Investors Race to Escape Risk in Once-Booming Emerging-Market Bonds
The large mutual funds that helped fuel rapid growth in developing countries have begun hastily retreating from those investments, contributing to the recent sharp decline in global markets. In the last week alone, investors pulled $2.5 billion from emerging-market bond funds, the largest withdrawal since January 2014. The world’s fastest-growing economies — led by China — have been propelled by soaring commodity prices, robust currencies and access to cheap loans, primarily through the sale of high-yield, high-risk bonds. But China’s decision to devalue its currency has set off a chain reaction of panicked selling around the world that contributed to the biggest one-week loss on Wall Street since 2011, sending the Dow Jones industrial average into correction territory (10 percent below its recent peak). The index was down 531 points on Friday and nearly 6 percent for the week. The currency devaluation increased concerns that growth in China was slowing and that other countries might follow with their own devaluations. The notion unnerved bond investors, who began to retreat out of fear they would not be repaid. General uneasiness about a global economic slowdown spread to stocks, which many have believed to be overvalued and due for a decline. “The growth rates for many of these countries were vastly overstated,” said Dani Rodrik, a professor at the Harvard Kennedy School of Government who has studied the impact of foreign capital flows in developing economies. “It was all very unsustainable.”
Islamic State’s No. 2 Leader Killed in Airstrike, U.S. Says
The second-in-command of Islamic State was killed in a U.S. airstrike Aug. 18 while traveling in a vehicle near Mosul, Iraq, according to a White House statement. Fadhil Ahmad al-Hayali, the senior deputy to Islamic State leader Abu Bakr al-Baghdadi, “was a primary coordinator for moving large amounts of weapons, explosives, vehicles and people between Iraq and Syria,” National Security Council spokesman Ned Price said in the statement Friday. Al-Hayali supported Islamic State operations in both Syria and Iraq and was in charge of the group’s operations in Iraq, where he was instrumental in planning operations over the past two years, including the radical group’s June 2014 takeover of Mosul, according to Price. Also reported killed in the strike was an Islamic State media operative known as Abu Abdullah. Al-Hayali’s death “will adversely impact” Islamic State actions given that his influence “spanned its finance, media, operations, and logistics,” Price said. With few exceptions, though, leaders in terrorist organizations such as Islamic State are quickly replaced from within the group’s own ranks. Previously, there have been unconfirmed reports that Islamic State leader al-Baghdadi was seriously wounded during airstrikes in March.
US forces on ‘enhanced’ alert in South Korea
The Pentagon said Friday that U.S. forces in South Korea are on a heightened state of alert known as “enhanced status,” amid rising tensions between that country and North Korea. “With regard to the situation on the Korean peninsula, the United States is very concerned by the [North Korean] August 4 violation of the armistice agreement and we are monitoring the situation very closely,” said Ambassador David Shear, the assistant secretary of Defense for the Asia-Pacific. “We are in close touch with our commanders and with our [South Korean] ally, and the United States remains steadfast in its commitments to the defense of its allies and will continue to coordinate closely with the Republic of Korea,” he said. South Korea, also known as the Republic of Korea [ROK] is a U.S. ally and 28,000 American troops are stationed in the country. Tensions on the Korean peninsula have worsened after two South Korean troops were seriously wounded earlier this month by North Korean mines placed in the demilitarized zone (DMZ) between the two countries. In response, South Korea began blasting propaganda on loudspeakers across the border into North Korea, also known as the Democratic People’s Republic of Korea [DPRK]. North Korea responded by firing artillery into South Korea on Thursday, and South Korea fired back. On Friday morning, North Korean leader Kim Jong Un ordered his troops to prepare for war. The tensions come as the U.S. and South Korea are conducting annual joint military exercises known as Ulchi Freedom Guardian 2015. The exercises were briefly suspended on Thursday, after the firing of artillery, but have since resumed, said Shear. He said U.S. forces were on enhanced status due to the exercises, and not the shelling. “U.S. forces went on an enhanced status as part of the exercise. They are remaining in an enhanced status as part of the exercise, and of course to ensure adequate deterrence on the peninsula,” he said. “The DPRK’s provocative actions heightened tensions, and we call on Pyongyang to refrain from actions and rhetoric that threaten regional peace and stability, and we are at one with our ROK ally on this,” he said. Shear said the exercise was suspended briefly in order to allow the U.S. to “coordinate” with South Korea on the exchange of artillery fire across the DMZ. “When events like this take place, we talk to the ROK about — to get that facts straight of what happened and to — to discuss what —how we are going to respond,” he said. State Department press secretary retired Rear Navy Adm. John Kirby said Secretary of State John Kerry is “monitoring this very, very closely.” “We’re all taking this threat seriously. As we have to. When you hear rhetoric like that, you can’t ignore it,” he said on MSNBC’s “Andrea Mitchell Reports.” Kirby said U.S. troops on the peninsula “are ready for action.”
What’s Going on Between North and South Korea
Tensions are rising again on the Korean peninsula after North and South Korea briefly exchanged heavy-arms fire in an escalation of confrontation. Here’s what to know about what’s going on this time around:
A Bank for People Who Hate Banks
On a sweltering afternoon in July, Tom Blomfield emerges from Bank of England offices in the heart of the City of London and promptly sheds his suit jacket. Blomfield, the 29-year-old, bearded CEO of Mondo, a startup smartphone bank that’s applying to operate in the U.K., isn’t the suit-wearing type. He’s eager to get back to his Clerkenwell workspace for a beer to celebrate Mondo’s surmounting a big hurdle in its quest for a banking license. Blomfield and his team have just spent two hours getting grilled by eight regulators from the Bank of England and the Financial Conduct Authority, Bloomberg Markets magazine reports in its October issue. The officials quizzed them on how Mondo will attract customers and remain financially viable. After poring over Mondo’s 250-page submission, which included details of its capital and liquidity plans, the group pressed Blomfield on why he wanted to run a bank. “They said he didn’t look like a typical banker,” recalls Mondo Chairman Denise Kingsmill, who, as a member of the House of Lords and a former deputy chairman of the U.K.’s Competition Commission, added a touch of gravitas to the presentation. Blomfield had a ready retort: “I said I want to run a new type of bank.” When he’s not trying to charm regulators, Blomfield shows the kind of passion—and irritation—it takes to build a bank from scratch. His catalog of complaints about big lenders is familiar to most consumers: hours of paperwork to open an account or apply for a loan, exorbitant fees for using your credit card abroad, onerous overdraft charges, and clunky mobile apps. “I wake up and say: ‘My bank is so bad. These guys are dinosaurs!’” Blomfield says. “It impacts me, my family, all my friends. We all have to use banking, and it’s broken.” Blomfield wants to make Mondo the Google or Facebook of banking with accounts that are as easy to use as e-mail. “We are targeting a demographic that values being able to do everything over a mobile phone in five seconds,” he says. If Blomfield and Kingsmill get their way, Mondo won’t be just another snazzy app using the license of an existing bank. That’s been done in the U.S. by Simple.com, which piggybacks onto Bancorp Bank, and in Germany by Number26, which is bolted to Wirecard Bank. Unlike most other startups, Mondo has built proprietary software. If Mondo gets a license from the BOE’s Prudential Regulation Authority, it could—as early as next year—begin taking deposits and lending money.
