Wed 26 April, 2017
Tue 25 April, 2017
Our policy toward North Korea is not what most people think it is. We don't want the North Koreans to go away. In fact, we like them doing what they're doing; we just want less of it than they've been doing lately. If this sounds confusing, it's because this policy is unlike what the public has been led to assume. Thanks to something uncovered by WikiLeaks, the American public has a chance to be unconfused about what's really going on with respect to our policies in Korea.
This piece isn't intended to criticize that policy; it may be an excellent one. I just want to help us understand it better.
Our source for the U.S. government's actual Korean policy — going back decades really — is former Secretary of State Hillary Clinton. She resigned that position in February 2013, and on June 4, 2013 she gave a speech at Goldman Sachs with Lloyd Blankfein present (perhaps on stage with her) in which she discussed in what sounds like a very frank manner, among many other things, the U.S. policy toward the two Korea and the relationship of that policy to China.
That speech and two others were sent by Tony Carrk of the Clinton campaign to a number of others in the campaign, including John Podesta. WikiLeaks subsequently released that email as part of its release of other Podesta emails (source email with attachments here). In that speech, Clinton spoke confidentially and, I believe, honestly. What she said in that speech, I take her as meaning truthfully. There's certainly no reason for her to lie to her peers, and in some cases her betters, at Goldman Sachs. The entire speech reads like elites talking with elites in a space reserved just for them.
I'm not trying to impugn Clinton or WikiLeaks by writing this — that's not my intention at all. I just want to learn from what she has to say — from a position of knowledge — about the real U.S. policy toward North Korea. After all, if Goldman Sachs executives can be told this, it can't be that big a secret. We should be able to know it as well.
What Clinton's Speech Tells Us about U.S. Korea Policy
The WikiLeaks tweet is above. The entire speech, contained in the attachment to the email, is here. I've reprinted some of the relevant portions below, first quoting Ms. Clinton with some interspersed comments from me. Then, adding some thoughts about what this seems to imply about our approach to and relations with South Korea.
The Korea section of the Goldman Sachs speech starts with a discussion of China, and then Blankfein pivots to Korea. Blankfein's whole question that leads to the Clinton quote tweeted by WikiLeaks above (my emphasis throughout):
MR. BLANKFEIN: The Japanese -- I was more surprised that it wasn't like that when you think of -- all these different things. It's such a part of who they are, their response to Japan. If you bump into the Filipino fishing boats, then I think you really -- while we're in the neighborhood [i.e., discussing Asia], the Chinese is going to help us or help themselves -- what is helping themselves? North Korea? On the one hand they [the Chinese] wouldn't want -- they don't want to unify Korea, but they can't really like a nutty nuclear power on their border. What is their interests and what are they going to help us do?
Clinton's whole answer is reprinted in the WikiLeaks tweet attachment (click through to the tweet and expand the embedded image to read it all). The relevant portions, for my purposes, are printed below. From the rest of her remarks, the context of Blankfein's question and Clinton's answer is the threat posed by a North Korean ICBM, not unlike the situation our government faces today.
MS. CLINTON: Well, I think [Chinese] traditional policy has been close to what you've described. We don't want a unified Korean peninsula, because if there were one South Korea would be dominant for the obvious economic and political reasons.
We [also] don't want the North Koreans to cause more trouble than the system can absorb. So we've got a pretty good thing going with the previous North Korean leaders [Kim Il-sung and Kim Jung-il]. And then along comes the new young leader [Kim Jung-un], and he proceeds to insult the Chinese. He refuses to accept delegations coming from them. He engages in all kinds of both public and private rhetoric, which seems to suggest that he is preparing himself to stand against not only the South Koreans and the Japanese and the Americans, but also the Chinese.
Translation — three points:
- The U.S. prefers that Korea stay divided. If Korea were to unite, South Korea would be in charge, and we don't want South Korea to become any more powerful than it already is.
- We also don't want the trouble North Korea causes South Korea to extend beyond the region. We want it to stay within previously defined bounds.
- Our arrangement with the two previous North Korean leaders met both of those objectives. North Korea's new leader, Kim Jung-un, is threatening that arrangement.
It appears that China has the same interest in keeping this situation as-is that we do. That is, they want South Korea (and us) to have a Korean adversary, but they don't want the adversary acting out of acceptable bounds — coloring outside the lines laid down by the Chinese (and the U.S.), as it were. Clinton:
So the new [Chinese] leadership basically calls him [Kim Jung-un] on the carpet. And a high ranking North Korean military official has just finished a visit in Beijing and basically told [him, as a message from the Chinese]: Cut it out. Just stop it. Who do you think you are? And you are dependent on us [the Chinese], and you know it. And we expect you to demonstrate the respect that your father and your grandfather [Kim Jung-il, Kim Il-sung] showed toward us, and there will be a price to pay if you do not.
Now, that looks back to an important connection of what I said before. The biggest supporters of a provocative North Korea has been the PLA [the Chinese People's Liberation Army]. The deep connections between the military leadership in China and in North Korea has really been the mainstay of the relationship. So now all of a sudden new leadership with Xi and his team, and they're saying to the North Koreans -- and by extension to the PLA -- no. It is not acceptable. We don't need this [trouble] right now. We've got other things going on. So you're going to have to pull back from your provocative actions, start talking to South Koreans again about the free trade zones, the business zones on the border, and get back to regular order and do it quickly.
Now, we don't care if you occasionally shoot off a missile. That's good. That upsets the Americans and causes them heartburn, but you can't keep going down a path that is unpredictable. We don't like that. That is not acceptable to us.
So I think they're trying to reign Kim Jong in. I think they're trying to send a clear message to the North Korean military. They also have a very significant trade relationship with Seoul and they're trying to reassure Seoul that, you know, we're now on the case.
Clinton ends with a fourth point:
- From the U.S. standpoint, the current problem is now on the Chinese to fix.
So they want to keep North Korea within their orbit. They want to keep it predictable in their view. They have made some rather significant statements recently that they would very much like to see the North Koreans pull back from their nuclear program. Because I and everybody else -- and I know you had Leon Panetta here this morning. You know, we all have told the Chinese if they continue to develop this missile program and they get an ICBM that has the capacity to carry a small nuclear weapon on it, which is what they're aiming to do, we cannot abide that. Because they could not only do damage to our treaty allies, namely Japan and South Korea, but they could actually reach Hawaii and the west coast theoretically, and we're going to ring China with missile defense. We're going to put more of our fleet in the area.
So China, come on. You either control them or we're going to have to defend against them.
The four bullets above (three, and then one) give a very clear definition of longstanding U.S. policy toward the two Koreas. I think the only surprise in this, for us civilians, is that the U.S. doesn't want the Korean peninsula unified. So two questions: Why not? And, do the South Koreans know this? I'll offer brief answers below.
The "Great Game" In East Asia — Keeping the Korean "Tiger" in Check
South Korea is one of the great emerging nations in East Asia, one of the "Asian tigers," a manufacturing and economic powerhouse that's lately been turning into a technological and innovative powerhouse as well.
For example, one of just many, from Forbes:
Why South Korea Will Be The Next Global Hub For Tech Startups
American business has long led the way in high tech density or the proportion of businesses that engage in activities such as Internet software and services, hardware and semiconductors. The US is fertile ground for tech start-ups with access to capital and a culture that celebrates risk taking. Other countries have made their mark on the world stage, competing to be prominent tech and innovation hubs. Israel has been lauded as a start-up nation with several hundred companies getting funded by venture capital each year. A number of these companies are now being acquired by the likes of Apple, Facebook and Google. Finland and Sweden have attracted notice by bringing us Angry Birds and Spotify among others. But a new start-up powerhouse is on the horizon – South Korea. [...]
In other words, South Korea has leaped beyond being a country that keeps U.S. tech CEOs wealthy — it's now taking steps that threaten that wealth itself. And not just in electronics; the biological research field — think cloning — is an area the South Koreans are trying to take a lead in as well.
It's easy to understand Ms. Clinton's — and the business-captured American government's — interest in making sure that the U.S. CEO class isn't further threatened by a potential doubling of the capacity of the South Korean government and economy. Let them (the Koreans) manufacture to their heart's content, our policy seems to say; but to threaten our lead in billionaire-producing entrepreneurship ... that's a bridge too far.
Again, this is Clinton speaking, I'm absolutely certain, on behalf of U.S. government policy makers and the elites they serve: We don't want a unified Korean peninsula, because if there were one, an already-strong South Korea would be dominant for obvious economic reasons.
As to whether the South Koreans know that this is our policy, I'd have to say, very likely yes. After all, if Clinton is saying this to meetings of Goldman Sachs executives, it can't be that big a secret. It's just that the South Korea leadership knows better than the North Korean leader how to handle it.
[Update: It's been suggested in comments (initially here) that Clinton's "we" in her answer to Blankfein's question was a reference to China's policy, not our own. I'm doubtful that's true, but it's an interpretation worth considering. Even so, the U.S. and Chinese policies toward the two Koreas are certainly aligned, and, as Clinton says, "for the obvious economic and political reasons." (That argument was also expressed in comments here.) I therefore think the thrust of the piece below is valid under either interpretation of Clinton's use of "we." –GP]
Exactly one day ago, we reported that "China's first domestically built aircraft carrier will soon launch in Dalian, Liaoning Province for drills and trial voyages, putting to the test proprietary technology meant to further Beijing's expansion in the South and East China seas."
A dock at the Dalian shipyard was being filled with water Sunday the local press reported, in preparation for the launch. The Chinese-made vessel is expected to enter service around 2020, joining China's first and only aircraft carrier, a refurbished Ukrainian vessel known as the Liaoning.
Fast forward just 24 hours, when moments ago the People's Daily reported that China has officially launched its second aircraft carrier -- and its first domestically built, in Dalian on Wednesday morning
— People's Daily,China (@PDChina) April 26, 2017
The new carrier, the first domestically-built one, was transferred from dry dock into the water at a launch ceremony that started at about 9 a.m. in Dalian shipyard of the China Shipbuilding Industry, according to Xinhua.
It is China's second aircraft carrier, which comes after the Liaoning, a refitted former Soviet Union-made carrier that was put into commission in the Chinese People's Liberation Army Navy in 2012.
