Tuesday, May 23, 2017

Tuesday, May 23, Morning Global Market Roundup: Sterling Slips After Manchester Blast, Euro Steady, Stocks Advance

By Nichola Saminather 
Reuters
May 23, 2017

Sterling slipped on Tuesday after a suspected suicide attack killed at least 19 people and wounded 59 at a pop concert in the English city of Manchester, while the euro held gains made after German Chancellor Angela Merkel said it was "too weak".

Despite the explosion, at a concert by U.S. singer Ariana Grande, European markets were poised for a positive start.

Financial spreadbetter CMC Markets expected Britain's FTSE 100 .FTSE to open up 0.1 percent, and Germany's DAX .GDAXI and France's CAC 40 .FCHI to start the day marginally higher.

The attack came just two-and-a-half weeks before an election that Prime Minister Theresa May is expected to win easily, although polls showing that the contest was tightening added to sterling's woes.

Sterling eased almost 0.1 percent to $1.299 GBP=D3, recovering some earlier losses. It fell 0.3 percent on Monday.

The pound dropped 0.3 percent to 144.27 yen GBPJPY=, after losing 0.2 percent on Monday.

If the blast is confirmed as a terrorist incident, it would be the deadliest attack in Britain by militants since four British Muslims killed 52 people in suicide bombings on London's transport system in July 2005.

The impact on other areas of the market was limited, with Britain's FTSE futures FFIc1 up 0.1 percent, while S&P E-mini futures ESc1 slipped 0.1 percent.

"We could see a bout of nervousness re: the terror threat, but it's likely to be minor," said Shane Oliver, head of investment strategy at AMP Capital in Sydney. "Ever since 9/11, the impact on markets from terrorist events has been declining."

The euro EUR=EBS hit a six-month high overnight after Merkel said the currency, made "too weak" by the European Central Bank's monetary policy, helped explain Germany's relatively high trade surplus.

The common currency edged up almost 0.1 percent to $1.1245 after jumping as much as 0.5 percent and closing 0.3 percent higher on Monday.

MSCI's broadest index of Asia-Pacific shares outside Japan .MIAPJ0000PUS pared gains after hitting its highest level since June 2015 to trade fractionally higher.

Japan's Nikkei .N225 slid 0.2 percent.

Korean shares .KS11 surged 0.8 percent, remaining slightly below an all-time high hit earlier on Tuesday.

Chinese shares .CSI300 surrendered gains to drop 0.1 percent on concerns over a regulatory crackdown on risky lending practices. The Shanghai Composite .SSEC lost 0.7 percent.

Hong Kong's Hang Seng .HSI rose 0.2 percent after earlier rising to its highest level since July 2015.

Overnight, Wall Street closed as much as 0.8 percent higher, driven by defense and technology stocks, after U.S. President Donald Trump announced arms deals and other investments with Saudi Arabia over the weekend that Secretary of State Rex Tillerson said could add up to $350 billion.

An uncertain political climate in the U.S. continued to weigh on the dollar, but a slowdown in Japanese manufacturing activity limited losses versus the yen.

The dollar was slightly lower at 111.20 yen JPY=.

The dollar index .DXY, which tracks the greenback against a basket of trade-weighted peers, was 0.1 percent lower at 96.894.

Losses were also kept in check by a gauge of U.S. economic activity that improved in April to its highest level since late 2014.

The White House is set to deliver Trump's first full budget to lawmakers later on Tuesday. The plan would cut $3.6 trillion in government spending over 10 years, balancing the budget by the end of the decade.

Presidential budgets are often ignored by Congress, which controls federal purse strings.

But the budget plan, which proposed the sale of half the country's strategic oil reserves, weighed on crude futures, offsetting optimism over expectations that other major oil producers would agree to extend supply curbs this week.

Global benchmark Brent LCOc1 retreated 0.6 percent to$53.54 a barrel.

U.S. crude futures CLc1 gave up some gains but were 0.2 percent higher at $50.84, after hitting their highest level in more than a month earlier in the session.

The weaker dollar lifted gold slightly. Spot gold XAU= climbed 0.2 percent to $1,262.82 an ounce in its third straight session of gains.


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Wal-Mart’s Online Therapy May Revive Ailing Retail

By Jennifer Saba 
Reuters
May 23, 2017

Wal-Mart’s online therapy may help revive ailing retailers. The $242 billion giant is starting to reap the benefits of embracing e-commerce while shares in digital laggards like Macy’s and J.C. Penney plummeted after poor results. Unless they follow the behemoth’s lead, they’re likely to hand more market share to Wal-Mart and internet megastore Amazon.

After years of fits and starts, Wal-Mart’s revenue from online sales jumped by an impressive 63 percent in the first three months of the year, compared to the same period in 2016. What’s more, executives attributed the rise largely to existing operations rather than to acquisitions like last year’s $3.3 billion Jet.com deal.

Chief Executive Doug McMillon has achieved this by playing to people’s desire to save money. Customers get discounts if they buy online and pick up in a store, for example. And two-day shipping for purchases of $35 or more is free. That even forced Amazon, which rarely imitates the competition, to lower its threshold for free shipping.

It’s a relative bright spot in a troubled industry. Some are filing for bankruptcy, as teen fashion store Rue 21 did last week. Others missed estimates on poor sales, sending their shares into another nosedive after years of flat or falling revenue. Foot Locker, Dick's Sporting Goods, Macy’s and J.C. Penney have lost between 16 percent and 24 percent in value over the past month on the back of bad earnings.

Like Wal-Mart, some have made a lot of noise about buying online stores, but keep mum about how much business they’re getting. Macy’s would only say that it’s increasing by double digits. Chief Financial Officer Karen Hoguet argues that it’s “almost impossible” to break out digital sales because of all the “cross-channel activity.”

Online, though, is where the growth is. Amazon’s U.S. sales jumped by 24 percent last quarter. Overall, industry e-commerce revenue may grow 70 percent by 2021 to $790 billion, research outfit eMarketer reckons. That’d only take its share to 14 percent of total revenue, from 9 percent this year. But with it comes greater flexibility on costs and inventory. That’ll be even more important if the recent trend continues of people spending less money on clothes in favor of travel and the like, according to Bureau of Labor Statistics data. Failing to get online right may mean getting everything wrong.


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Investors Skeptical Ford CEO Change Will Revive Stock Price

By David Randall 
Reuters
May 23, 2017

Ford Motor Co's (F.N) unexpected decision to replace its chief executive officer on Monday may not be the catalyst that revives its slumping share prices.

Shares of the second-largest U.S. automaker rose 2.1 percent Monday, a relatively muted reaction given the 0.5 percent gain in the broad Standard & Poor's 500 index .SPX. Over the last 12 months, shares of Ford are down nearly 16 percent due to concerns of declining automobile sales and the threat of autonomous vehicles to shrink future demand.

The S&P 500 index has jumped nearly 17 percent over the same time, while shares of competitor General Motors Co (GM.N) are up about 8 percent and shares of electronic vehicle pioneer Tesla Inc (TSLA.O) are up nearly 41 percent.

“There's just nothing out there that looks like it will get the stock moving,” said Gary Bradshaw, an analyst at Dallas-based Hodges Capital, who said that he attended a luncheon with outgoing CEO Mark Fields about two months ago in which Fields pressed the portfolio managers sitting around him about why they were not buying shares in the company.

The change in the company’s leadership does not solve the structural problems facing the industry, said Bradshaw, who does not own shares in the company and does not plan on adding them.

"GM is in the same boat. They don't have a car out there like a Tesla that is getting people excited and saying they need to buy it," he said.

One significant auto investor who declined to be named said the CEO change would probably not be a catalyst for the stock.

"The company hasn't kept pace with innovation, and the sector faces long-term problems," the person said.

