Fareed Zakaria GPS – CNN 06-28-15

Salient to Investors:

Fareed Zakaria said:

  • Singapore mandates ethnic diversity in all neighborhoods – over 80% of Singaporeans live in public housing. US efforts in the 50s and 60s to desegregate schools and integrate neighborhoods were largely abandoned by the 80s and America is now strikingly segregated. A UCLA study in 2014 said many black and Latino students face almost total isolation, not only from white and Asian students but also from middle class peers as well.
  • Singapore’s Deputy PM Tharman Shanmugaratnam said half the Muslim population in Britain lives in the bottom 10% of its neighborhoods by income.
  • The Nuclear Threat Initiative says 25  countries have weapons usable nuclear material, stored at hundreds of different sites under no strict international rules for security. NTI says nation states are not the only entities with the knowledge to build bombs. Some sites rely on local police for protection, or must call in military units. IAEA says more than 100 incidents of unauthorized activity, including thefts, are reported every year involving nuclear and radioactive materials.
  • The Fissile Materials Working Group says enough material to make tens of thousands of nuclear bombs as powerful as the Nagasaki bomb. A terrorist only needs enough highly enriched uranium to fit into a 5-pound bag of sugar to create a nuclear weapon.
  • Since 2012, 7 countries have eliminated most or all of their weapons usable nuclear material, including Ukraine.

Phil Mudd at CNN said:

  • ISIS is trying to draw a sharp line between Sunni and Shia, at the heart of Middle Eastern culture.
  • Sunni-Shia conflict is more likely in Yemen because other countries like Saudi Arabia have lots of money to spend on security forces who would come in with an iron fist.
  • Iraq is finished as a state because of Sunni-Shia divide.
  • The Middle East will worsen on two fronts. The divide between moderate Sunnis and extremist Sunnis will last for decades. Many countries, including Iraq and Syria, will become more conservative over time even if IS does not take over. The centuries-old Sunni-Shia divide is rising up everywhere.
  • The argument that terror organizations are focused on fighting the government or each other, and so are less likely to spend a lot of energy on Western cities, is problematic because the world is changing. The number of foreign terrorists is so substantial that to believe that none of them will focus on Western Europe or North America is short-sighted: though most of their energy will be against each other.

Gary Samore said the myth that the Iranians benefit more than the US from the nuclear deal status quo is completely wrong – the status quo is very much in the US’s favor.

Watch the video at http://globalpublicsquare.blogs.cnn.com/category/gps-episodes/ or read the full transcript at http://transcripts.cnn.com/TRANSCRIPTS/1506/28/fzgps.01.html

China’s gold hoard will slay the mighty dollar – Daily Reckoning 06-27-15

Salient to Investors:

China last reported its gold reserves in 2009 at 1,054.1 tonnes, just 1% of the value of its foreign currency reserves, and less gold reserves than Germany, the IMF, Italy and France, and a fraction of those of the US.

Bloomberg Intelligence believes China’s reserves exceed 3,510 tonnes, which would be second only to the US.  Bloomberg says China may soon want to disclose its gold holdings in order to have the yuan join the IMF’s currency basket of dollar, euro, yen and British Pound.

China has $4 trillion in foreign currency reserves at a time when central banks are doing their utmost to devalue their currencies. China has called for a new currency to replace the US dollar as the global standard, so having assets other than currencies on its balance sheet makes sense.

The IMF estimates 63% of central bank reserves are held in US dollars, so an alternative currency could hugely decrease dollar demand and flood the market with dollars.

Read the full article at http://www.businessinsider.com/why-chinas-gold-hoard-will-slay-the-mighty-dollar-2015-6

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

Alexis Tsipras—-Angel Of Mercy Or “Trusty” Of The Central Bankers’ Debt Prison? – David Stockman’s Contra Corner 06-23-15

Salient to Investors:

David Stockman writes:

