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Frontrunning: July 25

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  • Argentine holdout NML says government "choosing" to default (Reuters)
  • Crunch time for Gaza truce talks as death toll passes 800 (Reuters)
  • Don’t Tell Anybody About This Story on HFT Power Jump Trading (BBG)
  • U.S. Accuses Russia of Shelling Eastern Ukraine (BBG)
  • France’s Wheat Exports in Question as Rain Spoils Quality (BBG)
  • Tapering in action: Lower printer sales hurt Xerox's revenue (Reuters)
  • No liquidity? No Problem, there's an ETF for that: Bond ETFs Swelling in Europe as Trading Debt Gets Tougher (BBG)
  • Herbalife hires ex-Biden chief to fend off regulators (NYPost)
  • GM recalls far from calamity for some dealers who find new customers, business (Reuters)
  • Bad weather likely cause of fatal Air Algerie crash: French officials (Reuters)
  • White House bemoans lawmakers' delay on U.S. border crisis funds (Reuters)
  • Murdoch's 21st Century Fox pledges to extend buybacks (Reuters)
  • Google’s $1B purchase of Twitch confirmed — joins YouTube for new video empire (VentureBeat)
  • UN Seeks Swiss Private Banker Funding for Geneva Facelift (BBG)

 

Overnight Media Digest

WSJ

* The U.S. believes Russia is firing artillery across its border at Ukrainian military positions, the State Department said, an assertion that Moscow is playing a more direct role in the conflict. (http://on.wsj.com/1jXUWsX)

* An Air Algérie jetliner with at least 116 people on board crashed in northern Mali on Thursday, the airline and officials in Africa said. (http://on.wsj.com/1nYQ7uJ)

* Demand for new homes slowed sharply during the first half, a development that threatens to reverberate beyond the housing market and throughout the broader economy. Sales of new single-family homes fell 4.9 percent through the first six months of the year and June sales fell 8.1 percent from the prior month, according to Commerce Department data. (http://on.wsj.com/1x9huHU)

* After years of fighting for survival, U.S. airlines are finally able to show investors the money. American Airlines Group Inc said on Thursday it will buy back $1 billion of its stock and begin paying a quarterly cash dividend of 10 cents a share. United Continental Holdings Inc said it will launch a $1 billion share repurchase plan over the next three years. (http://on.wsj.com/1qDpgwf)

* GM on Thursday reported a profit of $278 million, off 80 percent from a year earlier. A $2.5 billion pretax bill for safety recalls and a victims' compensation fund slashed General Motors Co's second-quarter profit and highlighted the work it must do to close a profitability gap with rival Ford Motor Co, which reported stronger results for the quarter ahead of a critical product launch. (http://on.wsj.com/1kXV3A9)

* Argentina hasn't made many friends on Wall Street. But that hasn't stopped bankers from trying to bring the country back into the bond market. The largest financial firms spent much of the first part of 2014 devising an escape route for Argentina from a legal standoff with some hedge-fund bondholders that threatens to throw the nation into default for the second time in 13 years. (http://on.wsj.com/1qDqBmH)

* Wal-Mart Stores Inc's U.S. chief, Bill Simon, will leave the company on Aug. 8 and will be replaced by Asia head Greg Foran, a New Zealander who has never worked in the United States. Foran steps into the job at a time when Wal-Mart's U.S. namesake stores are stuck in a rut. (http://on.wsj.com/1pOQLxL)

* Barclays PLC fired back against New York Attorney General Eric Schneiderman, arguing that the prosecutor used misleading information and cherry-picked facts to support his allegation that the bank lied to its clients about the activity of high-speed traders in its "dark pool." (http://on.wsj.com/1rAXUES)

* OSI received one of its first pieces of good news in days as McDonald's said it would stick with the meat provider in China, using OSI's other factories in China, despite saying earlier this week it may have been misled by officials at Shanghai Husi Food. The burger giant's vote of confidence signaled OSI's importance to McDonald's and points to the close ties the companies have formed over six decades. (http://on.wsj.com/1rEFRiL)

