Macro Links Nov 13th – Manchurian Idiot
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MACRO LINKS TABLE OF CONTENTS (Click or Scroll Down)
- BELIEVING PUTIN
- GOP TAX PLAN
- ROY MOORE CONTROVERSY
- MASS SHOOTINGS
- TRADE POLICY
- TRUMP IN ASIA
- BROKEN BREXIT
- UBER DEALS AND TROUBLES
- SEXUAL HARASSMENT
- SAUDI ARABIA, LEBANON
- RUSSIA CONFLICTS
- RUSSIA PROBE
- BITCOIN CRASH, CRYPTO
- POLAND, SPAIN
- RATES, LIQUIDITY, SYSTEMIC RISK, BALANCE SHEETS
- MACRO OP-EDS, INSIGHT, EVENTS AND TRENDS
- CENTRAL BANKS & MONETARY POLICY
- USA ECONOMY DATA, CITIES AND STATES
- GLOBAL ECONOMY DATA
- COLOR, EARNINGS, SENTIMENT, VALUATIONS
- DEALS, MERGERS, IPOs, LBOs, RESTRUCTURINGS
- HEDGE FUNDS, PRIVATE EQUITY, MONEY MGMT
- ENERGY CRUDE OIL, OIL SANDS, SHALE
- ENERGY RENEWABLES, NUCLEAR
- POLLUTION, CLIMATE & ENVIRONMENT
- GEOPOLITICS, CRIME, TERRORISM
- PRIVACY, HACKING, CYBERWAR, SURVEILLANCE STATE
- TRUMP WORLD
- ELECTORAL POLITICS
- SILICON VALLEY, UNICORNS, STARTUPS, VC
- AIRLINES, SHIPPERS, RAIL, TRANSPORTS
- AEROSPACE, MILITARY & DEFENSE
- ARTIFICIAL INTELLIGENCE, DRONES, FUTURE TECH
- SCIENCE, NATURE, PSYCHOLOGY
- HEALTH, PRODUCTIVITY AND WELLNESS
President Trump said, “Every time he sees me he says, ‘I didn’t do that,’ and I really believe that when he tells me that, he means it.”
President Trump on Saturday hit back at critics of his meeting with Russian President Vladimir Putin and the comments he made afterward, asking when “the haters and fools” will realize a strong relationship with Russia is good.
On Saturday, President Donald Trump said that “people will die” because of the Department of Justice and Congress’s investigations into Russian interference in the 2016 election.
“This artificial Democratic hit job gets in the way,” Trump told reporters aboard Air Force One on the way to Hanoi, Vietnam. “It gets in the way. And that’s a shame. Because people will die because of it. And it’s a pure hit job. And it’s artificially induced. And that’s [a] shame.”
President Donald Trump cast doubt on U.S. intelligence showing Russia meddled in the 2016 election, saying after meeting with President Vladimir Putin that the Russian leader is irritated by repeated questions over the matter.
President Trump and Russian President Vladimir Putin did not discuss alleged election meddling on Saturday, despite Trump saying they did, according to Putin’s office.
The pushback comes after the president said he believed Putin was sincere when he claimed that his country did not meddle in the U.S. election.
A day after he called three former heads of U.S. intelligence agencies “political hacks,” President Donald Trump said he had full confidence in the agencies and indicated he believed their report that concluded Russia meddled in the 2016 presidential election.
But the president’s shift in tone failed to mollify the targets of his remarks back home, with former CIA Director John Brennan saying he believed Mr. Trump was trying to “delegitimize” the intelligence community’s conclusion that Russia had interfered.
GOP TAX PLAN
The legislation is slightly more favorable than the House version to those with moderate incomes, but much depends on variables like household size.
The top Republicans in the House and Senate have now walked back false promises about their tax bills’ impact on the middle class. Senate Majority Leader Mitch McConnell acknowledged to The New York Times Friday he erred when he said in an MSNBC appearance last week that “nobody in the middle class is going to get a tax increase.”
Now the Kentucky Republican says every income group would see a tax cut — on average. “You can’t guarantee that absolutely no one sees a tax increase,” he told the newspaper.
According to the Joint Committee on Taxation (JCT), the Senate version of the Tax Cuts and Jobs Act (TCJA) will add $1.5 trillion to the debt before accounting for interest or possible gimmicks. As we have noted before, this cost would likely be enough to cause debt to exceed the size of the economy by 2028.
The House of Representatives wouldn’t accept a tax bill that, like the Senate’s, eliminates deductions for all state and local taxes, the chairman of the House’s tax-writing committee said.
The proposed legislation “is a home run for private equity investors,” said Victor Fleischer, a law professor at the University of San Diego who has spent years arguing (persuasively, in my view) that the loophole should be closed. “If you were designing something that perfectly avoids hitting private equity, venture capital and real estate, this would be it.”
Private equity firms are preparing to unleash a “lobbying bonanza” in Washington in an attempt to push back against the parts of proposed US tax reforms that are expected to cause severe disruption for the buyout industry.
“If this plan is implemented in its current form,” wrote analysts led by Vikram Rai at Citigroup in a piece published on Nov. 8, of the House GOP tax reform plan, “municipal issuance could shrink and tax-exempt issuance will shrink dramatically thus increasing its scarcity value.”
The U.S. code provides ample room for sheltering and avoiding taxes on foreign income, a major reason it needs an overhaul. The rules essentially divide foreign profits into three categories. One bucket of profits is more or less taxed at the full rate of 35%. On a second bucket, the multinational can defer paying the U.S. tax due. And a third category is excluded from all U.S. taxation, amounting to corporate America’s biggest loophole.
Under current law, multinationals can leave “eventually be repatriated” earnings abroad for as long as they choose. That makes the deferral option extremely valuable, because the longer they wait, the lower the prevent value of the U.S. payment. Hence, multi-year deferrals effectively reduce the U.S. tax burden.
The Senate plan would impose a tax of at least 10 per cent on income from intangible assets such as intellectual property, though it would be levied differently on US companies and the American subsidiaries of foreign companies.
Homebuilders are waging an aggressive lobbying campaign against a plan from the House of Representatives that clips tax benefits for homebuyers, including the cherished ability to deduct mortgage interest payments from taxable income.
