Thursday, August 31, 2017

Here's How Congress Is Reacting To Wells Fargo's Latest Setback

Lawmakers outraged after bank discloses more bogus accounts; Embattled lender could face more hearings, reputational damage.

By Elizabeth Dexheimer
August 31, 2017

Break up big banks, hold more congressional grillings and don’t let up until executives are held accountable.

Those were just some of the reactions from U.S. lawmakers after Wells Fargo & Co. raised its estimate Thursday by 67 percent for how many bogus accounts employees may have created.

The disclosure that 3.5 million total accounts could have been opened without customer consent set off another round of criticism on Capitol Hill for an embattled lender that has faced scandal after scandal over the past year.

The bipartisan attacks indicate Congress will have Wells Fargo back in its sights when lawmakers return from their August recess next week. Still, it remains to be seen what the consequences will be for the bank, as its past missteps have led to congressional criticism followed by little action. And lawmakers have a full plate next month trying to cut deals to avoid a government shutdown and raising the debt ceiling.

Here is an overview of some of the Thursday condemnations of Wells Fargo:

Jeb Hensarling

House Financial Services Committee Chairman Jeb Hensarling, a Texas Republican, said his panel is continuing to investigate Wells Fargo over the phony accounts scandal and the bank’s July disclosure that some of its auto-loan customers may have been charged for insurance they didn’t want or need.

Hensarling said in a statement that his committee is “deploying all necessary investigative powers to make sure people are held accountable.”

“Unacceptable and outrageous are the first two thoughts that come to my mind upon learning that even more customers have been harmed by Wells Fargo than originally believed,” he said. “This latest revelation of customer abuse is further evidence of catastrophic mismanagement at the bank.”

Elizabeth Warren

U.S. Senator Elizabeth Warren, the banking industry’s most relentless critic in Washington, called Wells Fargo’s Thursday disclosure “unbelievable.”

In a series of tweets, the Massachusetts Democrat renewed her call for the Federal Reserve to remove every Wells Fargo director who served on the board while employees were creating fake accounts. And she urged lawmakers to hold another hearing on Wells Fargo.

“Congress also can’t look the other way,” Warren tweeted.

Sherrod Brown

U.S. Senator Sherrod Brown, the top Democrat on the Senate Banking Committee, said Wells Fargo’s conduct was “outrageous.”

“Wells Fargo harmed millions more customers than originally disclosed, and continues to avoid accountability,” the Ohio senator tweeted.

Maxine Waters

U.S. Representative Maxine Waters, the top Democrat on the House Financial Services Committee, insinuated that Wells Fargo’s misdeeds show it may be too big to manage. The California lawmaker pledged to pursue legislation that will break lenders up.

“Wells Fargo has made a routine practice of ripping off and preying on their customers, in a seemingly never-ending avalanche of scandals in which servicemembers, minorities, homeowners, small business owners and many other consumers have been targeted and abused by the bank,” Waters said in a statement. “This disgraceful, illegal, and widespread misconduct is exactly why I will be introducing legislation that breaks up banks -- like Wells Fargo -- that repeatedly engage in consumer abuses, so that they can never harm consumers again.”

Article Link To Bloomberg:

Trump Weighs Tying Debt Limit Increase To Harvey Aid

Approach intended to spur quick action to avoid U.S. default; Request for $5.95 billion aid package may come Friday.

By Margaret Talev
August 31, 2017

President Donald Trump is considering attaching an increase in the U.S. debt limit to an initial $5.95 billion disaster aid funding request for Hurricane Harvey, two administration officials said, a move aimed at lowering the risk of an unprecedented default.

The White House request, which could come as soon as Friday, would include $5.5 billion to the Federal Emergency Management Agency and the remainder to the Small Business Administration. The request is being prepared primarily to cover funding demands through the Sept. 30 end of the federal fiscal year, according to the officials, who described the matter on condition of anonymity.

Administration officials already have begun talks with congressional leaders about the approach, which is intended to ease early passage of a debt limit increase and avoid a stand-off over the issue that could rattle financial markets, one of the officials said.

Market angst is growing as Congress has only a limited number of working days remaining to raise the debt ceiling. The spread between one- and three-month Treasury bills has shrunk to around 8 basis points from as high as 24 basis points in May as investors have started demanding higher rates on one-month paper relative to three-month securities in order to compensate for default risk.

The White House would like to extend the debt limit long enough to move back the threat of a U.S. default until after Congress can deal with funding for the full federal fiscal year and tax legislation the Trump administration backs, one of the officials said.

Border Wall

Trump also would like to decouple the debt limit from a potential fight in Congress over funding for a border wall that risks a government shutdown, according to one of the officials. The president would prefer to avoid entangling the borrowing limit deliberations with a battle over paying for the wall that could erupt when lawmakers consider an expected temporary funding package in September or a full-year funding package likely in December.

The White House has responded to Hurricane Harvey with promises to put the full resources of the federal government behind the recovery efforts. Rainfall from the storm has set a record for the continental U.S., according to the National Weather Service, and the response is expected to be among the most expensive natural disaster rebuilding efforts in American history.

Trump began the week pledging to secure funding for relief efforts “very, very quickly” and visited the region on Tuesday. Vice President Mike Pence made a stop of his own on Thursday, to reinforce the administration’s commitment, and Trump plans to head there again on Saturday, with visits to Houston and Louisiana.

More than 311,000 Texans had already applied for federal disaster relief funds as of Thursday morning and more than $530 million already has been granted, Pence said. About 100,000 homes were damaged by the storm, White House Homeland Security Adviser Tom Bossert said in a briefing.

The House may vote on an initial Harvey relief bill in the first two weeks of September, according to a Republican aide who asked not to be named. The initial downpayment, as the aide described it, would replenish FEMA funds used in the immediate aftermath of Hurricane Harvey.

Conservatives Bristle

Still, House conservatives are likely to bristle at being pushed to give up on their demands for spending cuts or cost-control measures to be part of any debt-limit deal.

“Why would we do a clean bill with a Republican president?” Representative Dave Brat of Virginia, a member of the conservative House Freedom Caucus, asked in an interview Wednesday. “We need some kind of fiscal reforms here.”

House Freedom Caucus Chairman Mark Meadows told the Washington Post on Thursday he would oppose combining the debt increase with hurricane relief.

Treasury Secretary Steven Mnuchin has repeatedly said that it’s “critical” that Congress raise the debt ceiling by Sept. 29. Independent analysts have estimated the government would reach its statutory limit on borrowing some time in October.

Mnuchin warned Thursday that additional spending on the Hurricane Harvey recovery could shorten the window to avert a U.S. default.

“In terms of when it’s going to hit the debt ceiling, there could be some impact of a couple of days, but that would be the most,” he said in an interview on CNBC.

Article Link To Bloomberg:

Linguistic McCarthyism

Most Americans recoil from the statue-smashers and name-changers.

By Victor Davis Hanson
The National Review
August 31, 2017

‘The Bard,” William Shakespeare, had a healthy distrust of the sort of mob hysteria typified by our current epidemics of statue-busting and name-changing.

In Shakespeare’s tragedy Julius Caesar — a story adopted from Plutarch’s Parallel Lives — a frenzied Roman mob, in furor over the assassination of Julius Caesar, encounters on the street a poet named Cinna. The innocent poet was not the conspiratorial assassin Cinna, but unfortunately shared a name with the killer.

The terrified poet points out to the mob this case of mistaken identity: “I am Cinna the poet.”

The mob answers: “Tear him for his bad verses, tear him for his bad verses! . . . It is no matter, his name’s Cinna!”

Shakespeare certainly would recognize that, like the playwright’s Roman mob, we have launched a war against words in our frenzy to find targets for our politically correct madness.

Recently, there were progressive calls at the University of Southern California to rename the school’s mascot, the white Andalusian horse “Traveler.” Members of the Left thought that the mute animal’s name too closely resembled the name “Traveller,” the favorite horse of Confederate general and sudden demon of 2017 Robert E. Lee.

But the mob was not finished there. An Asian-American sportscaster named Robert Lee was recently yanked by the sports channel ESPN from broadcasting a University of Virginia football game. Apparently, Lee’s name was too close to that of Robert E. Lee.

Nearly a century and a half after his death, General Lee has gone from tragic figure to Public Enemy No. 1 of the Left.

Lee the sportscaster, like Cinna the poet, was found guilty on the basis of ignorant association with his name. If the politically correct herd could not get its hands on the long-dead Robert E. Lee, it would apparently settle for anyone in the present who shared nearly the same name.

Why would a supposedly civilized country descend into such linguistic fascism?

Part of the problem is the presumption by elites that a supposedly illiterate public must be protected from itself. But does anyone really believe that average people will confuse an Asian-American sportscaster who has the common Chinese surname “Lee” and the all-American first name “Robert” with a Confederate general — or that the sportscaster could thus be somehow tangentially connected with the recent violence in Charlottesville?