* Investors are selling junk bonds at the fastest pace in more than a year, as fresh interest-rate fears and geopolitical turmoil amplify valuation concerns following a long rally. Prices on bonds issued by lower-rated U.S. companies tumbled to a three-month low this week, according to a Bank of America Merrill Lynch index. (http://on.wsj.com/1mLki8q)

* Zillow Inc is in advanced talks to buy rival online real-estate information service Trulia Inc, in a deal that could give their fast-growing websites even more power in the home-sale market. Terms of the potential deal couldn't be learned, but Trulia's stock-market value was nearly $2 billion. (http://on.wsj.com/1nzadQt)

* Comcast Corp, the largest cable operator in the United States, has quietly begun extending fiber optic cable all the way to customers' homes in certain parts of its service area, a significant shift that could help the company better compete with all-fiber providers like Verizon Communications Inc and Google Inc on internet speeds. (http://on.wsj.com/1lBLeb2)

* Proxy adviser Institutional Shareholder Services is challenging the nearly $49 million 2013 pay package given to Sprint Corp's chief executive and opposing the re-election of a board member to the compensation committee. ISS said it opposes Sprint Chief Executive Dan Hesse's pay package because a special equity award of $18.7 million was entirely time-based, lacking connection to any performance criteria.(http://on.wsj.com/1rQw2f0)

* U.S. President Barack Obama threw himself into the politically charged effort to block U.S. firms from reincorporating overseas for tax reasons, calling the relocations "wrong" and urging Congress to stop them through quick-fix legislation. (http://on.wsj.com/WNHbTz)

 

FT

Lloyds Banking Group Plc is expected to announce early next week that the British bank would pay between 200 million pounds and 300 million pounds ($509.52 million) to settle benchmark interest rate (LIBOR) fixing allegations.

Balfour Beatty and Carillion Plc, two of Britain's biggest construction companies, are in merger talks to create a 3 billion pound construction giant.

Barclays Plc urged the dismissal of a lawsuit from the New York attorney general alleging the bank lied to clients about its high-speed trading venue.

The European Central Bank said on Thursday its website had been hacked and about 20,000 email addresses and other contact information stolen but insisted no market-sensitive data was compromised.

British insurer Lancashire Holdings' founder Richard Brindle, who stepped down from the company earlier in the year, has left with a third of shareholders' return on equity with his package of cash and warrants.

 

NYT

* Amazon.com, which is embroiled in a very public conflict with the publisher Hachette, announced second-quarter losses nearly double what Wall Street predicted. (http://nyti.ms/1nYTEZZ)

* The International Monetary Fund said that the world economy was expanding less than it had previously forecasted, slowed by weaker growth in the United States, Russia and developing economies. (http://nyti.ms/1zaqdwo)

* U.S. President Barack Obama on Thursday called for Congress to strip away tax advantages that have encouraged a rush of mergers and acquisitions that give companies an overseas base while they maintain their presence in the United States. (http://nyti.ms/1pORqPE)

* Under pressure to reduce smog and carbon emissions, China is considering a mandatory cap on coal use, but it would be an adjustable ceiling and would allow coal consumption to grow for years. (http://nyti.ms/1zapgEv)

* Of all the financial implosions in the eurozone, few matched last year's collapse of tiny Cyprus in terms of drama and chaos. Frantic Cypriots queued up at banks to drain their accounts. Russian oligarchs scrambled to repatriate hidden fortunes. European officials, fearing another bout of market contagion, orchestrated an audacious 17 billion euro rescue package - forcing depositors to bear a large part of the cost, unlike other bailouts. Now, the foundation of the bailout, an analysis by bond giant Pimco, is being challenged by economists, lawyers and politicians in Cyprus. (http://nyti.ms/1x9tc5i)

