swayed by Trump's opposition to overseas wars and international trade agreements.

"I did my best to push for him," Fairbanks said, "but that was of my free will."

A woman in her thirties with more than 80,000 Twitter followers, Fairbanks was an activist with the hacking movement known as Anonymous before she joined Sputnik.

The day before the election, Fairbanks said on a YouTube channel that it was "pretty likely" that the authors of emails hacked from the account of Democratic candidate Hillary Clinton's campaign manager John Podesta were using code words for pedophilia when they spoke about pizza.

The assertion fed the falsehood that Clinton supporters were operating a child sex ring out of a Washington-based pizza parlor. The channel, with 1.8 million subscribers, was run by Alex Jones, a radio host who has said the 9/11 attacks were an "inside job."

Joe Fionda, a veteran of the Occupy protests who worked briefly for Sputnik in 2015, said the organization’s articles and social media efforts overall were aimed at praising Russian President Vladimir Putin's allies such as Syria and dwelling on negative news in the United States, including police misconduct.

Some U.S. officials and political analysts have said Putin could believe businessman Trump would be friendlier to Russia than Clinton, especially when it came to economic sanctions.

Fionda said spreading hacked emails was a priority at Sputnik. He said his job included trying to create viral memes on a Facebook page called Mutinous Media, which did not list a Sputnik connection.

Former workers of the Democratic National Committee, one of the groups infiltrated by Russian-backed hackers, said the U.S. government should consider providing funding for the technological defense of major political parties. They said that once hacked emails began appearing online, party functionaries were constantly behind in responding.

They also said that the staff of Democratic President Barack Obama had been overly concerned about not appearing to defend its own party's candidate.

Obama has asked spy agencies to deliver an analysis of Russian meddling in the election that will include discussion of propaganda operations, Office of the Director of National Intelligence General Counsel Robert Litt told Reuters.

Asked on Tuesday whether he thought the U.S. government had been caught off guard, Litt said: "I'm not touching this with an 11-foot pole. It is a very important issue that the intelligence community is looking at very carefully, and it will issue a report in due time."

Article Link To Reuters:

Donald Trump Must Not Banish Europe

There is perhaps no more effective and efficient way for Washington to project strength than from the platform of a robust and united NATO alliance.

By Richard Burt
The National Interest
December 21, 2016

PERHAPS NO item on President-elect Donald Trump’s foreign-policy agenda is as unclear as his new administration’s approach to the American relationship with Europe. There are some obvious reasons for this. At various moments in the campaign, he appeared to call into question the Atlanticist consensus over security and economic policy supported by U.S. administrations and European governments for nearly seventy years. Among other things, he questioned the relevance of the NATO alliance and his commitment to abiding by the Article Five obligation to come to the aid of allies under attack. At the same time, he underscored his disdain for the European Union by openly supporting Brexit while also singling out Chancellor Angela Merkel for her open-door policy towards migrants from conflicts in the Middle East. Meanwhile, European governments are unnerved by President-elect Trump’s call for scuttling the Iran deal and walking away from the Paris agreement on climate change.

Prospects for U.S.-Europe relations during the Trump era, at least at this point, do not look good. The question that many Americans (including some Trump supporters) might ask is: does it matter? Europe seems to confront a multiplicity of crises, ranging from internal challenges, such as low economic growth and rising populism, to external threats, including Russian aggression and Middle East terrorism, that seem to be sapping the continent’s political resolve and global position. So why, then, should a new Trump administration waste energy and resources on working out common strategies with the Europeans?

From a historical perspective, the answer is clear. In both the Cold War and the post–Cold War eras, U.S. international primacy has flowed, at least in part, from America’s security partnership with Europe. In the 1980s, an important element of the Reagan administration’s military buildup was strengthening NATO. Then, following the collapse of the Berlin Wall, the United States, working closely with Britain, France and West Germany, was able to achieve the peaceful reunification of Germany in negotiations with Russia. More recently, U.S. and European collaboration on Ukraine-related sanctions and in fighting the Islamic State have not only augmented American leverage but conferred political legitimacy on these policies.

This is not to suggest that all is well within the alliance, particularly as far as burden sharing is concerned. Even Barack Obama has complained about the “free-rider” problem within NATO. And on the campaign trail, Trump repeatedly called for higher European defense spending. But this is a topic where Trump can already claim some credit: expecting new pressure from Washington on spending and worried about a continuing commitment to Europe, a number of NATO capitals appear ready to entertain defense-spending increases. While the allies have endorsed the goal of spending a minimum of 2 percent of national GDP for defense, a Trump administration is likely to push to make this a hard-and-fast commitment.

But beyond more spending and stronger defenses, the incoming administration also needs to appreciate the strategic utility of closer U.S.-Europe security cooperation. As Trump himself has indicated, an important goal of his presidency will be exploring the possibility of reaching a new understanding with Russia. At this point, it is not clear what this possible “deal” might look like. But one thing is apparent: if anyone understands power, it is Vladimir Putin. A Trump administration will get a much better hearing for its ideas if it is dealing with Moscow from a position of strength. There is perhaps no more effective and efficient way for Washington to project strength than from the platform of a robust and united NATO alliance.

Several things flow from this conclusion. One is that whether it likes it or not, the new administration will need to engage in what the State Department calls “alliance management”—the feeding and care of key NATO allies. Lacking such consultations, it will be harder to maintain Western unity on sensitive policies, such as Ukraine-related sanctions. Last April, as Trump began to emerge as the Republican favorite, he delivered a foreign-policy speech in Washington calling for a NATO summit in the early days of his presidency. This is a very good idea. Politically, it would reassure anxious allies over America’s commitment to the relationship. Substantially, it would enable him to lay out an updated version of the Nixon administration’s “defense and détente” strategy for dealing with the Soviet Union. This would entail rebuilding NATO defenses and political cohesion as an essential means of reaching a solution for Ukraine and reducing Russian aggressiveness along NATO’s eastern flank.

BEYOND NATO, other steps are necessary. Germany, especially after Brexit, has emerged as the key strategic actor in Europe. As the earlier debate over EU sanctions on Russia underscored, German leadership is increasingly indispensable for European action. Major friction between Berlin and Washington would severely complicate U.S.-Europe cooperation, not only on Russia but along a wider range of political and economic issues. Over a longer period, a breakdown of the U.S.-Germany relationship could weaken America’s global position, destabilize Europe and offer Russia an opportunity to expand its sphere of influence.

With stakes like these, the new administration will need to think carefully about how to keep Germany onside. It is clear that work needs to be done. Following the election, Merkel delivered the president-elect an unmistakable message: while ties with the United States were a cornerstone of German strategy, U.S.-Germany cooperation had to be based on “a common platform of democracy, freedom, advocacy for human rights all over the world and championing the open and liberal world order.” The question, of course, is whether the German conception of a values-based approach to foreign policy is compatible with a Trump doctrine that is more transactional in nature. The answer to this question will come in the form of how the new administration addresses issues like the sanctions on Russia, the Iran deal and the Paris climate agreement—issues where the German government (in an election year) will have strong and potentially contrary positions to those held by Washington. Donald Trump may not have the interest or the inclination to develop a close consultative relationship with the German chancellor, but he will need a “Merkel whisperer” of sorts.