In a statement, China's Ministry of Defense's announced that China's second aircraft carrier launching ceremony was held at the China Shipbuilding Industry Corporation Dalian Shipyard this morning. Fan Changlong, member of the Political Bureau of the CPC Central Committee and vice chairman of the Central Military Commission, attended the ceremony and delivered a speech.
More, google translated:
The ceremony began at 9am with the majestic national anthem. In accordance with international practice, after cutting the ribbon, a "bottle throwing" ceremony took place. With a bottle of champagne broken ship bow, two sides of the jet ribbon, the surrounding ship with a whistle, the audience sounded warm applause. The aircraft carrier moved out of the dock and towed the dock under towing traction.
The second aircraft carrier by our own development, started in November 2013, in March 2015 to start the construction of the dock. At present, the aircraft carrier main hull to complete the construction, power, electricity and other major system equipment installed in place. Docking is one of the major nodes in the construction of aircraft carriers, marking China's independent design and construction of aircraft carriers to achieve significant results. The next step, the aircraft carrier will be planned for system equipment commissioning and outfitting construction, and a comprehensive mooring test.
Navy, China Shipbuilding Industry Group leadership Shen Jinlong, Miao Hua, Hu asked Ming, as well as military and other relevant departments of the leadership and scientific research personnel, cadres and workers, representatives of officers and soldiers to participate in the ceremony.
For those who may have missed our original post, here are the full details of China's first domestically-build aircraft carrier.
The new ship, like its predecessor, will be conventionally propelled, as opposed to nuclear-powered, and feature a sloped flight deck known as a ski jump for aircraft takeoff. It is somewhat smaller than the Liaoning, with a displacement of around 50,000 tons compared to around 67,000 tons. The SCMP notes that "from the successful refitting of the Liaoning in 2011 and its commission a year later, China spent just five years to produce the 001A."
China's first home-built aircraft carrier awaits launch at a Dalian shipyard
Around 200 visitors and reporters gathered in Dalian on Sunday, expecting a launch ceremony to coincide with the 68th anniversary of the Chinese navy's founding. The scaffolding around the ship, temporarily named the Type 001A, was removed and the deck was cleared, Shanghai-based news portal thepaper.cn reported, suggesting that the launch date was getting close. However, experts said tidal conditions yesterday were not conducive for a launch to mark the navy’s birthday, and expected a ceremony to take place in the next few days.
According to SCMP, the new vessel is designed to have more space for aircraft than the Liaoning, by some estimates letting the ship hold as many as 36 fighter jets, or 50% more than its predecessor. While the new carrier "differs little from the Liaoning as far as outward appearances go, its operational capabilities are vastly superior," Chinese military expert Liang Fang told state-run China Central Television.
Commentaries published by party mouthpiece People’s Daily on the PLA Navy anniversary yesterday said a strong maritime force was crucial.
“Facing the increasingly complicated maritime security and sovereignty struggle, a strong navy is necessary to protect national sovereignty and maritime rights, overseas interests and take part in international cooperation,” one of the opinion pieces said.
Another commentary said the nation’s aircraft carrier fleet had participated in training in the western Pacific last year, and that the launch of a new carrier was a sign that China was mastering naval technology.
Nonetheless, military observers said the launch of the new carrier represented only modest progress in China’s military modernisation, given the technological gap between the PLA Navy and its most powerful rival in the Asia-Pacific region, the US Navy, which currently has 10 operational, nuclear-powered Nimitz-class carriers, which carry around 90 aircraft and helicopters and have a crew of 5,000 each.
The new vessel is expected to operate mainly in the South China Sea alongside the Liaoning, which in December held its second set of exercises in the contested waters since entering service. Adding another ship would enable an aircraft carrier to remain present there while the other is in for maintenance. This arrangement, combined with ports and airstrips China has built on man-made islands in the sea, aims to give Beijing aerial supremacy over a region it considers central to its national interest and to curtail U.S. activity there.
According to Nikkei, future Chinese aircraft carriers are likely to be built faster now that the country has amassed the design experience and technology to bring the first vessel to launch.
Confirming this, work on a second Chinese-made carrier has already begun. The vessel probably will employ a steam catapult to launch aircraft, retired Maj. Gen. Xu Guangyu told Chinese media. A third vessel which has yet to begin production is expected to use nuclear propulsion, eliminating the need to resupply fuel. Work on escort vessels and submarines for a carrier strike group is also underway.
Quoted by SCMP, Hong Kong-based military analyst Liang Guoliang said that with the launch of the Type 001A, China would still only have two carriers, with the new ship requiring two or three years before it was put into full service. He noted that the US has 10 carrier strike groups, with at least four deployed in the Asia-Pacific region.
“The US navy has 9.5 million tonnes of shipping, while China has just 400,000 tonnes, or 4 per cent of the US capability. The US also has different kinds of carrier-based fighters, including its advanced carrier variants of the F-35 fighter ... while China just has the J-15,” Liang said. “Meanwhile, the US has more than 200,000 marines, while China is just trying to expand its force to 100,000.
“I think the Chinese military should realise that there are still huge gaps in both hardware and software between the two countries’ maritime capabilities.”
They probably do, which is why corporate espionage in the US is likely to intensify in the coming years as China rushes to cover the technological gap. And as China scrambles to catch up to the US fleet of aircraft carrier, it has also shown an eagerness to cover shortfalls in its submarine fleet: as reported on Friday, China is currently building the world's largest submarine facility, which when operational later this year, will be able to build as many as 4 subs at the same time.
The USS Mahan has to take evasive actions in the Straits of Hormuz today, in order to avoid an Iranian 'fast attack' vessel. The Mahan sounded the danger alarm, fired flares and manned their weapons, but the Iranian cowards tucked tail and scattered before reaching within 1,000 yards of the U.S. destroyer.
"Coming inbound at a high rate of speed like that and manning weapons, despite clear warnings from the ship, is obviously provocative behavior," said one American official in describing the Iranian actions.
This is the second time in recent months that the Mahan was put on high alert due to pesky Iranian vessels. Back in January, the Mahan fired three warning shots from a .50 caliber machine gun in order to stop small Iranian vessels from harassing them.
The U.S. military said Iranian vessels harassed US warships a total of 35 times in 2016 -- a 50% spike from the year prior.
During the Presidential campaign, Trump was livid over the treatment of US sailors, after a swarm of Iranian vessels seized an American riverine, blindfolded the crew, struck the US flag in exchange for an Iranian, and interrogated 10 crew members, while humiliating them on Iranian tv.
Trump said of the ordeal, “When I see pictures of them with arms up in the air and guns pointed at them, I wouldn’t exactly say that’s friendly.”
Trump added at a campaign rally, "And by the way, with Iran, when they circle our beautiful destroyers with their little boats and they make gestures that our people -- that they shouldn't be allowed to make, they will be shot out of the water."
Content originally published at iBankCoin.com
Governments generally increase military spending when they are involved in an armed conflict or when they perceive a security threat.
But interestingly, although perhaps not entirely surprisingly, military expenditure is also correlated with global oil prices.
Over the decade ending in 2016, patterns of increasing and decreasing military spending can generally be correlated with rising and falling oil prices, according the latest report from the Stockholm International Peace Research Institute.
This correlation likely exists partially because the annual budgets of petro-states largely depend on the price of oil. If an oil producer can make more dollars per barrel in a given year, then it can allocate more money to other projects, including military expenditures.
"Although the oil-price slump has had varying degrees of impact on the economies of oil-exporting countries, since 2015 military expenditure, in real US dollars, has decreased for the vast majority of oil exporting countries," the report's authors wrote. "This reflects the severity of the shock and highlights the need for sectoral reform to foster the diversification of oil exporters' economies."
"The decrease in oil revenues and associated economic problems attached to the oil-price shock have forced many oil-exporting countries to cut their total government budgets, which usually also includes cutting military spending," they added. "In some cases, the decreases have been so severe that it had affected regional and sub-regional trends (e.g. in Africa and South America)."
Oil prices started falling in 2014, and then collapsed further after OPEC's decision in November of that year to not cut production. Crude oil dropped from over $100 per barrel in June 2014 to about $30 per barrel in January 2016.
Fast forward to November 2016, when the cartel, along with other producers like Russia, agreed to curb production slightly for six months in an effort to boost prices. However, oil remains suspended around $50 per barrel — far below the $100 per barrel mark.
From 2015 to 2016, oil producers that have seen military spending drop include Venezuela, South Sudan, Angola, Azerbaijan, and Iraq, according to data from SIPRI. In fact, of the 15 countries with the largest decreases in military spending since 2015, only two were not oil exporters: Guinea and Zambia.
Another region worth looking at is the Middle East. Data is unavailable for several states, including Lebanon, Qatar, Syria, the UAE, and Yemen, but combined total military expenditure in 2016 decreased by 17% compared with the prior year among those countries in the region for which data is available. Interestingly, those countries' combined spending had dropped by only 19% when compared with 2007.
"The decrease in 2016 came despite the fact that all countries except Oman were militarily involved in at least one armed conflict in the region," the authors wrote. "This demonstrates the impact of the fall in oil prices on the economies of several of the region's major military spenders."
Of course, there are always counter-examples, given that a handful of producers can better handle an oil shock. In particular, Kuwait and Norway were able to keep up existing spending plans in 2016.
But, it's still worth noting the larger trend.
Iran news agency FARS reports that according to Syrian military sources, Moscow has informed Damascus of its preparedness to dispatch ground troops to Syria.
FARS - which like most US media should always be taken with a gran of salt - quotes the Al-Hadath news, according to whose sources Russia has announced that in case of the Syrian army's request it is ready to send ground forces to Syria. The sources said that special Russian forces are prepared to be deployed in regions which are experiencing the most pressures by the terrorist groups.
They added that the technical aspects of the plan have been studied and prepared by Russia, saying that the plan can be implemented upon Russian President Vladimir Putin's order after Damascus' official request.
A Russian daily reported earlier this month that the country's soldiers are about to shoulder the responsibility of restoring security to the Christian-populated regions during the Syrian Army's imminent anti-terrorism operations in Northern Hama.
FARS adds that according to Russian Izvestia, the Russian units will help popular forces in Hama province to restore security to the town of Mahradeh, whose population are mainly Christians. The daily added that terrorists are under the Syrian Army's siege from all directions.