* General Motors, hit by a spate of recalls over defective ignitions and other safety related charges that cost the company $3.8 billion, would be in worse shape financially without the surging sales of its large sport utility vehicles, which many once wrote off as artifacts of prerecession excess. (http://nyti.ms/1kevDn2)

* Morgan Stanley and securities regulators finalized a $275 million settlement on Thursday stemming from the Wall Street bank's role in the sale of securities backed by subprime mortgages. (http://nyti.ms/1rEI11J)

* The International Accounting Standards Board, issued a new accounting rule that will give banks much more leeway to write down the value of loans, something that both regulators and bankers demanded in the wake of the financial crisis. Yet the rule could also make it less attractive for banks to make loans in the first place because every loan will lead to an immediate reported loss. (http://nyti.ms/UwEZ0Z)

 

Canada

THE GLOBE AND MAIL

** Toronto mayoral candidate John Tory has written to the city's integrity commissioner, asking whether her investigation involving current Mayor Rob Ford will be completed in time for the October election. (http://bit.ly/WOuNm2)

** Two children and a woman on her first overseas trip are among five Canadians missing after an Air Algerie flight carrying 116 people across the Sahara desert changed course to avoid a storm, disappeared from radar and crashed. (http://bit.ly/1zbrN16)

Reports in the business section:

** If BlackBerry Ltd Chief Executive John Chen is worried about International Business Machines Corp and Apple Inc combining their efforts in enterprise technology, he's not letting on. In an interview with the Financial Times, he likened the team-up to when "two elephants start dancing," and suggested that his drive to transform the troubled handset maker is making the company nimble enough to compete with all. (http://bit.ly/1um0JNM)

NATIONAL POST

** A United Nations committee has told Canada it should free the man with no name - an immigrant who has been detained for seven years because the Canadian government can't identify who he is, or to where he should be deported. (http://bit.ly/1jYWEKA)

** An Ottawa doctor who caused a public health scare in 2011 after her endoscopy clinic failed a health inspection has agreed never to practise medicine again. Dr. Christiane Farazli was publicly reprimanded Thursday by the Ontario College of Physicians and Surgeons for disregarding the safety of patients and ignoring the fundamental principles of infection control. (http://bit.ly/1keQtCS)

FINANCIAL POST

** Malaysia's Petroliam Nasional Bhd is seeking potentially billions in tax relief from the Canadian government in exchange for opening new markets for Canadian natural gas, as it inches closer to a final investment decision on a British Columbia export terminal. (http://bit.ly/1lCLl6i)

** Making improvements to its fresh food business helped Loblaw Companies Ltd stay at the leading edge of a brutally competitive grocery sector in the second quarter. (http://bit.ly/1rQgwQn)

 

China

CHINA SECURITIES NEWS

- The China Banking Regulatory Commission (CBRC) told banks on Thursday to properly set loan terms for small and micro enterprises in order to avoid a mismatch between loan term and operating cycle. The commission also asked lenders to diversify loan products to better meet financing needs of companies and reduce their repayment burdens.

SHANGHAI SECURITIES NEWS

- The Agricultural Bank of China, the country's third-largest lender, will start offering interest rate discounts for first-home mortgages next month in Shanghai. The bank will offer discounts of 5 percent from the benchmark lending rate for customers with sound credit history, the bank said.

SECURITIES TIMES

- The China Banking Regulatory Commission rolled out specific measures on Thursday asking financial institutions to facilitate loan renewals for eligible small and micro enterprise without limited frequency.

SHANGHAI DAILY

- The Shanghai Audit Office reported that 3.09 billion yuan ($498.8 million) from 67 government-invested or dominated projects was misappropriated in 2013, while about 24 projects had cost overruns on unauthorised changes on project construction or deviation from original pricing plan.