Britain is another key question. Despite the president-elect’s support for Brexit and his apparent embrace of Nigel Farage, the former leader of UKIP, the results of the referendum last June represent a net loss for the United States. With Britain leaving the EU, the United States will enjoy less support in European councils and Europe itself will miss the pragmatic and liberal solutions that London has tended to offer. Britain’s process for extracting itself from the EU will be long, complicated and, at times, painful. There are two interrelated dangers here. One is that the disengagement process itself will distract the British government from addressing other pressing international responsibilities. There is also the larger danger that post-Brexit Britain will turn inward, becoming more parochial and less interested in a partnership with Washington. The new administration can play a constructive role here, by helping London compensate for Brexit by pushing it towards a more active role in NATO. Other initiatives could also be taken by Washington to underscore that the relationship with Britain remains special, including a Trump-designed “new age” trade agreement with a non-EU Britain. As in the case of Chancellor Merkel, some personal repair work appears necessary between the president-elect and the British prime minister. This should not be too difficult to achieve, but nobody should expect a Reagan-Thatcher romance to develop.

Beyond Germany and Britain, there is the issue of rising populism in Europe, particularly in the case of the forthcoming elections in France. As tempting as it might be for a new Trump administration to intervene in these elections in 2017, the impulse must be rejected. The National Front and Marine Le Pen clearly view Donald Trump’s victory as an auspicious sign. But a Le Pen presidency would be deeply destructive, unleashing political forces that would undermine European unity and trans-Atlantic cooperation. Success for the National Front remains unlikely, but even identifying with Le Pen’s cause would prove a costly mistake for the incoming Trump team, complicating the task of building ties with Berlin and other EU governments. A far better alternative would be to remain neutral in the contest, with the expectation that the center-right candidate, François Fillon, would be elected. Fillon, with conservative views on economics and a strong position on combating Islamic terrorism, could prove to be President Trump’s closest partner in Europe, particularly in terms of ratcheting up the campaign against the Islamic State.

ALONG WITH combating the Islamic State, there are other steps that European governments can take to strengthen security in cooperation with Washington. One is creating an EU-wide, intergovernmental system for monitoring, deterring and, when necessary, interdicting large-scale refugee flows from the Middle East and North Africa. As the 2015 refugee crisis underscored, Europe’s lack of preparedness and capacity to deal with the flows was politically destabilizing and divisive and, from the standpoint of terrorism, dangerous. A Trump administration, with its own priorities for managing immigration, will be strongly supportive of European efforts in this area.

Related to this, of course, is the problem of Turkey. At a moment when Turkey is becoming more strategically important, because of the cauldron of conflicts in the Middle East, Ankara is emerging as a difficult ally. In the face of the migration crisis and Turkey’s role in helping manage it, the Europeans have been prepared to take a less values-focused, more transactional approach to dealing with President Recep Tayyip Erdogan. But in the face of his broad-based purge launched in the aftermath of the failed coup attempt in July, it has become harder for the Europeans to look the other way. Washington has faced a similar dilemma, but by and large has given priority to its strategic interests in working closely with Turkey in Syria over concerns about postcoup domestic crackdowns. Under a President Trump, who seems to admire Erdogan, this realist policy is very likely to continue.

There is, finally, the issue of trade. The Transatlantic Trade and Investment Partnership (TTIP), proposed four years ago with great fanfare on both sides of the Atlantic, has fizzled, as trade deals have become political targets for populists and other groups. In the United States, the finalized proposal of the Trans-Pacific Partnership has received the most attention, with both Trump and Hillary Clinton opposing the measure during the campaign. In Germany, however, TTIP has emerged as surprisingly controversial, despite its initial endorsement of the underlying concept. Ironically, TTIP could serve as a model for the type of trade agreement that a Trump administration might support. Unlike earlier trade agreements, such as NAFTA, TTIP would be unlikely to facilitate the relocation of companies (and jobs) from higher-cost developed countries to lower-cost emerging markets. Instead, TTIP focuses on developing a common regime for regulatory recognition that would facilitate U.S.-European trade while reducing the regulatory burden for companies on both sides of the Atlantic. Both conventional Republicans and Trump’s populists should find this idea attractive. If a new President Trump decides, early on, to visit Brussels to attend both a NATO summit and a meeting of the European Council, he should consider bringing with him a proposal for giving TTIP new impetus.

All in all, it should be understood that in the era of Trump, Europe-America relations will not simply fall into place. Both sides will need to work hard to keep things on track. But the strategic advantages of pursuing common interests, in developing a new relationship with Russia, addressing terrorism in the Middle East and in managing a rising China, are obvious. At the end of the Cold War, there was much discussion about the inevitable worldwide triumph of Western values—Francis Fukuyama's famous “end of history.” But rather than an end of history, the West—Europe and America alike—has engaged over much of the last two decades in a holiday from history. It is time to get back to work.

Article Link To The National Interest:

How America Got Shut Out Of Syria

By Benny Avni
The New York Post
December 21, 2016

Rather than igniting World War III, the Monday assassination of Russia’s ambassador in Turkey could usher the beginning of a beautiful Russo-Turkish friendship — with the United States left out in the cold.

Moscow hosted foreign ministers from Turkey and Iran Tuesday, sealing a new plan for the future of Syria. Phase one, according to Russia’s wily foreign minister, Sergey Lavrov: “Turkish-Russian-Iranian cooperation ensures the evacuation of civilians and armed groups from eastern Aleppo.”

Wait, what? Isn’t Sunni Turkey the sworn enemy of Shiite Iran? And wasn’t Monday’s dramatic assassination of Ambassador Andrey Karlov, President Vladimir Putin’s personal friend, supposed to put Turkey and Russia on the outs?

After all, the shooter, Mevlut Mert Altintas, was a member of Turkey’s police force. Using that access, he got close enough to shoot Karlov in the back, shouting “Allahu Akbar” and vowing to never forget Aleppo, where Russia assists Syrian President Bashar al-Assad’s butchery of Sunni civilians.

And yet Russia and Turkey have found some common ground in blaming America.

In Turkey, the government-friendly media (none other remains) insist the assassin is part of the network led by Fethullah Gulen — President Recep Tayyip Erdogan’s top nemesis who lives in Pennsylvania — and his CIA backers.

In Moscow, Putin said Tuesday that the Ankara assassination was “without a doubt a provocation aimed at spoiling the normalization of Russo-Turkish relations.”

Who’s the spoiler? The West, of course. According to Russia Today, Putin’s English-language mouthpiece, “Atlanticists are appalled that Moscow, Ankara and Tehran are now fully engaged in designing a post-Battle of Aleppo Syrian future, to the graphic exclusion of” NATO and its Gulf allies.

Thus, Turkey’s drift toward Putin, the region’s favorite strongman, continues undeterred by the ambassador’s assassination.

“Erdogan is walking a tightrope: He needs to appease his Islamist followers, while at the same time maintaining his relationship with Russia,” says Aykan Erdemir, a former member of the Turkish parliament who is now with the Washington-based Foundation for Defense of Democracies.

The solution? Erdogan’s Islamist followers are being fed Anti-Western conspiracy theories to distract them from Putin’s butchery, and to redirect their anger. At the same time, Ankara’s making deals with Moscow over Syria, benefitting both authoritarian leaders.