Treasury Secretary Steven Mnuchin expects the House and Senate to agree on a compromise tax bill that President Donald Trump could sign into law by the end of the year.
ROY MOORE CONTROVERSY
“In summary, Roy Moore has in the last month seen the race move against him.”
A day after explosive allegations, the national Republican Party is creating distance. Locals, however, are running to the candidate’s defense.
He’s rejecting the pressure to step down, and some think he could lose.
Partisanship often overrides religious or moral values in the state. But Moore’s scandal could be a new litmus test.
Republican leaders are searching for a way to block Roy Moore’s path to the Senate, but the jurist remains defiant over charges that he made advances on teens.
State party officials staunchly defended the Senate nominee after a report that he had made advances toward four teenage girls when he was in his 30s.
Roy Moore’s brother is defending the GOP Senate candidate “to the hilt” amid the escalating controversy over allegations of sexual misconduct against him.
Former GOP presidential nominee Mitt Romney said Friday that Alabama Republican Senate candidate Roy Moore is “unfit for office and should step aside” following new allegations that Moore had a sexual encounter with a 14-year-old girl.
After Texas church shooting and others, practicing how to face down a shooter in libraries, churches, schools and offices; ‘We need to have a plan.’
As congregations around the country once again face the question of security, some of the faithful are now considering whether they should bring firearms to their houses of worship as well.
But taking the stage at the same meeting immediately after Mr. Trump, President Xi Jinping of China delivered a sharply contrasting message, championing more robust engagement with the world. Mr. Xi used his own speech to make a spirited defense of globalization, saying relations among countries should be “more open, more inclusive, more balanced, more equitable and more beneficial to all.”
President Donald Trump delivered a full-throated defense of economic nationalism at a Pacific Rim summit, saying that the U.S. wouldn’t enter into multilateral trade deals, a message that differed sharply from the one China laid out at the same forum.
As President Trump dismissed global trade talks, the other members of the Trans-Pacific Partnership revived a major multinational agreement that would include American allies.
The 11 Trans-Pacific Partnership countries have reached an agreement on “core elements” of the trade pact, namely that all countries will adhere to strict labour and environment standards, a development Canada is championing as a major breakthrough after talks broke down earlier Friday.
TRUMP IN ASIA
While Mr Trump dwelt on US history in the region, he gave scant detail about how “Indo-Pacific” policy would be implemented, or how it differed from Barack Obama’s “Asia pivot”. In a speech that was a resurrection of his hallmark trade themes, he said he would not tolerate the “chronic trade abuses” by Asian nations and would “always . . . put America first”.
“Why would Kim Jong-un insult me by calling me ‘old,’ when I would NEVER call him ‘short and fat?’ Oh well, I try so hard to be his friend – and maybe someday that will happen!” Trump tweeted.
President Trump’s flattery of China’s president, Xi Jinping, and his praise for the country’s achievements made things easy for the state-run news media.
It is hard to overstate the long history of Vietnamese antipathy toward the Chinese. But with the U.S. apparently withdrawing from the region, Hanoi can’t ignore Beijing.
President Duterte will meet with President Trump, carrying with him a longstanding animosity toward America that has been tempered by Mr. Trump’s implicit support of his war on drugs and by U.S. help fighting militants.
Meet the team in charge of the most complex bond restructuring in recent history: a former military officer, a one-time geography professor, two engineers, a minister under sanctions for alleged corruption and an alleged drug kingpin.
Venezuela is closer to a formal default on its debts, with a global derivatives body set to rule on whether credit insurance should be paid out after a crucial payment deadline missed by state-backed oil company PDVSA.
The EU’s chief negotiator, Michel Barnier, says he is planning for the possible collapse of Brexit negotiations with the UK.
Mr Barnier was talking to French newspaper Le Journal du Dimanche days after giving the UK a two-week deadline to clarify key issues. Failing to reach an agreement was not his preferred option, he stressed.
“Everyone should get prepared for it, governments, companies — we are getting prepared technically,” he told Journal du Dimanche, the French newspaper. “On 29 March 2019, the UK will become a third-party country.”
Theresa May is set to receive a strongly critical message from European business groups next week over what they regard as Britain’s failure to advance the Brexit talks with the EU.
Forty MPs have agreed to sign a letter of no confidence in Theresa May as European Union negotiators threaten to block trade talks until March unless Britain agrees to settle the Brexit divorce bill.
Theresa May faces a devastating Commons defeat over Brexit within weeks if she continues to deny parliament a meaningful vote on the final deal with the EU, Tory and Labour MPs have warned.
The future of the Irish border erupted unexpectedly into Brexit talks this week, as the European Union made new demands on Britain that risk distracting from efforts to reach a breakthrough by year-end.
Britain could remain a member of the EU indefinitely, without losing its budget rebate or incurring any other “cost or difficulty”, the man who oversaw the drafting of Article 50 said on Friday.
John Kerr, a former head of the UK diplomatic service, said British voters were being misled by Brexiters’ claims that the exit process could not legally be stopped, on the basis that prime minister Theresa May had already begun formal negotiations with Brussels.
Article 50 of the Lisbon treaty, which sets out the legal process for leaving the EU and which Mrs May triggered in March, is not explicit about whether a notification to leave can be withdrawn.
The reversal has observers wondering if May can survive the turmoil, and if there could be more twists on the road to March 2019, the deadline for the U.K.’s exit from the EU. Here are three hypothetical scenarios for how things could take a turn for the unexpected. They all start with May’s own exit from the scene.
UBER DEALS AND TROUBLES
The judge in London’s employment appeal tribunal — put forward by co-claimants James Farrar and Yaseen Aslam — concluded that Uber drivers were not independent contractors making use of an app. It backed the decision of the original tribunal last year that they were Uber’s “workers” because the company controlled much of their work — allocating them customers and dictating the prices, for example.
Uber suffered another setback in its biggest market outside the United States after a British employment tribunal rejected the ride-hailing company’s argument that its drivers are self-employed.
The decision on Friday, which affirmed a ruling issued last year, means that Uber will have to ensure that its drivers in Britain receive a minimum wage and paid time off. That creates problems for a common hiring model in the so-called gig economy that relies on workers who do not have formal contracts.
An agreement paves the way for the ride-hailing company to make sweeping governance changes and to go public by 2019.