PEOPLE'S DAILY

- China should take the Sino-Japanese War of 1894 as a lesson and be alert to the challenges presented by hegemonism and power politics, the paper said in a commentary.

Britain

The Times

RECKITT TO INVEST 100 MLN STG IN HULL R&D

(http://thetim.es/1rErYAW)

Reckitt Benckiser Group Plc said it would spend 100 million pounds creating a research and development facility for its consumer healthcare division in Hull.

UNIPART AUTOMOTIVE COLLAPSES WITH LOSS OF 1,250 JOBS

(http://thetim.es/1qDfryc)

Almost 1,250 British jobs are lost as one of the largest independent suppliers of car parts, workshop tools and garage equipment, Unipart, was plunged into administration.

The Guardian

ROYAL MAIL SHOULD TAKE LEGAL ACTION OVER UNIVERSAL DELIVERY MANDATE, UNION SAYS

(http://bit.ly/1phoqi2)

Trade unionists have called for Royal Mail Plc to take legal action if its mandate to deliver to even the most remote homes in the UK comes under threat.

BARCLAYS DEFENDS ITSELF AGAINST US ALLEGATIONS OVER 'DARK POOL' TRADING

(http://bit.ly/1nF9xdK)

Barclays Plc is mounting a vigorous defence against allegations that it defrauded its customers - accusations levelled by the US attorney general last month that sparked a fall in its share price and led to customers withdrawing their business.

The Telegraph

40 MLN STG 'BRIBE' FOR COMMUNITIES TO CONSIDER RADIOACTIVE WASTE DUMP BENEATH THEM

(http://bit.ly/UwcDUx)

Communities are to be paid 1 million pound a year simply to discuss the possibility of having a radioactive dump built beneath them, under the latest Government attempts to find a burial site for Britain's nuclear waste.

OFFSHORE WIND FARMS IN DOUBT AS SUBSIDY POT CAN FUND JUST ONE PROJECT

(http://bit.ly/1lBhriF)

Wind farm developers who fail to secure a subsidy contract this year will be forced to wait and attempt to secure funding in future years, with no guarantee of how much money - if any - will be available.

Sky News

BALFOUR AND CARILLION IN 3 BLN STG MERGER TALKS

(http://bit.ly/1pg4g86)

Two of Britain's biggest construction firms Balfour Beatty Plc and Carillion Plc are in merger talks to create a 3 billion pound powerhouse whose flagship projects would include London's Olympics Aquatics Centre and the redevelopment of Liverpool's Anfield home.

CABLE TO LAUNCH PROBE INTO COMET LIQUIDATORS

(http://bit.ly/1ojbnjF)

Business Secretary Vince Cable will say on Friday that the Insolvency Service, a Government agency, is referring three partners of Deloitte, the professional services firm, to ICAEW, which has the power to impose substantial fines or strip accountants of their licence to operate.

 

Fly On The Wall Pre-market Buzz

FUTURES:

Near 7:00 am ET:
S&P: -5 vs. fair value
Dow: -46 vs. fair value
Nasdaq: -17 vs. fair value

ECONOMIC REPORTS

Domestic economic reports scheduled include:
Durable goods orders for June at 8:30--consensus up 0.5%

ANALYST RESEARCH

Upgrades

Deckers Outdoor (DECK) upgraded to Buy from Hold at Jefferies
Gildan Activewear (GIL) upgraded to Outperform from Sector Perform at RBC Capital
Logitech (LOGI) upgraded to Neutral from Underweight at JPMorgan
Northern Trust (NTRS) upgraded to Neutral from Underweight at JPMorgan
Overstock.com (OSTK) upgraded to Buy from Neutral at B. Riley
Patterson-UTI Energy (PTEN) upgraded to Outperform at Raymond James
Petrobras (PBR) upgraded to Overweight from Equal Weight at Barclays
Popular (BPOP) upgraded to Buy from Neutral at Guggenheim
VeriSign (VRSN) upgraded to Neutral from Sell at Citigroup