There have been fierce clashes between the government forces and militants near Hahradeh since April 4th. "Informed sources" believe that the army intends to complete the siege of the terrorists in Northern Hama to clean the region up to the border with Idlib province.
A deployment of Russian troops in Syria may coincide with a deployment of US ground forces to Syria. Two weeks ago, Bloomberg reported that Trump's national security advisor, H.R. McMaster was planning on sending between 10,000 and 50,000 troops to Syria. Needless to say, a showdown between thousands of Russian and US troops in Syria is unlikely to have a happy ending.
After a disappointing March for the auto OEM's, a hopeful wall street has set it's sites on a rebound in April with consensus SAAR estimates currently set at 17.25 million, up from 16.53 million in March. Per the chart below, the March 2017 print for auto sales was the lowest in over two years, despite massive incentive spending by the OEMs.
Of course, OEMs didn't bother to adjust production levels to sinking sales which pushed inventory days to the highest March print since 2009.
But while wall street seems to be in a phase of perpetual optimism, JD Power and LMC Automotive have decided to lower their expectations for 2017 sales and warn that consumer discounts remain high enough to "threaten the industry's long-term health." Per Reuters:
U.S. auto sales in April likely fell almost 2 percent from a year earlier, with consumer discounts remaining at levels high enough to threaten the industry's long-term health, industry consultants J.D. Power and LMC Automotive said on Tuesday.
The consultancies also lowered their full-year 2017 forecast for new vehicle sales to 17.5 million units, from a previous forecast of 17.6 million.
April U.S. new vehicle sales will be about 1.48 million units, a drop of nearly 2 percent from 1.51 million units a year earlier, the consultancies said.
The forecast was based on the first 13 selling days of the month. Automakers are expected to report April U.S. sales results on May 2.
The seasonally adjusted annualized rate for the month will be 17.5 million vehicles, flat versus the same month in 2016.
Of course, as we've noted numerous times before (see "Morgan Stanley: Used Car Prices May Crash 50%"), the real story with the auto industry isn't the sinking SAAR levels but rather the growing level of incentive spending required to keep sales from crashing even further.
"While industry retail sales pace remains high, it is being powered by elevated levels of incentive spending which pose a serious threat to the long-term health of the industry," said Deirdre Borrego, senior vice president of automotive data and analytics at J.D. Power.
Excessive discounts can help sell new vehicles, but undermine resale prices.
The consultancies said consumer discounts averaged $3,499 per new vehicle sold, the highest ever for the month of April. The previous record was set in April 2009, during the height of the Great Recession.
But, auto investors don't seem to be all that worried so we're sure everything will work out just fine when OEM's release April sales on May 2nd.
Remember when the catalyst for the relentless, seemingly inexplicable broad market melt-up in mid-February was revealed to be an overeager short-biased hedge fund, which had been caught in a "short gamma" feedback loop, forced to buy more S&P futures the higher the market went? Well, as RBC's Charlie McElliggott writes, the "short gamma" feedback loop appears to have returned as yet another fund is now caught in the same trap, and the market will soon test just what the fund's point of margin call max pain is, potentially taking the S&P to 2,400 - if not far higher - on short notice.
As McElligott laments, "It’s awkward to write about this…AGAIN" which however won't stop him from doing just that, and explains as follows:
GUESS WHO'S BACK...MORE 'SHORT GAMMA' COCKROACHES, from RBC's Charlie McElliggott
The same dynamic at play during our last equities ‘melt-up’ is seemingly back ‘in-play.’ Remember the hypothetical story on the multi-billion dollar open-ended futures fund which found itself ‘synthetically short’ size SPX due to its strategy where it sells multiple upside calls for every in-the-money long call? Well the macro ‘relief rally’ yesterday reintroduced that very same ‘gap risk’ which this type of strategy hates.
Well, we are now getting closer to ‘launch’ as the same situation is speculated to be ‘out there’ again. There was some covering in 2330s and 2370s yesterday, while most of the size seemingly sits at the 2400 level. As the market is sniffing out the upper strikes that such a strategy might be short, there is a self-fulfilling ‘short gamma’ as we push ever-closer to the pain-points. Of course, today’s +++ earnings run is only further feeding into the anxiety, with strong #’s from CAT, DD, BIIB, MCD etc squeezing futures higher. The fact of the matter is, the closer to actualizing these (short) upper strikes, the more likely we are to see that ‘itchy trigger finger’ on their delta-hedging. I would keep an eye out on 2380 / 85 levels for possible next ‘breakpoints’ which could induce further forced covering.
If we were to then push onward to / through the 2400 level, then it almost seems the whole market will ‘act short’ simply based on stops, as SPX / ES would be making new all-time highs, which could set-off ‘buy stops’ from shorts, or potentially drag new longs into the market on the momentum break. This is OUTSIDE of the potential ‘short gamma’ from the above trade(s). That said, the real chunky OI in both SPX and SPY options sits at 2425 / 2450 levels. A break to those levels would see serious ‘short gamma’ pain.
Mind you, this is all very relevant in relation to my current view that we are realistically still in the midst of a macro ‘range trade,’ especially in regards to rates / ‘reflation,’ as the commodities complexcontinues to really struggle as Crude falters and the Chinese liquidity driver fades. My message has been to watch said “reflation trap” then, as there is still significant basis to short “reflation” at the 2.35/40 level—especially with this US data dynamic of ‘soft’ data rolling and ‘hard’ data now biased towards ‘missing.’
It’s difficult to quantify how much of an effect ISIS has had our collective psyches. Since this organization started making the news several years ago, we’ve been inundated with utterly horrifying stories about ISIS on a nearly daily basis. These people do things that are so wicked, it’s hard to believe that they were committed by human beings. Because of that, I suspect that long after ISIS is gone, their organization will be a talking point for decades in much the same way that Hitler and the Nazis are still brought up on a regular basis today.
Fortunately, it appears that ISIS is becoming history as we speak. All evidence suggests that the moment of collapse for the ISIS caliphate is rapidly approaching. In fact, the RAND Corporation recently published a report that spells out just how much ISIS has declined over the past few years.
The report found that ISIS, also known as the Islamic State, “has lost substantial control of territory and people since 2014 in Iraq, Syria, Afghanistan, Libya and Nigeria,” putting it in danger of losing its state, which it calls a “caliphate,” altogether.
But control over territory and people isn’t the only thing that makes ISIS a formidable terrorist organization. The group has recently been focusing heavily on external attacks, some of which are mounted without any direct orders from ISIS leaders.
RAND reported that ISIS has lost 57% of its territory and 73% of its population. And much more importantly, polls suggest that their support in the Muslim world is rapidly dwindling. ISIS isn’t just a terrorist group. It’s an insurgency that tried to carve out a state from Iraq and Syria, and no insurgency could have made it this far unless they had at least some support among the population. Now ISIS is losing that as well.
However, this encouraging news comes with a catch.
It’s important to keep in mind that the RAND Corporation is a major facet of the military-industrial complex. So what they think will happen after the caliphate collapses is very telling.
The group still has enough supporters, though, to be considered a serious threat to countries in the Middle East and around the world. Rand also found that ISIS attacks have shot up in recent months. The data suggests that ISIS “has begun to move from an insurgent group that controls territory to a clandestine terrorist group that conducts attacks against government officials and noncombatants,” the report said. This is the model of ISIS’ predecessor organization, Al Qaeda.
Though it seems that the US-led campaign against ISIS has been successful so far, ISIS remains a long way from extinction.
“Fully eliminating the threat the Islamic State poses will require continued American leadership for years to come,” the report said. “… In the short and perhaps medium terms, this contraction in territorial control may actually lead to more terrorist attacks across the globe. But over time, the group’s capacity to recruit, fund, organize, and inspire such attacks will likely diminish, and its brand may lose its allure if the Islamic State no longer controls territory in Iraq and Syria.”
In other words, the military-industrial complex is licking its chops. That’s because ISIS, which is largely a creation of the West, is about to replace Al-Qaeda as America’s elusive bogeyman. Long after their hellish caliphate is dead, they’ll be launching attacks on the United States from far-flung lands, which will surely be used as an excuse to decimate our freedoms, and drag us into many more wars in the future. A lot can happen between now, and when ISIS “loses its allure.”
To our complete 'shock,' a federal judge in San Francisco has just blocked Trump's Executive Order intended to withhold funding from communities that limit cooperation with U.S. immigration authorities. The basis of the finding is that only Congress, not the president, has authority to attach new conditions to federal spending.
"The Constitution vests the spending powers in Congress, not the President, so the Order cannot constitutionally place new conditions on federal funds. Further, the Tenth Amendment requires that conditions on federal funds be unambiguous and timely made; that they bear some relation to the funds at issue; and that the total financial incentive not be coercive. Federal funding that bears no meaningful relationship to immigration enforcement cannot be threatened merely because a jurisdiction chooses an immigration enforcement strategy of which the President disapproves."
U.S. District Judge William Orrick, an Obama appointee, issued the temporary ruling moments ago after San Francisco and Santa Clara County argued that it threatened billions of dollars in federal funding. The decision will stay in place while the lawsuit moves through court.
Ironically, an attorney for the Justice Department, Chad Readler, downplayed the usefulness of the Executive Order admitting at a recent court hearing that it only applied to three Justice Department and Homeland Security Department grants that amounted to less than $1 million nationally and possibly no San Francisco funding at all.
Meanwhile, for the first time we learn that the DOJ, at oral argument, also contended the sanctuary cities EO was toothless--merely an exercise of Trump's "bully pulpit" to "encourage communities and states to comply with the law."
— southpaw (@nycsouthpaw) April 25, 2017
But, Judge Orrick disagreed with the scope of the Executive Order saying that it attempts to "to reach all federal grants, not merely the three mentioned at the hearing."
It is heartening that the Government’s lawyers recognize that the Order cannot do more constitutionally than enforce existing law. But Section 9(a), by its plain language, attempts to reach all federal grants, not merely the three mentioned at the hearing. The rest of the Order is broader still, addressing all federal funding. And if there was doubt about the scope of the Order, the President and Attorney General have erased it with their public comments. The President has called it “a weapon” to use against jurisdictions that disagree with his preferred policies of immigration enforcement, and his press secretary has reiterated that the President intends to ensure that “counties and other institutions that remain sanctuary cites don’t get federal government funding in compliance with the executive order.” The Attorney General has warned that jurisdictions that do not comply with Section 1373 would suffer “withholding grants, termination of grants, and disbarment or ineligibility for future grants,” and the “claw back” of any funds previously awarded. Section 9(a) is not reasonably susceptible to the new, narrow interpretation offered at the hearing.