A multibillion-dollar deal that will see SoftBank Group Corp. take a big stake in Uber Technologies Inc. is close to being approved by the main players, people familiar with the matter said.
A new study co-authored by Uber found that no matter which direction fares go, drivers inevitably take home about the same earnings. The finding means the ride-hailing company needs to rely on incentive payments to lure drivers.
Beneath the wave of sexual misconduct allegations in recent weeks against male lawmakers and candidates lies a common theme: These offenses had been going on for decades, but were either unacknowledged or dealt with quietly.
Now, veils of silence in legislative chambers are lifting as public disavowals and calls for resignations pour in against the accused, even from fellow party members.
The wave of misconduct allegations has abruptly shifted the climate in American workplaces, prompting companies to scrutinize how employees work with one another, in one of the most rapid changes in corporate behavior in generations.
SAUDI ARABIA, LEBANON
Wealthy Saudis are moving assets out of the region to avoid the risk of getting caught up in what authorities call a crackdown on corruption, according to people with knowledge of the matter.
King Salman isn’t planning to abdicate in favor of his son, a senior Saudi official said, dismissing mounting speculation that Crown Prince Mohammed bin Salman will soon ascend to the throne.
The wave of arrests offers the clearest sign yet that the world’s largest royal family is gradually being whittled down to two who matter: King Salman and his 32-year-old son and heir, Crown Prince Mohammed bin Salman, who has ascended to a position of unrivaled power since his father assumed the throne nearly three years ago.
As McKinsey & Co. has advised Saudi Arabia’s government on an ambitious economic transformation, it has also hired at least eight relatives of high-ranking Saudi officials.
The Hariri case has become just one in a profusion of bewildering events — from Saudi Arabia’s arrest of princes and wealthy businessmen last weekend to ordering its citizens out of Lebanon on Thursday — that are escalating tensions in the Middle East and fueling anxiety about whether the region is on the verge of military conflict.
Lebanese Prime Minister Saad Hariri is vowing to return to Beirut “very soon,” adding in a TV interview that he is “free” in Saudi Arabia, where he recently announced his resignation. Lebanese officials have said the resignation is not valid until he returns to the country. Lebanon’s president has said Saudi Arabia is holding Hariri against his will. Hariri said he wanted to quit because of the growing influence of the Iran-backed Hezbollah militant group inside Lebanon, adding he was concerned for his personal safety.
He said he planned to return to confirm his resignation in accordance with the constitution before adding that, if he rescinded his decision to quit, the Hizbollah movement must respect Lebanon’s policy of staying out of regional conflicts.
The head of Lebanon’s powerful, Iranian-backed Hizbollah militant group claimed Saudi Arabia had declared war on his country and accused Riyadh of holding the Lebanese prime minister against his will.
The discovery is likely to stir concerns over Russian influence in US politics and the role played by social media in last year’s presidential election. It may also raise new questions for the social media companies and for Kushner.
Russia are on the brink of a Winter Olympics ban that will cause diplomatic outrage in Moscow — after whistle-blower Grigory Rodchenkov provided fresh damning evidence.
Special Counsel Robert Mueller is investigating an alleged plan involving former White House national security adviser Mike Flynn to forcibly remove a controversial cleric living in the U.S. and deliver him to Turkey in return for millions of dollars, according to people familiar with the investigation.
It comes a day after Flynn’s son, Michael G. Flynn, also deleted his Twitter account. Those who click on the link for his @genflynn account now get a “Sorry, that page doesn’t exist!” message.
Interviews and records reveal new details about contacts between George Papadopoulos and self-described Kremlin intermediaries.
According to the Times, Miller is the unnamed “senior policy adviser” described in emails that were included in the recently unsealed charges against Papadopoulos.
A Republican member of the Senate Intelligence Committee said this week Kushner should be called to Capitol Hill to be questioned about his business connections.
“A lot more has come out that raises, I think, circumstantial questions if nothing else,” former DNI James Clapper told CNN’s Jake Tapper.
BITCOIN CRASH, CRYPTO
The man known as Bitcoin Jesus feels like a winner even though he wasn’t able to collect $7 million from a wager with other cryptocurrency evangelists over the success of a now canceled offshoot of bitcoin.
Bitcoin continued its retreat from a record high after traders weighed in on the cancellation of a technology upgrade that threatened to disrupt the biggest cryptocurrency.
Bitcoin has been experiencing wild price swings since a plan to upgrade its network was called off on Wednesday.
Bitcoin dropped below $7,000 on Friday to trade more than $1,000 down from an all-time high hit on Wednesday, as some traders dumped it for a clone called Bitcoin Cash, sending its value up around a third.
Even as VCs race to invest in cryptocurrency companies, the novelty of the field poses legal, administrative, and PR challenges.
SEC Chairman Jay Clayton said so-called initial coin offerings in many cases looked like securities, raising the prospect the agency will take a more aggressive stance to this red-hot fundraising method.
About 60,000 people from across Europe gathered under far-right banners on Saturday. “Pray for an Islamic Holocaust,” one read.
The xenophobic, fascist, and anti-refugee march is an annual event that has emerged as a key rallying point for far-right groups across the continent. “The numbers attending this year seem to be bigger and, while not everyone on the march is a far-right activist or fascist, it is undoubtedly becoming more significant and is acting as a magnet for far-right groups around the world,” Nick Lowles, from anti-extremist group Hope Not Hate, tells the Guardian.
In his first visit to Catalonia since taking control of the restive region, the Spanish prime minister urged Catalans to vote next month for a return to “normality.”
“In five weeks, there will be real ballot boxes. Under the law. With oversight and with guarantees. Democratic ballot boxes, in other words,” Mr Rajoy told supporters in a hotel ballroom in Barcelona taking a swipe at the independence referendum, which was declared unconstitutional and illegal by Spanish courts. Fewer than half of Catalan voters participated in the October 1 referendum.
RATES, LIQUIDITY, SYSTEMIC RISK, BALANCE SHEETS
Bitcoin futures, which Cboe Global Markets and CME Group hope to list later this year, may accomplish what the global financial crisis could not: decimating a slew of trading firms and threatening the stability of Wall Street’s clearing outfits.
