Fareed Zakaria GPS – CNN 04-17-16

Salient to Investors:

IEA predicts coal consumption in OECD countries will fall 40% by 2040.

Julia Ioffe at Foreign Policy said:

The Saudi regime is in no danger of collapse and is still a strong US ally.

What is happening in Brazil is a sign of healthy cleansing, unlike Russia, where what the Panama papers revealed is far worse that anything Brazil has done. Russian courts will never go after the corrupt, but instead will pursue the corruption fighters.

Ed Luce at The Financial Times said Islamophobia is not weakening democracy but weakening constitutional liberalism.

Brett Stephens at The Wall Street Journal said:

Saudi Arabia could collapse should low oil prices continue, ISIS expanded into Saudi Arabia, the bad war with Yemen, and especially should the current trio of leaders fails.

Brexit would mean Scotland would try to leave Britain and join Europe.

Islamophobia is part of the poison of low growth. Contrast Germany which was able to absorb huge Muslim immigration during the post-war era of 3%-4% growth.

Brazil is the country of the future and always will be.

Gideon Rose at Foreign Affairs said:

Saudi Arabia has internal legitimacy, relatively good finances, strong control over their territory.

Vice President Temer of Brazil is not a particularly strong replacement if President Dilma goes, so no dramatic change or recovery soon.

Brazil’s problems will not destroy the world economy overall.

Julia Rozovsky at Google said their most effective teams all possess psychological safety, i.e. team members can take a risk without fearing being shot down or ridiculed.

Charles Duhigg at The New York Times said:

Researcher Amy Edmondson found that physiological safety has two components: first, the team has to feel like everyone could speak equality and second, the team exhibits social sensitivity, i.e. listening skills.

Saturday Night Live – a team of egomaniacal comedians and writers who for most of their lives hated other people – succeeded because Lorne Michaels forces everyone in team meetings to say something.

Watch the video at http://globalpublicsquare.blogs.cnn.com/category/gps-episodes/ or read the full transcript at http://transcripts.cnn.com/TRANSCRIPTS/1604/17/fzgps.01.html

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Fareed Zakaria GPS – CNN 12-13-15

Fareed Zakaria said:

Muslims in America are well-assimilated, unlike in Europe.

New America reports that the number of Americans killed by Islamist terrorists on US soil since 9/11 is 45, or 3 people a year, versus 11,000 killed in gun homicides in 2015.

Left-wing populist governments, in power for over a decade in Venezuela, Argentina and Brazil (which total 66% of South America’s population) have all suffered serious setbacks because they have run their economies into the ground as the huge boom in commodities ended.

WSJ expects Argentina to grow less than 1% in 2015. FT expects Brazil to decline 3% in 2015, and which is having its worst recession since the 1930s. Venezuela is expected to decline 10% in 2015 despite sky-high inflation and bare market shelves.

Ian Bremmer at Eurasia Group

The Paris and San Bernardino attacks drew the most divisive responses in a developed state to a national cataclysm that I have ever seen in my 30 year career.

The US will get another more centrist US president in 2017.

The world considers Trump a clown, but clowns have been elected. Trump winning the nomination is very unlikely. The extraordinary antipathy towards the establishment of all stripes is new to America and is not going away.

Berlusconi in Italy and Jeremy Corbin in Britain are not considered serious actors.

The transatlantic relationship that has underpinned the global order for many decades is falling apart.

David Millibrand at Intl Rescue Committee said:

Populism is strong when the center left and right are weak. Centrists Trudeau, Merkell and Cameron are strong, but centrists in France and the US are weak.

Trump’s clownish behavior is dangerous because it feeds the narrative of the clash of civilization and aggrandizes those who would threaten society’s religious. Trump still has only one-third of the 20% of Republican voters: the majority of the minority does not make a majority.

The only way to fight anger is with answers, which all politicians seeking power need. To run in the slip stream of extremism only feeds it.

