Thursday, March 30, 2017

Today's Links

1--The Sleazy Origins of Russia-gate, Robert Parry

An irony of the escalating hysteria about the Trump camp’s contacts with Russians is that one presidential campaign in 2016 did exploit political dirt that supposedly came from the Kremlin and other Russian sources. Friends of that political campaign paid for this anonymous hearsay material, shared it with American journalists and urged them to publish it to gain an electoral advantage. But this campaign was not Donald Trump’s; it was Hillary Clinton’s

And, awareness of this activity doesn’t require you to spin conspiracy theories about what may or may not have been said during some seemingly innocuous conversation. In this case, you have open admissions about how these Russian/Kremlin claims were used.
Indeed, you have the words of Rep. Adam Schiff, the ranking Democratic member of the House Intelligence Committee, in his opening statement at last week’s public hearing on so-called “Russia-gate.” Schiff’s seamless 15-minute narrative of the Trump campaign’s alleged collaboration with Russia followed the script prepared by former British intelligence officer Christopher Steele who was hired as an opposition researcher last June to dig up derogatory information on Donald Trump.
Steele, who had worked for Britain’s MI-6 in Russia, said he tapped into ex-colleagues and unnamed sources inside Russia, including leadership figures in the Kremlin, to piece together a series of sensational reports that became the basis of the current congressional and FBI investigations into Trump’s alleged ties to Moscow...

Since he was not able to go to Russia himself, Steele based his reports mostly on multiple hearsay from anonymous Russians who claim to have heard some information from their government contacts before passing it on to Steele’s associates who then gave it to Steele who compiled this mix of rumors and alleged inside dope into “raw” intelligence reports....

That tantalizing tidbit was included in Steele’s opening report to his new clients, dated June 20, 2016. Apparently, it proved irresistible in whetting the appetite of Clinton’s mysterious benefactors who were financing Steele’s dirt digging and who have kept their identities (and the amounts paid) hidden. Also in that first report were the basic outlines of what has become the scandal that is now threatening the survival of Trump’s embattled presidency....

Despite the dubious quality of Steele’s second- and third-hand information, the June report appears to have won the breathless attention of Team Clinton. And once the bait was taken, Steele continued to produce his conspiracy-laden reports, totaling at least 17 through Dec. 13, 2016.

The reports not only captivated the Clinton political operatives but influenced the assessments of Obama’s appointees in the U.S. intelligence community. In the last weeks of the Obama administration, I was told that the outgoing intelligence chiefs had found no evidence to verify Steele’s claims but nevertheless believed them to be true....

Normally, such a ludicrous claim – along with the haziness of the sourcing – would demand greater skepticism about the rest of Steele’s feverish charges, but a curious aspect of the investigations into Russia’s alleged “meddling” in Election 2016 is that neither Steele nor the “oppo research” company, Fusion GPS, that hired him – reportedly with funding from Clinton allies – has been summoned to testify....

Arguably the funders of this “oppo” research should be called to testify as well regarding whether they would have kept ponying up more money if Steele’s reports had concluded that there were no meaningful contacts between Trump’s people and the Russians. Were they seeking the truth or just dirt to help Hillary Clinton win?...

With Steele generating his reports every few days or every few weeks, people close to Clinton’s campaign saw the Russia allegations as a potential game-changer. They reached out to reporters to persuade them to publish Steele’s allegations even if they could not be verified....

These “Russian sources” also tell Steele, according to Schiff, that “the Trump campaign is offered documents damaging to Hillary Clinton, which the Russians would publish through an outlet that gives them deniability, like Wikileaks. The hacked documents would be in exchange for a Trump Administration policy that de-emphasizes Russia’s invasion of Ukraine and instead focuses on criticizing NATO countries for not paying their fare share.”..

In other words, there are huge holes in both the evidence and the logic of Schiff’s conspiracy theory. But you wouldn’t know that from watching and reading the fawning commentary about Schiff’s presentation in the mainstream U.S. news media, which has been almost universally hostile to Trump ..

if mainstream media commentators truly want a thorough and independent investigation, they should be demanding that it start by summoning the people who first made the allegations.

2--Investors Don’t Have Too Much of a Good Thing -- There are plenty of warning signs in today’s market, but earnings growth isn’t one of them

Stock indexes are near records and valuations are historically elevated. The CBOE Volatility Index, or VIX, is abnormally calm, sitting at a level lower than all but 3% of daily readings in its history. Several measures of investor and consumer confidence have soared. On top of all that, margin debt just moved back to another record.
In the ninth year of this bull market, it is natural to wonder how much longer it will last even if one isn’t skeptical by nature. ...

