Saturday, January 7, 2017

Today's links

1--US Report Still Lacks Proof on Russia ‘Hack’

Repeating an accusation over and over again is not evidence that the accused is guilty, no matter how much “confidence” the accuser asserts about the conclusion....

Just a day after Director of National Intelligence James Clapper vowed to go to the greatest possible lengths to supply the public with the evidence behind the accusations, his office released a 25-page report that contained no direct evidence that Russia delivered hacked emails from the Democratic National Committee and Hillary Clinton’s campaign chairman John Podesta to WikiLeaks.

The DNI report amounted to a compendium of reasons to suspect that Russia was the source of the information – built largely on the argument that Russia had a motive for doing so because of its disdain for Democratic nominee Clinton and the potential for friendlier relations with Republican nominee Trump.

But the case, as presented, is one-sided and lacks any actual proof. Further, the continued use of the word “assesses” – as in the U.S. intelligence community “assesses” that Russia is guilty – suggests that the underlying classified information also may be less than conclusive because, in intelligence-world-speak, “assesses” often means “guesses.”

The DNI report admits as much, saying, “Judgments are not intended to imply that we have proof that shows something to be a fact. Assessments are based on collected information, which is often incomplete or fragmentary, as well as logic, argumentation, and precedents.”...

(politicized info)  the Reagan administration wanted to justify a massive arms buildup, so CIA Director William Casey and his pliant deputy, Robert Gates, oversaw the creation of inflammatory assessments on Soviet intentions and Moscow’s alleged role in international terrorism, including the attempted assassination of Pope John Paul II.

Besides representing “politicized” intelligence at its worst, these analyses became the bureaucratic battleground on which old-line analysts who still insisted on presenting the facts to the president whether he liked them or not were routed and replaced by a new generation of yes men.

The relevant point is that the U.S. intelligence community has never been repaired, in part because the yes men gave presidents of both parties what they wanted. Rather than challenging a president’s policies, this new generation mostly fashioned their reports to support those policies...

Presidents of both parties have learned that it makes their lives easier if the U.S. intelligence community is generating “intelligence” that supports what they want to do, rather than letting the facts get in the way.

2--Elections security: Federal help or power grab?

Kemp warned: "The question remains whether the federal government will subvert the Constitution to achieve the goal of federalizing elections under the guise of security."

3--Worst. Recovery. Ever.

Loser president heads for the exits following 8 years of economic stagnation.

4--Survey shows Americans believe WikiLeaks more than US Intel Agencies

Are you surprised?

5--Fed minutes: Officials were moved by Trump win before December hike

The committee in its summary of economic projections noted "substantial uncertainty" about fiscal policy ahead. However, members noted that "more expansionary fiscal policy" raised the possibility of "somewhat tighter monetary policy than currently anticipated."

"Asset price movements as well as changes in the expected path for U.S. monetary policy beyond December appeared to be driven largely by expectations of more expansionary fiscal policy in the aftermath of U.S. elections," the minutes said at one point....

"Many" officials worried that letting the unemployment rate fall too far without hiking rates could necessitate a more aggressive path ahead. In line with that thinking, the committee increased its projections for 2017 from two rate hikes to three.

The faster wages increase, the faster the Fed is going to raise rates. Even the idea of reversing QE and shrinking the Fed’s balance sheet is now cropping up among Fed doves. If you want to know when the Fed gets serious about tightening, watch wage inflation.
But it never tries to tamp down on asset price inflation, not even at the mega-bubble stage. Rather, it encourages asset price inflation, no matter what....

Average hourly earnings jumped 0.4% to $26 per hour. They’re now 2.9% higher than a year ago and 5.7% higher than two years ago. However, don’t credit the minimum wage increases that became effective six days ago in cities and states around the country; they’re not yet included. Note how the trend in rising average hourly wages started two years ago...

Workers love wage increases – especially when they exceed consumer price inflation. And that props up consumer spending. But it doesn’t matter for the Fed.
One of the Fed’s jobs, in addition to inflating asset prices and keeping the biggest banks from imploding, is to make sure US employers have access to cheap labor so that they can maximize their profits and at the same time remain competitive with cheap-labor countries....

Consumer price inflation is based on prices that companies can charge their customers, and that customers are willing and able to pay. If they’re not able to pay those prices from their wages, they can always go into debt to pay those prices. These higher prices mean higher sales and higher profits without having to sell one extra iota. Looks great on earnings reports...

But wage inflation raises the costs for companies, and thus puts pressure on profits, and in theory might cause share prices to take a hit, which makes the Fed, which rules with one eye on the stock market, antsy. But when wage inflation exceeds consumer price inflation, the Fed gets more than antsy. And that’s happening now.
Average hourly wages in the current report rose 2.9% from a year ago. The Consumer Price Index in November (last data point available) rose only 1.7%. Over the past two years, hourly wages rose 5.7%, but CPI “only” 2.5%.