No single listed financial product has ever caused such mayhem, but Thomas Peterffy, one of the world’s most successful derivatives traders, is concerned that Bitcoin derivatives will introduce extraordinary volatility into the market that will be difficult to contain. “For the first time, I am extremely scared,” says Peterffy, founder and chairman of Interactive Brokers Group (ticker: IBKR).
Futures margin rates range from 2% to 8%. When an investor’s losses exceed that range, brokers must immediately cover them, then try to collect from the client. This year, Bitcoin has traded from about $708 to almost $7,400. It could go higher, or it could collapse by 70% in a day. It’s hard to analyze the price because Bitcoin has no economic function, unlike commodities such as corn or futures on the Standard & Poor’s 500 index.
Peterffy worries that small trading firms will offer the lowest margin rates to attract business, thus becoming weak links in the market’s defenses against risk, such as that posed by various products that track the CBOE Volatility Index, or VIX. Many investors are betting that the VIX will stay low. That wager could prove catastrophic if volatility suddenly surges, and stocks fall.
“The weaker clearing members charge the least. They don’t have much money to lose anyway. For this reason, most Bitcoin interest will accumulate on the books of weaker clearing members who will all fail in a large move,” Peterffy says.
U.S. equities posted the first weekly loss in more than two months as investors turned leery after congressional Republicans made little progress in passing tax cuts. Shares that would benefit most from a lower levy burden led declines, though selling spread to economically sensitive stocks as credit markets flashed warnings signs about the pace of growth.
Just as production cuts by OPEC and its allies finally deplete a surplus that has weighed on oil prices since 2014, political crises have hit the organization’s three biggest members. First, an eruption in Iraq’s long-running feud with its Kurdish population hurt exports, then rising tensions between Iran and President Donald Trump put that nation’s energy trade at risk.
The greatest concern arises from twin shocks in the world’s biggest crude exporter, Saudi Arabia: both internally, as the kingdom conducts a political purge that could stir opposition, and externally, as it steps up warnings against its regional nemesis, Iran. While analysts don’t expect any imminent disruption, Saudi supplies are so critical that the elevated risk pushed crude prices to a two-year high.
The cost of insuring Saudi Arabian debt against default through five-year credit-default swaps soared more than 20 basis points last week amid an anti-corruption purge in the kingdom. Renewed tensions with Hezbollah, an Iranian-backed militant group, have compounded investor concerns about rising political risks in the region. The last time the nation’s CDS jumped as much in a single week was in January 2016 at the height of the oil-market crash.
Investors are draining cash from junk-bond funds at the fastest pace in eight weeks as doubts emerge over a risk rally that’s compressed yields to record lows.
The two most popular junk bond ETFs combined for $4.7 billion in trading volume Thursday, the second-highest on record.
Mounting warnings from Wall Street about the aging business cycle in recent weeks are unanimous: downgrade high-yield bonds.
The shift out of junk bonds by investors this week has been getting underway for weeks on the sell side in the form of allocation calls from Goldman Sachs Group Inc., JPMorgan Chase & Co., and Morgan Stanley. Their advice? Pare high-yield corporate debt, an asset class that, unlike growth stocks, is more likely to unravel in the winter of bull markets.
The gravity-defying rally in Asia’s $106 billion junk bond market could start to sputter, as concerns mount about speculative debt globally. “We absolutely do have concerns over Asia junk bonds,” said Owen Gallimore, Singapore-based head of credit strategy at Australia & New Zealand Banking Group Ltd. “We are underweight Asia high yield as valuations look frothy.”
Riskier “covenant-lite” loans now account for about 70 per cent of new leveraged loans, up from 30 per cent before the Lehman Brothers crisis. Protections that were standard back then have now vanished altogether.
“As long as investors keep buying these loans, there’s nothing really to put the brakes on,” says Derek Gluckman, a vice-president at Moody’s. “Things just keep getting worse.”
It is possible that buyers of these loans just do not realise what they are giving up. Many are vehicles known as collateralised loan obligations, or CLOs, where loans are pooled together and passed on to different classes of owners in various tranches. Managers of CLOs may lack the resources to plough through a 500-page credit agreement or to track a quarterly covenant that limits debt to, say, cash flow.
The Move index, the Treasury market cousin of the more famous Vix index of equity market volatility, has plunged to new record lows this month. The gauge — formally named the Merrill Lynch Option Volatility Estimate — has sagged from 72.5 points at the start of the year to just 44 points on Wednesday. That compares to the long-term average of almost 100 since 1988.
Too much income is trapped in a risk-averse corporate sector awash with record profits, while Japan suffers from a structural deficiency of consumer income. The country has only escaped a 1930s-style slump because the government has run huge deficits to sustain demand, at the cost of soaring public sector debt.
While [Shinzo Abe’s] reforms have encouraged a greater focus on returns on equity, there has been no radical change in business behaviour. As deputy prime minister Taro Aso acknowledged recently, there is an issue here of form versus substance. Akira Matsumoto, chairman of food group Calbee, declared at an OECD conference last month that his governance priorities were customers first, followed by employees, then the community, with shareholders trailing in fourth place. That view is widely shared by other business leaders. And Japan continues to have the lowest dividend payout ratio among the Group of Seven major developed countries.
The Chinese government said on Friday that it would relax or remove a broad range of limits on foreign ownership of banks and securities firms. The move could inject a little foreign know-how into a vast financial system that helped fuel China’s economic rise but that in recent years has become burdened with debt, bubbles and inefficiencies.
Companies in one of Europe’s fastest-growing industries depend on an unsustainable business model, according to some analysts and investors, with one hedge fund going as far as calling their stock worthless.
The volatile emerging market has offered investors plenty of reasons for concern in recent years: increasing authoritarianism under President Recep Tayyip Erdogan, a failed coup attempt, persistently high inflation and a continued reliance on foreign financing. Now a fresh bout of worries has hit. Inflation has risen into double-digit territory, reaching 11.9% in October, way above the central bank’s 5% target. Turkey has been engaged in political spats with the U.S. and Europe. Growth has been strong, although there are concerns it is reliant on a credit binge that is unsustainable.