At $51 billion, the market valuation of Tesla Motors is larger than both Ford and General Motors at a time when the company is not profitable, in large part due to expectations that it has greater growth potential than its more established rivals. Ford, which announced plans to cut 1,400 white-collar positions last week, is expected to look at further significant cost cuts in the next three to six months, company officials told Reuters.

Ford's lower stock price could also be due to far lower buy-back spending than GM's, analysts said. Ford's buy-back spending - net retirement of stock - was $145 billion or $2.6 billion over five years, with the bulk coming in 2014 which was a one-time buy-back to offset the dilution of both stock that was going to come onto market from an employee stock ownership plan and from convertible notes that were due to become exercisable for conversion to shares.

GM's buy-back spending was $2.5 billion last year and $16.8 billion over five years.

Ford has a dividend yield of 5.5 percent, versus General Motors of 4.6 percent.

Ford has felt less pressure from outside activists to undertake efforts to boost its share price, in large part because the Ford family, which holds nearly 40 percent of the voting power among shareholders. GM, by comparison, has fended off calls from well known hedge funds like David Einhorn's Greenlight Capital, which has pressed the company to split the company's stock.

Ford's new chief executive, James Hackett, who had been overseeing its division focused on self-driving cars, has a reputation as a turnaround artist for guiding changes at furniture maker Steelcase Inc (SCS.N) that helped it regain its market leading position, though those reforms did not always benefit shareholders.

Over the 18 years that Hackett oversaw Steelcase as a public company, the stock fell by more than 55 percent and delivered a total return, including reinvested dividends of negative 22.3 percent, or an annualized total return under his tenure of negative 1.54 percent. By contrast, the S&P 500 generated an annualized total return over the same run of 5.62 percent.

Notably, on both a price and total return basis, Steelcase underperformed its main competitors like Herman Miller Inc (MLHR.O) and HNI Corp (HNI.N) by substantial margins on a cumulative basis.

Other management changes at the company could be coming as Hackett attempts to reposition the company for a new era of electric vehicles and autonomous driving, said Adam Jonas, an analyst at Morgan Stanley. That could mean that "the earnings situation may need to get materially worse before it gets better," he wrote in a note Monday.


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Oil Prices Fall As White House Proposes U.S. Oil Reserve Sales

By Henning Gloystein
Reuters
May 23, 2017

Oil prices fell on Tuesday after U.S. President Donald Trump proposed the sale of half the country's strategic oil reserves, even as producer club OPEC and its allies cut output to tighten the market.

Brent crude futures LCOc1 were trading down 23 cents, or 0.4 percent, at $53.64 per barrel.

U.S. West Texas Intermediate (WTI) futures CLc1 were at $50.91, down 22 cents, or 0.4 percent.

The White House budget plan would gradually sell off half of the nation's emergency oil stockpile to raise $16.5 billion from October 2018, documents released on Monday showed. It also suggested opening up more production in Alaska.

The budget, which will be delivered to Congress on Tuesday, is meant as a proposal and may not take effect in its current form. But it reveals the administration's policy hopes, which include ramping up American energy output.

The plan was released just a day after Trump left OPEC's de-facto leader Saudi Arabia following his first overseas state-visit.

Any large release of U.S. strategic reserves would jolt oil markets, where the Organization of the Petroleum Exporting Countries (OPEC) and other producers, including Russia, have pledged to cut output by 1.8 million barrels per day (bpd) in order to tighten the market.

OPEC, led by Saudi Arabia, and other participating producers will meet on May 25 and are expected to extend the period of the cut from just the first half of this year to all of 2017 and the first quarter of 2018.

Oystein Berentsen, managing director for oil trading company Strong Petroleum in Singapore said the White House proposal was a surprise, but added that over a 10 year period the sales would only amount to around 95,000 bpd.

"It's not huge, but it won't help Saudi efforts," he said.

Any sales would only start next year, so their impact would largely be on longer-term prices.

The Brent forward curve <0> shows prices rising towards $55 per barrel by March 2018, and prices declining from there towards $53.80 per barrel by late 2018.

The U.S. strategic petroleum reserves (SPR) are the world's biggest, standing at around 688 million barrels, a week's worth of global oil demand. SPR-STK-T-EIA.

Sour crudes made up 60 percent of U.S. SPRs, while sweet crude made up the rest, said Virendra Chauhan of Energy Aspects.

Releasing reserves would add supplies to already high and rising U.S. production C-OUT-T-EIA of 9.3 million bpd, not far off levels of top suppliers Saudi Arabia and Russia.

The White House plan moves come after Goldman Sachs warned of "risks for a renewed surplus later next year if OPEC and Russia's production rises to their expanding capacity and shale grows at an unbridled rate."

Demand may also slow. The Organisation for Economic Co-operation and Development (OECD) said that quarterly GDP growth in the OECD area decelerated sharply to 0.4 percent in the first quarter of 2017, compared with 0.7 percent in the previous quarter.

"Our macroeconomic view remains ... price-negative, which is likely to affect the medium-term demand for crude oil," said commodities brokerage Marex Spectron.


Article Link To Reuters:

OPEC’s Foil: It Can’t Drain Enough Stored Oil

Cartel is doubling down on its production cuts to drain glutted inventories.


By Georgi Kantchev, Sarah McFarlane and Benoit Faucon
The Wall Street Journal
May 23, 2017

OPEC is likely to extend and perhaps even deepen its production cuts on Thursday for one main reason: It has failed to drain super high levels of oil in storage enough to raise prices significantly.

On Sunday, Khalid al-Falih, energy minister for the Organization of the Petroleum Exporting Countries’ top producer, Saudi Arabia, said OPEC and its production-cutting allies need to keep holding back output for another nine months. The group’s top leaders meet in Vienna on Thursday to make a decision.

“We are all ready to consider other creative suggestions that may emerge to between now and May 25,” Mr. Falih told reporters in Riyadh.

OPEC’s predicament underscores the powerful role global oil inventories now play, after years of being a technical detail that some traders ignored. With more data available than ever, oil storage has joined shale production as a symbol of a global glut of crude that has knocked OPEC on its heels.

“The production deal was a risky maneuver by OPEC,” said Antoine Halff, senior researcher at Columbia University’s Center on Global Energy Policy. “By choosing a storage target, they set themselves up for failure.”

Almost six months after OPEC’s 13 members and 11 other heavyweight producers pledged to cut around 2% of global oil supply, stored crude has only recently begun falling and remains at historically high levels. Oil prices were up almost 1% at $51.12 a barrel on Monday but remain below the levels reached in the days after the production cut’s announcement and short of the $60 a barrel target that Saudi Arabia wants.

OPEC leaders say they want to reduce storage levels in the Organization for Economic Cooperation and Development—a club of industrialized countries like the U.S.—to a five-year average. About 550 million barrels of crude and oil products have been added to the world’s stocks since 2014, when prices began crashing, said Christopher Bake, a member of the executive committee at the world’s largest oil trader Vitol Group.



OPEC leaders have said they want to siphon off over 300 million barrels of crude oil from OECD stocks, which reached record highs of over 3 billion barrels last year.

But OECD stocks continued increasing in early 2017 and fell in March by just 32 million barrels, according to the International Energy Agency, a global adviser to oil-consuming places such as the U.S., India and Europe. Even if the OPEC and non-OPEC cuts are extended into the second half of 2017, stocks won’t draw down to the five-year average this year, the IEA said.

An OPEC official said the group’s plan was beginning to work and merely needed more time.

“Stocks are now coming down,” the official said.

The official said OPEC was also concerned about high inventories in 2008 and 2009, when the global economic crisis depressed demand and prices, sending storage levels higher. Storage levels eventually fell, and prices rose, in 2009 as the crisis abated and oil demand growth returned.

OPEC focus on storage levels came after the cartel was humbled by U.S. shale production’s ability to withstand low prices. Now the group has found that its power to flush oil out of storage is also limited.