Downgrades

Amazon.com (AMZN) downgraded to Fair Value from Buy at CRT Capital
Amazon.com (AMZN) downgraded to Neutral from Buy at B. Riley
BreitBurn Energy (BBEP) downgraded to Market Perform from Outperform at Raymond James
Brightcove (BCOV) downgraded to Neutral from Buy at B. Riley
Brightcove (BCOV) downgraded to Sector Perform from Outperform at Pacific Crest
Brightcove (BCOV) downgraded to Sector Perform from Outperform at RBC Capital
Cabot Oil & Gas (COG) downgraded to Neutral from Outperform at RW Baird
Cenovus Energy (CVE) downgraded to Equal Weight from Overweight at Barclays
Centene (CNC) downgraded to Market Perform from Outperform at Wells Fargo
Crown Castle (CCI) downgraded to Sector Perform from Outperform at Pacific Crest
D.R. Horton (DHI) downgraded to Neutral from Buy at MKM Partners
Domtar (UFS) downgraded to Outperform from Top Pick at RBC Capital
Exxon Mobil (XOM) downgraded to Underweight from Equal Weight at Barclays
General Motors (GM) downgraded to Hold from Buy at Deutsche Bank
Informatica (INFA) downgraded to Neutral from Outperform at Credit Suisse
Informatica (INFA) downgraded to Neutral from Outperform at RW Baird
Interpublic Group (IPG) downgraded to Neutral from Overweight at Atlantic Equities
Liberty Property (LPT) downgraded to Perform from Outperform at Oppenheimer
Maxim Integrated (MXIM) downgraded to Neutral from Buy at MKM Partners
Mylan (MYL) downgraded to Neutral from Buy at Citigroup
Netgear (NTGR) downgraded to Market Perform from Outperform at Raymond James
Precision Castparts (PCP) downgraded to Buy from Conviction Buy at Goldman
QR Energy (QRE) downgraded to Market Perform from Outperform at Raymond James
Questcor (QCOR) downgraded to Perform from Outperform at Oppenheimer
Starwood (HOT) downgraded to Market Perform from Outperform at Wells Fargo
WellCare (WCG) downgraded to Market Perform from Outperform at Wells Fargo

Initiations

Burlington Stores (BURL) initiated with a Buy at Buckingham
Ophthotech (OPHT) initiated with a Neutral at Goldman
PetroQuest (PQ) initiated with an In-Line at Imperial Capital
Twitter (TWTR) initiated with a Market Perform at Raymond James
 
COMPANY NEWS

21st Century Fox (FOXA) will transfer Sky Italia and its 57.4% interest in Sky Deutschland to BSkyB (BSYBY). In exchange for the transfer, 21st Century Fox will receive approximately $9.3B in value from BSkyB comprised of approximately $8.6B in cash and BSkyB’s 21% interest in National Geographic Channels International, raising 21st Century Fox’s ownership stake to 73%
Fox (FOXA) promised to to continue share buyback program in FY15
Lloyds (LYG) confirmed late stage settlement discussions with agencies
GM (GM) said 45 state AGs investigating ignition recalls
Amazon (AMZN) said Fire Phone can be viable product independently
James Schiro retired from the board of Goldman Sachs (GS), PepsiCo (PEP) due to health reasons