ESPN, however, does not bet on the intelligence of the average American. It prefers to virtue-signal that it is above all suspicion of sympathy for the Confederacy. In its search for cosmic justice, it cares little about the injustice it metes out to real live people.

ESPN has long politicized sports and continues to lose viewers over its adolescent political correctness. Not long ago, the network fired tennis commentator Doug Adler. He had characterized the aggressive play of tennis star Venus Williams as employing the “guerrilla effect.” (“And you’ll see Venus move in and put the guerrilla effect on, charging,” Adler had said.) Adler’s reference was drawn from the once-popular term “guerrilla tennis” that denoted a tough, brawling, take-no-prisoners style from the 1990s.

The word “guerilla,” remember, is a diminutive of the Spanish word guerra (“war”). In Spanish, guerrilla means “little war.” In English, “guerilla” is commonly used to describe a type of unconventional fighting.

But Adler forgot that “guerilla” is pronounced the same as its English homophone “gorilla.” Some ESPN viewers did not understand the guerrilla reference and charged that Adler was using “gorilla” as a racist smear. Adler tried to explain the reference, but he was fired and his career was ruined, making him a modern-day Cinna the poet, torn apart by the mob.

Why the linguistic McCarthyism?

When a cowardly and self-righteous ESPN assumes the worst in people, it hopes to find protection for itself from the thought police.

When chronic inner-city problems — epidemic levels of murder, drug use, and out-of-wedlock births — cannot be solved, frustrated progressives start looking for extraneous targets to blame. And so attention turns to, for example, an Andalusian horse — as if changing the animal’s name is at least proof that they care.

Most revolutions eat their own. Monday’s most fanatical revolutionary becomes a counterrevolutionary sellout by Tuesday.

Once left-wing activists forced cities and states to pull down their politically incorrect statues in the dead of night, and once they got off scot-free in defacing and destroying publicly owned monuments, it was an easy step up to the next level: waging war against words themselves.

In totalitarian societies, cities change their names regularly. Statues go up and are torn down. Words, as the historian Thucydides warned 2,400 years ago, habitually change their meanings to reflect passing political orthodoxy — and thugs, commissars, and brownshirts oversee the charade.

For an antidote to these statue-smashers and name-changers, Americans seek just one honest public official who dares to say “no more” — and arrests rather than appeases those who destroy public property, or shames those who ruin people through guilt by association.

Article Link To The National Review:

Advertising Budget For Obamacare To Be Cut 90 Percent

August 31, 2017

The U.S. Centers for Medicare and Medicaid Services said on Thursday it plans to spend $10 million on advertising for the upcoming Obamacare open enrollment period that starts in November, a sharp cut from the $100 million spent last year.

The agency also said it will cut funding for so-called navigators, who help people enroll in Obamacare health insurance plans, by 41 percent to $36.8 million.

Thursday’s announcement was the latest move by the Trump administration to undercut the 2010 Affordable Care Act, former Democratic President Barack Obama’s signature domestic policy achievement.

“A healthcare system that has caused premiums to double and left nearly half of our counties with only one coverage option is not working,” Caitlin Oakley, a spokeswoman for the Department of Health and Human Services, said in a statement. “The Trump administration is determined to serve the American people instead of trying to sell them a bad deal.”

After Republicans, who control both chambers of Congress as well as the White House, failed over the summer to deliver on President Donald Trump’s top campaign promise to repeal and replace the law, he vowed to let the law “implode” and said he would not take responsibility for it.

Earlier this year, the Trump administration announced it would back off enforcement of the so-called individual mandate, the requirement that everyone purchase health insurance or else pay a fine. The lack of enforcement has been a top concern among U.S. health insurers.

Trump has also repeatedly threatened to cut off billions of dollars of payments to insurers that they are guaranteed under the law, creating uncertainty and chaos in the individual insurance market.

Democrats swiftly criticized the administration’s decision to scale back advertising.

“The Trump administration is deliberately attempting to sabotage our health care system,” Senate Minority Leader Chuck Schumer said in a statement. “When the number of people with health insurance declines and costs skyrocket, the American people will know who’s to blame.”

Article Link To Reuters:

The SEC Has Served Dryships ($DRYS) With A Subpoena. Consider The Stock Dead. Right Now, At 5 AM, Its Trading At $2.50. It Will Be A Penny Stock By Friday Night...Dump It If You Own It -- Or Sell It Short, And Make A Killing.

Thursday, August 31, Morning Global Market Roundup: Dollar, Commodities Cheered By China, US Economic News

By Wayne Cole
August 31, 2017

Investors discovered a taste for the dollar and commodities on Thursday as upbeat Chinese and U.S. economic news whetted appetite for riskier assets globally, even as tensions over North Korea simmered in the background.

One big gainer was U.S. gasoline which surged 6 percent to two-year peaks as flooding and damage from Tropical Storm Harvey shut nearly a quarter of U.S. refinery capacity. Prices are now up more than 20 percent in the past week.

Adding to the bullish mood, a survey showed Chinese factory growth unexpectedly accelerated in August, confounding forecasts for a slight slowdown. The official PMI firmed to 51.7, from 51.4 in July.

That gave a fresh boost to industrial metals, with copper nearing its highest since late 2014 and on track for gains of 7 percent for August.

European share markets looked set to open firmer, with Eurostoxx 50 futures up 0.4 percent and Germany’s DAX ahead by 0.4 percent.

In Asia, Japan’s Nikkei rose 0.7 percent to its best level in two weeks, helped by a pullback in the yen. The index was still down 1.4 percent on the month, however.

MSCI’s broadest index of Asia-Pacific shares outside Japan edged down 0.1 percent, leaving it a modest 0.3 percent firmer for the month so far.

Wall Street had got a boost on Wednesday when data showed the U.S. economy grew at an upwardly revised 3 percent annualized pace in the second quarter, courtesy of robust consumer spending and strong business investment.

Other figures showed U.S. private-sector employers hired 237,000 workers in August, the biggest monthly increase in five months and an upbeat omen for payrolls on Friday.

The Dow rose 0.12 percent, while the S&P 500 gained 0.46 percent and the Nasdaq 1.05 percent.

Seeking An Answer

The better economic news helped distract from rumblings in the Korean peninsula and lifted the U.S. dollar.

President Donald Trump on Wednesday declared “talking is not the answer” to the tense standoff with North Korea over its nuclear missile development, but his defense chief swiftly asserted that diplomatic options remain.

Against a basket of major currencies, the U.S. dollar crept ahead to 93.015 and away from a 2-1/2-year low of 91.621 touched on Tuesday.

The dollar also bounced to 110.57 yen and off Tuesday’s 4-1/2-month low of 108.25.

The euro recoiled to $1.1873 from its top of $1.2069, weighed in part by speculation the European Central Bank might start to protest at the currency’s strength.

“The ECB meeting is coming up next week and there are rising risks of verbal intervention from Mario Draghi,” said Deutsche Bank strategist George Saravelos.

“Despite this the euro level does not appear particularly extreme and most importantly the ECB has not been driving recent appreciation anyway,” he added. “Verbal rhetoric may cause a correction but is unlikely to be enough to derail euro strength.”

The bounce in the dollar shaved 0.5 percent off the price of gold to $1,302.50 an ounce, short of Tuesday’s 9-1/2-month high of $1,325.94.

With so much U.S. refinery capacity shut in the wake of Tropical Storm Harvey, oil prices were hit by demand concerns. Brent eased 9 cents to $50.77 a barrel, while U.S. crude fell 5 cents to $45.91.

Article Link To Reuters:

Gasoline Hits $2/Gallon As Harvey Wreaks Havoc On Refiners, Crude Stable

By Henning Gloystein
August 31, 2017

Gasoline prices hit $2 a gallon for the first time since 2015 on Thursday as flooding from storm Harvey knocked out almost a quarter of U.S. refineries, while crude prices stabilized following a slump the previous day.

Harvey has battered the U.S. Gulf coast since last Friday, ripping through Texas and Louisiana at the heart of the U.S. petroleum industry. At least 4.4 million barrels per day (bpd) of refining capacity was offline, or almost a quarter of total U.S. capacity, based on company reports and Reuters estimates.

Amid fears of a supply squeeze, U.S. gasoline prices on Thursday jumped to $2 per gallon for the first time since July 2015.

“The flooding from Hurricane Harvey shut the largest refinery in the U.S., pushing gasoline prices to a two-year high. In contrast, oil prices retreated,” ANZ bank said.

Goldman Sachs said it could take several months before all production could be brought back online.

“While no two natural disasters are similar, the precedent of Rita-Katrina would suggests that 10 percent of the ... currently offline capacity could remain unavailable for several months,” the bank said.

