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Hack of Wall Street regulator rattles investors, lawmakers

Hack of Wall Street regulator rattles investors, lawmakers

WASHINGTON (Reuters) – Wall Street’s top regulator came under fire on Thursday over its cyber security and disclosure practices after admitting hackers had breached its database of corporate announcements in 2016 and may have used it for insider trading.

The breach involved the U.S. Securities and Exchange Commission’s EDGAR filing system, which houses market-moving information with millions of filings ranging from quarterly earnings to statements on acquisitions.

The SEC said on Wednesday evening it discovered in August that cyber criminals might have used a hack detected in 2016 to make illicit trades.

On Wednesday afternoon, SEC Chairman Jay Clayton gave members of Congress a “courtesy call” about the hack before it was announced publicly, said Representative Bill Huizenga, chairman of the U.S. House subcommittee that oversees the SEC, in a phone call.

“It’s hugely problematic and we’ve got to be serious about how we protect that information as a regulator,” Huizenga said.

The SEC disclosure came two weeks after credit-reporting company Equifax Inc (EFX.N) said a breach had exposed sensitive personal of data up to 143 million U.S. customers. This followed last year’s cyber attack on SWIFT, the global bank messaging system.

It is particularly embarrassing for the SEC and its new boss Clayton, who has made tackling cyber crime one of the top enforcement issues.

“The chairman obviously recognizes the irony of the SEC potentially serving as the unwitting tipper in an insider trading scheme,” said John Reed Stark, president of a cyber consulting firm and a former SEC staff member.

The SEC has said it was investigating the source of the hack but did not say exactly when it happened or what sort of non-public data was retrieved. The agency said the attackers had exploited a weakness in a part of the EDGAR system and it had “promptly” fixed it.

Most reports filed with the SEC “generally don’t contain super-sensitive information,” and any insider trading would have taken place soon after company filings were made but before they were released to the public, said Gary LaBranche, president of National Investor Relations Institute.

“People are shocked and disappointed,” LaBranche said. Members of the institute, who work with 1,600 publicly traded companies, will be examining their trading reports for any unusual activity that could be tied to disclosures, he said.

U.S. President Donald Trump’s administration has prioritized protection of federal agency networks after breaches during the Obama administration, including at the Office of Personnel Management, Internal Revenue Service and State Department.

Trump in May signed an executive order requiring agencies to use a specific framework to assess and manage cyber risk, and prepare a report within 90 days about how they implement it.

The SEC did not respond when asked about that review or whether it triggered the disclosure. But Clayton said in his Wednesday statement that he began reviewing the agency’s cyber risk in May.

SEC Commissioners did not learn of the breach until recently. In a statement, Republican SEC Commissioner Mike Piwowar, who for part of 2017 also served as acting chairman, said he was “recently informed for the first time that an intrusion occurred in 2016.”

Erica Elliott Richardson, a spokeswoman for the Commodity Futures Trading Commission (CFTC),the top U.S. derivatives regulator, said in an emailed statement the agency constantly reviewed and updated its cybersecurity protections to guard against the growing threat of a breach.

“Our agency has successfully thwarted hundreds of attempted breaches,” she added.

The Canadian Securities Administrators, an umbrella group representing Canada’s provincial securities regulators, said on Thursday it would conduct an additional security review.

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Wall Street doesn’t want this Trump official to quit

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Cohn outlines Trump tax cuts
Cohn outlines Trump tax cuts

Wall Street doesn’t want this Trump official to quit

  @mattmegan5

Wall Street didn’t flinch at the sudden exits of White House officials like Steve Bannon, Reince Priebus and Sean Spicer. Things may not stay as calm if Gary Cohn follows them out the door.

Cohn is President Trump’s top economic adviser, and considered to be one of the most important remaining players in the administration. Cohn has acted as a moderating force on Trump’s populist instincts on delicate issues like trade. Cohn is also quarterbacking the push to cut taxes along with Treasury Secretary Steve Mnuchin.

Cohn is such a vital member of Team Trump that rumors over his resignation due to the president’s handling of the violence in Charlottesville spooked the market last week, briefly causing stocks to drop on Thursday morning. A White House official sought to reassure Wall Street, telling reporters that “nothing has changed,” and that reports of Cohn’s stepping down as director of the National Economic Council are “100% false.”

Investors are hoping that the former Goldman Sachs(GS) president will remain a source of stability and reason in the often-chaotic White House.

“The loss of Cohn would be another point of destabilization on tax reform, which is what the market wants desperately,” said Mark Luschini, chief strategist at Janney Capital, which manage more than $50 billion in assets.

“Cohn is viewed as a pretty steady, level-headed guy,” he said.

Normally, Wall Street might not care about the day-to-day personnel moves inside the White House. But Cohn’s pro-business views have comforted investors unsettled by Trump’s populist campaign platform, especially his promises to rip up NAFTA and label China a currency manipulator.

“If Cohn were to leave, Trump’s economic policies could take a turn to the more populist side, a turn that markets would not appreciate,” Nomura chief U.S. economist Lewis Alexander warned in a report on Monday.

Such a shift could alarm Wall Street as the White House gears up for key battles in September over the budget, tax reform and renegotiating NAFTA. Investors are also on guard for a potential government shutdown or a stand-off over the debt ceiling, which needs to be raised to avoid a disastrous default.

“Gary Cohn is very establishment. He’s basically Mr. Goldman Sachs. He’s not fringe,” said Ed Yardeni, president of investment advisory Yardeni Research.

Of course, Cohn’s career moves aren’t the only thing the market cares about. Ultimately, the direction of the U.S. economy and corporate profits are what will influence stock prices in the long run.

It’s also worth noting that Cohn may leave the White House soon to take an even more important job. Trump told The Wall Street Journal last month that he’s considering Cohn to replace Federal Reserve chair Janet Yellen when her term expires in February.

In some ways, Cohn’s standing in the White House seems to have been bolstered by the firing of Bannon, Trump’s chief strategist. The two officials frequently butted heads, with Bannon representing the populist or nationalist views that make markets nervous.

“Steve Bannon’s departure is undoubtedly a noteworthy victory for the globalists inside the administration” like Cohn, Isaac Boltansky, director of policy research at Compass Point Research & Trading, wrote in a report on Monday.

But Boltansky urged investors not to celebrate yet. He pointed out the tumultuous nature of the White House and warned that Bannon’s return to Breitbart gives him a powerful platform to influence future policy debates.

“The reality TV nature of the West Wing wars suggest that there could be a reversal of fortunes on the other side of the commercial break,” Boltansky wrote.

Published at Mon, 21 Aug 2017 19:45:36 +0000

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U.S. takes tough lines as NAFTA negotiations begin

 

U.S. takes tough lines as NAFTA negotiations begin

WASHINGTON (Reuters) – The United States on Wednesday laid down a tough line for modernizing the North American Free Trade Agreement, demanding major changes to the pact that would reduce U.S. trade deficits with Mexico and Canada and increase U.S. content for autos.

Speaking at the start of the talks in Washington, U.S. President Donald Trump’s top trade adviser, Robert Lighthizer, said Trump was not interested in “a mere tweaking” of the 23-year-old pact, which he blames for hundreds of thousands of job losses to Mexico.

“We feel that NAFTA has fundamentally failed many, many Americans and needs major improvement,” Lighthizer, the U.S. Trade Representative, said in an opening statement.

Canadian and Mexican officials defended NAFTA and said its benefits and structure should be preserved while it is modernized.

Lighthizer said he would demand increased regional and U.S. content in autos produced in the region, the largest source of a $64-billion U.S. goods trade deficit with Mexico last year. He also said the United States would insist on strong provisions governing labor and currency practices.

“We need to ensure that the huge trade deficits do not continue and we have balance and reciprocity. This should be periodically reviewed,” said Lighthizer. “The rules of origin, particularly on autos and auto parts, must require higher NAFTA content and substantial U.S. content.”

The demand is at odds with auto producers and suppliers in the region, who are concerned that increasing local content requirements will raise their costs and make their factories less competitive with those in Asia and Europe.

Canadian Foreign Minister Chrystia Freeland, who suggested this week her country could walk away if the U.S. insisted on scrapping a NAFTA mechanism to resolve trade disputes, also took a swipe at the U.S. fixation on cutting its trade deficits.

“Canada does not view trade surpluses or deficits as a primary measure of whether a trading relationship works,” she said in her opening statement. “Nonetheless, it’s worth noting that our trade with the U.S. is balanced and mutually beneficial.”

Mexican Economy Minister Ildefonso Guajardo said NAFTA stood as model of North American integration and the talks should aim to strengthen the continent’s trade ties.

“The issue is not tearing apart what has worked, but rather, how we make our agreement better,” he said. “For a deal to be successful, it has to work for all parties involved. Otherwise, it is not a deal.”

Mexico is keen to maintain preferential access for its goods and services to the United States and Canada, where nearly 85 percent of its exports are shipped. Its NAFTA priorities also include greater integration of the continent’s labor markets and energy sectors.

Canadian Minister of Foreign Affairs Chrystia Freeland speaks at a news conference prior to the inaugural round of North American Free Trade Agreement renegotiations in Washington, U.S., August 16, 2017.Aaron P. Bernstein

Canadian and Mexican delegations were not surprised by the Lighthizer’s tough talk.

Raymond Bachand, the lead trade negotiator for the Canadian province of Quebec, said he was not worried by Lighthizer’s remarks that the U.S. would not accept minor changes to the agreement.

“Mr Lighthizer’s speech was very focused on U.S. domestic policy. President Trump promised to renegotiate NAFTA,” Bachand said. “There’s a lot of strategizing going on today because it’s clear that U.S. business circles have one objective – do no harm,” he told reporters.

The first round of meetings, which are expected to last until Sunday, will focus on consolidating the proposals from all three countries, a U.S. trade official said ahead of the talks, which are being held at a Washington hotel.

Slideshow (5 Images)

As the NAFTA talks began, Trump faced increasing political heat over his comments that both right-and left-wing extremists were responsible for violence at a white supremacist rally in Virginia on Saturday.

The biggest uncertainty in the NAFTA talks is whether a deal can pass Trump’s “America First” test. Trump has constantly blamed NAFTA for shuttering U.S. factories and sending U.S. jobs to low-wage Mexico. The test will be whether NAFTA negotiators can prove to him that a new agreement alters that course.

Business communities from all three countries have called on the sides to “do no harm” amid concerns that a new agreement will unravel a complex North American network of manufacturing suppliers built around NAFTA.

U.S.-Canada-Mexico trade has quadrupled since NAFTA took effect in 1994, surpassing $1 trillion in 2015.

Robert Holleyman, a former deputy U.S. trade representative during the Obama administration, said the “toughest nut to crack” will be whether changes meet Trump’s goal of reducing the trade deficit.

“We know where he wants to make changes to NAFTA. Whether those changes lead up to something that actually reduces the trade deficit with Mexico is wholly unclear,” Holleyman said.