As Erdemir and others see it, these are the likely outlines of a Russia-Turkey deal: Turkish forces will help Russia evacuate Sunni civilians from Aleppo. Putin then can claim the mantle of Mr. Humanitarian. In return, Russia will ignore Turkey’s ongoing takeover of northern Syria, meant to create a wedge at the heart of an emerging Kurdish statelet and increase Turkey’s regional influence.

Meanwhile, even as Erdogan fans anti-Shiite sentiments at home, Turkey is increasing its secret (and some not-so-secret) energy and trade deals with Iran, laying the groundwork for a mutually beneficial entente between the two sectarian rivals. Iran, in turn, is pitching in overseeing the Aleppo evacuation.

What about America? As those who have a stake in Syria overcome their differences to enhance their regional interests, we’re left whining at the United Nations.

This week, after an effort led by France and backed by the United States, the Security Council mandated UN supervision of the evacuation of Aleppo, where 50,000 civilians remain trapped. After coming to an agreement with Syria over the boundaries of the evacuation zone, the UN supervisors will eventually get to the destroyed city. By then, though, Russia, Turkey and Iran will have taken credit for saving the people of eastern Aleppo. And then they’ll carve up the rest of Syria.

Meanwhile, Erdogan’s new alliances will undermine Turkey’s old ones. The further he tightens relations with Russia and Iran, the more he drifts away from NATO. Turkey boasts the second-largest military of all NATO states, and Turkey’s geographical location at the heart of a region in turmoil is more crucial than ever.

But President Obama has decided (and President-elect Donald Trump largely agrees) to subcontract Syria to other powers. Losing friends and not influencing people is the price a superpower has to pay for a decade of refusing to be one.

And even as it cedes geopolitical influence, the West remains a top bogeyman, fueled by not just Islamist propaganda but by Russian and Turkish lies. So even as our global power diminishes, Islamists will target our streets for bloodshed.

Article Link To The New York Post:

Russia’s Rise In Mideast Creates Enemies

Moscow has taken the place U.S. long occupied in the minds of many in Middle East: an alien imperialist power seen as waging war on Muslims and Islam.

By Yaroslav Trofimov 
The Wall Street Journal
December 21, 2016

Victory comes at a cost.

Since entering the Syrian war last year, Russia successfully ended America’s status as the Middle East’s sole superpower, an achievement capped by the fall of Aleppo.

That rise has turned Moscow into the region’s indispensable power broker. In Europe, too, the migrant wave unleashed by the Syrian war strengthened Moscow’s sway, fueling populist parties friendly to President Vladimir Putin.

The assassination of Russia’s ambassador to Turkey on Monday, however, highlighted the flip side of this dizzying rise. As America’s influence has shrunk, Russia has taken the place the U.S. long occupied in the minds of many people in the Middle East: an alien imperialist power seen as waging war on Muslims and Islam.

There haven’t been any recent anti-American protests in the region. But amid the agony of Aleppo, tens of thousands of protesters converged this month outside Russian missions from Istanbul to Beirut to Kuwait City—where the chanting, led by local lawmakers, was clear: “Russia is the enemy of Islam.”

The Turkish policeman who gunned down Ambassador Andrey Karlov on Monday shouted that he was avenging the suffering of Aleppo, which had been subjected to a year of Russian bombing before the Syrian regime and its Shiite allies conquered the rebel-held parts of the city in recent weeks.

The diplomat’s assassination, while condemned by governments, was greeted with open joy on Arabic social media, and in Palestinian refugee camps.

“Russia is certainly being perceived as the new bully in the neighborhood,” said Hassan Hassan, a fellow at the Tahrir Institute for Middle East Policy in Washington. “The way people react to its involvement in the decimation of one of the most revered Sunni cities in the Middle East, Aleppo, is reminiscent of how the U.S. was viewed after its occupation of Iraq. You only need to follow how the killer of the Russian ambassador was glorified throughout the region to get an idea of how Russia is despised by the populace today.”

Though Russia has become the immediate focus of this outrage, the fall of Aleppo is also intensifying support in the region for jihadist groups that plot terrorist attacks in the West such as Islamic State and al Qaeda.

“There is a feeling that Aleppo signifies a new phase,” said Lebanese lawmaker Basem Shabb. “The level of anger is very high and there is no doubt that what happened there will fuel a lot of extremism, in Europe and other parts of the world.”

The killing of 12 people at a Berlin Christmas market on Monday appeared to be one such extremist attack, after Islamic State on Tuesday claimed responsibility for it.

Though the perpetrator is still unknown, such terrorist attacks in Europe have become enmeshed in the public mind with the massive refugee influx that began after German Chancellor Angela Merkel, one of Mr. Putin’s toughest critics in the West, last year decided to grant asylum to Syrians fleeing the war.

A chorus of anti-immigrant politicians from across Europe has already accused Ms. Merkel, who is facing elections next year, of being responsible for the carnage in Berlin.

That Russia has become a target of the global jihad in ways that it wasn’t before became clear in October last year, just a month after Russia deployed its forces and war planes to Syria. A Russian passenger jet was downed over Egypt’s Sinai peninsula, with Islamic State claiming responsibility.

These days, however, Russia’s involvement—in troops and treasure—has grown. Anger at Russia is much more overt, too, and isn’t just confined to jihadists.

That, for one, poses a problem for Turkish President Recep Tayyip Erdogan’s drive to forge an understanding with Mr. Putin and Iran over the future of Syria. Ankara until recently was one of the most determined foes of the Assad regime but has softened this stance in exchange for Russia’s acquiescence to a Turkish military operation against Islamic State and Kurdish militias in northern Syria. Foreign ministers of the three nations discussed Syria at Tuesday’s talks in Moscow.

“Since 2011, the Turkish government narrative has created and nurtured a domestic constituency that is very sensitive to the tragedy unfolding in Syria,” said Sinan Ulgen, a former Turkish diplomat who now heads the Edam think tank in Istanbul. “A more realpolitik approach to Syria is certainly creating frustration among this constituency.”

In Turkey and elsewhere in the region, hostile public opinion means that Russian representatives and missions would have to enact the same security restrictions that have hampered the work of American diplomats for decades.

Yet, just as anti-American demonstrations and attacks on American diplomats didn’t drive the U.S. from the Middle East in past decades, Moscow, too, is unlikely to be deterred by Mr. Karlov’s death.

“What happened is an illustration that the rising role of Russia, its involvement in sensitive areas, means that Russia will have to accept higher risks,” said Nikolay Kozhanov, a former Russian diplomat in Iran and a professor at the European University at St. Petersburg. “But it will not become a turning point or lead to a change of policy.”

Both Turkey and Russia are determined not to let the assassination of Mr. Karlov spoil the recent rapprochement between the two nations.

Last month, Mr. Erdogan even floated the idea of joining the Shanghai Cooperation Organization, a security pact that unites Russia and China, though full membership would be incompatible with Turkey remaining a member of North Atlantic Treaty Organization.

Whatever happens, regional leaders are well aware that Moscow has come to the Middle East to stay.

“They want to be reckoned with, to have enough clout so that nothing will take place in the region without their consent,” the secretary-general of the Arab League, Ahmed Aboul-Gheit, said in an interview last week. “And they are succeeding.”