Crude prices stabilized after falling sharply the previous day as the closure of so many U.S. refineries has resulted in a slump in demand for the most important feedstock for the petroleum industry.

U.S. West Texas Intermediate (WTI) crude futures were trading at $45.96 per barrel, flat from the last day’s settlement, when prices fell by 0.8 percent intraday. International Brent crude was at $50.88 a barrel, also virtually flat from its last close, though the contract fell by over 2 percent during the previous session.

Analysts said that the heavy WTI discount with Brent was a result of shut in U.S. crude supplies due to pipeline and refinery closures.

Meteorologists said that Harvey could be the worst storm in U.S. history in terms of financial cost.

“The economy’s impact, by the time its total destruction is completed, will approach $160 billion,” said Joel N. Myers, president and chairman of meteorological firm AccuWeather.

Other estimates have put the economic losses from Harvey at under $100 billion.

And although Harvey keeps getting weaker, meteorologists say more floods are expected.

The National Hurricane Center (NHC) said in its latest update that flooding and heavy rain continued in eastern Texas and western Louisiana.

AccuWeather also said that “the worst flooding from Harvey is yet to come as rivers and bayous continue to rise in Texas with additional levees at risk for breaches and failures.”

Beyond Harvey, U.S. commercial crude oil stocks fell by 5.39 million barrels last week, to 457.77 million barrels, according to data released Wednesday by the U.S. Energy Information Administration.

That’s 14.5 percent down from record levels reached last March, and it is below 2016 levels.

This came on the back of record U.S. gasoline demand of 9.846 million bpd last week, and as U.S. refining utilization rates rose to 96.6 percent, the highest percentage since August of 2015.

However, the data was collected before Hurricane Harvey hit the Gulf Coast.

Article Link To Reuters:

Betting On China Stocks? Investors In State Firms Have Edge

By Samuel Shen and John Ruwitch
August 31, 2017

As Chinese policy makers extend their economic reforms, state-owned enterprises (SOEs) have taken pole position in the nation’s stock market this year, gaining rapid strength at the expense of private firms.

The “guo jin min tui” trend of advancing state firms and retreating private companies has become particularly pronounced, making betting on Chinese stocks a bit of a one-dimensional exercise.

An index tracking China’s listed SOEs .CSI000926 has jumped nearly 12 percent so far this year, with a gauge tracking the top 100 of them .CSI000927, including banking giant ICBC (601398.SS) and power behemoth China Yangtze Power (600900.SS), surging over 16 percent.

In contrast, an index tracking private-run enterprises .CSI000938 has slipped nearly 5 percent.

The performance gap is glaring, but investors say there is a reason.

State firms dominate upstream industries such as raw materials and energy, so they are the biggest beneficiaries of Beijing’s “supply-side” reforms that aim to slash capacity and have helped boost commodity prices.

And at a time when the government is increasing spending on public facilities to bolster growth, state firms retain an edge over their private rivals in winning contracts in major infrastructure projects, and getting access to bank loans.

David Dai, general manager of Shanghai Wisdom Investment Co Ltd, said investors prefer listed SOEs because “their valuation is relatively low, and we’ve seen strong recovery in sectors such as coal and steel, which benefit from a reduction in capacity.”

However, there are obvious risks of state patronage, including crowding out of private capital, misallocation of resources and inefficiencies caused by an uneven playing field - the very things policy makers want to put right through their broad reform efforts.

“Obsession about a strong recovery in the upstream is dangerous to economic management,” said Hong Hao, chief strategist at BOCOM International, who warns that the strength of state-dominated upstream industries risks devouring profit from other sectors.

Make Hay While Sun Shines

For now, however, SOEs seem to be in the driving seat.

China has set up a series of government-backed funds to finance mergers and acquisitions by debt-ridden SOEs and support the so-called mixed-ownership reforms, which has seen many SOEs including China Unicom (600050.SS) raise fresh money from private investors.

But private firms’ financing and investing activities are being increasingly scrutinized by the government. Earlier this year, China’s banking regulator ordered a group of lenders to assess their exposure to offshore acquisitions by a handful of private companies including HNA Group HNAIRC.UL, Dalian Wanda Group Co, Anbang Insurance Group ANBANG.UL, Fosun International Ltd (0656.HK) and Zhejiang Luosen.

That aligns with Beijing’s efforts to curb “irrational” offshore investments by Chinese companies, though not all SOEs are subject to the same strict restrictions.

The advantages enjoyed by the SOEs show up in their bottomlines.

Industrial profit at SOEs jumped 44.2 percent during the first seven months of this year, but profit growth at private firms was a more modest 14.2 percent.

It was a different story a year earlier, when profits at SOEs fell 6.1 percent while those of private firms grew 8.7 percent.

That also partly helps explain why even after strong price gains, the valuations of SOEs remain modest - at roughly 15 times earnings.

In contrast, underperforming shares of private firms are twice more expensive, trading at earnings multiples of 34 on average, as their profit growth fails to catch up with previously lofty expectations.

Among the winners, state giants Baoshan Iron & Steel Corp (600019.SS), Aluminum Corp of China Ltd (Chalco) (601600.SS) (2600.HK) and Sinopec (600028.SS) all reported a surge in first-half profit, beating expectations.

In China’s recent economic recovery, “SOEs in the upstream have made the most money, but private firms in the midstream didn’t make much money, and some even lost money,” Zhong Zhengsheng, economist at CEBM Group told a financial conference recently.

“Only SOEs are increasing investment,” Zhong said. “Other types of companies are all recoiling.”

Article Link To Reuters:

Identity Politics Are Tearing America Apart

Political leaders should focus on the common good. Floodwaters and rotting bridges don’t discriminate.

By James A. Baker III and Andrew Young
The Wall Street Journal
August 31, 2017

The two of us have seen this before: a critical point in U.S. history, when political, social and economic upheavals have left too many Americans battling one another rather than working together to build a better country. We lived through the Great Depression, when men armed with bats and clubs went to the streets in violent attempts to resolve labor differences. We also experienced the civil unrest of the 1960s, when inner cities burned with the heat of racial division and authorities killed innocent students peacefully protesting a war.

Somehow, the drumbeat of dissonance seems harsher today. America’s national ideal of “e pluribus unum”—out of many, one—threatens to become a hollow slogan. Jaded Americans are constantly confronted by a deluge of animus from their televisions and smartphones. The U.S. finds itself increasingly divided along lines of race, ethnicity, gender, religion and sexual identity. Countless demagogues stand ready to exploit those differences. When a sports reporter of Asian heritage is removed from his assignment because his name is close to that of a Confederate army general, political correctness has gone too far. Identity politics practiced by both major political parties is eroding a core principle that Americans are, first and foremost, Americans.

The divisions in society are real. So are national legacies of injustice. All can and must be addressed. Those who preach hatred should be called out for their odious beliefs. But even as extremism is condemned, Americans of good will need to keep up lines of civil, constructive conversation.

The country faces a stark choice. Its citizens can continue screaming at each other, sometimes over largely symbolic issues. Or they can again do what the citizens of this country have done best in the past—work together on the real problems that confront everyone.

Both of us have been at the center of heated disputes in this country and around the world. And there’s one thing we’ve learned over the decades: You achieve peace by talking, not yelling. The best way to resolve an argument is to find common ground.

We encourage Congress and the White House to take this approach in the fall. First, they should raise the debt ceiling and fund the government. There is no benefit to shutting down the government simply because one side does not get all it wants from the legislative process. A government shutdown would only fortify most people’s dissatisfaction with a federal government they (often correctly) believe doesn’t work for them. And it would only breed more debilitating cynicism.

We hope that leaders in Washington will also focus on infrastructure projects that can help the U.S. keep pace with its global competitors, particularly China. Floodwaters don’t distinguish between Republicans and Democrats. Nor do rotting bridges discriminate between whites and blacks. This is an important and easy area to emphasize common interests. Political leaders should prioritize and provide tangible policies that benefit Americans. They are long overdue.

We also encourage Washington to focus with laser-like intensity on the federal tax code, which handcuffs American businesses. This country needs to find politically palatable ways to streamline that code and bring corporate taxes in line with those of other countries. As a way to protect the debate from becoming a battle over whose ox gets gored, Congress should make any tax reform revenue-neutral. Legislation should also encourage investors to bring their money back into the U.S., where it can be put into civic projects that improve America.

Congress and the president must do more than just act on these pressing issues. They also need to set an example to all Americans. We understand that politics is a contact sport, but leaders in Washington need to restrain their rhetoric and practice the lost art of compromise. They should stop pandering to the worst in us and appeal instead to what President Lincoln called “the better angels of our nature.”

Alexis de Tocqueville, the 19th-century French diplomat who identified strengths in the American experiment, admired the resiliency of the system the Founding Fathers devised. He wrote in the first volume of “Democracy in America” that “the greatness of America lies not in being more enlightened than any other nation, but rather in her ability to repair her faults.”