One of the main culprits might be OPEC itself—the group ramped up output just before the cuts were slated to start in January, adding to the world’s already vast oversupply. According to data from oil-tanker tracking firm Kpler, OPEC’s January to April exports were in line with the same period last year, meaning just as much oil has hit the global market after the cuts.

“OPEC itself delayed reaching the inventories goal by increasing production late last year,” said Olivier Jakob, managing director of consultancy Petromatrix.

OECD storage is only a slice of what investors are looking at. More than half of the world’s oil refining capacity is now outside of the OECD, in countries like China and India, where accurate storage data is difficult to come by.

China made significant inventory drawdowns early in the year followed by large inventory builds to recover to an oil stock level of 783 million barrels as of May 17, according to data from global storage monitoring firm Ursa Space Systems Inc., which monitors 75% of China’s storage capacity

Saudi Arabia’s stocks rose by 2.3%, or 6 million barrels, over February and March, according to the Joint Organisations Data Initiative, a group based in Riyadh that compiles oil industry information. According to Kpler, stocks appear to be falling in major oil storage hubs in the Caribbean and South Africa.

There is also less oil being held in giant tankers at sea, an expensive way to hoard oil but one that became common during the glut. According to Kpler, the volume of oil held on ships had fallen around 23% from December to 91.1 million barrels at the end of April.

“If they continue to fall, that will give the market some new confidence,” said Harry Tchilinguirian, head of commodity markets strategy at BNP Paribas .

But there are some ominous signs for OPEC and any extended bet to reduce oil storage.


Article Link To The Wall Street Journal:

Trump Budget Would Cut Oil Stockpile, Open Arctic Refuge To Drilling

By Timothy Gardner
Reuters
May 23, 2017

U.S. President Donald Trump's White House would sell half of the nation's emergency oil stockpile and open the Alaska National Wildlife Refuge to drilling as part of a plan to balance the budget over the next 10 years, documents released by the administration on Monday showed.

The White House budget, which will be delivered to Congress on Tuesday, is meant as a proposal and may not take effect in its current form. But it reveals the administration's policy hopes, which include ramping up American energy output.

The U.S. Strategic Petroleum Reserve, the world's largest, holds about 688 million barrels of crude oil in heavily guarded underground caverns in Louisiana and Texas. Congress created it in 1975 after the Arab oil embargo caused fears of long-term motor fuel price spikes that would harm the U.S. economy.

The Trump budget proposes to start selling SPR oil in fiscal year 2018, which begins on Oct. 1, with sales that would generate $500 million, according to the documents. The sales from the reserve would gradually rise over the following years, peaking at nearly $3.9 billion in 2027, and totaling nearly $16.6 billion from 2018 to 2027.

Past SPR sales have sometimes caused crude oil futures prices CLc1 to drop by adding to available supply. In this case, that would work against Trump's efforts to revive the downtrodden oil and gas drilling industries.

U.S. crude oil prices on Monday settled at $50.73 a barrel, a relatively low level that has limited energy company profits.

Arctic Drilling


The Trump budget would also seek to raise $1.8 billion over the coming decade by leasing oil in the Arctic National Wildlife Reserve, the largest protected wilderness in the United States, believed to hold rich reserves of crude.

U.S. politicians have been debating whether to open the reserve in northeastern Alaska to drilling since the 1970s, with opponents citing the risk of spills and the contribution to global climate change.

Trump has already moved to expand U.S. offshore drilling, including in parts of the Arctic, as part of his broader effort to support the oil and gas industries. He has also moved to trim the U.S. Environmental Protection Agency, including by proposing a more than 30 percent cut to its funding.

Mick Mulvaney, the director of the Office of Management and Budget, told reporters on Monday that the overall budget proposal was part of an effort to help the U.S. economy grow at a rate of 3 percent a year.

"It drives our tax reform policy, our regulatory policy, trade, energy ... everything is keyed toward getting us back to 3 percent," he said.

The White House did not immediately respond to questions about the energy-related budget proposals.

Trump's budget would also restart a nuclear waste fund that would bring in more than $3 billion by 2027.

The Obama administration stopped charging nuclear energy utilities the fee in 2014 after it stopped the licensing process for Nevada's Yucca Mountain - a waste dump that cost the government billions of dollars but never opened.

The Trump administration proposed reviving Yucca in details of the budget released in March.


Article Link To Reuters:

Goldman Sachs Warns Of 2018 Oil Glut Amid Optimism Over OPEC Cut Extension

By Huileng Tan
CNBC
May 23, 2017

Expectations of an extension of an oil production cut agreement by the Organization of the Petroleum Exporting Countries and major producers led by Russia are supporting prices, but there are risks for a renewed surplus later next year, Goldman Sachs analysts wrote in a report published on Monday.

"A nine-month extension would normalize OECD inventories by early 2018, in our view, but we see risks for a renewed surplus later next year if OPEC and Russia's production rises to their expanding capacity and shale grows at an unbridled rate," the Goldman analysts said.

Crude oil prices have been gaining steadily in the last few weeks but are slightly lower in Asia on Tuesday with U.S. West Texas intermediate and European Brent futures down 0.4 percent lower around $51 and $53.60 a barrel respectively, as prices give up some recent gains after President Donald Trump proposed the sale of half the country's strategic oil reserves in his budget plan, according to Reuters.

To avoid the boom-bust cycle, sustained backwardation in prices will help, the Goldman analysts added. This is as the low deferred prices will restrain access to credit for shale producers.

Backwardation happens when spot and near-month contracts are priced higher than contracts in the forward months.

"Costs will also play a role in setting shale's growth path but we do not forecast sufficient inflation at this point to achieve the required slowdown next year," the investment bank said

"In the current environment, we believe that the largest imbalance is the potential for a large surplus in 2018, leaving low deferred prices to resolve this credible threat. Low-cost producers selling their output in the spot market should further be incentivized to reduce inventories, to generate the backwardation linking spot oil prices near current levels and low deferred oil prices," they wrote.

But even with the cuts, OPEC will be able to reverse its policy as soon as 2018. Significant investments to increase Russian producing capacity and ongoing de-bottlenecking of infrastructure in Iraq can also lead to a rise in production.

"Such a ramp-up in OPEC and Russia production would occur in the face of still rising non-OPEC production outside of US shale, with legacy projects started through 2014 still coming online in Brazil, Canada and the North Sea in particular," said the Goldman analysts.

To control prices, Goldman said OPEC and Russia should extend or increase the cuts until stocks have normalized, express the goal of growing future production, and gradually ramp up output to grow market share but keep stocks stable and backwardation in place.

"Achieving this will be difficult, but we see templates in both OPEC's modus operandi of the 1990s of managed but flagged growth and the rationalization of shale growth in U.S. gas, both with backwardation," they added.

OPEC will next meet on May 25 when they will likely extend the output cuts, said the investment bank.

Goldman is keeping its Brent spot price of $57 a barrel for the second half of 2017.


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Why Millennials Are (Partly) To Blame For The Housing Shortage

As young people and builders have shifted their focus toward trendier urban markets, overall housing construction has declined.


By Laura Kusisto
The Wall Street Journal
May 23, 2017

The rush of young people to U.S. cities over the past few years is partly to blame for America’s worsening housing shortage.

In some of the country’s largest and most prosperous markets, such as New York, San Francisco, Boston and Los Angeles, housing construction has been stronger than normal in the urban core but weaker in the suburbs, where new housing can be built abundantly and more cheaply, according to an analysis set to be released Monday by BuildZoom, a website for construction contractors.

That is a problem because suburbs are typically the main drivers of housing construction.



For decades during the late-20th century, suburbs were the place to build, as urban cores suffered from high crime, poor schools and stagnant or shrinking populations.