Article Link To The Wall Street Journal:

Trump Could Deliver The ‘Transformation’ Obama Only Promised

By Jonah Goldberg
The New York Post
December 21, 2016

It’s one of the greatest examples of “careful what you wish for” in political history: President Obama is going to be replaced by the kind of Republican he’s always said he wanted.

For the entirety of his presidency, Obama has insisted that he is a pragmatist, not an ideologue. Indeed, he seems to think that ideology is a dirty word. “What is required,” Obama declared the day before his first inauguration, “is a new declaration of independence, not just in our nation, but in our own lives — from ideology and small thinking, prejudice and bigotry — an appeal not to our easy instincts but to our better angels.”

As a confessed ideologue, I’ve always taken offense at the suggestion that ideology — i.e., a fixed set of principles — deserves to be listed alongside prejudice, bigotry and small thinking. Moreover, as a conservative, I’ve always found laughable the idea that Obama is not an ideologue.

But when Donald Trump says he’s a pragmatist, it’s no laughing matter. Not since Richard Nixon have we had a president (or president-elect) less committed, or beholden, to a fixed ideological program.

Going into the GOP primaries, the conventional wisdom held that the winner of the contest would be the candidate who displayed the most ideological purity. Instead the brass ring went to the contender with the least.

“No, it’s not going to be the Trump doctrine,” Trump said in April. “Because in life, you have to be flexible. You have to have flexibility. You have to change. You know, you may say one thing and then the following year you want to change it, because circumstances are different.”

A few days later, he told his supporters in California, “Folks, I’m a conservative, but at this point, who cares? We got to straighten out the country.”

His surrogates echoed the sentiment. Investor Carl Icahn assured voters that “Donald is a pragmatist. He’s going to do what’s needed for this economy.”

Hedge fund mogul Anthony Scaramucci wrote in the Wall Street Journal: “What elitists misinterpret as uneven principles, entrepreneurs understand as adaptability. … Mr. Trump would be the greatest pragmatist and deal maker Washington has ever seen.”

The closest Trump comes to a rigid set of political principles is on the issue of trade. He has been making the same protectionist arguments about trade for more than 30 years. And despite the fact that the GOP has, at least rhetorically, been a party of free trade since Ronald Reagan, Trump seems to have won that argument in a rout. No doubt there are Republicans who disagree with Trump on trade, but for the most part they’re keeping their opposition to themselves.

Obama came into office wanting to be a transformative president. He almost certainly failed — many of his prize accomplishments likely won’t survive the next GOP Congress. And even as he argued against partisanship, and advanced the idea that a president can, nay must, decide every issue on a case-by-case basis, he always pushed a liberal agenda.

Trump, though, really might try the case-by-case approach, which we’ll soon find is more disorienting than refreshing. His “flexibility” on numerous issues — infrastructure, entitlements, industrial policy, day care and who knows what else in the years to come — means we won’t know what to expect.

For good or ill, then, Trump could be the “transformative” president Obama always wanted to be — the president who gets us past partisan ideology by doing away with principle.

One can already hear the ideological supports of both parties groaning under the weight of Trump’s pragmatism. If one party collapses as a result, both will likely topple over. What replaces them is anyone’s guess, but no one will deny that a transformation took place.

Article Link To The New York Post:

Bill Clinton Cost Hillary The Election

Anthony Weiner and the FBI were only in the picture because she felt the rules did not apply to her. She might still have won had her husband not felt the same.

The Daily Beast
December 21, 2016

Former President Bill Clinton is quick to apportion blame for his wife’s defeat.

“James Comey cost her the election,” Clinton was quoted telling a group of holiday shoppers during an impromptu chat in a Westchester County bookshop last week.

But he has yet to place any blame at all on an otherwise great man with a great fault who bears considerably more responsibility for Hillary Clinton’s loss.

That man is Bill Clinton himself. His great fault is one he shares with his wife; they too often act as if rules such as apply to you or me do not apply to them.

In blaming Comey, Bill Clinton noted that “we were seven points up” before the FBI director made it known via a letter to Congress that the investigation into Hillary Clinton’s emails had been reopened.

Bill Clinton did not add that Comey had felt obliged to make the reopening public because he had previously felt obliged to make the initial closing of the investigation public.

And the reason Comey had made the initial closing public was that the rules do in fact apply to everybody.

One rule holds that the husband of the target of a criminal investigation should not seek to meet privately with the law enforcement official ultimately in charge of that same investigation, no matter how innocent the talk.

That did not stop Bill Clinton from striding across the tarmac to have a friendly chat with Attorney General Loretta Lynch when their planes happened to be parked near each other at the executive terminal at Sky Harbor airport in Phoenix on June 27.

“I did see President Clinton at the Phoenix airport as he was leaving, and he spoke to myself and my husband on the plane,” Lynch told the press afterward. “Our conversation was a great deal about grandchildren. It was primarily social and about our travels, and he mentioned golf he played in Phoenix.”

Word of the encounter nonetheless left Comey in an untenable situation. He had essentially come to the end of the investigation. The usual protocol called for him then to refer the findings to Department of Justice and let the prosecutors make the official determination.

What was anything but usual was that the top prosecutor had just been sitting on a plane with Bill Clinton. And for Lynch now to announce that Hillary Clinton had been cleared would call into question the integrity of all involved, including Comey and the FBI.

Had he been looking to make it easy on himself and hard on Hillary, Comey could have simply said that there was sufficient probable cause to proceed with a criminal case. He would have needed only to point to the nearly two dozen secret emails that had passed through her server.

But, in the words of one former FBI agent, Comey is “a unicorn in Washington; somebody who actually has ethics.” And he had come to the conclusion that while Hillary’s conduct had been egregiously careless, it lacked the intent necessary to support criminal charges.

Comey decided that he had to present the results directly to the public along with an explanation to dispel the appearance of impropriety as much as was possible. He did just that, making clear that he felt Hillary Clinton had been reckless and irresponsible, and that she had shown terrible judgment.

“We cannot find a case that would support bringing criminal charges on these facts,” Comey said. “Although we did not find clear evidence that Secretary Clinton or her colleagues intended to violate laws governing the handling of classified information, there is evidence that they were extremely careless in their handling of very sensitive, highly classified information.”

What Comey could not have foreseen was that Anthony Weiner would get caught in another sexting scandal… and that this time it would involve a 15-year-old… and that FBI agents would end up securing a search warrant for the former congressman’s computer… and that its hard drive would prove to contain thousands of emails between his wife, Huma Amedin, and Hillary Clinton via the former secretary of State’s server.

These emails clearly had nothing to do with the Weiner sex crime investigation. But there was a possibility that they might pertain to the now-closed Hillary Clinton investigation.

Comey could hardly have just ignored the emails, even if he had been so inclined, which he most definitely was not. The only way he could check them was to reopen the investigation and secure a search warrant.

As has been noted in The Daily Beast, one problem for Comey was that the very agents who had been less than happy to see all their work on the Hillary case apparently come to naught when the case was closed in July would almost certainly be put back on it when it was revived. And one of those agents would be all but sure to tip off the press. There would no doubt have been talk of a cover-up on Hillary Clinton’s behalf.

Comey apparently decided that the only thing for him to do was announce that the investigation had been reopened the very way that he had earlier announced that it had been closed.

The result was the letter a fortnight before the election that Bill Clinton now blames for his wife’s defeat. He is right to say that Comey’s subsequent letter clearing Hillary Clinton on the Sunday before Election Day was too late to undo the damage.