NAFTA renegotiation will be a major test of Trump’s ability to meet his campaign promises to restore U.S. manufacturing jobs. Although he has inherited a strong economy that has added 1.29 million jobs this year, his promises of an ambitious legislative agenda have been derailed by the failure of a healthcare bill and the lack of a detailed plan for tax reform.

Also weighing heavily over the talks is the upcoming 2018 Mexico presidential election. Mexico has urged all sides to complete the negotiations before the campaign ramps up in February to avoid it becoming a political punching bag.

Additional reporting by Lesley Wroughton, David Lawder and Ginger Gibson; Editing by Leslie Adler and Nick Zieminski

 

Published at Wed, 16 Aug 2017 17:10:58 +0000

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Day 1 of NAFTA talks: ‘This agreement has failed’

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U.S., Canada and Mexico begin NAFTA negotiations
U.S., Canada and Mexico begin NAFTA negotiations

 Day 1 of NAFTA talks: ‘This agreement has failed’

  @CNNMoney

President Trump’s trade team didn’t mince words on the first day of trade talks with Canada and Mexico.

Leaders from the U.S., Canada and Mexico on Wednesday officially began renegotiating NAFTA, the three-nation trade pact, in Washington.

Mexican and Canadian leaders started a press conference on a positive note, touting the advantages of NAFTA and saying the new agreement must work for all three nations.

Then, U.S. Trade Representative Robert Lighthizer spoke. He noted that NAFTA has benefited many Americans, such as farmers, and said the U.S., Canada and Mexico have a strong friendship.

But he soon tore into NAFTA, Trump-style.

“For countless Americans, this agreement has failed,” Lighthizer said. “We cannot ignore the huge trade deficits, the lost manufacturing jobs, the businesses that have closed or moved because of invectives, intended or not, in the current agreement.”

Lighthizer said at least 700,000 American jobs have been lost due to NAFTA. He added “many people believe the number is much, much bigger than that.”

The stakes of renegotiation are high. Millions of jobs and thousands of companies rely on NAFTA. American consumers benefit immensely from free trade while factory workers say they’ve gotten the short end of the deal, with their jobs outsourced to Mexico.

The threat facing the pact is real, too. Trump says if the U.S. can’t get a better deal, he’ll withdraw from NAFTA. He’s also threatened to slap tariffs on Mexico, and he’s already slapped some on Canada. They have in turn cautioned that they’ll retaliate against any U.S. tariffs.

Mexican and Canadian leaders framed their desires around “modernizing” NAFTA to reflect more of today’s global economy, including guidelines for e-commerce, which isn’t included in the 23-year-old deal.

“The issue is not tearing apart what works, but rather making our agreement work better,” Mexico’s economy secretary Ildefonso Guajardo said on Wednesday.

“We want to protect NAFTA’s record of job creation and economic growth,” Canada’s foreign minister Chrystia Freeland said. Freeland also delivered remarks in Spanish, which appeared to be a gesture of goodwill toward Mexico.

Negotiations will begin with what isn’t in NAFTA already — digital trade, protection of intellectual property and energy trade, among other topics.

Leaders admitted that’s the easy part. “After modernizing, the tough work begins,” Lighthizer said.

Future rounds of negotiations will take place in Mexico and Canada over coming months.

Thorny issues surround several topics, including where and how car companies manufacture vehicles. Trump’s team sees this as an area where they can reshape NAFTA to create more factory jobs.

Right now, 62% of the parts of a car sold in North America have to come from the region. U.S. officials will likely aim to raise that level, though it’s unclear how much.

But experts caution if companies have to produce more parts in the U.S., it will likely cause American consumers to pay higher prices on cars, clothing and other goods.

“It sounds difficult to achieve both things, something has to give,” says Marcelo Carvalho, head of emerging markets research at BNP Paribas.

Another challenge facing the negotiators: Time. Mexico has a presidential election next year and the front runner, Andres Manuel Lopez Obrador, is a major critic of Trump. Current Mexican officials warn that NAFTA talks need to end before Mexico’s election season starts next spring because it will be very hard to ratify a deal in that political environment.

And Lighthizer noted that Trump isn’t interested in “tweaking” NAFTA. They want a “major improvement.”

Experts say the administration will be challenged to get a truly new deal done before the spring.

“I’m skeptical that you can fundamentally rewrite the agreement in six to eight months,” says Matthew Rooney, economic growth director at the Bush Institute in Texas.

As talks get underway, one lingering question hangs over the three nations.

“If they can’t get an agreement, does President Trump get rid of it entirely?” said Lori Wallach, global trade watch director at Public Citizen, a non-profit. “It depends on the will of the parties.”

Published at Wed, 16 Aug 2017 16:18:14 +0000

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Eerie quiet on Wall Street is finally broken

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Haley: Sanctions are a gut punch to N. Korea
Haley: Sanctions are a gut punch to N. Korea

Eerie quiet on Wall Street is finally broken

  @mattmegan5

Markets have been quiet for far too long. That finally changed a bit on Wednesday.

President Trump’s vow of “fire and fury” in response to North Korea, and its threat to strike the U.S. territory of Guam, was a reminder of how unprepared Wall Street is for a shock.

Stocks have been coasting to new highs day after day. The Dow was on track for a 10th straight record close before Trump’s “fire and fury” comments late Tuesday caused stocks to retreat.

Investors aren’t freaking out about North Korea, but there was a noticeable shift in sentiment nonetheless.

“I’m concerned. I can’t predict a shooting war before it happens, but escalating rhetoric of this type is dangerous,” David Kotok, chief investment officer at Cumberland Advisors, told CNNMoney.

The Dow fell as many as 88 points on Wednesday, before ending down just 37 points. The S&P 500 suffered its worst open since mid-June, but closed almost flat.

Of course, North Korea wasn’t the only catalyst for the caution on Wall Street. Disney(DIS) shares slumped after it announced plans to pull its movies from Netflix. That news also sent Netflix(NFLX, Tech30) stock lower. There were also disappointing earnings reports from Fossil(FOSL) and Priceline(PCLN, Tech30).

But that corporate news doesn’t account for the two-month high in the price of gold, which serves as a safe haven during times of worry. The closely-watched VIX volatility gauge remains low, but it’s popped 21% since Monday’s close. CNNMoney’s Fear & Greed index of market sentiment flipped to “neutral” after previously sitting comfortably in “greed” mode.

“The world is getting more dangerous. You don’t wait for the tornado. Seeing the cloud is enough to start moving,” Kotok said.

Kotok said he’s “glad” his asset management firm has been building cash reserves. He’s also been buying shares of the VanEck Vectors Gold Miners ETF(GDX) as well as shares of defense contractors — both of which rallied on Wednesday.

This summer’s rally on Wall Street has left the market almost priced for perfection. The Dow is up nearly 12% this year, while the Nasdaq has soared 18%.

chart trump dow stock markets

The relentless rise has been marked by unusual calm. Consider that the S&P 500 hasn’t suffered a downturn of 5% or more in 408 days, the longest streak since May 1996. Two weeks ago, the VIX(VIX) touched an all-time intraday low.

North Korea worries sent Asian markets sinking overnight. Japan’s Nikkei slumped 1.3%, while South Korea’s KOSPI closed down 1.1%. The iShares MSCI South Korea Capped ETF(EWY) fell 2%. European markets also dipped modestly.

Investors are worried that the war of wordscould turn into a miscalculation that spirals out of control.

“The concern is about how this could devolve into a fairly messy state of affairs that would cause markets to sell first and ask questions later,” said March Luschini, chief market strategist at Janney Capital Markets.

Kotok said Trump’s aggressive threats are a stark departure from Teddy Roosevelt’s famous approach of “walk softly and carry a big stick.”

“Now we have ‘yell loudly and we don’t know about the stick.’ It’s something that just adds to the uncertainty,” said Kotok.

But Luschini warned investors not to overreact to the rising tensions with North Korea.

It’s “premature to de-risk your portfolio” by dumping stocks, Luschini said, because this threat could fade away.

If there’s ultimately no impact on the global economy and corporate profits, it shouldn’t disrupt the stock market either.

Indeed, this is hardly the first time that North Korea has threatened stability in the region. And previous incidents had just a fleeting impact on global markets.

For decades, investors who were brave enough to “buy on the dips” caused by North Korea concerns ended up making money, according to Erin Browne, head of asset allocation at UBS Asset Management.

But the flipside to that, Browne said, is that a “general sense of complacency” has crept into global markets about the North Korea risk.

Published at Wed, 09 Aug 2017 20:31:01 +0000

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Where’s my raise? Wage growth still sluggish

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U.S. unemployment rate falls to 16-year low
U.S. unemployment rate falls to 16-year low

Where’s my raise? Wage growth still sluggish

  @lamonicabuzz

More Americans are finding jobs, and the unemployment rate is at a 16-year low. That is undeniably good news.

But there is one number in the jobs report that remains frustratingly subpar: wage growth.

The government said Friday that average hourly earnings for workers rose 2.5% over the past 12 months, to $26.36 an hour. That is good, but not fantastic.

Many economists, including members of the Federal Reserve, feel that wage growth of 3% to 3.5% a year is healthier. That allows consumers to better keep up with inflation.

Wages were growing about 3% a year just before the Great Recession began at the end of 2007, but they have cooled since then. That could pose a problem for the economy.

Without higher wages, Americans may pull back on spending — regardless of whether tax cuts are coming from President Trump and the Republican-led Congress.

“Despite a roaring U.S. labor market, average wage growth remains stubbornly muted,” said Dr. Andrew Chamberlain, chief economist with job search site Glassdoor, in a report.

“Until that trend reverses, the gains from today’s economy will not be translating into improved paychecks for the average American worker,” Chamberlain added.

Usually, employers start to offer higher pay as the economy improves and workers become harder to find. One reason that’s not happening may be that employers are hiring workers who were left behind during the recession and are happy to be finding jobs at all.

When employers realize they don’t need to offer big salaries to attract the workers they need, that keeps a lid on wages.

“It is clear that employers need to do little to attract and retain the workers they want and any significant signs of labor shortages are simply not showing up,” Elise Gould, senior economist with the Economic Policy Institute, wrote in a report.

Still, others think that the modest increase in wages will be good enough to keep Americansin a good mood.

Doug Duncan, chief economist at Fannie Mae, said in a report that it would be a mistake to “nitpick” the gain in wages, adding that the steady rise over the past year “isn’t too shabby.”

It’s also worth noting that many companies in some lower-paying sectors, such as restaurants, leisure and hospitality, are starting to hire more workers.

That may be holding down wages overall, but it’s still a good sign that people are able to find work.

“Low-wage industries grew fastest in July,” said Jed Kolko, chief economist with job search site Indeed, in a report.

“That’s helping the least-educated Americans get back to work. The recovery is now strong and long enough to lift many of the people hurt most by the recession,” Kolko added.

And at least one economist thinks the tide might be turning for all job-seekers. Wage growth should eventually pick up and return to more normal levels as the overall labor market improves.

“It’s simple logic … that as the job market further tightens, workers will be able to demand higher salaries or take their skills to a competitor that will pay a higher wage,” Ameriprise senior economist Russell Price wrote in a report.

“Over time, there’s little doubt that as the labor market gets tighter and tighter, wages and salaries will eventually rise. Workers will start changing jobs to move to the highest bidder,” Price added.

 Published at Fri, 04 Aug 2017 16:30:12 +0000

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FOMC Statement: No Change to Policy, Balance Sheet Change Coming “Relatively Soon”

 

FOMC Statement: No Change to Policy, Balance Sheet Change Coming “Relatively Soon”

by Bill McBride on 7/26/2017 02:02:00 PM

FOMC Statement:

Information received since the Federal Open Market Committee met in June indicates that the labor market has continued to strengthen and that economic activity has been rising moderately so far this year. Job gains have been solid, on average, since the beginning of the year, and the unemployment rate has declined. Household spending and business fixed investment have continued to expand. On a 12-month basis, overall inflation and the measure excluding food and energy prices have declined and are running below 2 percent. Market-based measures of inflation compensation remain low; survey-based measures of longer-term inflation expectations are little changed, on balance.

Consistent with its statutory mandate, the Committee seeks to foster maximum employment and price stability. The Committee continues to expect that, with gradual adjustments in the stance of monetary policy, economic activity will expand at a moderate pace, and labor market conditions will strengthen somewhat further. Inflation on a 12-month basis is expected to remain somewhat below 2 percent in the near term but to stabilize around the Committee’s 2 percent objective over the medium term. Near-term risks to the economic outlook appear roughly balanced, but the Committee is monitoring inflation developments closely.

In view of realized and expected labor market conditions and inflation, the Committee decided to maintain the target range for the federal funds rate at 1 to 1-1/4 percent. The stance of monetary policy remains accommodative, thereby supporting some further strengthening in labor market conditions and a sustained return to 2 percent inflation.

In determining the timing and size of future adjustments to the target range for the federal funds rate, the Committee will assess realized and expected economic conditions relative to its objectives of maximum employment and 2 percent inflation. This assessment will take into account a wide range of information, including measures of labor market conditions, indicators of inflation pressures and inflation expectations, and readings on financial and international developments. The Committee will carefully monitor actual and expected inflation developments relative to its symmetric inflation goal. The Committee expects that economic conditions will evolve in a manner that will warrant gradual increases in the federal funds rate; the federal funds rate is likely to remain, for some time, below levels that are expected to prevail in the longer run. However, the actual path of the federal funds rate will depend on the economic outlook as informed by incoming data.

For the time being, the Committee is maintaining its existing policy of reinvesting principal payments from its holdings of agency debt and agency mortgage-backed securities in agency mortgage-backed securities and of rolling over maturing Treasury securities at auction. The Committee expects to begin implementing its balance sheet normalization program relatively soon, provided that the economy evolves broadly as anticipated; this program is described in the June 2017 Addendum to the Committee’s Policy Normalization Principles and Plans.

Voting for the FOMC monetary policy action were: Janet L. Yellen, Chair; William C. Dudley, Vice Chairman; Lael Brainard; Charles L. Evans; Stanley Fischer; Patrick Harker; Robert S. Kaplan; Neel Kashkari; and Jerome H. Powell.
emphasis added

Published at Wed, 26 Jul 2017 18:02:00 +0000

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Sale of Scaramucci’s firm to Chinese group is under regulatory review

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Scaramucci once called Trump a 'hack politician'
Scaramucci once called Trump a ‘hack politician’

Sale of Scaramucci’s firm to Chinese group is under regulatory review

  @mattmegan5

The sale of the firm founded by incoming White House communications director Anthony Scaramucci to a Chinese conglomerate is undergoing a regulatory review.

SkyBridge Capital agreed in January to sell itself for an undisclosed price to HNA Group, a deal-hungry Chinese company. The deal was struck as Scaramucci, who founded the hedge fund network in 2005, was preparing to join the Trump administration in a different role.

The SkyBridge sale was expected to close at the end of June, but it is still pending “regulatory approvals,” a SkyBridge Capital spokesperson said. “The close is proceeding as planned,” the spokesperson said, adding that SkyBridge is “confident” it will close this summer.

A person familiar with the matter told CNNMoney on Monday that the final hurdle the deal needs to clear is a review by the Committee on Foreign Investment in the United States.

Known as CFIUS, this inter-agency committee is charged with evaluating sales of U.S. businesses to foreign entities to determine the impact on America’s national security.

CFIUS often reviews deals that give a foreign investor control of a U.S. business. It has reviewed everything from the acquisition of Sprint Nextel by Japan’s SoftBank to Chinese acquisitions of Smithfield Foods and the Chicago Stock Exchange.

The Treasury Department, which chairs CFIUS, declined to comment on whether the committee is reviewing the SkyBridge sale, citing laws that prevent disclosing such information.

A Treasury spokesman said the department takes its role in this process “very seriously” to ensure “national security concerns” posed by foreign investment are identified and addressed.

The news that CFIUS is reviewing the SkyBridge deal was previously reported by the Wall Street Journal, Bloomberg, Reuters and other news outlets.

A spokeswoman said in a statement that the White House “is treating Mr. Scaramucci the same as every incoming official and is carefully considering all aspects of his holdings and businesses as part of the incoming ethics and legal review process.”

HNA did not respond to a request for comment.

Lawyers who have worked on these national security exams, but who are not involved in the Skybridge sale, said deals involving buyers from certain countries can lead to prolonged reviews.

“Countries not considered allies of the United States generate more scrutiny and those CFIUS reviews tends to take longer,” said Jeremy Zucker, co-chair of Dechert’s International Trade and Government Regulation practice.

Zucker said that there appears to be a “growing number of Chinese transactions that encounter resistance with CFIUS.” However, he added that can at least partially be explained by the surge of Chinese investment into the United States.

China’s foreign direct investment in the United States spiked to $46.2 billion in 2016, tripling from the year before, according to research firm Rhodium Group.

HNA Group has been deeply involved in the Chinese M&A bonanza.

Its parent company has announced nearly $17 billion of foreign investments since the beginning of 2016, according to Dealogic, a research firm that tracks corporate mergers. Almost half of those foreign deals, or $8.1 billion, have been in the United States.

Up until now, HNA’s biggest splash in America was a $6.5 billion purchase last October of a stake in Hilton Worldwide(HLT) from private-equity giant Blackstone Group(BX).

HNA showed its interest in Western financial firms earlier this year when it surpassed the Qatari royal family to become the largest shareholder in Deutsche Bank(DB).

The European Central Bank, which regulates banks, is considering whether the Deutsche Bank stakes held by HNA Group and Qatar will have a significant influence on the bank and its management, a person familiar with the matter told CNNMoney. If the answer is yes, the ECB would launch an investigation to understand more about each investor, the person said.

The ECB declined to comment on the matter.

National security reviews by CFIUS of Chinese deals pay particular attention to how close the buyer is to the Chinese government, experts in the review process say. That can be a complex task.

“The extent of government ownership of key sectors of the Chinese economy guarantees that many deals will receive extra scrutiny,” said John Reynolds, a partner at Davis Polk & Wardwell, a law firm that handles CFIUS cases.

HNA Group has faced questions about its ownership structure and relationship with the government. In response, this week HNA revealed that more than 50% of the company is controlled by two charities: Hainan Cihang Charity Foundation Inc. and Hainan Province Cihang Foundation.

Besides the treasury secretary, CFIUS includes the heads of various national security and economic agencies, including the Departments of Justice, Homeland Security, Defense, State, Commerce and Energy.

During a 30-day review process, CFIUS members look at the transaction for potential national security risks. The review focuses on not only the foreign buyer, but how sensitive the asset being purchased is. Sometimes the buyers agree to certain conditions to ease national security concerns.

After that initial review is completed, CFIUS can then sign off on the deal or launch an investigation that must be completed within 45 days. In very rare cases, the decision on whether to approve a transaction is left up to the president.

In 2014, the most recent year for which stats are available, CFIUS reviewed 147 transactions and launched subsequent investigations into 52 of them. Just one of those applications was rejected, while 12 were withdrawn during the process.

National security concerns caused China National Offshore Oil Company, or CNOOC, to drop its 2005 bid to acquire oil explorer Unocal, which was later purchased by Chevron(CVX).

Treasury Secretary Steven Mnuchin said in June that the Trump administration is working with Congress on potential “fixes” to the CFIUS process, according to Bloomberg News.

“We want to keep CFIUS as a national security review and we want to deal with economic issues separately. We don’t want to confuse those issues,” Mnuchin said at the time.

Commerce Secretary Wilbur Ross said in June that “CFIUS is weak” when it comes to dealing with joint ventures and smaller foreign buyers, according to Politico. “There’s a lot of talk within the administration about trying to build it up,” Ross said.

Scaramucci said he has worked with the Office of Government Ethics to remove potential conflicts of interest related to his business.

“My start date is going to be in a couple of weeks so that it’s 100% totally cleansed and clean. And I don’t see an issue with it,” Scaramucci told reporters on Friday.

–CNNMoney’s Alanna Petroff, Donna Borak, Daisy Lee and Shen Lu contributed to this report.

Published at Tue, 25 Jul 2017 19:11:31 +0000

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Senate health bill would decimate long-term care coverage

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Senate health bill would decimate long-term care coverage

When Americans think about retirement planning, long-term care usually is a major blind spot – few of us want to contemplate the possibility of infirmity and dependency in old age. But we would do well to think about it now, as the Senate Republicans take a holiday weekend pause in their push to dismantle the Affordable Care Act.

Roughly half of Americans now turning 65 will require some level of long-term care during retirement. And when professional care is required, it usually is paid for by Medicaid, which covers 62 percent of long-term care in the United States, according to the Kaiser Family Foundation (KFF).

That may surprise people who think of Medicaid as a social safety net for the poor. Indeed, the program is a critical lifeline for 35 million children and 27 million adults in low-income households.

But nursing home care is expensive, and 62 percent of near-retirement households have saved less than one year of annual income for retirement, according to the National Institute on Retirement Security.

When savings run out, Medicaid steps in – nearly two-thirds of its spending in 2014 went to the elderly and disabled, according to KFF. “Medicaid has been a critical safety net for 50 years for people who have depleted their life savings,” said Jean Accius, vice president of the AARP Public Policy Institute. “It is insurance for your mother or your father or eventually for yourself, because the price can be so high.”

The current national system of financing long-term care is a mess. Few households purchase commercial long-term care policies, and the market has experienced upheaval in recent years as underwriters stopped writing new policies or boosted premiums by double-digit rates.

Yet the Senate bill would take our already-dysfunctional system of long-term care and make it worse – much worse.

The Better Care Reconciliation Act (BCRA) proposes to reduce expected Medicaid outlays by $772 billion over 10 years. That would destabilize access not only to nursing home care but home and community-based services – an innovative approach to care that saves money, and has grown quickly in recent years.

Medicaid is administered by states, but funded jointly with the federal government. Currently, the federal contribution is open-ended. Under BCRA, starting in 2020 states could opt for a federal contribution subject to a per-enrollee cap or in the form of a block grant. The contribution would be based on the current amount sent to a state, and then adjusted annually for inflation.

 

FUNDING WILL SHRINK

Proponents of BCRA argue this will not squeeze the states because the inflation adjustment will be tied to the federal measure of medical inflation (CPI-M). But as this Medicaid population ages into their 80s and 90s, their care needs will intensify and become much more expensive on a per-capita basis.

And after 2025, the inflation measure would shift to a more general inflation gauge that rises much more slowly than healthcare costs. Finally, per-enrollee caps will not adjust for unanticipated major new spending needs – for instance, a major new blockbuster drug or the need to deal with a public health emergency.

As federal funding falls behind, states would be left to raise taxes to meet the shortfalls, cut their budgets elsewhere or provide less Medicaid coverage. Cuts could be made first within home and community-based care, because these are optional programs under federal law, while nursing home coverage is mandatory. But nursing home coverage would suffer too, said Jessica Schubel, senior policy analyst at the Center on Budget and Policy Priorities.

“States may be forced to cut provider rates – which already aren’t very high,” she said. “The providers will then be forced to do more with less – they may cut staff, make fewer beds available to Medicaid patients, or close altogether.”

Overall, the BCRA would increase the number of uninsured Americans by 22 million in 2026, according to the Congressional Budget Office (CBO). The increase in the number of uninsured would be disproportionately large among people aged 55-64 and with income less than 200 percent of the federal poverty line. Enrollment in Medicaid would fall by 15 million by 2026.

In the insurance exchanges, premiums for older people would soar to unaffordable levels, CBO found. For example, the net premium (after tax credits) for a 64-year-old with income of $56,800 would skyrocket from $6,800 to $20,500.

Taking away insurance will kill people – literally. A new study published in Annals of Medicine (bit.ly/2ua8ecp) documents how the lack of health insurance increases mortality; its math suggests that taking insurance away from 22 million people will result in 29,000 avoidable deaths annually.

At the same time, the tax cuts in BCRA would reduce federal revenue by $700 billion –  with 45 percent of that going to households making $875,000 or more, according to the Tax Policy Center. The bill repeals the Affordable Care Act’s 3.8 percent net investment income tax on dividends, interest and capital gains, and the 0.9 percent Medicare payroll tax surcharge.

The trade-offs in BCRA – insurance for tax cuts for the wealthy – are nothing short of appalling. Governor John Kasich of Ohio put it well while speaking out against the BCRA in Washington this week: “That’s good public policy? What, are you kidding me?”

(The opinions expressed here are those of the author, a columnist for Reuters.)

(Editing by Matthew Lewis)

Published at Thu, 29 Jun 2017 12:26:26 +0000

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Column: Big Social Security COLA will be offset by Medicare premiums

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Column: Big Social Security COLA will be offset by Medicare premiums

By Mark Miller| CHICAGO

Retirees can look forward to the largest Social Security cost-of-living adjustment next year since 2012 – but don’t break out the champagne just yet. For many, higher Medicare premiums will take a big bite out of their raise.

The 2018 Social Security cost-of-living adjustment (COLA) will not be announced until October, but inflation trends point toward an increase of about 2 percent, according to a recent forecast by the Senior Citizens League. That would be a welcome change compared with the 0.3 percent bump in 2017, and 2016 when no COLA was made.

COLAS are determined by an automatic formula tied to the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W). From 2013 to 2015, the annual increases have ranged around 1.5 percent.

For a retiree receiving the average monthly Social Security benefit of $1,360, a 2 percent raise would translate to an increase of $27.20. But for most beneficiaries, Medicare Part B premiums are deducted from Social Security. And the impact of the Part B premium on net benefits next year will vary due to what is known as the “hold harmless” provision governing Social Security.

By law, the dollar amount of Part B premium increases cannot exceed the dollar amount of the COLA – a feature that ensures net Social Security benefits do not fall. The hold harmless provision applies to the 70 percent of the Medicare population enrolled in both programs. Those not held harmless include anyone delaying their filing for Social Security benefits, but others affected include some federal and state government retirees. Affluent seniors who pay high-income Medicare premium surcharges also are not protected.

The stingy COLAs of the past two years are rare, and now they have set the table for an equally unusual situation for 2018.

The recent flat COLAs meant that nonprotected Medicare enrollees shouldered most of the burden of rising Part B premiums; the premiums for this group jumped sharply in 2016 and 2017. This year, they are paying $134 per month, while protected beneficiaries are paying an average of $109.

But a generous 2018 COLA will spread higher Part B program costs across the entire Medicare population. That means nonprotected enrollees will see their premiums fall, while the protected group will pay more.

Consider an example where the standard Part B premium falls to $125. That above-mentioned average Social Security beneficiary, (receiving $1,360 monthly) now faces a $16 increase in her monthly Part B premium, reducing her COLA from $27.20 to $11.20. If she were receiving $2,000 a month she would receive a net monthly COLA of $24, instead of $40.

How would low-income beneficiaries be affected? Someone receiving $600 would see her $12 gross COLA cut to just $6 – although she might also be eligible for a Medicare Savings Program depending on where she lives. In some states, these programs turn to Medicaid to pay Part B premiums, which means she would receive her full COLA (reut.rs/1OXKZ9b).

 

COLA FALLS BEHIND

Setting aside the hold-harmless math, the COLA formula is not keeping seniors even with rising inflation. The Senior Citizens League’s annual study of changes in key costs impacting seniors found that Social Security beneficiaries have lost nearly one-third of their buying power since 2000, and they have lost 7 percent just over the past 12 months.

Healthcare premiums and out-of-pocket costs loom large, accounting for five of the top 10 items in the study. “Retirees are either spending down their savings to cover the gaps, or simply going without,” said Mary Johnson, the group’s Social Security and Medicare policy consultant.

Rising healthcare costs threaten to erode net Social Security benefits dramatically over time, according to Healthview Services, a maker of healthcare cost projection software. A Healthview report issued last week projects that healthcare inflation will rise an average of 5.47 percent annually for the foreseeable future. That is almost triple the recent historical U.S. inflation rate and more than double the annual projected Social Security COLAs.

A couple turning 65 this year receiving average Social Security benefits will pay 59 percent of lifetime Social Security benefits for healthcare; the same couple aged 55 this year can expect to pay out 92 percent when they reach Medicare age.

The healthcare cost trend underscores the value of working longer. Staying on the job reduces the number of years of Medicare premium payments, and creates opportunities to boost Social Security income – and COLAs – through delayed claiming. A growing number of planning experts also suggest that retirees keep part of their portfolio in stocks well past retirement age to help beat inflation.

For workers in high-deductible health plans, health savings accounts (HSAs) offer the opportunity to save tax-free; the dollars can be invested and later spent tax-free to meet health expenses. But for most people, HSA contributions wind up being used to meet current health expenses.

But in general, healthcare cost inflation simply underscores the need to boost saving, notes Ron Mastrogiovanni, Healthview’s CEO. “Big numbers scare people, but you can do something about this.”

(The opinions expressed here are those of the author, a columnist for Reuters.)

(Editing by Matthew Lewis)

Published at Thu, 22 Jun 2017 12:44:32 +0000

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Chance of Fed hitting ‘terminal rate’ looking terminal: James Saft

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Chance of Fed hitting ‘terminal rate’ looking terminal: James Saft

By James Saft

The main thing terminal about the Federal Reserve’s ‘terminal’ interest rate projections are the chances of rates actually making it that high in the foreseeable future.

As expected, the Fed hiked on Wednesday by 25 basis points to 1.0-1.25 percent, but did so against an inflation and consumer backdrop which casts grave doubt that it will actually be able to reach the 3 percent ‘terminal’ rate it sees as a future baseline.

Arguing that recent shortfalls in inflation were “transitory,” the Fed kept to its forecast of one more 25-basis- point rate hike this year and three in 2018. This despite the fact the Fed hasn’t actually hit its 2 percent annual inflation target on its preferred measure in more than five years.

The Fed also expects to carry on hiking rates, presumably in part in order to get some ammunition to expend when next the economy falters, while at the same time moving forward with plans to begin shrinking its $4.5 trillion balance sheet “this year”.

The financial markets aren’t having any of it, and are pricing in one more increase in the next year.

Little wonder after today’s data, which should have given a data-dependent central bank good reason to pause. U.S. consumer price inflation in May fell 0.1 percent month-on-month while core, excluding food and energy, is up just 1.7 percent in a year, down from 1.9 percent a month ago. Core consumer sales also stalled in May, growing not at all.

All of this makes the Fed’s forecasts, and the hawkish tone struck by Fed Chair Janet Yellen at the press conference, look as if they are, in part, seeking to signal confidence so as to achieve ends not justified by the data.

“The Fed remains the test case for whether central banks can ever ‘normalize’ rates. We expect it to try, but fail – hiking the funds target just once or maybe twice more in future forecast-round months,” Neil Williams, Group Chief Economist, Hermes Investment Management, said after the hike.

“With the lagged effects of previous hikes yet to come through – it takes an average 18 months before rate hikes affect consumer spending in full – delayed tax cuts, potential protectionism and cold winds elsewhere, this should mean a ‘peak’ rate under two percent.”

Beyond the broader economic implications of a peak or, if you will, terminal rate below 2 percent, the prospect puts the Fed in the ticklish situation of very likely heading into a downturn dependent not just on interest rate rises but also on its willingness to begin buying assets once again. That and forward guidance, yet another largely discredited policy.

 

HEADING LOWER

Remember too, that one key difference since last the Fed hiked in March is that there is now much less confidence in the Trump administration’s ability to carry out either meaningful stimulative spending or midwifing a tax cut package which would do more than pump up equity prices.

To be sure, the Fed is still saying that inflation will head back up toward its 2 percent target. But with core PCE up just 1.5 percent now, the Fed’s year-end forecast of 1.7 percent is still two tenths of a percent lower than in March.

“The unemployment rate has dropped by half a point in the past four months, but the Fed now expects, comically, no further decline across the rest of the year. This makes no sense at all and likely will have to be revised in September,” Ian Shepherdson of Pantheon Macroeconomics wrote in a note to clients. The Fed also appears not to expect labor force participation to increase meaningfully.

If so, unemployment, now 4.3 percent, could tick down from here. What is striking is that the unemployment rate is falling further below the rate at which the Fed figures unemployment should accelerate, but yet it accelerates not.

Unemployment and inflation simply are not interacting as textbooks say they should. Markets are looking at the data and taking it seriously; the Fed is sticking, for now, with the textbooks.

“One side has to blink, and given the Fed’s 50-year obsession with the unemployment rate, it’s unlikely to be Dr. Yellen,” Shepherdson wrote.

If inflation finally comes through, the Fed will look like heroes; if not, like auto mechanics with the wrong set of tools and the wrong manual.

(Editing by James Dalgleish)

 

Published at Thu, 15 Jun 2017 05:45:12 +0000

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Goldman Sachs CEO falls for prankster

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Top CEOs to Trump: You're wrong on climate change
Top CEOs to Trump: You’re wrong on climate change

Lloyd Blankfein may think twice before accepting praise for his next witty tweet.

The Goldman Sachs(GS) CEO and Twitter newbie posted a message on Friday poking fun at President Trump’s attempt to divert attention from recent scandals. “Just landed from China. Trying to catch up…How did “infrastructure week” go?” Blankfein wrote on Twitter.

Blankfein’s tweet was showered with Twitter love, receiving 5,000 retweets and 20,000 likes.

It was followed up by an email over the weekend claiming to be from Harvey Schwartz, the chief operating officer of Goldman.

“Tweet won some online award for most humorous tweet — Trump will be so pissed ;)” the email read.

Blankfein took the bait, replying: “Seemed like a good way to bookend my trip.”

In reality, the Goldman CEO had just fallen for a prank by an online mischief-maker, who likes to embarrass banking executives.

“Absolute genius Lloyd. You’ve never thought of heading for Vegas with a standup act?” the prankster emailed Blankfein, adding that “all the girls and gambling” could cause a man to “get easily corrupted.”

“I’d settle for getting away with it,” Blankfein responded, according to screenshots of the emails posted online.

Goldman Sachs confirmed the authenticity of the email exchange, but declined to comment further.

Related: Goldman Sachs CEO tweets, slams Trump

Blankfein had only just begun his Twitter career, sending out his first-ever tweet on June 1 to slam President Trump’s decision to leave the Paris climate accord.

But the Goldman CEO shouldn’t feel too bad though. The troublemaker, who calls himself “Email Prankster” on Twitter, later duped top execs at Citigroup.

The prankster, pretending to be Citigroup Chairman Michael O’Neill, sent an email containing a link to a news story about Blankfein getting pranked. Citi CEO Michael Corbat said, “Can’t open it..”

Stephen Bird, Citi’s consumer-banking chief, sent a lengthy reply. “At least Lloyd was responsive…in the new economy that’s something,” Bird said. “Some of his peers are still getting their messages printed out.”

Citi declined to comment, though the bank didn’t dispute the email exchange happened.

In both cases, bank execs were fortunate that they weren’t duped into divulging any sensitive information.

The email prankster previously duped Barclays boss Jes Staley and Mark Carney, the head of the Bank of England.

Embattled Barclays CEO Jes Staley was tricked into thanking someone he thought was the chairman of his bank John McFarlane for his support at the annual shareholder meeting. And Carney was fooled into discussing his predecessor’s drinking habits.

Published at Tue, 13 Jun 2017 20:58:29 +0000

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Will I pay taxes on my Social Security payouts?

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Will I pay taxes on my Social Security payouts?

By Jean Folger | Updated June 9, 2017 — 5:30 PM EDT

A:

Some people have to pay federal income taxes on the Social Security benefit they receive. Typically, this occurs only when individuals receive benefits and have other substantial sources of income from wages, self-employment, interest, dividends and/or other taxable income that must be reported on your tax return.

In accordance with Internal Revenue Service (IRS) rules, you won’t pay federal income tax on more than 85% of your Social Security benefits. The percentage of benefits for which you will owe income tax is dependent upon your filing status and combined income. If you:

  • File a federal tax return as an “individual” and your combined income is
    • Between $25,000 and $34,000, you may have to pay income tax on up to 50% of your benefits
    • More than $34,000, up to 85% of your benefits may be taxable.
  • File a joint return, and you and your spouse have a combined income that is
    • Between $32,000 and $44,000, you may have to pay income tax on up to 50% of your benefits
    • More than $44,000, up to 85% of your benefits may be taxable.
  • Are married and file a separate tax return, you will probably owe taxes on your benefits.

Note: the IRS defines combined income as your adjusted gross income, plus tax-exempt interest, plus half of your Social Security benefits. You will receive a Social Security Benefit Statement (From SSA-1099) each January detailing the amount of benefits you received during the previous tax year. You can use this when you complete your federal income tax return to determine if you owe income tax on your benefits. If you do owe taxes on your Social Security benefits, you can make quarterly estimated tax payments to the IRS or choose to have federal taxes withheld from your benefits.

Published at Fri, 09 Jun 2017 21:30:00 +0000

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Brexit

Brexit

What is ‘Brexit’

Brexit is an abbreviation for “British exit,” referring to the UK’s decision in a June 23, 2016 referendum to leave the European Union (EU). The vote’s result surprised pollsters and roiled global markets, causing the British pound to fall to its lowest level against the dollar in 30 years. Prime Minister David Cameron, who called the referendum and campaigned for Britain to remain in the EU, resigned the following month. Home Secretary Theresa May replaced Cameron as leader of the Conservative party and as Prime Minister. Following a snap election (skip to section) on June 8, 2017 she remains Prime Minister, but the Conservatives have lost their outright majority in Parliament.

“Leave” won the referendum with 51.9% of the ballot, or 17.4 million votes; “Remain” received 48.1%, or 16.1 million. Turnout was 72.2%. The results were tallied across the UK, but the overall result conceals stark regional differences: 53.4% of English voters supported Brexit, compared to just 38.0% of Scottish voters. Because England accounts for the vast majority of the UK’s population, support there swayed the result in Brexit’s favor. If the vote had only been conducted in Wales (where “Leave” also won), Scotland and Northern Ireland, Brexit would have received just 43.6% of the vote.

The process of leaving the EU formally began on March 29, 2017, when May triggered Article 50 of the Lisbon Treaty. The UK has two years from that date to negotiate a new relationship with the EU. Questions have swirled around the process, in part because Britain’s constitution is unwritten and in part because no country has left the EU using Article 50 before (Algeria left the EU’s predecessor through its independence from France in 1962, and Greenland – a self-governing Danish territory – left through a special treaty in 1985). (See also, Countdown to Brexit: What Is Article 50?)

BREAKING DOWN ‘Brexit’

“Leave” voters base their support for Brexit on a variety of factors, including the European debt crisis, immigration, terrorism and the perceived drag of Brussels’ bureaucracy on the British economy. Britain has long been wary of the European Union’s projects, which Leavers feel threatens the UK’s sovereignty: the country never opted into the European Union’s monetary union, meaning that it uses the pound instead of the euro. It also remained outside the Schengen Area, meaning that it does not share open borders with a number of other European nations.

Opponents of Brexit also cite a number of rationales for their position. One is the risk involved in pulling out of the EU’s decision-making process, given that it is by far the largest destination for British exports. Another is the economic and societal benefits of the EU’s “four freedoms”: the free movement of goods, services, capital and people across borders. A common thread in both arguments is that leaving the EU would destabilize the British economy in the short term and make the country poorer in the long term.

British exports by destination, 2015 (total = $428 billion)

Source: MIT Observatory of Economic Complexity

Some state institutions backed the Remainers’ economic arguments: Bank of England governor Mark Carney called Brexit “the biggest domestic risk to financial stability” in March 2016 and the following month the Treasury projected lasting damage to the economy under any of three possible post-Brexit scenarios: European Economic Area (EEA) membership such as Norway has; a negotiated trade deal such as the one signed between the EU and Canada in October 2016; and World Trade Organization (WTO) membership.

Annual impact of leaving the EU on the UK after 15 years (difference from being in the EU)
EEA Negotiated bilateral agreement WTO
GDP level – central -3.8% -6.2% -7.5%
GDP level -3.4% to -4.3% -4.6% to -7.8% -5.4% to -9.5%
GDP per capita – central* -£1,100 -£1,800 -£2,100
GDP per capita* -£1,000 to -£1,200 -£1,300 to -£2,200 -£1,500 to -£2,700
GPD per household – central* -£2,600 -£4,300 -£5,200
GDP per household* -£2,400 to -£2,900 -£3,200 to -£5,400 -£3,700 to -£6,600
Net impact on receipts -£20 billion -£36 billion -£45 billion
Adapted from HM Treasury analysis: the long-term economic impact of EU membership and the alternatives, April 2016; *expressed in terms of 2015 GDP in 2015 prices, rounded to the nearest £100.

Leave supporters tended to discount such economic projections under the label “Project Fear.” A pro-Brexit outfit associated with the UK Independence Party (UKIP), which was founded to oppose EU membership, responded by saying that the Treasury’s “worst-case scenario of £4,300 per household is a bargain basement price for the restoration of national independence and safe, secure borders” (the worst-case scenario was in fact £6,600).

Leavers tended to stress issues of national pride, safety and sovereignty, but they would also muster economic arguments. For example Boris Johnson, who was mayor of London until May 2016 and became Foreign Secretary when May took office, said on the eve of the vote, “EU politicians would be banging down the door for a trade deal” the day after the vote in light of their “commercial interests.”

Vote Leave, the official pro-Brexit campaign, topped the “Why Vote Leave” page on its website with the claim that the UK could save £350 million per week: “we can spend our money on our priorities like the NHS [National Health Service], schools, and housing.” In May 2016 the UK Statistics Authority, an independent public body, said the figure is gross rather than net, “is misleading and undermines trust in official statistics.” A mid-June poll by Ipsos MORI, however, found that 47% of the country believed the claim. The day after the referendum Nigel Farage, who co-founded UKIP and led it until that November, disavowed the figure and said that he was not closely associated with Vote Leave. May has also declined to confirm Vote Leave’s NHS promises since taking office.

Market Reactions

The referendum’s result severely impacted markets worldwide, though in some cases the effects were short-lived. The British pound crashed by 11.1% against the dollar – its biggest-ever one-day fall – before paring its losses to 8.1%. It has since fallen farther, and at the end of May it was down 12.8% from its June 23 close to $1.2905.

The euro also fell against the dollar on the referendum’s result, dropping 4.2%. It recovered before close, but continued to slide in response to Brexit as well as other challenges: Italy’s rejection by referendum of constitutional reforms, fears that the euroskeptic Marine Le Pen could win the French election and continuing anxiety over the Greek bailouts.

Equities also fell as a result of the vote, but in contrast to the pound and euro, the damage reversed itself fairly quickly. London’s FTSE 100 fell 8.7% and closed down 3.1% on June 24. Germany’s DAX fell 10.1% and closed down 6.8%. The S&P 500 fell 3.8% and closed down 3.6%. Shares in British, German, Irish, Italian and Greek banks took double-digit hits. American banks also swooned, though less intensely. As of the end of May, however, the FTSE, DAX and S&P are all up by more than 14%. American banks have more than recovered due to optimism about a Trump-era cull of financial regulation.

The End of Britain? Scotland’s Independence Referendum

Politicians in Scotland have pushed for a second independence referendum in the wake of the Brexit vote, but the results of the June 8 election have cast a pall over their efforts. Not one Scottish local area voted to leave the EU, according to the UK’s Electoral Commission, though Moray came close at 49.9%. The country as a whole rejected the referendum by 62.0% to 38.0%. Because Scotland only contains 8.4% of the UK’s population, however, its vote to Remain – along with that of Northern Ireland, which accounts for just 2.9% of the UK’s population – was vastly outweighed by support for Brexit in England and Wales.

Scotland joined England and Wales to form Great Britain in 1707, and the relationship has been tumultuous at times. Founded in the 1930s, the Scottish National Party (SNP) did not win a seat in Westminster until 1970. By 2010 it had just 6 seats, but the following year it formed a majority government in the devolved Scottish Parliament at Holyrood, partly owing to its the promise to hold a referendum on Scottish independence.

That referendum, held in 2014, saw the pro-independence side lose with 44.7% of the vote; turnout was 84.6%. Far from putting the independence issue to rest, though, the vote fired up support for the nationalists. The SNP won 56 of 59 Scottish seats at Westminster the following year. Once-dominant Scottish Labour’s seat count plummeted from 41 to one (the Liberal Democrats and Scottish Conservatives also took one seat each). The SNP overtook the Lib Dems to become the third-largest party in the UK overall, and Britain’s electoral map suddenly showed a glaring divide between England and Wales, dominated by Tory blue with the occasional patch of Labour red, and all-yellow Scotland.

When Britain voted to leave the EU, Scotland fulminated. A combination of rising nationalism and strong support for Europe led almost immediately to calls for a new independence referendum. When the Supreme Court ruled on November 3 that devolved national assemblies such as Scotland’s parliament cannot veto Brexit, the demands grew louder. On March 13 SNP leader Nicola Sturgeon called for a second referendum, to be held in the autumn of 2018 or spring of 2019. Holyrood backed her by a vote of 69 to 59 on March 28, the day before May’s government triggered Article 50.

Sturgeon’s preferred timing is significant, since the two-year countdown initiated by Article 50 will end in the spring of 2019, when the politics surrounding Brexit could be particularly volatile. May’s government is likely to try to push the vote to a later date, if it allows it to be held at all.

The snap election on June 8 threw a wrench into the SNP’s independence push, however. The party won only 35 seats; the anti-independence Scottish Tories, which won 13 seats, accounted for most of the SNP’s lost representation.

What Would Independence Look Like?

Even independence, however, might not allow Scotland to avoid “being dragged out of the EU against its will,” as the SNP’s website describes Brexit. According to the Press Association’s Arj Singh, EU Commission spokesman Margaritis Schinas responded to Sturgeon’s mid-March announcement by saying that Scotland would have to apply to join the EU, rather than remaining a member. Scotland’s bid would face the threat of a veto from Spain, which wants to avoid sending pro-independence messages to the restive autonomous region of Catalonia.

Scotland’s economic situation also raises questions about its hypothetical future as an independent country. The crash in the oil price has dealt a blow to government finances. In May 2014 it forecast 2015-2016 tax receipts from North Sea drilling of £3.4 billion to £9 billion, but collected £60 million, less than 1.0% of the forecasts’ midpoint. In reality these figures are hypothetical, since Scotland’s finances are not fully devolved, but the estimates are based on the country’s geographical share of North Sea drilling, so they illustrate what it might expect as an independent nation.

The debate over what currency an independent Scotland would use has been revived. Former SNP leader Alex Salmond, who was Scotland’s first minister until November 2014, told the Financial Times on March 17 that the country could abandon the pound and introduce its own currency, allowing it to float freely or pegging it to sterling. He ruled out joining the euro, but others contend that it would be required for Scotland to join the EU. Another possibility would be to use the pound, which would mean forfeiting control over monetary policy.

June 2017 General Election

On April 18 May called for a snap election to be held on June 8, despite previous promises not to hold one until 2020. Polling at the time suggested May would expand on her on her slim Parliamentary majority of 330 seats (there are 650 seats in the Commons, so 326 seats are needed to form a majority). Labour gained rapidly in the polls, however, aided by an embarrassing Tory flip-flop on a proposal for estates to fund end-of-life care.

As of June 9 the Conservatives have lost their majority, winning 318 seats to Labour’s 261. The Scottish National Party won 35, with other parties taking 35. The resulting hung Parliament has cast doubts on May’s mandate to negotiate Brexit and led the leaders of Labour and the Liberal Democrats to call on May to resign.

Speaking in front of the Prime Minister’s residence at 10 Downing Street, May batted away calls for her to leave her post, saying, “It is clear that only the Conservative and Unionist Party” – the Tories’ official name – “has the legitimacy and ability to provide that certainty by commanding a majority in the House of Commons.” Reports on June 9 indicated that the Conservatives had struck a deal with the Democratic Unionist Party of Northern Ireland, which won 10 seats, to form a coalition.

Implications for Brexit

May presented the election as a chance for the Conservatives to solidify their mandate and strengthen their negotiating position with Brussels. Having lost their majority, that position appears weaker. It remains uncertain whether the new government will be able to stick to the Brexit goals it laid out in its manifesto: cutting annual net immigration to the tens of thousands – from 248,000 in 2016 – and pursuing a “hard Brexit,” that is, leaving the EU’s single market and customs union. The Tories have promised to walk away from negotiations, arguing that “no deal” is better than a bad one. They have also proposed a “Great Repeal Bill” which, despite the name, would write all applicable EU law into British law while ending the EU’s ability to effect British law through the European Communities Act.

Labour, which according to Corbyn “won this election,” has criticized the Conservatives’ immigration targets and argued that “‘no deal’ is not a viable option.” The party has opposed the Great Repeal Bill – apparently treating as though its name matched its function – and promised instead to pass “an EU Rights and Protections Bill that will ensure there is no detrimental change to workers’ rights, equality law, consumer rights or environmental protections as a result of Brexit.”

Following the election, the government’s Brexit position may soften. Some interested parties see an opening: the day after the election, the Freight Transportation Association said the government should consider staying in the EU’s customs union, given the “lack of a clear mandate from British voters.”

European leaders deliver muted, if mixed reactions to the election’s results. The British government’s weaker position could benefit them, but it could also gum up the process by intensifying British domestic squabbles. The focus appears to be on timing: “We are ready to start negotiations,” European Commission president Jean-Claude Juncker told Politico after the election. “I hope that the British will be able to form as soon as possible a stable government. I don’t think that things now have become easier but we are ready.”

Michel Barnier, Europe’s chief Brexit negotiator, tweeted a slightly less hurried message, but made it clear that timing was on his mind: ““#Brexit negotiations should start when UK is ready; timetable and EU positions are clear. Let’s put our minds together on striking a deal.”

Article 50 sets out an extremely narrow two-year window to negotiate an exit agreement and an agreement governing the UK and Europe’s future relationship. CETA, a trade pact between Canada and the EU, is not yet in force after nearly nine years. Its signing was held up for weeks in 2016 when the Walloon regional parliament in Belgium threatened to veto it. Fear is rife that any of Europe’s 38 regional and national parliaments could similarly delay or torpedo a Brexit deal. If a deal cannot be reached by the spring of 2019, the 27 EU member states must decide unanimously to extend the two-year Article 50 deadline, or Britain will depart on WTO terms (see below).

Longer-Term Effects

Because the exit process could stretch for two years, predictions about Brexit’s future impact on British citizens are mostly speculation; however, experts suggest that Brexit is likely to mean slower economic growth for the country. A slowdown in investments may also lead to fewer jobs, lower pay and higher unemployment rates. Britain relies on the EU as an export market far more than the EU relies on Britain. The absence of seamless access to European markets may also mean fewer exports and foreign investments. Additionally, consumers and employers reacting to “doom and gloom” news about Brexit’s potential fallout alone may contribute to an economic slowdown as companies hire fewer people and consumers spend less money.

In particular, slowed growth in Britain would translate to contraction in Ireland, since exports of goods to the United Kingdom account for nearly one-third of Ireland’s total output. The flow of Irish labor to the United Kingdom might be curbed, which would in turn exert pressure on Irish wages as more people compete for fewer jobs.

Michael Bloomberg, former mayor of New York City and founder of Bloomberg News, pointed out the EU could penalize Britain, imposing harsh limitations, to deter other member states from following its example.

Capital Economics, a research consultancy, stated that Britain’s exit could result in “looser monetary conditions” around the world. According to the firm, Britain’s exit could prolong the European Central Bank’s (ECB) bond-buying program and even increase its size. Similar easing could occur in Britain: “The Bank of England is likely to keep interest rates low for longer and, if necessary, may even announce further policy easing,” an analyst at the firm wrote in a note.

Sterling could continue to take a pounding. If Britain can no longer rely on continental Europe for barrier-free trade and mobility, there is a strong chance that capital will leave the country to avoid getting stuck there. In other words, investors may sell pounds (or pound-denominated assets) to purchase those denominated in dollars, euros, or francs. A sharp fall could last for longer than anticipated as politicians and deal makers try to establish new trade agreements and economic pacts that can take many months or even years to ratify.

Furthermore, if the domestic economy of the UK does slip into recession, it will keep the Bank of England from raising interest rates to protect the currency, further compounding the problem.

Upsides for Some

On the other hand, a weak currency that floats on global markets can be a boon to UK producers who export goods. Industries that rely heavily on exports could actually see some benefit. In 2015, the top 10 exports from the UK were (in USD):

  1. Machines, engines, pumps: US$63.9 billion (13.9% of total exports)
  2. Gems, precious metals: $53 billion (11.5%)
  3. Vehicles: $50.7 billion (11%)
  4. Pharmaceuticals: $36 billion (7.8%)
  5. Oil: $33.2 billion (7.2%)
  6. Electronic equipment: $29 billion (6.3%)
  7. Aircraft, spacecraft: $18.9 billion (4.1%)
  8. Medical, technical equipment: $18.4 billion (4%)
  9. Organic chemicals: $14 billion (3%)
  10. Plastics: $11.8 billion (2.6%)

Some sectors are prepared to benefit from an exit. Multinationals listed on the FTSE 100 are likely to see earnings rise as a result of a soft pound. A weak currency may also benefit tourism, energy and the service industry.

In May 2016, the State Bank of India (SBIN.NS), India’s largest commercial bank, suggested that the Brexit will benefit India economically. While leaving the Eurozone will mean that the UK will no longer have unfettered access to Europe’s single market, it will allow for more focus on trade with India. India will also have more room for maneuvering if the UK is no longer abiding by European trade rules and regulations.

Britain’s Next Moves

The June 2016 referendum itself was touted as a way to give the British people a say in the matter and the House of Commons voted to conduct it. Once Article 50 is invoked, it sets a two-year process starting in March 2017 for the UK to negotiate the conditions of leaving with the remaining 27 countries in the EU, each of which then needs to obtain approval from its parliament. Trade agreements will also be negotiated.

The latest data has the EU accounting for 48% of UK exports and 51% of its imports. What are the options the UK will have when finalizing its potential divorce with the EU?

The Norway Model: Join the EEA

The first option would be for the UK to join the European Economic Area (EEA). The EEA promotes free trade and the movement of goods via the EU “Single Market.” On the face of it the cost to the UK to join the EEA may be small; however, there are problems. Joining the EEA would require the UK to pay into the EU, but it would relinquish any say in the laws and regulations set because it would be giving up voting rights in the European Council and the European Parliament. The British Treasury sees a Norway-style agreement as causing the least economic harm, but this also conflicts with the Brexiters’ demand of “dealing on our own terms.”

Pro-Brexit politician Nigel Farage of the UK Independent Party believes the Norway model would be a step back for Britain. “We are a country of 65 million people. If Norway, Iceland and Switzerland can get deals that suit them, we can do something far, far better than that,” Farage said in an interview with BBC.

Lastly, and maybe most importantly, joining the EEA would mean the UK would have to accept the free movement of people, which would conflict with Brexiters stance on immigration.

The Swiss Model: Bilateral Trade Agreements

Switzerland’s model is similar to the Norway model in that Britain would retain certain economic ties with the EU but with little say in negotiations and laws. The difference is that under the Swiss model, the UK would have to sign bilateral trade agreements with every other country individually, which becomes clunky as each trade agreement usually requires renegotiating every few years.

The size of the Switzerland economy makes this model a little easier for the Swiss. Switzerland’s GDP is around $700 billion compared to the UK’s, which is just shy of $3 trillion.

The Canada Model: Bilateral Trade Agreements with Strict Rules

A third option is to copy the Canadian model. Together, Canada and the EU are in the midst of negotiating the Comprehensive Economic and Trade Agreement (CETA), but it is yet to be signed into law. If the UK leaves itself just two years to sign trade agreements, the Canada approach may not be as feasible as many people think. CETA agreement negotiations have lasted seven years already.

What Brexiters are overlooking is what Canada is giving up, or more importantly what Canada can afford to give up. Canada already enjoys free trade with the United States via the North American Free Trade Agreement (NAFTA). So with NAFTA already in place the importance of a trade agreement with the EU is not as important for Canada as it would be for the UK. Moreover, CETA does not include financial services, which is a substantial part of the UK’s trade with the EU.

WTO: Go It Alone

You want out? You’re out. A full break from the EU and the UK relying solely on the World Trade Organization (WTO) in dealing with the EU would be the most conclusive split with the EU and access to the EU’s “Single Market.” It would be a true go-it-alone approach. The UK would have no requirements for the movement of people in the EU (the pro-Brexit main argument); they would have no obligations to pay money into the EU budget, and the UK would have to renegotiate its co-operation on crime and terrorism with the rest of the EU.

Not only would the UK be giving up its trade agreement with the EU, but it would also surrender trade agreements with 53 other countries it is entitled to via the EU’s Free Trade Agreement.

While the WTO has frameworks to ensure there is no discrimination between countries when organizing trade deals, there is a danger that, if after two years the UK hasn’t negotiated individual agreements and there is no extension under Article 50, then the UK would fall back on the basic WTO agreements the EU has with its other trading partners. One part of the standard agreement is a common tariff the EU has on all countries with no prior agreement. The 10% tariff on all imported cars to the EU would be a financial disaster for Britain.

Impact on the U.S.

Companies in the U.S. across a wide variety of sectors have made large investments in the UK over many years. American corporations have derived 9% of global foreign affiliate profit from the United Kingdom since 2000. In 2014 alone, U.S. companies invested a total of $588 billion into Britain. The U.S. also hires a lot of Brits. In fact, U.S. companies are one of the UK’s largest job markets. Output of U.S. affiliates in the United Kingdom was $153 billion in 2013. The United Kingdom plays a vital role in corporate America’s global infrastructure from assets under management, international sales and research and development (R&D) advancements. American companies have viewed Britain as a strategic gateway to other countries in the European Union. Brexit will jeopardize the affiliate earnings and stock prices of many companies strategically aligned with the United Kingdom, which may see them reconsider their operations with British and European Union members.

American companies and investors that have exposure to European banks and credit markets may be affected by credit risk. European banks may have to replace $123 billion in securities depending on how the exit unfolds. Furthermore, UK debt may not be included in European banks’ emergency cash reserves, creating liquidity problems. European asset-backed securities have been in decline since 2007. This decline is likely to intensify now that Britain has chosen to leave.

The day after the vote, the British pound dropped to historic 30-year lows against the dollar. Moreover, weakness in the pound could be contagious and affect the euro as well. A weaker British pound and euro will likely hurt the bottom line of U.S. export companies doing business with customers in the United Kingdom and European Union, as the cost for American products and services would increase, tempering demand.

Jim O’Sullivan, chief economist at High Frequency Economics, said Brexit would not have major impact for the U.S. public outside of financial markets. “But a significant impact on Wall Street would negatively affect confidence on Main Street,” he wrote shortly after the vote, adding that the firm had not “seen anything thus far to suggest a major impact on the U.S. banking system, especially given the starting point of high capital ratios, as was evident in the annual stress test results released yesterday.”

Who Will Be Next to Leave the EU?

In 2013, former Prime Minister David Cameron promised an in-out referendum on EU membership if his Conservative party won the 2015 election. He said the referendum would be held by the end of 2017, following a renegotiation of the terms of Britain’s relationship with the bloc. At the time, the promise was widely seen as a bid to outflank the UK Independence Party (UKIP), an outfit that was focused almost entirely on ending Britain’s EU membership. A BBC report at the time quoted former Labour leader Ed Miliband, who accused Cameron of “running scared” from UKIP.

Cameron won the battle. The Tories earned a resounding victory in the 2015 general elections, holding UKIP to just one seat, practically banishing their erstwhile coalition partners the Lib Dems from Parliament and shaving Labour’s representation by around 10%. But Cameron – and to an extent the Tories – lost the war. After wrenching the euroskeptic issue from UKIP he found himself forced to put on a tough façade in negotiations with Europe, declare victory after extracting a few concessions, then campaign to stay in the EU based on this “new settlement.” The process struck voters on both sides of the Brexit debate as political theater. When the UK voted to leave, Cameron resigned. His party, now led by Theresa May, called an election based on the impression that Labour did not offer effective opposition. Instead of gaining, however, the Tories lost seats and have been forced to enter into a coalition.

Electoral wrangling over Europe is familiar in several other European countries. Most EU members have strong euroskeptic movements that, while they have so far struggled to win power at the national level, heavily influence the tenor of national politics. In a few countries, there is a chance that such movements could secure referendums on EU membership.

In May 2016, global research firm IPSOS released a report showing that a majority of respondents in Italy and France believe their country should hold a referendum on EU membership.

Italy

Matteo Salvini, the head of Italy’s Northern League, called for a referendum on EU membership hours after the vote, saying, “This vote was a slap in the face for all those who say that Europe is their own business and Italians don’t have to meddle with that.” The Northern League has an ally in the populist Five Star Movement (M5S), whose founder, former comedian Beppe Grillo, has called for a referendum on Italy’s membership in the euro – though not the EU. The fragile Italian banking sector has driven a wedge between the EU and the Italian government, which has provided bail out funds in order to save mom-and-pop bondholders from being “bailed-in,” as EU rules stipulate.

France

Marine Le Pen, the leader of France’s euroskeptic National Front (FN), hailed the Brexit vote as win for nationalism and sovereignty across Europe: “Like a lot of French people, I’m very happy that the British people held on and made the right choice. What we thought was impossible yesterday has now become possible.” She lost the French presidential election to Emmanuel Macron in May 2017, gaining just 33.9% of votes in the second round. (See also, What the French Election Means for Europe.)

(Why?)

Published at Fri, 09 Jun 2017 16:46:00 +0000

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Exclusive: Trump administration concerned about U.S. firms giving financial ‘lifeline’ to Venezuela

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Exclusive: Trump administration concerned about U.S. firms giving financial ‘lifeline’ to Venezuela

By Matt Spetalnick and Girish Gupta| WASHINGTON

 

The Trump administration is concerned about any action by U.S. companies that provides a financial lifeline to Venezuela’s government, senior White House officials told Reuters, after Goldman Sachs Group Inc came under fire for purchasing $2.8 billion of state oil company bonds at a steep discount.

 

Venezuela’s political opposition and some U.S. lawmakers have condemned the purchase of so-called “hunger bonds” as a way to prop up President Nicolas Maduro’s cash-strapped government, accused of being behind food shortages affecting millions of Venezuelans in a worsening crisis.

 

The New York-based investment bank said last week that it never transacted directly with Venezuelan authorities when it bought the bonds of oil firm PDVSA for pennies on the dollar.

 

“We’re concerned by anything that provides a lifeline for the status quo,” one U.S. official, speaking on condition of anonymity, told Reuters. “I would prefer them not to.”

 

A second administration official said U.S. companies making Venezuela investments should “think morally about what they’re doing.”

 

The officials said they did not know whether the Trump administration had made its case directly to Goldman Sachs.

 

Goldman Sachs did not respond to a request for comment.

 

Julio Borges, head of Venezuela’s opposition-led Congress, accused Goldman Sachs on Monday of “aiding and abetting the country’s dictatorial regime.”

 

In a letter to Goldman Sachs President Lloyd Blankfein, Borges said Congress would open an investigation into the transaction and he would recommend “to any future democratic government of Venezuela not to recognize or pay these bonds.”

 

Eliot Engel, the senior Democrat on the House of Representatives Foreign Affairs Committee, urged President Donald Trump on Friday to condemn Goldman Sachs for the bond purchase.

 

The Trump administration, which has several former Goldman Sachs executives in senior roles, has yet to officially comment on the issue.

 

Engel said the bond purchase allowed Maduro and his associates to “regularly abuse the human rights of Venezuelan citizens while at the same time blocking their access to much-needed food and medicine.”

 

Venezuela’s opposition won control of the legislature in a 2015 election, but the pro-government Supreme Court has annulled all its measures and essentially stripped its powers. The country has been engulfed in two months of anti-government unrest, which has left more than 60 people dead on both sides.

 

Maduro’s government says the United States and Venezuela’s opposition are seeking to oust him from power.

 

With Venezuela’s inefficient state-led economic model struggling under lower oil prices, Maduro’s unpopular government has become ever more dependent on financial deals or asset sales to bring in coveted foreign exchange. Venezuela’s international reserves rose by $749 million on Thursday and Friday, reaching around $10.86 billion, according to the central bank.

 

(Reporting by Matt Spetalnick and Girish Gupta; Editing by Yara Bayoumy and Mary Milliken)

Published at Sun, 04 Jun 2017 05:13:30 +0000

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Fed signals June rate hike likely

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Here's what's in Trump's budget
Here’s what’s in Trump’s budget

Fed signals June rate hike likely

  @CNNMoney

Get ready for the third rate hike in seven months.

Federal Reserve officials indicated they may raise rates again in June, according to minutes from their meeting in May released on Wednesday.

“Most participants judged…it would soon be appropriate,” to raise rates if the economy stays on track, according to the minutes.

That sentiment was widely expected by investors, who have already been betting that there is about an 80% chance of a June rate hike.

Fed officials also indicated that they would likely start to wind down its $4 trillion balance sheet this year. The Fed bought trillions of dollars in debt during the housing and financial crisis and the recession that followed to help the economy recover. The officials say they want to raise rates a little more before they start selling that debt.

A June rate increase would mark a faster pace for the Fed. It raised rates in December 2015 for the first time in nearly a decade, then again an entire year later in December 2016, followed by another one in March.

Those rate hikes reflect the Fed’s confidence in an economy that has recovered well from the Great Recession. In the aftermath of the recession, the US unemployment rate hit 10%. Today unemployment is very low at 4.4%.

“The simple message is, the economy is doing well,” Fed Chair Janet Yellen said at a March press conference.

However, Yellen is the first to acknowledge the US economy still faces challenges, such as slow growth, sluggish wage growth and millions of workers who feel left out of the recovery from the recession.

With America coming up on 8 years of economic expansion, the Fed’s medicine isn’t needed as much.

“The patient isn’t fully recovered — the economy hasn’t gotten back to its long term potential, but it’s no longer sick so we need to get the patient off the medicine,” says Ernesto Ramos, head of equities at BMO Global Asset Management.
Published at Wed, 24 May 2017 18:40:49 +0000

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Elizabeth Warren and Steven Mnuchin go at it over breaking up big banks

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Mnuchin: thank me for rally in bank stocks
Mnuchin: thank me for rally in bank stocks

Elizabeth Warren and Steven Mnuchin go at it over breaking up big banks

  @CNNMoney

President Trump suggested during the campaign that he would break up big banks. But Treasury Secretary Stephen Mnuchin said that’s not what he meant.

At issue is a Depression-era law known as Glass-Steagall. It prevented Main Street banks that take government-insured deposits from customers from participating in the riskier investment banking business associated with Wall Street. It was repealed in 1999, leading to mergers that created banking behemoths such as JPMorgan Chase(JPM), Citigroup(C) and Bank of America(BAC).

Congressional proposals, including legislation introduced by Senator Elizabeth Warren, a vocal critic of Wall Street, would reimpose those limits and require breaking up those banks. And Trump has made statements that seem to suggest he supports the idea.
“Some people … want to go back to the old system, right? So we’re going to look at that,” Trump said earlier this month when asked about breaking up banks.

But in a testy exchange with Warren at a Senate hearing on Thursday, Mnuchin said that when Trump spoke of supporting a 21st Century version of Glass-Steagall, he did not support strict limits that would require breaking up the banks.

“There are aspects of [Glass-Steagall] that we think may make sense,” Mnuchin said. “But we never said before that we supported a full separation of banking and investment banking.”

Warren called that distinction “bizarre.” She said the phrase “Glass-Steagall” means breaking up the banks. In response, Mnuchin said voicing support for a 21st Century version didn’t mean breaking up the banks.

Warren replied by mocking him: “We are in favor of a bill called breaking up the banks, only don’t break up the banks.”

Mnuchin said the administration’s position is “complicated,” but that it definitely does not want to reimpose a wall between the two types of banking.

It “would be a huge mistake” to break banks apart because it would dampen lending to business, he said.

“If we did go back to a full separation, you would have an enormous impact on liquidity and lending to small and medium-sized businesses,” Mnuchin added.
Published at Fri, 19 May 2017 14:04:01 +0000

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The dollar’s Trump bump has vanished

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The Trump rally, 100 days in
The Trump rally, 100 days in

President Trump’s victory and promise to implement an “America First” agenda propelled the US dollar to 13-year highs.

But the Trump bump has proved fleeting for the greenback, which has lost virtually all of its post-election gains.

The US dollar lost further ground against rivals on Tuesday. The euro jumped 1% to $1.109, the strongest level since the days before Trump’s victory in November.

Likewise, the dollar index, which measures the greenback against a basket of rival currencies, dropped to territory unseen since just after the election.

So why is the dollar in the doldrums? Currency analysts point to a range of factors, including relief over France’s presidential election, weak US economic growth to kick off this year and concern that Trump’s political trouble will doom his economic agenda.

“Today, your key driver is the fact that Trump is facing an existential threat here,” said Karl Schamotta, director of global market strategy at Cambridge Global Payments.

Schamotta pointed to the political fallout over reports that Trump shared classified information with a Russian official. (Trump has defended his conversations with Russia.)

Win Thin, a currency strategist at Brown Brothers Harriman, similarly blamed the new dollar weakness in part on Trump’s latest Russia controversy.

The news “not only heightened ongoing concerns about the Administration’s ties with Russia but also is seen by some as jeopardizing the administration’s aggressive legislative agenda,” Thin wrote in a report on Tuesday.

Trump’s economic proposals — slashing taxes, cutting regulation and pumping up infrastructure spending — lifted the US dollar after the election because many thought they could give the American economy a shot in the arm.

But Trump’s agenda has been delayed by political setbacks, as evidenced by the failure thus far to repeal and replace Obamacare.

However, other currency analysts think the US dollar’s stumble has little to do with Trump. They point to how the stock market appears unfazed by Trump’s problems, with the S&P 500 hitting a record high on Tuesday.

“Trump’s new soap opera story,” isn’t a main driver for the dollar, Peter Boockvar, chief market analyst at The Lindsey Group, wrote in a report.

Instead, Boockvar believes the greenback has been hurt by shifts in the global economy and central bank policy. He pointed to how the euro has been helped by a record European trade surplus in March, highlighted by a 13% jump in goods exports.

While Europe’s economy has regained momentum, the US slowed down significantly at the beginning of this year. First-quarter GDP was just 0.7%, the weakest in three years. That’s a far cry from the 3% or 4% growth Trump has been promising.

“It’s not full steam ahead here by any means,” said Schamotta.

Another big difference between the US and Europe: the euro has recently benefited from positive political news. France relieved global markets by electing Emmanuel Macron as its next president over Marine Le Pen, who had called for the nation to dump the euro.

The retreat for the US dollar isn’t great news for Americans planning to travel abroad. Don’t expect a big discount while shopping in Europe.

But the currency shift is just fine for big multinationals like Nike(NKE) and Apple(AAPL, Tech30) that sell lots of stuff overseas. A strong dollar makes an iPhone more expensive to foreign buyers.

That’s why last month Trump told The Wall Street Journal the dollar is “getting too strong.”

“Partially that’s my fault because people have confidence in me,” Trump said at the time.

 Published at Tue, 16 May 2017 16:00:43 +0000

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Trump adviser Icahn may have broken trading laws: Senators

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Icahn: I'm against the stupidity of some regulations
Icahn: I’m against the stupidity of some regulations

 Trump adviser Icahn may have broken trading laws: Senators

  @mattmegan5

Democratic Senators want federal authorities to investigate whether President Trump’s special adviser, Carl Icahn, violated trading laws.

The lawmakers sent a letter on Tuesday to the SEC and two other regulators pointing to “troubling” evidence, including “massive” profits Icahn reportedly reaped in the market for renewable fuel credits.

“Publicly available evidence raises serious questions about Mr. Icahn’s conduct,” eight Senate Democrats led by Senators Elizabeth Warren and Sherrod Brown wrote in the letter.

They argue that these profits warrant a probe into whether Icahn, who has retained control of his vast business empire despite being named by Trump a special adviser on regulatory reform, violated insider trading, anti-market manipulation or other laws.

Additionally, the Democrats want SEC chair Jay Clayton and EPA administrator Scott Pruitt to consider recusing themselves from this matter. Why? Because Icahn was involved in the vetting practice for both positions in the Trump administration and even met with Pruitt before his nomination.

Icahn did not immediately respond to a request for comment.

However, in March the billionaire investor dismissed conflict-of-interest allegations in an interview with CNNMoney as “absurd” and “completely ridiculous.” He added, “I don’t talk to Donald that often.”

Related: Trump adviser Icahn is betting against the Trump rally

The crux of the controversy is linked to Icahn’s continued 82% ownership stake in CVR Energy(CVI), a small oil refinery. CVR has been hurt by EPA regulations that require oil refiners to either blend their oil with renewable fuels or buy credits.

Not surprisingly, Icahn has been a vocal opponent of these EPA rules, telling CNN’s Poppy Harlow they are “natural stupidity” and could cost CVR $200 million in 2017.

Senate Democrats note that Icahn may have benefited from a collapse in the market for these biofuel credits that he helped cause.

According to Reuters, CVR Energy, which is majority controlled by Icahn, generated an “extremely rare profit” on biofuels credits by betting against them in the months before Trump took office.

Biofuel credit prices plunged after Icahn became a special adviser to Trump. They took another hit after Bloomberg News revealed that Icahn and a trade group presented the White House with a deal to revamp the renewable fuel standard.

The collapse in biofuel credit prices allowed CVR to post a net gain of $6.4 million last quarter, a $50 million reversal from last year — according to Reuters.

Senate Democrats want regulators to investigate whether Icahn’s conduct violated any laws. They also asked regulators to investigate the “precise nature and extent” of Icahn’s communications with Trump officials, including the president himself.

The White House didn’t respond to a request for comment. A spokesperson for the administration in a previous statement emphasized that Icahn does not have a formal position with the administration. Icahn is “simply a private citizen whose opinion the President respects and whom the President speaks with from time to time.”

Published at Tue, 09 May 2017 20:07:35 +0000

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Billionaire joins Twitter to fight media

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Trump: Twitter lets me bypass the media
Trump: Twitter lets me bypass the media

Billionaire joins Twitter to fight media

  @mattmegan5

The king of the bond market is angry.

Billionaire investor Jeff Gundlach says he’s joined Twitter because he’s “getting tired” of inaccurate reporting about him.

“I’ve had five consecutive news reports that are completely fallacious,” Gundlach said Monday at the 22nd annual Sohn Investment Conference in Manhattan.

Gundlach, whose recent success has given him the unofficial “bond king” title that used to be reserved for rival Bill Gross, didn’t explain which stories upset him.

The CEO of DoubleLine Capital said he’s “shunned social media,” other than Twitter. His Twitter handle? @TruthGundlach.

Within two hours, Gundlach amassed more than 4,000 followers, compared with just two followers when he began speaking.

Gundlach’s love for Twitter(TWTR, Tech30) gives him something in common with President Trump, who famously uses the platform to bypass the mainstream media and get his message directly to supporters.

Gundlach surprised the crowd of finance professionals at last year’s Sohn conference by predicting an upset in the race for the White House.

“I think you need to prepare for a Trump presidency,” Gundlach said at the May 2016 event, adding that Trump would dramatically add to the U.S. debt by ramping up government spending.

Financial professionals pay $5,000 for tickets to attend the Sohn conference. This year’s event raised more than $3 million to treat and cure pediatric cancer.

Besides bashing the media, Gundlach expressed skepticism about the Trump rally on Wall Street. Gundlach, who mostly invests in bonds, said the S&P 500’s valuation is at a “stretched level” when compared to the total size of the U.S. economy.

“There’s just not a lot of upside,” Gundlach said.
Published at Mon, 08 May 2017 22:45:48 +0000

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