Fareed Zakaria GPS – CNN 04-26-15

Salient to Investors:

Fareed Zakaria said:

  • America needs reform and restructuring. The tax code is a corrupt mess. The US ranks third in global competitiveness, 12th in overall infrastructure, 24th in the quality of its electricity supply, and 101st in mobile telephone subscriptions.The average age of the US’s 84,000 dams is 52 years, of its 607,000 bridges is 42 years.
  • Social mobility has stalled largely because poor children have inadequate nutrition, child care, and education. Eduardo Porter at The New York Times says the US spends substantially less on educating poor children compared to rich ones.
  • The US spends less as a % of GDP on in science and research than it did in the 1970s.

Philip Mudd at CNN said the US cannot defeat ISIS – it can win against segments of terrorist groups but not an Islamic idea.

David Brooks at NY Times said:

  • We live in a culture that praises the resume virtues and ignores the eulogy virtues.
  • In 1950, 12% of high school seniors considered themselves very important, versus 80% in 2005.
  • Some audacious narcissism is required to be an entrepreneur.

Ray Dalio at Bridgewater Associates said:

  • My success is due to how I deal with not knowing, not because of what I know. Find people who disagree with you and try to see things through their eyes.
  • Very bullish on the productivity and innovation of the American economy. The US has a legal system that works, capital markets that work, and a culture of innovation.
  • Big data is the greatest American asset and the greatest world asset.
  • However, the quality of the government decision-making is terrible and we have to deal with the tailwind of the debt situation.
  • Bullish longer term on China as the capital that has been stuck with its state-owned enterprises and local governments flows to others parts of its economy.
  • China is richer than the US in assets and liabilities, not per capita, and will grow faster than the US for years. 7% of the 10.3% average growth rate over the last 10 years in China is unsustainable. China’s impressive leadership will manage its debt problem well.

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

at http://transcripts.cnn.com/TRANSCRIPTS/1504/26/fzgps.01.html

Fareed Zakaria GPS – CNN 04-19-15

Salient to Investors:

Fareed Zakaria said:

  • Lee Kuan Yew said America will remain the world’s dominant power in the 21st century only if it is the dominant Pacific power.
  • Global stability will be shaped by how the US handles China.
  • Graham Allison at Harvard said that since 1500, war resulted in 11 of the 15 cases where a transition of power took place.
  • China is the second-largest economy, but first when measured by purchasing power parity: yet its IMF voting share is only equivalent to that of Holland and Belgium combined.
  • Washington should turn its energies, attentions, and effort to Asia.
  • Turkey will be an illiberal democracy for the foreseeable future. It is one of the strictest Internet sensors in the world and President Erdogan has called social media the worst menace to society. Erdogan has built a palace which is >30 times the size of the White House.

Henry Paulson said:

  • China will overtake the US as the world’s largest economy. China now builds more than half of the buildings on earth, consumes half the cement, half the coal, half the steel.
  • Xi Jinping wants and needs a good relationship with the US.
  • The US economy is growing but not quickly enough and with tremendous income disparity.
  • The greatest threat to US long-term pre-eminence is not China but our political inability to strengthen and revitalize our economy and competitiveness.

Larry Summers said:

  • The US economy is growing, but not creating jobs, while productivity is not rising anywhere near levels in the past. The cause is a global phenomenon of the industrial world, namely a surplus of savings due to increasing inequality, developing countries accumulating reserves, and people paying down debt versus much less demand and investment.
  • Despite record low interest rates and near-high non-employment we are investing less in infrastructure than in any time since WWII on a net basis.
  • Borrowing money at 1% or less on average to finance the federal government is not the real problem; which is not making investments that offer very high rates of return for our children – instead, we are deferring maintenance and leaving them with a large liability.
  • The US should raise the minimum wage and allow unions a way to organize, which has been unavailable due to the enforcement, or not, of labor laws for the last quarter century.
  • The fundamental objective should be to raise middle-class incomes.
  • The US federal deficit has gone from 11% of GDP to below 3% of GDP, lower relative to the economy than the average over the last 40 years.

