Fareed Zakaria GPS – CNN 02-22-15

Salient to Investors:

Fareed Zakaria said:

  • There are 1.6 billion Muslims in the world of which perhaps 30,000 are members of ISIS.
  • Sheri Berman at Barnard College says ideologies succeed when they replace failed ideas. ISIS has benefited from the failure of Pan Arab-ism, Republicanism, nascent efforts at democracy, economic liberalism and secularism.

Graeme Wood at Yale said:

  • Obama’s approach to ISIS is correct but denying ISIS has any Islamic character whatsoever is wrong and leads to misguided approaches.
  • ISIS is much more focused on Muslims in Iraq, Syria, and the immediate surroundings. ISIS hates Arab rulers more than they hate Israeli leaders so it is less of a direct threat to the American homeland but is a big threat to Middle East stability.

Shadi Hamid at Brookings said ISIS’ approach to Islam is a distortion and ignores centuries of medieval Islamic tradition – it is distinctly modern and reacting against what it dislikes in the world.

Peter Beinart at City University of New York said:

  • America has done best when it has defined its enemies narrowly. We allied with communists like Yugoslavia and China against the Soviet Union and never declared war on fascist Spain in WWII.
  • ISIS is not as great a threat as many fear so Obama’s approach is the right one.
  • Obama’s dispute with Netanyahu goes to the core of how they see themselves historically – Netanyahu as Churchill in the 1930s warning of Nazis, and Obama as Nixon in the 1970s with opening up China.
  • If the nuclear deal with Iran fails, and we have new sanctions, we will be on a path to war.

Peter Zeihan said:

  • In economic growth, what really matters is demography, geography, and topography, which is why almost all of the successful ones civilizations developed around navigable waterways.
  • The US has over 17,000 miles of navigable waterways, more than the rest of the world combined. China and Germany have 2,000 miles. Water transport costs 1/12 of what it cost to move things by land even assuming you have the infrastructure in place. Adding in interstate roadways, ports, and everything, it is a 50-1 advantage.
  • The Intracoastal Waterway, half of American water frontage, is protected. Texas has more combined port potential than all of East Asia. The three largest ports in the world are San Francisco Bay, Puget Sound and Chesapeake Bay.
  • The US is the only rich country in the world that is not aging fast like Japan and even Germany.
  • In the developing world, rapid urbanization has been good for economic growth but has made children a luxury good, so birth rates have collapsed. Indonesia and Brazil are aging at 3 or 4 times the rate in Western Europe.
  • The global trade system is dependent on the US, which does not really use it.
  • The US is the least involved international economy as a percentage of GDP and much of that is disappearing – US oil imports have dropped from 12 mbpd to 2 mbpd and within 2 years will be zero. Shale production costs are below $50 a barrel so the oil [price war is pushing out Russian Siberian crude or North Slope crude or Albertan or North Sea crude.
  • Oil prices are decoupling so there will not be a global price and a Middle East crisis will mean more expensive Middle Eastern oil but not West Texas crude.
  • Japan, China, and Germany et al all prospered over the last 70 years because the US set up a free trade system and defended the global commons with its Navy, which is 4 times more powerful than everybody else’s combined. That relationship and US commitment is ending and we are entering a new world which will be responsible for patrolling its own system along with resulting resource wars.

Watch the video at http://globalpublicsquare.blogs.cnn.com/category/gps-episodes/ or read the full transcript

at http://www.cnn.com/TRANSCRIPTS/1502/22/fzgps.01.html

Fareed Zakaria GPS – CNN 02-15-15

Salient to Investors:

Fareed Zakaria said:

  • The IEA said Russia faces a perfect storm of collapsing oil prices, international sanctions and currency depreciation.
  • The IMF predicts the Russian economy will contract by 3% in 2015.
  • Putin does not respond to higher costs in a rational calculating manner.
  • Military aid to Ukraine would stoke Russian nationalism, and the loss of men and money in a military operation will not deter it. No one believes that Ukraine can win a military contest with Russia. The consensus believes the only possible strategy is to raise costs for Russia.
  • Paul Krugman at the New York Times says Greece is only asking for what the Germans asked for in the 1950s.
  • Within 5 to 7 years, 800 million Indians will be connected to the Internet, versus 100 million today.
  • Steve Ratner said most southern European economies are fundamentally uncompetitive – there are 2,700 pages of labor laws in Italy.
  • Within 5 to 7 years, 800 million Indians will be connected to the Internet, versus 100 million today.