America has many faults that must be repaired—from a failed health-care system to a military that needs upgrading. Americans must, as Dr. Martin Luther King Jr. said during a 1965 commencement address for Oberlin College, learn to live together as brothers and sisters. Or, we will perish together as fools. We are convinced that the vast majority of Americans would like leaders in Washington to remember King’s advice when they return to work after Labor Day.

Article Link To The WSJ:

Rove: Texans Will Tough This Hurricane Out

Entire towns look like war zones. But we Lone Star Staters are resilient people.

By Karl Rove
The Wall Street Journal
August 31, 2017

From Corpus Christi to Port Arthur, the Texas Gulf Coast has been hit by a natural disaster of biblical proportions. Hurricane Harvey has wrought such devastation that it’s hard to comprehend. Entire towns like Rockport and Aransas Pass look like bombed-out war zones. Houses were smashed to bits, with roofs torn off and water pouring in through doors and windows. Survivors waited out the storm in closets, bathtubs and second-floor bedrooms.

Boats sank at their docks, or were reduced inside their storage sheds to heaps of crumpled metal and shattered plastic. As garages collapsed, SUVs and pickups were crushed, their trunks and front grilles tilted and sticking out of the water.

The wind was so powerful that it peeled thick steel plates off giant oil-storage tanks. An American flag was ripped from its pole and left tangled in a power line. Eighteen-wheelers were flipped on their sides and thrown catawampus across highways. Trees were shorn of their leaves so they looked as if it were mid-February, not late August.

Then there are the enormous, brown, swirling, ugly expanses of water, covering roads, turning neighborhoods into lakes, drowning everything in their path.

Yet this record-shattering hurricane brought out the best in Texans. Neighbors created human chains to help each other through treacherous currents. A TV reporter flagged down a sheriff’s car to implore officers to save a trucker, tucked under an overpass, whose cab was filling with water. No one was left behind, not even pets.

The “Texas Navy” and the “Cajun Navy”—volunteer rescue squads—appeared with fishing boats, skiffs, Jet Skis and kayaks. Among their ranks was an oil-field salesman from Victoria, about 125 miles away. When his town was put under mandatory evacuation, he headed toward Houston, towing his boat behind his pickup. God knows if his home is still standing. Victoria took a direct hit from Harvey soon after the storm came ashore.

Another unforgettable scene took place inside La Vita Bella senior home in Dickinson, southeast of Houston. There, 15 residents sat in waist-high water, hoping help was coming to ferry them to safety. It was.

Every Texan knows someone Harvey has hurt. A woman I used to work with took her family to a shelter after the rising water blocked their path out of town. The ranch house of other friends of mine, which took eight years to build, was near the hurricane’s eye in the Coastal Bend and torn apart in minutes.

Texans are a gritty people who believe in toughing it out no matter what’s thrown our way. We are a resilient lot, and will rise again. But for now, there are more people to rescue, shelters to open, and families to help. By caring for our communities, Texans are providing America an inspiring civics lesson.

We’ll need every bit of tenacity we can muster to work and serve, to help and care. The worst may still be to come. There will be more rain, raising waters even higher before they slowly recede into the Gulf of Mexico. There will be more wind, causing more damage and putting more people in need of rescue, food and shelter. The searing pain will grow as those who perished in the wind and water are found.

President Trump’s visit on Tuesday was a tonic, and his administration has been quick to provide what state officials have requested. But it is important to remember that under federal law, governors—not the feds—are in charge of disaster planning, relief and recovery.

What the Trump administration does is critical, but it will work only if Texas Gov. Greg Abbott is prepared to tell Washington what his state needs. So it is fortunate that long before this hurricane appeared, Mr. Abbott and his team were planning, training and organizing for a challenge like this. They are now coordinating with local officials to get resources to where they will save lives and protect property.

That preparation is paying off as Mr. Abbott spends most of his long days in the State Operations Center, working with county and city officials along the nearly 400-mile Texas coast. Mistakes will be made. That’s inevitable in a crisis of this magnitude.

But the governor of Texas and his army of first responders, local officials, guardsmen and volunteers are showing America the difference Lone Star leadership can make. Rather than bring this great state to its knees, Harvey has summoned forth acts of courage and compassion. God bless Texas in these trying days.

Article Link To The WSJ:

BlackRock Finds More Risk Assets At Insurers Than '08

Insurers bought up complex assets to lift returns after crisis; Industry’s push into alternative assets also provides benefits.

By Sonali Basak
August 31, 2017

Insurers bought up complex assets to lift returns after crisis; Industry’s push into alternative assets also provides benefits.

Insurers got burned badly in the 2008 financial crisis. So almost a decade later, BlackRock Inc. scoured the industry’s $5 trillion in U.S. investments to figure out how they would fare if markets crash so hard again.

The answer: It could be worse.

The world’s largest money manager mined regulatory filings of more than 500 insurance companies and modeled their portfolios in a similar downturn. The stockpiles -- underpinning obligations to policyholders across the nation -- would drop by 11 percent on average across more than 260 property and casualty insurers in that group, according to its calculations. That’s significantly steeper, BlackRock estimates, than their “mark-to-market” losses during the depths of the crisis.

The reason is pretty simple. Insurers needed to make up shortfalls after the crisis. But in a decade of low interest rates they had to venture beyond their traditional holdings of vanilla bonds. They now own vast amounts of stocks, high-yield debt and a variety of alternative assets -- a bucket that can include hard-to-sell stakes in private equity investments, hedge funds and real estate.

“There is more risk being put into these portfolios every year,” Zach Buchwald, the head of BlackRock’s financial-institutions group for North America, said in an interview. And such shifts may become permanent, especially because many of the allocations are hard to reverse, he said.

The new diversity should provide a huge benefit, according to Buchwald. After all, it was concentrations of investments in mortgage-backed securities and certain equities that proved the biggest pitfalls during the crisis, a study by the Organization for Economic Co-operation and Development found.

Even piles of investments that appear diverse can drop in value if care isn’t taken to ensure the assets won’t move in unison. If that were to happen, insurers may still avoid locking in temporary mark-to-market losses by waiting out the turmoil for prices to recover, a strategy that helped them during the last crisis.

BlackRock examined the insurers’ portfolios -- performing a sort of stress test -- as it pitches a service called Aladdin. It didn’t publish the study. BlackRock is trying to sell the companies analytics and advice, helping them test how complex portfolios may perform under various conditions, so they can design them to withstand catastrophe.

‘Stretched Market’

The assessment comes at an interesting time. With U.S. stocks trading near record highs and the Federal Reserve starting to unwind years of extreme measures, there’s a raging debate on Wall Street over whether a big correction is looming -- and if so, whether unforeseen faults in financial markets might crack open, as they did a decade ago.

“The strong ‘quest for yield’ remains visible in non-banks,” Allianz SE Chief Economic Adviser Mohamed El-Erian said in a Bloomberg View column this month. The group, which typically includes insurers, has pushed into asset classes “including what most deem to be a stretched market for high-yield bonds.”

Some insurers have been vocal about their shifts. Athene Holding Ltd., an insurer that leans on Apollo Global Management to oversee investments, is wagering on complex, hard-to-sell debt. Its alternatives portfolio, representing about 5 percent of total holdings, posted a 12.3 percent return on an annualized basis in the second quarter.

It’s among a handful of insurers backed by private equity firms betting they can earn better returns than peers focusing on traditional investments. But even MetLife Inc. and Prudential Financial Inc., two of the oldest and largest life insurers in the U.S., have said they’re pushing into commercial property bets and private market debt in search for yield.

Insurers are required to hold capital to absorb investment losses and to stockpile cash and other easy-to-sell instruments to pay policyholders when emergencies arise. Companies have strengthened their bulwarks over the past decade, Buchwald said.

“The industry is in a vastly different place than it was in 2008,” he said. “The regulatory changes and increased capital make the industry more resilient to potential downturns.”

Regulators do allow firms to lock up some funds in stickier investments to improve returns. “In the current low-interest-rate environment, perhaps a bit of illiquidity in a portfolio would not be harmful, if appropriately managed,” the National Association of Insurance Commissioners said in a statement on its website.

Shifting Holdings

BlackRock’s study showed that the industry’s forays into alternative investments haven’t always delivered yields on par with what the underlying money managers project. Insurers have to hold large amounts of capital against the investments they make -- money that isn’t free. When adjusting for those charges, private equity returns are generally less than 4 percent, whereas they would have been above 6 percent.

That, according to BlackRock, indicates insurers would probably earn more on investments in mezzanine real estate debt and high-risk equity investments in global real estate and other real-asset financing.

The view contrasts with a Goldman Sachs Group Inc. survey of more than 300 insurance executives this year, which found the respondents expected private equity to have the highest returns.