  • Keynesian central banking has created a worldwide financial bubble.
  • Soaring bond yields and the fear of losing debt market access are the one force that can cause governments to sober-up and acknowledge the facts.
  • Reagan did not want Volcker to ease the intense upward pressure on interest rates and private investment that the giant US deficits imposed. Three decades later, the world is upside-down, with sovereign debt markets becoming financial whore houses, all due to Keynesian economics’ unrelenting falsification of bond prices using QE and ZIRP. Much of Wall Street loathed monetization in Reagan’s day, but today feast on and worship it.
  • The 10-yr German bund trading at 0.05 % and long-term Italian (a quasi-bankrupt country) bonds trading at under 1% is absurd.
  • The Greek showdown is a striking example of how monetary evil-doing imperils political democracy. Greece bankrupted itself years ago using a debt market falsified by the ECB and remains a notoriously corrupt, inefficient, special interest dominated economy.
  • The Greek economic expansion between 2001 and the 2009 peak of 10% nominal GDP growth was unsustainable because it was a debt fueled bubble of public and private construction investment, new household consumption and drastically increased pensions and other social welfare programs.
  • Greece’s current public debt ratio of 180% of GDP cannot be serviced over the long haul. Greek Prime Minister Tsipras’ left-wing statist economics would cause Greeks catastrophic suffering if it were ever implemented but he is absolutely correct on the matter of political self-governance.
  • The Greek default drama provides an opportunity to deal a death-blow to today’s malignant regime of Keynesian central banking. There is no way that the euro and ECB could survive a Greece exit, nor could worldwide Keynesian central banking survive the blow of their demise.

Read the full article at http://davidstockmanscontracorner.com/alexis-tsipras-angel-of-mercy-or-trusty-of-the-keynesian-central-bankers-debtors-prison/?utm_source=wysija&utm_medium=email&utm_campaign=Mailing+List+AM+Tuesday

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

Don’t Worry About the Bull Market; Worry About the Dollar: Richard Bernstein – ThinkAdvisor 06-22-15

Salient to Investors:

Richard Bernstein at Richard Bernstein Advisors writes:

  • The bull market is intact. Markets rise after the Fed starts raising as earnings trump rising rates, and there is no end of cycle behavior, like excessive leverage or a big buildup in inventories except for energy.
  • The MSCI European stock index is up 11% year-to-date, but only 5% in dollar terms.
  • Currency is the most important issue when investing globally: between 2002 and 2008 the decline in the dollar accounted for 80% of the gain in the Euro Stoxx 50 index for US investors.
  • The dollar rise since 2011 will continue so US investors should hedge this risk.
  • Bullish on South Korea, which is where Japan was 2 years ago. South Korea has terrible corporate profits and is slipping into deflation so has no choice but to depreciate the won.
  • China is at a competitive disadvantage because their currency is somewhat pegged to the dollar and their companies have a lot of dollar-denominated debt, so they are unable to depreciate and will lose market share.
  • India is unable to depreciate because of high inflation so will lose market share to Japan and South Korea.

FactSet predicts S&P 500 earnings will fall 4.7% in Q2, rise 2% excluding energy: for all of 2015 rise 1.6%, 8.2% excluding energy.

Bank of America Merrill Lynch says fund investors remain bullish on European stocks.

Read the full article at http://www.thinkadvisor.com/2015/06/22/dont-worry-about-the-bull-market-worry-about-the-d?eNL=55886aae150ba045336e3852&utm_source=earlywire062315&utm_medium=enewsletter&utm_campaign=earlywire&_LID=179068825

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

Fareed Zakaria GPS – CNN 06-21-15

Salient to Investors:

Fareed Zakaria said:

  • Energy-related emissions were flat in 2014 for the first time in 40 years.
  • Technology and policy innovations in energy are not happening on the scale that they need to.
  • In 2011, federal spending on R&D as a percentage of GDP in 2011 was half what it was in 1960, 30% of global R&D spending vs. 37% in 2001 – China is projected to pass the US by 2019. The world is copying the US model while the US has lost the smarts or the will to keep up.
  • NASA no longer has the ability to independently put an astronaut into space, instead relying on private companies or foreign governments. China does have the ability and intends to build a new space station, go to the moon, and go to Mars.

Richard Clarke said:

  • The whack-a-mole strategy has disruptive value if done persistently but until we have a political solution involving an ideological counter weight to the terrorist view of Islam, we will be doing this forever. Has to be part of a bigger strategy.
  • A major American military operation is not required, but getting all of the other players to act together.
  • After 9/11, we told ourselves we would never allow a terrorist sanctuary to exist again – now we have the greatest terror sanctuary.