7--They're Baaack; Shadow banks edge closer to crisis

Shadow banking has come roaring back and in new forms that still manage to escape bank regulation and could pose systemic risks since these activities remain deeply intertwined with traditional banking.

8-- The attack on Dodd-Frank--Trump promises to make financial system unsafe again

President-elect Trump's transition team is promising to "dismantle" the complex Dodd–Frank Wall Street Reform and Consumer Protection Act.

"Bureaucratic red tape and Washington mandates are not the answer" to improving the financial system, the team said Thursday on its website....

One possible target of the "dismantle" efforts might be the so-called "Volcker rule," which bars banks from making certain speculative investments that could boost profits, but not benefit their customers. The rule was first proposed by Paul Volcker, the former Federal Reserve chairman who wanted a firewall between a bank's consumer operations and its risky trading activities.

Another target could be the Consumer Financial Protection Bureau, a Dodd-Frank creation that imposed new regulations in areas such as mortgage-servicing, foreclosure relief services, debt collection and more.

Republicans might be reluctant to wipe out the agency just months after a scandal at Wells Fargo involving sham customer accounts....

In an analysis of possible rollbacks of Dodd-Frank, Moody's Investors Services reached this conclusion: "While a reduction in regulatory compliance costs would bolster bank earnings, reduced oversight and a roll-back of requirements would also result in a weakening a of banks' capital and liquidity positions, a negative from a credit perspective."

9--Fed Officials See Faster Economic Growth Under Trump, but No Boom

(The Fed prefers slow growth to keep easy money policies in place) The economy is expanding at roughly the pace Fed officials regard as sustainable. The work force is growing slowly as more baby boomers retire, and productivity is rising slowly. Two percent growth may be about as good as it gets.
Ms. Yellen has warned that fiscal stimulus, like a tax cut or a spending increase, could increase economic growth to an unsustainable pace in the near term, resulting in increased inflation. The Fed quite likely would seek to offset such policies by raising interest rates more quickly

(Slow growth into perpetuity) The economic forecast prepared by the Fed’s staff for the December meeting anticipated that Mr. Trump’s election would result in “slightly higher” growth over the next several years. It said a likely increase in fiscal stimulus would be “substantially counterbalanced” by higher interest rates and a stronger dollar, which would reduce exports of American goods and services.

10--Aleppo slowly returns to normal

Peace has been restored as workers have returned to factories in eastern Aleppo’s Al-Arqoub district, following statements made by Syrian Prime Minister Imad Khamis that restoration of the city's production abilities was a top priority.

11--Intelligence report offers no evidence of Russian hacking of US election

12--U.S. Government Bonds Hit by Solid Wage Growth

13--Job Growth Slows in December; Wages Post Best Gain Since 2009

Overall economic growth during Mr. Obama’s time in office has lagged behind his predecessors. During the current expansion, the economy grew at a 2.1% average annual rate, through the third quarter. That is the slowest growth rate of any expansion since at least 1949....

“Challenges do remain,” Fed Chairwoman Janet Yellen told an audience in Baltimore last month. “The economy is growing more slowly than in past recoveries, and productivity growth, which is a major influence on wages, has been disappointing. But it also looks like the economic gains of the past few years are finally raising living standards for most people.”...

Wages increased 2.9% in December from a year earlier, the best annual rate since 2009 and a contrast to gains closer to 2% earlier in the expansion....Friday’s results showed a mixed picture for the economy. While wages improved, growth remains subdued and is still sluggish compared to a decade ago. And for all of 2016, the economy added just under 2.2 million jobs, the smallest gain for a calendar year since 2012. Many part-time workers say they would still prefer a full-time job, clouding the picture, and the labor-force participation rate, those with jobs or actively seeking work, remained near a four-decade low despite a slight uptick in December to 62.7% from 62.6% the prior month

14--The Profit Picture?  Markets Dangerously Price in Perfection in Trump’s Era --Investor expectations for stronger corporate profits in light of looser regulations and lower taxes may prove overly optimistic

...lower corporate taxes seem a surefire way to boost earnings....

(Wow) "[Calculating earnings] is a 20-variable problem, and we’re all trying to isolate to one,” said Adam Parker, chief U.S. equity strategist at Morgan Stanley. “But it’s fair to say that the tax effect is the biggest effect [on earnings].”
He thinks lower corporate taxes could add 10% to earnings by the end of 2018, while higher revenues from stimulus add about half that. ...

At the moment, the consensus of analysts predicts earnings growth of about 12% this year and next. That’s the most optimistic they’ve been at the start of a year since January 2011, when earnings growth of 13% was expected for each of the next two years. Earnings growth hit that mark in 2011 but fell far short in 2012....
The stock-market rally since the election is a triumph of hope over experience.
Investors hope Republican control of both Congress and the White House will mean looser regulations, lower taxes and a stronger economy, boosting corporate profits and so the value of shares. Experience should tell them that hopes of far higher earnings blossom every year, before being dashed.