But preferences have changed among young people, many of whom want to live closer to transit, restaurants and their workplaces. The share of young, educated people living in the urban core of Washington, D.C., for example, increased 8.6 percentage points between 2000 and 2014, according to Jed Kolko, chief economist at job-search site Indeed and senior fellow at the Terner Center for Housing Innovation at the University of California, Berkeley. Portland, Ore., and Chicago each saw increases of 6.4 percentage points.

“The expensive cities tend to be shifting toward a paradigm that says having a better location is better than having a fresher, greener, newer place,” said Issi Romem, chief economist at BuildZoom.

As builders have shifted focus toward trendier urban markets and away from cheaper suburbs, they have produced less housing overall than they otherwise might have. While starter-home construction has bounced back in recent months, it remains far from reversing this long-term trend.

At the same time, high land costs in central cities have pushed developers to focus on higher-end housing geared toward high earners instead of younger people just starting out.

The shift helps explain one of the most vexing aspects of the housing recovery: New homes are getting more expensive and yet there are fewer of them being built than in past cycles.

While new home sales within 5 miles of the centers of 10 of the country’s priciest and most densely populated metropolitan areas have surpassed levels from 2000, they remain more than 50% below where they were in 2000 when you go more than 10 miles out. The year 2000 is often used as a benchmark for a normal market, before the boom and bust of the mid-2000s.

To be sure, the study looks only at for-sale housing. More of what tends to be produced in city centers is for rent. What’s more, demand for starter homes has been bouncing back in recent months, as millennials get married, have children, and get fed up with rising rents.

The BuildZoom analysis shows that in metro areas where land is less expensive and there are fewer land-use restrictions, exurban starter homes are making a comeback.

In Austin, Texas, for example, 35.6% of new residential sales in 2015 was located more than 20 miles from the center, up from 12% in 2000. Indeed, exurban areas saw a threefold increase in new home sales between 2000 and 2015 with areas five to 20 miles from the urban core experiencing a drop.

The takeaway, Mr. Romem says, is that pricey cities need to loosen land-use restrictions in core areas where there is more demand. Allowing for more high-rise condo buildings would make it economical to produce starter homes in these areas as well.

“Do you care about preserving things the way they are, so that only wealthy people can continue buying in, or do you want to [encourage more density], so that housing is more affordable for everyone?” he asked.


Article Link To The Wall Street Journal:

Deregulators Must Follow The Law, So Regulators Will Too

As the Labor Department acts to revise the Fiduciary Rule and others, the process requires patience.


By Alexander Acosta
The Wall Street Journal
May 23, 2017

President Trump has committed—and rightly so—to roll back unnecessary regulations that eliminate jobs, inhibit job creation, or impose costs that exceed their benefits. American workers and families deserve good, safe jobs, and unnecessary impediments to job creation are a disservice to all working Americans. As the Labor Department approaches this regulatory rollback, we will keep in mind two core principles: respect for the individual and respect for the rule of law.

America was founded on the belief that people should be trusted to govern themselves. Citizens sit on juries and decide the fate of their fellow citizens. Voters elect their representatives to Washington. By the same token, Americans should be trusted to exercise individual choice and freedom of contract. At a practical level, this means Washington should regulate only when necessary. Limiting the scope of government protects space for people to make their own judgments about what is best for their families.

The rule of law is America’s other great contribution to the modern world. Engraved above the doors of the Supreme Court are the words “Equal Justice Under Law.” Those four words announce that no one is above the law, that everyone is entitled to its protections, and that Washington must, first and foremost, follow its own rules. This means federal agencies can act only as the law allows: The law sets limits on their power and establishes procedures they must follow when they regulate—or deregulate.

The Administrative Procedure Act is one of these laws. Congress had good reason to adopt it: In the modern world, regulations are akin in power to statutes, but agency heads are not elected. Thus, before an agency can regulate or deregulate, it must generally provide notice and seek public comment. The process ensures that all Americans—workers, small businesses, corporations, communities—have an opportunity to express their concerns before a rule is written or changed. Agency heads have a legal duty to consider all the views expressed before adopting a final rule.

Today there are several regulations enacted by the Obama administration that federal courts have declared unlawful. One is the Persuader Rule, which would make it harder for businesses to obtain legal advice. Even the American Bar Association believes the rule goes too far. Last year a federal judge held that “the rule is defective to its core” and blocked its implementation. Now the Labor Department will engage in a new rule-making process, proposing to rescind the rule.

Another example of a controversial regulation is the Fiduciary Rule. Although courts have upheld this rule as consistent with Congress’s delegated authority, the Fiduciary Rule as written may not align with President Trump’s deregulatory goals. This administration presumes that Americans can be trusted to decide for themselves what is best for them.

The rule’s critics say it would limit choice of investment advice, limit freedom of contract, and enforce these limits through new legal remedies that would likely be a boon to trial attorneys at the expense of investors. Certainly, it is important to ensure that savers and retirees receive prudent investment advice, but doing so in a way that limits choice and benefits lawyers is not what this administration envisions.

The Labor Department has concluded that it is necessary to seek additional public input on the entire Fiduciary Rule, and we will do so. We recognize that the rule goes into partial effect on June 9, with full implementation on Jan. 1, 2018. Some have called for a complete delay of the rule.

We have carefully considered the record in this case, and the requirements of the Administrative Procedure Act, and have found no principled legal basis to change the June 9 date while we seek public input. Respect for the rule of law leads us to the conclusion that this date cannot be postponed. Trust in Americans’ ability to decide what is best for them and their families leads us to the conclusion that we should seek public comment on how to revise this rule. Under the Obama administration, the Securities and Exchange Commission declined to move forward in rule-making. Yet the SEC has critical expertise in this area. I hope in this administration the SEC will be a full participant.

America is unique because, for more than 200 years, its institutions and principles have preserved the people’s freedoms. From administration to administration, respect for the rule of law has remained, even when Americans have been bitterly divided. Some who call for immediate action on the Obama administration’s regulations are frustrated with the slow process of public notice and comment. But this process is not red tape. It is what ensures that agency heads do not act on whims, but rather only after considering the views of all Americans. Admittedly, this means deregulation must find its way through the thicket of law. Casting aside the thicket, however, would leave Americans vulnerable to regulatory whim.

The Labor Department will roll back regulations that harm American workers and families. We will do so while respecting the principles and institutions that make America strong.


Article Link To The Wall Street Journal:

Trump Has Officially Become A Negative For The US Dollar

-- Boosted by the Trump trade, the dollar had soared after his election on the prospect that lower taxes, fiscal stimulus, and deregulation would boost the U.S. economy.
-- But that trade has reversed amid the probe into whether the Trump campaign had ties to Russia. The concern is Congress and the White House are too distracted to pursue legislation.
-- "Global capital just doesn't feel safe coming to the U.S.," said Robert Sinche, chief global strategist at Amherst Pierpont.


By Patti Domm 
CNBC
May 23, 2017

If the president is the standard bearer for the currency, Donald Trump himself will have to stop being a negative in order to get the dollar back on its feet.

Boosted by the Trump trade, the dollar had soared after his election on the prospect that lower taxes, fiscal stimulus, and deregulation would boost the U.S. economy. But that trade has reversed, and the dollar index is now down 6.6 percent from its post-election high and down 0.9 percent since the election.

"The Trump premium in the dollar has become a Trump discount. Global capital just doesn't feel safe coming to the U.S.," said Robert Sinche, chief global strategist at Amherst Pierpont. Besides the worries about the U.S., the dollar has been falling particularly hard against the euro, which is rallying on an improved outlook for the euro zone economy as well as expectation the European Central Bank will pull away from easy policies.

The Trump trade in the greenback has evaporated, as Washington became engulfed in the investigation into whether the Trump campaign had ties to Russia. The concern is Congress and the White House are too distracted to push through a new health care bill and then get to work on tax reform, which had been a positive catalyst for stocks.