Leroy Chiao  said:

  • China’s space program is long-term and culturally consistent with their other views. China wants to put astronauts on the moon, which the US can no longer do. The moon is only three days away so can be used to make sure your stuff works before you send it to Mars.
  • A country gets into the human space flight business for the primary reason of national prestige.

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

at http://transcripts.cnn.com/TRANSCRIPTS/1506/21/fzgps.01.html

The Warren Buffett Economy—Why Its Days Are Numbered (Part 5) – David Stockman’s Contra Corner 06-17-15

Salient to Investors:

David Stockman writes:

  • Economists Piketty and Krugman are zero-sum anti-capitalists.
  • Real capitalism cannot thrive unless inventive and entrepreneurial genius is rewarded with outsized fortunes. Massive central bank  intervention is not necessary for capitalism to thrive.
  • The free market does not perennially slump toward underperformance and depressionary collapse without fiscal and monetary intervention. Heavy-handed monetary central planning destroys capitalist prosperity.
  • The panics of the pre-Fed period usually ended quickly when the overnight money rate soared by hundreds of basis points a day and often deep into double digits. Free market interest rates cured speculative excesses. The great speculators of the day like Jay Cooke ended up broke after 10 years, not worth $73 billion after three decades like Warren Buffett et al whose financial gambling fortunes are not due to genius, but to the Fed’s $50 trillion bubble..
  • The difference between fiat credit and honest savings is the fundamental dividing line between bubble finance and healthy capitalist prosperity. Free market finance is an unknown  concept today, and Wall Street and Washington both militate against it.

Read the full article at http://davidstockmanscontracorner.com/the-warren-buffett-economy-why-its-days-are-numbered-part-5/?utm_source=wysija&utm_medium=email&utm_campaign=Mailing+List+Mid+Day+Friday

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

The Warren Buffett Economy – Why Its Days Are Numbered (Part 4) – David Stockman’s Contra Corner 06-15-15

Salient to Investors:

David Stockman writes:

  • The Fed has generated a $50 trillion financial bubble and made money and capital markets to little more than gambling casinos.
  • Speculative rent-seeking in the financial market has replaced entrepreneurial innovation and supply side investment and productivity, resulting in a severe drop in real growth and a massive redistribution of windfall wealth to the few, who own most of the financial assets.
  • Keynesian stimulus has artificially goosed the price of bonds and lowered their yields, while the implicit Fed “put” underpins the economics of buy-the-dip speculators.
  • Keynesian economics originated during the Depression: it was wrong then, and utterly irrelevant now in our global post-industrial economy. The Fed can do nothing to cause the US steel industry’s capacity utilization rate to be 90% or 65%, given today’s world of open trade and the vastly over-sized global steel market.
  • Keynes advocated for stringent protectionism and economic self-sufficiency 6 years before his General Theory – they are absolutely necessary to state management of the business cycle. Keynes made sure to publish his works in German, believing Nazi Germany was the ideal test bed for his economic remedies.
  • Potential labor supply is a function of global labor costs and comes atomized as hours and temporary contracts, not census bureau head counts. The government has no idea what the real world’s potential labor force computes to, thus the pursuit of “full employment” by Yellen is nonsensical and target of 5.2% on the U-3 unemployment rate as ridiculous.
  • The real unemployment rate is not 5.5%. The 210 million Americans between ages 16 and 68 represents 420 billion potential labor hours in full-time jobs, but BLS estimates only 240 billion hours were supplied to the US economy in 2014, meaning 180 billion unemployed labor hours, meaning that the real unemployment rate was 42.9%, a result of global economic forces of cheap labor and new productive capacity.
  • The Fed improved GDP and the labor utilization rate from the Kennedy administration to 2007 but only by using the one-time pony of leveraging up households and businesses through cheap debt. Households are still deleveraging relative to income, businesses are incrementally borrowing for stock buybacks, M&A deals and LBOs and not for new plant, equipment and other tangible assets.
  • At the limits of peak debt, the Fed’s default business becomes inflating the financial bubble and subsidizing carry-trade speculation.
  • The student debt bomb is $1.3 trillion, versus less than $300 billion only a decade ago, and will explode in the years ahead.
  • Off-shoring has spread to service work, resulting in wage suppression as those replaced workers accept low wages in adjacent activities.