Bernard-Henri Levy said:

The French National Front’s big result on the first round will not be consolidated in the second round. The reactionary trend (to the attacks) is not as strong as people say.

Trump does not embody the Republican Party, the American dream, the shining city upon the hill in any way. Jihadists, Putin, Iran, all enemies of America all pray for Trump winning the primary and the presidential election.

Watch the video at http://globalpublicsquare.blogs.cnn.com/category/gps-episodes/ or read the full transcript at http://transcripts.cnn.com/TRANSCRIPTS/1512/13/fzgps.01.html

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Fareed Zakaria GPS – CNN 10-25-15

Salient to Investors:

Fareed Zakaria said:

  • When politicians have been in power for a decade, voters usually want a change no matter how popular the leader is. The hallmark of populism is anger. Left-wing populism is mostly about economics. Right-wing populism is mostly about culture. Both hate the big city elites who they believe run the world.
  • Populism gets attention but rarely wins. The real democratic populists of the late 19th and early 20th century were agrarian reformists, anti-immigration activists, advocates of prohibition and ardent believers in the moral superiority of farms and small towns – but always lost the elections. The Democratic Party when it has been successful has never been about populism.
  • Ben Bernanke was the single individual responsible for preventing the financial crisis of 2008 from turning into something much worse.
  • Brazil is the biggest country in the entire Southern hemisphere, with the 6th largest population and 8th largest economy in the world, with a government with the lowest ever approval ratings according to Reuters.

Philip Tetlock at the University of Pennsylvania said:

  • The average expert in fields like politics is no better at making predictions than anyone making a random guess.
  • Many organizations, governments, and news media never truly evaluate the accuracy of their predictions.
  • Predicting is a skill that can be honed, and can be acquired with practice by anyone with a fair level of intelligence.
  • The best forecasters tend to be open-minded, consider information from many different sources, embrace nuance, qualifying their assertions carefully, and work well with those that disagree, without being disagreeable.

Ben Bernanke said:

  • You cannot have a collapse of the financial system and the rest of the economy emerges unscathed.
  • The US economy is recovering strongly, though not benefiting everybody. Globalization, huge technical and institutional changes have worked against the worker with the high school degree and little experience with technological change – a very long term problem that monetary policy can do little about.
  • Yellen has to decide if there is enough domestic momentum to keep us growing despite the drags from abroad.

Watch the video at http://globalpublicsquare.blogs.cnn.com/category/gps-episodes/ or read the full transcript at http://transcripts.cnn.com/TRANSCRIPTS/1510/25/fzgps.01.html

Wall Street’s Latest Bounce – Ostrich Economics At Work – David Stockman’s Contra Corner 10-20-15

Salient to Investors:

David Stockman writes:

The price of financial assets is now artificial and wildly inaccurate. $300 trillion of global finance cannot remain stable much longer.

Bulls believe the Fed is on hold until at least next March, while Wall Street is projecting S&P 500 earnings of $130 per share on an ex-items basis for 2016, and which will never happen. The S&P is overpriced at 21 times earnings, and at 30 times trailing earnings or more when honest GAAP earnings for Q3, 2015 come in at $95 per share or less, versus the peak $106 per share in Q3 2014. More than $5 trillion of current cash flow and new debt is now allocated to corporate stock buybacks, M&A deals and LBOs.

Alan Blinder and Mark Zandi admit QE has possible negative side-effects, but say that for the most part they have yet to materialize. All the while the global economy heads into a deflationary conflagration.

This mother of all bond market bubbles will bring down the entire financial system when it inexorably bursts: central banks have vast powers, but they cannot repeal the law of supply and demand. $19 trillion of central bank bond-buying during the last two decades has dominated debt pricing on the margin for most of this century. Last week’s 60 basis points for 2-yr treasury notes or 210 basis points for 10-yr money do not reflect a surfeit of private savings or business and household hoarding of cash but a giant surplus of credit.