With the first quarter coming to a close Friday, S&P 500 companies are expected to report quarterly earnings per share increased 9.1% from the same period a year ago, according to FactSet. That would be the best performance since 2011 and the third consecutive quarter of growth....

The S&P 500 was mired in a so-called earnings recession for five quarters through the middle of last year. Stocks perked up just as earnings have started growing again. The S&P 500 has risen 11% since the presidential election and 18% since the end of June 2016, which is, not coincidentally, when the earnings recession concluded.
Analysts will inevitably get ahead of themselves with their earnings forecasts and add to the long list of warning bells. That may finally be a sign that investors need to curb their enthusiasm

3--Margin Debt Hit All-Time High in February --A rise in the amount investors borrow against their brokerage accounts is a bullish indicator but can also be a warning

Margin debt climbed to a record high in February, a fresh sign of bullishness for flummoxed investors trying to navigate the political and economic crosscurrents driving markets.
The amount investors borrowed against their brokerage accounts climbed to $528.2 billion in February, according to the most recent data available from the New York Stock Exchange, released Wednesday. That is up 2.9% from $513.3 billion in January, which had been the first margin debt record in nearly two years...

Rising levels of margin debt are generally considered to be a measure of investor confidence. Investors are more willing to take out debt against investments when shares are rising and they have more value in their portfolios to borrow against.
But experts say a steep rise can indicate that investors are losing sight of market risks and betting that stocks can only go up. Margin debt has a history of peaking right before financial collapses like the ones in 2000 and 2008. When stocks move lower, investors who are buying with borrowed money often must pull out of the market, exacerbating the decline....

Other measures of sentiment and positioning have pulled back recently, raising questions about whether buyers are starting to bolt from the market. Investors pulled $8.9 billion from funds that invest in U.S. equities during the week through March 22, the largest outflow in 38 weeks, having piled more than $32 billion into the space this year, according to Bank of America Merrill Lynch data.

4--Another Record For Top-Rated Companies Selling Bonds

U.S. companies have sold $406.1 billion of high-grade debt so far this year, already a record for any first quarter going back to at least 1995, according to data provider Dealogic.
This is the third consecutive first quarter where investment grade corporate issuance has set a record high, as companies continue to take advantage of low borrowing costs.

5--Trump’s Free Hand on Bank Deregulation   -- The Trump administration has the power to enact substantial bank deregulation on its own without legislation

Who needs Congress? Not bank stocks....

it appears even less likely that this Congress will manage to pass a bill overhauling Dodd-Frank, the landmark postcrisis regulatory law.....But the administration has room to act on its own through its power to interpret and enforce financial regulations, and the results could be highly material for bank investors...

The Federal Reserve could start by removing the “gold plating” of capital requirements for the biggest banks. This would lower the capital surcharges that so-called global systemically important banks in the U.S. must hold, bringing them in line with peers in Europe and elsewhere.
Analysts at Keefe, Bruyette and Woods have estimated this would raise 2018 earnings per share by an average of 4.6% at the eight such mega banks in the U.S. That seems generous as it assumes they would fully redeploy freed-up capital in the first year, but it is a useful guide to how tweaks in capital requirements can juice profitability. Citigroup would be biggest beneficiary, seeing a nearly 10% boost to earnings.

Second, regulators could change the way they calculate banks’ total leverage by not counting ultrasafe assets such as cash, U.S. Treasurys and deposits at the Fed in their leverage ratio. This would be even more powerful, raising 2018 EPS by 13.5% on average for the big eight banks, according to KBW estimates. Bank of New York Mellon and State Street, two trust banks with large securities portfolios, would benefit most.

An outright repeal of the Volcker rule, which bars proprietary trading by depository institutions, would boost 2018 EPS by an average of 4.2% at Bank of America, Citigroup, J.P. Morgan Chase and Morgan Stanley, according to estimates by analysts at Goldman Sachs, which of course would itself benefit. This would require an act of Congress, but something close could be accomplished simply by loosening enforcement of the rule.

Goldman analysts also note that regulators could change the liquidity classification of securities issued by Fannie Mae and Freddie Mac. Though these securities are widely traded, they don’t count as much as Treasurys in helping banks reach the required level of highly liquid assets.

Removing this penalty would allow banks to hold more of these higher-yielding securities. That would boost 2018 EPS by an average of 2.5% at the biggest banks and by 1.8% at large regional banks, according to Goldman’s estimates.
Bankers may hate Dodd-Frank but, because it delegates so much rule-making authority to the executive branch, the law’s design might yet win fans on Wall Street.


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