But Bill Clinton fails to note that he himself is the one who made the initial letter—and therefore the others—necessary. Comey would never have felt obliged to go public in the first place had the great man with the great fault not decided that he was above a rule such as should have kept him from striding across the tarmac and boarding Lynch’s plane.

On her part, Lynch has accepted at least a modicum of responsibly for how it all played out.

“Well, I do regret sitting down and having a conversation with him, because it did give people concern,” she said on CNN on Sunday.

A reminder of how it might have played out came on Thursday with the unsealing of the FBI affidavit that accompanied the search warrant application for Weiner’s computer when the investigation was reopened.

The section of the sworn document headed “PROBABLE CAUSE FOR SEARCH” notes that of the 30,490 emails in Hillary Club’s server that were reviewed by the State Department, 2,115 were found to contain information that is presently classified. The affidavit reports that 65 of them were classified Secret and 22 classified Top Secret.

“The Secret level is significant because it means that the unauthorized disclosure of those emails could result in serious damage to national security,” the affidavit says. “The Top Secret level is significant because it means that the unauthorized disclosure of those emails could result in exceptionally grave damage to national security.”

That would certainly seem to have been enough probable cause for Comey if he had decided that a criminal case was warranted. He could have ended Hillary Clinton’s campaign back in July if he had been interested in changing the course of the election.

She got in trouble in the first place because she felt that the rules did not apply to her. She might still have won had her husband not felt the same.

And now we will all get a lesson of a whole other, unprecedented kind about what happens when rules do not apply in the person of Donald Trump.

Article Link To The Daily Beast:

Oil Prices Extend Gains After U.S. Data Shows Falling Supplies

China’s final November oil data.

By Jenny W. Hsu
December 21, 2016

Crude prices made further strides Wednesday on bullish data that showed a bigger-than-expected drop in U.S. crude stockpiles, reinforcing views that the global oil market is tightening.

Trading remained muted, however, as investors took a break ahead of the year-end holidays.

On the New York Mercantile Exchange, light, sweet crude futures for delivery in February CLG7, +0.53% traded at $53.55 a barrel, up 21 cents, or 0.4%, in the Globex electronic session. February Brent crude LCOG7, +0.43% on London’s ICE Futures exchange rose 16 cents, or 0.3%, $55.51 a barrel.

Prices rose after industry group American Petroleum Institute reported that U.S. crude inventories showed a drawdown of 4.1 million barrels in the week ended Dec. 16, while gasoline stocks fell by 2 million barrels and distillates dropped by 1.5 million barrels.

According to a Wall Street Journal survey of 13 analysts and traders, U.S. crude stockpiles likely fell by 2.3 million barrels. They estimated gasoline stockpiles to have grown by 1.1 million barrels and stockpiles of distillates, which include heating oil and diesel, to have fallen by 900,000 barrels.

Official data from the U.S. Energy Information Administration is due later Wednesday.

Investors will also be looking at the production data to determine if the recent price rally has prompted more U.S. shale-oil producers to ramp up output--a move that would undermine the latest effort by the Organization of the Petroleum Exporting Countries and 11 non-OPEC producers to buoy price by cutting production.

Last week, the number of active oil rigs in the U.S. rose by 12 to 510. Since its trough in late May, U.S. producers have added 194 oil rigs, a jump of 61%, according to Goldman Sachs.

With prices holding steady above $50 a barrel, analysts say U.S. shalers will be more eager to open the spigots wider.

“The Department of Energy currently forecasts a further recovery of 9 million barrels by December 2017, but we see room for upward revision to that estimate as the rig count trends higher,” said Tim Evans, a Citi Futures analyst.

Another data set oil investors will be watching in the near term is China’s final November oil data. The report was scheduled to be released Wednesday but the government said in an email it had postponed the publication, without elaborating.

In its preliminary report, China said crude imports last month rose 18% from the previous year to 32.35 million metric tons, or roughly 7.9 million barrels a day.

Supported by a batch of new independent refineries, known as teapots because their small size, China’s appetite for crude is expected to remain elevated next year. Earlier this month, China said the collective import quota for private refiners will remain at 1.76 million barrels a day in 2017.

“The move will likely enhance competition among independent refiners on the domestic market,” said JBC Energy, adding that it expects China’s crude import to average 7.8 million a day in 2017, up by around 300,000 barrels a day.

Nymex reformulated gasoline blendstock for January RBF7, +0.30% — the benchmark gasoline contract — rose 44 points to $1.5980 a gallon. ICE gasoil for January changed hands at $489.75 a ton, down $1.75 from Tuesday’s settlement.

Article Link To MarketWatch:

Oil Prices Extend Gains After U.S. Data Shows Falling Supplies

Saudis Seen Accelerating Sunward Tilt In Charge For Oil Revenue

Solar developers expect volume of solar power tenders to rise; Kingdom currently burns billions worth of oil on electricity.

By Anna Hirtenstein
December 20, 2016

Saudi Arabia’s long-awaited drive to free up more oil revenue by shifting to solar power generation is expected to pick up speed next quarter, according to local developers eyeing contracts.

“I’m fully expecting within the first quarter 500 megawatts to come out in tenders and then it’ll ramp up,” said Paddy Padmanathan, the chief executive officer of Acwa Power International in Riyadh. “That will be a game changer for the region.”

The world’s biggest crude exporter also burns more oil than any other country to generate electricity. According to the most recent International Energy Agency figures, the kingdom consumes at least 900,000 barrels a day to keep the lights on -- an amount worth over $16 billion a year based on current oil spot prices. Integrating more solar power onto the Saudi grid could free up more crude for export.

Saudi Arabia plans to add another 700 megawatts from wind and solar power generation in 2018 according to people familiar with the plan, who said the kingdom forecasts another 8.8 gigawatts of renewable energy added to the grid between 2019 and 2023.

“We expect Saudi Arabia will be the largest market in the region in the medium to long-term,” said Sami Khoreibi, the founder and chief executive officer of Enviromena Power Systems, a solar developer based in Abu Dhabi. “You take a look at the opportunity cost of using crude oil for electricity production and you have a very high operating expense, and the power demand growth in Saudi Arabia is one of the largest in the region.”

Saudi Arabia’s on-again, off-again pursuit of solar energy has already shown signs of picking in the last six months as the kingdom struggled to patch budget holes and map future economic diversification. 

Saudi Potential

Acwa Power and Fotowatio Renewables Ventures BV were both shortlisted for a 100-megawatt solar tender offered during the second half of 2016. The two 50-megawatt projects will be located in Al-Jouf and Rafha in northern part of the peninsula, according to the state utility.

“It is starting,” said Rafael Benjumea, CEO of Fotowatio, which is owned by Abdul Latif Jameel in Jeddah and won a bid in May to help build an 800-megawatt solar plant in Dubai.

“Of course it has taken very long but there’s a clear move to change their renewable energy mix,” he said. “There’s a lot of potential in the Saudi market.”

Saudi Arabia is seeking a financial adviser to help attract investors to three renewable power projects, which would be owned and operated by the private sector and could cost as much as $1.5 billion to build, according to people familiar with the plans.