Real net business investment is still 17% below its 2000 level. Junk debt has risen from $1.3 trillion at the 2007 peak to more than $2.5 trillion today driven by yield-starved money managers and homegamers.

Debt-crippled, junk-rated Dell is buying EMC for $67 billion, or 17 times free cash flow for 1% annual growth, funded almost entirely with junk debt and tracking stock on EMC’s major asset, a public company that pays it no dividends or other regular cash returns. In a PC industry which is disappearing at a rapid rate.

China is headed for massive economic and financial conflagration, which will spillover into the rest of the world because the entire emerging market economy was built on China’s runaway economy and investment bubble. China’s insane accumulation of foreign exchange reserves over two decades of massive and blatant currency pegging could not continue indefinitely which is why it has seen $850 billion capital outflow of the last 4 or 5 quarters and a $500 billion drop in FX reserves since late 2014. There is no way to manage a $28 trillion house of debt cards, which grew by 56 times in less than two decades, to a soft landing.

The bubble is bursting in socialist Brazil, in Australian mining, in Canadian real estate, in the North Dakota Bakken, and in the German export machine, as China and its EM suppliers are being forced into liquidating dollar and euro credit, and stop buying luxury cars and engineering machinery on borrowed money.

Read the full article at http://davidstockmanscontracorner.com/wall-streets-latest-bounce-ostrich-economics-at-work/

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Macquarie: Emerging Markets Are Not Facing a 1997-Style Crisis—They’re Facing Something Worse – Bloomberg Business 09-16-15

Salient to Investors:

Viktor Shvets and Chetan Seth at Macquarie said:

  • Emerging markets and economies are in a worse situation than in the 1997 Asian financial crisis because they now face far longer, more painful and insidious disease with limited or no cures or exits, punctuated by occasional significant flare-ups.
  • The effect of the 1997 crisis were mitigated by excessively loose monetary policies and China’s integration into global trade, which helped all markets recover quickly. However, this is not the environment facing economies in the next 5 to 10 years: long-term structural shifts, driven by the deflationary progress of the Third Industrial Revolution, is aggravated by overleveraging and overcapacity.
  • Turkey, South Africa, and Malaysia are at most risk, while China, the Philippines, and South Korea are at least risk. Brazil and Russia are at lessor risk but their low exposure to external debt could be undermined by slumping commodities and slowing trade.

Read the full article at http://www.bloomberg.com/news/articles/2015-09-16/macquarie-emerging-markets-are-not-facing-a-1997-style-crisis-they-re-facing-something-worse

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This Is Not A Retest – Its A Live Bear! – David Stockman’s Contra Corner 09-03-15

Salient to Investors:

David Stockman writes:

US stocks are in a bear market. Honest financial markets would have sold off long ago, but for central bank falsification of asset prices.

The S&P 500 is at 20 times trailing earnings as of June 2015: $97.32 per share versus $103.12 at the end of Q2, 2014, and the peak of $106 at the end of Q3, 2014, and $85 in mid-2007, when the S&P multiple was 17.6 times just before the crash. The gap between reported GAAP earnings and projected earnings – $35 per share – is the same now as then. At the end of Q2, 2008, LTM GAAP earnings had fallen to $51 per share, and by the end of Q2, 2009 to $8 per share.

The financial bubble is far bigger than in September 2008, and the global economy fundamentally much weaker.

The US faces an unprecedented global monetary deflation. Output and trade are falling nearly everywhere, including Canada, Mexico, Brazil, Australia, South Korea, Malaysia, Indonesia, Russia, Japan, the Persian Gulf oil states, and China.

Brazil is heading into depression and its worst recession in the last half century. It is leading the global monetary reversal now underway. In its boom, Brazilian wealth bought condos in south Florida, while US money managers invested hundreds of billions of dollars into Brazilian equity and bond markets. The US economy was not decoupled from Brazil during the boom and won’t decouple during the deflationary bust ahead. The flight of hot dollars from Brazil is an indication of the turmoil ahead as the massive dollar short unwinds on a global basis.