MACRO OP-EDS, INSIGHT, EVENTS AND TRENDS
I think Trump sincerely believes there was no collusion. And in spite of the growing pile of evidence in front of him, he is constitutionally incapable of admitting a foreign power helped win the election, because that conclusion would dramatically diminish the single greatest accomplishment of his life. And like he has with NAFTA, NATO, climate change, ISIS, the Central Park Five and dozens of other issues, Trump will risk looking like a fool unable to grasp the evidence before his eyes or presented by all the experts, if accepting the truth would cause him to lose face.
This is still a strategic coup for Moscow. Washington is embroiled in what will be years of partisan chaos. The American people are increasingly disenchanted with democracy. And in the Oval Office there is a man few take seriously at home or abroad. Trump is, in short, Putin’s Manchurian Idiot.
As Sunstein explains, the concept initially arose to solve a contradiction. Back in the late 18th century, the founding fathers wanted strong, unified leadership; however, they also wanted to prevent the kind of tyranny they had experienced under the British king. To square this circle, they gave considerable powers to the president, but also stipulated that a president could (and should) be removed if there was evidence of “high crimes and misdemeanours”.
However, the founding fathers did not define “high crimes and misdemeanours” particularly clearly. And if you want to turn the term into law, you face the same kind of intellectual battle that plagues the Christian church over interpreting the Bible — namely, should the constitution be taken at face value, with every letter of 18th-century precepts applied to 21st-century life? Or should it be seen as a “living document” that needs to be adapted to the modern world? Unsurprisingly, the views of modern legal scholars have diverged. The late Justice Thurgood Marshall fell into the living document camp. Antonin Scalia, a member of the Supreme Court until his death last year, believed that a constitution only works if it is taken literally.
Nassim Nicholas Taleb, viewed by many in the market as a godlike oracle on the subject of risk, has called Saudi Arabia the most “fragile” nation on earth. That is because its institutions have never been tested by a change of power. Italy or Japan may have many changes of prime minister but the stability of their institutions makes them robust. They maintain continuity; in Saudi Arabia, if the crown prince loses control of the situation, almost anything is possible.
Power in Saudi Arabia has traditionally been spread across layers of princes, whose loyalty has been secured via a vast patronage system of public defence and infrastructure procurement, facilitated by middlemen and fixers. Prince Mohammed is purging princes and businessmen associated with the late King Abdullah, to help him consolidate control of the economy and the state.
His most powerful rival, Prince Miteb bin Abdullah, was sacked as head of the National Guard, the elite internal force that could have posed a threat to his rule. Once seen as a potential successor, the son of King Abdullah is now under investigation over accusations of embezzlement, according to a Saudi official.
“But once you start this type of shakedown, where does it end,” says a former diplomat. “The whole family has been doing the same thing, for generations.”
Fifteen months into a wide-ranging investigation by the agency’s counterintelligence arm, known as Q Group, and the F.B.I., officials still do not know whether the N.S.A. is the victim of a brilliantly executed hack, with Russia as the most likely perpetrator, an insider’s leak, or both. Three employees have been arrested since 2015 for taking classified files, but there is fear that one or more leakers may still be in place. And there is broad agreement that the damage from the Shadow Brokers already far exceeds the harm to American intelligence done by Edward J. Snowden, the former N.S.A. contractor who fled with four laptops of classified material in 2013.
The emphasis on corporate tax cuts is a political consideration that risks making the rest of the plan a political embarrassment. In order to make up trillions in lost revenue on corporate taxes, the plan has to raise taxes on large middle-class families and remove popular tax benefits, such as those on adoption and student loans. What sort of governing party punishes adopting parents to give Apple a tax break? Or designs a tax cut that gets bigger over time for the 0.1 percent, while the tax cut for families gets smaller?
What makes tax reform so hard for Donald Trump’s Republican Party? The GOP is fractured in multiple ways.
Nearly all Republicans insist that low taxes spur economic growth and indirectly produce more government revenue. But a longstanding divide remains between budget hawks who resist taking that logic too far and “supply-siders” who place tax cuts above all else. The number of true budget hawks may have dwindled in the Republican caucus, but it takes only three of them in the Senate—say, Jeff Flake, Bob Corker and John McCain—to derail a deal, so their concerns still carry weight.
On top of that, the party’s populist turn has attracted a new constituency into its coalition: “Market Skeptic Republicans,” of whom many, according to Pew Research Fund, align with Trump on immigration but support higher taxes on corporations and the wealthy. In turn, House Republicans have flinched from lowering the top tax rate on millionaires, and the billionaire Trump has reportedly insisted while trying to sell his plan to Senate Democrats that his accountant told him, “You’re going to get killed in this bill.”
Mr. Trump has assembled the wealthiest cabinet in American history, and also a deeply conflicted one, despite federal rules requiring appointees to relinquish or distance themselves from assets that would conflict with their government responsibilities. Even now, the Trump team has holdings that are spread across myriad industries and hidden from the public behind layers of trusts and shell companies. Some of that secrecy has been washed away in recent months by press reports and by the leak of millions of documents from Appleby, one of the world’s leading offshore law firms.
Mr. Trump’s informal kitchen cabinet likewise includes wealthy investors whose business intersects with the president’s domestic and foreign policy agendas. They include an executive at the private equity giant Blackstone, Stephen A. Schwarzman, whose White House connection helped the company win a $20 billion deal from Saudi Arabia, and Carl C. Icahn, a special adviser on deregulation who resigned in August after pressuring officials on a biofuels rule worth hundreds of millions of dollars to one of his companies.
This consensus around Porter’s ideas in the value investing community is jarring given how controversial those theories are elsewhere. Economists at the University of Chicago have thoroughly disproven any connection between market share and profitability; antitrust law once assumed that high market share was necessarily anticompetitive, but the courts abandoned that idea in the 1980s as lacking an empirical foundation.
Porter maintains that “the fundamental investor that uses the Five Forces to understand what determines the fundamental economic value creation in an industry and how it is changing gains a huge edge.” But that edge hasn’t been much in evidence of late, as fundamental investors have grappled with years of underperformance and fund outflows.
Instead, the edge seems to be with Porter’s ideological opposites at the University of Chicago. The Chicago school is known for eschewing theory in favor of rigorous empirical research, and its research has found that the best-returning stocks are the small value companies like those Graham invested in, rather than the large market leaders that Porter’s analysis favors.