After experimentation with different assets, some insurers have shifted wagers. By the end of last year, the industry’s funds held in private equity had soared 56 percent to $56 billion from 2008. That trend is leveling off, Buchwald said.

Real estate investments, meanwhile, hit a seven-year high in 2015, then dropped by $7 billion the next year to $42 billion. Hedge fund holdings spiked to $24 billion in 2015, only to drop to $18 billion the next year. MetLife and American International Group Inc. were among those that began changing strategies.

The key is to find “other, more predictable income generators,” Buchwald said, "things like infrastructure and real estate.”

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America's Jobs Engine Keeps Defying Forecasts For 2017 Slowdown

Payrolls have topped estimates in five of seven months; Growth in low-paying industries may help explain weak wages.

By Sho Chandra
August 31, 2017

In an economy growing at a moderate pace at best, the U.S. job market keeps on shining.

Payroll gains topped forecasts in five of the past seven months, putting the 2017 average increase of 184,000 almost on par with last year’s 187,000 and above levels typical for the eight-year expansion. Analysts expect barely any falloff from that pace in August figures due Friday, amounting to job growth about double what’s needed to keep the unemployment rate steady in the longer run.

Sustained demand for workers -- highlighted by record vacancies -- is pushing down unemployment and even attracting Americans who weren’t actively looking for a job. What’s more, the strong run of hiring challenges a widespread assumption in forecasts late last year: that the economy would run low on workers as it approached so-called full employment, causing payrolls to downshift.

A confluence of reasons helps explain the outperformance, including steady consumer spending; bullish business sentiment on hopes President Donald Trump will cut taxes and boost growth; stabilization in oil prices; and improving export markets. Moreover, weak wage gains suggest employers are adding workers instead of investing in technology, something reflected in sluggish productivity. Recent hiring has been driven by typically low-paying industries such as restaurants, home health-care services and leisure.

“There is enough supply of labor to keep hiring growing at a fairly robust pace,” said Michael Gapen, Barclays Plc’s chief U.S. economist, who projects payrolls grew 200,000 in August. There’s also still plenty of demand for workers in this “slow but super-durable expansion,” he said.

Employment probably rose by 180,000 this month after 209,000 in July, according to the median estimate in a Bloomberg survey ahead of the Labor Department’s data. One caveat: August employment tends to come in below expectations due to difficulty adjusting data for the new school year. In the initial report, August hiring missed expectations each of the past six years, only to be revised upward in five of those.

The Bloomberg survey projects the August jobless rate held at a 16-year low of 4.3 percent. The data also won’t show any fallout from Harvey, as the Labor Department’s payrolls survey week -- which includes the 12th of a given month -- closed before the hurricane hit Houston on Aug. 25.

Former Federal Reserve Vice Chairman Alan Blinder said in an interview this month he was convinced in January that one of the Trump administration’s early public-relations problems “was going to be a decline in job creation because we couldn’t keep up at 180, 190,000 a month. But we have.”

Gapen expects monthly job gains of about 175,000 through next year, pointing out that in the past few expansions, the unemployment rate kept declining while payrolls remained healthy until the economy began slipping into a recession. So any weakness in employment was more to do with the end of the economic cycle than a sign there weren’t any workers left to hire, he said.

Jobless claims near the lowest level since 1973 indicate employers need to retain workers, said Jim O’Sullivan, chief U.S. economist at High Frequency Economics. The trend in payrolls would weaken significantly if financial conditions tighten meaningfully as the Fed raises interest rates, he said, though the “financial backdrop remains highly accommodative” by most measures. He sees monthly hiring of around 170,000 for the rest of 2017, cooling only gradually thereafter instead of abruptly reaching 100,000.

“It’s not as if hiring should suddenly hit a wall just because we’re at full employment or thereabouts,” said O’Sullivan, the top-ranked payrolls forecaster in data compiled by Bloomberg. “The labor market is tight but it’s not incredibly tight.” Otherwise, “we’d be seeing more strength in wages.”

The Bloomberg survey median shows average hourly earnings rose 0.2 percent from July, and 2.6 percent from a year earlier. That would be up from 2.5 percent in July, though below the expansion high of 2.9 percent from December 2016.

A sustained acceleration in worker pay will probably take time. After all, it’s only been a few months since the jobless rate reached the 4.6 percent level consistent with the Fed’s maximum-employment goal, O’Sullivan said.

As for which industries should see job growth, he expects mining and manufacturing employment to improve this year while Inc.’s impact will hurt retail jobs.

Health-care and professional services are also easy bets for job gains, said Omair Sharif, senior U.S. economist at Societe Generale. Most analysts say broad-based hiring backed by resilient economic growth will keep depressing the unemployment rate, a scenario in sync with gradual rate hikes by the Fed.

“The economy is still punching above its potential,” said Sharif, who sees monthly payrolls rising an average of 175,000 through year-end. “Strong demand for workers and a tightening of the labor supply haven’t abated.”

But there’s always hope for more. “Acceleration in wage growth would be great,” he said.

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An Obama Pay Rule Dies

Companies won’t have to disclose reams of wage and salary data.

By The Editorial Board
The Wall Street Journal
August 31, 2017

A long-time progressive goal has been to use charges of a gender pay gap to begin dictating salaries in the private economy. This week the Trump Administration halted an Obama Administration step toward that end.

The Office of Management and Budget on Tuesday stayed an Equal Employment Opportunity Commission (EEOC) rule dealing with a bureaucratic form known as EEO-1. The old EEO-1 required federal contractors and any company with more than 100 employees to submit data about their workforces—including breakdowns by race, ethnicity, gender and job category. In 2016 Team Obama added a demand for data on pay, effective March 2018.

The rule is a typical end-run around Congress, which refused to enact President Obama’s Paycheck Fairness Act that would have enabled such wage-data collection. Mr. Obama also tried to coerce such data through the Office of Federal Contract Compliance Programs. When that failed, EEOC got the mission.

The Trump OMB cited the exorbitant cost and hassle of compliance for staying the rule, and that’s reason enough. The old EEO-1 form required about 180 pieces of information, while the Obama form increased that 20-fold to 3,660 data points per report.

The Obama EEOC said the rule would cost about $50 million a year and 1.9 million hours to comply. But a Chamber of Commerce survey found the direct compliance costs alone would be closer to $400 million and eight million hours of labor. Add indirect overhead and annual costs jumped to $1.3 billion.

The Paperwork Reduction Act requires agencies to show that regulations have value and to minimize their cost. Yet the new EEO-1 form would have provided little real insight into pay disparity. The form would not have provided information about employee experience, education, flex-time, benefits, hours worked, or myriad other factors that go into pay decisions.

The rule would have created a sweeping data base that bureaucrats could manipulate to engineer accusations against corporations. Recall how the Consumer Financial Protection Bureau inferred discrimination in auto lending based on borrower names likes Johnson. The EEOC can already subpoena pay information if it has a credible allegation of discrimination.

The rule would also have turbocharged pay litigation, as tort attorneys capitalized on EEOC assertions. A federal judge in July required Google to hand over employee records to Labor Department investigators looking at a supposed “systematic” pay gap, and a class-action suit can’t be far behind.

The stay is among the first recommendations by Neomi Rao, who now runs the White House regulatory shop, and it is good news for employers and workers who want to be paid on the basis of their talent and effort, not the dictates of government.

Article Link To The WSJ:

White House Wants To Help States, Cities Offload Infrastructure

By David Shepardson
August 31, 2017

U.S. President Donald Trump’s administration told state and local officials on Wednesday that it will use its infrastructure plan to create incentives for the private sector to finance or take over public entities like bridges, tunnels and highways.

Transportation Secretary Elaine Chao and White House budget director Mick Mulvaney told about 150 transportation officials at the White House the administration wants the private sector to play a bigger role in managing and financing public infrastructure.

Mulvaney said the administration wants to give states and cities “incentives to move stuff you might own off of your books and into the private sector.”

He said that would result in states and cities “getting more money to do new stuff.”

The administration has said it wants to spend $200 billion on infrastructure over 10 years, an amount the administration hopes will encourage another $800 billion in infrastructure investment by the private sector, but has not offered a detailed plan. The administration will need congressional approval, and some members of Congress in both parties do not expect to take up the issue until 2018.

“The largest piece of the package is going to be wrapped around incentives,” Mulvaney said.

He said the incentives will work well in densely populated urban areas in airport, bridge, tunnel, port and other projects. It is harder for rural areas to have private sector-backed projects, citing the lack of potential “cash flow,” Mulvaney said. For example, a bridge in a rural area would have less traffic and potentially less likely be a candidate for private funding.

He said the administration plans to target some funds solely for rural infrastructure projects that may not work as private sector-backed projects.

Chao said the plan is not yet final but said states and cities that secure some private-sector financing “will be given higher-priority access to new federal funds.”