Musta Akyol said power has corrupted the ruling party in Turkey – certainties to win the upcoming election – though President Erdogan is no Putin and Turkey will not impose Sharia law and become Saudi Arabia any time soon.

David Brooks at The New York Times said:

  • Marco Rubio is the best of the Republican presidential candidates – creative and intellectually smart. Scott Walker is very practical and very sharp and, unlike all of his competitors, was a governor.
  • We underestimate international trends and electoral tastes. Tough people are winning, including Netanyahu and Merkel.
  • 53 percent of the electorate will probably be women.
  • Politicians who have a deep inner voice, like Abraham Lincoln, are few. Most are busy all the time, lack an inner voice, and are all me, me, me.  The age we live in selects out those with an inner life.

Jeffrey Sachs said:

  • 2015 is our last chance to act on climate change. The earth is warming – 2014 was the hottest year in instrument record – and the climate is becoming more unstable.
  • The population of 800 million people in 1750 has increased to over 7 billion today, while each person now uses ten times the resources.
  • Technology can accelerate the disaster or solve it. While solar is clean and much less expensive, the fossil fuel industry is now much more productive.
  • If China and India continue to completely depend on coal then it does not matter what you and I do.

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

at http://transcripts.cnn.com/TRANSCRIPTS/1504/19/fzgps.01.html

Fareed Zakaria GPS – CNN 04-12-14

Salient to Investors:

Fareed Zakaria said:

  • Kenneth Pollock says Iran’s foreign policy has been rational and prudent over the years.
  • China has less than 5% of the vote in the World Bank and less than 4% of the vote at the IMF.

Larry Summers said:

  • The US has lost its role as the underwriter of the global economic system.
  • US diplomacy has proved a disaster

Malcolm Gladwell said:

  • Americans are the most honest taxpayers in the world, with only Switzerland even close, yet the penalties for cheating are lower than almost anywhere else, the IRS audits a smaller number of taxpayers than almost any other developed country.
  • Americans perceive their tax system as legitimate.
  • Power is perceived as legitimate if it is respectful of those who are under its purview, if it is fair and trustworthy.
  • If you raise a child in comfort, the path to it doing something extraordinary is more difficult.

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

at http://transcripts.cnn.com/TRANSCRIPTS/1504/12/fzgps.01.html

‘The market is rigged’ – Michael Lewis – BBC News 04-10-15

Salient to Investors:

Michael Lewis said:

  • Charles Munger says high-frequency trading is the functional equivalent of letting a lot of rats into a granary.
  • Electronic trading has rigged the market against ordinary investors, particularly in America, by allowing high-frequency traders to front run institutional investors and skim billions of dollars from the market.
  • Screwed up behavior is normal, even praised because it increases profits, while new regulation is uncertain because of the revolving door between Wall Street banks and HFTs and the regulators.
  • Perverse incentives means that culture change in financial services is glacial at best.
  • The IEX seeks to eliminate predatory opportunities created by speed and counts its biggest source of orders is from Goldman Sachs.

Rebecca Healey at Tabb Group said many market participants have already adapted trading strategies to deal with HFT constructively and automation delivers choice and fosters lower commissions for investors.

High-frequency trading accounts for 30% of business on the UK equity market.