...and apparently Judge Orrick didn't think the DOJ's arguments were even "legally plausible."
— southpaw (@nycsouthpaw) April 25, 2017
So, if the DOJ believes that the scope of the Executive Order would only impact $1mm in federal funding and was "merely an exercise of Trump's 'bully pulpit', then we have to wonder whether the whole thing was just a charade to avoid more "flip-flopping" accusations? What say you?
Here is the full order:
So what do you do when a massive student loan bubble results in crippling leverage for an entire generation of your population rendering them financially unqualified to obtain mortgage financing and their 'God-given right' to a slice of the 'American Dream'? Well, you simply change the rules to allow mortgage lenders to ignore all that pesky student debt...anything less would simply be evil and potentially racist, sexist and all sorts of other -ist words.
Luckily, Fannie Mae is right on top of the issue and has just released new rules allowing millennial borrowers to, among other things, simply exclude student loans, credit cards and auto loans that are "paid by someone else"...wink wink...when applying for a new mortgage. As an added benefit, taxpayer subsidized mortgage loans can also now be used to repay student debt...Hooray for taxpayers!
Fannie Mae announced new policies that will help more borrowers with student debt qualify for a home loan. These innovations address challenges and obstacles to homeownership due to a significant increase in student loan debt over the past decade and provide access to credit for qualified borrowers. The new solutions give homeowners the opportunity to pay down student debt with a mortgage refinance, allow borrowers to exclude non-mortgage debt paid by others as part of the loan application process, and make it more likely for borrowers with student debt to qualify for a mortgage loan by allowing lenders to accept student debt payments included on credit reports.
Student Loan Cash-Out Refinance: Offers homeowners the flexibility to pay off high interest rate student debt while potentially refinancing to a lower mortgage interest rate.
Debt Paid by Others: Widens borrower eligibility to qualify for a home loan by excluding from the borrower’s debt-to-income ratio non-mortgage debt, such as credit cards, auto loans, and student loans, paid by someone else.
Student Debt Payment Calculation: Makes it more likely for borrowers with student debt to qualify for a loan by allowing lenders to accept student loan payment information on credit reports.
“We understand the significant role that a monthly student loan
payment plays in a potential home buyer’s consideration to take on a
mortgage, and we want to be a part of the solution,” said Jonathan
Lawless, Vice President of Customer Solutions, Fannie Mae. “These new
policies provide three flexible payment solutions to future and current
homeowners and, in turn, allow lenders to serve more borrowers.”
You know, because more debt is exactly the cure for millennials suffering the financial consequences of too much debt.
But, at least this should help with inflating Housing Bubble 2.0.
After last night's announcement of ~20% tariffs on softwood lumber imported from Canada, Prime Minister Justin Trudeau lashed out at the Trump administration saying the U.S. could suffer from a "thickening" border as trade tensions between the two countries escalated, sending the Canadian currency to a 14 month low.
As a reminder, the United States announced it would impose preliminary anti-subsidy duties averaging 20 percent on imports of Canadian softwood lumber, Commerce Secretary Wilbur Ross said on Monday, escalating a long-running trade dispute between the two neighbors. The move, which affects some $5.66 billion worth of imports of the construction material, sets a tense tone as the two countries and Mexico prepare to renegotiate the 23-year-old North American Free Trade Agreement.
Speaking to a technology company in Ontario, Trudeau said he would defend the national interest: "standing up for Canada's interests is what my job is, whether it's softwood or software," Trudeau said, prompting applause and cheers.
"You cannot thicken this border without hurting people on both sides of it. Any two countries are going to have issues that will be irritants to the relationship and, quite frankly, having a good constructive working relationship allows us to work through those irritants."
Elsewhere, Canada's Natural Resources Minister Jim Carr said the U.S. move to set tariffs on softwood lumber shipments are an “unfair and unwarranted trade action.” Speaking to reproters in Ottawa, Carr said that Canada is looking at an aid package for lumber industry and workers which could up to $300 million, and added that a court challenge of duties is possible, and that Canada has won all of those cases in the past.
Carr also said free trade is in the best interest of both nations: "There are irritants in the trading relationship, they aren’t new."
Canada's Liberal Party leader says the two countries are economically interconnected, but it's not a one-way relationship. He said that millions of U.S. jobs depend on smooth flow of goods, services and people back and forth across the border. The Prime Minister also vowed to stand up for Canadian interests after Trump's decision sent the Canadian dollar to a 14-month low.
Yet while the currency fell, shares in Canadian lumber companies rose as the level of the new tariffs came in at the low end of what investors were expecting. Shares in West Fraser Timber, which would pay the highest duty rate of the affected companies, rose 5.6 percent to C$59.50 and the Canfor stock gained 3.5 percent to C$18.82. The average 20 percent anti-subsidy duties announced late on Monday compared to a 20-30 percent range expected by RBC equity analysts.
As Reuters adds, softwood lumber joins dairy as a key target for U.S. President Donald Trump, who tweeted a new attack on Canada's supply management system for dairy on Tuesday. Last week the president called Canada's dairy protections "unfair." "Canada has made business for our dairy farmers in Wisconsin and other border states very difficult. We will not stand for this. Watch!" Trump tweeted Tuesday morning.
* * *
So what does Trump's announcement mean for the Canadian economy? Here is a summary of the key takeaways from a BofA note on the escalating trade war between the US and Canada.
- Trade uncertainty back to the forefront after US announced preliminary duties on Canadian softwood lumber exports.
- The announcement on tariffs was accompanied by negative comments regarding NAFTA, which may herald NAFTA renegotiation.
- Downside risks to growth intensify as higher tariffs lower exports and higher uncertainty delays investment.
And the details:
Trade uncertainty back to the forefront
US wants to renegotiate NAFTA
The US is likely to open the North America Free Trade Agreement (NAFTA) for renegotiation and is willing to use tariffs to contest what it considers unfair trade. This has been our long standing view, but we got clear evidence that the US will be very active on the trade front after Wilbur Ross, US commerce secretary, announced on April 24th the imposition of preliminary duties of almost 20% against Canadian softwood lumber exports. Ross said that the US is using countervailing duties after it was “not able to achieve a fair result” through negotiation with Canada. He said that Canada benefits from a provision in NAFTA that allows Canada to supersede US sovereignty.
Downside risks to Canadian growth
The imposition of countervailing tariffs along with the comments on NAFTA increases uncertainty regarding trade policies for the North America region, which will likely delay investment. Although we believe that Canada is not the main target of US anti-trade policies, it is certainly very exposed to US trade. Higher tariffs will have a negative impact on production in the Canadian lumber industry (Lumber exports are almost 1% of Canadian GDP). Growth in Canada has been surprising to the upside, in line with our more constructive view of the economy. But the likely renegotiation of NAFTA and an active US trade policy put downside risks on our 2.3% GDP growth expectation for 2017.
Renegotiation of NAFTA is positive, but…
We expect the US to send a notification to open NAFTA for renegotiation soon. That will open a 90 day window for countries to prepare. Any renegotiation is likely to be lengthy, going well into 2018. And an institutional renegotiation of NAFTA has a good chance of ending with an updated agreement that benefits the region by incorporating new sectors into the treaty (e.g., energy, ecommerce). Consider the TPP blueprint that the staffs of the three countries involved had already agreed on as a starting point. But in the meantime uncertainty will likely be high as countries take different postures or even actions such as the impositions of tariffs to improve their leverage. The risk is that it all ends in a trade war, although the strength of the value chains in North America makes the latter an unlikely scenario, in our view.
Back to dovish BoC
The increase on trade uncertainty will be highlighted by the BoC, which will support our strategists’ view of a weaker CAD, in our view.
US Steel is diving after reporting a loss for the first quarter of 2017.
The adjusted $0.83 per share loss was far below analysts expectations of earnings of $0.35 per share. Additionally, the company whiffed on revenues, generating $2.73 billion versus expectations of $2.95 billion.
"While our segment results improved by over $200 million compared with the first quarter of 2016, operating challenges at our Flat-Rolled facilities prevented us from benefiting fully from improved market conditions," said US Steel CEO Mario Longhi in a press release.
Following the news, shares of US Steel dived nearly 17% to $25.84 a share in post-market trading as of 5:56 p.m. ET.
Gov. John Kasich of Ohio believes the Affordable Care Act should be fixed, not repealed.
Kasich said in an interview with Business Insider that if there's "one campaign promise" Republicans "ought not to fulfill," it is repealing "Obamacare without a decent replacement."
"Well, you have to fix it, not repeal it," he told Business Insider during a Monday interview while promoting his new book, "Two Paths: America Divided or United."
"We always say 'repeal and replace,' those are like, political words. ... It needs reformed. And, the exchanges need to be reformed. And with Medicaid expansion, you can, over time, begin to return that to a more reasonable match with the states. I mean there are ways to deal with this, I just don't want people being cut off."
Kasich, who sought the Republican Party's presidential nomination in 2016, has been an outspoken voice in the debate over healthcare. He visited the White House in late February and discussed healthcare policy with the president. The meeting occurred just before the introduction of the American Health Care Act, the Republican replacement for the Affordable Care Act.
Polling shows that Americans overwhelmingly agree with the sentiment expressed by Kasich. An April poll from the Democratic firm Public Policy Polling found that 62% of voters surveyed said they preferred Congress keep the Affordable Care Act and fix the problems with it. Just 30% of respondents said they would rather have Congress vote to repeal the law and start over with new legislation.
On his meeting with Trump at the White House, Kasich said the president was "extremely receptive" to the governor's views on healthcare.
"I even talked about the crisis with the pharmaceutical industry and how the government has to have some leverage on these prices," he said. "You know, I was there for a long time and it was a very pleasant meeting. Where it ended up was not where I wanted it to, and that's why I kind of stood against this healthcare bill."
"But to tell you the truth, I don't think the president has any hard feelings about this, hard feelings about healthcare," he added. "I don't think he's in stone on something. He'd just like to see something get done. And I think there's a battle for him inside this White House. Those who want him to be more reasonable and those who want him to be more hardline and whoever wins, it's like a tug of war, and we'll judge him on the basis of who he'll listen to."
Kasich, who said he has no sense of how the healthcare debate will shake out, expressed concern that "people that don't have power are not priorities for people in public office."
"Maybe it's always been that way, but I see it more starkly now," he said. "Maybe because of my job as governor. So, if you're drug addicted, 'Well, well.' If you're mentally ill, 'Well, you know. Well.' If you're really poor, 'Well, you know, bootstraps.' This is concerning to me because nobody should be left behind. And I see it happening too much."
"And we're going to fix Obamacare by repealing some of the tax increases on some of the richest people in the country and then have less resources to help people with mental illness and drug addiction?" he added. "It's foolhardy. It's nonsense. I don't buy it."
The Trump administration has reportedly dropped its plan to tax imports to the US from certain countries one day ahead of an announcement on tax policy, according to The New York Times.
The so-called border adjustment tax would effectively impose a 20% levy on company imports, a charge that many firms said would raise their costs and leave consumers footing the bill.
House Republicans argued that the border tax would make up for revenues lost from other tax cuts.
According to the report, the Trump administration may revisit the idea of a border tax later but is putting it aside for Wednesday's release of a new tax plan. The administration is set to announce a proposal to reduce the tax rate on many owner-operated businesses to 15% from 39.6%, according to The Wall Street Journal.
The border tax emerged as an unsavory aspect of Trump's promised tax reform. Retailers and carmakers in particular would be hit hard by a border tax, especially those that import products from Mexico.
Earlier this month, Trump said he would rather call the border tax a reciprocal or matching or mirror tax. "I don't like the word 'adjustment,' because our country gets taken advantage of, to use a nice term, by every other country in the world," Trump told the Fox Business network.
Deckers Outdoor, the maker of the popular UGG brand, has announced it is reviewing "strategic alternatives" that include the sale of the firm.
“We have made significant progress in streamlining our cost structure, optimizing our retail store fleet, and realigning our brands, with the goal of improving profitability,” Dave Powers, the president and CEO of Deckers, said in a news release out April 25.
According to the release, the firm's board of directors and management believe the move will enhance stockholder value. The release said:
"The Board believes now is an appropriate time to explore a broad range of strategic alternatives that may have the potential to unlock further value. While the Board conducts its review, the entire Deckers team remains committed to improving operations and profitability."
Moelis & Company, the New York-based investment bank, will advise the firm on the review.
Deckers Outdoor emphasized that "there can be no assurance that the strategic review process will result in a transaction" in a statement. Regardless, Wall Street has responded positively. Deckers' stock is up 7.2% in after hours trading.
The announcement comes a month after activist investor Red Mountain Capital, the California-based investment firm, suggested Deckers should find itself a buyer.
Deckers Outdoors saw its stock price crash by more than 21% in February after announcing disappointing quarterly results across the board for its crucial holiday quarter. The company missed on earnings, revenue, and guidance.
President Donald Trump, facing questions about his commitment toward funding the construction of a wall along the US-Mexico border, vowed Tuesday that the wall would be built and suggested it would come in his first term in office.
"The wall’s going to get built, folks," Trump told reporters during an executive order signing at the White House. "In case anybody has any questions, the wall is going to get built."
Trump said the wall would stop the "flow of drugs" coming over the border, "stop a lot of people from coming in that shouldn’t be here."
The White House had pushed to include funding for the border wall into a spending bill that will have to be passed by Friday to prevent a partial shutdown of the federal government. After pushback from lawmakers, Trump's administration seems to have softened on that stance.
Trump did say that the wall would be built "soon."
"We're already preparing, we're doing plans, we're doing specifications," Trump said. "We're doing a lot of work on the wall and the wall gets built."
Asked if the border wall would be built by the end of his first term, Trump replied, "Yeah, yeah sure, we have plenty of time, got a lot of time."
Watch Trump's remarks below:
Chipotle on Tuesday reported first-quarter sales that topped Wall Street's expectations, as visits to its restaurants improved even while it cut back on promotions.
Sales at restaurants open for at least one year turned positive for the first time since Q4 2015, when outbreaks of E. coli were linked to Chipotle's food in 14 states.
The Mexican fast-casual restaurant chain said it earned $1.60 per share, turning a profit after incurring a loss in the same quarter a year ago.
Revenue totaled $1.07 billion.
Analysts had forecast Chipotle would report adjusted earnings per share of $1.29 on revenue of $1.05 billion, according to Bloomberg.
Same-store sales at restaurants open for at least one year rose 17.8% year-on-year (15.5% forecast) after a 29.7% drop a year earlier.
Chipotle hired food-safety experts to scrutinize its practices after the E. coli saga. Food costs fell 150 basis points, or 1.5%, to 33.8% of revenue partly because lettuce and bell peppers were no longer prepared offsite, Chipotle said. Had avocado prices not recently surged to a record high, food costs would have been even lower.
The company maintained its guidance for the year and said it expected same-store sales to be in the high single digits.
Chipotle confirmed last week that it raised prices by about 5% in about 20% of its locations. It had hinted the hikes were coming.
Some analysts have raised questions about whether Chipotle's stock is overvalued after a 25% surge since the start of the year. According to Morgan Stanley and Oppenheimer, the company will need to achieve EPS of at least $20 over the next three years to justify the current price, although they see that as unlikely.
As the shares rose this year, bets against Chipotle also climbed. Short interest has risen $296 million this year, according to the financial-analytics firm S3 Partners. The current short interest total of $2.2 billion represents about 16% of shares outstanding.
Shares of Chipotle rose by as much as 6% in after-hours trading.
The large tax plan set to be introduced by President Donald Trump on Wednesday is expected to include some provisions that will try and get Democrats on board with the proposal.
Politico's Nancy Cook and Ben White reported on Tuesday that the tax proposal, which will likely be broad outlines, will likely include provisions for infrastructure spending and a tax credit for childcare.
Both of the ideas are broadly supported by Democrats and have been a part of Trump's platform for some time. Democrats even came forward with an infrastructure plan in January, and Senate Minority Leader Chuck Schumer has said he is ready to work with Trump on infrastructure.
In practice, however, Democrats pushed back on Trump's infrastructure plan from the campaign, which would include $1 trillion in infrastructure spending in a joint private-public effort. Schumer has repeatedly said that the plan should be financed by the federal government rather than turning it over to private firms.
Democrats have also broadly embraced tax breaks on childcare in principle.
It is unclear whether Democrats would support the large tax cut even with the addition of these measures, as they may instead demand infrastructure and childcare be dealt with separately.
And for Trump, the large overall investment could draw the ire of some more deficit-minded Republicans.
When Sameer Syed worked as an investment banker at JP Morgan, he knew that every email had to be perfect.
"You didn't want to make a mistake in an email and have someone senior read it," he says. "They might be like, 'This guy doesn't really care about his work.'"
This pressure to get the details right ended up serving Syed well, even after he quit finance and headed off to work at a tech startup.
Today, he works in strategic partnerships at Google and organizes quarterly roundtables known as Wall Street to Silicon Alley, which strives to help financial professionals transition to jobs at tech startups.
"That's my goal, to highlight some of the talent that exists on Wall Street and figure out ways for tech companies and startups to start tapping into them," he says. "In finance, you have to have a very good work ethic."
He says that bankers and other financial professionals tend to possess a tremendous work ethic and a fresh perspective that can compliment traditional tech workers.
Here are two other strengths that Syed says finance workers can bring to the world of tech:
1. Attention to detail
When Syed landed his first job at a tech startup, his colleagues would often comment on his emails and presentations.
"They were like, 'Oh wow this is very clean and very professional. It looks like we hired a bank to do this,'" he says. "And I was like, 'Well, I did work at a bank.'"
Syed credits his time in finance with sharpening his attention to detail.
"When you're sending out emails when you're working in banking you have to be super detail-oriented and make sure that there's no mistake and no errors," he says. "Every presentation you put together is very nicely done. The formatting is perfect. Everything is great. That kind of stuff is super valuable."
Syed says that, despite the stereotypes about stiff bankers, flexibility is a trait that most financial professionals are taught to embrace.
"You develop an ability to adapt very quickly and learn about new products very quickly," he says.
This means learning things on the job, quickly.
"That's one of the things that I always tell people, to make sure they can demonstrate that in an interview with tech startups," he says. "Explain that, 'I can pivot very quickly and pick up a new product or understand a new concept very quickly because I've done that in investment banking. I've had to understand new regulations that will have an impact on my client, or if I'm working with financial products I need to understand all the products.'"
Stocks took off on Tuesday for the second straight day of strong gains.
All three major US stock indexes finished well into the green after a slew of strong earnings and solid US economic data. The Nasdaq composite topped the 6,000 mark for the first time in its history, while the Dow pushed back above 21,000.
On the political front, it appears Congress is getting closer to a bill to avoid a government shutdown and details of President Donald Trump's tax plan are coming into view.
We've got all the headlines, but first, the scoreboard:
- Dow: 21,103.78, +247.05, (+1.19%)
- S&P 500: 2,390.19, +14.56, (+0.61%)
- Nasdaq: 6,025.53, +41.41, (+0.70%)
- US 10-year bond yield: 2.327%, (+0.054)
- WTI crude oil: $49.64, +0.41, (+0.83%)
- The US announced a tariff on some Canadian lumber. Commerce Secretary Wilbur Ross announced the tariff would be on softwood lumber that is used primarily in building homes. Following the news, the Canadian dollar weakened and stocks of homebuilders slipped.
- Caterpillar reported dynamite earnings. The global industrial equipment manufacturer announced adjusted earnings of $1.28 a share, crushing analyst expectations of $0.62 a share. The company did, however, warn that "geopolitical and market uncertainty" could weigh on business.
- McDonald's earnings beat expectations. US sales at the fast food giant increased by 1.7% and global sales increased by 4% for the quarter, higher than analysts' expectations. The company reported adjusted earnings of $1.47 a share, beating the forecast for $1.34.
- Trump appears to be backing down on his demand for border wall funding in the new spending bill. Trump reportedly told conservative media members at the White House that he could wait until September to fund the building of a wall instead of including it in the short-term funding bill needed to avoid a government shutdown on Friday.
- Tyson Food announced it was buying pre-packaged food maker AdvancePierre for $3.2 billion. Tyson will pay $40.25 per share in cash for AdvancePierre. That's almost double the initial public offering price for AdvancePierre, which was taken public by Oaktree Capital at $21 per share in September 2016.
- David Einhorn is still bearish on Tesla. Einhorn's Greenlight Capital posted returns of 1.3% for the first quarter, below the S&P 500's return of 6.1%. The hedge fund manager said "it was a difficult quarter to be short the bubble basket" and pointed to his short of Tesla as a particular problem.
- All 15 members of Wells Fargo's board of directors were re-elected despite protests from shareholders. One shareholder had to be removed from the meeting, where board members faced pushback due to the recent fake accounts scandal at the bank.
- New homes sales jumped. Sales of new single-family houses rose 5.8% at a seasonally adjusted annual rate of 621,000, the highest since last August. Economists had forecast that new home sales fell by 1.4% at a seasonally adjusted annual rate of 584,000
- Consumer confidence came in slightly below expectations. The index from the Conference Board came in at 120.3, lower than economists' expectation of 122.5. It is also a decline from last month's 16-year record reading of 125.6.
A new, somewhat unexpected target is in the crosshairs of President Donald Trump's trade agenda: Canada.
And interestingly enough, Trump's zeroing in on one of the US's closest allies has garnered bipartisan support from the likes of Senate Minority Leader Chuck Schumer, Democratic Sen. Amy Klobuchar of Minnesota, and Republican Gov. Scott Walker of Wisconsin.
Like Mexico and China before it, Canada finds itself on center stage in Trump's trade agenda. The bordering nation is preparing for what appears to be a rapidly escalating battle on softwood lumber and dairy — and, on a larger scale, the renegotiation of the North American Free Trade Agreement.
The loudest shot in the developing battle was fired late Monday, when the Trump administration said the US would slap a 20% tariff on Canadian softwood lumber imports. Washington's argument is that the Canadian government unfairly subsidizes the sale of lumber products to the US, and it said previous attempts at negotiating a settlement had failed.
"Canada is a good neighbor," Commerce Secretary Wilbur Ross said Tuesday at the White House press briefing. "But they've got to play by the rules."
Ross said he didn't think the disputes would spark a trade war between the nations.
Trump on Tuesday morning took a swing at Canada's milk-pricing policies, which he argued effectively blocked US exports from the Canadian market and put American farmers at a disadvantage.
"Canada has made business for our dairy farmers in Wisconsin and other border states very difficult," he tweeted. "We will not stand for this. Watch!"
The actions followed unexpectedly harsh words from Trump on Canada last week — a departure from the warm greeting Trump extended to Canadian Prime Minister Justin Trudeau in February, when he said the US-Canada trade relationship would require only "tweaking."
"It has been a bad week for US-Canada trade relations," Ross said Monday night. "This is not our idea of a properly functioning free trade agreement."
The escalation of tension between the nations, specifically on the importing and exporting of dairy products and softwood lumber, has been welcomed by leading politicians in both parties representing states close to or along the US-Canada border.
"Been fighting for NY dairy farmers on this," Schumer tweeted on Tuesday. "Glad to see @POTUS join our fight to change Canada's unfair policy that undercuts our farmers."
Klobuchar said in a statement on Monday night that the new tariffs proposed by the administration "could bring welcome relief to workers, producers, and rural communities in Minnesota and across the country that have been hurt by unfairly traded softwood lumber."
She said the countries should work to negotiate a new agreement related to softwood lumber. Her counterpart, Democratic Sen. Al Franken, one of Trump's staunchest critics in the Senate, praised the Trump administration as well for taking up the cause of dairy farmers in his state. He added, though, that Trump must "move beyond simply saying the right things."
"We need swift action to help American dairy farmers get through this crisis," he said. "I plan to fight for a solution, and I'll be continuing to press the president on this issue."
Meanwhile, Walker, one of the more conservative governors in the country, recently joined Democratic Gov. Andrew Cuomo of New York in writing a letter to Trump urging him to take up the cause. The Wisconsin Republican tweeted to Trump on Tuesday, "Thanks for supporting WI dairy farmers!!!"
Canada has been swift to issue a response, doubling down and preparing for "any eventuality with the US."
"The government of Canada disagrees strongly with the US Department of Commerce's decision to impose an unfair and punitive duty," Canadian Foreign Affairs Minister Chrystia Freeland and Natural Resources Minister Jim Carr said in a joint statement. "These accusations are baseless and unfounded."
"This decision will negatively affect workers on both sides of the border, and will ultimately increase costs for American families who want to build or renovate homes. The US National Association of Home Builders has calculated that a $1,000 increase in the cost of a new house would put home ownership beyond the reach of more than 150,000 American families, and jeopardize thousands of jobs in the American home construction industry. The government of Canada will vigorously defend the interests of the Canadian softwood lumber industry, including through litigation."
The decadeslong lumber battle
The Trump administration's tariff announcement on Monday escalated a disagreement between the two countries that dates to the 1980s. Imposing tariffs on Canadian softwood lumber products is not an unprecedented response to the dispute, but it has proved ineffective in the past.
The US lumber industry has frequently argued that Canada improperly subsidizes lumber by offering cheap rates to cut trees on land largely owned by the Canadian government. In previous disputes, the squabbling led the US to impose punitive tariffs, which were often reversed after international trade tribunals sided with Canada. The two countries then negotiated settlements.
"With respect to softwood lumber, our producers and workers have never been found in the wrong," Freeland said in a statement. "The softwood industry supports thousands of jobs in both countries and has downstream benefits in communities across the continent.
"The United States needs Canadian lumber. A protracted dispute will only drive up the cost of wood and homes for US consumers."
The current dispute stems from 2015, when an agreement reached under the George W. Bush administration expired. After American mills filed a complaint, the US Commerce Department determined that five Canadian companies had received subsidies ranging from 3% to 24% and ordered countervailing duties.
The tariffs the US seeks to impose would affect roughly $5 billion worth of Canadian lumber imports, Ross told Reuters.
"It's about 31.5% of the total US market, so it's a pretty big deal in terms of the Canadian relationship," he said.
While US lumber producers have praised the Trump administration's action, not all Americans are celebrating. US homebuilders said such tariffs would dramatically raise the price of new houses and eliminate construction jobs, The New York Times reported.
The National Association of Home Builders last year found that a 15% tariff could raise home prices by 4.2% and cost 4,666 full-time jobs.
The dairy dispute
Americans have also long complained about Canadian dairy production. The US has taken issue with Canada's supply management system, which is used to regulate dairy pricing and provide production quotas to help prevent surpluses and deficits.
Last year, Canada implemented a policy that created a new class of milk prices for ultra-filtered milk — a liquid, high-protein concentrate sometimes used to make products such as cheese and yogurt. Canada lowered the prices for this milk class to incentivize domestic ultra-filtered milk and better compete with the US-produced imports.
The American dairy industry did not take kindly to these developments and argued that the policy violated NAFTA. Dozens of farmers in Wisconsin and New York have said the Canadian milk-pricing policy has negatively affected them and eliminated millions of dollars' worth of access to the Canadian market.
"What they've done to our dairy farm workers is a disgrace," Trump told reporters on Thursday. "It's a disgrace."
The Canadian dairy industry has said the milk-reclassification policy did not change import rules or impose any import taxes. Instead, it says, the American dairy sector's losses are caused by milk overproduction in the US and globally.
"Canada upholds our international trade obligations," Canada's ambassador to the US, David MacNaughton, wrote in a letter to Cuomo and Walker. "Under the North American Free Trade Agreement, the US has duty-free and quota-free access for milk protein substances, including diafiltered milk. This duty-free and quota-free access has not changed."
We've heard a lot of disconcerting things about trade from the Trump administration, but in an interview with CNBC on Tuesday, Commerce Secretary Wilbur Ross may have just topped them all.
It was about a new tariff the administration just put on Canadian lumber.
"I wouldn't regard the Canadian situation as being anything like the war with ISIS, but it certainly is a very precise set of tariffs on a very precise set of imports," Ross said. "The reason we're putting it on is Canada's forests are owned by the various provinces, and the provinces charge very discounted, we believe, very subsidized prices to the lumbermen, which in turn lets them get a subsidized low price coming into the US."
He continued (and this is that part that should actually be more upsetting than the ridiculous ISIS reference, emphasis ours): "It simply seems unfair because in the US most of the forests are privately owned and therefore pay full-price market rate for the stumpage."
Oh, now we slap tariffs on countries because something simply "seems" unfair?
That's not exactly how this works.
The privatization of US timberlands goes all the way back to the Homestead Act of 1862. We chose a private model for that industry, and no other country can make us change it. Canadians chose a different model, and no country can make them change it.
As Carnegie Mellon economist Lee Branstetter pointed out to Business Insider, this reality has for a while been a sticking point for the US and Canada for the same reason Ross cited: It seems unfair. But the thing is, according to World Trade Organization rules, it's not.
Here's a relevant passage from the WTO and General Agreement on Tariffs and Trade, from 1947 and 1994, to explain (via Reuters):
"The products of the territory of any contracting party imported into the territory of any other contracting party shall be accorded treatment no less favorable than that accorded to like products of national origin in respect of all laws, regulations and requirements affecting their internal sale, offering for sale, purchase, transportation, distribution or use."
In other words, member nations can't enact laws that favor domestic industries over foreign ones, but this isn't a law. This is simply the nature of Canada's logging industry. It seems unfair. But technically, it's not.
Et tu, Wilbur?
So now we're doing trade policy based on how things feel? I saw this coming from the head of the White House National Trade Council, Peter Navarro, who has repeatedly said he feels our trade with Germany is unfair because it negotiates as a member of the European Union rather than by itself.
But billionaire investor Ross? Less so. Then again, last month he told CNBC he was "horrified to learn that billions of dollars of [WTO] duties that have been won after ... hard-fought cases have never been collected."
In other words, he's a newbie here, just like everyone else in the White House now — with a boss looking for wins anywhere they can be found. Maybe that means starting fights out of thin air; maybe it doesn't.
But that's sure what it seems like.
Bitcoin is closing in on a record high after the US Securities and Exchange Commission has approved Bats Exchange's pettition to reconsider the Winklevoss bitcoin ETF. The cryptocurrency was trading up 2.1% at $1,281.76 a coin as of 1:57 p.m. ET, and on track to top its record-high close of $1277.65 set on March 6.
Four days later, bitcoin put in an all-time of $1327.19 just hours before crashing more than 25% after the US Securities and Exchange Commission rejected the Winklevoss twins' plans for a bitcoin ETF. The SEC rejected the plans for another bitcoin ETF just a few weeks after that.
However, bitcoin has rallied off its March 24 low of $959.45 as it has gained acceptance elsewhere. First, Japan announced it was accepting the crypticurrency as a legal payment method, then, Russia said it would consider recognizing bitcoin and other cryptocurrencies in 2018.
Bitcoin has been the top performing currency every year since 2010, aside from 2014. It has gained 33% so far in 2017.
President Donald Trump told White House staff members he wanted to deliver a 15% corporate tax rate, a major cut from the current 35% statutory rate, regardless of whether the plan would add to the federal budget deficit, The Wall Street Journal reported Monday.
That may be easier said than done. Trump will face strong opposition not only from Democrats but also from members of his own party.
Many Republican lawmakers have long held that any tax-cut plan should not affect the federal deficit, and analysts say Trump's plan could cause that deficit to balloon.
The left-leaning Tax Policy Center estimated that a tax plan Trump introduced in 2016 during his campaign would have decreased federal revenue by $6 trillion from 2016 to 2026, including $2.3 trillion alone from lowering the corporate tax rate to 15%.
Even when using dynamic scoring, a method that assumes tax cuts will increase economic growth to help offset the declining revenue, the plan would most likely add to the deficit unless economic growth nearly doubles, the conservative-leaning Tax Foundation told Vox.
House Speaker Paul Ryan has long advocated a deficit-neutral tax plan in his Better Way platform, which could make the tax deal unpalatable to the House GOP leader.
Sen. Orrin Hatch, the head of the Senate Finance Committee, also talked down the possibility of a 15% corporate rate when speaking with reporters.
"I'd love to do that," Hatch said. "I'm not sure we can get them down that low."
Politico also reported that many of the key aspects various Republicans favored, including such provisions as a border-adjustment tax, were not expected to be included in the plan, giving deficit-skeptical Republicans fewer reasons to support it.
Given the potential thorniness within Trump's own party, many experts believe the tax plan that eventually makes its way to Congress will look very different.
"We share Chair Hatch's skepticism as we see neither the political will nor the procedural path to securing a 15% corporate rate. Instead, we maintain our view that a top corporate rate of 25-28% is the likeliest outcome at this point," Isaac Boltansky of the political research firm Compass Point wrote in a note to clients on Tuesday.
Greg Valliere, the chief global strategist and longtime political analyst at Horizon Investments, echoed similar sentiments in a letter to clients.
"As we wrote yesterday, Trump's legacy will hinge on whether he can win Republican support," Valliere wrote. "We still think he can get a tax bill by winter, with an effective date no sooner than Jan. 1, 2018, but the tax cuts won't be as profound as Trump wants."
Trump administration officials, including Treasury Secretary Steven Mnuchin and National Economic Council director Gary Cohn, are expected to meet with congressional leaders, including Ryan and Hatch, at the White House later Tuesday.
Analysts are crying sequel fatigue, but studios trying to bank on franchises isn't new. They're just doing it a lot more frequently, but with titles people care way less about seeing.
In looking at Box Office Mojo's ranking of some of the highest-grossing franchises adjusted for inflation, it's clear that pursuing sequels has always been a roller-coaster ride.
Business Insider selected some of the most well-known franchises and compared their box-office gross numbers.
Of those selected, only "The Lord of the Rings" and "Captain America" have seen revenue growth with every installment. "Deadpool" is the highest-grossing movie related to the X-Men universe, and not even the wide praise for 2017's "Logan" could change that.
Every other franchise lacks a pattern, except that it seems that "Fast and Furious" reached a positive turning point in 2009. (Note: "Fate of the Furious" is still new to theaters, so it has time to earn a lot more.) And people really, really like "Star Wars" movies. Although "A New Hope" still remains the most successful at the box office by a pretty big number.
See how your favorite franchise did over its lifetime:
The move was seen by Estonian defence officials as a gesture underscoring Washington's commitment to its NATO partners. Rhetoric by US President Donald Trump, who called NATO "obsolete" shortly before he took office, deeply rattled the alliance's easternmost members bordering Russia. Trump has since reversed much of his criticism.
Greenlight Capital's David Einhorn just laid out what's going on with his activist move on General Motors.
Earlier this year, Einhorn announced he had increased his position in the car company.
The activist hedge fund investor proposed that GM create two classes of stock, and accused the company of misleading credit-rating agencies about the plan. He told Business Insider's Linette Lopez earlier this month that rating agencies were getting the analysis of his plan wrong.
In a letter sent to investors April 25, Einhorn noted that his firm had "made more noise than usual (and more than we'd like) by making public our idea for General Motors Company."
A copy of the letter was reviewed by Business Insider.
"We felt the need to press the issue as we believe there is a lot of value to unlock and the company did not fairly evaluate our idea ... To poison our idea, management went so far as to misrepresent our proposal to the credit rating agencies, allowing them to claim that the company's credit standing would be in jeopardy if it implemented our idea."
"We know this is a tough fight. Fortunately the math is on our side (if GM does what we suggest, we believe the stock will go up a lot) and the ultimate decision will be made by our fellow shareholders. We believe others recognize that the stock is deeply undervalued and when shareholders grasp the math and the extent of GM’s behavior, they will vote with their wallets and for needed change at the Board level."
Einhorn noted that the last time the firm went after a company in a public manner was with Apple in 2013.
Greenlight's flagship fund delivered 1.3% net of fees in the first quarter, below the S&P 500 index return of 6.1%.
A spokesman for Greenlight declined to comment. GM did not immediately respond to a message seeking comment.
A spokesman for GM responded to a request for comment after the original publication of this article. In a statement, they said:
"Greenlight's proposal to eliminate GM's common dividend to fund a separate dividend on an unprecedented security creates unacceptable risks and is not in the best interest of GM shareholders. GM presented Greenlight's dividend share idea to the ratings agencies fully and fairly. The ratings agencies public statements issued regarding the Greenlight proposal clearly indicate that they understood the idea in all its facets and that it would represent a credit negative if implemented. Any suggestion to the contrary is baseless and irresponsible."
This article was updated on Tuesday, 4:24 pm EST to include a statement from GM.
Man GLG, a UK hedge fund overseeing $28.8 billion of assets as of March 31, is embracing machine learning.
The group has created a new position titled "head of machine learning." The new role will oversee development of Man GLG's machine learning capabilities involving news and social media analysis, breaking market news, and visualizing complex data.
“We believe that machine learning techniques present an opportunity for discretionary investment managers, providing them with analytical tools to complement, and further enhance, their decision making processes," said Man GLG CEO Teun Johnston. "We are continually seeking to develop our offering for our clients and, as the amount of data available continues to expand, these techniques can supplement existing rigorous quantitative and qualitative analysis."
The firm has hired William Ferreira, formerly of Florin Court Capital, for the role. Ferreira previously worked as Technology Manager for Man AHL from 2011 to 2014. In that role, he was Chief Technology Officer for Man Systematic Strategies.
“I am excited about the opportunity to build Man GLG’s machine learning capabilities, developing tools to support the firm’s portfolio managers as they run high-conviction active portfolios," said Ferreira.
Man GLG isn't the first fund to try and make better use of the flood of data now available. Hedge funds have been turning to a "quantamental" investment strategy, using computer algorithms to comb through large data sets. In doing so, the funds are hoping to predict market behaviors to gain even the slightest advantage over competitors.
Michael Flynn’s troubles keep getting worse. On Tuesday, the chairman and ranking member of the House Oversight Committee said that the former national security adviser had likely broken the law by failing to seek permission to receive, and failing to disclose payments he received, from Russia and Turkey.
One of the police officers who forcibly removed a passenger from a United Airlines flight said "minimal but necessary force" was used in the incident that became a public relations disaster for the carrier, according to a report released by the city. Video recorded by other passengers showed David Dao, a 69-year-old doctor, being dragged down the aisle with blood on his face after refusing to give up his seat on a flight from Chicago to Louisville, Kentucky on April 9. Dao suffered a concussion and a broken nose, lost two front teeth and is likely to sue the airline, according to his lawyer, Thomas Demetrio.
Welcome to Finance Insider, Business Insider's summary of the top stories of the past 24 hours.
US Commerce Secretary Wilbur Ross said his department would slap new antisubsidy duties on Canadian softwood lumber imports. Homebuilding stocks are sliding in response, and the Canadian dollar is tumbling.
"I wouldn't regard the Canadian situation as being anything like the war with ISIS, but it certainly is a very precise set of tariffs on a very precise set of imports," he told CNBC.
The new antitrade push may force retaliation from two key allies, according to Business Insider's Pedro da Costa.
David Einhorn's Greenlight Capital is out with its first quarter letter to investors. The fund delivered 1.3% net of fees in the first quarter, below the S&P 500 index return of 6.1%. Einhorn identified his short position in Tesla as one of the biggest losers in the period.
"It was a difficult quarter to be short the bubble basket, and TSLA in particular," he said. He also laid out what's going on with his activist move on General Motors.
Folger Hill Asset Management, a highly-backed hedge fund that has struggled from its start, says it is cutting costs as it continues to look for fresh money to buoy assets. And a trading startup is setting out to tackle a key problem in the world's most important market.
Wells Fargo's management ejected an unruly shareholder from the bank's contentious annual meeting on Tuesday after an extended period of argument and what the chairman characterized as a "physical approach" to a director.
Online banking is all the rage. But that doesn't mean bank branches have been rendered irrelevant.
President Donald Trump may be the least popular president in modern history, but even his main detractors can't deny the stock market's strength under his administration. We're about to get a clear example proving the stock market is not the economy. And Goldman Sachs is sounding the alarm on a crucial barometer for the markets.
There's a bunch of company news:
- McDonald's crushes earnings expectations thanks to new Big Macs and all-day breakfast
- Tyson Foods is buying packaged-food maker AdvancePierre for $3.2 billion
- LVMH wants to consolidate control over Dior with £5 billion deal
- Caterpillar posts dynamite earnings but warns of "geopolitical and market uncertainty"
- A biotech's new drug sold 3 times better than expected — and the stock is taking off
- Coca-Cola's profit sinks 20% as labor costs weigh
- Netflix is going to China
- PULTEGROUP: The spring selling season "points to the ongoing strength in recovery for the housing industry"
- We're about to find out if Chipotle is overvalued
A huge pharma middleman just lost its biggest customer — and it shows how drug pricing really works.
Marissa Mayer will have $186 million in Yahoo stock when Verizon buys the company. Netflix CEO Reed Hastings saw his pay jump almost 40% to $23.2 million in 2016, but that's tiny compared to his net worth.
Mark Cuban is backing an app that's trying to help people avoid overdraft fees.
We went inside young Silicon Valley's elite meeting about the soul of the entire global economy.
Lastly, Delta is partnering with the on-demand helicopter startup Blade so that VIPs can avoid the airport.
Here are the top Wall Street headlines from the past 24 hours.
Nasdaq hits 6,000 for the first time - US stocks opened higher on Tuesday, building on a day-earlier rally, spurred by a raft of strong corporate earnings and an expected tax reform plan.
Procrastinating on filing taxes may be hurting the US economy - The first reading of the US economy's performance in the first quarter, scheduled to be released Friday, is expected to show growth of 1%.
New rules are going to fundamentally change the business models of brokers - It’s been a long time coming but MiFID II (MiFID) is almost upon us.
SCOTT GALLOWAY: Netflix could be the next $300 billion company - Scott Galloway is a marketing professor at the NYU Stern School of Business and the founder of business intelligence firm L2. Galloway, appearing on the latest episode of The Bottom Line with Henry Blodget, explained why he thinks Netflix will be the next $300 billion company.
WEDBUSH: Amazon's share price could explode more than 35% higher - Wedbush Securities just put a $1250 price target on Amazon's stock.
New home sales unexpectedly jump in March - New home sales unexpectedly jumped in March, according to the Department of Commerce.
The top 10 bank stocks to own, according to S&P Global - Financials may have had a strong run, but that doesn't mean there isn't still more money to be made investing in banks.
United was plagued with a huge issue even before dragging a customer off a plane - United is America's worst legacy airline, according to a recent survey.
Here's where the name "Rolex" really came from - Rolex is a storied brand — one of, if not the most notable in the watchmaking world.
The increasing integration of global markets and economies, in addition to new technologies that help accelerate the transmission of financial shocks from one region to another, is making it trickier for so-called emerging countries to manage their banking systems.
A surge in dollar-denominated bonds in developing economies, and their dependence of the vagaries of the richest nations, leave policymakers in areas like Latin America, Africa and Asia in difficult, if not entirely untenable positions, according to the International Monetary Fund’s latest report on global financial stability. Currency markets are particularly vulnerable and volatile.
"Because domestic financial conditions respond faster and more strongly to global financial shocks than to changes in the domestic monetary policy stance, implementing timely and effective policy reactions may often be challenging," said the report, released just ahead of the IMFs annual spring meetings in Washington. "Likewise, given that global financial conditions tend to account for a greater fraction of variability in [financial conditions for] emerging market economies, these countries in particular should prepare for the implications of global financial tightening."
The US Federal Reserve has raised interest rates twice in the last four months from ultra-low recession levels, and plans to continue tightening policy as US economic growth, while still gradual, has brought the unemployment rate down to a historically-low 4.5%. Unlike the Fed’s first post-crisis rate increase in late 2015, which led to selling in emerging market assets, the latest round of rate rises have been cushioned by a broader rally in riskier assets, including US stocks that keep hitting record highs.
The Fed looms so large over the rest of the world that its policy decisions often move emerging markets more than rate moves by those country's own central banks, or other high-profile international ones like the European Central Bank or the Bank of Japan.
Emerging market economies have often sparred with the United States over the spillovers of American policy overseas. When the Fed was buying bonds by the tens of billions to support the economy and keep interest rates low, from 2009 to 2013, the emerging world often complained it was being flooded with more capital than it could control. Brazil’s ex-finance minister Guido Mantega famously accused the US of starting a currency war. When the Fed started to pull back on stimulus, many countries complained about the reversal. Fed officials argue, with merit, that their mandate is domestic, and they must be mindful of the world economy but are only in charge of meeting US economic objectives. Furthermore, the Fed said a strong US economy, its ultimate mandate, is generally in the interest of world growth.
The IMF says emerging economies have the tools to deal with higher rates — they just have be willing to use them.
"Despite the significant influence of global financial conditions, the analysis indicates that countries, on average, are still able to steer their domestic financial conditions — specifically, through monetary policy," the report says.
Other measures, such as steps to stem the flow of excess capital to particular industries or restricting leverage in the banking system, should also be employed the IMF says, although most officials there would likely recognize this is easier said than done.
"Countries also have other policies at their disposal. For example, macroprudential measures can be used to limit risks from a further buildup of vulnerabilities that increase domestic financial conditions’ sensitivity to external financial shocks," the Fund said. "Likewise, there may be circumstances that warrant a temporary role for capital flow management measures."
A highly-backed hedge fund that has struggled from its start says it is cutting costs as it continues to look for fresh money to buoy assets.
Folger Hill Asset Management, a Leucadia and Schonfeld-backed hedge fund firm started by Steve Cohen's former chief operating officer Sol Kumin, has reduced management headcount by 17% this year.
That's according to an April investor letter that was reviewed by Business Insider.
Several senior staffers have left the firm in recent months, including at least two portfolio managers, the director of risk and the director of investor relations as recently as last week, Business Insider previously reported.
Kumin added in the letter: "We continue to focus on Fund expenses, seeking additional measures to effectively cut costs without adversely impacting our ability to effectively run the business or diminishing the value proposition to a prospective strategic investor."
Folger Hill doesn't charge a management fee that is common with many hedge funds. Rather, the firm uses a so-called pass through expense model, according to marketing materials reviewed by Business Insider and people familiar with the firm. In that model, investors take on the costs of running the fund. But assets at the fund fell preciptiously last year as some investors pulled money. That means that fewer investors take on the same costs, people familiar with the firm said.
The people requested to remain anonymous because the information is private.
Since at least last November, Folger Hill has been looking for a strategic partner to add capital, as reported by Reuters. Folger Hill has yet to find a partner, Kumin wrote in the April letter.
"We recognize that a deal of this type is complicated and will take time to sort through all the details," Kumin wrote. "However, we are acutely aware of the importance of getting something done in the near term."
Kumin added that he expected to have a "more comprehensive update" in the second quarter and that Folger Hill was "highly encouraged by the level of interest we've received to date and by the progress made with several prospective partners."
Folger Hill's flagship fund returned 1.2% in the first quarter of this year, compared to a 6% rise in the S&P 500 and 2.5% rise in the Russell 2000 over the same period, the letter said.
"We recognize that additional work remains to be done," Kumin wrote about the performance.
The firm has struggled with performance from its start in 2015. The firm's flagship fund fell 17.6% last year and about 3.2% in 2015 , according to previous investor updates seen by Business Insider.
(The online version of the April 24 story is refiled to fix byline, and typo in 12th paragraph) By Alister Doyle OSLO, April 25 (Reuters) - The Arctic's quickening thaw is melting the permafrost under buildings and roads from Siberia to Alaska, raising world sea levels and disrupting temperature patterns further south, an international study said on Tuesday. The frigid region's shift to warmer and wetter conditions, resulting in melting ice around the region, may cost the world economy trillions of dollars this century, it estimated. The report by 90 scientists, including United States experts, urged governments with interests in the Arctic to cut greenhouse gas emissions.
Reports of American workers being short on their retirement funds are rampant. The National Institute on Retirement Security frames the "underfunded" issue in real dollar terms, noting that retirement savings are "dangerously low", and the U.S. retirement savings deficit is between $6.8 and $14 trillion. Yes, too many Americans are underfunded in the retirement accounts -- but how do you know exactly how much you're underfunded?
It was the most stunning political victory of the 21st century, one that brought shocked concern in many parts of the world and cheers in others. One uncontroversial certainty was that it would cause reverberations around the globe. Donald Trump campaigned on an “America First” platform, but has found himself as president drawn into thorny geopolitical complexities aplenty in the first 100 days of his administration.
By Ju-min Park SEOUL (Reuters) - North Korea conducted a big live-fire exercise on Tuesday to mark the foundation of its military as a U.S. submarine docked in South Korea in a show of force amid growing concern over the North's nuclear and missile programs. The port call by the USS Michigan came as a U.S. aircraft carrier strike group steamed toward Korean waters and as top envoys for North Korea policy from South Korea, Japan and the United States met in Tokyo.
By Ahmed Aboulenein MOSUL, Iraq, (Reuters) - Iraqi forces are using siege and stealth tactics to drive Islamic State militants out of Mosul's Old City, an Iraqi general said, as his forces sought to minimize casualties among hundreds of thousands of people trapped in the cramped, historic neighborhood. Explosions from two car bombs could be heard nearby as Lieutenant General Abdul Ghani al-Assadi spoke to Reuters at his command post on Monday, and a Reuters correspondent saw thick smoke rising from the blasts. "Most houses in the Old City are very old and its streets and alleyways are very narrow," said Assadi, a commander of Iraqi counter-terrorism units in Mosul.
By Steve Barnes LITTLE ROCK, Ark. (Reuters) - Arkansas carried out back-to-back executions on Monday night, administering lethal injections to two men convicted of rape and murder to become the first U.S. state to put more than one inmate to death on the same day in 17 years. Marcel Williams, 46, was pronounced dead at 10:33 CDT, a little more than three hours after the execution of 52-year-old Jack Jones, according to officials at Cummins Unit prison, about 75 miles southeast of the state capital, Little Rock. The two men were among eight that the state had initially planned to execute over the course of 11 days this month, prompted by the impending expiration date of the state's supplies of midazolam, a sedative used as part of the three-drug protocol.