Ashley Madison Faces $578 Million Class Action Lawsuit
Two Canadian law firms filed a $578 million class-action lawsuit against the companies that run extramarital-affairs website Ashley Madison over a recent hack that exposed the personal information of about 39 million users. Charney Lawyers and Sutts, Strosberg LLP—two Canadian law firms—filed the suit on Thursday on behalf of Canadians whose personal information was breached in a company hack. The Toronto-based Avid Dating Life and Avid Life Media, which run the company, are named in the suit. The lawsuit’s class-action status remains to be certified by the court. “Numerous former users of AshleyMadison.com have approached the law firms to inquire about their privacy rights under Canadian law,” the firms said in a statement. “They are outraged that AshleyMadison.com failed to protect its users’ information. In many cases, the users paid an additional fee for the website to remove all of their user data, only to discover that the information was left intact and exposed.” The statement went on to say that the class action lawsuit will not seek damages from the hackers who leaked the information. Ashley Madison has said in previous statements that its members cannot be proven to have had extramarital relationships based on membership with the site alone. The plaintiff is Eliot Shore, who said he briefly joined Ashley Madison following the death of his wife to breast cancer. Shore said his membership did not result in any meetings with members of the site and that he never cheated on his wife. The suit joins a $5 million class-action lawsuit filed in Missouri in July. The anonymous female plaintiff in that case claimed she’d paid $19 to Ashley Madison to run a “paid-delete” of her personal information, which was unsuccessful.
Americans become French knights
BRUSSELS — One of the Americans who prevented a bloodbath on a high-speed European train serves in the Air Force. Another is in the Oregon National Guard. On Monday, the enlisted men became knights, along with two others who took part in the rescue, as French President François Hollande made them Chevaliers of the Legion of Honor, awarding them France’s highest decoration. In a solemn ceremony held in France’s glittering Elysée Palace, the seat of the presidency, Hollande said the four men had averted a catastrophe when they tackled and trussed a heavily armed man who had opened fire on the train. The men have resisted being labeled as heroes, saying that they gave little thought to their actions until after the heat of the moment. At the ceremony, the trio of Americans, friends since childhood, dressed modestly in polo shirts and khakis. But Hollande said their coolness under fire was a lesson to all of France — and the world. “You have shown that in the face of terror, you can resist,” Hollande said before he pinned the ribbons on the men’s chests. “So you have given us a lesson of courage, of determination and therefore of hope.” “There were over 500 passengers on that train. Ayoub el-Khazzani possessed over 300 bullets. And we realize now how close we were to a tragedy and a massacre,” Hollande said, formally identifying the suspect in the shooting for the first time, a Moroccan man just short of his 26th birthday. The men who were awarded the medals were Airman 1st Class Spencer Stone, of California; Specialist Alek Skarlatos, just returned from a deployment to Afghanistan; their childhood friend Anthony Sadler, and British businessman Chris Norman. Hollande said he also intended to award the honor to Mark Moogalian, a dual French-American citizen who also took part in the rescue and was severely wounded, and a French citizen who was the first to try to disarm the shooter and has asked to remain anonymous. Hollande pinned the red ribbons and five-pointed medal on each man’s chest, then kissed each on one cheek, then the other. The two servicemen plan to proceed with their families to Germany for further medical treatment, while Sadler plans to return home to California to start his senior year of college, they said Sunday.
Here’s What Usually Happens to Markets After the S&P 500 Drops Five Percent in a Week
Last week was a brutal one for the S&P 500, with stocks tumbling more than five percent for the first time since 2011. The bloodbath is continuing today. As Bespoke Investment Group points out, a weekly drop of more than five percent has only happened 28 other times since 1980. If you’re trying to decide what to do this week, maybe Bespoke’s chart will help. It gives you a look at what happened in the S&P 500 in the weeks following a five percent decline. On average, the market is relatively flat the next week, up 1.65 percent over the next 4 weeks, and up close to 5 percent over the next 12 weeks. Also important to note is that 60 percent of the time, the index moves higher the following week. See chart. Some of the standout years include huge drawdowns of more than 20 percent over the next 12 weeks in 1987 and 2008. On the opposite side of the spectrum, there were massive turnarounds in 1998 and 2009.
Power producer Southern Co to buy AGL Resources for $8 billion
U.S. power producer Southern Co (SO.N) said it will buy AGL Resources (GAS.N) for about $8 billion in cash, creating the second-largest utility company in the country by customers. AGL shareholders will get $66 for every share held, a 38 percent premium to the stock’s Friday close.