Read the full article at http://www.bbc.com/news/business-32246655

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Meet The New Recession Cycle — It’s Triggered By Bursting Bubbles, Not Surging Inflation – David Stockman’s Contra-Corner 04-05-15

Salient to Investors:

David Stockman writes:

  • Chris Rupkey at MUFG Union Bank says consumers have emerged from the winter blues and if they spend anywhere as great as they feel, the economy will roar over the next few months. Rupkey and others have been expecting a roaring economy for several years but are wrong because they use a business cycle model that is erroneous and obsolete.
  • We are in a bubble finance world driven by Wall Street speculation.
  • The business cycle is essentially a product of central banking, which generates credit inflation and economic boom and bust.
  • The Fed of yesteryear was reactive, prudent and pre-Keynesian and mostly a passive watchman.
  • Global central banks are racing in the same direction of ease and rampant money printing, while for 80% of today’s debt saturated household balance sheets, spending is constrained to current wages and income regardless of the price of credit.
  • Capital markets are no longer honest with debt and equity capital priced correctly and executives rewarded for investing in long-term productive assets. Today, debt is drastically under-priced and financial engineering – stock buybacks and pointless M&A deals – are deeply subsidized and powerfully rewarded.
  • In the past, you got inflation in one country because there was no mobilized cheap labor pool and export factories in Asia to constrain the classic wage-price-cost spiral. Eventually, the Fed had to extinguish the very wage-price spiral it had caused.
  • The reason for the late 1970s consumer price explosion was not the presence of OPEC in the world oil market but the absence of the China labor force and the “china price” for tradeable goods in the face of massive monetary expansion.
  • ZIRP and QE have inflated financial assets rather than wages and prices as it did during the era of inflation in one country.
  • Central bankers believe that they can keep easing until a 1970s style inflationary spiral arises, but that will not come because their money printing of the last two decades has generated massive excessive capacity and malinvestment. Instead, expect an unprecedented global deflation as the financial bubbles burst for the third time this century.

Read the full article at http://davidstockmanscontracorner.com/meet-the-new-recession-cycle-its-triggered-by-bursting-bubbles-not-surging-inflation/

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

Fareed Zakaria GPS – CNN 04-05-15

Salient to Investors:

Fareed Zakaria said:

  • Continued sanctions are highly unlikely to halt Iran’s nuclear program, which has expanded under for two decades under sanctions – from below 200 centrifuges in 2003 to 19,000 today.
  • The US would effectively have to go to war with Iran to destroy its nuclear facilities, thereby triggering a strengthened Iranian government with a clear rationale to acquire a nuclear deterrent, and helping the Islamic republic gain domestic support. Iran’s oil revenues are more than enough to rebuild its facilities.
  • The Intl Center for Prison Studies said the US imprisons the most people by far – nearly 1 in 4 of the world’s inmates – despite only 1/20th of the world’s population. Norway and Denmark’s overall incarceration rate is 10 times lower than the US,

James A. Baker at Rice University said:

  • There may be upside to a dialogue with Iran provided that we can trust them: but I am very leery of trusting the current leadership. We would alienate all of our allies in the region.
  • The US should not put boots on the ground to destroy ISIS. The GCC countries love to free ride off America. We cannot be the policeman for the world.
  • The West has to find a way to bring Russia back into the community of nations. Putin’s actions are reminiscent of Hitler: slice here, slice there, talk but don’t do anything about it.
  • The prospects of a two-state Palestine solution are bleak but it is critical to Israel’s future, otherwise it will be hard for it to maintain both its Jewish and democratic characters because of the overwhelming demographics.

Dean Ornish at Preventive Medicine Research Institute said:

  • We are not a victim of our genes. Simple lifestyle changes like a whole foods plant-based diet, modern exercise, stress management techniques like yoga and meditation, and getting the love and support we need can even reverse heart disease and prostate cancer.
  • Animal protein is bad for you.
  • Chronic emotional stress can increase the risk of almost any illness, and even shorten the ends of our chromosomes that can tell how long we live.
  • Obamacare is a game-changer because it incentivizes doctors to do more prevention and health care and lifestyle intervention. – doctors/hospitals get to keep what is left over. So the fewer procedures and hospitalizations you have, the better.

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

at http://transcripts.cnn.com/TRANSCRIPTS/1504/05/fzgps.01.html