Democrats want more direct federal spending. Senate Democratic Leader Charles Schumer has pointed out that the Trump budget unveiled in May cuts $206 billion in infrastructure spending across several Cabinet departments, including $96 billion in planned highway trust fund spending.

“$200 billion is a lot - but it is not $5 trillion, so you still want to be smart with it,” Mulvaney said.

The three-prong infrastructure plan will also include backing for big “transformative” projects, Mulvaney said. Trump wants to look at new ways to build bridges, tunnels and ports.

”The president is very interested in trying to find that transformative, infrastructure technology, that is this close to being ready for market,” Mulvaney said.

Article Link To Reuters:

The GOP’s Tax Reform Baseline

Congress shouldn’t let Beltway process ruin good policy.

By The Editorial Board
The Wall Street Journal
August 31, 2017

President Trump began his sales pitch on Wednesday for tax reform, and it’s not too much to say the Republican majority in Congress hangs on success. One big question is whether the party will let itself be held hostage by processes that favor higher taxes and more spending as it did on health care.

Outfits like the Center on Budget and Policy Priorities have been ringing alarms that Republicans are trying to hide the cost of their tax plan “in a seemingly arcane maneuver.” At issue is the budget baseline, a benchmark for predicting how much tax revenue will flow into the Treasury. Gaming the baseline has been a bipartisan pastime since Democrats invented it in 1974. But here the question is whether the GOP should surrender $500 billion that could be deployed to reduce tax rates.

The debate is over what assumptions House and Senate Budget Committees should make about the future, which requires rehearsing some history. For years a Christmas tradition in Congress has been to jam through a “tax extenders” package that extends putatively temporary breaks for anything from electric motorcycles to rum from the Virgin Islands.

In 2015 Congress made permanent some preferences, including a research and development credit, in a chess move by House Speaker Paul Ryan. Permanence meant that the credits would be counted in the budget baseline. Congress can now nix the credits to finance cuts in personal and corporate tax rates.

Yet Congress did not enshrine all of the preferences, which are set to expire at various points in coming years. One of the biggest is “bonus depreciation” for businesses. The question is whether the House and Senate baseline should assume these tax preferences will be extended by Congress—as they have been in the past—or not.

The academic distinction is whether the baseline should be scored under “current law” or “current policy.” The self-styled purists say the budget must be tallied under current law, which would assume that, say, energy credits expire and the extra tax revenue accrues to the government.

The current policy approach makes the concession to reality that Congress will not dump a popular and powerful tax preference such as business depreciation, among other handouts, at least not without larger reform to the tax code. The difference is in the ballpark of $500 billion over 10 years, which is enough to finance a roughly five-percentage point reduction in tax rates for corporations.

One reason this is so important is that a tax plan must be “revenue neutral” to qualify under the Senate’s arcane reconciliation process, which allows the upper chamber to pass reform with a 51-vote majority. Tax writers in Congress must find ways to offset the cost of rate cuts, and succumbing to a current law approach would deprive the GOP of $500 billion that will be spent by government anyway.

All of this is a case study of broader budget dysfunction, and the Heritage Foundation’s Romina Boccia and Adam Michel offer another great example. The Congressional Budget Office’s baseline for spending assumes current policy. CBO predicts that money for highways or other funding from Congress will continue even after an appropriation expires.

Yet not so on tax revenues, which CBO’s baseline scores under current law. The budget gnomes assume that tax cuts will end on the scheduled expiration date, though many if not most are granted a stay of execution. As Ms. Boccia and Mr. Michel point out, the practical effect of the disparate assumptions is to make spending easier and tax cuts harder.

Republicans in Congress are considering the current policy approach, and the left is accusing the GOP of pulling a fast one. Yet the House’s “Better Way” document, which has been on the internet for a year, notes that deploying current policy “more closely resembles historical experience” and does not invent a tax increase that may never materialize.

The GOP ought to press ahead with the baseline that best reflects reality, which in this case is current policy, and it is rich to see anyone who supported the Affordable Care Act deplore budget gimmicks. The test is whether Republicans will work to make the tax overhaul as powerful as possible for economic growth—or fall to the same Washington process traps that scuttled the effort to replace ObamaCare.

Article Link To The WSJ:

From Stocks To Bonds, The Bear-Market Signals Are Multiplying

Correlations near levels consistent with last two downturns; Fund flows favor government bonds as investors shun risk.

By Cormac Mullen
August 31, 2017

Risks are stacking up for markets attempting to recover from the latest provocation by North Korea and the mounting damage of Tropical Storm Harvey.

Citigroup Inc. strategists including Jeremy Hale cite “worrying developments” that may signal the approach of a correction in stocks, while Commerzbank AG finds growing evidence of bearish sentiment in bond funds. Here are some of the red flags:


The pairwise correlations between the S&P 500 and its industry sectors have fallen near levels that preceded the last two bear markets, according to the Citigroup strategists. The previous downturns in stocks started when correlations re-established themselves.

Transport Stocks

Underperforming transport stocks are another concern. The Dow Jones Transportation Average, a gauge of airline, railroad and trucking companies, has fallen about 5 percent from its July 14 high. The index’s decline from its 2014 peak led a similar move in the S&P 500 by about seven months.

Bearish Bets

The ratio of outstanding puts to calls on the S&P 500 has risen to levels last seen in the late-2015 market sell-off, according to Richard Turnill, BlackRock Inc.’s chief investment strategist. The ratio for German stocks has also risen. The move to boost downside protection shows investors are getting nervous, he said.

Fund Flows

Fund flows show bond investors are also shunning risk. While high-yield funds suffer ‘considerable’ redemptions, cash has flowed into those that invest in government debt, according to Commerzbank strategists including Alexander Kramer and Ulrich Urbahn.

Skews Rise

Equity investors are willing to pay more for protection against losses than gains. So-called equity implied volatility skews are above the 10-year average, according to the Commerzbank strategists. This implies they are willing to pay more for downside protection than upside potential compared to the last decade.

Article Link To Bloomberg:

Buffett Says Stocks Are ‘Less Attractive’ But Still Beat Bonds

CEO says Berkshire’s cash is piling up on valuations; Buffett says he continued buying shares of Apple this year.

By Noah Buhayar
August 31, 2017

Warren Buffett, the billionaire chairman and chief executive officer of Berkshire Hathaway Inc., said the rally in markets over the last several years has made it harder to find bargains, but that stocks remain his choice over bonds.

When asked why cash has been piling up at Berkshire, he told Bloomberg Television’s David Westin, “It tells us stocks aren’t as cheap as they’ve been most of the time.” Buying shares after the 2008 financial crisis, Buffett said, was like “shooting fish in a barrel.”

In a separate interview Wednesday with CNBC, the Berkshire CEO said he continued buying stock in Apple Inc. this year, even as one of his deputies was selling. And he tamped down on speculation that Kraft Heinz Co. would pursue a takeover of Mondelez International Inc. Berkshire is the largest shareholder in Kraft Heinz and controls the company along with buyout firm 3G Capital.

Buffett, 87, built Berkshire into a sprawling conglomerate over the past five decades through shrewd stock picks and takeovers. The company’s dozens of subsidiaries now include insurers, manufacturers, retailers and a railroad. Its stock portfolio -- which includes multibillion-dollar stakes in companies like Wells Fargo & Co. and Coca Cola Co. -- was valued at more than $135 billion at the end of June.

Stocks “have gotten less attractive as they’ve gone along,” Buffett told Westin. “They’re still very attractive compared to bonds” because interest rates are so low.

The S&P 500 is in its second-longest bull market on record, having more than tripled since March 2009 in a rally that has added almost $19 trillion to share values. In 2017 alone the gauge has closed at record highs 30 times.

Even as valuations make it harder for Buffett to find new investments, some of his older ones are paying off. On Tuesday, Bank of America Corp. said that Berkshire had converted its preferred stake into common shares. The transaction locked in a paper gain of more than $11 billion on an investment that Buffett made six years ago, when the bank’s shares were tumbling amid probes tied to the housing meltdown.

“They were in significant trouble, but that’s like a great athlete being in the hospital for an accident,” he told Westin. The decision to convert the stake, he added, was “fairly automatic” since Bank of America’s common shares now pay a higher dividend than the preferred did.

In addition to Apple, Buffett has been finding some smaller investments this year. In June, he threw a lifeline to Home Capital Group Inc., an embattled Canadian home lender. Its shareholders are scheduled to vote on a second part of that transaction next month, which would increase Berkshire’s stake from almost 20 percent to 38 percent.

Proxy advisory firm Institutional Shareholder Services Inc. said it opposed the additional share sale, because the dilution wasn’t worth the extra reputational and strategic benefit of having Berkshire as a larger holder. Glass Lewis & Co., another proxy advisory firm, supports the transaction.

Buffett said the opposition from ISS wasn’t discouraging to him.