Vague Disclosures by Highflying Mutual Funds May Put Investors in Peril
Desperate for richer yields on their portfolios, individual investors have thronged in recent years to mutual funds promising higher-than-usual income. The question is: Do these investors understand the higher-than-usual risks involved? The answer is probably no. That’s because in the riskier funds, not all the perils are disclosed. Moreover, even when risks are formally discussed, many investors may still not realize how the funds really work. Trading on nonpublic information, for example, is a common practice in some of the instruments these funds hold. Inspecting high-yielding mutual funds for potential pitfalls is always worthwhile. It is even more so now, with the Federal Reserve Board poised to make its first interest rate increase in over nine years. Given the exotic investments that some income funds hold, understanding their risks is especially crucial. I’m talking about so-called leveraged loans or bank loans found in floating-rate income funds. Leveraged loans are obligations taken on by heavily indebted companies, typically to finance a buyout or recapitalization. These loans carry a wide array of risks. They don’t trade frequently and are difficult to value. They may not be backed by solid collateral and are subject to faster prepayment schedules than other obligations. Nevertheless, mutual funds are regular buyers of these loans. More than 35 fund companies offer portfolios that invest in them. Among the bigger sellers are BlackRock, Eaton Vance, Fidelity and Pimco. These portfolios can be large. At the end of July, the Fidelity Floating Rate High Income Fund had $11.6 billion in assets, while the Eaton Vance Floating-Rate Fund had $9.6 billion. Until recently, the market for leveraged loans was red-hot. Assets under management at mutual funds and exchange-traded funds specializing in these instruments ballooned to $116 billion this month from $20 billion in 2009, according to Lipper. But outflows are ramping up. Assets under management declined $2.1 billion in the first three weeks of August. Mutual fund companies offering such funds detail many of the risks associated with these loans. But not all.
Pension Advisers Learn the Folly of Trying to Beat the Market
CARSON CITY, Nev. — The Carson Nugget casino takes up the better part of a downtown block in this state capital, and a sign on the side beckons bettors with a promise of “Extremely Loose Slots.” You won’t find the state’s chief investment officer, Steve Edmundson, anywhere near there. Instead, he manages its pension funds on the outskirts of town, in a sparsely furnished office next to a bank branch. Less than half a shelf of books sit on display, including “The Hedge Fund Mirage.” One binder is labeled “Terminated Managers.” Those items offer hints of the surprising professional journey that Mr. Edmundson and his predecessor, Ken Lambert, who still serves as a consultant to the state, have recently completed. Since the beginning of 2014, they have moved the last of the state pension funds’ stock and bond investments entirely into securities that track market indexes exactly. So here, in the state that brought us gambling as an everyday activity, the two professionals who gauge investment odds have taken their money off one particularly large table, deciding that it no longer makes sense to bet on Wall Street wizards to beat the market. Few if any managers of large pension funds have ever done such a thing.
Extortion begins for Ashley Madison hack victims
Security companies are already started to see digital extortionists try to take advantage of people exposed by the recent Ashley Madison leak. Email provider VF IT Services showed security journalist Brian Krebs an email the company said it had blocked. The firm has been working on a spam filter to stop nefarious users of its email service from sending out extortion attempts in the wake of the data dump of over 30 million people’s profiles from the affair-oriented dating site. Here’s part of the email: Hello, Unfortunately, your data was leaked in the recent hacking of Ashley Madison and I now have your information. If you would like to prevent me from finding and sharing this information with your significant other send exactly 1.0000001 Bitcoins (approx. value $225 USD) to the following address: B8eH7HR87vbVbMzX4gk9nYyus3KnXs4Ez Sending the wrong amount means I won’t know it’s you who paid. You have 7 days from receipt of this email to send the BTC [bitcoins]. If you need help locating a place to purchase BTC, you can start here…..Krebs tracked down the individual who received the email. “If I put myself in [the extortionist’s] shoes, the likelihood of them disclosing stuff doesn’t increase their chance of getting money,” said the man, who went by Mac. “I just not going to respond.” Like many users of the site, Mac tried to take steps to preserve his anonymity. He used a prepaid card to pay for his membership to the site. The card’s billing address is linked to his house. Others tried to use dummy email accounts to further distance themselves. But Internet connection details logged when making payments have linked users to particular computer networks. For instance, hundreds of government workers maintained subscriptions to the site through various emails but were all tracked down because they made payments using federal Internet connections. Security experts had predicted these type of extortion attempts would follow the Ashley Madison data leak. “You probably have thousands of men who are establishing webmoney and bitcoin accounts to prepare themselves to pay off the ransom,” Tom Kellermann, chief cybersecurity officer at security firm Trend Micro, told The Hill. Some are concerned about the effect the extortion could have on government officials. Foreign adversaries are likely “digging through” the Ashley Madison data to see how they can leverage it, Kellermann said. “This is going to have a very long tail,” he said.
The GOP’s Birthright Citizenship Flip-Flop
Birthright citizenship has split the GOP presidential field. Following Donald Trump’s call for an end to birthright citizenship for the U.S.-born children of undocumented immigrants, fellow Republican presidential hopefuls Bobby Jindal, Rand Paul, Rick Santorum, Ben Carson and even longtime immigration reform advocate Lindsey Graham have said they support ending the practice. Marco Rubio and Jeb Bush have been the most vocally opposed. This didn’t used to be such a difficult issue for Republicans. After all, it was the GOP that wrote birthright citizenship into America’s constitution. The leaders of the 1866 Republican Party—the Party of Lincoln—were staunch supporters of the idea. Indeed, birthright citizenship was central to the Republican vision for post-Civil War America, and a key dividing line between the supporters of President Andrew Johnson and those of the Republican leadership in Congress. Birthright citizenship had long been the traditional rule in the United States—one rooted in the English common law and adopted by many colonies and early states. Citizenship was acquired by soil rather than bloodline—subject to a few well-established exceptions, such as for the children of foreign diplomats or invading armies. But various Southern courts in antebellum America chose to diverge from this tradition in certain cases, allowing their states to deny birthright citizenship to those they deemed unworthy, such as African Americans. This Southern “tradition”—fueled by white supremacy—was reinforced by the opinions of certain pro-slavery Attorneys General and ultimately codified in the Supreme Court’s infamous Dred Scott decision, authored by Chief Justice Roger Brooke Taney, himself a former pro-slavery Attorney General under President Andrew Jackson. In Dred Scott, Taney concluded that African Americans could not be U.S. citizens even if they were born free on American soil.
Alabama tried a Donald Trump-style immigration law. It failed in a big way.