Read the full article at http://davidstockmanscontracorner.com/the-warren-buffett-economy-why-its-days-are-numbered-part-4/?utm_source=wysija&utm_medium=email&utm_campaign=Mailing+List+Mid+Day+Friday

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

Fareed Zakaria GPS – CNN 06-14-15

Salient to Investors:

Fareed Zakaria said:

  • The cold war between Russia and the West over Ukraine is worsening.
  • Saudi Arabia will not build a nuclear weapon whatever happens with Iran’s nuclear program because it cannot – oil is 44 % and manufacturing less than 10% of GDP. Saudi Arabia could not openly buy a nuclear bomb due to Western retaliation and interception. Pakistan is unlikely to sell nuclear bombs to Saudi Arabia for fear of jeopardizing its own future.
  • Saudi Arabia’s education system is backward and dysfunctional: ranks 73rd in math and science education v. Iran at 44th. Karen Elliott House says 1 of every 3 people in Saudi Arabia is a foreigner, 2 of 3 has a decent job, and 9 of 10 with private sector jobs are non-Saudi.
  • Saudi Arabia is no danger of collapse due to strong finances and smart use of patronage, politics, religion and repression.
  • The lesson of the last 10 years in Iraq and Afghanistan is that fixing the military side but not the political side is a mistake – the minute the US leaves or relaxes, the whole thing crumbles.
  • The UN estimates that the average woman needs 2.1 children to maintain the population of a developed country. Every EU country is below the 2.1 level.
  • Europe’s over-65s will increase to more than 25% and Japan’s to more than 33% of the population by 2050. Pew predicts double-digit percentage population drops for Greece, Portugal and Germany by 2050. France’s fertility rate is one of the best in Europe.
  • Pew predicts America’s population will grow by 27 percent from 2010 to 2050 due to immigrants, who tend to have more children than native-born Americans.
  • Japan expects to lose over 2 million people in the next 5 years, lose 20% of its population by 2050, and decline to 43 million people by 2110.
  • The US will be demographically vibrant and growing for decades.
  • Magna Carta was nullified in less than 3 months by  Pope Innocent III  at the request of King John.

David Rothkopf at Foreign Policy and Foreignpolicy.com said:

  • The latest addition of US troops to Iraq is the illusion of action, and a mistake – insufficient because it does not call for trainers to go out into the field with troops, which works best.
  • The emergence of Kurdistan as an entity will continue and ultimately be a good thing.  Iran have seized a big chunk of Iraq, which it will not return, and which the US won’t get back.

Richard Haass at the Council on Foreign Relations said:

  • Agree that the lesson of the last 10 years in Iraq and Afghanistan is that if you fix the military problem without fixing the politics behind it, then the minute the US leaves or relaxes the whole thing crumbles.
  • The Middle East conflict will worsen. The move to send additional troops to Iraq won’t succeed because it does not change any of the politics of either Iraq or Syria. It is a baby step and a consensus decision from people who know the policy is not working but reject doing anything dramatic or decisive. Incremental adjustments tend not to work and will be overwhelmed by events beyond our control.
  • IS will never be content until it has power over Saudi Arabia because it controls the two holiest cities of Islam.

Michael Porter at Harvard Business School said:

  • The US has become by far the lowest energy cost nation – oil and natural gas add at least $430 billion to the economy every year, or the equivalent of a large state. Low energy costs are revitalizing the US petrochemical and plastics industries – in an advanced industrial country, energy plays a large part, labor not so much.
  • US industrial electricity prices are half those of our major trading partners, gas prices a third.
  • The oil industry is in denial about the earthquake and water problems, which are significant, but is getting more able to control most of the problems, and at low-cost.

Michael Specter at The New Yorker said:

  • Luanda, Angola is the world’s most expensive city for expats because of oil – Angola is the second biggest center of oil in Africa after Nigeria. Angola oligarchs make Russian oligarchs look like pikers. Angola is a beautiful country with rich agricultural possibilities, an incredible coastline, but with very bad roads and infrastructure. The Chinese are building everything.
  • Every major city in the developing world and our part of the world has a huge discrepancy between very rich and very poor people.