Arizona’s promise to keep the driverless car industry free of regulations has attracted dozens of companies, including Uber, Waymo and Lyft. Over the past two years, Arizona deliberately cultivated a rules-free environment for driverless cars, unlike dozens of other states that have enacted autonomous vehicle regulations over safety, taxes and insurance.
Arizona took its anything-goes approach while federal regulators delayed formulating an overarching set of self-driving car standards, leaving a gap for states. The federal government is only now poised to create its first law for autonomous vehicles; the law, which echoes Arizona’s stance, would let hundreds of thousands of them be deployed within a few years and would restrict states from putting up hurdles for the industry.
The doubts are well founded. As of last month, the total number of Tesla vehicles ever produced reached 250,000. Volkswagen and Toyota each make that number every 10 days. The traditional carmakers have decades of experience that give them real advantages in building efficient production lines and managing long supply chains.
Mr Musk may yet be able to pull a technological rabbit out of his hat, much as Henry Ford revolutionised manufacturing by installing the first assembly line in 1913. But until he does, investors would be wise to remember that managing mass production and long supply chains is not an easy task. Failures can be costly — and deadly.
Major auto makers are all working on new technologies and initiatives, while reorganizing existing operations in value-enhancing ways. Accordingly, fans argue that the stocks are much too cheap. Auto shares rarely command high price/earnings multiples, but today’s valuations are low historically in both absolute terms and relative to the Standard & Poor’s 500 index, which is trading around 20 times this year’s projected operating profits. (Upstart Tesla [TSLA], meanwhile, is looking overvalued.) With global auto sales climbing and earnings poised to rise or at least hold near current levels, the stocks could head higher in the next year or so.
“The attention Mr. Musk’s remarks praising Ataturk is getting from Turks is a reaction to the increased attacks against the republic’s founder,” said Gonul Tol, the director of the Center for Turkish Studies at the Middle East Institute in Washington. “There has always been a fault line between defenders of Ataturk-style secularism and Islam.”
After leaving Turkey, Musk doubled down on his message, quoting Ataturk to his 14.5 million followers on Twitter: “If one day, my words are against science, choose science,” it said.
Not everyone seemed interested in Musk’s fixation with Ataturk. “Hey what about my Tesla??” singer Madonna wrote beneath the photo on Musk’s Instagram post. The question got more than 2,500 “likes.”
A squad of Federales pulled over the stolen SUV just after dawn on October 20, along Highway 43D near the town of Salamanca in Mexico’s central Guanajuato state. What began as a high-risk felony stop took an even darker turn when officers ordered the four passengers out and began to search the vehicle.
The aerial drone in the rear cargo bay was armed and ready to be deployed. Sitting in an open plastic case beside an AK47 assault rifle and spare clips. The 3DR Solo Quadcopter carried a shrapnel-filled IED that was in turn rigged to detonate by remote control.
It was the first time a weaponized Unmanned Aerial Vehicle (UAV) had been found in the hands of an organized crime group in Mexico. “[Such] explosives and weapons are for the exclusive use of the Army,” said State Attorney Carlos Zamarripa in a statement that characterized the drone’s payload as a “large explosive charge.”
The effects of watching people they know succumb to addiction had made many Americans more fearful about crime and supporters of stronger border defences to stop drugs to come into the country, he suggested.
Meanwhile, referring to the impact of technological advances, he said: “We’re also starting to see they’ve left a lot of people behind. There’s a big gap in the country, and it’s getting bigger . . . I think that’s at the heart of a lot of the politically divisive debates that we have.”
The Brexit vote stunned many Londoners — the city voted heavily to remain in the European Union — but not Mr. Siddique. His borough of Barking and Dagenham was one of the few in London that voted to leave, and it did so by a margin of nearly two to one. Many whites there saw a vote for Brexit as a vote against immigration and Islam.
For years, Al Madina Mosque has sat uncomfortably on a fault line between the Islamist radicalism of the terrorist attacks and the white nativism intertwined with Brexit. “We get both kinds of extremists,” Mr. Siddique said. “They both espouse the same garbage — and in the middle is us.”
CENTRAL BANKS & MONETARY POLICY
With the euro-area economy at its strongest in almost 20 years, now is the time to prepare for future slumps, European Central Bank policy maker Benoit Coeure said.
In the eyes of Morgan Stanley, bond traders would be wise to remember the 15th of November. That’s when the Labor Department releases October inflation data, the final reading of the consumer price index before the Federal Open Market Committee begins its two-day meeting next month. Officials are widely expected to raise interest rates again, with the market pricing in a more than 80 percent probability of a December hike. Two-year Treasury yields are the highest since 2008 in anticipation of the move.
USA ECONOMY DATA, CITIES AND STATES
Last year, congestion cost each U.S. driver $1,400 on average, for a total of nearly $300 billion, according to Inrix’s latest annual scorecard. The cost reflects wasted fuel, decreased productivity and lost time, which might include longer delivery times or missed meetings. The biggest losers are the most congested cities.
Los Angeles drivers spent an average of 104 hours in rush-hour traffic jams last year costing drivers $2,408 on average for a combined total of $9.7 billion, according to Inrix. New York City drivers sat in traffic for fewer hours but at greater expense, idling in congestion for 89 hours costing drivers $2,533 on average for a combined total of $16.9 billion.
GLOBAL ECONOMY DATA
“This is the highest growth rate in 10 years,” said EU economic affairs commissioner Pierre Moscovici said at a press conference. He pointed out that for the first time in a decade that all EU countries will grow this year. “We have entered a new phase with a concrete impact on economic indicators,” he said, adding that the effects were now “being felt by citizens”.
A synchronous upturn across major economies is reviving hopes that a multiyear lull in global trade is finally reversing and will lift emerging markets that built their economies around exports.
But it may be too early to celebrate. Much of the export growth in Asia this year comes from a jolt of demand for semiconductors, partly to power smartphone launches like the iPhone X. That chip demand is expected to fade next year. Economists warn some of the recent gains look strong when compared with 2016, a weak year for global trade, but that year-over-year comparisons will become less favorable in 2018.
“Optimism about Temer’s ability to push through reforms has diminished, his political capital has diminished,” says Neil Shearing, chief EM economist at Capital Economics. “The market is starting to get round to that idea.”