Bill Browder at Hermitage Capital Mgmt said:

  • The Russian oligarchs and government officials were stealing all the profits out of the companies he invested in.
  • Putin arrested the richest oligarch and told the others that if they did not want to be arrested they needed to share their money with him. Putin is the biggest oligarch and the richest man in the world, worth $200 billion in property, Swiss bank accounts, shares, and hedge funds.
  • In Russia, whoever has the power to arrest people is the person in power.
  • The one thing in Washington that everybody could agree on was that these Russians were bad.
  • While in power Putin will run Russia into the ground and cause the West many problems.

Zanny Minton Beddoes at The Economist said:

  • The Greek crisis will go down to the wire. The limited solution is relatively simple and that is more reform in return for debt relief. Greece cannot possibly repay its debt. Germany is wrong in demanding austerity and refusing to think about the debt.
  • The Greek economy has bottomed and is beginning to grow, but just as it appears they have got through the worst, they are throwing baby out with the bath water.
  • It is not clear that there would be massive contagion if Greece left the EU.
  • We will get the typical European solution which is akin to kicking fudge, but the odds of an accident this time are the highest in a long time.

Gillian Tett at Financial Times said:

  • Greece is only asking for what the Germans asked for in the 1950s and which has enjoyed a lot of debt relief in the last century.
  • The question is this Europe’s Lehman Brothers moment or will we see a chain reaction that could be extremely bad for the economy? The chance of an accident is rising.

Rana Foroohar at Time Magazine said:

  • Germany has benefited more than any other country from being in the euro zone, and will benefit from ECB QE because that will make the euro more competitive in the international market. Eventually the Germans will blink but expect much pain along the way and the problem not being fixed this time around.
  • Germany has done enough to create a consumption economy and bolster wages.
  • The political solution in Europe is a United States of Europe with real fiscal integration and more power in Brussels with Berlin holding the purse strings.
  • The periphery European economy needs to have a comfort zone in which they can reform.

Freedom House said:

  • Democracy has been declining for 9 straight years and is under greater threat than at any time in the last 25 years
  • 40% of the world’s population is free, 24% is partly free, and 36% is not free. In 2014, 61 countries saw their freedom deteriorate from 2013, versus 33 countries that saw freedom improve. The Middle East and North Africa are the least free.
  • Autocrats are no longer paying as much lip service to democracy and are returning to old 20th century modes of oppression: e.g. Russia’s invasion of Crimea, while China is detaining activists under stricter conditions than just house arrests and televising people’s confessions, and Egypt sentenced hundreds of political prisoners to be executed in sham trials.
  • Azerbaijan, Vietnam and Ethiopia do not receive the full ire of the free world despite their oppression.

Bill Gates said:

  • We are innovating at a wonderful speed and we will be reducing inequity for the basics faster than ever before.
  • Economists have always had a hard time with innovation because it is exogenous.
  • China’s growth is lower than it was but is still at a level that the US and the world would love to have.
  • Improving economic fundamentals will accelerate in the next 15 years.

Watch the video at http://globalpublicsquare.blogs.cnn.com/category/gps-episodes/ or read the full transcript

at http://transcripts.cnn.com/TRANSCRIPTS/1502/15/fzgps.01.html

The Dangers of Investing in Art – Bloomberg 02-12-15

Salient to Investors:

  • Art speculators’ whims often transform art into a terrible investment. Even beautiful art can be a fundamentally fickle asset.
  • Adam Lindemann cites more speculative buying than ever since the financial crisis, but says people avoid artists whose price goes down.
  • In the contemporary art world there is a perception the market is unstoppable.
  • Thea Westreich said sooner or later, the art world comes to its senses and things sort themselves out.
  • Countless collectors and speculators have bought work by young, in-demand artists only to see their investment disappear in a matter of months.

Read the full article at http://www.bloomberg.com/news/articles/2015-02-12/the-dangers-of-investing-in-art-anselm-reyle-s-decline

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A Time Bomb Wrapped in a Ukrainian Peace Deal – BloombergView 02-12-15

Salient to Investors:

Leonid Bershidsky writes:

  • The cease-fire deal is as close to a deal on Putin’s terms as decency allows and too contradictory to work long-term. However, even if the truce fails, it is clear there is a strong will to look for a lasting solution.
  • Ukraine is unlikely to be able to join NATO anytime soon.
  • Putin’s ultimate goal to keep Ukraine within Russia’s orbit economically and politically could not have achieved without a decisive military victory.

Read the full article at http://www.bloombergview.com/articles/2015-02-12/the-ticking-time-bomb-in-ukraine-s-cease-fire

Click here to receive free and immediate email alerts of the latest forecasts.

Goldman: Here’s Why Oil Crashed—and Why Lower Prices Are Here to Stay – Bloomberg 02-11-15

Salient to Investors:

Sven Jari Stehn at Goldman Sachs said:

  • The massive supply shock in half2 2014 accounted for most of the oil price decline, joined by slowing demand in December and January.
  • Since the stock market is a good indicator of economic demand, when stocks move in tandem with oil prices, demand is the driver: when oil prices move in the opposite direction of stocks, supply is the driver.
  • The new equilibrium price of oil will be much lower than over the past decade as a result of the oversupplied global oil market.