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

at http://transcripts.cnn.com/TRANSCRIPTS/1506/14/fzgps.01.html

The Warren Buffett Economy – Why Its Days Are Numbered (Part 3) – David Stockman’s Contra Corner 06-11-15

Salient to Investors:

David Stockman writes:

  • The ratio of finance to GDP has risen to 540% vs. the historic norm of 200%. Central bank driven bubble finance since the late 1980s has resulted in the GDP deflator-adjusted value of corporate equities and credit market debt outstanding rising 8 times, while real median household income has not gained at all.
  • Warren Buffett’s real net worth rose 19 times in the same period, not by value investing – he is not a genius, nor invented anything – but by buying consumer names of the baby boom demographic wave, buying what he believed slower footed investors would be buying later, and by buying the banks and other companies that fed from the public purse. Under a regime of honest money and free market finance, no insurance company portfolio manager could make 19 times in real terms in 27 years.
  • The financial busts since 1987 were caused by the Fed, not by investor exuberance, deregulation, Wall Street greed and corruption, or Chinese workers saving too much money and causing low mortgage rates and a runaway housing boom in America.
  • Market capitalism is not chronically unstable, and the business cycle does not needs constant management and stimulus by the state. Every economic setback of modern times, including the Great Depression, was caused by either inflationary war finance or central bank fueled credit expansion.
  • The rationale for monetary central planning and state intervention – the Keynesian model – is completely wrong. Keynesian aggregate demand management tools seemed to work for three decades only due to a one-time monetary parlor trick – households, etc were repeatedly encouraged to “lever up” via periodic cycles of cheap money stimulus, and so did not generate new, sustainable wealth but borrowed economic activity from the future.
  • The potential GDP and full employment story is a crock and consists of made-up benchmarks that are absolutely meaningless in today’s global and tech economy.
  • Monetary central planning has been practiced on a global basis for most of this century and is causing enormous over-investment in industrial capacity owing to the repression of capital costs. For example, China has more excess steel capacity than the entire steel industry of the US and Europe combined.

Read the full article at http://davidstockmanscontracorner.com/the-warren-buffett-economy-why-its-days-are-numbered-part-3/?utm_source=wysija&utm_medium=email&utm_campaign=Mailing+List+Mid+Day+Thursday

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

The Warren Buffett Economy – Why Its Days Are Numbered (Part 2) – David Stockman’s Contra Corner 06-10-15

Salient to Investors:

David Stockman writes:

  • The financial carrying capacity of the developed market economies has deteriorated since the 1980s; due to aging demographics, declining competitiveness v. emerging market economies, declining productivity growth, and the big increase in the leverage ratio against public and private incomes.
  • The US’s ability to generate growth, incomes and profits has been significantly reduced, along with its ability to service debt and equity capital at an honest market rate of return.
  • The combined value of corporate equities and credit market debt has risen 8 times during the past 27 years, vs. a rise of only 3.5 times in nominal GDP.
  • Greenspan’s Fed generated a $50 trillion overhang of excess financialization for the US economy alone – worldwide excess financialization is multiples larger.
  • The Fed’s target of full-employment is impossible. The U-3 unemployment rate and the Fed’s industrial capacity utilization figures are meaningless. 5.2% unemployment and 2% inflation are economically impossible to achieve through interest rate manipulation, wealth effects ‘puts’ under the stock market, or using any of the Fed’s tools.
  • Greenspan’s Fed erroneously believed it was saving capitalism from its tendency toward instability, underperformance and depressionary collapse.
  • The Humphrey-Hawkins Act is one of the most dangerous laws ever enacted because it delegates power to a tiny, unelected and unaccountable group of monetary bureaucrats. There is zero evidence that wage workers are better off with any arbitrarily chosen price index over any time frames and prices cycles.
  • The predicate that capitalism has a death wish and is prone to depressionary collapse is wrong. The Great Depression did not stem from a fatal flaw of capitalism or the lack of money printing but from the massive indebtedness and inflation of the Great War and the easy money credit bubbles of the Roaring Twenties.
  • The post-WWII business recessions before Greenspan were short-lived, well-contained and self-correcting and caused by state actions and not capitalism or business cycle instability: the two deepest, in 1974-1975 and 1981-1982, were caused by the Fed.

Read the full article at http://davidstockmanscontracorner.com/the-warren-buffet-economy-why-its-days-are-numbered-part-2/

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