COLOR, EARNINGS, SENTIMENT, VALUATIONS
GE, that paragon of modern management, has fallen so far that it’s scarcely recognizable. The old GE is dead, undone by an unfortunate mix of missteps and bad luck. The new one now confronts some of the most daunting challenges in the company’s 125-year history.
The department store retailer’s efforts to purge inventory and stores helped push same-store sales in the third quarter far higher than expected
“To justify its multiple, Amazon would have to be worth 25% of the US economy five years from now. This situation is no different from the one in 1997, when I pointed out that Cisco’s multiple would only be justifiable if the company represented 25% of the US economy five years later. Obviously, that didn’t happen.”
DEALS, MERGERS, IPOs, LBOs, RESTRUCTURINGS
After taking a beating this year, Mattel’s market value stands at about $5 billion, or less than half as much as Hasbro’s, which is currently more than $11 billion. Hasbro, which is based in Pawtucket, R.I., comprises brands including Nerf, Transformers and My Little Pony. The company has made a push into getting the rights to television and movie franchises such as Disney ’s “Frozen” and “Star Wars,” and its results have outperformed those of Mattel.
HEDGE FUNDS, PRIVATE EQUITY, MONEY MGMT
A jailed hedge-fund founder and the government’s star witness in the fraud trial of two embattled technology entrepreneurs said he kept his cooperation deal with U.S. prosecutors even after lying to them for years about the extent of his manipulative stock trading.
Ted Seides, who conceded a bet to Warren Buffett that passive investing can beat active money managers, has soured on hedge funds that use long/short strategies.
The six-figure investment was interesting for Spitznagel, though not for the dollar amount. Spitznagel has a full-time job running Universa Investments LP out of its Miami headquarters, with a focus on tail-hedging. (In the financial markets, a tail refers to the end of a bell curve.) Universa is known for its ability to protect assets against the all-too-frequent plummets that come at the end of a tail. Spitznagel accurately hedged against the dotcom bust and then, the historic 2008 meltdown. (When the S&P 500 plummeted 37 percent, Universa rose 120 percent.) “I argue that the [real] 2008 crisis was federal intervention,” says Spitznagel. In 2013, he penned The Dao of Capital, in which he discusses the finer points of patience, economics, and human nature.
When he and his wife bought the farm in 2010, Spitznagel’s disappointment in the market’s levers was palpable. “The world was about financialization, machine trading, and fake growth. That speaks to what motivated me about the farm,” he says. The formerly vegan financial guru believed that, with the farm, he could have one foot on something tangible: terra firma.
ENERGY CRUDE OIL, OIL SANDS, SHALE
Orbital Insight, a California company that uses satellite images and algorithms to track above-ground oil storage in Saudi Arabia and other countries, says its analysis of the kingdom’s crude inventories in recent months has thrown up an interesting anomaly.
The kingdom, which has led Opec and Russia in co-ordinated output cuts since January, has for months been reporting to official agencies that its oil held in storage has been falling, which alongside lower production has been one factor that has helped propel Brent crude oil back above $60 a barrel.
But Orbital’s analysis of satellite imagery suggests that Saudi Arabia’s above-ground tanks — whose floating roofs allow them to see when oil inventories are rising or falling by measuring shadows cast across the top of the tanks — have seen no real change in the past 18 months.
ENERGY RENEWABLES, NUCLEAR
The U.S. biofuels industry, fresh off a win against Big Oil, is lining up for a fight with Brazil. American ethanol producers said Thursday in a letter to U.S. Trade Representative Robert Lighthizer that they’re seeking Brazil’s suspension from a trade program allowing duty-free imports into the U.S. The move follows Brazil’s decision in August to slap a 20 percent tariff on ethanol shipments from the U.S. that exceed a 600 million-liter (158 million-gallon) annual quota.
POLLUTION, CLIMATE & ENVIRONMENT
A cloud of radioactive pollution over Europe in recent weeks indicates that an accident has happened in a nuclear facility in Russia or Kazakhstan in the last week of September, French nuclear safety institute IRSN said on Thursday.
Nowhere have European voters tossed out established parties with as much gusto as in the Czech Republic, where elections last month shifted the center-left opposition to a group led by a dreadlocked disc jockey with an aversion to suits.
While attached to Russia by ethnicity and emotion, residents of Narva, Estonia, say they would never actually want to live there. “It is a different world over there,” said Sergei Stepanov, the former longtime editor of Narvskaya Gazeta, a Russian-language newspaper in Narva. “You see and feel the difference as soon as you cross the bridge across the river — the roads, the bureaucracy, the mentality.”
GEOPOLITICS, CRIME, TERRORISM
Led by the president’s son-in-law, Jared Kushner, the White House team hopes to develop an American blueprint for resolving Israeli-Palestinian conflict.
The U.S. military said on Sunday that it had carried out three drone strikes in Somalia within 24 hours. The strikes targeted Islamic extremist groups al-Shabab and ISIS. A U.S. Africa Command spokeswoman told the AP that the strikes killed “several” militants. Somalia has seen a wave of terror attacks in recent weeks, including a truck explosion that was described as the country’s most deadly terror attack.
PRIVACY, HACKING, CYBERWAR, SURVEILLANCE STATE
Taiwan’s ruling party is bolstering its cyber defences after hacking attacks that have raised fears that groups linked to the Chinese government plan to influence elections.
After 30 years in the U.S., where she raised three children, worked and paid taxes in Sterling Heights, Zahrija Purovic, 50, was put on a plane and sent to Montenegro on Thursday.
In a stream of tweets, he called those raising questions about Russia “haters and fools” and said he could call North Korea’s leader “short and fat.”
“The president is one large S.T.D.,” one former Goldman partner says. “And if you’re in close proximity to him you’re going to be tainted.”
“Someone, I read the other day, said we all just react to the tweets. We don’t.”
Republican lawyers and lawmakers are working together to install conservative judges on the influential federal appeals courts at a clip not seen in decades.
The nominee, Brett Talley, was approved by a Senate committee despite his unanimous “not qualified” rating from the American Bar Association.
As east Asian leaders roll out the red carpet for Donald Trump, the southern Indian city of Hyderabad is preparing for a visit by the US president’s daughter by rounding up beggars and putting them in jail.
A retirement wave has hit House Republicans, emboldening Democrats who have become increasingly bullish about their prospects of winning back a majority in 2018.
SILICON VALLEY, UNICORNS, STARTUPS, VC
“We see the demand for plant-based proteins coming from the rising flexitarian segment,” said Stacie Sopinka, vice-president of innovation and product development at US Foods, which serves some 250,000 restaurants and is also carrying Impossible products. A “flexitarian” tries to reduce their meat consumption.
A new generation of accelerator programs designed to help entrepreneurs get their products and services off the ground is moving beyond technology, emphasizing financial training. “We found that our teams were starving for this kind of curriculum, one that’s focused on finance and legal pitfalls to avoid,” said Mr. Searfoss, who also leads the finance and fundraising curricula for startups that join the program.
AIRLINES, SHIPPERS, RAIL, TRANSPORTS
Emirates Airline on Sunday renewed its aircraft buying spree, committing to buy $15.1 billion worth of Boeing Co. 787 Dreamliners. Boeing bested Airbus in the competition to sell Emirates Airline, the world’s largest carrier by international traffic, new long-haul planes.
Emirates, which operates the world’s biggest fleet of long-haul aircraft, threw its weight behind the future of first-class travel, pouring millions into an upgrade of the ultra-luxury category on its Boeing 777 aircraft even as other carriers dispense of the biggest berths.
AEROSPACE, MILITARY & DEFENSE
Orbital ATK launched a civilian cargo capsule into orbit Sunday, marking the second successful flight of the redesigned Antares rocket and raising the company’s hopes of developing a more powerful booster for military missions in the next decade.
ARTIFICIAL INTELLIGENCE, DRONES, FUTURE TECH
One of Bill Gates’ investment firms has spent $80 million to kickstart the development of a brand-new community in the far West Valley.
The large plot of land is about 45 minutes west of downtown Phoenix off I-10 near Tonopah. The proposed community, made up of close to 25,000 acres of land, is called Belmont. According to Belmont Partners, a real estate investment group based in Arizona, the goal is to turn the land into its own “smart city.”
“Belmont will create a forward-thinking community with a communication and infrastructure spine that embraces cutting-edge technology, designed around high-speed digital networks, data centers, new manufacturing technologies and distribution models, autonomous vehicles and autonomous logistics hubs,” Belmont Partners said in a news release.
The FCC granted Alphabet’s Project Loon, which delivers internet via balloons, an experimental license last month to help get Puerto Ricans online after Hurricane Maria decimated the island’s infrastructure. While the team cautiously tweeted that it would ‘explore if it was possible to help,’ Project Loon announced today that it has worked with AT&T and T-Mobile to successfully deliver basic internet to over 100,000 Puerto Ricans.
The team launched their balloons from Nevada and used machine learning algorithms to direct them over Puerto Rico, where they’ve been relaying internet from working ground networks over to users in unconnected areas.
Researchers have built the most sophisticated quantum computer yet, signaling progress toward a powerful new way of processing information.
The announcement does not mean quantum computing is ready for common use. The system IBM has developed is still extremely finicky and challenging to use, as are those being built by others. In both the 50- and the 20-qubit systems, the quantum state is preserved for 90 microseconds—a record for the industry, but still an extremely short period of time.
Nonetheless, 50 qubits is a significant landmark in progress toward practical quantum computers. Other systems built so far have had limited capabilities and could perform only calculations that could also be done on a conventional supercomputer. A 50-qubit machine can do things that are extremely difficult to simulate without quantum technology.
SCIENCE, NATURE, PSYCHOLOGY
Scientists originally discovered this sophisticated system in archaea and bacteria, which deploy CRISPR to chop up invading viruses. But a few years ago, researchers figured out how to repurpose CRISPR to run in pretty much any living thing they want. And now it’s made genetic engineering easier than ever before.
The scientists from the country’s Institute for the Sea and Atmosphere dubbed the shark a “living fossil” because remains have been dated back 80 million years, making it one of very few species of such antiquity still around today.
The shark, which has a long, slim, snake-like body, is “little known in terms of its biology or environment”, according to the scientists, because it lives at great depths in the Atlantic and off the coasts of Australia, New Zealand and Japan.
The discovery of an extinct cave lion cub from the Ice Age has raised hopes that it could be cloned and its species brought back to life some 50,000 years after it disappeared. The tiny animal was found “perfectly preserved” with its paw resting on its head on the bank of Tirekhtykh River in the Abyisky district of Yakutia in Siberia in Russia. Investigators says the small creature was about eight weeks old but cannot say how it died in the area that is permanently frozen – in conditions that helped keep its remains from decaying.
HEALTH, PRODUCTIVITY AND WELLNESS
Elephants and other large animals have a lower incidence of cancer than would be expected statistically, suggesting that they have evolved ways to protect themselves against the disease. A new study reveals how elephants do it: An old gene that was no longer functional was recycled from the vast “genome junkyard” to increase the sensitivity of elephant cells to DNA damage, enabling them to cull potentially cancerous cells early.
Sir Robert Swan is the first to admit that, at 61, he probably shouldn’t be attempting to walk to the South Pole.
“I feel like Rocky coming out of retirement,” says the English-born polar explorer. In 1986, Mr. Swan, and his team of two other men, completed a 70-day, 900-mile journey to the South Pole, the longest unaided march in history. Three years later, he walked with a team of seven people 700 miles to the North Pole, becoming what he says is “the first person stupid enough to walk to both poles.”
He’s returning to Antarctica to raise awareness around renewable energy. “Walking to both poles in many ways was selfish and pointless,” says Mr. Swan, who leads expeditions for companies like the Explorer’s Passage and is founder of 2041, an organization dedicated to preserving Antarctica. “But it opened my eyes to the effects of climate change, and this time I’m walking to prove a point.”
The insect was discovered embedded in Vincent van Gogh’s 1889 painting “Olive Trees” by an official at the Nelson-Atkins Museum of Art in Kansas City, Mo., the museum announced Monday.
As part of a research project to examine 104 paintings, Mary Schafer, the museum’s paintings conservator, noticed under magnification that there was an insect in the “lower foreground of the landscape” of “Olive Trees” that was not visible to the naked eye.
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