ROBERTSDALE, Ala. — Kim and Renee Byrd had wanted to see Donald Trump’s speech in Mobile, but there were vegetables to sell. The Byrds are third-generation farmers, and the traffic along Route 90, toward the Gulf of Mexico, brings in travelers who want fresh honey, fresh peaches, fresh okra. Driving 45 minutes to Mobile was asking a little much, even if the next president of the United States was calling. “He runs an empire,” Renee Byrd, 44, said of Trump. “That’s what the country needs, someone who runs an empire.” The Byrds say they think the nation needs someone who is realistic about immigration, too. Officially, less than 10 percent of Robertsdale residents are Hispanic. According to Kim Byrd, 45, that does not account for the trailer parks “saturated with Mexicans” or for “all the convenience stores” bought by immigrants with mysterious tax breaks. “They all work under the table and make [loads] of money,” said Renee Byrd. “The poor white people who work around here are all screwed.” A mile down the road, a lunchtime crowd was arriving at a Mexican restaurant called El Rodeo. The Latino wait staff took orders in English and Spanish from customers who would not care to see Trump even if he were speaking in their living rooms. “He’s no good,” carpenter Miguel Chabac, 27, said through an interpreter. “I think he’s a person who doesn’t value our work.” Chabac and his friends had plenty of experience with people like that. Alabama, which hosted the largest rally of Trump’s presidential campaign Friday night, had been a test kitchen for Trump-style crackdowns on undocumented workers — and it had not gone well. In 2011, a new Republican legislature and governor enacted HB 56, the Alabama Taxpayer and Citizen Protection Act. Chief sponsor Micky Hammon warned the undocumented population that he would “make it difficult for them to live here, so they will deport themselves.” Renting a house or giving a job to an “illegal” became a crime. Police were empowered to demand proof of citizenship from anyone who looked as if he or she might lack it. School administrators were instructed to do the same to children. The backlash was massive — a legal assault that chipped away at the law, and a political campaign that made Republicans own its consequences. Business groups blamed the tough measures for scaring away capital and for an exodus of workers that hurt the state’s agriculture industry. After Mitt Romney lost the 2012 presidential election, strategists in his own party blamed his support for the Alabama attrition policy. Those critics included Donald Trump. “He had a crazy policy of self-deportation, which was maniacal,” Trump told reporter Ronald Kessler after the election. “It sounded as bad as it was.” Asked about the law, Alabama voters rarely say that it worked. Large farms spent millions training new workers. The Byrds conceded that the agriculture sector suffered after some immigrants fled the state. “Most of them left and didn’t come back,” said Terry Darring-Rogers, who works at a Mobile law firm specializing in immigration. The debate seemed to be over — nice try, lesson learned — until the summer of Trump.
Alabama redistricting battle back in federal court
Three federal judges will hear arguments Tuesday over this question: Did the Alabama Legislature try to reduce the voice of minority voters with a new district map? Attorneys for black legislators say yes and want to have the districts thrown out completely. “We’re hoping that the court will declare all of the majority black districts to be unconstitutional,” said James Blacksher, an attorney for the plaintiffs, in a phone interview Friday. “And then give the legislature a deadline for producing new plans. We hope in time for elections to be held under new plans in 2016.” The state says the plaintiffs have no proof that race was the predominant factor in the maps’ creation. “As the case comes back home to Montgomery, we continue to work hard to defend the constitutionality of Alabama’s legislative districts and look forward to Tuesday’s oral arguments,” Mike Lewis, a spokesman for Alabama Attorney General Luther Strange, said in a statement. The hearing will be the latest battle in a three-year war over the map — a struggle that has gone up to the U.S. Supreme Court. The Republican-controlled Legislature in 2012 approved House and Senate district maps that increased the percentage of black voters in majority-minority districts. The cartographers used a strict standard that gave little leeway in changing the districts’ minority population percentages. That led to increased numbers of black voters in those districts. Republicans in other Southern states used a similarly strict standard.
Marsh won’t propose lottery bill in second session
Alabama Senate President Pro Tem Del Marsh won’t propose his bill to allow a statewide vote on a lottery and casinos during the second special session. Another Republican senator, Paul Sanford of Huntsville, said he will introduce a different lottery proposal for the first time. According to AL.com, the bill Marsh introduced during the regular session and first special session was a proposed constitutional amendment to allow a lottery and casinos at the state’s four greyhound tracks. Gov. Robert Bentley has called the gambling issue a distraction to legislators trying to resolve a shortfall in the General Fund budget. Marsh’s office commissioned a report from AUM that said his gambling plan would raise $400 million a year, about $330 million of that from a lottery, and that the casinos would create 11,000 jobs.
Donald Trump Fails to Fill Alabama Stadium, but Fans’ Zeal Is Undiminished
MOBILE, Ala. — Before Donald J. Trump arrived at a college football stadium here on Friday evening, the colorful guessing games that often accompany his campaign were very much in the air. Would Mr. Trump actually fill all of the tens of thousands of seats at Ladd-Peebles Stadium, the home field for the University of South Alabama Jaguars? How would one of the largest cities in one of the country’s most conservative states respond to a candidate whose bombast and brashness can sometimes seem limitless? Would Mr. Trump wear a “Make America Great Again” baseball hat, perhaps to conceal the effects of the wilting Gulf Coast heat and humidity on his much-remarked-upon mane? As usual, the answers — no, loudly and yes — came amid the trademark gusto of both Mr. Trump’s personality and his evolving campaign for the presidency. “Now I know how the great Billy Graham felt, because this is the same feeling,” Mr. Trump, referring to the celebrated evangelist, thundered from a stage built for the night’s rally, where the vast stretches of empty seats indicated that attendance had fallen short of the more than 30,000 people he had predicted. Mr. Trump’s errant forecast appeared to do little to diminish the zeal of those who did gather for an event that occasionally sounded more like a concert — there was a playlist that included Elton John’s “Rocket Man,” as well as a five-man band — than a political rally. But the night was punctuated with plenty of forceful reminders, including roaring chants of “U.S.A.! U.S.A.!” that Mobile had become an unexpected stop on the presidential campaign trail. “Please focus your attention to the eastern sky,” a man’s voice announced on the loudspeakers at one point, “for the arrival in Mobile, Ala., of the next president of the United States, Donald J. Trump.” As advertised, Mr. Trump’s jet soon passed over the stadium. By the time of the flyover, some Trump fans had been at the stadium for about 12 hours, attracted to an event whose potential for scale and boisterousness surged as the week went on. Mr. Trump’s campaign at first intended to hold the rally at a far smaller site. But as word spread that he would bring his red, white and blue road show to Mobile — an easy drive from New Orleans, Birmingham, Ala., and Jackson, Miss. — his aides said that interest was outpacing their plans. And so Mr. Trump turned to one of the state’s largest venues for a rally of such a profile that Mobile’s mayor issued a news release filled with details about parking, shuttles and the weather. Before the gate opened at 5 p.m., two hours before Mr. Trump’s scheduled appearance, hundreds of people stood in a line snaking well into a parking lot. Although Mr. Trump has drawn criticism for unveiling few detailed policy proposals, many of his supporters said they were unbothered. “When he gets in there, he’ll figure it out,” said Amanda Mancini, who said she had traveled from California to see Mr. Trump. “So we do have to trust him, but he has something that we can trust in. We can look at the Trump brand, we can look at what he’s done, and we can say that’s how he’s done everything.” Still, others said they had plenty of advice for the man they regularly identified in conversation as “Mr. Trump.” “Hopefully, he’s going to sit there and say, ‘When I become elected president, what we’re going to do is we’re going to make the border a vacation spot, it’s going to cost you $25 for a permit, and then you get $50 for every confirmed kill,’ ” said Jim Sherota, 53, who works for a landscaping company. “That’d be one nice thing.”