“We knew it’d be subject to the vote of the shareholders and if the shareholders vote it, we buy it, and if the shareholders don’t vote it we don’t buy it,” Buffett told Westin. “We knew that could go either way.”

Finding companies that Berkshire can take control of has been a bigger challenge lately for Buffett. Earlier this month, his bid to buy the majority of Oncor Electric Delivery Co., Texas’s largest power distributor, fell apart. That failed effort came six months after a Berkshire-backed deal to buy Unilever hit the skids.

The collapse of two high-profile pursuits in such a short time frame is a rarity for Buffett, who did his last major deal in 2015 when Berkshire agreed to buy aerospace-parts manufacturer Precision Castparts Corp. for more than $35 billion. While he’s made many offers that went nowhere, it’s less common for such misses to play out in public.

The deal drought has bigger implications for Berkshire. The company doesn’t pay a dividend and rarely buys back its own stock, so failing to consummate major transactions means cash piles up from its subsidiaries. At the end of June, Berkshire had just shy of $100 billion.

Buffett did the interviews in New York, where he’s dining Wednesday with the winner of an annual charity auction that raises money for Glide, a San Francisco non-profit. The top bidder, who chose to remain anonymous this year, paid $2.68 million to bring as many as seven friends to lunch with the billionaire at Smith & Wollensky steakhouse.

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For Russian Bank, A Tale Of Breakneck Growth

By Katya Golubkova and Oksana Kobzeva
August 31, 2017

The rise of Russia’s Otkritie bank - brought to an abrupt halt this week with a central bank bailout - was a tale of breakneck growth, lavish parties and support from within President Vladimir Putin’s inner circle.

At a time when Russia’s biggest banks were retrenching due to the world economic slowdown and Western sanctions on the country, Otkritie was snapping up assets from diamonds to pension funds and rival banks.

It grew to become Russia’s biggest private bank, although only the seventh largest overall behind state lenders. During this rise the seeds of Otkritie’s problems were sown, according to the central bank, even before it finally stumbled in an ill-fated attempt to grow into insurance.

“Otkritie group was growing very rapidly by all measures over recent years and this was financed by debt, while major risks were taken by the bank,” Dmitry Tulin, first deputy chairman at the central bank, said.

“The bank’s capital was clearly insufficient compared with the operations it undertook and the amount of risk,” he told a briefing on Tuesday.

At many steps along the way, Otkritie enjoyed the support of state-owned VTB, Russia’s second-biggest bank.

VTB’s chief Andrei Kostin is well connected: his office wall is decorated with photographs of himself posing with Putin.

However, VTB’s own growth has been curbed for the past few years. It has been called on to prop up major Russian industrial groups struggling to repay their loans and it spent years absorbing a failed lender, Bank of Moscow.

On top of that, the Western sanctions imposed over Russia’s role in the Ukraine crisis have restricted VTB’s access to international debt markets.

VTB did not immediately respond to Reuters questions about its ties to Otkritie.

However, several Russian bankers who spoke to Reuters before the bailout described Otkritie as a private extension of VTB.

During a banking crisis in 2009, VTB bought a 20 percent stake in the Otkritie group, selling its holdings five years later. Then in 2015 VTB got a 9.9 percent stake in the group after the state bank converted a loan it had made to an Otkritie-related company into equity.

VTB bank also funded many of Otkritie’s acquisitions. In 2012, VTB provided the finance for Otkritie to buy Nomos Bank, a deal that catapulted Otkritie into the front rank of Russian banking. In September 2014, VTB sold part of its stake in Cyprus-registered RCB bank to Otkritie.

In May this year, Otkritie also closed a $1.45 billion deal to buy the diamond business of energy group Lukoil. VTB partly financed that deal, Interfax news agency reported.

Acquisition Trail

The group that controls Otkritie started to expand its banking business in 2008, snapping up a small lender, RBR, and renaming it Otkritie. As of the second quarter this year, Otkritie Bank had assets of 2.45 trillion roubles ($42 billion), according to Interfax data.

In total, it has snapped up more than 10 banks, including Nomos, Bank Khanty-Mansiyisk and Petrocommerce, which used to be closely linked to Lukoil.

In 2014 Otkritie took over the troubled Trust bank in a central bank-approved bailout. This rescue gave access to cheap central bank funds, but also burdened it with problematic assets.

It was an attempt to buy the Rosgosstrakh insurance company late last year that finally tipped Otkritie over the edge, officials said. This would have made Otkritie group the country’s top insurer.

Otkritie’s owners, in preparation for the planned acquisition, poured 40 billion roubles of the bank’s money into helping the insurer with its liquidity problems. Rosgosstrakh posted a net loss of 33 billion roubles last year.

Otkritie underestimated the insurer’s problems, said Tulin. “The bank has spent a significant amount of liquidity ... and it became obvious it would have to acknowledge a fall in its capital adequacy ratio,” Tulin said.

“At a certain point, the bank’s shareholders realized they couldn’t solve the problem with capital on their own. Operations with Rosgosstrakh became the catalyst for the (bailout) process.”

As late as June this year, Otkritie was projecting the image of an ambitious, successful bank.

In the Russian business world it was renowned for its loud parties, especially those it threw each year during an international economic forum in St Petersburg.

On a rainy evening in June, business associates, officials and journalists alike packed into a courtyard in the city center that had been transformed into a party venue.

Executives from gold producers and energy companies sipped cocktails along with government officials, while listening to DDT, one of the Russia’s top rock bands.

“This is the best thing about the Forum,” a government official told Reuters the following morning.

($1 = 58.4125 roubles)

Article Link To Reuters:

U.S.-Led Jets Strike In Syria To Block ISIS Evacuation Deal

By Sarah Dadouch and Angus McDowall
August 31, 2017

U.S.-led warplanes on Wednesday blocked a convoy of Islamic State fighters and their families from reaching territory the group holds in eastern Syria and struck some of their comrades traveling to meet them, a coalition spokesman said.

The strikes were aimed at stopping an evacuation deal for Islamic State fighters to leave their enclave on the Lebanon-Syria border for areas they hold in eastern Syria, arranged by the Lebanese Hezbollah group and the Syrian army.

It was part of a ceasefire agreed after offensives last week by the Lebanese army on one front, and the Syrian army and Hezbollah on another, that pushed Islamic State back into a small part of its enclave straddling the frontier.

The deal has been criticized by the coalition and by Iraq, whose army is also fighting Islamic State in areas contiguous with the eastern Syria region to which the convoy was headed.

The convoy, carrying 308 militants and 331 civilians according to Hezbollah, is now effectively stranded, unable to move forward into Islamic State territory.

It shows how easily such evacuations to other areas, which the government of Syrian President Bashar al-Assad has increasingly used to push rebel pockets to surrender, can be derailed in a conflict with many sides.

A commander in the military alliance supporting Assad said the coalition had contacted the Syrian Arab Red Crescent, which is accompanying the convoy and warned that if it entered Islamic State territory, it might attack.

Islamic State is on the back foot in both Syria and Iraq, losing swathes of its territory and its most important towns and cities after taking advantage of chaos including the six-year civil war in Syria to win ground.

In Syria, the U.S.-led coalition is backing an alliance of Kurdish and Arab militias in the north which are assaulting the jihadist group’s former de facto capital of Raqqa.

The Russian-backed Syrian army and allied Shi’ite militia from Iraq and Lebanon including Hezbollah have this year seized most of the central desert from the group, and are advancing eastwards to relieve the army’s besieged enclave in Deir al-Zor.

The coalition strikes to block the convoy moving into Islamic State territory took place east of Humeima, near the edge of land held by the Syrian government, coalition spokesman Ryan Dillon told Reuters.

“We did crater the road and destroyed a small bridge to prevent this convoy from moving further east,” Dillon told Reuters by phone.

He later said the coalition had struck vehicles containing Islamic State fighters that were heading to that area from deeper inside the territory they control to the east.

He did not know if the evacuation convoy, which contains buses of fighters and their family members, as well as ambulances carrying wounded fighters, was now in Islamic State or Syrian government territory.

Military Aid

On Tuesday morning a Hezbollah-run military media unit reported the convoy had reached an exchange point into Islamic State territory.

The evacuation deal also involved Islamic State revealing the fate of nine Lebanese soldiers it took captive in its border enclave in 2014, and surrendering Hezbollah and Syrian army prisoners and bodies in east Syria.

The commander in the pro-Assad military alliance said it was considering an alternative location for the convoy to cross into Islamic State territory.

“Now things are moving to change the place from Humeima and head north towards Sukhna,” the commander said.

”We’re not bound by these agreements,“ Dillon said, apparently referring to the ceasefire deal. ”They’re clearly fighters and they’re moving to another location to fight yet again.

“In accordance with the law of armed conflict ... we will strike them if we are able to do so,” he said, adding that direct strikes on the convoy would only take place if the militants could be separated from civilians.