J.P. Morgan global strategists studied investor positioning in a range of asset classes and stock sectors. "We conclude that there is little unwinding left to be done from here from the previous post-election build-up of Trump policy related positions," the analysts wrote in a note.

In fact, they say the trades reversed even before the latest wave of negative news for Trump emerged last week, when there was a daily barrage of negative headlines. There was the naming of an independent counsel to investigate his campaign's ties to Russia. News reports also said the investigation had found a person of interest among the president's top aides in the White House. Even before that, there were reports that when Trump met with Russian diplomats in the White House, he reportedly revealed classified information to them, as well as told them that former FBI director James Comey was a "nut job."

Sinche said the dollar's decline could be reversed, in part by central banks if the European Central Bank does not move away from its easy policies June 8 and the Fed raises interest rates, as expected June 15.

"I think it's been the whole issue of what is his policy. Are we moving anywhere on tax reform? The whole monetary, fiscal policy mix? People thought it was going to be a very expansionary fiscal policy and a tightening monetary policy, and it's all up in the air," said Sinche.

Trump is currently on his first overseas trip as president, so the news focus has been more on that and less on the investigation this week. "He's having a good trip so far. He stayed on script. These things could correct themselves, but once you get skepticism, once you lose confidence, it's awfully hard to get it back," he said.

Some analysts say the dollar will be stuck until Comey testifies before Congress after the Memorial Day holiday. Comey reportedly said that Trump asked him to end his investigation into Michael Flynn, Trump's former national security adviser at the center of the investigation. "It's a turning point if they think it will lead to worse things for Trump. If it's better, you get a little bit of a relief rally," he said.

Alan Ruskin, head of G-10 currency strategy at Deutsche Bank, said investors who are shorting the dollar do not appear to be concerned about the potential for a Fed rate hike in June to send the currency higher. Market expectations are high for a June rate hike, but less so for a second rate hike this year.

"Something constructive on the U.S. fiscal front would be a much more powerful tonic for [dollar] support. However, domestic politics has seriously curtailed, although by no means completely extinguished expectations of a U.S. fiscal stimulus," Ruskin wrote in a note. He added that the dollar will have a hard time recovering ahead of Comey's testimony.

Sinche also said a fiscal boost, like the sudden effort to push tax cuts, would be a big positive for the dollar.

JP Morgan strategists, in studying the fade of the Trump trade, looked at the speculative trading positions taken in interest rate and other futures. They found the positions betting on fiscal stimulus, or higher interest rates, had reversed fully by April. They also said extreme long positions in the dollar on the Trump trade, as of the end of last year, had cleared prior to last week.

The markets have also been focused on the Fed, and speculation has focused on the possibility that the Fed would go slower with hiking rates if things get worse for Trump.

As for the dollar, it more broadly reflects the view of foreign investors.

"There's just a general unease with international capital coming into the U.S. If you're not getting capital coming in for political reasons then the current account deficit takes over," Sinche said. That would make the currencies of countries with account surpluses more positive. That would include the euro and yen, since they represent countries with current account surpluses, or a positive difference between a nation's savings and investments.

"If I look at interest-rate differentials, I think the dollar should be 3 percent higher than where it is. I think it's actually getting a pretty big discount," said Sinche.


Article Link To CNBC:

American Oil Companies Deepen Saudi Ties, Despite Rivalry

By Matt Egan
CNNMoney
May 23, 2017

Saudi Arabia and American shale oil companies remain in a battle for global dominance that has sparked a rare bout of financial trouble for the kingdom and forced it to think about life after oil.

Despite that rivalry, Saudi Arabia is deepening its ties with the US with a raft of deals with American energy companies unveiled during President Trump's visit to the OPEC leader.

Saudi Aramco, the country's oil crown jewel, announced $50 billion worth of agreements with nearly a dozen US-based companies, including Schlumberger (SLB), Halliburton (HAL), General Electric, Nabors (NBR) and National Oilwell Varco (NOV).

The deals cover everything from oil rigs and advanced drilling equipment to deploying GE (GE) technology to transform Aramco's operations.

The agreements highlight the complex relationship between the US and Saudi Arabia, two of the world's largest oil producers. Despite being direct competitors, each stand to benefit from the other.

Saudi Arabia still needs to plow money into its aging oil fields to stay competitive, and American companies have the know-how.

"Who best to bring the technology and know-how to become even more competitive than the big American oil names?" said Brian Youngberg, senior energy analyst at Edward Jones.

For American energy companies, it's a lucrative market.

The deals also show that the Middle East country has to continue to invest its resources in oil even though it has a Vision 2030 strategy that promises to diversify the nation's oil-reliant economy. Saudi Arabia has had a difficult domestic situation with dramatic drop in oil prices over the last two years. Budget cuts brought about the end of generous government subsidies and also led to many layoffs.

No wonder, Aramco chose to highlight the employment benefits, with the word "jobs" appearing 13 times in the press release.

Khalid al-Falih, Saudi Arabia's Minister of Energy, insists these new agreements are more than just window-dressing aimed at pleasing Trump during his tour of the Middle East.

"These are real transactions," Falih told CNNMoney's John Deterios on Sunday. "Our credibility is our most important asset. We will not compromise it by announcing something we are not certain will take place."

Saudi Arabia also inked major agreements with US defense contractors like Lockheed Martin(LMT) and Raytheon (RTN).

Falih explained that the announcements, which were "catalyzed" by Trump's visit, show that the US and Saudi Arabia "enjoy a very strong relationship" that has been bolstered by Trump's efforts to combat terrorism.

Asked about the scandals rocking the Trump administration, Falih declined to comment on "internal American politics." He said simply, "We have confidence that the US political system ultimately will do the right thing for the country."

Aramco is also "seriously" considering an expansion of its Motiva division in the US, the oil giant's CEO told Reuters over the weekend. Aramco, which is planning a massive IPO to raise funds to help diversify Saudi Arabia's economy, recently took full ownership of America's largest refinery at Port Arthur, Texas.

Of course, Trump's visit to Riyadh came just days before a pivotal OPEC meeting in Vienna where the Saudi-led cartel is searching for a way to stabilize oversupplied oil markets.

The problem for OPEC? America. OPEC's two-year price war failed to kill US shale producers that helped create an epic supply glut.

Resilient US shale producers, especially in the Permian Basin, have lately been pumping away. The US oil is threatening to offset painful supply cuts taken late last year by Saudi Arabia, Russia and others. OPEC is now being forced to consider an extension of those production cuts.

But if Saudi Arabia can't beat the technology of US shale companies, maybe it can join them.

Youngberg said the energy deals with US companies show how the Saudis want to apply lessons learned from the shale boom to their own operations.

"Look at what has happened in the Permian. It's gone from a traditional oilfield to a booming fracking field," Youngberg said.


Article Link To CNNMoney:

Trump Seeks To Sell Off Half Of The Strategic Petroleum Reserve

By Steven Mufson and Chris Mooney
The Washington Post
May 23, 2017

Tugboats transport the Hess Corp. Stampede tension leg oil platform on Friday, May 5, 2017. The Stampede deepwater oil and gas field is one of the largest undeveloped fields in the Gulf of Mexico, sitting 115 miles south of Fourchon, Louisiana. Photographer: Eddie Seal/Bloomberg

As part of its 2018 budget, the Trump administration is proposing to reduce by half the size of the Strategic Petroleum Reserve, a cushion against global price shocks and supply disruptions. The administration said it expects the drawdown to reduce the federal deficit by $16.6 billion, part of a package of deficit reduction measures over the next 10 years.

The proposal probably will run into sharp differences in Congress and among oil experts, most of whom say that the reserve should remain a buffer in an emergency. As of May 12, the reserve had 688.1 million barrels, equal to about 141 days of net imports of crude oil and refined petroleum products.