Read the full article at http://www.bloomberg.com/news/articles/2015-02-11/goldman-here-s-why-oil-crashed-and-why-lower-prices-are-here-to-stay

Click here to receive free and immediate email alerts of the latest forecasts.

Zanny Minton Beddoes – Charlie Rose 02-10-15

Salient to Investors:

Zanny Minton Beddoes at The Economist said:

  • The economy’s fundamental drivers, particularly rapid technological change, means that the rewards disproportionately go to the top.
  • The latest IMF research suggests that you get stronger and more lasting economic growth in societies that are more equal.
  • The last time we had this huge a technological change – the Industrial Revolution – we also had huge changes in public policy.
  • The world has incredibly low interest rates and a big need for more spending on infrastructure so it is a no-brainer to do that.
  • India is the shining example of a country with remarkable economic growth and devotion to classic liberalism and to free markets.
  • A lot of China’s growth came from liberalization but more recently from debt-fueled investment binge. China is naturally slowing because it is richer and aging fast.
  • The US economy has accelerated in the last 6 months. Inequality and an aging population are challenges so rapid growth is going to be lower than it was 30-40 years ago.
  • Europe is still a mess. Japan shot itself in the foot with its consumption tax. The emerging world, including Brazil, is slowing.
  • The difference to the last time the Saudis let oil prices stay down for a while is that this time the shale investment time is much shorter than for traditional oil drilling. The oil market economics has shifted from one of OPEC domination to one that is supply and market driven.
  • Putin’s paranoia is under-appreciated as is the depth of his desire to remain popular.
  • Venezuela is headed for default quite soon.
  • The disproportionate losers from lower oil prices are also the tricky regimes, like Nigeria, Russia, Iran.
  • The short-term risk to the global economy is too much reliance on one engine, the US, an echo of the 1990s. Longer term, the risk is political economy fueled by stagnant living standards for the majority.
  • We are nearer the beginning than the end of this huge technology revolution.

Watch the video at http://www.charlierose.com/watch/60514294

Fareed Zakaria GPS – CNN 02-08-15

Salient to Investors:

Fareed Zakaria said:

  • ISIS’ strategy is to draw the US into a ground battle in Syria, and hope that a protracted war would sap US strength.
  • David Fromkin wrote that terrorism cannot always be prevented but can always be defeated.
  • India has 97 billionaires – third most in the world.

Fawaz Gerges at the London School of Economics said:

  • ISIS is self-destructive and strangling itself by pitting itself against the Muslim mainstream and public opinion, and Arab public opinion – ISIS should be defeated from within.
  • ISIS represents a fundamental challenge to Arab and Muslim societies, not to American and Western societies. Only Arabs and Muslims can deconstruct  ISIS’ twisted interpretation of the faith – this is a civil war within the Islamic world.

Marwan Muasher at the Carnegie Endowment for Intl Peace said:

  • ISIS have shown their true colors – no sane human being, let alone Muslim, would accept somebody to be burned alive and filmed on TV.
  • The only way to defeat ISIS in addition to the military campaign is for intellectual and religious leaders to openly and proactively talk about a pluralistic society.
  • Building a permanently stable and prosperous Arab society will take a lot more than military strikes.

Rula Jebreal said:

  • A lack of inclusion of moderate Muslims opens them up to being exploited by extremists.
  • Western invasions alone have not worked against terrorism.
  • Europe stripped its 20 million Muslims of a sense of belonging, thereby making them an easy target for radicalization.
  • Saudi Arabia and ISIS share the same ideology, so we need political and economic reform.

The OECD ranks the US 32nd of 39 mostly affluent countries with 38% of 3-yr-olds and 66% of American 4-yr-olds enrolled in preschool. The OECD average for 4-yr-olds is 84% enrolled. Belgium, and France enroll nearly all of their 3-yr-olds.

China claims it educates its children for 3 whole years before primary school, with 68% in pre-school enrollment in 2013 and an expected 75% in 2016.

The Perry Preschool Project study of 123 at-risk African-American children in 1962 found:

  • 77% who went to preschool graduated from high school versus 60% who had no preschool.
  • Preschool graduates had a median annual income of over $5,000 higher than the non-preschoolers.
  • 36% of preschool graduates had been arrested more than 5 times versus 55% of the non-preschoolers.
  • The approximately $15,000 investment per child yielded a total public savings of almost $200,000 not spent on welfare programs, jail, etc.