Trump Thinks Alabama Is Key to Winning the GOP Nomination
Donald Trump’s surprise decision to hold a massive rally in Mobile, Alabama, tonight completely puzzled political insiders and journalists. Alabama, unlike Iowa or New Hampshire, is not a critical early state in the Republican presidential primaries, nor is it a general-election swing state that would benefit from early cultivation. So to put it in terms Trump might use: What’s the deal? It turns out, according to two Trump associates I spoke with, that Trump views Alabama, and the other Southern states that hold March 1st primaries, as the key to locking down the Republican nomination. The stadium rally is also a way to deepen his identification with Alabama Republican Sen. Jeff Sessions, who lives in Mobile and whose view on immigrants and immigration—he’s mainly against both—Trump shares. As Sessions told me, he and Trump appeal to the same type of voters, “a lot of middle-class working people, who don’t trust establishment messaging. I call it ‘honest populism.’” Here is the Trump political logic: “Alabama is extremely critical,” a close associate of Trump’s told me (actually, we agreed I’d call him “a close associate of Mr. Trump”). “You have Iowa’s caucus on February 1st, New Hampshire on the 9th, and South Carolina on the 20th.” The race, this associate explained, would not be wrapped up by then. According to this political calculus, the crucial moment arrives three days later, on March 1st, with the “SEC primary”—the belt of Southern states that encompass the Southeastern Athletic Conference—when Alabama, Texas, Georgia, Arkansas and several others hold their primaries.
Another Drama in Harper Lee’s Hometown
MONROEVILLE, Ala. — It’s been just over a month since the release of “Go Set a Watchman,” the long-awaited second novel from Harper Lee. The book has been the publishing sensation of the year, but the literary world has largely moved on now, focused on new releases for the fall and winter. But in Ms. Lee’s hometown here, the effects of publishing “Watchman” linger, like debris from a departing county fair. Even as life returns to its slow rhythms, many residents are adjusting to a new order of things when it comes to Ms. Lee, one firmly under the direction of Tonja B. Carter. Ms. Carter is Ms. Lee’s lawyer, and over the last several years she has consolidated an unusual amount of control over the author’s affairs. In recent months she has extended her reach, sometimes to the most minute of details. About seven weeks ago, for instance, on the day of a luncheon here to celebrate the imminent publication of “Watchman,” Ms. Carter learned about a recipe book, “To Fill a Mockingbird,” being sold by the small museum inside the old courthouse at the center of town. The courthouse had been the fictional setting for Ms. Lee’s 1960. Two years earlier, Ms. Lee had sued the museum for selling too many items that used her “Mockingbird” trademark. Ms. Carter thought the cookbook violated the settlement in that case.
Of course Donald Trump’s bigotry plays well in Alabama
Donald Trump is popular in Alabama. That should not come as a surprise to anyone. Nor should it be worth mentioning that Trump had to move his Friday visit to Mobile from a small arena to a large football stadium. Of course he is and of course he did. Trump is a loud-mouthed, egotistical bigot. And we are a state that has always been enamored by the loud-mouthed, egotistical bigot. They rank third on our Most Admired list, just behind Really Good Football Player and Average Football Player. But Trump is different from those other ordinary, political bigots. He’s not just a guy who insults an entire nationality with ignorant stereotypes and misinformation. He’s not just a guy who says insulting and degrading things to women. And he’s not just a guy who has based his plans for public office on a simple-minded view of the world that could best be summed up by the phrase, “Hey, other countries, go f*** yourself!” Trump is all of that and he’s rich. Filthy rich. Billionaire rich. He is the manifestation of every attribute that today’s GOP seems to hold dear: boorish, egomaniacal, unashamed, hypocritical, callous and wealthy. Trump is to today’s conservative voter what a Kardashian is to today’s 20-something. The dream. Just as a 20-something watches a Kardashian and dreams of being super rich, pampered and spoiled for no reason, today’s conservative looks at Trump and dreams of walking from the door of a plane with his name plastered on the side in 80,000-point type, a supermodel – his third wife – a quarter-century younger than him on his arm, wind whipping through that finely coiffed dead rabbit atop his head, saying whatever he wants about whomever he wants. Conservatives just got chills. The fact is Trump is a symbol of America’s greatest problem – it’s obsession with material wealth at the expense of other people. But he has also highlighted a number of problems with the American political system. Problems that many people likely didn’t know existed, or didn’t know existed to such a large degree, prior to his candidacy. The biggest is that the massive amounts of money present in American politics has squeezed out all individual thought. Candidates who aren’t scared of bucking the party, who express a point of view that diverges from the bland nothingness of political speak and who take bold stands and say bold things – no matter how offensive they might be in this case – are largely absent from today’s two-party system. Which is why that system continues to produce people with the same last names. Trump is the first viable candidate since Ross Perot (“Can I finish?”) to have no allegiance to corporate backers, super-wealthy donors or foreign interests. Trump also can’t be controlled by the Republican Party, which, like the Democratic Party, often keeps candidates walking a tight path and reciting the party line on major issues by controlling the donations doled out. Trump doesn’t need their money. And they have no idea what to do with a candidate who won’t take money or advice, and who keeps climbing in the polls with every outrageous comment. Bernie Sanders, to a lesser degree, is experiencing the same phenomenon on the Democratic side of things. Here’s a guy who openly tells you that he’s a socialist, who’s preaching against the big banks and corporate money, and who might somehow have worse hair than Trump. And he’s climbing in the polls. Voters are tired of scripted and molded candidates, walking like robots through the usual routine of gathering votes. They want something different. Unfortunately, in this state, that something different sounds a lot like the same, disgusting bigotry that has ruled here for years. It just has a New York accent.
Speaker Mike Hubbard is so worried that he will be convicted on the 23 felony counts of violating State ethics laws, that his legal team has filed a seal motion to have those laws ruled unconstitutional. After reviewing thousands of documents and hearing hundreds of hours of testimony, 18 citizens in Lee County found probable cause to indict and arrest Mike Hubbard, the most powerful politician in their district, on 23 felonies. There are some who do not believe that 12 other citizens called from that same district will find him guilty of those 23 felonies. But, there is one group that is worried he will be convicted: Hubbard’s criminal defense team. Criminal defense attorney J. Mark White said, the reason they filed the motion to challenge the constitutionality of the laws under which Hubbard was indicted, and have them placed under seal, was because it contained grand jury testimony. Matt Hart, Chief of the AG’s Special Prosecution Division, said in court that the real reason was because the filing would embarrass Hubbard. Trail Judge Jacob Walker III agreed that the motion should be unsealed, and gave the defense until Friday August 21, to publicly file the motion. For the moment, the public and the media can only speculate on what grounds Hubbard will challenge the laws he championed, voted for, and praised saying: “Because of the laws passed in the  Special Session, and proudly signed into law by Governor Riley, Alabama ethics laws are now among the strongest in the nation.” What outrageous argument will Hubbard trot out to make the court believe that the laws he passed are somehow illegal? Hubbard also wrote one of those ethics laws: “It is my hope that future historians will say that this was the legislature that brought the reforms Alabama had needed for so long and that fundamentally changed how state government operates… Most voters in Alabama had become used to hearing politicians say one thing on the campaign trail and do something else once elected. That kind of empty rhetoric and broken promises has given Alabamians a serious distrust of state government for decades. We vowed to change that.” In his own words Hubbard proclaimed boldly that what he and the Republican supermajority “proudly” passed were historic ethics reforms, “that fundamentally changed how state government operates.” Now, he wants the court to believe that it was all a mistake?
WHILE WE WERE OUT — Just a little market action while your regular MM host was on the beach, eh? Can’t leave you people alone for a second! At least as a pure reaction to a Chinese slowdown, the 1,000-point Dow move seems way overdone. Per Pantheon’s Ian Shepherdson: “Exports to China account for just 0.7 percent of U.S. GDP; exports to all emerging markets account for 2.1 percent. So, even a 25 percent plunge in exports to these economies — comparable to the meltdown seen as global trade collapsed after the financial crisis — would subtract only 0.5 percent from U.S. growth over a full year …
The good news: “What matters, though, is the net impact on the U.S., which probably will be positive, thanks to the drop in commodity prices, especially oil. With crude oil dipping almost to $40 on Friday, retail gasoline prices will fall over the next couple of weeks, likely reaching just $1.85 per gallon by early September. In September last year, prices averaged $3.39. The saving to consumers from cheaper gas alone from last year’s peak to our September forecast will be some $180B, or 1.0 percent of GDP, at an annualized rate.”
THE ROUT CONTINUES — Reuters: “Alarm bells rang across world markets on Monday as a 9 percent dive in Chinese shares and a sharp drop in the dollar and major commodities panicked investors. European stocks … opened more than 3 percent in the red after their Asian counterparts slumped to 3-year lows as a three month-long rout in Chinese equities threatened to get out of hand. Safe-haven government bonds and the yen and the euro rallied as widespread fears of a China-led global economic slowdown kicked in. …
PANIC ON THE STREETS OF … EVERYWHERE — “‘Markets are panicking. Things are starting look like the Asian financial crisis in the late 1990s. Speculators are selling assets that seem the most vulnerable,’ said Takako Masai, head of research at Shinsei Bank in Tokyo. With serious doubts now emerging about the likelihood of a U.S. interest rate rise this year, the dollar slid against other major currencies …
“Commodity markets took a fresh battering. Brent and U.S. crude oil futures hit 6-1/2-year lows as concerns about a global supply glut added to worries over potentially weaker demand from China. … Copper, seen as a barometer of global industrial demand, tumbled 2.5 percent” http://reut.rs/1PufjJd
$5 TRILLION IN GLOBAL WEALTH … OBLITERATED — Bloomberg: “A wave of selling gripped global markets as the rout in all but the safest assets deepened. … European stocks dropped as U.S. equity-index futures signaled a fifth straight day of losses and the Shanghai Composite Index lost as much as 9 percent. Brent crude tumbled through $45 a barrel and even gold wasn’t spared as metals slid. South …
“More than $5 trillion has been erased from the value of global stocks since China unexpectedly devalued the yuan, fueling speculation that the slowdown in the world’s second-largest economy may be deeper than previously thought. The rout is shaking confidence that the global economy will be strong enough to withstand higher U.S. interest rates, even as bets on a September liftoff evaporate. … The Stoxx Europe 600 Index slid 3.1 percent by 8:21 a.m. in London, taking its loss through the last four days close to 10 percent. Germany’s DAX Index retreated 3.2 percent and is heading for its longest streak of losses in almost four years.” http://bloom.bg/1PufGmS
RIP UP THE PLAYBOOK — WSJ’s Min Zeng: “The moves come as many investors rip up their playbooks for what might work for the rest of 2015. Fresh jitters about the global economy are giving U.S. government bonds an unexpected boost, once again wrong-footing investors who were convinced the three-decade-long rally in Treasurys was over. Gold and European bonds are also benefiting, while emerging markets and commodities bear the brunt of the selloff.” http://on.wsj.com/1PughF8
NYT LEAD STORY AS OF 415am by Neil Gough “Global Stocks Tumble”: “Global markets continued to plunge on Monday, with stocks across Asia and Europe sliding sharply, led by a rout in China. … The selling in China has accelerated despite extraordinary government intervention in the past two months aimed at propping up share prices. As the slide highlighted on Monday, those efforts have not been a success. …
“Investors’ concerns over China’s economic slowdown and a souring view of once-favored emerging economies have rattled financial markets around the world in recent days, and showed no signs of letting up on Monday The gloom was shared across the region. In Japan, the Nikkei 225 stock average closed 4.6 percent lower, while Australia’s main index fell 4.1 percent.” http://nyti.ms/1hCf6Jz
FT HEADLINE: “China plunges 8.5 percent triggering global rout … Beijing’s official mouthpiece dubs slide ‘Black Monday’” http://on.ft.com/1V3WEro
THIS JUST IN: John McCain is suspending his presidential campaign to return to Washington for crisis meetings on the market turmoil (#ThingsThatHappenedIn2008)
HOW MUCH SHOULD YOU BE FREAKING OUT? — Honestly we are in no position to say having just returned from vacation. And U.S. stocks could certainly take some more hits this week. But there is nothing like the massive credit bubble and super-leveraged Wall Street time bomb ticking in the U.S. to create a real domestic crisis like we saw in 2008 and 2009. But at least in terms of Chinese stocks, there seems to be no bottom.