The administration included the words “Reduce Strategic Petroleum Reserve by half” among a long list of budget proposals distributed under embargo to journalists.

The sales would start at half a billion dollars in the next fiscal year and climb to $3.9 billion, for a total of $16 billion over the next decade. A policy brief floated by the conservative Heritage Foundation, a group that has exerted a major influence on the Trump budget, suggests selling off the entirety of the SPR over a two-to-three-year period (a more radical proposal than the Trump idea).

“The SPR has not served its purpose, as Presidents have used the SPR as a political tool or failed to release reserves in a timely and impactful manner,” Heritage fellow Nicolas Loris wrote in 2015. “It is time for Congress to recognize it is not the government’s role to respond to high prices. Congress should therefore pull the plug and drain the SPR once and for all.”

The Strategic Petroleum Reserve is the world’s largest stockpile of emergency crude oil, and lies near the largest U.S. refiners and pipeline networks in four large salt caverns in Louisiana and Texas.

It was established in December 1975 in the wake of the oil embargo imposed on the United States by Arab members of the Organization of the Petroleum Exporting Countries (OPEC).

That cutoff of oil sales to the United States delivered a shock to the U.S. economy. More recently, strategists have defended the reserve as a bulwark against a possible disruption in supplies from Saudi Arabia, the world’s largest oil exporter, or a closure of the narrow Strait of Hormuz at the mouth of the Persian Gulf.

Some analysts have argued that the United States no longer needs a big stockpile because of the surge in domestic production resulting from shale oil output over the past decade and the reduction in U.S. imports of crude oil. Economist Philip Verleger has been among the leading advocates of shrinking the reserve. “The reserve was created at a time when the nation was very dependent on imported oil,” he wrote in a blog article for S&P Global Platts in 2014. “The dependency is in the past. The Reserve no longer serves the purpose for which it was developed.”

Other experts say that the reserve is as needed as ever.

“The risk of complete collapse in Venezuela is just one of many reminders that the world remains vulnerable to oil price shocks, and those will be felt by U.S. consumers at the pump just as much today even though we import less oil than we used to because oil is a global commodity,” said Jason Bordoff, director of the Center on Global Energy Policy at Columbia University.

“The SPR is a 40-year-old national security asset that helps to protect the U.S., in partnership with other countries, from potential oil supply disruptions and price spikes. It would be foolish to sell it off just because our imports have fallen or to fill short-term budget holes, especially when oil prices are so low.” (Bordoff was President Barack Obama’s National Security Council adviser on energy and climate.)

This isn’t the first time the Strategic Petroleum Reserve has been tapped for revenue. A budget deal in October 2015 included sales of 58 million barrels — 8 percent of the reserve — from 2018 through 2025 to raise $5.1 billion, which would equal 0.125 percent of that year’s budget. In addition, Congress turned to sales of the reserve to meet financing needs of the Highway Trust Fund, which would drain the reserve of another 101 million barrels.

The administration’s plan to shrink the petroleum reserve would come after these earlier drawdowns, leaving the emergency buffer with about 270 million barrels, or less than 40 percent of the current level.


Article Link To The Washington Post:

Trump's Budget Hits His Own Voters Hardest

The president's proposal for next year's federal spending calls for more than $1 trillion in cuts to social programs, including farm aid.


By Andrew Restuccia, Matthew Nussbaum, and Sarah Ferris
Politico
May 23, 2017

Donald Trump, whose populist message and promises to help American workers propelled him to the White House, is set to issue a budget proposal on Tuesday that instead takes aim at the social safety net on which many of his supporters rely.

Rather than breaking with Washington precedent, Trump’s spending blueprint follows established conservative orthodoxy, cutting taxes on the wealthy, boosting defense spending and taking a hatchet to programs for the poor and disabled – potentially hurting many of the rural and low-income Americans that voted him into office.

The budget proposal underscores the wide gulf between campaigning and governing, even for a president who promised to rewrite the presidential rule book.

The president’s budget plan calls for more than $1 trillion in cuts to a wide range of social programs with millions of beneficiaries, from farm subsidies to federal student aid. That includes a $600 billion cut to Medicaid over 10 years, despite Trump’s repeated promises on the campaign trail not to cut the program. The budget also takes an ax to the federal food stamp program and Social Security Disability Insurance.

Trump also proposes some of the deepest cuts to agriculture subsidies since Ronald Reagan, squeezing out nearly $50 billion over 10 years.

Trump’s budget would drastically cut domestic programs controlled by Congress, slashing $1.7 trillion over 10 years. At the end of the decade, the U.S. would spend nearly twice as much on defense as on other domestic programs. Domestic discretionary spending would be capped at $429 billion per year, below 2004 levels, while military spending soars to $722 billion.

The annual budget proposal – which has no chance of becoming law as proposed even though Republicans control Congress because GOP lawmakers write their own budget – serves as a starting point for negotiations and as a messaging document for the president and his party.

“There’s a certain philosophy wrapped up in the budget and that is — we are no longer going to measure compassion by the number of programs or the number of people on those programs,” White House Office of Management and Budget Director Mick Mulvaney, one of the budget’s chief architects, told reporters on Monday. “We’re not going to measure our success by how much money we spend, but by how many people we actually help.”

Mulvaney rejected accusations that Trump’s budget unfairly targets the poor, arguing instead that it amounts to a broad rethink of the country’s welfare system.

“We need folks to work. We need people to go to work. If you’re on food stamps, and you're able-bodied, we need you to go to work. If you’re on disability insurance and you're not supposed to be, we need you to work,” he added. “There’s a dignity to work, and there’s a necessity to work.”

Mulvaney, a former South Carolina congressman and founding member of the conservative Freedom Caucus, has long sought dramatic cuts to Medicaid and other programs.

Mulvaney said the budget does not touch “mainline” or “core” Social Security, but it does cut Social Security’s disability insurance. The White House is also leaning on anti-fraud programs to save billions of dollars in Medicare.

The White House plans to heavily promote its commitment to Social Security and Medicare, though its attempt to eliminate the federal deficit while largely preserving those entitlement programs — which together make up the bulk of federal spending — will leave behind a path of destruction for other safety net programs.

Trump’s budget would tighten the belt on programs for low-income families ranging from cash assistance to the child tax credit. Nearly $200 billion in cuts will come directly from the federal food stamp program, which helps feed 44 million people each year.

Trump would also slash $72 billion by tightening the rules for programs for people with disabilities — programs that Trump’s advisers have described as riddled with fraud and abuse. A federal watchdog, however, found last year that 17 anti-fraud programs already exist.

In an administration document outlining budget talking points, the White House pitched its proposal as a way to replace “dependency with dignity of work.” The internal guidance, which POLITICO obtained early Monday, highlights an estimated $193 billion in savings by further limiting who can receive food stamps. The administration estimates $40 billion in savings over 10 years by preventing illegal immigrants from claiming the Child Tax Credit and Earned Income Tax Credit, which provides a break to households making up to about $53,000 per year, depending on family size and filing status.

“If I had sort of a subtitle for this budget, it would be the ‘Taxpayer First’ budget,” Mulvaney said Monday. “This is, I think, the first time in a long time that an administration has written a budget through the eyes of the people who are actually paying the taxes. So often in Washington I think we look only on the recipient side — how does the budget affect those who either receive or don’t receive benefits?”

Democrats, who have opposed cuts announced in drafts released earlier this year, reiterated their objections ahead of the budget’s release.

“Candidate Trump campaigned as a populist, said he wanted to help the working people, but since he has taken office he has governed like a hard-right conservative — pushing policies that help the uber wealthy at the expense of the middle class,” Senate Minority Leader Chuck Schumer said in a statement Sunday night.

“It’s a complete about-face,” said Seth Hanlon, a former economic adviser to Barack Obama. “It’s a betrayal of a lot of people who put their faith in him.”

But even some Republicans — both inside and outside Congress — say they’re worried about the sheer magnitude of the proposed cuts.

“I’m deeply concerned about the severity of the domestic cuts,” Rep. Hal Rogers (R-Ky.), a long-time member of the powerful House Appropriations Committee, told POLITICO on Friday.

Rogers has been an outspoken critic of Trump’s proposed cuts to programs that benefit rural regions like his home state, like the Appalachian Regional Commission.

“I think we do need healthcare reform. I think we do need welfare reform. But the kinds of reductions that he’s talking about go exactly against the states that brought [Trump] to the dance, so to speak,” said G. William Hoagland, a former long-time Republican Senate budget aide.

He added, “The argument can be made that there are certainly programs that are not achieving their goals. That doesn’t mean we should take the money away and forget about it.”

The White House says it expected a “mixed” reaction from Hill Republicans, according to a senior administration official. The defense hikes and tax cuts are sure to be popular, but many of the cuts could make more moderate Republicans skittish. “It’s more than a messaging document and it begins the negotiations,” the official said.

Republicans on Capitol Hill are expected to deliver their rebuttal to the White House’s budget proposal in mid-June, about two months behind schedule.

While the congressional document is also in many ways a wish list, it serves to set the spending levels that lawmakers must abide by the ensuing year. The delay of that document means appropriators will face a time crunch ahead of the September deadline to fund the government or avert a shutdown.

The Trump administration is relying on more than aggressive cuts to mandatory programs to achieve its goal of eliminating the deficit within 10 years – a gold standard of budget writing.

The White House is also making a rosy assumption of 3 percent economic growth – nearly double the 1.9 percent rate estimated by Congress’ nonpartisan scorekeeper – to help offset its ambitious spending plans. That includes $200 billion for new infrastructure projects as well as $19 billion for paid family leave.

The budget blueprint also assumes that Trump’s tax reform plan, which is still in the early stages of being written, will go into effect. Officials said that plan is expected to deliver a boost to the economy without adding to its bottom line, but produced no details beyond a one-page document released in April.

Trump’s proposed budgets for federal departments and agencies next year are mostly unchanged from the so-called skinny budget the administration released earlier this year, despite the public outcry from some disgruntled Cabinet members

A half-dozen agencies got slight boosts in their budgets, however, including those in the departments of Agriculture, Interior and Labor. The State Department, which faced some of the harshest cuts in Trump’s first budget draft, is slated for a $2.6 billion bump compared with the March numbers.


Article Link To Politico:

Trump Goes On Iran-Bashing Tour

Iran has replaced the Islamic State as Donald Trump’s boogeyman during his first trip abroad, to the delight of the Saudis and Israel.


Al-Monitor
May 23, 2017

US President Donald Trump, arriving in Israel on May 22 right after a stop in Saudi Arabia, found another ally eager to praise him for his tough stance on Iran — and encourage him to get even tougher.

“I want you to know how much we appreciate the change in American policy on Iran, which you enunciated so clearly,” Israeli Prime Minister Benjamin Netanyahu said in joint remarks with Trump at their third meeting of the day.

At an earlier meeting with the Israeli leader at Jerusalem’s King David Hotel, Trump had lambasted the nuclear deal negotiated under his predecessor Barack Obama in remarks that Netanyahu could almost have drafted himself. He called the 2015 agreement a “terrible, terrible thing” and promised that Iran will never obtain a nuclear weapon, “that I can tell you.”

“Iran negotiated a fantastic deal with the previous administration. ... It is unbelievable from my standpoint,” Trump said, according to the White House press pool.

Without the nuclear deal, he said, “I think [Iran] would have totally failed within six months.”

“We gave them a lifeline ... we gave them wealth and prosperity. And we also gave them an ability to continue with terror. ... No matter where we go, we see the signs of Iran in the Middle East,” he went on. “Instead of saying ‘thank you’ to the United States, they now feel emboldened.”

The remarks echoed Trump’s remarks on May 21 to another receptive audience — the summit of mostly Sunni Arab and Muslim leaders in Riyadh, Saudi Arabia.

“From Lebanon to Iraq to Yemen, Iran funds, arms and trains terrorists, militias and other extremist groups that spread destruction and chaos across the region,” Trump said. He singled out Iran’s support for President Bashar al-Assad’s regime in Syria as particularly “tragic and destabilizing.”

“Until the Iranian regime is willing to be a partner for peace, all nations of conscience must work together to isolate Iran, deny it funding for terrorism and pray for the day when the Iranian people have the just and righteous government they deserve,” Trump vowed.

Ironically, Trump’s call to isolate Iran came just days after his administration waived nuclear-related sanctions and a day after centrist President Hassan Rouhani won re-election by a wide margin. Last month, Secretary of State Rex Tillerson certified that Iran was complying with the deal, leaving the administration no option but to waive sanctions or violate its end of the bargain.

With Rouhani’s victory over conservative cleric Ebrahim Raisi, Iran sent the world a message that it was choosing international engagement and economic reform over hard-line confrontation with the West. The United States responded by boosting Iran’s fiercest regional rivals, notably with a $110 billion weapons package for Saudi Arabia and calls for Iran’s international isolation.

Iranian Foreign Minister Mohammad Javad Zarif took to Twitter to express resentment at Trump's lecturing Iran from the Saudi kingdom, where people can’t choose their leaders and women can’t drive.

“Iran — fresh from real elections — attacked by @POTUS in that bastion of democracy & moderation,” Zarif tweeted May 21. “Foreign Policy or simply milking KSA […]?”

Some observers questioned whether the United States is leaning too far in the direction of Sunni allies and Israel in its efforts to reassure them after the Obama years. They worry about the risk of alienating Iran as it seeks further international engagement, perhaps even to the point of "sectarianizing" the US approach to the region in favor of Sunnis over Shiites.

“The Trump administration is doubling down on Saudi Arabia and the thesis that you can create a global, counter-violent Islamist extremist movement that doesn’t include Iran,” Nicholas Heras, a Middle East expert at the Center for a New American Security (CNAS), told Al-Monitor. “Which is one of the major talking points … the Saudis [have] tried to push forward over the last couple of years, partly in response to the Obama administration” pursuing the Iran nuclear deal.

“By singling out Iran and Iran’s destabilizing actions in the region, the Trump administration really sort of skipped over” Iran’s motivations, Heras said.

“The Obama administration theory of the case was that … over time, the US would have to find a balance between two legitimate state actors in the Middle East: Iran and Saudi Arabia,” Heras said. “The Trump administration is doubling down on Saudi Arabia as the leader of the Middle East — with a Sunni flavor.”

Suzanne Maloney, a State Department policy planning official under President George W. Bush, said there was always going to be “a correction” after Obama toward traditional US allies and away from Iran, even if Hillary Clinton had won. But the pendulum may be swinging too far now, she said, and it may need some adjustment.

“The Obama administration had tied itself in knots in its desire to avoid anything that might disrupt the [Iran nuclear] negotiations and then implementation of the deal,” said Maloney, who is now with the Brookings Institution.

“But what you are pointing to is that the pendulum may be swinging too far,” Maloney said. “There will be forces — including Iran’s own counter actions — that will, I think, bring the pendulum closer to some sort of equilibrium.”

Ilan Goldenberg, a former Pentagon and State Department Middle East official during the Obama administration, agreed that some reassurance to America’s Sunni allies and Israel after the anxiety over the Iran nuclear deal was warranted. But the Trump administration’s tilt to the Sunnis may be excessive and may not be part of a larger strategy, he said.

“I think there is a benefit to reassuring our Sunni partners and to pushing back on Iran for some of its behavior, especially given how anxious they were after the nuclear deal, and how much they … were irrationally angry at Obama,” Goldenberg, with CNAS, told Al-Monitor by phone from Israel.