Stephen Sestanovish at the Council on Foreign Relations said:

  • Putin’s success in Crimea has only benefited him at home, save the diplomatic isolation and economic costs.
  • We are approaching a new Cold War. Ukraine is the most dangerous overall security situation since the end of the previous Cold War.

Stephen Cohen at Brookings said:

  • We are in a new Cold War, potentially much more dangerous than the last one because its center is right on Russia’s border, not in Berlin or in Ukraine.
  • The split in Europe will last.
  • Putin did not initiate the Ukraine crisis, did not want it and wants it ended but not by capitulation.
  • The only people interested in exploring the only way out are Hollande and Merkel and they are not very strong. The war parties in Washington, Kiev and NATO are now running this and we may be heading towards a Cuban missile crisis-like confrontation with Russia.Neither Russians or Americans have an appetite for this.
  • The demonization of Putin is beyond any factual basis and leads to amnesia among people who should know better. Henry Kissinger said this demonization is an alibi for not having a policy.
  • Kleptocracy is not a characteristic of the Russian economy, which was created by Yeltsin and inherited by Putin and which had its biggest grain crop in decades this year. Russia manufactures a lot of stuff.

Chrystia Freeland said:

  • Putin ultimately wants power and money, having established a personal kleptocracy in Russia.
  • Putin does not have a master plan, but can use extreme nationalism as a new source of legitimacy – it is a house of cards.
  • Russia is not the Soviet Union and is not a very strong regime. Its economy is weak, Putin’s oligarchs are unhappy, and the Russian bourgeoisie is now destroyed.
  • Putin’s Crimea excursion was done impulsively but worked better than he thought.

Bill Browder at Hermitage Capital Mgmt said:The Russian economy is a crook sitting at a world gas station – more than half of all the country’s revenues come from fuel exports.

  • Russia does not make stuff that people want to buy and anything they consume has to come from the West.
  • Everybody in Russia is trying to get their money out as fast as they can.
  • The Ukraine war was created as a distraction from the kleptocracy and economic problems, and Putin has to keep it going and invade other countries to keep the distraction.
  • Putin is entirely rational, just operating with a different set of motives and constraints than we are – throw all morality out the window when it comes to his decision making. Putin will kill people, start wars, destroy the Russian population, if it enhances his position, makes him wealthier or saves him from being arrested.
  • Putin started out as a kleptocrat who wanted to accumulate as much money as he could.
  • When the Russian people started to get mad at him Putin feared the same fate as Yanukovych and so started the war in Crimea which earned him an 88% approval rating.
  • Going into eastern Ukraine is not the same as going into Crimea and Russia is taking casualties, which Russians don’t want.
  • The Russian economy is crashing because of sanctions.

Watch the video at http://globalpublicsquare.blogs.cnn.com/category/gps-episodes/ or read the full transcript

at http://transcripts.cnn.com/TRANSCRIPTS/1502/08/fzgps.01.html

These Experts Know Exactly Where Oil Prices Are Headed – BloombergBusiness 02-06-15

Salient to Investors:

  • Gary Cohn at Goldman Sachs predicts oil will decline to as low as $30.
  • Astenbeck Capital Mgmt said shale oil will soon be needed to make up for global production declines, pushing US prices to as high as $65.
  • Giovanni Staunovo at UBS says oil is yet to bottom.
  • Bill O’Grady at Confluence Investment Mgmt says we are bottoming, with $60 the pivot point in the long run.
  • Miswin Mahesh at Barclays sees oil as low as $30 because supply surpluses will not disappear overnight.
  • Edward Morse at Citigroup sees oil as low as $20 and the recent surge just a head-fake, but expects a rebound to $75 in Q4 2015.
  • A Bloomberg Intelligence survey of 86 investment specialists predict the 2015 average price to range anywhere from $35 to $80.

Read the full article at http://www.bloomberg.com/news/articles/2015-02-06/these-experts-know-exactly-where-oil-prices-are-headed

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Fareed Zakaria GPS – CNN 02-01-15

Salient to Investors:

Fareed Zakaria said:

  • Negative foreign policy is about preventing bad things from happening, confronting dangers and dealing with bad guys. Positive foreign policy is about building new relationships, expanding markets and opportunities, strengthening alliances and values.
  • India will be the next global Goliath, though not as fast growing as China, because of its size. Indian society, increasingly pro-American, has long been attracted to America.
  • Mexico has gone from being anti-America 30 years ago to a country whose economy is closely linked to the US, a culture that has been Americanized in many respects, and whose politicians regard America as its natural partner.
  • Asia, Latin America, and Africa are moving in the right direction.

Watch the video at http://globalpublicsquare.blogs.cnn.com/category/gps-episodes/ or read the full transcript at http://transcripts.cnn.com/TRANSCRIPTS/1502/01/fzgps.01.html