 

Read the full article at http://davidstockmanscontracorner.com/this-is-not-a-retest-its-a-live-bear/?utm_source=wysija&utm_medium=email&utm_campaign=Mailing+List+Mid+Day+Thursday

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Forget The Dips, Sell The Rips – David Stockman’s Contra Corner 08-24-15

Salient to Investors:

David Stockman writes:

  • The S&P 500 has sliced through both the 50-day and 200-day moving averages. 2130 on the S&P 500 will prove to be a generational high.  CAT, China, European luxury brands, the NASDAQ Biotech Index are shorts.
  • Expect the Fed to announce they are well short of the their magic 2% on the PCE deflator and so defer a September rate increase: not because there is too little inflation but because it is scared about the stock market fall. This will catalyze a frenzy of dip buying, claims the market has bounced off support is ready to resume the bull market. Do not buy the dip.
  • In the past 15 years CPI has risen by 2.5% annually if you include housing and rent inflation. The Fed hurts savers and retirees in order to keep Wall Street gamblers in free carry trade money, hoping to generate economic growth by giving the 1%  wealth effect windfalls.
  • The Wilshire 5000 has gained more than $15 trillion of market cap during the last 6 years, while the total value of all corporate equity in the US economy has risen by more than $20 trillion – substantially passing the two earlier stock market bubbles – despite having virtually nothing to do with the long-term trends in the US economy, weak at best.
  • Zero interest rates can do nothing about global deflation caused by massive malinvestment generated by years of zero interest rates and central bank financial repression. The central banks have created a monumental falsification of prices in virtually every asset class, while divorcing the financial market from the real economy.
  • The post-2009 recovery is the final and radical expansion of the growth and capital spending bubble underway around the world since the early 1990s. Since 2013, the massive capital spending bubble driven by central bank policy has begun to roll-over. The cliff-diving phase of commodity and industrial prices and profit margins has only just begun, and worldwide capital spending will be plunging sharply for years to come. Chinese and Korean shipyards will soon be bankrupt, Australia and Brazil are heading for depression.

Read the full article at http://davidstockmanscontracorner.com/forget-the-dips-sell-the-rips/?utm_source=wysija&utm_medium=email&utm_campaign=Mailing+List+AM+Tuesday

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Back to Fundamentals in Emerging Markets – Project-Syndicate 08-13-15

Salient to Investors:

Dani Rodrik at Harvard said:

  • Emerging markets may be seen to be in deep trouble but do not deserve the doom-and-gloom treatment they are getting. Stronger economic headwinds ahead will make it easier to distinguish countries that have strengthened economic and political fundamentals from those that have relied on false narratives and fickle investor sentiment.
  • The 3 key growth fundamentals of developing economies are acquisition of worker skills and education, improvement of institutions and governance, and structural transformation from low-productivity to high-productivity activities. Countries that rely on steady, economy-wide accumulation of skills and improved governance may grow less fast but they are more stable and more likely to converge with advanced countries eventually.
  • China grew by filling factories with uneducated peasants, and so generated an instant boost in productivity. China’s political and institutional challenges are much greater than those of democratic India so offers much higher uncertainty for long-term investors.
  • India’s medium-term growth potential is well below that of China in recent decades because skill-intensive services absorb only a tiny portion of India’s largely unskilled labor force, so it will take many decades for overall productivity to rise significantly.
  • Brazil’s political crisis demonstrates democratic maturity as prosecutors are able to probe the highest ranks of Brazilian society and government without political interference – a sign of strength more than weakness.
  • Turkey’s corruption has gone untouched and so will cause greater long-term damage.

 

Read the full article at https://www.project-syndicate.org/commentary/emerging-market-growth-by-dani-rodrik-2015-08

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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

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