Renewables were highlighted in the nation’s diversification plan, known as Vision 2030, which aims to wean its economy off fossil fuels. Generating more solar and wind power could also ease long-standing concerns over the Kingdom’s rising domestic oil consumption.

An 2011 report by London-based researchers at Chatham House, “Burning Oil to Keep Cool,” said that Saudi Arabia was burning so much oil domestically that it could become a net energy importer by 2038 if it didn’t change its habits. Little has changed in the past five years, according to Glada Lahn, who co-authored the report.

Government Pressure

“The original constraint was the fear of domestic demand threatening to outrun capacity in the electricity sector particularly,” Lahn said in a telephone interview. “The fact that the oil price was high during that time really made it acute.”

Lower oil prices squeezed Saudi Arabia and “put pressure on the government to diversify, she said.” The country has seen “an increase in liquid fuel use.”

Lahn, who continues researching the intersection of resources and the environment at Chatham House, expects energy demand to continue to rise at a pace of about 4 to 5 percent per year through to 2030. The highest demand peaks for electricity are in the middle of the day to run air conditioners, which correspond perfectly to solar energy, she said.

The kingdom originally set a target in 2010 to install 41 gigawatts of clean power by 2040, the equivalent of about 30 nuclear reactors. That initiative was forecast to cost more than $100 billion and produce a third of the nation’s electricity from solar. New plans were announced in April, changing the program to 9.5 gigawatts by 2030. The intention is still to meet the original target, according to Acwa’s Padmanathan.

“Ambitions have not been scaled down,” he said. “They will get to even more than that by 2040. We’re going to do 9.5 gigawatts by 2023, minimum. They haven’t said we’ll do this and stop.”

Article Link To Bloomberg:

Obama Bans New Oil, Gas Drilling Off Alaska, Part Of Atlantic Coast

By Valerie Volcovici and Timothy Gardner
December 21, 2016

U.S. President Barack Obama on Tuesday banned new oil and gas drilling in federal waters in the Atlantic and Arctic Oceans, in a push to leave his stamp on the environment before Republican Donald Trump takes office next month.

Obama used a 1950s-era law called the Outer Continental Shelf Act that allows presidents to limit areas from mineral leasing and drilling. Environmental groups said that meant Trump's incoming administration would have to go court if it sought to reverse the move.

The ban affects 115 million acres (46.5 million hectares) of federal waters off Alaska in the Chukchi Sea and most of the Beaufort Sea and 3.8 million acres (1.5 million hectares) in the Atlantic from New England to Chesapeake Bay.

Trump, who succeeds Obama on Jan. 20, has said he would expand offshore oil and gas drilling. A recent memo from his energy transition team said his policy could increase production in the Chukchi and Beaufort Seas, as well as the mid- and south Atlantic.

A Trump representative did not immediately comment on the announcement.

Even if Trump tries to fight the move, few energy companies have expressed a desire to drill anytime soon off the coasts thanks to abundant cheap shale oil in North Dakota and Texas.

Exploratory drilling in the Arctic is expensive and risky. Shell Oil ended its quest to explore in harsh Arctic waters in 2015, after a vessel it was using suffered a gash and environmentalists uncovered a law that limited its drilling.

The American Petroleum Institute oil industry group disagreed about the permanence of the ban and said Trump could likely use a presidential memorandum to lift it.

"We are hopeful the incoming administration will reverse this decision as the nation continues to need a robust strategy for developing offshore and onshore energy,” said Erik Milito, API's upstream director.

Joint Action With Canada

The White House and Canadian Prime Minister Justin Trudeau jointly announced their move to launch "actions ensuring a strong, sustainable and viable Arctic economy and ecosystem."

Obama said in a statement that the joint actions "reflect the scientific assessment that, even with the high safety standards that both our countries have put in place, the risks of an oil spill in this region are significant and our ability to clean up from a spill in the region’s harsh conditions is limited."

Canada will designate all Arctic Canadian waters as indefinitely off limits to future offshore Arctic oil and gas licensing, to be reviewed every five years through a climate and marine science-based life-cycle assessment.

The law under which Obama is acting enables a president to withdraw certain areas from leasing or drilling "for any public purpose," such as to limit the impacts of climate change, according to a legal briefing by the Natural Resources Defense Council and Earth Justice.

Under that law, a president is not authorized to "undo" a previous withdrawal, making it more difficult for Trump to target without a lawsuit.

"No president has ever tried to undo a permanent withdrawal of an ocean area from leasing eligibility," said Niel Lawrence, Alaska director and attorney at the Natural Resources Defense Council.

The provision has been used by six presidents from both parties over the past 65 years, including to withdraw as much as several hundred million acres at a time, he said.

'Smart Business Decision'

In 2015, just 0.1 percent of U.S. federal offshore crude production came from the Arctic. At current oil prices, significant production in the Arctic will not occur, according to a Department of Interior analysis.

There is currently no crude oil production in the Canadian Arctic. A number of companies including Chevron Corp, ConocoPhillips and Imperial Oil hold exploration licenses, but all three have put their drilling plans on hold, partly because of weak global oil prices.

On the U.S. Atlantic coast, local groups have opposed offshore drilling and would fight the Trump administration's attempts to open it up.

"The people of the Atlantic coast have refused to allow their way of life to be compromised," said Jacqueline Savitz, senior vice president of Florida-based ocean conservancy group Oceana.

She said the Obama administration move to protect the Atlantic coast was a “smart business decision” since it would protect the lucrative tourism and fishing industries of East Coast communities.

Article Link To Reuters:

The Fed Puts China In A Bind

By Christopher Balding
The Bloomberg View
December 21, 2016

Last week, when the U.S. Federal Reserve raised interest rates, it was a sign for many investors that things were getting back to normal. For China, facing large-scale capital outflows and a declining currency, it was a sign of a serious problem.

For the past decade, China has maintained a "soft peg" of the yuan, allowing it to rise and fall within a narrow band against the U.S. dollar. This has worked, for the most part, because the two countries have had relatively synchronous business cycles and broadly similar monetary policies. But now their economies are diverging in important ways.

The Fed has been openly worrying about rising prices, as the U.S. economy grows steadily and its labor market tightens. That's why it is boosting rates. In China, by contrast, state news outlets now regularly talk about the "new normal" of slower growth. Private investment has grown by only 2.5 percent this year through September. Near-zero consumer inflation has risen lately only due to speculation.

Worse, many years of excessively loose monetary policy have produced wildly inflated asset prices. Real estate in some Chinese cities ranks among the most expensive in the world. Virtually every commodity, from coal to garlic, has experienced a boom and bust in 2016, sometimes more than once. With few investment opportunities in a sluggish economy and bubble-level asset prices, investors are moving money overseas at an accelerating rate. Economists at Goldman Sachs Group Inc. estimate that $69.2 billion exited China in November. Other estimates suggest a total outflow of nearly $1 trillion for 2016.

This places China's policy makers in a bind. They need lower interest rates to boost growth and ease the burden on heavily indebted firms. But they need higher rates to maintain the soft peg to the dollar as the Fed tightens. Keep rates low, and they risk busting the peg, pushing more capital overseas and placing intense pressure on the financial system. Boost rates to maintain the peg, and they risk raising costs on indebted firms and pushing many of them into bankruptcy.

In other words, China is caught in what economists call the "impossible trinity." No country can simultaneously sustain a pegged exchange rate, a sovereign monetary policy and free capital flows. At some point, policy makers must make a trade-off.