HOT READ: LARRY SUMMERS WARNS THE FED — Per Larry Summers’ latest FT op-ed: “Raising rates this year will threaten all of the central bank’s major objectives … [A] reasonable assessment of current conditions suggest that raising rates in the near future would be a serious error that would threaten all three of the Fed’s major objectives — price stability, full employment and financial stability. … Unless … inflation sharply accelerates, or euphoria in markets breaks out, there is no case for the Fed to adjust policy interest rates.” http://bit.ly/1JfkV8A
KOTOK SAYS SUMMERS IS WRONG! — Cumberland Advisor’s David Kotok: “We believe the Fed will hike before the end of this year, most likely at the September meeting: they have no reason to wait. In fact, waiting would send a message to the markets that members of the Fed were more worried than markets believed them to be. The risk does not lie in the Fed’s implementing a single hike and letting markets reckon with the fact that you can move away from the zero bound and the world will not end. The risk lies in doing nothing.”
JACKSON HOLE PREVIEW — Mohamed A. El-Erian on Bloomberg View: “The annual “Economic Policy Symposium” in Jackson Hole, Wyoming, which brings together academic experts, financial market participants and many of the world’s central bankers, begins Aug. 27. The timing couldn’t be better, on paper, at least. … [T]he event organized by the Federal Reserve Bank of Kansas City should also be an opportunity to discuss the challenges facing the global economy, including the slowdown in the emerging world and the threat it presents to social wellbeing and financial stability.
“Yet what is desirable is not always feasible. In past years, U.S. officials in particular have varied in their approach to Jackson Hole. This year, they are most likely to play down any discussion of immediate policy issues, particularly given the genuine questions about whether central banks have exhausted their available policy responses. … Fed Chair Janet Yellen has appeared less eager to use Jackson Hole as a policy platform — especially given that market participants had come to expect major policy announcements at these gatherings” [Yellen is reportedly skipping Jackson Hole this year]
GOOD MONDAY MORNING — Good to be back after two weeks away, though we wouldn’t mind a softer re-entry than a full-blown global market meltdown. Thanks so much to everyone on the amazing POLITICO Pro Financial Services team for keeping things cranking along in my absence. Please forgive any rust as we restart our engine.
DRIVING THE WEEK — Will the market crash keep rolling in the U.S. this week? Will 2016ers have to start weighing in? Will it give Donald Trump more opportunities to be Donald Trump and claim he can fix everything? … President Obama is back from vacation and heads to Las Vegas today to deliver remarks at the National Clean Energy Summit … Case-Shiller Home Prices at 9:00 a.m. Tuesday expected to rise 0.1 percent. … Consumer Confidence at 10:00 a.m. Tuesday expected to rise to 93.0 from 90.9 … Second estimate on Q2 GDP at 8:30 a.m. Thursday expected to be revised up to a solid 3.2 percent from 2.3 percent … Personal income and spending at 8:30 a.m. Friday both expected to rise 0.4 percent … Kansas City Fed’s Jackson Hole conference starts Thursday …
THIS MORNING ON POLITICO PRO FINANCIAL SERVICES — Zachary Warmbrodt’s exclusive exit interview with departing CFTC commissioner Mark Wetjen [http://politico.pro/1hVrjsA]. For Pro’s subscriber-only coverage — and to get Morning Money every day before 6 a.m. — please contact Pro Services at (703) 341-4600 or email@example.com.
TRUMP STARTS RAISING CASH … — POLITICO’s Katy O’Donnell: “Donald Trump has boldly touted his independence from big donors, in June proclaiming ‘I’m using my own money’ during his presidential announcement speech … But even as Trump publicly scorned other candidates’ use of super PACs, he tacitly gave approval to the Make America Great Again PAC by attending a fundraiser the group held in New York last month. Trump spoke for between 10 and 15 minutes at the mid-July fundraiser, where about 200 people packed into a private residence in Manhattan. …
“Asked about the event, Trump campaign manager Corey Lewandowski initially told POLITICO on Thursday that Trump had not attended any PAC fundraisers ‘to my knowledge.’ However, on Friday a campaign spokeswoman confirmed that Trump did attend, and forwarded a message from the Republican presidential candidate. ‘There are so many people wanting to contribute and I am so grateful for their support. I appreciate the moral investment in my vision to Make America Great Again,’ Trump said in an e-mailed statement to POLITICO Friday.” http://politi.co/1JfmS4Z
… AND SLAPS AT HEDGE FUND MANAGERS — FT’s Barney Jopson: “Trump on Sunday turned his fire on hedge fund managers, calling them ‘paper-pushers’ who do not pay their fair share of tax, in the latest attack of his bombastic presidential campaign. Mr Trump … indicated he would close a loophole that lets hedge fund and private equity managers pay taxes at a lower capital gains rate instead of as income tax. … The billionaire’s comments add a new dimension to his unorthodox campaign because support for ending the so-called ‘carried interest loophole’ stretches across party lines, encompassing conservatives as well as Democrats. …
“Vowing to reform the tax law, Mr Trump said on Sunday that he would target hedge fund managers. ‘They are energetic. They are very smart. But a lot of them — they are paper-pushers. They make a fortune. They pay no tax. It’s ridiculous, OK?’ he told CBS television. ‘The hedge fund guys didn’t build this country. These are guys that shift paper around and they get lucky.’ Mr Trump said he would not be deterred by his relationships with hedge fund managers. ‘Some of them are friends of mine, some of them I couldn’t care less about,’ he said. ‘It’s the wrong thing. These guys are getting away with murder. I want to lower the rates for the middle class.’” http://on.ft.com/1NOtw31
BIDEN CLOSES IN ON RUN — POLITICO’s Edward-Isaac Dovere: “In interviews, current and former White House staffers say that as [Joe] Biden has ratcheted up the seriousness of his explorations, including having aides reach out to former top political operatives for President Barack Obama to gauge interest, the situation looks very different from when they’d been assuming [Hillary Clinton would] be the only real Democratic candidate in 2016. They had convinced themselves that she could be the heir to Obama and the one to protect his legacy, and they were excited about it. A Biden run would upend that.