EARNINGS

Companies that beat consensus earnings expectations last night and today include:
Aon plc (AON), Arctic Cat (ACAT), Prosperity Bancshares (PB), Silicon Laboratories (SLAB), Covidien (COV), Stanley Black & Decker (SWK), Basic Energy (BAS), Deckers Outdoor (DECK), Sensient (SXT), Universal Health (UHS), Olin Corp. (OLN), Southside Bancshares (SBSI), Cape Bancorp (CBNJ), NewBridge Bancorp (NBBC), Dime Community (DCOM), Symetra Financial (SYA), Marketo (MKTO), Reinsurance Group (RGA), Celestica (CLS), LogMeln (LOGM), Republic Services (RSG), SPS Commerce (SPSC), Leggett & Platt (LEG), Altera (ALTR), QLogic (QLGC), Constant Contact (CTCT), Validus (VR), Ingram Micro (IM), Bryn Mawr Bank (BMTC), Dolby (DLB), AtriCure (ATRC), Proofpoint (PFPT), NetSuite (N), VeriSign (VRSN), Mellanox (MLNX), Pebblebrook Hotel (PEB), C.R. Bard (BCR), Freescale (FSL), Flextronics (FLEX), Chubb (CB), Qlik Technologies (QLIK), Abaxis (ABAX), BJ's Restaurants (BJRI), Principal Financial (PFG), MDC Partners (MDCA), WSFS Financial (WSFS), Align Technology (ALGN), Pacific Biosciences (PACB), Echo Global (ECHO), Visa (V), Starbucks (SBUX), Netgear (NTGR), RF Micro Devices (RFMD), Monolithic Power (MPWR), Pandora (P), Acacia Research (ACTG), Lattice Semiconductor (LSCC), Columbia Sportswear (COLM), Datalink (DTLK)

Companies that missed consensus earnings expectations include:

Amazon.com (AMZN), Riverbed (RVBD), WABCO (WBC), Heritage Commerce (HTBK), WellCare (WCG), Builders FirstSource (BLDR), Simpson Manufacturing (SSD), Glacier Bancorp (GBCI), First Business Financial (FBIZ), Key Technology (KTEC), Gigamon (GIMO), Callaway Golf (ELY), Tempur Sealy (TPX), Altra Holdings (AIMC), Monarch Casino (MCRI), Federated Investors (FII), KLA-Tencor (KLAC), SBA Communications (SBAC), IGI Laboratories (IG), National Bank (NBHC), Spectranetics (SPNC), Uroplasty (UPI), Streamline Health (STRM), TESARO (TSRO), Heritage Financial (HBOS), Encore Wire (WIRE)

Companies that matched consensus earnings expectations include:

Barnes Group (B), Investors Bancorp (ISBC), Hancock Holding (HBHC), Universal Truckload (UACL), Shore Bancshares (SHBI), Digi International (DGII), Microsemi (MSCC), Informatica (INFA), Mettler-Toledo (MTD), Stericycle (SRCL), Oritani Financial (ORIT), Swift Transport (SWFT), Cerner (CERN), Regal Entertainment (RGC), HomeAway (AWAY)

NEWSPAPERS/WEBSITES

Google (GOOG) to buy Twitch for $1B, VentureBeat reports
China Telecom (CHA) to start selling Microsoft's (MSFT) Xbox One in September, WSJ reports
Intel (INTC) to launch Core M for use in notebook/tablet models in Q4, DigiTimes says
Herbalife hires ex-Biden chief Alan Hoffman to fend off regulators, NY Post reports
Russian watchdog looks to bar certain McDonald's (MCD) products, Reuters reports
Loan write down standards changed for non-U.S. banks, NY Times reports
Ford  (F) shares look attractive, Barron's says

SYNDICATE

Advanced Drainage Systems (WMS) 14.5M share IPO priced at $16.00
Applied Genetic (AGTC) 2M share Secondary priced at $15.00
Compressco (GSJK) 15.28M share Secondary priced at $23.50
DragonWave (DRWI) files to sell C$21.5M of units
El Pollo Loco (LOCO) 7.142M share IPO priced at $16.00
Farmland Partners (FPI) 3.717M share Secondary priced at $12.50
Innocoll (INNL) 6.35M share IPO priced at $9.00
Ocular Therapeutix (OCUL) 5M share IPO priced at $13.00

 

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Fri, 07/25/2014 - 07:45 | 5002764 svayambhu108
svayambhu108's picture

If Russia will go down 1991 style will take from the market at least 4 mbd, who wants that... and that could be the least of the problems.