Financial markets recognize the potential danger. China's bond market has suffered its biggest rout in years, with yields on 10-year sovereigns rising from 2.6 percent in October to nearly 3.5 percent after the Fed hiked rates. Investors pondering the consequences of higher funding costs in an economy with rising defaults are rightly concerned.

There is no easy way to resolve this dilemma. Ultimately, China has to fully liberalize its currency, but it can't simply let the yuan float freely without running the risk of a major outflow and a liquidity crunch. A significant drop in the yuan matters not for how it will impact Chinese trade but for how it will affect an increasingly fragile financial sector.

So reform needs to start with the banking system. First, the government must accept that its policy of letting credit grow at twice the rate of gross domestic product has only encouraged risky lending. Fitch Ratings estimates that the percentage of bad loans in China's financial system could be 10 times the official number, potentially resulting in a capital shortfall of more than $2 trillion. Reducing the flow of credit and cleaning up that toxic debt must be China's top priority.

Next, policy makers need to lay out a plausible long-term plan to unbind the yuan from the dollar. The government has said it will let the yuan float freely by 2020, but that looks increasingly unlikely. Regulators have actually been walking back currency reforms, and enacting ever-stricter capital controls. It seems logical to expect a tightening of current-account transactions next year. China is still managing its economy as if the massive foreign investment and trade surpluses that characterized its decades-long growth spree will return. Unfortunately, those days are gone for good.

Given that President-elect Donald Trump has promised a large infrastructure stimulus, the likelihood of more U.S. interest-rate increases in the next two years is growing. That will only put more pressure on the yuan -- and on China's policy makers to act, one way or another.

Article Link To The Bloomberg View:

China's Money Markets Battle Dual Deficits Of Cash And Trust

By Samuel Shen and Vidya Ranganathan
December 21, 2016

China's money markets are bracing for a rough transition into 2017 as a traditional year-end cash deficit coincides with heavy capital outflows and a disruptive bond default that are creating sporadic cash shortages and ramping up counterparty risk.

Reports of brokerage Sealand Securities' (000750.SZ) default on a bond transaction with a bank couldn't have come at a worse time, sowing distrust and wariness in a market that was already stressed. Sealand, which is being investigated by the securities regulator, said on Wednesday it will take responsibility for what it called forged bond agreements.

"The market is short of money. People are rushing to sell everything to get liquidity, from money market funds to corporate bonds to treasuries," said Gu Weiyong, chief investment officer at bond-focused hedge fund manager Ucom Investment Co. "It's a turning point from bull to bear."

The yuan currency CNY=CFXS has fallen to levels last seen during the 2008 global financial crisis, 10-year bond yields have soared and Chinese treasury bond futures have been knocked down in an illiquid market.

Fueled by easy money, 10-year Chinese bonds CN10YT=RR enjoyed a three-year 200-basis point rally, with yields hitting a 14-year low of 2.75 percent in early November. Having already risen to 3.4 percent, Gu expects yields to reach 4 percent next year.

Faced with unrelenting capital outflows, authorities seem determined to keep a tight rein on cash, lending limited amounts for longer periods and at higher cost.

Traders and fund managers expect little respite leading into the Lunar New Year holidays at the end of January, a period in which demand for cash is high.

"I'm worried that the bond market has witnessed just the first wave of sell-offs," said Zhou Li, President at bond-focused asset manager Rationalstone Investment.

Some fund managers even reckon the sell-off could turn as ugly as China's stock market rout between June and August last year that also weighed on other emerging markets.

"We should raise our alert system to the level as high as during the equity market rescue campaign last year, and promptly enact our crisis management plan to fight the currency and financial wars," Wang Hongyuan, co-chairman of First Seafront Fund Management Co said in emailed comments.

Counterparty Risk

As bond futures collapsed and banks stopped lending to non-banking firms in the wake of the Sealand news last week, financial magazine Caixin reported the People's Bank of China (PBOC) had directed banks to resume lending.

"The market has some unspoken rules, and some people just broke them, leading others think the market is dangerous," a Shanghai-based trader at a Chinese bank said.

In 2014, authorities first allowed solar equipment producer Chaori Solar to default on bond interest payments before later bailing out local investors. This time, however, traders are unsure if authorities will rescue Sealand investors.

That's because policy measures this year have aimed to cut leverage in the banking and corporate sectors, in particular via off-balance-sheet products.

Zhou worries that unless the Sealand episode is handled properly, the default could "trigger panic, and a breakdown of trust between institutions".

Market expectations around the PBOC's cash management are more in harmony, given the persistent capital outflows that have seen foreign exchange reserves fall to $3.05 trillion in November from $3.33 trillion at the end of 2015.

The PBOC has injected a net 1,537.2 billion yuan ($221 billion) into money markets this year through open market operations, many multiples of its net 10 billion yuan injection in 2015.

Traders expect authorities' determination to discourage speculative bets against the currency will only strengthen in early 2017, when an annual limit of $50,000 that individuals can convert into foreign currency is automatically reset.

That is also around the time when Donald Trump, who has pledged to name China a currency manipulator, will assume office as U.S. President.

Tight Liquidity

Meanwhile, pressures are stacking up. Banks made mandatory reserve payments around Dec. 15, and also need to tie up funding over the Lunar New Year period. Quarterly government payments under its benefit programs, which have been around 1 trillion yuan in previous years, could meet some of the funding needs but not all.

"The central bank will not allow the market to be flooded with money as it used to be. It still aims to cut leverage at commercial banks," said the Shanghai-based trader.

Traders also suspect cash injections this time will primarily be through medium term loans to banks, rather than cheaper open market operations such as reverse repos.

Sameer Goel, head of Asia macro strategy at Deutsche Bank, says the headwinds from a hawkish U.S. Federal Reserve will add to challenges. Policymakers could "either allow the yuan to continue to weaken or burn reserves or tighten capital restrictions", he said

"Likely that they will opt for a mix of the lot. Importantly, though, none of these options look supportive of the liquidity or rates complex, offshore and increasingly onshore."

($1 = 6.9506 Chinese yuan renminbi)

Article Link To Reuters:

Trump’s Market Mandate

Green shoots say the president-elect is the real ‘hope and change’ candidate.

By Holman W. Jenkins, Jr.
The Wall Street Journal
December 21, 2016

In any razor-thin voting outcome, it’s easy and fun to cite oddball or esoteric factors and claim they “decided” the race.

Of course, it is the totality of factors that decide an outcome.

Donald Trump fans shouldn’t kid themselves—his victory was razor-thin. But the claim, therefore, that Trump would not have been elected but for the meddling of Vladimir Putin or the FBI’s on-again-off-again investigation of Hillary Clinton’s emails tells you more about the speaker’s emotional opposition to the winner than his clear-headedness.

Start with ground truth: 2016 should have been a shoo-in year for a Republican based on historical and economic indicators, and yet Mr. Trump’s nomination by Republicans gave away their advantage and turned it into a shoo-in year for Mrs. Clinton.

She won the popular vote by 2.8 million. Evidence suggests a considerable number of Republican voters declined to vote for the top of the ticket. Though fewer people cast a vote for the House than cast a vote for president, it undoubtedly is significant that Republicans outpolled Democrats by three million in House races.