15--German Officials Met Seven Times to Discuss Berlin Attacker Before Assault --But authorities concluded that Anis Amri didn’t pose an acute risk and that they didn’t have enough evidence to hold up in court, officials testify

In September and October last year, police in North Rhine-Westphalia received tips from Tunisian and Moroccan security agencies that Amri supported Islamic State, had contact with Islamic State sympathizers in Berlin, and “wanted to carry out a project” in Germany, Dieter Schürmann, head of North Rhine-Westphalia’s criminal investigative agency LKA told lawmakers.

Does one have to sit in a truck before the state can act?” Social Democrat Andreas Bialas asked at one point in the nearly five-hour hearing in the parliament of North Rhine-Westphalia, echoing the public’s stupefaction at the series of revelations about why the state failed to stop Amri despite all it knew about him. ...

Nobody understands how a known extremist was able to walk around freely in this country,” Gregor Golland, a regional lawmaker from the Christian Democratic Union, said before questioning security officials Thursday....

Authorities were first alerted to his radical Islamist tendencies in October that year. A roommate of Amri warned authorities that he had spotted photos on Amri’s cellphone showing people dressed in black and carrying weapons. An undercover agent infiltrated in the radical Islamist scene also reported Amri appeared to be serving as a messenger for a local Islamist network, officials said.
In December 2015, having started to monitor him, authorities became aware that Amri had been expressing the desire to stage an attack in Germany and had searched online for instructions about how to build bombs. They were also tipped off that he was planning a robbery in Berlin to fund the purchase of weapons.
Shortly thereafter, state and federal security officials gathered for the first time to discuss his case. In February, Amri was placed on a list of dangerous radical Islamists. That month alone, officials from the joint counterterrorism center in Berlin, an umbrella body for 40 federal and regional security agencies, discussed Amri’s case at three separate meetings

Top federal and regional security officials met seven times to discuss the potential danger posed by Tunisian migrant Anis Amri in the year before he attacked a Berlin Christmas market, the latest revelation in a string of mishaps that failed to prevent the attack.
The new details, disclosed by security officials at a regional parliamentary hearing Thursday, suggest that German security and intelligence authorities miscalculated the immediate threat that Amri presented. Despite extensive surveillance, efforts to detain him repeatedly faltered because police and prosecutors believed they didn’t have evidence that would stand up in court, the officials said.

16--The Fed’s Point Man on Productivity --John Fernald has played a key role in convincing many top Fed officials that the productivity slowdown began well before the 2008 financial crisis

He puts the new normal for U.S. economic growth at 1.5% to 1.75% a year—roughly half the typical range of 3% to 4% from the end of World War II to 2005....

Mr. Gordon says he has “good reasons for my position that productivity growth will remain relatively slow,” in the range of 1% a year compared with 3% a year in previous eras. He believes technological innovation will have a more evolutionary, rather than revolutionary, impact on growth over the next two decades.....While insisting that “no one in the Federal Reserve system just accepts anyone else’s ideas,” Mr. Fernald says his theories seem to have caught on quickly....

In the mid-1990s, when John Fernald had to write a memo for his bosses at the Federal Reserve on the merits of internet access at work, he was stumped.
“I couldn’t quite get what the benefit was,” he recalled in a recent interview.
Today, the Fed economist has a clear and very influential view. His research found that the information technology boom of the 1990s helped businesses become more efficient until about 2003. But that boost began fading by 2004, and now the benefits of tech innovation flow more to leisure activities, such as social media and smartphone apps. ...

For several years after the Great Recession, Fed officials were puzzled by persistently disappointing U.S. economic growth, particularly given their efforts to juice it with superlow interest rates. They now believe one major cause was a slowdown in productivity gains, but they have differed over whether this was a long-term or temporary postcrisis problem.
Mr. Fernald, a senior research adviser at the Federal Reserve Bank of San Francisco, has played a key role in convincing many top Fed officials that the productivity slowdown began well before the 2008 financial crisis.

This means productivity growth is unlikely to bounce back after the effects of the crisis dissipate, and it implies U.S. economic growth is unlikely to pick up much either. That suggests the Fed won’t have to raise interest rates a lot to keep inflation under control.
Central-bank officials, including Fed Chairwoman Janet Yellen, regularly cite Mr. Fernald. His “research has shaped my understanding of critical issues related to the sources, measurement and behavior of productivity growth,” said San Francisco Fed President John Williams....

Stanford University economist Robert Hall said Mr. Fernald “has been a voice of sanity in discussions of the causes of the recent productivity slowdown and the outlook for future productivity growth. He properly emphasizes the uncertainty about growth.”
Long-term economic expansion is the result of a growing workforce, investment in capital such as technology and buildings, and then combining them in new ways to boost efficiency—an element called “total factor productivity,” a key measure of the economic contribution of innovation. Total factor productivity grew an average 1.8% a year from the end of 1995 through 2004, but growth has slowed since then to an average 0.5% annually.

17--Trump's tax holiday will boost stock buybacks not create jobs


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