Who needs that.

They want Putin down and Russia muddling but not collapsing...

Fri, 07/25/2014 - 07:50 | 5002775 rsnoble
rsnoble's picture

No defaults!!

Fri, 07/25/2014 - 07:55 | 5002788 stevefromthenet
stevefromthenet's picture

SP500 2K, ALL PRAISE TO THE PLUNGE PROTECTION TEAM

Fri, 07/25/2014 - 07:56 | 5002797 Catullus
Catullus's picture

GM recalls far from calamity for some dealers who find new customers, business

Oh, we sold you a POS a few years ago? Buy another POS from us this year. Now no financing EVER if you overpay by $15,000. Also, we'll throw in free all weather mats!

Fri, 07/25/2014 - 07:58 | 5002799 Lumberjack
Lumberjack's picture
IMF cuts global growth outlook; India avoids ratings downgrade

 

http://in.reuters.com/article/2014/07/25/imf-economy-idINKBN0FT2JN20140725

 

...In fact, out of the BRICS countries - Brazil, Russia, India, China and South Africa - only India avoided an IMF ratings downgrade, as business sentiment recovers after the country's election.

Fri, 07/25/2014 - 08:09 | 5002800 observer007
observer007's picture

MH17: Netherland wants to send military troops to east ukraine:

http://tersee.com/#!q=mh17&t=text

Fri, 07/25/2014 - 08:43 | 5002924 Catullus
Catullus's picture

Sure. Invade my country because a commercial airliner flew in restricted airspace.

Fri, 07/25/2014 - 08:28 | 5002880 buzzsaw99
buzzsaw99's picture

wtg argentina

Fri, 07/25/2014 - 09:39 | 5003116 potato
potato's picture

Jump Trading is a joke. Their interview has you multiply forty 5-digit number pairs. Their neighbors downstairs are an even bigger joke.

"In the lawsuit, 31 former employees claimed Infinium leaders duped them into investing millions of dollars into the firm while hiding financial troubles. "

 

"31 Ex-Staff Sue Infinium Over Employee Equity Plan Losses"
Fri, 07/25/2014 - 09:45 | 5003140 dizzyfingers
dizzyfingers's picture

 

Jul 17 El País, Spain

By Jorge G. Castañeda

Translated By Kyle Moore

8 July 2014


Edited by Emily France
Spain - El País - Original Article (Spanish)

The humanitarian crisis caused by the new migratory tide from Central America and Mexico to the United States has provoked a welcome reflection and greater redefinition of policies in all of the countries involved. No one has stayed on the sidelines of the turbulence arising out of a number of factors. That includes the perpetrators of violence in the originating countries, among others, and the war on drugs in these small Central American nations; it includes Mexico, both a transit and an originating country, which has for years held a flagrantly reproachable track record of abusing immigrants from the south (including the years during which I was Secretary of Foreign Affairs); and it includes the United States and its unbelievable ambiguity and moral, political and legal confusion on the topic.

It is not known exactly what set off the current massive flow of undocumented and unaccompanied minors coming from El Salvador, Honduras, Guatemala and Mexico to the United States. The number of children detained at Mexico's border to the north has doubled in the last few months; it is estimated that in the current U.S. fiscal year — from October 2013 to September 2014 — that number will reach 100,000. Three-fourths of these minors come from Central America and 25 percent from Mexico, although it is assumed that the children are being truthful when they are asked where they are from. It makes sense to hide one's Mexican nationality because it is much more difficult to deport minors to Central America than to Mexico.