“They know how hard it would be for Biden to win, even if progressive icon Elizabeth Warren were to back him. (The two held an unannounced meeting over the weekend.) They know that Clinton’s the heavy favorite to be the nominee. They’re still pretty confident she’s the one who’d put together the operation that would make her the strongest candidate next November. ‘I don’t know what the official line will be,’ said one West Wing staffer, ‘but you will have a lot of people in the building rooting for him.’” http://politi.co/1KePxcq
THE BIG IDEA: IS THE FED’S RATE THEORY WRONG? — WSJ’s Ben Leubsdorf: “Federal Reserve officials might raise interest rates soon because they have a theory: Falling unemployment pushes up prices and wages, requiring tighter credit to keep inflation in check. What they don’t have is proof that the theory has worked consistently in the past, or evidence it is working now. … The U.S. unemployment rate was 5.3 percent in July, just above the 5 percent to 5.2 percent range that Fed officials expect in the long run. But annual inflation readings have remained below the Fed’s 2 percent target, while pay raises seem stuck in low gear.
“Fed Chairwoman Janet Yellen and her colleagues face a tough decision at their Sept. 16-17 policy meeting. They can assume inflation will ramp up, and raise interest rates at the risk of smothering modest economic growth, or they could wait for evidence of an inflation uptick and risk seeing prices rise too fast. Their trust in the late economist A.W. Phillips, whose work on the relationship between the job market and wages remains popular but controversial four decades after his death, might matter as much as hard data on consumer prices and worker pay”
MARKET SLIDE RIPS TECH GIANTS — FT’s Richard Waters: “Investors are wary of the technology sector’s prospects this week after one of the market’s remaining bulwarks fell victim to the widespread equities rout late last week amid growing fears over the Chinese economy. Friday’s tumble deepened a slide that left some of the best-known tech names nursing even bigger losses than the rest of the market, with Apple, Microsoft, and Intel each falling nearly 9 per cent during the week. The setback has also exposed a widening gulf between the euphoric valuations for private tech companies and the more sombre public stock market, increasing the chances of a reversal for a group of high-flying private companies …
“Although public tech companies were not trading at high valuations by historic standards, the sector has been caught up in a wider market collapse that was ‘a carte blanche bloodbath for everyone’, said Kevin Walkush, a portfolio manager at Jensen Investment Management. Many US tech companies generate more than half their sales overseas, making them particularly exposed to a rising US dollar as other currencies slide, said Ryan Jacob, of Jacob Asset Management.” http://on.ft.com/1NDVaC6
10:30 am || Receives the Presidential Daily Briefing
12:30 pm || Lunch with Biden
2:40 pm || Departs White House
4:20 pm PT || Arrives Las Vegas
4:00 pm PT || Delivers remarks at the National Clean Energy Summit; Las Vegas
6:35 pm PT || Attends a fundraiser for the Nevada State Democratic Party; private residence, Henderson, Nevada
Live Stream of White House briefing at 12:30 pm
All times Eastern except as noted
Congress is in recess.
Key Tax Tips on the Tax Effects of Divorce or Separation
Income tax may be the last thing on your mind after a divorce or separation. However, these events can have a big impact on your taxes. Alimony and a name change are just a few items you may need to consider. Here are some key tax tips to keep in mind if you get divorced or separated.
- Child Support. If you pay child support, you can’t deduct it on your tax return. If you receive child support, the amount you receive is not taxable.
- Alimony Paid. If you make payments under a divorce or separate maintenance decree or written separation agreement you may be able to deduct them as alimony. This applies only if the payments qualify as alimony for federal tax purposes. If the decree or agreement does not require the payments, they do not qualify as alimony.
- Alimony Received. If you get alimony from your spouse or former spouse, it is taxable in the year you get it. Alimony is not subject to tax withholding so you may need to increase the tax you pay during the year to avoid a penalty. To do this, you can make estimated tax payments or increase the amount of tax withheld from your wages.
- Spousal IRA. If you get a final decree of divorce or separate maintenance by the end of your tax year, you can’t deduct contributions you make to your former spouse’s traditional IRA. You may be able to deduct contributions you make to your own traditional IRA.
- Name Changes. If you change your name after your divorce, notify the Social Security Administration of the change. File Form SS-5, Application for a Social Security Card. You can get the form on SSA.gov or call 800-772-1213 to order it. The name on your tax return must match SSA records. A name mismatch can delay your refund.
Health Care Law Considerations
- Special Marketplace Enrollment Period. If you lose your health insurance coverage due to divorce, you are still required to have coverage for every month of the year for yourself and the dependents you can claim on your tax return. Losing coverage through a divorce is considered a qualifying life event that allows you to enroll in health coverage through the Health Insurance Marketplace during a Special Enrollment Period.
- Changes in Circumstances. If you purchase health insurance coverage through the Health Insurance Marketplace you may get advance payments of the premium tax credit in 2015. If you do, you should report changes in circumstances to your Marketplace throughout the year. Changes to report include a change in marital status, a name change and a change in your income or family size. By reporting changes, you will help make sure that you get the proper type and amount of financial assistance. This will also help you avoid getting too much or too little credit in advance.
- Shared Policy Allocation. If you divorced or are legally separated during the tax year and are enrolled in the same qualified health plan, you and your former spouse must allocate policy amounts on your separate tax returns to figure your premium tax credit and reconcile any advance payments made on your behalf. Publication 974, Premium Tax Credit, has more information about the Shared Policy Allocation.
Each and every taxpayer has a set of fundamental rights they should be aware of when dealing with the IRS. These are your Taxpayer Bill of Rights. Explore your rights and our obligations to protect them on IRS.gov.