Brett McGurk, the U.S. envoy to the coalition, criticized the evacuation deal in a statement early on Wednesday before the strikes were reported, saying: “Relocating terrorists from one place to another for someone else to deal with is not a lasting solution”.

Separately, the leader of Hezbollah, Sayyed Hassan Nasrallah, defended the Lebanese group’s involvement in the evacuation deal in a statement responding to criticism of the move from Iraqi Prime Minister Haider al-Abadi.

Abadi said on Tuesday: “Transporting this number of terrorists from long distance to eastern Syria adjacent to Iraqi borders is unacceptable”.

Nasrallah said it was a Hezbollah deal agreed upon by the Syrian leadership, that the fighters were few in number, and were being moved from one front Hezbollah was fighting in to another.

Lebanon is a major recipient of U.S. and British military aid. It says its offensive against Islamic State last week was separate to the simultaneous one made against the same pocket from inside Syria by the Syrian army and Hezbollah, regarded by the U.S. and Britain as a terrorist group.

On Wednesday the Lebanese army said its head General Joseph Aoun had been phoned by the commander of U.S. Central Command Joseph Votel congratulating him on the offensive and pledging to continue arming Lebanon’s army.

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Obama’s Mideast Legacy: Iran’s Puppets All Around Israel With War On The Way

By Jonathan S. Tobin
The New York Post
August 31, 2017

There are some mistakes for which the world never seems to stop paying.

When the United States chose to let Syria slide into chaos while simultaneously seeking to end the isolation of Iran with a nuclear deal, President Barack Obama thought he was avoiding trouble and giving Iran a chance to “get right with the world.”

But it turns out those blunders are still paying dividends for Iran, creating new dangers in the Middle East and threatening the hopes of the Trump administration. That was made clear this week when Yehya al-Sinwar, the leader of Hamas, announced in Gaza that the terror group had reconciled with Iran.

Prior to the outbreak of the Syrian civil war, Iran was Hamas’ main source of money and weapons and helped the terror group transform Gaza into a fortress bristling with rockets and missiles that rained terror on Israeli towns and cities.

But the alliance between the two broke up during the Syrian war as Iran backed the Assad regime and Hamas backed Sunni rebels.

Experts told us that the split was an inevitable result of the differences between the Sunnis of Hamas and Iranian Shiites. But while that may be a common divide in the Muslim world, it took a US president with the vanity to believe his illusions were more important than the facts on the ground — Obama — to bring them back together.

Though Obama repeatedly called for Bashar al-Assad’s ouster, he did nothing to aid those trying to make it a reality, especially when a little help would have gone a long way. He ultimately stood by as Russia and Iran intervened to save Assad.

By backing down on his “red line” warning on the use of chemical weapons and then punting responsibility for that issue to Russia (which allowed Assad to continue using them), Obama also ensured that Syria would become a land bridge between Tehran and its Hezbollah auxiliaries in Lebanon.

Obama thought intervention would have been an obstacle to his hopes for a rapprochement with Tehran. Nor did he let Iran’s refusal to give up its nuclear program stop his push for a deal that vastly enriched the regime while only delaying its quest for a nuclear weapon.

The result: Iran is stronger and bolder than ever and building weapons factories in Lebanon and Syria. By reconciling with Hamas, it has the capacity to create what might be a three-front war against the Jewish state whenever it chooses to heat up the conflict. With Iran behind it, Hamas, which has already re-armed and re-fortified Gaza since its 2014 war with Israel, is not only better able to re-start hostilities but also now more of a threat to its Fatah rivals in the West Bank.

What does that mean for the United States?

As we saw last week when his adviser/son-in-law Jared Kushner visited the region, President Trump still harbors hopes of brokering the “ultimate deal” between Israel and the Palestinians that eluded his predecessors.

The administration continues to believe that the shared fears of Iran that caused Arab states like Egypt, Jordan and Saudi Arabia to make common cause with Israel will enable them to pressure the Palestinians to make peace. But as the Temple Mount crisis proved this summer, it’s the Palestinians who have the ability to push them away from the Israelis.

And with Hamas back in its pocket, Iran has the ability to veto peace with the Jewish state they still vow to eliminate.

What can Trump do? The options are limited but he must begin by realizing that sticking to Obama’s decision to let the Russians and Iranians have Syria is a mistake. The same applies to listening to those who have so far persuaded him not to start the process of rolling back the nuclear deal.

Trump will probably never get the Middle East peace deal he wants. But doubling down on Obama’s mistakes will only increase the risks of more Middle Eastern wars that he wishes to avoid.

The Iran-Hamas reunion is a warning that policies that strengthen Russia and its Iranian allies are blunders Israel and the West will keep paying for in blood and treasure.

Article Link To The NY Post:

Brexit Negotiators Trade Barbs, Eyeing Deadlines

By Alastair Macdonald and Gabriela Baczynska
August 31, 2017

British and European Union negotiators exchanged recriminations on Wednesday over a lack of progress in the latest round of talks on Britain’s withdrawal, with both sides demanding change to meet looming deadlines.

Ahead of a planned Thursday morning news conference with his British counterpart David Davis, chief EU negotiator Michel Barnier rejected complaints that his team was too rigidly tied by laboriously agreed guidelines from the member states to find compromises with Britain’s demands for close new relations.

For their part, British officials hotly denied accusations they were too short on ideas and preparation to make progress the EU wants to see on the divorce settlement before the other 27 leaders will agree to launch talks on a future trade pact.

“It’s quite difficult to negotiate with people who don’t seem to have the flexibility that would allow them to negotiate,” one said, echoing Davis’s call for more “flexibility and imagination” from Brussels.

In a pointed tweet, Barnier rejected the suggestion that the guidelines handed to him by the other governments -- themselves the product of months of negotiation -- were tying his hands. He renewed EU calls for Britain to give more detail on its wishes.

“Guidelines are designed for serious and constructive negotiations but we need clear UK positions on all issues,” the former French foreign minister said. If potential compromises can be identified by the technicians, EU officials say, they can go back to political leaders for approval to cut deals.

With little more than a year left to agree the withdrawal terms and transitional arrangements to avoid disruption to lives and business across the continent when Britain leaves in March 2019, both sides hope an EU summit on Oct. 19-20 can agree that “sufficient progress” has been made to launch free trade talks.

Officials said differences had narrowed on some issues in a divorce settlement that must determine the rights of expatriate citizens, border arrangements, especially on the island of Ireland, and disparate technicalities including legal relations and Britain’s ties with the Euratom nuclear materials treaty.

Money Troubles

However, a gulf remains over EU demands that Britain pay possibly 60 billion euros ($70 billion) on departure. British negotiators presented on Tuesday their legal analysis of what London accepts will be some post-Brexit obligations to the EU.

Though neither side is advancing hard figures yet, the British rejected what they called a sweeping “top down” approach from the EU and argued for a more detailed, “bottom up” review based on diverse legal arrangements across many budget areas.

Britain would like to see the pace of direct talks stepped up, beyond the roughly monthly schedule agreed in July. Two more week-long rounds are scheduled before the October summit. Davis also wants Barnier’s team to loosen their refusal yet to discuss future trade arrangements, arguing that this hampers progress on agreeing some divorce elements, such as the Irish land border.

A source close to Barnier stressed that the EU was willing to discuss the future relationship once “sufficient progress” -- a deliberately vague concept -- is made. That could, the source said, help resolve complaints from Britain, such as about an EU refusal to agree now that British tourists could keep EU cards that give them easy access to medical care across the Union.

Several officials offered downbeat assessments of progress -- “awful” was the verdict of one EU diplomat. However, others cautioned that results this week were never expected to be great and said both sides are still figuring out exactly what the other wants and where potential areas for trade-offs will lie.

While many doubt a breakthrough by October -- some senior EU officials see Prime Minister Theresa May spoiling for a bust-up with her counterparts -- some EU diplomats close to the process cautioned against too deep a pessimism.

The EU executive has a track record of creative deal-making and the 27, while demanding much from Britain, also do not want to see it depart in chaos.

And while Barnier’s boss, European Commission President Jean-Claude Juncker, blasted as inadequate a series of British proposals over the summer, one senior official said they showed signs May was trying to prepare public opinion for compromises that may disappoint many Britons who voted for Brexit last year.

“We need to be careful not to be too negative about these papers,” he said. “You can say a lot of things about the Brits, but they ain’t dumb ... Even if we are very disappointed with where we are ... maybe it’s about creating a haze, under the cover of which you can turn the ship around.”

Guy Verhofstadt, the European Parliament’s Brexit point man, told fellow EU lawmakers on Wednesday that while he dismissed many British proposals -- a call for an “invisible” border in Ireland was “surrealist”, he said -- he believed that May’s threat of walking out without any deal had now firmly receded.

Article Link To Reuters: