Wednesday, July 5, 2017

Wednesday, July 5, Morning Global Market Roundup: Asia Seeks Safe Harbors From Korea Tension; Fed Words Awaited

By Wayne Cole
July 5, 2017

Asian share markets were subdued for a second session on Wednesday as simmering tensions on the Korean peninsula supported safe-harbors including the yen, bonds and gold.

A holiday in the United States and a dearth of major data kept activity muted, though minutes of the Federal Reserve's last meeting due later in the day could provide some impetus.

Among the few releases in Asia was the Caixin/Markit services purchasing managers' index (PMI) for China which dropped to 51.6 in June, from 52.8 in May.

MSCI's broadest index of Asia-Pacific shares outside Japan added 0.1 percent, having shed 0.6 percent on Tuesday when North Korea fired a missile into Japanese waters.

Japan's Nikkei eased 0.5 percent, but South Korea's main index managed to hold steady.

E-Mini futures for the S&P 500 were barely changed, while yields on 10-year U.S. Treasury notes dipped 3 basis points to 2.32 percent.

North Korea said it had conducted a test of a newly developed intercontinental ballistic missile that can carry a large and heavy nuclear warhead.

South Korean and U.S. troops fired missiles into the waters off South Korea to show their deep strike precision capability.

U.S. Secretary of State Rex Tillerson called for global action against Pyongyang's nuclear threat, though it was not entirely clear what new steps could be taken.

The saber rattling gave the safe-haven yen an early lift, with the dollar slipping 0.27 percent to 112.97 yen. Gold was likewise 0.3 percent firmer at $1,227.31 an ounce.

Moves were minor with the euro steady at $1.1360 and the dollar index down 0.1 percent at 96.127.

Not All Together

Investors awaited minutes of the Fed's June meeting to gauge how committed it was to hiking rates gain this year and any detail on plans to wind back its massive balance sheet.

"In the May minutes, 'a couple' of participants worried that tight labor-market conditions could pose an inflationary risk, while 'several others' saw a downside risk for inflation," said Kevin Harris, a director at Roubini Global Economics.

"We will look for any shift between those two concerns."

Markets imply around a 60 percent chance of another rate rise in December and a much shallower path of future increases than most Fed members.

Indeed, while some other central banks had recently sounded more hawkish, signs were any unwinding of stimulus globally would not be a united affair.

The chief economist at the European Central Bank noted healthier inflation was "crucially contingent" on policy staying easy, while Sweden's central bank sounded reassuringly cautious even as it acknowledged further rate cuts were now unlikely.

Australian policy makers showed no inclination to go the hawkish route given subdued inflation and a desire to restrain the local currency.

In commodity markets, oil was trying to stabilize around $50 a barrel on tentative signs that U.S. crude production might be slowing.

Brent edged down 6 cents to $49.55, having opened the week with its biggest one-day rally since December, while U.S. crude lost 7 cents to $47.00.

Article Link To Reuters:

Oil Dips On OPEC Supply Rise, But Political Risk Supports

By Henning Gloystein 
July 5, 2017

Oil dipped on Wednesday, pulled down by another rise in OPEC supplies despite a pledge to cut production, but geopolitical tensions in the Korean peninsula and the Middle East put a floor under prices.

Brent crude futures, the international benchmark for oil prices, were at $49.55 per barrel, down 6 cents, or 0.1 percent, from their last close.

U.S. West Texas Intermediate (WTI) crude futures were at $46.99 per barrel, down 8 cents, or 0.2 percent.

Despite the dips, both markets have recovered around 12 percent from recent lows on June 21, although crude prices seem locked below $50 per barrel.

"Oil bulls have numerous obstacles to overcome," said Stephen Schork of the Schork Report, pointing to rising OPEC output and high production in the United States.

Oil exports by the Organization of the Petroleum Exporting Countries (OPEC) rose for a second month in June, according to Thomson Reuters Oil Research, despite its pledge to hold back production between January this year and March 2018 in order to prop up prices.

OPEC exported 25.92 million barrels per day (bpd) in June, 450,000 bpd above May and 1.9 million bpd more than a year earlier.

"The market remains sensitive to reports of higher supply," ANZ said.

Despite ample supplies, traders said that prices were kept from falling further due to global security risks following North Korea's repeated missile tests and the political crisis between Qatar and an alliance of Arab nations led by Saudi Arabia and the United Arab Emirates.

"Rising geopolitical risks should provide some support to gold and oil prices," ANZ bank said on Wednesday.

Article Link To Reuters:

Will Trump End Campus Kangaroo Courts?

Democratic senators, a New Jersey task force and even the ABA mobilize against due process.

By KC Johnson
The Wall Street Journal
July 5, 2017

Is the Education Department preparing to dial back the Obama administration’s assault on campus due process? In late June, Candice Jackson, who in April became acting head of the department’s Office for Civil Rights, made her first public remarks about the regulatory regime she inherited. Ms. Jackson said she is examining her predecessors’ work but offered no specifics about when, or if, Obama-era mandates will be changed.

Beginning in 2011, the Obama administration used Title IX—the federal law banning sex discrimination at schools that receive federal funds—to pressure colleges and universities into adopting new procedures for handling sexual-misconduct complaints. At most schools, accused students already faced secret tribunals that lacked basic due-process protections. But the Education Department mandated even more unfairness. It ordered schools to lower the standard of proof to “preponderance of the evidence” instead of the “clear and convincing evidence” standard that some schools had used. It required schools to permit accusers to appeal not-guilty findings and discouraged allowing students under investigation to cross-examine their accusers.

As a result, scores of students have sued their colleges, alleging they were wrongfully accused. They have won more than 50 decisions in state and federal court since 2012, while nearly 40 complaints have been dismissed or decided in the colleges’ favor.

Ms. Jackson has already reversed another Obama-era policy that sought to tip the scales in favor of accusers. Earlier this year, BuzzFeed revealed that her predecessor, Catherine Lhamon, had ordered that whenever someone filed a Title IX complaint against a school with the Education Department, the civil-rights office would investigate every sexual-assault allegation there over several years. The shift sometimes led to reopening cases in which accused students already had been cleared. Ms. Jackson argued last week that this policy—which Ms. Lhamon never announced publicly—treated “every complaint as a fishing expedition through which our field investigators have been told to keep searching until you find a violation rather than go where the evidence takes them.”

These first signs of renewed fairness have elicited strong protests. Last week 34 Democratic senators, led by Washington’s Patty Murray, sent a letter to Education Secretary Betsy DeVos accusing her of endorsing “diminished” enforcement of federal civil-rights laws. The senators did not even make a pretense of caring about due process for the accused. Congressional Republicans have mostly remained silent.

Late last month a task force appointed by Gov. Chris Christie released a report on how New Jersey institutions should respond to sexual assault on campus. The panel, dominated by academic administrators and victim advocates, based most of its work on the assumption that university investigations are meant to validate accusations rather than test them.

The report urged Garden State schools to ensure that “equal representation is provided to survivors and the accused” and to develop “an investigation and adjudication model that honors the survivor [and] the respondent.” To describe an accuser as a “survivor” before the complaint is adjudicated is to prejudge the case. Patricia Teffenhart, one of the task force’s leaders, implicitly concedes the point: She told me the panel did intentionally “interchange (at times) the words ‘survivor’ and ‘complainant,’ ” so as to “avoid seeming to be one-sided.”

Ms. Teffenhart added that the task force paid “specific attention” to the accused’s ability to mount a defense, and the report does recommend that schools appoint an “adviser” for students charged with sexual assault. But it neuters that safeguard by urging colleges to ensure the adviser is “without a voice” in disciplinary hearings. That leaves students who have no legal training to fend for themselves, often against college lawyers or administrators who know and control the proceeding.

A mid-June report on campus sexual assault from, of all organizations, the American Bar Association also played down the importance of lawyers to a fair disciplinary process. The ABA task force recommended that if a college does permit accused students to have a lawyer—and many don’t—cross-examination by the defense should be forbidden. In the ABA’s view, lawyers should submit questions to the disciplinary panelists, who can then decide whether, and in what form, to ask them.

The Supreme Court has called cross-examination “the greatest legal engine ever invented for the discovery of truth.” The ABA urges its abolition on campus to prevent “the potential trauma from having a victim be directly questioned by her assailant”—again, presuming the accused student guilty.

The ABA at least expressed concern about the preponderance-of-evidence mandate. But numerous proposals from blue-state legislators have sought to codify this and other prejudicial procedures into state law. California already has done so. Meanwhile, six California schools have been on the losing end of lawsuits filed by accused students. And in the highest-profile university victory, an appellate judge compared the University of California, San Diego’s procedure to a kangaroo court during oral arguments, only to uphold it when he and two colleagues decided the case.

Ms. Jackson has one of the most thankless jobs in Washington—seeking to vindicate procedural norms and basic fairness on an issue that triggers intense emotional responses. She deserves all the support she can get.

Article Link To The WSJ:

China's $162 Billion Of Dealmaker Debt Raises Alarm

HNA, Fosun, Anbang and Wanda face rising bond, loan maturities; Schroder Investment says regulatory aspect posing higher risks.

Bloomberg News
July 5, 2017

China struck deal after deal to acquire companies abroad over the last few years. Now the bill is coming due.

The nation’s top corporate dealmakers, including HNA Group Co. and Fosun International Ltd., must pay off the equivalent of at least $11.5 billion in bonds and loans by the end of 2018 -- a feat now complicated by government efforts to rein in their aggressive rush overseas.

That figure represents just a fraction of the total debt of 1.1 trillion yuan ($162 billion) that the Chinese companies have reported as they projected their money and influence around the world with a record number of acquisitions. The size of their obligations -- and whether they will be able to shoulder them -- has begun to worry global banks and investors now that Beijing has pressed companies to dial back their ambitions abroad.

“Those companies the banking regulator is checking on have very high financing demand for M&A activities,” said Xia Le, chief Asia economist at Banco Bilbao Vizcaya Argentaria SA in Hong Kong. “But banks will heighten their risk control when lending to them going forward, which could increase their funding costs and hurt the pace of their expansion.”

The moves threaten to end an era of easy access to money for the firms. People familiar with the matter said last month that China Banking Regulatory Commission asked some banks to provide information on overseas loans to HNA, Fosun, Anbang Insurance Group Co. and Dalian Wanda Group Co. Yields on some bonds issued by the firms jumped. The CBRC is examining examples of acquisitions gone awry, people familiar also said.

To be sure, the companies, which are among the biggest private-sector firms in China, are sitting on a cash pile that they can tap to meet upcoming debt deadlines. They have more than 400 billion yuan of cash and cash equivalents, according to the latest filings compiled by Bloomberg.

“HNA Group has built up a strong global business with world class tourism, logistics and financial services assets," the company said in an emailed reply to questions. “The company is in a sound financial and operational situation.”

Funding Options

“Fosun has a variety of financing capabilities which not only include bond issuance, but also bilateral and syndicated bank loans, capital market financing, management fees, operating income and divestments from our global platform,” said David Wu, head of investor relations.

A representative at Wanda declined to comment. There was no immediate reply to a request for comment from Anbang.

Debt markets that were eager to dish out funds have helped fuel more than $310 billion of overseas acquisitions by Chinese companies since the start of 2016. Borrowers are now waking up to a hangover.

Rising Costs

The top dealmakers face rising bond and loan maturities in the next three years, according to Bloomberg-compiled data. JPMorgan Private Bank in Asia and Baring Asset Management are among market participants warning that regulatory risks mean investors need to be more cautious.

“We anticipate that yield levels for bonds from companies like HNA, Dalian Wanda and Fosun could rise in the near term,” said Anne Zhang, executive director for fixed income, currencies and commodities at JPMorgan Private Bank in Asia. “For now, we are advising investors to take a cautious view on those companies’ bonds and we are waiting for the dust to settle before taking further actions.”

The new debt has ballooned the firms’ balance sheets. A local bond market rout that began at the end of last year means the cost to refinance some of those liabilities has risen. Add to that the uncertainty of rising regulatory risks, and some investors are getting cold feet.

“We are waiting to figure out where those noises are leading to, before investing,” said Sean Chang, head of Asian debt investment at Baring Asset Management.

The companies’ high leverage is a key concern, according to Christopher Lee, managing director of corporate ratings at S&P Global Ratings.

Acquisition Financing

“What confounds me is they are highly leveraged and continue to get financing by lenders, both offshore and onshore, and the financing is not always transparent,” Lee said. “Now that CBRC has started to look into their financing, it may be more difficult for them to get funding for overseas acquisitions.”

The companies have at times turned to financing channels that don’t require the level of public disclosure that bond markets do.

In one recent example involving a form of shadow financing, HNA Group was seeking trust funding in the local market last quarter for at least 4.5 billion yuan, according to Lawrence Yu, founder of Totodi Technology, a provider of regulatory compliance services to trust firms, private equity companies and asset managers in China. The firm was offering rates as high as 7 percent, higher than the average rate on such deals in the nation, according to Yu.

“We would tend to be conservative and avoid those companies that could potentially suffer from headline risks arising from central government policies and initiatives,” said Todd Schubert, head of fixed-income research at Bank of Singapore, the private banking unit of Oversea-Chinese Banking Corp.

The changes mean that investors can no longer rely solely on analysis of fundamentals, relative value and technicals, according to Raymond Chia, head of credit research for Asia ex-Japan at Schroder Investment Management in Singapore.

“Now, the regulatory aspect surrounding Chinese companies, which is always an unknown, is taking on a larger life form and posing higher risks,” he said.

Article Link To Bloomberg:

Hedge Funds Flock To Europe, Thinking Worst Is Over

Bets on equities in Italy, France and Spain have given some global hedge funds 20% returns this year.

By Laurence Fletcher and Gregory Zuckerman
The Wall Street Journal
July 5, 2017

After the presidential election last year, many hedge-fund managers called the U.S. a great moneymaking opportunity. It turns out Europe is the place to be.

Bets on stocks in Italy, France and Spain—long laggards compared with the U.S.—have given some global hedge funds returns of more than 20% so far this year. The average hedge fund has managed only 3% through May, according to the most recent data from Hedge Fund Research.

“We’ve been quite aggressively long Europe in the last year,” said Pieter Taselaar, founder of Greenwich, Conn.-based Lucerne, which manages $750 million in assets. Its main fund is up 20.5% this year through June 15, according to a person familiar with the matter.

A sustained rebound in Europe, should it come to pass, would reshape global markets. Most European bourses remain mired below their 2007 peaks. The euro and the British pound have been slumping for a decade.

Eurozone GDP growth hit its second-highest level since 2011 in the first quarter at 0.6%, beating U.S. GDP growth of 0.4%. The European PMI, a survey of manufacturing activity, reached a 74-month high last month. Growth is solid not only in Germany but also in the onetime trouble spots of Spain and Portugal.

Markets have reacted to the economic growth, relative political calm and a sense that the worst of Europe’s sovereign-debt crisis is behind it. In local-currency terms the S&P is outpacing the Stoxx Europe 600, but after accounting for the euro’s rise a dollar investor would have done much better in the European index, making 13.8% versus 8.5%.

Earlier this year Lucerne started to add significantly to exposure in France, Spain and Italy, said Mr. Taselaar, while reducing exposure to Scandinavia, considered a haven in difficult times. The fund bought stocks such as Italian bank UniCredit, up 26% this year, and French house builder Kaufman & Broad, up 11%, the person said.

Mr. Taselaar expects European economic growth to be between 2% and 3% in the next two to three years, as demand rebounds and companies begin to invest more. Investments that perform well in better times and in countries that had been struggling are places “where we see 50% returns right now,” he said.

Yet foreign investors who have pounced on previous glimmers of hope in Greece and elsewhere have been repeatedly singed. Some them are cautious this time, fearing the rebound is just temporary.

They point to familiar concerns such as inflexible labor-market rules across Europe, an aging population, constraints on government spending and the still-unknown impact of Brexit on European growth.

A study by J.P. Morgan Chase & Co. showed that the 29 largest active equity mutual funds with global mandates—predominantly U.S.-based—haven’t added euro-zone shares this year as a group.

Bullish hedge funds say European markets will climb further once the skeptics come around. Besides, they say, a sustainable recovery is less important for hedge funds, which can quickly exit positions if desired.

“It appears the mood in Europe is improving, the economic data is showing strength, corporate earnings are exceeding expectations,” said Robert Duggan, partner at New York-based SkyBridge Capital, which invests $11.4 billion in funds. Mr. Duggan said that he has been adding to holdings in funds that bet on European stock events and that some of these have gained 10% to 20% this year.

Some investors who are optimistic on European shares and the euro say billionaire fund manager Daniel Loeb’s move on NestlĂ© SA is a fresh sign the Continent has become a prime destination for global investors.

Mr. Loeb’s Third Point hedge fund acquired a $3.5 billion stake in the Swiss food-and-cosmetics giant and demanded changes from it.

“We are seeing more opportunities in Europe because of strong and improving economic data, a trend that will likely continue now that the French elections have passed without incident,” Mr. Loeb wrote to investors in late April.

Mr. Loeb added that “we have been more focused on improving global growth than on the ‘ Trump trade,’ ” referring to the idea that certain investments would benefit from Donald Trump’s election. His main hedge fund rose 9.9% through the end of May, a person who had seen the numbers said.

Also profiting recently is Chris Hohn’s European activist fund TCI, which has more than $20 billion in assets. Its main fund, which has a large allocation to Europe, is up around 23% this year through May with big bets on rising stock prices, said people who had seen the numbers.

Among stocks to have fueled gains at TCI, which takes a small number of very concentrated bets, is Spanish airports operator Aena, which has risen 29% this year.

Another hedge fund that has benefited from European investments is Lansdowne Partners, which has around $19 billion under management. Lansdowne has gained 15.6% in its European Equity fund this year, a person who had seen the numbers said, and 13.5% in its smaller Princay fund, which profited from buying French stocks that sold off around the time of the election.

The gains are striking in a hedge-fund industry that is once again struggling to eke out returns. On average, hedge funds are up just 2.7% this year to June 29, according to Chicago-based data group HFR.

Article Link To The WSJ:

Qatar Shows Mettle, Offers Compromise As Gulf States Prepare Meeting

By Tom Finn and Rania El Gamal
July 5, 2017

Qatar announced plans for a steep rise in Liquified Natural Gas (LNG) production capacity on Tuesday that suggested it was ready for a protracted dispute with Gulf neighbors, but Doha said it was doing all it could to reach agreement.

Saudi Arabia, the United Arab Emirates, Egypt and Bahrain were due to meet on Wednesday to decide whether to continue sanctions they imposed on Qatar on accusations it was aiding terrorism and courting regional rival Iran. Doha denies the charges and has submitted to mediator Kuwait replies to 13 demands that the gathering will consider.

"What Qatar has given in goodwill and good initiative for a constructive solution, based on dialogue, we believe should be sufficient (to show) we have carried out our duties from our side," Qatari Foreign Minister Sheikh Mohammed bin Abdulrahman al-Thani told a news conference in Doha.

"There is a lot of progress that has been made on that front (countering terrorism financing)... but of course there is always room for improvement," he said, describing the sanctions as illegal steps under the pretext of fighting terrorism.

The three Gulf states and Egypt have severed diplomatic and transport ties with Doha in a dispute that has raised concern across the Middle East and beyond. Western states fear a lengthy dispute, besides threatening political instability, could upset supply chains in a region vital for energy supplies.

German Foreign Minister Sigmar Gabriel told the same Doha news conference he felt Qatar had shown restraint in the row which began on June 5 when the Gulf states severed diplomatic and transport ties.

"We hope others will respond in a similar spirit.

Qatar says it is ready to meet any "reasonable" demands.

But the Gulf state, with a population of just over two million to Saudi Arabia's 31 million, may be reluctant to carry out conditions such as the closure of the al-Jazeera television station and removal of a Turkish military base - matters it considers impinge on Qatari sovereignty.

Qatar mounted what appeared to be a show of strength on Tuesday, when the state-owned Qatar Petroleum [QATPE.UL] announced plans to raise liquefied natural gas capacity by 30 percent. Its immediate effect will be to worsen a glut on the LNG market where Australia, the United States and Russia vie.

LNG is natural gas liquified at low temperatures to reduce its volume, thus allowing it to be transported by tanker where pipelines are not feasible.

Qatar Petroleum chief executive Saad al-Kaabi said the firm would increase gas production from its giant North Field, which it shares with Iran, by 20 percent after new gas development.

In April, Qatar lifted a self-imposed ban on development of the North Field, the world's biggest natural gas field, and announced a new project to develop its southern section, increasing output in five to seven years.

That new project will raise Qatar's total LNG production capacity by 30 percent to 100 million tonnes from 77 million tonnes per year in five to seven years, Kaabi said.

The decision will have international ramifications.

With such low production costs and LNG facilities closer to buyers in Europe and Asia, the Qatari move means U.S. producers could struggle to sell their LNG competitively and projects still needing finance could struggle to find investors. So far only Cheniere (LNG.A) exports U.S. LNG, but there are project proposals with a total capacity of some 150 million tonnes/year.

Energy sales have driven Qatar's rapid rise as a regional player, with vast infrastructure projects and widening diplomatic influence as well as a role in the Syrian conflict that is viewed with suspicion by Gulf neighbors.

The Saudi Ambassador to Sudan Ali Hassan Jaafar, speaking at a news conference, said he hoped the Gulf crisis would end "in the coming hours" with the Qatari response to demands.

"We wish well for the people of Qatar and we hope that the rulers of Qatar return to their senses," he said. "We want stability in the Gulf region and in the Arab region. … If these demands are not fulfilled we will defend our security and stability and there will be other measures."

Iranian Question

The LNG glut has already driven down prices. Asian spot LNG prices LNG-AS have fallen more than 40 percent this year to $5.50 per mmBtu and by 70 percent from peaks in 2014.

So far, the majority of LNG is supplied via long-term contracts between producers and users which allow little flexibility and in many cases also prevent importers from reselling cargoes. With supplies far outpacing demand, analysts expect more and more LNG to be freely traded.

Many producers have already started to offer contracts without resale or destination restrictions.

Kaabi, alluding to suggestions that the Gulf states may ask trading partners to choose between them and Doha, said the company's operations would not be affected by the crisis.

"Qatar Petroleum will continue working...If some companies decide they don't want to work with QP that's their choice. We will find other foreign companies to work with," he said.

Analysts said the move to boost production was partly to do with added competition in the LNG market, mainly from Australia, the United States and Russia.

"It is also to do with Iran now set to increase production on the South Pars field, which means they can up production from their side of the field (North Field) without destabilizing the geology of the field," said Oliver Sanderson, gas analyst at Thomson Reuters.

Some experts say that, while the Gulf States accuse Qatar of cooperating too closely with Iran, their sanctions could push it to closer cooperation with Tehran on gas production and exports from the shared field.

"Qatar needs the support of Iran now more than any time before. I don't believe it would be possible for Qatar to increase production without the cooperation with Iran, if in the long term the (political) situation stayed same as now," said Reza Mostafavi Tabatabaei, president of London-based ENEXD, a firm involved in oil and gas equipment in the Middle East.

"Also, major (oil) companies may be asked to choose between working in Qatar or Saudi/UAE and Egypt, otherwise there be sanctions against them. That’s why I don’t think that developing this project by Qatar now will be as easy as before, politically not financially," he added.

Qatar Petroleum's Kaabi said there is no cooperation with Iran on any project in the North Field, but the countries have a joint committee that meets yearly to discuss development of the field.

While QP owns a majority stake, energy firms including Total, Mitsui & Co (8031.T) and ConocoPhillips (COP.N) also possess small stakeholdings. RasGas is a 70/30 percent joint venture between QP and Exxon Mobil (XOM.N).

"Qatar has one of the lowest LNG production costs in the world. It has followed an astute policy of maximizing value from market prices around the world," said Ajay Singh, special advisor at Japan Petroleum Exploration Co and former gas executive at Shell.

"For Qatar, LNG is everything."

Article Link To Reuters:

Surprise: Trump And France’s Macron May Wind Up Allies After All

By Benny Avni
The New York Post
July 5, 2017

The catalyst for a blossoming friendship between President Trump and his French counterpart Emmanuel Macron could well be a mutual desire to rein in Iran.

But first, wait — friendship? Wasn’t Macron Trump’s sharpest critic, jabbing him on climate change, taunting him on Twitter, even trying to show dominance by refusing to let go during the two leaders’ first handshake and then bragging about it afterward? Won’t he and German Chancellor Angela Merkel diss Trump again this weekend, at the G20 gathering in Hamburg? What about Trump quitting the Paris climate accord, which Macron seemed to take doubly personally?

Yet there are signs of an early thaw: Macron just eagerly joined Trump by vowing French jets will bomb Syria alongside American ones if Bashar al-Assad’s forces use chemical weapons again.
Plus, Macron invited Trump to attend the Bastille Day festivities on France’s national holiday July 14. And Trump accepted.

So Captain Renault and Rick Blaine are about to strike a friendship again as America and France step arm in arm into that Casablanca fog.

Not everyone is cheering, though. Syria is Iran’s client, and Trump is building a regional coalition against Tehran while Congress tries to push through new sanctions. Iranian Foreign Minister Javad Zarif was in Paris over the weekend to try to preempt Macron from joining the pile-on.

Europeans and former Obama officials fear the toughening of Iran policies as well. Last week, former State Department official Jeff Feltman, now heading the United Nations’ political department, gave the Security Council a glowing review of Iran’s compliance with the nuclear deal. That was echoed by top European Union diplomats.

America’s UN Ambassador Nikki Haley spoiled the party by listing Iranian violations of Security Council resolutions, from missile launches and manufacturing to arms sales and the spreading war and terrorism across the Mideast. “We won’t turn a blind eye to the Iranian regime’s behavior and will work with the global community to enforce sanctions,” Haley said.

So which way will France swing? “On this, we’re somewhere in the middle between the EU and America,” a French diplomat told me over coffee here.

It’s a fair assessment. While Zarif tried his charm on Macron, the People’s Mujahedin of Iran (MeK), an anti-regime group, held its annual rally in a Parisian suburb. The group’s leader Maryam Rajavi’s top applause line was a promise that regime change in Iran is “within reach.”

Well, maybe. But here’s the point: France hosted Rajavi and her disciples, conferring sort of legitimacy on the anti-mullah group for decades — even as the State Department listed the MeK as a terrorist group. Former French Foreign Minister Bernard Kouchner addressed the group Saturday. As did some of Trump’s closest allies — Newt Gingrich, Rudy Giuliani, John Bolton — who came as close as possible to saying Trump, too, supports regime change, without quite declaring it in so many words.

You don’t have to support the MeK, or regime change for that matter, to notice the tug of war going on here: Once European leaders are done trying to change Trump’s mind on climate and immigration, they’ll try to influence his Iran policy, begging him not to be too harsh with the mullahs.

It isn’t all so cut-and-dried, though. When questioned about French companies’ push to do more business in Iran, officials point out that in some cases they’re being beaten to deals by major American firms — Boeing, for one, is strong-arming their Airbus out of the Iranian market. Eager to create job opportunities at home, they say, Trump may be willing to do just what some Americans accuse Europeans of doing.

Trump and Macron ought to hash that out this weekend at the G20 and in Paris on July 14. The end of the Obama era has left both countries wondering what their roles are. After all, France took a tougher line on Iran during the runup to the nuclear deal than Team Obama did. Macron — and Trump, for that matter — should follow the example set by Macron’s predecessor.

Perhaps a renewed effort to punish and isolate Iran to better address the nuclear threat will even, eventually, spell the end of a regime that for decades has oppressed Iranians and wreaked havoc on the Mideast and beyond.

If so, this could be the beginning of a beautiful friendship. And more peaceful handshakes.

Article Link To The NY Post:

America's Adversaries Are Not Happy With Trump

And they have options.

The National Interest
July 5, 2017

There was no pressing reason for Xi Jinping to stop off in Moscow for a summit meeting with Russian president Vladimir Putin. There have already been two recent high-level contacts where critical issues in the Russia-China relationship were discussed. The Chinese leader had already met with Putin at the Shanghai Cooperation Organization summit in Astana a month ago, and the Russian head of state had traveled to Beijing in May for the “One Belt, One Road” conclave. And both leaders, of course, were already scheduled to meet on the sidelines of the G-20 summit in Germany later this week. No, the decision for Xi to travel to Moscow first and for Putin to host him in the Kremlin is meant as a direct and clear message to the United States and to the Trump administration before the President leaves for Europe: we aren't pleased with the direction of U.S. policy, and we have options.

The agenda reads like a bill of particulars against U.S. actions in the last several months: missile defense deployments in South Korea, freedom of navigation operations around Chinese-claimed territories in the South China Sea; the U.S. posture towards Ukraine and American actions in Syria. The common thread to these discussion points is continued dislike of the assumption that the United States has the right to act without consultation or following its own interpretation of international rules. The fact that these points were discussed suggests that Putin and Xi plan to present a united front against Donald Trump at the G-20 summit in Hamburg. Given that Xi will fly from Moscow to Berlin to then meet with German chancellor Angela Merkel, who has expressed her dissatisfaction with the stances taken by the Trump administration on trade and the environment, it indicates that efforts are underway to make the American president the odd man out at this gathering of the leaders of the leading powers, and to prevent him from dominating the agenda. For Putin, who still has very clear grievances at the attempt of the Obama administration to try and freeze him out at the 2014 G-20 summit in Brisbane, Australia, it may prove to be a pleasant change to have Trump be the focus of ire and irritation.

One must also assume that Xi is giving Putin the benefit of his experiences during his face to face meetings with Trump at Mar-A-Lago earlier this year, as well as his “read” of the American president, prior to Putin's own first direct encounter at Hamburg. This could prove to be very critical in how that meeting unfolds. Xi, of course, was honored with a meeting with Trump in the more intimate setting of Trump's Florida hideaway, but was also “interrupted” by the decision to launch an American cruise missile strike on a Syrian air base in retaliation for a chemical weapons attack in Idlib. Will Xi convey a sense that Trump employs a bit of Richard Nixon's “madman” approach and that one must be cautious in dealing with the U.S. president? Will he advise Putin that Trump talks a good game but then can't seem to get his preferences through the U.S. policy process? (A precedent Putin has already experienced with Barack Obama and George W. Bush.) And does Xi still believe it is possible to do business with the Trump administration, or will he counsel the Russian president that expectations about Trump the deal maker were overrated? Or, given the political turmoil in Washington, it is time for both Moscow and Beijing to forge ahead and create more “facts on the ground” whether in Ukraine, Syria or the maritime zones of the Pacific?

Of course, China and Russia remain cautious in defining the limits of their strategic embrace. Both will complain about U.S. actions and promise verbal and moral support, but neither Moscow nor Beijing has been pushed—yet—to consummate any sort of Eurasian entente. Neither side has completely foreclosed on the hope that, at some point in the future, Donald Trump the deal maker will gain bureaucratic control of the U.S. national security apparatus and be prepared to sit down to negotiate.

One area where Moscow and Beijing do seem eager to move forward is to give themselves some breathing room to lessen the impact of the economic and financial tools that the United States can wield. The $10 billion Russia-China RMB Fund that was announced is designed to further wean bilateral trade between the two countries off dependence on the U.S. dollar and for future major economic projects not to require use of U.S. dollars or access to Western financial markets in order to be financed. This is part of the ongoing effort to “sanctions-proof” the Russian economy and builds on the model used by the French company TOTAL in safeguarding its critical investment in the Yamal gas project from past Western sanctions by relying on Chinese sources of financing. With this agreement in hand, Putin can meet Trump with a greater degree of confidence that, even as new sanctions measures move forward in the U.S. Congress, Washington cannot cut Russia out of the global economy by replicating the same legislation that was applied to Iran. Further discussion of contracts related to infrastructure and energy projects that arise out of the One Belt, One Road proposals also allow Putin to demonstrate that Russia cannot be completely isolated. In addition, there is a understated but clear warning to an administration that has made increasing U.S. jobs a priority: if proposed new U.S. sanctions are prepared to target Russian projects outside of Russia and to impose third party sanctions on other countries doing business in Russia are enacted, then American firms are likely to lose out by being denied the ability to sell goods and services for these ambitious Eurasia-wide projects, lost orders which other European and Asian companies will be more than happy to fill, often with “national interest” exemptions to their own sanctions on Russia.

Certainly, we have seen this talk before, about greater Russia-China ties, only to witness how rhetoric is not always translated into reality. In the past, the U.S. has benefited from China's unwillingness to invest too much in Russia or Russian worries about falling under Chinese economic domination. Kirill Dmitriev, the head of the Russia Direct Investment Fund, suggests that this time, it might be different—that with the new fund, “it will give a powerful impetus to increase the volume of cross-border direct investment and significantly increase the number of jointly implemented projects.” Reluctantly, but inexorably, Russia and China are drawing closer together. The Moscow summit signals that the Trump administration needs to take seriously the prospect of increased Russia-China collaboration that is explicitly designed to limit U.S. options and constrain U.S. power.

Article Link To The National Interest:

The Predictable Winners Of Macron's Presidency

Emmanuel Macron's instinct is to pursue policies that benefit France's elite "enarques."

By Pascal-Emmanuel Gobry
The Bloomberg View
July 5, 2017

French President Emmanuel Macron has promised a dramatic departure from the recent past. France's youngest leader since Napoleon has brought in on his coat-tails a new generation of fresh-faced young leaders, many of whom have never held political office before. And in his debut speech to both houses of France's parliament, Macron reiterated his call for a new order -- a "veritable revolution," as he called it, to re-energize French politics.

But while the new faces and reforming ambitions are a welcome change in France, it's worth asking whether the move will empower new thinking. A closer look suggests that the most immediate beneficiaries of Macron's policies will be a more seasoned group: France's "enarques," or graduates of the famous Ecole Nationale d'Administration, its finishing school for civil servants.

Every country has its factories for elites -- think of Oxbridge in the U.K. or the Ivy League in the U.S. France's ENA is relatively small, graduating 80 to 100 every year; but ENA graduates are immediately hired into top civil service tracks. Because of the close links between the government and business, and the system whereby civil servants can work for the private sector with a guarantee of their old government job back, ENA grads also dominate the business world. (This explains how Macron could end up a managing partner at Rothschild & Co at the ripe young age of 30, after working in the French finance ministry out of ENA.)

This core of seasoned, well-connected professionals are set to see their power increased under Macron -- not out of some conspiracy to empower elites, but because to an enarque most problems are solvable with the help of other enarques. There are already signs this is happening.

Much has been made of how Macron has introduced political neophytes to France’s National Assembly. But French deputies have skeletal staffs and depend on government services. While long-serving members who have built up relationships and expertise in a domain over the years and therefore do not rely on official bodies as much are the exception, most of these members are now gone, thereby increasing the power of the (enarque-run) bureaucracy over the legislature. The very inexperience of Macron's new deputies makes them more dependent on the old guard, or at least the ENA graduates who run most of the bureaucracy.

Similarly, Macron’s decision to prevent politicians from holding several offices at once, a seemingly common-sense measure, works to the benefit of the enarques. France has so many administrative layers that any local project must gain the approval of several bodies. Often the only way for a local politician to wrest approval or subsidies from a reluctant bureaucracy is to be elected to several of those offices at once. While no doubt well-intentioned, the move will in practice end up reducing the power of local elected officials relative to the largely enarque-dominated central bureaucracy.

Macron’s proposed anti-terrorism law has a similar impact. The main thrust of the law is that it takes many decisions in anti-terrorism investigations away from investigating judges, and puts them into the hands of prefects, senior civil servants in charge of overseeing police forces in a specific area. In France, judges don’t come from ENA, but from a different civil service school. Prefects, however, do. However unconsciously, Macron and his advisers and prime minister find it natural that the counter-terrorism problem would be better tackled with, well, enarques, leading the way.

Macron's regulatory decisions may also benefit -- guess who. Bloomberg News reported that Macron’s government has done a quiet U-turn on EU rules regarding banking regulation, softening France's traditionally hawkish line. As Macron knows well, three of the four biggest French banks by assets are run by enarques, and finance is a common landing pad for enarques; they will be delighted.

The problem with all of this is not necessarily that enarques are not well-suited to running France; by and large, they are very smart, competent and public-spirited. But as with any tight-knit group of people who have the same education, similar careers and often similar backgrounds, biases and groupthink can take over. Furthering the power of unelected bureaucrats over elected public servants may backfire among the many who feel disenfranchised already by the political elite and recently rejected both mainstream parties as a result.

France has been ruled by enarques for most of the postwar era, and the results are decidedly mixed. The Macron era ought to be a break from the past. Whether the enarque class can use their new and old powers to further Macron's goal of reinvigorating French politics remains to be seen. But one thing seems clear: The man whose rise no one predicted seems to be predictable after all.

Article Link To The Bloomberg View:

The North Korean Missile Crisis

The nuclear threat to U.S. cities requires an urgent response.

By Review & Outlook
The Wall Street Journal
July 5, 2017

North Korea continued to defy the protests of world leaders on Tuesday by launching what looks to be its first intercontinental ballistic missile. The symbolism of launching on America’s Independence Day was surely no accident, but the technical feat is more consequential. The speed of North Korea’s progress toward threatening the U.S. with a fleet of nuclear-tipped ICBMs requires an urgent response.

Tuesday’s missile, dubbed the Hwasong-14, has an estimated range of 6,700 kilometers, which puts Alaska within range. America’s lower 48 states may still be out of reach, but the test shows the North has overcome most of the obstacles to a long-range missile. The apparent success will provide more data on the remaining problems, such as a warhead capable of withstanding extremes of temperature and vibration.

One crucial question is whether the new missile is based on the Hwasong-12, an intermediate-range missile successfully tested on May 14. As we wrote at the time, that rocket was apparently a single-stage design and thus a good candidate to become the first stage of an ICBM. The regime has heretofore used engines cobbled together from Russian and Chinese missiles for its ICBM program.

The Hwasong-12 was designed from scratch, and its new engine is more sophisticated than anything the regime had produced. If the North has now attached a second stage, the U.S. will have to advance the estimates of when Los Angeles and Chicago could come under direct threat.

The Trump Administration now has some hard decisions to make as it contemplates its Korea options. More sanctions put the Kim regime under pressure and thus are worth doing, but they can’t be relied on to disarm the North in time. Like its allies South Korea and Japan, the U.S. will soon be vulnerable to attack by a regime that has an estimated 20 nuclear warheads as well as chemical and biological weapons. A pre-emptive U.S. military attack can’t be ruled out but risks a nuclear counterstrike on South Korea if even one North Korean missile survives.

China, the dovish new South Korean government and the U.S. left are pressing for more disarmament talks in return for a “freeze” on Pyongyang’s nuclear programs. But three U.S. administrations have tried diplomacy and failed. The freeze would be phony and the North would break out again when it feels its demands for more money and recognition aren’t being met.

The best option is a comprehensive strategy to change the Kim regime, as former Undersecretary of State Robert Joseph has argued. Washington must strengthen deterrence and build out missile defenses, revive the Bush Administration’s anti-proliferation dragnet, convince countries in the region to cut their ties with North Korea, consider shooting down future Korean test missiles, and spread news about the regime’s crimes to people in the North.

The U.S. will also have to recognize that Beijing is part of the problem. North Korea’s trade with China grew by 37.4% in the first quarter, contributing to an economic mini-boom. Chinese companies are cashing in on the North’s mineral resources and cheap labor while supplying the dual-use materials and technology for its nuclear and missile programs.

The U.S. has held out hope that China’s leaders would see that a nuclear-armed North Korea isn’t in its interests. But Beijing’s behavior suggests that it hopes the North Korean threat will drive the U.S. out of Northeast Asia. Only a much tougher strategy aimed at toppling the Kim regime, with or without China’s help, has a chance of eliminating a threat that puts millions of American lives at risk.

Article Link To The WSJ:

North Korea Missile Launch Marks A Direct Challenge To Trump Administration

By Anne Gearan and Emily Rauhala 
The Washington Post
July 5, 2017

North Korea’s latest test launch of an intercontinental ballistic missile marks a direct challenge to President Trump, whose tough talk has yet to yield any change in Pyongyang’s behavior as the regime continues its efforts to build a nuclear weapon capable of striking the mainland United States.

The missile — launched Tuesday in North Korea, late Monday in the United States — flew higher and remained in the air longer than previous attempts, enough to reach all of Alaska, experts said. They called it a major milestone for North Korea’s weapons program.

The test comes just before Trump will see key Asian leaders and Russian President Vladi­mir Putin later this week. North Korea was already expected to be a main subject for meetings on the sidelines of the Group of 20 economic summit, but the test adds urgency to a widening U.S. campaign aimed at further isolating North Korea.

The day after the launch, the U.S. Army and the South Korean military conducted a missile exercise in response to “North Korea’s destabilizing and unlawful actions,” U.S. Pacific Command said in a statement. It was unclear how Pyongyang might react to the exercise, which launched missiles into South Korean territorial waters along the country’s eastern coastline.

“Together with the Republic of Korea, we conducted a combined exercise to show our precision-fire capability,” said Dana White, a Pentagon spokeswoman.

Trump responded to the North Korean missile test by applying rhetorical pressure on China, North Korea’s ally and economic lifeline, and by mocking dictator Kim Jong Un on Twitter.

“North Korea has just launched another missile. Does this guy have anything better to do with his life?” Trump asked in a message very shortly after the launch.

“Hard to believe that South Korea and Japan will put up with this much longer,” Trump continued. “Perhaps China will put a heavy move on North Korea and end this nonsense once and for all!”

The launch follows a string of recent actions by Pyongyang, including a salvo of missiles last month and three tests in May. Kim has now launched more missiles in one year than his father and predecessor in the family dynasty did in 17 years in power.

North Korea has also conducted five nuclear weapons tests since 2006, including two last year.

The number and variety of tests worry experts who see each step as part of a march toward a missile capable of striking America’s West Coast.

The missile tests violate existing United Nations and other sanctions, which North Korea has found ways to evade. Although Trump and Secretary of State Rex Tillerson have declared that the “era of strategic patience” with North Korea is over, the new U.S. administration has not spelled out what that means.

Tillerson has said Washington might eventually negotiate with North Korea under the right circumstances, but he has suggested that possibility is remote. The United States will act alone if it must, he has warned, though he has not spelled out what exactly that would entail.

The Trump administration has recently leaned on China to rein in North Korea and curb illicit trade with the country, an international pariah largely cut off from the global financial system.

Given that Japan and South Korea are within range of existing North Korean missiles, Trump has also sought to unite leaders of both nations behind a strongly worded U.S. position that it will no longer tolerate the North’s provocations. The Trump administration has asked other nations around the globe to sever or downgrade diplomatic ties with Pyongyang.

Leaders of China, South Korea and Japan will be at the G-20 meeting in Germany.

Japanese Prime Minister Shinzo Abe appeared to share Trump’s frustration, if not his tone. In remarks to the news media, he vowed to work closely with the United States and South Korea, but called on China and Russia to do more.

“I’d like to strongly urge international society’s cooperation on the North Korea issue and urge China’s chairman, Xi Jinping, and Russia’s President Putin to take more constructive measures,” Abe said.

In a daily news conference, Geng Shuang, a spokesman for China’s Foreign Ministry, condemned the test but countered that Beijing had “spared no effort” in its fight.

On Tuesday, Russia and China jointly proposed that North Korea put further nuclear and missile tests on hold while the United States and ally South Korea refrain from large-scale military exercises. Both Russia and China oppose North Korea’s nuclear weapons program. Both also oppose the U.S. antimissile system being installed in South Korea.

Experts said the Trump administration does not have many choices for what to do next.

“Unfortunately, the Trump administration has few options other than robust economic pressure on China and North Korea,” said Anthony Ruggiero, a specialist on the long-running diplomatic and military standoff at the Foundation for Defense of Democracies. “The U.S. wasted the last 10 years with a combination of negotiations that were destined to fail and strategic patience that failed from the start.”

A new sanctions regime led by the United States would be the best response, Ruggiero said, because China and Russia would veto the most effective form of sanctions at the U.N. Security Council.

Last week, the Trump administration announced sanctionstargeting a China-based bank accused of laundering money for the North Korean government and moved forward with an arms sale to Taiwan that Beijing opposes.

Trump followed up with a call Sunday to China’s Xi, in which Trump “raised the growing threat posed by North Korea’s nuclear and ballistic missile programs,” according to the White House.

“Both leaders reaffirmed their commitment to a denuclearized Korean Peninsula,” a White House statement said, while “President Trump reiterated his determination to seek more balanced trade relations with America’s trading partners.”

The trade reference was an implicit threat to reassert U.S. complaints about Chinese economic practices that Trump has largely set aside in recent months as he has sought to engage Xi, with whom he claims a strong relationship.

China has pledged cooperation with the United States over North Korea but has not fundamentally shifted away from a strategy that balances pressure on the Kim regime with keeping the regime afloat, said Chris Steinitz, a research scientist at the federally funded, nonprofit Center for Naval Analyses.

“It’s kind of how China looks at everything. They have a very long view,” Steinitz said. “They will wait, they will bide their time. They have a lot of priorities.”

In the meantime, Steinitz said, North Korea will continue to test missiles.

The U.S. military said the ­Hwasong-14 was in the air for 37 minutes, a duration that signals a significant improvement over previous tests. In a special announcement on state television, North Korea said the missile flew about 579 miles, reaching an altitude of 1,741 miles.

The launch was made from a site in North Korea’s North Pyongan province, and the missile flew more than 500 miles before landing in waters off Japan’s coast, U.S., South Korean and Japanese officials said.

As with other recent launches, the missile appears to have been fired at a very steep trajectory in an effort to avoid flying over neighbors.

Multiple independent analyses of the test showed that the missile flew at a high-altitude trajectory, soaring to about 1,700 miles before landing in the Pacific off the Japanese coast, about 580 miles from its launch point.

The Pentagon and the State Department confirmed late Tuesday that North Korea had launched an ICBM.

“The United States strongly condemns North Korea’s launch of an intercontinental ballistic missile,” Tillerson said in a statement. “Testing an ICBM represents a new escalation of the threat to the United States, our allies and partners, the region, and the world.”

Tillerson added that the United States intends to bring the issue before the U.N. Security Council to hold North Korea accountable. On Tuesday, the U.S. ambassador to the United Nations, Nikki Haley, announced that she and her counterparts in Japan and South Korea had requested an emergency Security Council meeting, set for Wednesday afternoon.

Article Link To The Washington Post:

Partisan Hysterics Ignore The Real Medicaid Horrors

By Betsy McCaughey
The New York Post
July 5, 2017

Diehard ObamaCare defenders were out in force over the July 4 holiday to protest Republican repeal efforts. The protesters are falsely claiming repeal will gut Medicaid, causing frail, indigent seniors to be evicted from nursing homes. It’s sheer demagoguery.

But even these phony claims could have redeeming value if they get the public to take a closer look at nursing homes and see the filth, rampant infections and neglect — conditions routinely tolerated by our indifferent public officials.

That indifference is the real culprit, not inadequate Medicaid money. New York pays among the highest Medicaid rates in the nation — yet also tolerates some of the worst conditions. A shocking 40 percent of nursing homes in the state provide inferior care, according to federal ratings. That’s worse than 39 other states.

Nationwide, one-third of nursing-home residents suffer serious, often permanent injuries due to neglect, according to a federal inspector general report.

Incontinent patients languish in soiled diapers that lead to sores and infections; patients unable to eat and drink on their own develop severe dehydration; others suffer falls and internal injuries because of medical errors or over-medication.

The deadliest problem is infection. A staggering 380,000 nursing-home patients a year die from infections, according to federal estimates. Not all are preventable. But nursing homes are infection cauldrons. The routine precautions taken in hospitals to limit infections — such as testing patients for superbugs on admission, disinfecting rooms and equipment and keeping infected patients away from others — are ignored in nursing homes.

Patients with staph infections are rolled into communal dining rooms and seated next to other patients. Superbugs contaminate bedrails, curtains and rehab equipment. Caregivers tasked with bathing and grooming patients go from one bed to the next, without using disposable gowns and gloves, spreading bacteria from patient to patient.

Because even rudimentary infection prevention is lacking, one-quarter of patients pick up dangerous, drug-resistant bacteria, according to new research by Columbia University School of Nursing. Columbia’s Carolyn Herzig warns infection rates are increasing across the board and action is urgently needed.

Medicaid recently adopted new standards calling for more infection precautions but delayed the start date to November 2019. Why delay, when hundreds of thousands of elderly patients will die from infection in the meantime?

Don’t count on the media to cover these deaths. The Washington Post is busy claiming repeal “takes a sledgehammer to Medicaid.” The New York Times reports that “steep cuts to Medicaid” will force some seniors out of their nursing homes.

Here’s the truth: There are no “cuts.” Medicaid spending will continue to increase every year, though at a slower rate.

The real threat to seniors isn’t Medicaid funding levels. It’s that Medicaid officials tolerate substandard nursing-home care, when they could use the program’s market clout to demand better conditions. About 66 percent of long-term patients are paid for by Medicaid.

The federal government rates nursing homes from 1 to 5 stars, based on periodic inspections, staffing levels, infection rates and other quality measures. But even nursing homes that get the lowest 1-star rating year after year — indicating substandard care — are allowed to stay open. They should be shut down.

From Baton Rouge to Chicago, and in smaller towns across the country, protesters and Democratic politicians are fearmongering that seniors will die on the streets if repeal passes. Gov. Cuomo is holding health-care events across New York this week, parroting the Democratic Party’s false claims.

In truth, Cuomo’s one of the culprits. On his watch, low-rated nursing homes are getting paid by Medicaid. New York has begun rewarding top-rated homes with slightly higher payments — an idea worth duplicating in other states. But Cuomo and other politicians need to do more to stand up to the powerful nursing-home industry.