“But there is a balance to be struck here,” Goldenberg said. “The right approach involves both pressure and engagement. And you also want to leave open channels to have a dialogue. And you don’t want to go so far as to become part of the conflict. And in some areas, [Trump administration officials] are trending dangerously close to that.”

Tillerson has indicated that he’s at least aware of the risks. Speaking to journalists in Riyadh over the weekend, he said he did not rule out talks with his Iranian counterpart — at some point.

“I’ve never shut off the phone to anyone that wants to talk or have a productive conversation,” Tillerson said at a news conference with Saudi Foreign Minister Adel al-Jubeir in Riyadh. “At this point, I have no plans to call my counterpart in Iran, although, in all likelihood, we will talk at the right time.”

For his part, Iran’s newly re-elected Rouhani, speaking at a press conference in Tehran on May 22, suggested he was open to further negotiations with the United States. He said Iran would want to wait for the Trump administration to be “well established” before it will “pass judgment” on the relationship.

“Iran and America have gone through lots of ups and downs in the past 39 or 40 years,” Rouhani said at a news conference, according to The New York Times. “They have used numerous measures against Iran, all leading to failure. Americans were only successful in their engagement with the Iranian nation during the nuclear talks.”


Article Link To Al-Monitor:

Trump Goes On Iran-Bashing Tour

Syria's Reconstruction Plans Take Shape

Though an end to Syria’s conflict is not in sight, plans for reconstruction projects by the Syrian regime and international aid organizations are underway.


By Tom Rollins
Al-Monitor
May 23, 2017

At some point, Syria will be rebuilt.

Whole cities and swaths of the country have been destroyed. Millions of civilians are displaced either within the country or outside its borders during six years of conflict. The World Bank estimates that postwar reconstruction will cost in the hundreds of billions of dollars and though the international community is treating the reconstruction of Syria as a pressing priority, questions remain about where the money will come from, when it will come and under what conditions.

In April, the international community met in Brussels for the annual Supporting the Future of Syria and the Region conference. In addition to discussions about increasing aid to refugees and host countries and rebuilding Palmyra, there were also talks on a reconstruction initiative that a post-conference declaration explained “will be successful only in the context of a genuine and inclusive transition that benefits all the Syrians.”

Aid organizations warned about the risks, and a joint statement by CARE International, the International Rescue Committee, Norwegian Refugee Council, Oxfam and Save the Children argued that without international support for a political solution and respect for human rights, “a move towards reconstruction assistance risks doing more harm than good.”

There are signs of slow regeneration in Homs’ Old City. A UN-supported project to clear and rehabilitate the 13th-century market is underway to back commerce and life to a part of the city long quieted by war.

That work has brought together the United Nations Development Program (UNDP) with the local community as well as business-sector representatives and antiquities and municipality officials. “And that’s an inclusive early recovery model that could work in a number of locations,” UNDP country director Samuel Rizk told Al-Monitor via Skype from Damascus.

Though the Irish Times reported in March that UNDP had halted funding for the Homs project, Rizk said it had not. “The project continues, funding continues and it’s moving ahead,” he told Al-Monitor last week. “[In] these historical locations, there are a lot of people 'round the table that need to be included in the planning. Some concerns in a location like the Old Homs souq were not only about economic regeneration, but that this is a historical place that you can’t just rebuild without regard for its cultural and historical heritage … change its 300-, 400-, 500-year-old character and simply change it into brick and mortar that’s new.”

At the same time, the Syrian government has been laying the groundwork for its own reconstruction projects. Analysts warn that these plans are likely to follow political or strategic objectives.

Basateen al-Razi in southwest Damascus used to be one of the countless informal settlements — slums — that developed on the outskirts of Syria’s cities after the 1960s. In 2011-2012, protests against President Bashar al-Assad spread and eventually became armed clashes once the army stepped in. Thousands fled as a result.

Using legislative decree 66/2012, originally signed by Assad in September 2012 to “clear and redevelop unplanned housing and informal settlements,” Damascus province has begun work restoring farmland and demolishing homes in Basateen al-Razi to make way for comprehensive reconstruction of the area that will create housing for an estimated 60,000 people, shopping precincts, shiny office spaces and even a multistory mall complex, according to government plans.

Decree 66 will mandate construction projects in former opposition bastion Daraya and several satellite towns south of the southern ring road that marks the outer limits of southwest Damascus.

“It’s a good engine for the economy,” pro-government analyst Ammar Waqaf of the London-based Gnosos Institute told Al-Monitor. He said the model “facilitates reconstruction … [and] provides the legal ground for companies to come and have their share in reconstruction.”

This project was drawn up as part of an urban master plan for Damascus in the 2000s, but priorities and operational frameworks have changed. Government officials increasingly see this multimillion-dollar project as a model for postwar reconstruction in other parts of the country, and local residents are less of a concern.

Under the decree, civilians are promised compensation payments to rent homes elsewhere but refugees originally from there say that their vacant homes have already been demolished without compensation. Relatives of residents still in the area told Al-Monitor that compensation payments promised under the decree have often either come too late or weren’t paid at all. Resident Abu Majed recently told Syria Direct, “The demolitions are approaching the home where I live. When my turn comes, I don’t know where I will go.”

Oxford University student Nate Rosenblatt told Al-Monitor that Decree 66-style projects present problems for the international community in terms of reconstruction. “If you’re channeling money through the government of Syria, first of all you’re rewarding the country’s most violent actor with the most resources. But also you’re going to see the government employ methods by which they further ostracize and isolate these restive neighborhoods.”

Projects such as the one underway in Basateen al-Razi are funded through public-private investment companies such as the Damascus al-Sham Holding Joint Stock Company established by Damascus province in December. Thanks to a May 2015 presidential decree, local authorities from the province down to municipality level now have the power to establish their own investment companies. Damascus al-Sham was set up with some 60 billion Syrian pounds ($279.9 million) in capital to fund real estate projects such as Basateen al-Razi.

But government officials are pitching it as a model for reconstruction elsewhere. Homs Gov. Talal al-Barazi has recommended that the 66 model be used in Baba Amr and other devastated areas of the city. Homs has established its own holding company and Aleppo is expected to do the same soon.

“When we look to the war, we see it is a local war and that means reconstruction … will be local reconstruction too. We will never have national [reconstruction]; we will never have a Marshall Plan in Syria,” said Kheder Khaddour, a nonresident scholar at the Carnegie Endowment’s Middle East Center.

“[The regime] created certain laws so that they are ready to reconstruct … and they are ready in terms of the law and they have enough people to work with,” Khadour told Al-Monitor. “They just need any kind of political agreement.”

The Syrian government is conducting reconstruction at the local level by creating opportunities for public-private financing within local authorities, selecting the local administrator as head of the reconstruction committee or mandating that local organizations work with the international community.

Since 2014, the Foreign Ministry has authorized a list of of some 100 nongovernmental organizations that are mandated to work with the UN and international NGOs on the ground. Last year, a Guardian investigation found that the UN was working alongside and funding openly regime-affiliated NGOs such as Al-Bustan, what was ostensibly started as a relief organization that has been linked to notorious regime-affiliated businessman and Assad cousin Rami Makhlouf, as well as funds headed to pro-government militias. But, Khaddour argued, “They are not funding Al-Bustan [per se]; they are funding the model that exists on the ground.”

He said, “The regime structured something in Damascus and then the UN or the INGOs have to go through this” by working with regime-approved intermediaries. “And who are those intermediaries? Most of them are regime backed or part of the regime network, like Al-Bustan.”

Rizk said the UN conducts due diligence and capacity assessments to make sure partners have “particular capacities that are important to us. One, do they have project management capacity, and do they have financial capacity? Are they mandated to work in this area? Are they experienced, have they done this before?”


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