The legal explanation for the influx is simple. Since 2002, any minor detained in the United States without papers coming from a non-contiguous country (Mexico or Canada) must be transferred to the Department of Health and Human Services within 72 hours, at the latest, of being taken into custody by the authorities. After a little less than a month, on average, due to the scarcity of resources and personnel available for processing and detention, they are freed and handed over to family members in the United States, and begin their wait for a decree from a court exclusively dedicated to immigration cases. In other words, for all practical purposes, any non-Mexican minor that enters the United States without papers has a high chance of staying in said country for years before being deported, and of doing this legally. Last fiscal year, of the over 50,000 minor immigrants detained by the U.S. Border Patrol, only 2,000 were returned to their countries of origin.

Therefore, when the governments of the United States, Mexico and Central America denounce the polleros, coyotes or smugglers for deceiving people and spreading the rumor that children sent to the United States will be able to stay there legally, they too are deceiving people. If the children reach the Mexico-U.S. border and are handed over to U.S. authorities, they will have achieved what millions of undocumented adults have still not attained: a legal status in the United States. In the long run, perhaps, they will be deported. But what does "in the long run" mean to a 15-year-old youth who is fleeing the Salvadoran gangs, or an eight-year-old Honduran girl searching for her parents in New York? It is true that in recent weeks, a growing number of minors accompanied by their mothers or other female family members have crowded the courts and ad hoc detention centers set up by the federal and state governments for that purpose. The adult women accompanying the children will be promptly expelled; the minors will not.

A second factor is, without a doubt, the role of human traffickers, who are acting in a rational manner at this point. It is logical for a coyote, especially if he works in what is called organized crime, to spread the good news that, by paying less than $1,000, a Honduran or Salvadoran mother can send her children to the United States with a good chance of them arriving safe and sound. Or perhaps not so safe and sound, since on the way, especially in Mexico, all sorts of atrocities happen to them. But somehow, with a cynical resignation to the hardships that prevail in their countries, the parents overlook that cost and incorporate it into the price that is paid to the smuggler — especially in the way that they verify that what the traffickers are saying is truthful.

The third factor, which is of course very important, is the lack of security and the crime wave that exists in these countries. It is not a new wave. It dates back to the civil wars of the ‘80s and the sequels in the following decades, but the intensity and cumulative effect are obviously starting to take a toll. What is not clearly distinguishable is the tipping point that detonated such a mass exodus in recent months.

It is understandable that Barack Obama's government is not able to find a solution to the problem within the borders of the U.S. The only possibilities would necessitate a repeal of the law, signed in 2002 by George W. Bush, that requires that minors be transferred to health authorities, or a change to the process in use so that the deportation hearing at the beginning of their stay is much more expeditious. The versions and announcements of intentions along these lines have already spurred criticism and rejection, from the New York Times to the Catholic Church. Plus, it would imply increasing the number of judges and public defenders for the children, and quickly finding who to deliver the children to in their countries of origin.

In light of these difficulties, it is understandable that Washington would want these problems to be handled in Central America or in the transit country: Mexico. Since the circumstances in Central America — violence, lack of security, unemployment, gangs — are not likely to change, it is probable that Washington, through Vice President Joe Biden's visit to Guatemala, urged the Central American leaders to forcefully stop minors from leaving or entering their respective countries. And perhaps Obama himself requested the same from the Mexican president, Enrique Peña Nieto, through a telephone call a few days ago. All of these are very bad solutions.

None of them are possible or desirable. None of these countries has the capacity to secure its borders against entry or exit. The only thing that would happen if we agreed to the Americans' dirty work in Mexico and Central America is more corruption, extortion, abuse, rape, human rights violations, prostitution, etc., through repressive state apparatuses that are poorly suited for these purposes. The solution can be nothing short of regional, and must start with the comprehensive immigration reform that is so often talked about and so overdue in the United States. Only in exchange for this will the other countries be able to exert the enormous effort to control their borders and respect their laws. The worst way out of the crisis would be for Washington to extend its failed and agonizing war on drugs into a tragic war on children.

Jorge G. Castañeda is a political analyst and a member of the American Academy of Arts & Sciences.

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