Yet Mr. Trump won the Electoral College, and he did so by the oft-remarked margin of 100,000 votes across three states, Pennsylvania, Wisconsin and Michigan.

To take nothing away from Jared Kushner, the lately apotheosized son-in-law and his high-tech targeting of Trump voters, Mr. Trump’s victory is and was unlikely.

His personal qualities plus his narrow, low-budget way of campaigning frittered away most of the advantage Republicans started the year with. To say the same thing differently, with a higher-spending approach he might even have squeaked to a popular-vote victory.

When looking cogently (rather than disingenuously) for a single factor to explain how Mrs. Clinton threw away the race, one consideration sticks out. Her most glaring failure concerned the most rock-solid part of her party’s base.

In Wayne County, home of Detroit, where voters are predominantly African-American, Mrs. Clinton collected 78,000 fewer votes than President Obama did in 2012. The same was true in Philadelphia and Milwaukee—for a total of nearly 40,000 votes. It’s not just because she wasn’t Mr. Obama. As after-action reports make clear, the Clinton campaign, with money coming out of its ears, underinvested in urban turnout in the key battlegrounds.

If you need to reduce a complicated interplay of many factors to one deciding factor, this is it.

A Bloomberg News headline last week reported: “Measures of economic optimism are shooting up all over the place after Trump’s win.”

“It feels like another ‘Morning in America’ moment,” the story went on to say.

The stock market is up. Home-builder sentiment is up. Small business hiring plans are up. Consumer and business confidence show impressive post-election gains.

For some reason this is seen as a surprise, but it’s not. His victory would have been nigh inconceivable without bringing a GOP Congress along with him. As this column pointed out in August, “Mr. Trump is actually set up quite nicely if he wins. The minute he takes office, various Obama regulatory crusades against business come to an end. The chances of tax reform instantly go up. . . . [A]n incoming Trump administration, without having to do anything, would likely get a boost from the markets, employment numbers and gross domestic product.”

To put a charitable face on it, the panic on the left since his election partly arises because Mr. Trump remains a mystery onto which Democrats can paint their worst fears and most corrosive stereotypes. At least that’s the excuse we’ll offer for their eagerness to believe that Russia determined the outcome and the Electoral College should have taken away his win.

Mr. Trump has never had a political job. He’s bombastic, careless with the facts (hardly a first among American politicians and talking heads, it should be noted).

He’s given to half-formed thoughts that are easy to mock: Climate change is a hoax manufactured by China, Vladimir Putin is an amazing statesman. Never mind that you can often find more fully formed versions of these thoughts that suggest Mr. Trump is actually a nuanced and sharp observer of political realities.

Mr. Trump himself is a wild card, in some ways an incalculable president. But these worries can also be overstated. Feedback is the virtue that turns democracy, with all its vices, into the least-worst political system. Markets and businesses and consumers are already supplying feedback to make him more calculable, tying him down to a list of more-or-less standard GOP prescriptions on taxes, regulation and spending, and incentivizing him away from his more outré promises regarding trade wars and mass deportations.

Feedback is turning the incalculable Trump into a tractable, potentially successful president.

Article Link To The Wall Street Journal:

Theresa May’s Brexit Problem

By Jacek Rostowski
Project Syndicate
December 21, 2016

British Prime Minister Theresa May reportedly “needed some time to compose herself” in a recent meeting with her presumed ally Angela Merkel. The German Chancellor categorically rejected May’s proposal to do a “side deal” on European Union nationals living in Britain before the United Kingdom officially triggers Brexit negotiations by invoking Article 50 of the Treaty of Lisbon.

After an initial phase of post-referendum arrogance and euphoria, it has become increasingly obvious that May’s government completely misread the likely EU response to a British exit from the bloc. It now seems likely that the UK will continue to stagger from failure to failure at an accelerating pace.

May’s dilemma stems from the fact that the “Leave” coalition, while sharing certain conservative values, comprises two incompatible factions: mostly middle-class, affluent pensioners who want to leave the EU because they think it is too bureaucratic and protectionist; and mostly working-class voters who want to leave because they favor more protectionism.

Clearly, there is no form of Brexit – or post-Brexit Britain – that will satisfy both groups. This explains May’s desperation to push Brexit through as quickly as possible. She wants to get out before voters realize that the Leave campaign sold them a false bill of goods, including the promise that they could keep all of the benefits of EU membership, particularly full access to the European single market, without having to allow free movement of labor.

Moreover, although May was in the “Remain” camp during the referendum campaign, she realizes that, as Prime Minister, she will be held responsible for any failures in the Brexit negotiations. She also knows that she cannot possibly succeed politically, because the media will always spotlight “defeats,” while hardly noticing “wins.” That gives her every reason not to define her goals, and then to declare whatever deal she secures a “victory.”

Paradoxically, while the Conservative Party leadership has decided to represent the incoherent Leave coalition, no one is speaking for the 48% of voters who sided with Remain, except for the Liberal-Democratic Party, which has minimal influence in Parliament. This is even more surprising when one considers two deep structural factors that will cut short Leave’s continued political dominance in the medium term.

For starters, a significant cohort of Leave voters tends to be “politically disengaged.” Leave won by a margin of 1.2 million votes, one million of which were cast by people who did not vote in the 2015 general election that furnished David Cameron and the Conservatives with undivided power. These disengaged voters will likely not participate in future elections, though they might mobilize for a second EU referendum, if one were to be held.

Second, the Leave camp has an age problem: my own rough estimate suggests that, every year, Leave-voter deaths will exceed those of Remain voters by 150,000, while new Remain voters entering the electorate will surpass those of Leave by 150,000 (after adjusting for differential turnout between young and old). This generational dynamic alone will tip the balance in Remain’s favor by about 300,000 voters each year, and it will eliminate Leave’s majority by 2020.

Shortly after the referendum, I asked a former senior Tory official why no respectable politicians wanted to represent Remain voters. “No one in Britain (either Remain or Leave) really cares about the EU,” he replied. But while that may have been true in July, it is not true now, as indicated by both sides’ passionate response to the result itself, and then again to the recent Supreme Court decision affirming Parliament’s role in triggering Article 50. Equally telling were the last two parliamentary by-election results: pro-Remain liberals overturned a 23,000-vote Conservative majority in Richmond Park, London, while the UK Independence Party – which favors a “hard” Brexit – made gains in Sleaford and North Hykeham, in the east of England.

As Lord Ashcroft’s fascinating exit poll following the Brexit referendum shows, Leave and Remain voters’ attitudes differ on almost everything, from the death penalty to environmental conservation. And anyone reading the two sides’ increasingly heated online interactions can see that they heartily despise each other.

There is now a profound divide – what British politicians call “deep blue water” – between Remain’s growing constituency and Leave’s diminishing one. This will be the defining split in British politics for at least a generation. And yet the vast majority of practicing politicians are on the declining side of this divide, where the supply of leaders far exceeds demand for them.

The UK is approaching a fundamental political realignment, for which the current government is totally unprepared. It will come – probably quite suddenly – as soon as enough people recognize that May has, through little fault of her own, inevitably failed to “get the best deal for Britain.” As the economist Herbert Stein famously observed, “If something cannot go on forever, it will stop.” So May’s government might last until May, but not much longer.

Article Link To Project Syndicate: