Sears Kept Alive by its CEO, Eddie Lampert, Again

It looks like Eddie Lampert isn’t quite done with Sears yet. I remember when he was the genius that was going to turn around K-Mart, based solely on its real estate holdings. Then they merged with Sears and Eddie was going to change the retail landscape. After all, this is a man who negotiated his own release from gun-wielding kidnappers after 30hrs and turned Autozone into the powerhouse it is today.

Truth be told, as fun as it is to demonize Eddie for the failures at both Sears and Kmart, there was little he could do — as the Amazon juggernaut does not discriminate and destroys all in its path.

Today he announced he’d lend another $200m to the struggling retailer — which ups his loans to more than $800m over the past two years. Naturally, the debt is collateralized against somewhat lucrative real estate holdings and I’m sure Eddie will find a way to make it work for him. But, from a PR standpoint, as CEO of the company, this is an unmitigated, fucking, disaster.

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These losses are caused by disastrous same store sales — which recently dropped by 7.4% (-10% at Sears and -4.4% at Kmart)

The majority of Sears’ debt is coming due in 2020, at which point the bedraggled retailers will likely be put to rest.
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Source: Bloomberg

In a statement on the loan, Sears CFO Jason Hollar said: “As Sears Holdings has consistently shown, we will take actions to adjust our capital structure, generate liquidity, and manage our business to enable us to execute on our transformation while meeting all of our financial obligations. This new standby letter of credit facility further demonstrates that Sears Holdings has numerous options to finance our business strategy.”

In addition to lending money to Sears, Eddie is also providing REIT spinoff, Seritage Growth Properties, with a $200 line of credit.

Anyone else want some money? Eddie is in a generous mood.

 

Content originally generated at iBankCoin.com

via http://ift.tt/2icxRGI The_Real_Fly

Don’t Abolish The Electoral College, Abolish The Popular Vote

It was the perfect ending to the strangest election in modern American history. Donald Trump was officially elected as the next president of these United States on December 19, winning by a wide margin in the Electoral College despite having lost the national popular vote six weeks earlier.

Trump’s unexpected victory and loss in the popular vote unleashed a torrent of hot takes from Democrats and liberals calling for the abolition of the Electoral College. Their frustration is somewhat understandable, even if their motivations are purely political—after all, Democratic candidates have now won the popular vote in four of the five presidential contests held this century, but have lost three times in the Electoral College.

The basic argument goes something like this: the Electoral College is a relic of an age when democracy was still developing—an age when senators weren’t even elected by popular vote—and that Article II, Clause II of the U.S. Constitution should be dumped into the rubbish bin of history. “Yes, Mr. Trump won under the rules, but the rules should change so that a presidential election reflects the will of Americans and promotes a more participatory democracy,” opined the New York Times editorial board.

In response, there’s been nearly as many Republicans and conservatives leaping to defend a system that has worked in their favor. The Electoral College was designed to prevent coastal elites from large states from getting to pick the president, they argue, and it is thus working perfectly well.

The Founding Fathers who designed the Electoral College were certainly skeptical of direct democracy and the mob-like factions that it could create. “The people, stimulated by some irregular passion, or some illicit advantage, or misled by the artful misrepresentations of interested men, may call for measures which they themselves will afterwards be the most ready to lament and condemn,” warned James Madison in Federalist #63. I think they were right to be concerned. That’s not to say that they would look at the current state of affairs and conclude that everything is working exactly as it should.

Because, let’s be honest here, it’s not. This election—for reasons that go far beyond the Electoral College—brought out the worst of America. That’s at least in part because of the illusion of electoral agency. People cried over Clinton’s loss because they believed she should win, yes, but also because they believed they had helped her win—millions of people in California, New York, and other deep blue states wrongly believed their support would affect the outcome of the presidential race. It didn’t, and learning that fact is painful.

In response, many of those same people want more agency in the process—more “participatory democracy,” as the Times put it. That’s why there are calls for the popular vote to be the only thing that matters.

More democracy isn’t the cure for these problems. From Plato to John Stuart Mill to Bryan Caplan, there’s no shortage of political thinkers who have exposed the deep cracks in the idea. In a new book, “Against Democracy,” Georgetown University political philosopher Jason Brennan adds to the list. Voters are irrational, ignorant, and incompetent, he argues, and placing limits on democracy makes just as much sense as letting attorneys sort through a pool of jurors to dismiss those who are disqualified. Brennan envisions a system where only coolly rational and educated individuals, those least likely to be affected by the emotional and partisan elements of politics, vote—though he’s not clear on whether others would be excluded or whether he wishes they would just stay home.

I’m not sure it is possible to implement Brennan’s epistocracy in the United States in any broad way, but the existence of the Electoral College gives us an opportunity to see what less democracy in presidential races might look like. It’s hardly a bad thing.

With the prospect of Campaign 2020 kicking off before the headaches of Campaign 2016 have faded, allow me to suggest a better way forward. Keep the Electoral College, with some minor tweaks, and abolish the popular vote.

Yes, get rid of the popular vote. For all the money, time, and attention paid to the presidential race, the actual votes cast on Election Day are basically meaningless. In non-swing states, votes are literally meaningless. Even in states where a small number of votes could change the outcome of the election, your vote and mine are still so insignificant as to be practically worthless, as Reason editor in chief Katherine Mangu-Ward explained in detail in 2012.

The only reason to hold popular votes for president, as the system functions now, is to select the “electors” from each state who will participate in the Electoral College.

Here’s a better way. Hold a national lottery to determine the 538 electors (drawing an appropriate number from the voter rolls of each state) and then let those people choose the president.

“Undemocratic!” you might be tempted to cry out.

Well, yes, but not really much less democratic than the system we currently use and, arguably, more democratic than the original design of the Electoral College, in which Electors were not bound in any way to the results of the popular vote in their states. The Founders envisioned a system in which well-read elites would be responsible for choosing the president, in theory as a check against the masses. With a lottery-based system, we’d be returning to that original idea, but with a populist twist.

The benefits of such a model, I’d argue, far outweigh the miniscule loss of casting a meaningless vote for president.

Consider: Almost everyone would get to ignore the election, if they want, because they don’t have to pretend to care about it as a form of signaling. The Electors would be the only ones whose votes matters—the lottery to pick them would have to be held a few months before Election Day, I suppose—and everyone else could get on with their lives (or try to influence the Electors, if they are so inclined).

For starters, there would be unmeasurable benefits in the form of freeing people of the mental and emotional anguish created by presidential campaigns like the one we just experienced.

This model would seriously alter presidential campaigning as we know it, but mostly in a positive direction. There would be no need for broad appeals to races or classes, no more vapid identity politics, no more absurdly expensive (and months-long) campaigns, no more endless dissection of polls and un-skewing of cross-tabs.

In return for getting rid of all that cable news talking head fodder, we’d get something better. Each candidate would know exactly who they had to convince to win—a single mother from Toledo, a retiree from Albuquerque, a CEO from Seattle, and so on—and the 538 Electors would have tremendous power to force a discussion on the issues they cared about. It would be a months-long town hall debate—a real one, not one made for television—with the Electors standing in for all Americans.

There are other benefits too. With the presidential race truly out of the average voter’s hands, those who want to be engaged in politics could (and would) focus on other races. More scrutiny of congressional, gubernatorial, and state legislative races would be welcome and would be possible only if we restore the presidential circus to its proper place.

Weighed against the questionable, miniscule, and illusory benefits of the presidential popular vote, the better choice seems clear. Let the Electoral College, with some tweaks, rule.

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Can The Canadian Oil Industry Recover In 2017?

Submitted by David Yager via OilPrice.com,

Even with oil barely over half of what it fetched in June of 2014 and the active drilling rig count doing better than (December 20, 2016 – 257, December 16, 2014 – 420; source JWN Rig Locator) compared to two years ago, it is obviously reckless to declare next year a success while it hasn’t even started yet.

However, it appears 2017 will provide significantly better times than the two previous years perhaps not by design but by exception. It won’t be as bad as 2016 because oil and gas prices are higher and it looks to be headed in an opposite direction from 2015 which was characterized by continuous contraction. Historically, most times this industry looks forward with even modest optimism it has been incorrect. The herd always seems to be going in the wrong direction. Super.

However, the recent OPEC and non-OPEC cooperation meetings have placed a floor under oil prices. Bloomberg News ran a headline December 18 declaring, “OPEC Deal Makes Oil Investors Most Bullish Since Slump Began”. It reported about the weekly data from the U.S. Commodity Futures Trading Commission where speculators report trading positions. The last time this many traders were going “long” on crude was July of 2014. Meanwhile, the shorts continue to retreat. One New York hedge fund manager said, “There’s been a full embrace of the OPEC, non-OPEC deal. They are being given the benefit of the doubt. The consensus is supplies will tighten quickly and as a result investors are positioning for higher prices in the near term.”

Since oil prices began their freefall in late November of 2014 there has been mountains written about what crude will or won’t do. Every modest gyration in the U.S. rig count or storage levels has caused prices to move one way or another. In the end what causes prices to rise is when more commodity traders think it should go up than down. This is why the CFTC data is comforting, at least for this week. After all this has happened before.

The easiest explanation of why 2017 looks materially different than the past two years comes from the December mid-month report from the International Energy Agency (IEA). Analyzing the news from the two supply management meetings, the IEA redrew its main chart through to mid-2017 which is reproduced below. 

Although global oil production reached an all-time record 98.2 million b/d in November, this was not hugely above estimated demand of 96.95 million b/d in the fourth quarter of 2016. The excess of supply over demand was still just over 1 million b/d making a 1.2 million b/d OPEC cut plus another potential 0.5 million b/d from non-OPEC producers very meaningful. Demand growth for 2016 is now estimated at 1.4 million b/d which is above all prior IEA estimates for the year. This is an area where the IEA has often been criticized as being excessively pessimistic.

Source: International Energy Agency public report December 13, 2016

The result is a major change in global oil markets. The key data above is storage or stock change (blue bar), supply (green line) and demand (yellow line). For the past two years supply has materially exceeded demand resulting in continuous builds in global storage. This has included offshore tankers when the tanks on land reach capacity. For the first two quarters of 2017 – based on the assumption the announced production cuts will hold – demand will finally exceed supply and inventory levels will fall. The chart shows these three key data points have not been aligned this favorably since the first half of 2014, three years ago.

If this information is materially correct you can see why future traders have changed their positions. Commodity traders are often considered mercenary but never stupid. The more courageous oil price prognosticators are predicting WTI is more likely to see US$60 a barrel next year than US$40. Your writer falls into that camp.

Which in the WCSB changes everything. According to the PSAC/GMP First Energy daily commodity price report, Synthetic Crude closed December 21 at C$69.34, nearly C$19 a barrel above the price a year ago. Edmonton Mixed Sweet fetched C$65.25, almost C$22 above the last year’s price. Even the perpetually discounted Western Canada Select (bitumen plus synthetic plus condensate) was posted at $C48.83, close to $C18 above the December 21, 2015 value.

These are big numbers if current prices hold for 2017. On December 13 ARC Financial’s weekly upstream oil and gas macro-economic synopsis reported Canada produces nearly 4.2 million b/d of synthetic crude, bitumen, conventional crude and natural gas liquids. At an average of C$20 a barrel more that’s nearly $31 billion in additional revenue from existing production.

This could be augmented by a meaningful increase in the price of natural gas if current prices hold. On December 21 AECO spot gas closed at C$3.27 per mcf, C$0.95 higher than the YTD average of only C$2.15. If that price was sustained for all of 2017 this would add several billion more to the pie.To put these numbers into perspective, for 2014 ARC reports total revenue from all the oil and gas produced in Canada reached a record C$150 billion. Two years later in 2016 this had fallen to only C$76 billion despite an increase in oil sands production volume. The current prices for oil and gas, if maintained through next year, could return something like half the missing revenue from 2014 back into the system in 2017.

In its December 20 report ARC made its first estimates for 2017 and forecasts total revenue next year to be C$32 billion higher than 2016. After tax cash flow is expected to jump from only C$20.4 billion in 2016 to over C$45 billion next year. Big money. Note to oilfield services (OFS); pay attention!

Considering many producers have already hedged their 2017 production at these prices or higher, it is okay for Canada’s battered OFS industry to remain at least somewhat optimistic. The light at the end of the tunnel is not only not an oncoming train but the sector may actually be emerging from the tunnel entirely.  

Because the greatest source of capital for anything in this business is cash flow from existing production. Debt markets are likely closed for all but the most successful. Net debt will most likely decline as increased cash flow enables the overextended to repair their balance sheets. Equity markets are returning because investors are able to buy shares in solid companies at a fraction of what they sold for in 2014. There has been a lot of capital on the sidelines waiting for opportunity. This money is moving now because investors understand if they wait much longer they could miss the best deals in the recovery. For most companies they are already too late.

The vastly improved macro-economic outlook for 2017 is reflected in the capital programs for producers. You can’t make it in the exploration and production business by only doing the “P” in E&P. Reserves must be replaced. While land sales are at multi-year lows there is a significant inventory of drillable prospects. Most major operators have a significant backlog of opportunities. It just has to be economic to invest and that is vastly improved.

But at this stage the recovery is hardly evenly distributed. OFS is still for the most part working for food. Equipment overcapacity is rife. What the industry is short of is personnel. But as more operators become determined they must proceed with their capital programs they will accept higher service prices not because they are feeling magnanimous but because they must. Alberta’s carbon tax comes into effect January 1, 2017. Higher fuel prices loom. Higher labor prices are underway as skeptical former employees wonder why they should go back into the business from which they were recently dismissed. Unfortunately, too much of the extra revenue coming in the front door from price increases is going to immediately go out the back door to cover the big expenses that matter most; fuel, wages and direct cost of goods sold.

Nevertheless, having the phone ring from a client who wants to buy something – no matter how awful the terms – sure beats laying off your receptionist because the phone never rang at all.

Significant macro-economic problems remain. New Alberta Premier Rachel Notley and her NDP government and Prime Minister Justin Trudeau’s Liberals appear to exist in a parallel universe. Representing only 4/10 of 1% of the world’s population, they believe Canadian carbon taxes and one-off arbitrary decisions such as an oilsands emissions cap or the cancellation of Northern Gateway will somehow change the world’s climate.

What makes these policies unsettling is Canada is going in opposite direction of that of U.S. president-elect Donald Trump. With the appointment of pro-oil, pro-industry people to key positions such as Secretary of State, department of energy and department of environment, Canada is looking completely out of step with its major customer for oil and gas and its major trading partner. Canadian politicians usually figure out when they are going in the wrong direction but it always takes longer and causes more damage than it should.

Federal approval of the expansions of Kinder Morgan’s Trans Mountain pipeline to the Pacific and Enbridge Line 3 to the Midwest U.S. appear promising, assuming you can stay in business until 2019. In politics pipeline approvals are big news. Lots of handshakes and photographs. But in the real world oilpatch, like the one described herein, what is required is pipe carrying oil and gas leading to higher volumes and netbacks creating increased cash flow for reinvestment. Today. Not only are the benefits from these pipelines not happening now but at least for Kinder Morgan they may never happen at all.

Worse, major capital projects like the North West Refinery and Suncor Fort Hills are winding down. There’s not much of an order book behind them. There has been some interest in recent downstream/petrochemical incentives offered by the Alberta government leading to a couple of new projects. This will help. But even with the recovery in conventional oil and gas looking positive in 2017, the lack of major capital investment in oil sands that has become the norm in the past decade will be painful with no relief in sight.

Regardless, things look better for 2017 than they have in some time. Best wishes to you, your friends, colleagues and families over the Holiday Season. May my optimistic prognostications for a much improved oilpatch in the New Year actually come true.

via http://ift.tt/2icoyGL Tyler Durden

6 Foreign Hotspots the Trump Administration Will Have to Deal With in 2017

2016 is mercifully coming to an end this weekend, and the Obama presidency will end less than three weeks later. Despite Donald Trump’s insistence that he’ll do things differently, January 20, 2017 will be no more a clean break from the past than January 20, 2009, was, especially when it comes to the exercise of U.S. foreign policy abroad.

Both Barack Obama and Trump made a change in foreign policy part of their successful first presidential campaigns—for both, that promise of change was nebulous and uncertain. It allowed people with all different kinds of ideas about U.S. foreign policy to believe his vision would comport with their own. President Obama was awarded the Nobel Peace Prize in 2009, just 10 months into office. He leaves office with a war in Afghanistan that’s gone on longer than the Civil War, World War I, and World War II combined, a war in Iraq (and Syria) that’s not quite the same as the one he inherited (the names and places have changed), and intervention-induced chaos in places like Libya and Yemen.

Trump, meanwhile, sent all sorts of mixed signals about how his administration might conduct, or frame, its foreign policy during the campaign—he was no non-interventionist but also challenged the Republican foreign policy establishment during the primaries. His freewheeling style so far has earned some dividends, while his cabinet picks, like Rex Tillerson at secretary of state and Gen. James Mattis at defense, will at their confirmations have to frame whatever the Trump administration’s actual foreign policy, or foreign policy narrative, might be.

Even a foreign policy left adrift is destructive, and like the Obama administration before it, the Trump administration, too, will inherit a number of conflict zones and hot spots in which the United States is engaged.

Afghanistan

In 2009, President Obama ordered a troop surge in Afghanistan, a war that at that point had entered its ninth year. “When the history of the Obama presidency is written,” The New York Times reported on December 5, 2009, about Obama’s decision to accelerate the troop surge and subsequent withdrawal as visualized in a bell curve chart, “that day with the chart may prove to be a turning point, the moment a young commander in chief set in motion a high-stakes gamble to turn around a losing war.”

Seven years later, the Afghanistan war continues. Most recently, the putative withdrawal was pushed into 2017, with at least 6,000 U.S. troops staying through next year. In 2009, the point of the surge was to create the space for Afghan security forces to operate on their own. A concomitant “civilian surge” from the State Department was supposed to strengthen Afghan national institutions. Bureaucratic infighting and incompetence instead wasted any opportunity that the surge might have created for a withdrawal. Last year, President Obama became the first Nobel Peace Prize winner to bomb another Nobel Peace Prize winner when an American gunship launched a strike on a Doctors Without Borders hospital in Afghanistan.

Today, U.S. forces are fighting not just the Taliban but ISIS fighters as well. Obama has slowed down the pull out in large part because Afghan forces are unprepared to fight alone. Trump, meanwhile, has argued against both nation-building in Afghanistan and setting withdrawal dates (that insurgents would know) yet in favor of a long-term military presence in Afghanistan to keep it from becoming a failed states.

Iraq

By the time President Obama took office, a status of forces agreement had been negotiated between the U.S. and Iraq that would see all U.S. troops withdrawn by 2011. While Obama tried to keep a residual U.S. force of 10,000 in Iraq past that date, the Iraqi government was unwilling to extend immunity to U.S. troops who stayed in the country longer. Nevertheless, Obama campaigned for re-election in 2012 on the idea that he had brought the Iraq war to an end anyway.

By 2014, the president had changed his tune. The rise of the Islamic State (ISIS) in Iraq compelled Obama to insist he had tried to keep troops in Iraq to prevent just such an occurrence from happening. U.S. troops left Iraq in 2011 ceremoniously and started to return unceremoniously in 2014 as part of the campaign against ISIS, the terror group that was Al-Qaeda in Iraq before it moved into Syria and eventually returned to Iraq as the Islamic State.

Trump has been critical of the way the U.S. has fought ISIS in Iraq, but has been vague about what he would do. The U.S.-led coalition began an offensive to retake Mosul, Iraq’s second city, from ISIS a few months ago (reinforced Iraqi troops resumed the offensive this week). Trump mocked U.S. leaders for announcing the offensive, saying it gave ISIS leaders in Mosul the opportunity to escape ahead of it. Trump insists, as he does in other domains, on the element of surprise. Experts say a “sneak attack” on Mosul is unrealistic—the multinational coalition requires a lot of coordination and, on top of that, it’s not easy to conceal the forces amassing around Mosul. Throughout the campaign, Trump and other Republicans (and Hillary Clinton, for that matter) simultaneously criticized Obama for not doing enough on ISIS in Iraq while sketching out more or less the same approach (using a coalition of regional allies to destroy ISIS).

During the campaign, Trump expressed openness to the idea that Congress would pass an authorization for the use of military force (AUMF) on ISIS. Obama complained about the lack of such an authorization and what it meant for excessive executive power, but not once did he appear to consider tempering his military engagement because of the lack of authorization. Sen. Rand Paul (R-Ky.) earlier this year said he was hopeful the prospect of a Trump presidency would induce Congress to reclaim its war powers. The incoming Republican Congress is poised to be pliant to Trump’s agenda, yet an AUMF would be the first step to defining the role of the U.S. in the campaign against ISIS, and thus to begin to define how the U.S. might disengage from the conflict.

Syria

Although the U.S. has spent years arming various factions in the Syrian civil war, even some that have fought each other, the evolution of the Syrian civil war and foreign interventionists therein suggest the U.S. need not be the “indispensable nation” its political class likes to think of it as.

In 2013, the Obama administration pushed for U.S. intervention in Syria over the Bashar Assad regime’s alleged use of chemical weapons against civilians. Unscripted remarks by Secretary of State John Kerry challenging Syria to turn its chemical weapons over to the international community led to a Russian offer to facilitate that, averting U.S. intervention. On the campaign trail meanwhile, Hillary Clinton pushed for the imposition of a no-fly zone in Aleppo in order to force Russia to the negotiating table, admitting privately such a move would cost civilian lives.

The U.S. has continued to insist Assad must relinquish power in any peace deal. By the time Trump takes office, the crisis may be on its way to resolution. Syria and Russia announced a ceasefire earlier this week while peace talks in Kazakhstan continue. Trump’s complained about the U.S. not cooperating with Russia on fighting terrorists in Syria, but the ongoing peace talks demonstrate that such conflicts need not involve the United States. While the Syrian regime has by all accounts committed all kinds of war crimes and created a humanitarian crisis in Aleppo and elsewhere in Syria, humanitarianism should not be a sufficient prerequisite for U.S. involvement, while arming rebels, which Trump has largely condemned, isn’t much better, contributing to instability without much in return vis a vis any identifiable U.S. interests.

Libya

In the last eight years, Libya is the most egregious example of the dangers of interventionism in the name of humanitarianism. In 2011 the Obama administration argued it had to intervene in Libya because of the “responsibility to protect,” an international relations doctrine favoring so-called “humanitarian” military interventions. Secretary of State Hillary Clinton, a major proponent of the intervention, insisted Col. Qaddafi, Libya’s long-time dictator, was slaughtering his own people and that meant the U.S. had to intervene, not for regime change, which the Obama administration strenuously denied, but to prevent civilian deaths. Col. Qaddafi ended up being captured, sodomized, and killed by rebels who received U.S. air support to pursue him. “We came, we saw, he died,” Clinton laughed before a 60 Minutes interview.

Five years later, U.S. troops are in Libya battling ISIS, which set up shop along with a variety of other extremist groups in the vacuum left behind by the U.S. intervention, while weapons and fighters from Libya flooded North Africa and the Middle East, contributing to instability there. The Obama administration has not said much about the U.S. strategy or goals in Libya. Obama admitted that “failing to plan for the day after” the Libya intervention was the greatest mistake of his presidency. On the campaign trail Clinton, meanwhile, defended her decision to push for intervention. Unfortunately, much of the campaign-related debate on Libya became about the initial decision to intervene in 2011 and not about what the U.S. military was doing there now nor for how long it would be doing it nor whether it should.

Yemen

The Obama administration spent years waging the war on terror in Yemen, most often by using drones to target alleged extremists, some of whom were identified by Yemen’s autocratic government. For a time, Obama pointed to Yemen as an example of the successful prosecution of the war on terror. Then rebels overthrew the government in Aden, and Saudi Arabia intervened to oust the rebels. The U.S. has, so far, at least as far as the public knows, kept its military out of the actual conflict in Yemen, although Saudi Arabia is largely armed by the United States. Efforts to block U.S. arms sales to Saudi Arabia had been unsuccessful in the Senate. Last week, the Obama administration announced it would be suspending arms shipments to Saudi Arabia because, it said, Saudi Arabia had hit too many civilian targets and caused too many civilian casualties.

Trump has had a far less amenable disposition to Saudi Arabia than Clinton so far. The globally unpopular war in Yemen offers the U.S. a good opportunity to disconnect from Saudi Arabia and stop subsidizing a war in which the U.S. has no interest. The way the U.S. war on terror in Yemen played out ought to also cause U.S. policymakers pause about pursing the same strategy in Somalia, where the U.S. has been involved for years and where an internationally-recognized government was established recently after a nearly two decade absence.

Europe

Europe has been rocked by a number of terror attacks in the last two years, most of which were claimed by ISIS, Al-Qaeda, or their supporters. In 2014, Russia invaded Ukraine, eventually annexing Crimea, a historically Russian region of Ukraine, leading Europe and the U.S. to impose sanctions. Worryingly, Europe is used to turning to the U.S. for military support in such situations. Despite having no discernable national interest in Ukraine, the U.S. inserted itself into the dispute on behalf of its European allies. Similarly, while France has been more active than other Western countries in the Syrian civil war, Europeans turn to U.S. troops to guarantee their safety. European powers that pressed for intervention in Libya knew they needed the U.S. to be involved as well.

Trump, for his part, has questioned the role of NATO in the world order during the campaign. His post-election commitment to NATO doesn’t preclude a long-overdue rethinking of the alliance and the U.S. role in it. More than 70 years after the end of World War II, a Europe that has not seen a war on its continent in this century ought to take more responsibility for its own security. For decades, Europe’s political classes have taken up the project of political integration via the European Union. Perhaps the rise of Trump, a presidential candidate many European leaders expressed open distaste for (though they were quick to reach out after he’d won) will motivate Europeans to move away from being reliant on American military power and toward security independence.

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US Announces Sanctions Against Russia, Expels 35 Diplomats In Retaliation For Election “Hacking”

As promised (or threatened), the Obama administration has just unveiled – via US Treasury – new sanctions against Russia over election hacking allegations (that as yet have not been supported by any actual evidence). Despite president-elect Trump’s comments that “we ought to get on with our lives,” the sanctions apply to five entities and six individuals. In addition, US officials are expelling 35 Russian diplomats.

Issuance of Amended Executive Order 13694; Cyber-Related Sanctions Designations

12/29/2016
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Today, the President issued an Executive Order Taking Additional Steps To Address The National Emergency With Respect To Significant Malicious Cyber-Enabled Activities.  This amends Executive Order 13694, “Blocking the Property of Certain Persons Engaging in Significant Malicious Cyber-Enabled Activities.”  E.O. 13694 authorized the imposition of sanctions on individuals and entities determined to be responsible for or complicit in malicious cyber-enabled activities that result in enumerated harms that are reasonably likely to result in, or have materially contributed to, a significant threat to the national security, foreign policy, or economic health or financial stability of the United States.  The authority has been amended to also allow for the imposition of sanctions on individuals and entities determined to be responsible for tampering, altering, or causing the misappropriation of information with the purpose or effect of interfering with or undermining election processes or institutions.  Five entities and four individuals are identified in the Annex of the amended Executive Order and will be added to OFAC’s list of Specially Designated Nationals and Blocked Persons (SDN List).  OFAC today is designating an additional two individuals who also will be added to the SDN List.   

Specially Designated Nationals List Update

The following individual has been added to OFAC’s SDN List: 
  • ALEXSEYEV, Vladimir Stepanovich; DOB 24 Apr 1961; Passport 100115154 (Russia); First Deputy Chief of GRU (individual) [CYBER2] (Linked To: MAIN INTELLIGENCE DIRECTORATE).
  • BELAN, Aleksey Alekseyevich (a.k.a. Abyr Valgov; a.k.a. BELAN, Aleksei; a.k.a. BELAN, Aleksey Alexseyevich; a.k.a. BELAN, Alexsei; a.k.a. BELAN, Alexsey; a.k.a. “Abyrvaig”; a.k.a. “Abyrvalg”; a.k.a. “Anthony Anthony”; a.k.a. “Fedyunya”; a.k.a. “M4G”; a.k.a. “Mag”; a.k.a. “Mage”; a.k.a. “Magg”; a.k.a. “Moy.Yawik”; a.k.a. “Mrmagister”), 21 Karyakina St., Apartment 205, Krasnodar, Russia; DOB 27 Jun 1987; POB Riga, Latvia; nationality Latvia; Passport RU0313455106 (Russia); alt. Passport 0307609477 (Russia) (individual) [CYBER2].
  •  BOGACHEV, Evgeniy Mikhaylovich (a.k.a. BOGACHEV, Evgeniy Mikhailovich; a.k.a. “Lastik”; a.k.a. “lucky12345”; a.k.a. “Monstr”; a.k.a. “Pollingsoon”; a.k.a. “Slavik”), Lermontova Str., 120-101, Anapa, Russia; DOB 28 Oct 1983 (individual) [CYBER2].
  •  GIZUNOV, Sergey (a.k.a. GIZUNOV, Sergey Aleksandrovich); DOB 18 Oct 1956; Passport 4501712967 (Russia); Deputy Chief of GRU (individual) [CYBER2] (Linked To: MAIN INTELLIGENCE DIRECTORATE).
  •  KOROBOV, Igor (a.k.a. KOROBOV, Igor Valentinovich); DOB 03 Aug 1956; nationality Russia; Passport 100119726 (Russia); alt. Passport 100115101 (Russia); Chief of GRU (individual) [CYBER2] (Linked To: MAIN INTELLIGENCE DIRECTORATE).
  •  KOSTYUKOV, Igor (a.k.a. KOSTYUKOV, Igor Olegovich); DOB 21 Feb 1961; Passport 100130896 (Russia); alt. Passport 100132253 (Russia); First Deputy Chief of GRU (individual) [CYBER2] (Linked To: MAIN INTELLIGENCE DIRECTORATE).
 
The following entities have been added to OFAC’s SDN List:
  •  AUTONOMOUS NONCOMMERCIAL ORGANIZATION PROFESSIONAL ASSOCIATION OF DESIGNERS OF DATA PROCESSING SYSTEMS (a.k.a. ANO PO KSI), Prospekt Mira D 68, Str 1A, Moscow 129110, Russia; Dom 3, Lazurnaya Ulitsa, Solnechnogorskiy Raion, Andreyevka, Moscow Region 141551, Russia; Registration ID 1027739734098 (Russia); Tax ID No. 7702285945 (Russia) [CYBER2].
  •  FEDERAL SECURITY SERVICE (a.k.a. FEDERALNAYA SLUZHBA BEZOPASNOSTI; a.k.a. FSB), Ulitsa Kuznetskiy Most, Dom 22, Moscow 107031, Russia; Lubyanskaya Ploschad, Dom 2, Moscow 107031, Russia [CYBER2].
  •  MAIN INTELLIGENCE DIRECTORATE (a.k.a. GLAVNOE RAZVEDYVATEL’NOE UPRAVLENIE (Cyrillic: ??????? ???????????????? ??????????); a.k.a. GRU; a.k.a. MAIN INTELLIGENCE DEPARTMENT), Khoroshevskoye Shosse 76, Khodinka, Moscow, Russia; Ministry of Defence of the Russian Federation, Frunzenskaya nab., 22/2, Moscow 119160, Russia [CYBER2].
  •  SPECIAL TECHNOLOGY CENTER (a.k.a. STC, LTD), Gzhatskaya 21 k2, St. Petersburg, Russia; 21-2 Gzhatskaya Street, St. Petersburg, Russia; Website stc-spb.ru; Email Address stcspb1@mail.ru; Tax ID No. 7802170553 (Russia) [CYBER2].
  •  ZORSECURITY (f.k.a. ESAGE LAB; a.k.a. TSOR SECURITY), Luzhnetskaya Embankment 2/4, Building 17, Office 444, Moscow 119270, Russia; Registration ID 1127746601817 (Russia); Tax ID No. 7704813260 (Russia); alt. Tax ID No. 7704010041 (Russia) [CYBER2].

*  *  *

Additionally:

  • *U.S. SAID TO PLAN RELEASE OF EVIDENCE SHOWING RUSSIAN HACKING
  • *FBI, HOMELAND SECURITY TO OFFER DECLASSIFIED EVIDENCE OF ATTACK
  • U.S. TO CLOSE TWO RUSSIAN COMPOUNDS IN MARYLAND AND NEW YORK USED FOR INTELLIGENCE-RELATED ACTIVITIES – U.S. OFFICIAL
  • U.S. EXPELS 35 RUSSIAN DIPLOMATS IN WASHINGTON AND SAN FRANCISCO, GIVES THEM 72 HOURS TO LEAVE – U.S. OFFICIAL

Now we await Putin’s promised retaliation.

via http://ift.tt/2hzWuOH Tyler Durden

“Year In Reviews” Are Boring … Let’s Review the Last 5,000 Years

We’ve known for 5,000 years that mass spying on one’s own people is usually aimed at grabbing power and crushing dissent, not protecting us from bad guys.

We’ve known for 4,000 years that debts need to be periodically written down, or the entire economy will collapse. And see this.

We’ve known for 2,500 years that prolonged war bankrupts an economy.

We’ve known for 2,000 years that wars are based on lies.

We’ve known for 1,900 years that runaway inequality destroys societies. … and leads to revolution.

We’ve known for 1,700 years that torture is a form of terrorism.

We’ve known for thousands of years that debasing currencies leads to economic collapse.

We’ve known for millenia that – when criminals are not punished – crime spreads.

We’ve known for thousands of years that the rich and powerful try to censor their critics under the guise of heresy.

We’ve known for hundreds of years that the failure to punish financial fraud destroys economies, as it destroys all trust in the financial system.

We’ve known for centuries that monopolies and the political influence which accompanies too much power in too few hands are dangerous for free markets.

We’ve known for hundreds of years that companies will try to pawn their debts off on governments, and that it is a huge mistake for governments to allow corporate debt to be backstopped by government.

We’ve known for centuries that powerful people – unless held to account – will get together and steal from everyone else.

We’ve known for hundreds of years that standing armies and warmongering harm Western civilization.

We’ve known for over 300 years that going into debt to pay for war ruins any nation.

We’ve known for 200 years that allowing private banks to control credit creation eventually destroys the nation’s prosperity.

We’ve known for two centuries that a fiat money system – where the money supply is not pegged to anything real – is harmful in the long-run.

We’ve known for 200 years that a two-party system quickly becomes corrupted.

We’ve known for over a century that torture produces false and useless information.

We’ve known since the 1930s Great Depression that separating depository banking from speculative investment banking is key to economic stability. See this, this, this and this.

We’ve known for 80 years that inflation is a hidden tax.

We’ve known for 79 years that war is a racket that benefits the elites but harms everyone else.

We’ve known since 1988 that quantitative easing doesn’t work to rescue an ailing economy.

We’ve known since 1993 that derivatives such as credit default swaps – if not reined in – could take down the economy. And see this.

We’ve known since 1998 that crony capitalism destroys even the strongest economies, and that economies that are capitalist in name only need major reforms to create accountability and competitive markets.

We’ve known since 2007 or earlier that lax oversight of hedge funds could blow up the economy.

And we knew before the 2008 financial crash and subsequent bailouts that:

  • The easy credit policy of the Fed and other central banks, the failure to regulate the shadow banking system, and “the use of gimmicks and palliatives” by central banks hurt the economy
  • Anything other than (1) letting asset prices fall to their true market value, (2) increasing savings rates, and (3) forcing companies to write off bad debts “will only make things worse”
  • Bailouts of big banks harm the economy
  • The Fed and other central banks were simply transferring risk from private banks to governments, which could lead to a sovereign debt crisis

Postscript: Those who fail to learn from history are doomed to repeat it … and we’ve known that for a long time.

via http://ift.tt/2iuOScX George Washington

US Denies It Created ISIS, Accuses Turkey Of Spreading “Fake News”

Two days ago, Turkey’s outspoken president Erdogan, now grudgingly pivoting into the Russian sphere of influence and away from NATO, accused the US of supporting and arming ISIS and said he has “confirmed evidence” to back up his claim: “They give support to terrorist groups including ISIS” Erdogan said during a speech in Ankara on Tuesday, adding that US coalition forces “give support to terrorist groups including Daesh, YPG, PYD. It’s very clear. We have confirmed evidence, with pictures, photos and videos.”

Naturally, the US could not possibly let this allegation go without responding, which it did on Wednesday when it denied Erdogan’s allegations, and accusing Turkey of spreading “fake news.”

In an online statement posted on the website of the Turkish embassy, addressed “to those interested in the truths,” the U.S. Embassy in Ankara warned of “considerable misinformation circulating in Turkish media” regarding Washington and its allies’ role in the conflict in Syria. The embassy rejected claims it created or supported ISIS or Kurdish militant groups such as the People’s Protection Units (YPG) and the Kurdish Workers’ Party (PKK), both of which are labeled terrorist organizations by Turkey and are active in northern Syria.

“The United States government is not supporting DAESH. The [United States government] did not create or support DAESH in the past. Assertions the United States government is supporting DAESH are not true,” the embassy wrote, using the Arabic-language acronym for ISIS. “The United States government has not provided weapons or explosives to the YPG or the PKK – period. We repeatedly have condemned PKK terrorist attacks and the group’s reprehensible violence in Turkey.”

The statement then went on to try to smooth out the wrinkled diplomatic ties with Turkey, saying “as we have throughout the campaign against ISIL, we continue to work closely with our counterparts in the Turkish government to determine how we can increase our efforts to defeat ISIL and eliminate this scourge that threatens both our peoples. This includes ongoing discussions about how we can best support Syrian opposition and Turkish forces engaging ISIL around al Bab.”

While the U.S. and Turkey have both supported various opposition forces against Syrian President Bashar Assad and his allies, including Russia and Iran, in Syria’s six-year proxy war, relations have deteriorated rapidly in recent months after Turkey demanded the extradition of cleric Fethullah Gullen from Pennsylvania, whom it accuses of masterminding a fake Turkish coup over the summer. Meanwhile, Turkey has found a common language with Russia, having signed an unexpected Syrian ceasefire agreement earlier today, one which includes the Syrian rebel forces, and which may be the blueprint for future peace in the nation.

Meanwhile, although the U.S. condemns ISIS and has labeled it a terrorist organization, ISIS has received U.S. weapons through Washington-backed Syrian rebels either by warfare or surrender. The CIA is believed to have overseen a limited arming program of “moderate” opposition forces which however subsequently were revealed to be part of al-Qaeda and al-Nusra.

It is unclear if Erdogan indeed has “evidence” of US support of ISIS  (perhaps courtesy of a recent anonymous shipment by Mossad), and if so, whether he is willing to disclose it for public consumption.

via http://ift.tt/2htkDBy Tyler Durden

Republicans Consider Obamacare Repeal Without A Replacement Strategy

Republicans have spent a lot of time in recent weeks vowing to repeal Obamacare.  But, it is quickly becoming apparent that, since precisely zero people expected the 2016 election cycle to end with Republican control of all three branches of government in Washington D.C., no viable alternative has been fully vetted and stands ready to replace the failed legislation.  According to Bloomberg, the lack of a fully negotiated replacement option could result in Republicans repealing the bill on a piecemeal basis with a replacement to be implemented at a later date.

“They haven’t come to a consensus in the House and the Senate about the possible replacement plans,” said Douglas Holtz-Eakin, a conservative economist and former adviser to Senator John McCain’s 2008 presidential campaign. “They don’t know Point B.”

 

Republicans are debating how long to delay implementing the repeal. Aides involved in the deliberations said some parts of the law may be ended quickly, such as its regulations affecting insurer health plans and businesses. Other pieces may be maintained for up to three or four years, such as insurance subsidies and the Medicaid expansion. Some parts of the law may never be repealed, such as the provision letting people under age 26 remain on a parent’s plan.

While Trump has repeatedly called for expanding the use of Health Savings Accounts and allowing insurance companies to sale policies across state lines, none of those policies have been officially written into a bill at this point.  And while dozens of Obamacare alternatives have been introduced in Congress over the years none of them have actually received enough support to get off the ground.

Trump and House Speaker Paul Ryan of Wisconsin have been vague on what they want to see, but both released blueprints calling for expanding the use of tax-advantaged Health Savings Accounts, allowing the sale of insurance across state lines and turning Medicaid over to states. Republicans are seeking recommendations from governors and industry leaders on what to do.

 

In nearly seven years since Obamacare passed, dozens of comprehensive health-care alternatives have been introduced, but none has gotten off the ground. The most developed plan so far is legislation by House Budget Chairman Tom Price of Georgia, Trump’s nominee to run the Department of Health and Human Services, which he introduced in every Congress since 2009. It had 84 cosponsors in the House.

 

But that bill — centered on age-based refundable tax credits to buy insurance — didn’t receive a hearing in committee, nor was it included in Price’s budget that was adopted by the House last year.

Of course, taking away taxpayer-funded freebies is always more difficult than expected in practice…a concept that Democrats have used to their advantage to oversee a massive expansion of the federal government that has been underway for nearly a century now. While many Democrats, like incoming Senate Democratic Leader Chuck Schumer, seemingly welcome a repeal of Obamacare on the basis that it will allow the party to re-establish it’s base in 2020, we suspect they are underestimating how disgusted the overwhelming majority of American’s are with premiums that have soared over 100% in certain parts of the country in 2017.

Democrats have made clear they won’t go along with Republican attempts to repeal Obamacare. Some are taunting the GOP as it attempts to write a replacement.

 

“Bring it on,” incoming Senate Democratic Leader Chuck Schumer of New York said this month. “They don’t know what to do. They’re like the dog that caught the bus.”

 

Several of the law’s provisions are popular, most notably the regulations prohibiting insurers from denying coverage or raising costs on people with pre-existing conditions. And of the 14 states with the largest percentage of non-elderly people with pre-existing conditions in 2015, Trump carried 12, according to a Kaiser Family Foundation study released last week. He also got one electoral vote in Maine, the 13th state in that group.

 

Congressional Republican aides say they’re likely to soften those rules by limiting their protections to people who maintain continuous coverage.

 

“The pre-existing condition provisions in Republican proposals are less protective,” Levitt said. “With fewer protections you could piece together other mechanisms to keep the market stable.”

 

Trump has proposed high-risk pools to cover sick uninsured people, but financing them will be a challenge. A 2010 estimate in National Affairs by conservative health-care experts Tom Miller and James Capretta pegged the cost at $150 billion to $200 billion over a decade to insure up to 4 million people; House Republicans have been reluctant to spend anything close to that.

While Democrats, like Chuck Schumer, are great at using the mainstream media to deliver eloquent speeches and taunt Republicans, we’re pretty sure the majority of American understand that this is the definition of failure:

Obamacare

 

And so are the following two maps that beautifully illustrate the epic collapse of Obamacare coverage by county in just 1 year:

2016 healthcare insurance carriers by county:

Obamacare 2016

 

2017 healthcare insurance carriers by county:

Obamacare 2017

 

But, sure, keep taunting and talking while doing nothing…that worked out really well in 2016, Chuck.

via http://ift.tt/2htcb5d Tyler Durden

Soaring Direct Demand for 7Y Treasury Suggests Great Rotation May Be Ending

While we previously observed the dramatic plunge in repo rates for 5 Year Treasuries, which after yesetrday’s stellar auction turned even more “special” hitting a near record -250 bps for off the run issues in repo this morning…

… the 7 Year has been far less subdued, without a clear short interest pressing the bond heading into today’s auction.

However that did not prevent it from pricing at a blistering 2.284% moments ago, stopping through the WI 2.304% by a whopping 2 bps, the highest since January.

The internals were quite strong, with the Bid to Cover coming in at 2.55, above the 6MMA of 2.50, if fractionally less than the 2.68 from last month which was the highest in years. In terms of buyer breakdown, while Indirects took down 64% of the paper, or in line with average, it was the surge in the Direct bid, who took down 19% of the final allotment, or the most since August 2014, that led to Dealers taking down just 17.04% of the auction, the second lowest on record, and higher only than the 16% from January of this year.

And now that we have both the blockbuster 5Y auction in hand, and the similarly as impressive 7Y in the rear view mirror, all those who have warned that buyers are abandoning the Treasury asset class in their great rotation toward equities, make want to re-evealute their thesis: if anything, coupled with the Fed’s custody data, the recent auctions confirm that heading into 2017, the one “Great Rotation” to focus on is the inverse one.

via http://ift.tt/2hRo6uq Tyler Durden

A Tale of Two Housing Markets: Hot, And Not So Hot

Submitted by Charles Hugh-Smith via OfTwoMinds blog,

If we had to guess which areas will likely experience the smallest declines in prices and recover the soonest, which markets would you bet on?

Though housing statistics such as average sales price are typically lumped into one national number, this is extremely misleading: there are two completely different housing markets in the U.S. One is hot, one is not so hot.

Just as importantly, one may stay relatively hot while the other may stagnate or decline.

All real estate is local, of course; there are thousands of housing markets if we consider neighborhoods, hundreds if we look at counties, cities and towns and dozens if we look at multi-city metro regions.

But consider what happens to average sales prices when million-dollar home sales are lumped in with $100,000 home sales. The average price comes in around $500,000– a gross distortion of both markets.

Here's a real-world example of what has happened in hot markets over the past 20 years. The house in question is located in a bedroom community suburb in the San Francisco Bay Area metro area. The home was built in 1916 and has 914 square feet, no garage and a small lot.

It sold in 1996 for $135,000. This was a bit under neighborhood prices due to the lack of garage and small size, but nearby larger homes sold in the $145,000 to $160,000 range.

The house was sold in 2004 for $542,000, and again in 2008 for $575,000. It is currently valued at $720,000. The neighborhood average is $900,000.

According to the Bureau of Labor Statistics inflation calculator, inflation since 1997 has added 50% to the cost of living: $1 in 1997 equals $1.50 in 2016.

Adjusted for inflation of 2.5% annually, calculated cumulatively, the home would be worth a shade over $220,000 today. Long-term studies have found that housing tends to rise about 1% above inflation annually, so if we add 1% annual appreciation (3.5% calculated cumulatively over the 20 years), the home would have appreciated about $47,000 above and beyond inflation, bringing its value to $268,000–almost double the purchase price.

But being in a hot market, this little house appreciated a gargantuan $450,000 above and beyond inflation and long-term appreciation of 1% annually.

Those who bought in hot markets are $500,000 richer than those who bought in not-so-hot markets.

Another house I know in a hot metro market sold for $438,000 in 1997 and is currently valued at $1.4 million. The owners picked up substantially more than $500,000 in bonus appreciation.

Or how about a home that sold for $607,000 in 2010 and is now valued at $960,000? (Note that I have picked neighborhoods and metro areas I have known for decades, so I can verify the current valuations are indeed in the real-world ballpark.)

Inflation alone added about $60,000 to the value since 2010; the $300,000 appreciation above and beyond inflation is pure gravy for the owners.

It's easy to dismiss these soaring valuations as credit-driven bubbles that will eventually pop, but that narrative misses the enormous differences in regional incomes and GDP expansion. The little 900 square foot house that's barely worth $100,000 in most of the country may well fetch $700,000 in hot markets for far longer than we might expect if it is in a metro area with strong GDP and wage growth.

To understand why, look at these three maps of the U.S. The first reflects the GDP generated within each county; the second shows real growth in GDP by region, and the third displays the wages of the so-called "creative class"–those with high-demand skillsets, education and experience.

The spikes reflect enormous concentrations of GDP. This concentrated creation of goods and services generates jobs and wealth, and that attracts capital and talent. These are self-reinforcing, as capital and talent drive wealth/value creation and thus GDP.

Unsurprisingly, there is significant overlap between regions with high GDP and strong GDP expansion. The engines of growth attract capital and talent.

Creative class wages are highest in the regions with strong GDP expansion and concentrations of GDP, capital and talent. Attracting the most productive workers requires hefty premiums in pay and benefits, as well as interesting work and opportunities for advancement.

That people will make sacrifices to live in these areas should not surprise us–including paying high housing costs. This willingness to pay high housing costs attracts institutional and overseas investors, a flood of capital seeking high returns that further pushes up the cost of housing.

The rising cost of money will impact all housing. So will recession. But if we had to guess which areas will likely experience the smallest declines in prices and recover the soonest, which markets would you bet on?

Markets that are "cheap" because wages are low and opportunities scarce, or high-cost areas with high wages and concentrations of the factors that drive growth and innovation?

The point is that hot housing markets are hot for reasons beyond low interest rates for mortgages. These islands of concentrated capital, GDP growth and talent are magnets that attract global capital and talent, even as prices notch higher.

via http://ift.tt/2ii9t4s Tyler Durden