Frail, elderly nursing-home patients shouldn’t be made to suffer. That’s the goal protesters and politicians should focus on. Enough with the partisan scare tactics.

Article Link To The New York Post:

U.S. Government Seeks To Intervene In Apple's EU Tax Appeal

By Diane Bartz
July 5, 2017

The U.S. government has sought to intervene in Apple's (AAPL.O) appeal against an EU order to pay back up to 13 billion euros ($14.8 billion) in Irish taxes, a source familiar with the matter said on Tuesday.

iPhone maker Apple took its case to the Luxembourg-based General Court, Europe's second-highest, in December after the European Commission issued the record tax demand saying the U.S. company won sweetheart tax deals from the Irish government which amounted to illegal subsidies.

The decision was criticized by the Obama administration which said the European Union was helping itself to cash that should have ended up in the United States.

The Trump administration, which has tentatively proposed a tax break on $2.6 trillion in corporate profits being held offshore as part of its tax reform, has not said anything in public about the case.

"I can confirm the United States filed an application with the European Union General Court to intervene in the case involving the retroactive application of state aid rules to Apple," said the source, who declined to be named because of the sensitivity of the matter.

The General Court is expected to hear the case in late 2018, another source with knowledge of the matter said.

Apple has said it was a convenient target for the EU and that the EU competition enforcer used an "absurd theory" to come up with a punitive figure.

Amazon (AMZN.O) and McDonald's (MCD.N) are also in the EU crosshairs over their tax deals with Luxembourg.

Ireland, the Netherlands, Luxembourg, Starbucks (SBUX.O), Fiat Chrysler Automobiles (FCHA.MI) and several other companies that were also ordered to pay back taxes to other EU countries have similarly challenged their EU rulings.

Article Link To Reuters:

U.S. Prosecutors Ask Judge To Silence Shkreli During Trial

By Jessica DiNapoli
July 5, 2017

Federal prosecutors on Monday asked a U.S. judge for a gag order muzzling former drug company executive Martin Shkreli, on trial for securities fraud charges, arguing that his statements to media could taint the jury and disrupt the case, court papers show.

Shkreli's attorney, Benjamin Brafman, asked the judge that day to reject the request on the grounds that his client had a First Amendment right to speak freely, according to the filings.

Shkreli last week told reporters outside the court that an alleged victim of his was not actually a victim because she made money from his investments, attorneys for the U.S. government told U.S. Judge Kiyo Matsumoto in a letter on Monday. He also directly spoke on camera to a journalist and appeared to be commenting on the case on social media platform Twitter under the handle @BLMBro, they added.

Brafman said Shkreli was in a delicate emotional state, and believed that the press focuses unfairly on some of his negative characteristics.

"His comments are the somewhat natural, though unfortunate consequence of a young man with a demonstrated history of significant anxiety being at the center of a supremely difficult time in his life," Brafman wrote in the filing.

Dubbed the "pharma bro," Shkreli, 34, gained notoriety for raising the price of a life-saving drug by 5,000 percent. The charges he faces stem from his management of pharmaceutical company Retrophin Inc (RTRX.O) and the hedge fund MSMB Capital Management from 2009 to 2014.

Prosecutors have claimed that Shkreli engaged in a Ponzi-like scheme in which he defrauded investors in MSMB and took $11 million in assets from Retrophin to repay them. Shkreli has pleaded not guilty to charges that include securities fraud and conspiracy to commit wire fraud.

Federal prosecutors have asked Judge Matsumoto sequester the jury in the event that the court does not issue the gag order.

In their letter, federal prosecutors said Shkreli visited reporters in a court breakroom last week and remarked on the credibility of witnesses who testified.

Prosecutors also wrote that Shkreli on YouTube had identified himself as BLMBro. The BLMBro Twitter account has posted stories critical of witnesses and evidence in the trial, they added.

Shkreli in January was suspended from Twitter for harassing a female journalist.

Brafman has argued that Shkreli is a misunderstood genius who earned his wealthy investors millions of dollars.

Article Link To Reuters:

Car Buyers Stretch Loan Payments To Record Lengths To Get In Pricier Vehicles

Average auto-loan lengths are at nearly 70 months and payments are at the highest this year, says Edmunds.

July 5, 2017

As car buyers’ obsession with bigger, pricier vehicles grows, so does their willingness to take longer to pay for them, says new analysis from

The average auto-loan length reached an all-time high of 69.3 months in June. That’s 6.8% longer than five years ago, said the site that provides auto industry statistics and news.

The average amount that buyers financed was hit with the biggest uptick for the year last month, at $30,945, or up $631 from May. The financing trend also lead to the highest monthly payments for the year, now averaging $517, which increased from $510 in May.

“Stretching out loan terms to secure a monthly payment they’re comfortable with is becoming buyers’ go-to way to get the cars they want, equipped the way they want them,” said Jessica Caldwell, Edmunds executive director of industry analysis.

Of course car depreciation can mean that borrowers find themselves in an upside-down loan pretty quickly.

“It’s financially risky, leaving borrowers exposed to being upside down on their vehicles for a large chunk of their loans, but it’s also a sign that consumers are still confident enough in the economy to spend more on their vehicles and commit to paying for them longer,” Caldwell added.

Financial terms, including still-low, though rising, prevailing interest rates are adding to loan demand. Edmunds found that the annual percentage rate dipped just below 5% in June for the first time since February. Still, the APR has increased 5.7% from a year ago and 13.6% from five years ago.

Credit market observers continue to keep a close eye on bubbling risks in the auto-loan market, especially for the riskiest, or subprime, borrowers whose debt loads in general are back at levels near the 2008-09 financial crisis. They’re also watching the sharp rise in non-bank lenders who are extending loans to lower-rated borrowers. But credit tracker Experian said in an early-June report that the lending market tightened early year as lenders became pickier and car-loan delinquencies fell.

The average credit score of borrowers of a new-vehicle loan rose from 712 in the first quarter of last year to 717 in the first quarter of 2017, Experian said. For used-car loans, the scores rose from 645 to 652 in the same time frame.

“There’s always someone who claims that the (subprime auto loan) bubble is bursting,” Experian said then. “The truth is, lenders are making rational decisions based on shifts in the market. When delinquencies started to go up, the lending industry shifted to more creditworthy customers.”

Higher prices overall appeared to turn off some would-be buyers from taking the plunge with a new car last month. Auto sales continued to slide in June, industry data issued Monday showed. Car buyers reacted to higher vehicle prices, while Detroit backed away from dumping unwanted inventory into rental-car lots, which helped keep prices up.

Article Link To MarketWatch:

Get Able-Bodied Americans Off The Couch

Nearly 95 million people have removed themselves entirely from the job market.

By Peter Cove
The Wall Street Journal
July 5, 2017

America doesn’t have a worker shortage; it has a work shortage. The unemployment rate is at a 15-year low, but only 55% of Americans adults 18 to 64 have full-time jobs. Nearly 95 million people have removed themselves entirely from the job market.

According to demographer Nicholas Eberstadt, the labor-force participation rate for men 25 to 54 is lower now than it was at the end of the Great Depression. The welfare state is largely to blame. More than a fifth of American men of prime working age are on Medicaid. According to the Census Bureau, nearly three-fifths of nonworking men receive federal disability benefits.

The good news is that the 1996 welfare reform taught us how to reduce government dependency and get idle Americans back to work. Attaching work requirements to social benefits like Medicaid, the Supplemental Nutrition Assistance Program (food stamps), Social Security Disability Insurance and Supplemental Security Income would make what these pages have called “America’s growing labor shortage” a nonissue.

According to the Kaiser Family Foundation, 41% of nondisabled adults on Medicaid do not have jobs. Thirteen million Americans 18 to 54 currently receive SSDI or SSI benefits. Conservatively, work requirements could add 25% of that population (3.3 million workers) back to the labor force. Work requirements for people on SNAP would increase the worker rolls by 1.9 million if only 10% who are not engaged in work rejoined.

There’s no question that insisting on work in exchange for social benefits would succeed in reducing dependency. We have the data: Within 10 years of the 1996 reform, the number of Americans in the Temporary Assistance for Needy Families program fell 60%. But no reform is permanent. Under President Obama, federal poverty programs ballooned.

A better long-term solution to the work shortage would be to eliminate all forms of public support except for those who are unable to work, and eliminate all poverty programs, since they have not reduced poverty since they were established in 1965. The money currently being spent on these programs should be redirected to job creation—preferably for private-sector jobs, but public-sector jobs will do in a pinch. A trillion-dollar federal infrastructure program, such as the one President Trump has said he will propose, could absorb a large number of the unemployed and underemployed.

There are other avenues to pursue. For young men who are not working, a mandatory two-year public-service requirement with an off-ramp for those who snag a job could motivate them to get off—and stay off—the couch.

Too many Americans who could be available to help fuel robust economic growth are instead sitting on the sidelines. It’s time to get them in the game. It’s time to solve our work shortage.

Article Link To The WSJ:

We Need To Avoid England’s Mistakes And Do Taxes Right

By John Crudele
The New York Post
July 5, 2017

Taxes go to the very roots of Independence Day, which commemorates the actions of angry colonists who’d had enough of sending their hard-earned money to England.

Taxes, of course, have always been a contentious issue.

Nobody ever likes to pay taxes. But the anger is especially great when people feel their money is being wasted.

Today is no different. And taxes are front and center right now because the Trump administration is promising — or maybe “threatening” is the right word — to completely revise the tax code, which most people agree has become incredibly unfair and unbelievably complicated.

I thought it would be good to dedicate this column to the taxes that got our forefathers so darned perturbed that they were willing to break ties with Mother England and go it alone.

The American Revolution and our country’s founding were the direct result of a miscalculation by English politicians as to how much the people — we, the people, who would come to be known as Americans — were willing to take.

We’ve all heard these stories already. But maybe we should learn something from these brave, daring and scared people or — at the very least — realize how dangerous it is when enough folks become irate over money.

The Boston Tea Party is probably the most famous tax revolt against England.

On Dec. 16, 1773, colonists who were part of a group called the Sons of Liberty dressed up like Native Americans and boarded a ship belonging to the East India Co.

The group tossed chests of tea into Boston Harbor. They were protesting a tax that the British government had placed on tea — the Tea Act — the previous May without consulting the colonists.

England’s King George III came down hard on Boston. He imposed what came to be known as the Intolerable Acts, which included the Boston Port Act that closed that city’s harbor until the tea’s owner was repaid for the destroyed product.

The government of Massachusetts was also placed under England’s control, and the colonists were forced to house the British soldiers who were there to make sure the future Red Sox fans behaved.

But the Boston Tea Party wasn’t something that came out of the blue. Colonists’ complaints about taxes started long before that.

Historians say that the Currency Acts of 1751 and 1764 began it all.

Britain wouldn’t let the colonies print their own money because homemade currency was causing inflation and becoming worthless. Besides, if the American colonies didn’t have their own money, King George II’s and George III’s power increased.

To be sure, there was a lot more that went into the making of the American Revolution. On our side, there were some rabble-rousers who saw independence as more profitable than being a citizen of England.

On the Brits’ side, there were those who wanted to bleed America dry.

In any great political upheaval, it’s always good to follow the money if you want to understand why people became so angry at the establishment that they were willing to try something entirely new.

Our forefathers, even the rich ones, felt that their way of living was under attack. And they were worried about the same basic things we are today — putting food on the table and caring for their families.

Donald Trump was elected president last year in what many believe was the most improbable election result ever. Some might even consider it a revolution of sorts.

The Democrats didn’t get their candidate elected. But neither did the Republicans, who saw outsider Trump grab hold of their ticket and refuse to let go.

Sure, there was the Russian thing. And Hillary Clinton was a very bad choice for the Democrats — so bad, in fact, that the shock of her losing to Trump is still causing fits among members of both parties.

But money was the main issue in last year’s election. Trump correctly figured that focusing on the shortage of jobs — especially good jobs — in this country was the road to victory.

The need for more jobs, however, wasn’t the only issue. There are two sides to every family’s financial ledger: how much money is coming in and how much is going out in costs.

One of the biggest expenditures for any household today is taxes. The lowest income-tax bracket today still makes people cough up 10 percent of their income to Washington. The highest bracket forces taxpayers to give Washington 40 cents of every dollar they earn.

And that doesn’t include state and local taxes or sales taxes.

Wouldn’t Americans today be thrilled to have only their sugar, tea and documents (also taxable back in the day) taxed!

America is 241 years old today. Congratulations to us!

But while time has flown, the issues are still the same. Let’s hope there’s only one revolution in this country’s history.

Let’s avoid the same mistakes England made.

Article Link To The New York Post:

Goldman Sachs: War Or Recession Might Be Needed To Break Low-Volatility

Markets have been stuck in ‘low volatility regime’ for a year; Recent pickup unlikely to be sustainable without large shock.

By Will Davies
July 5, 2017

It’ll take more than central bank tightening to shake volatility from its yearlong slumber, according to Goldman Sachs Group Inc. A large shock such as recession or war is usually required.

That’s generally been the case for the 14 similar low volatility “regimes” since 1928, at least in equity markets, Goldman Sachs strategists Christian Mueller-Glissmann and Alessio Rizzi said. These periods on average lasted nearly two years, featured short-lived spikes and realized S&P 500 volatility was usually at or below 10.

Swings picked up across assets in the past week and investors are positioning for a shift higher, in part because of fears of central bank tightening, the strategists wrote in a July 3 report. But a sustained breakout is unlikely without an escalation in uncertainty or recession risk, they said.

“Volatility spikes have been hard to predict as they often occur after unpredictable major geopolitical events, such as wars and terror attacks, or adverse economic or financial shocks and so-called ‘unknown unknowns’ (e.g. Black Monday in 1987),” London-based Mueller-Glissmann and Rizzi said. “Recessions and a slowing business cycle have historically resulted in a high vol regime across assets.”

Goldman Sachs puts the chances of a recession in the next two years at 25 percent.

Low volatility isn’t unusual and tends to stem from a favorable macroeconomic backdrop with strong growth but anchored inflation and rates, similar to a “Goldilocks” scenario, Mueller-Glissmann and Rizzi said. Markets have reflected this since January, with equities reaching record highs, strong global growth and declining bond yields, they said.

The risk investors face near-term is a consolidation but no transition to sustained high volatility, and to guard against this, Mueller-Glissmann and Rizzi recommend protection through put spreads.

97%-93% 1-month S&P 500 put spread trades at sixth percentile cost based on last 18 years and offers max payoff of >16x in case of a >7% drawdown

Asset Allocation

-- Equities: Neutral over three months as little return potential and risk of consolidation; stay overweight for 12 months
-- Bonds: Still underweight on both 3- and 12-month horizon
-- “We believe that in the near term, the risk/reward for vol selling strategies has worsened but find it difficult to be long the VIX owing to the high cost of carry”

Article Link To Bloomberg:

The 2017 Rally Is About To Fade

By Rebecca Ungarino
July 5, 2017

The rally that the S&P 500 has enjoyed thus far in 2017 is set to fade in the second half of the year, according to Scott Wren, Wells Fargo Investment Institute senior global equity strategist.

"We're looking for a few headwinds in terms of valuations, and not a heck of a lot getting done in Washington," Wren said Friday on CNBC's "Trading Nation."

He added to his list of concerns that wage increases could damage corporate profit margins heading into 2018, and that some investors may also become wary about the Federal Reserve's interest rate tightening cycle (the central bank is expected to raise interest rates once more before the year's end).

Valuations, he highlighted in a note to clients, are "stretched" at 19.2 times earnings versus the median 20-year price-to-earnings ratio of 16.4 times. This is based upon his estimate for this year of $127 in earnings per share for the S&P 500.

"When we put out our target last September, the top end of that target range was 2,330. We thought we'd see the highs for this year around the middle portion of the year, and we thought it would be a little above the top end of that range," Wren said.

Indeed, the S&P 500 — trading just above 2,436 on Monday — achieved Wren's target in February, since then remaining above that level with the exception of just one session in April. In a recent note to clients aptly titled, "The Word of the Month is Reiterate," Wren wrote that his year-end target range for the index remains 2,230 to 2,330.

In other words, he expects that the market's gains for the year are behind us.

Now that the S&P 500 is trading above the higher end of his target range, "that's tough for retail investors to play," he said. Still, Wren believes that investors should continue to stay in stocks that are weighted to economic growth, such as industrials, consumer discretionary and health-care stocks, as "this cycle is not over."

"We had been overweight technology until earlier this year; cut out of it a little too early, in hindsight. But we like technology as well. So we really don't want our clients to change their positions. If we thought there was going to be a 10 to 15 percent pullback, that might be a different story. But what we want them to do right now is lean toward those cyclical sectors," Wren said.

"If the market does play out the way we think it will, really we think it's going to be a buying opportunity," he added.

Article Link To CNBC: