Fareed Zakaria GPS – CNN 11-08-15

Salient to Investors:

Fareed Zakaria said:

Sending 50 special troops into Syria will fail and the US will face backing down or doubling down in a few months.

Leslie Gelb and Richard Betts said Kennedy and Johnson never believed that incremental interventions in Vietnam would work but escalated involvement there anyway just to be seen to be doing something.

Obama will keep American intervention in Syria small and limited but leave his successor a terrible dilemma; like Kennedy did to Johnson.

Robert Papa at University of Chicago says ISIS only attacks foreign enemies when they interfere in the region: like with France, Canada, Russia.

The Legatum Institute’s 2015 prosperity index found that 94% of Canadians are satisfied with their personal freedom, versus 87% of Americans – the US ranked 15th.

Puerto Rico’s employment rate is 35%, poverty rate 45%, and 5%+ of its people have left in the last 10 years. Puerto Rico does not have the right to declare bankruptcy like US cities.

Larry Summers says:

Puerto Rico’s debt is too large to be paid off by further tax increases and spending cuts.

If powerful creditors succeed in thwarting Obama’s move to allow PR to file bankruptcy it would be a disaster for all Puerto Ricans.

Michael Hayden at the Chertoff Group said:

Al Qaeda has been working on undetectable bombs for a long time.

While Al Qaeda was strategic, thoughtful, hierarchical, and operated from the top down, ISIS is populist, tactical, opportunistic and works from the bottom up.

Al Qaeda attacked its far enemy in order to undermine its near enemies, while ISIS wants to wage war on its near enemies.

Fawaz Gerges at London School of Economics. said:

What changed in the last year was the marriage between a local insurgency in Sinai and ISIS, particularly ISIS in Iraq and Syria.

There is more than one insurgency in Egypt, and the danger is how many young Egyptians would migrate to ISIS. ISIS’s powerful narrative of ending civility, defying the West and Russia, resonates with young Sunni Muslims in the Middle East and the world.

Ian Bremmer at Eurasia Group said:

The game changer was Russia’s decision to go into Syria, not the Egypt air crash. Russia does not wage war for the public good but only when they get something in return. In Syria, Russia first wants to shore up Assad.

Most all of the political spectrum, including Russia and Egypt, gets support only from taking the hardest possible line domestically: expect no national dialogue with the opposition.

Ta-Nehisi Coates at The Atlantic cited Patrick Sharkey at NYU, who found that African-American families making $100k a year tend to live in the same sort of neighborhoods as white families making $30k.

Martin Wolf at The Financial Times said:

Immigration benefits migrants and the world as a whole but not necessarily a country – it depends very much on who are the immigrants. Britain is not good at building the infrastructure needed to accommodate new immigrants.

The fiscal effect of immigrants can be positive or negative depending on a country’s welfare state. In many countries, immigrants tend not to be very successful in being employed.

Donald Trump is wrong about everything, and some of his propositions are mad.

Watch the video at http://globalpublicsquare.blogs.cnn.com/category/gps-episodes/ or read the full transcript at http://transcripts.cnn.com/TRANSCRIPTS/1511/08/fzgps.01.html

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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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Fareed Zakaria GPS – CNN 01-25-15

Salient to Investors:

Fareed Zakaria said:

  • Radical Islam is the default ideology of anger, discontent and violent opposition for a small number of alienated young Muslim men around the world. Only Muslims and particularly Arabs can cure this cancer.
  • In the 12 years between 9/12/01 and 2013, only 42 Americans have died on US soil due to terrorism versus 32,351 who died because of firearms, 33,783 who died in-vehicle accidents in one year.
  • Little has changed in Saudi Arabia – women still cannot drive, there is still segregation by sexes, the religious establishment is still very powerful, and the country still adheres to a very puritanical version of Islam.

Tony Blair said:

  • King Abdullah was a genuine reformer and modernizer. Saudi Arabia is genuinely part of the solution, and in many ways the heart of Islam.
  • Islamist ideology is growing and is the biggest security issue we face – we are at risk of several Afghanistans.

Martin Wolf at The Financial Times said:

  • Saudi Arabia remains is the central oil producer, the biggest exporter, the cheapest producer, and the only swing producer. Saudi Arabia is stable enough so can outlast everybody else at current oil price levels.
  • The oil glut will last for quite a few years.

Oxfam said the 80 richest people had $1.9 trillion while the poorest half had just $1.8 trillion in 2014, versus $1.3 trillion and $2.6 trillion respectively in 2010. The wealthiest 1% owned 48% of the world’s wealth in 2014 versus 44% in 2010.

David Leonhardt at The New York Times said US wages and incomes have gone virtually nowhere in the last 15 years: not paralleled since perhaps the Great Depression.

The Center for American Progress found that the bottom 90% of earners in Canada averaged over 1% annual income growth in the 2000s versus 2.5% annual in Australia and a decline of 1% annual in the US.

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

at http://transcripts.cnn.com/TRANSCRIPTS/1501/25/fzgps.01.html

Global AgeWatch Index: Norway best for older people – BBC News 09-30-14

Salient to Investors:

HelpAge International said:

  • Norway is the best of 96 countries to grow old in, followed by Sweden, Switzerland, Canada and Germany. Afghanistan is the worst.
    Australia, Western Europe and North America rank highly.
  • By 2050, 21% of the global population will be over 60, when 40 of the 96 countries will have 30% of their population aged 60 or over.
  • Mexico, Peru and some other Latin American countries have risen in the rankings.
  • Mexico (30th) ranks ahead of Brazil, Russia, India, China and South Africa.

The tradition of caring for the elderly within extended families is weakening.

The growth of tax-financed, non-contributory “social pensions” is key to helping tackle inequality for seniors.

In Mexico, nearly 9 out of every 10 people aged 65 or older receive a social pension.

Read the full article at http://www.bbc.com/news/world-29426285

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Eight-Year Car Loans Fuel Canada Sales Over Debt Warnings – Bloomberg 08-20-14

Salient to Investors:

  • JD Power said the average term of a light-vehicle loan in Canada is 69 months versus the peak of 72 months in Q3 2013.
  • Canadians continue to buy big-ticket items and ignore warnings about unsustainable debt growth. Regina Malina at Equifax Canada sees little evidence Canadians are struggling to keep up with their auto loans.
  • Carlos Gomes at Bank of Nova Scotia said Canadian car and light truck sales will rise to a record 1.77 million in 2014.
  • Peter Buchanan at CIBC World Markets said Canadian consumers have been holding the economic fort as exports and business spending lag previous recoveries, but their ability to do so indefinitely is doubtful.
  • Scott Hannah at Credit Counselling Society recommends a maximum car loan length of 5 years with 20 percent down. Dennis DesRosiers at DesRosiers Automotive Consultants said it takes 80-plus months on a 96-month loan before you are back in the money.

Read the full article at  http://www.bloomberg.com/news/2013-09-19/asset-bubbles-found-by-finnish-economist-inspired-by-grandfather.html

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Summers’s Stagnation Draws Doubt From Hatzius: Cutting Research – Bloomberg 12-12-13

Salient to Investors:

David Mericle and Jan Hatzius at Goldman Sachs said:

  • US economic weaknesses are more cyclical than secular. US growth will rebound in 2014 to as high as 3.5 percent versus the 2.25 percent average recovery rate so far.
  • The slow rate of recovery is in line with the historical response to major financial crises, and may even be better.
  • The drag caused by an excess supply of houses, pressure on consumers to pare debts, poor demand abroad and the need for fiscal retrenchment is starting to ease.
  • The economy won’t regain its potential until 2017 or 2018, leaving the Fed to keep its key rate near zero until 2016.

BoE Governor Mark Carney said advanced economies could regain strength and central banks can help, and while productivity has proved surprisingly weak, it is hard to see why there should have been a persistent deterioration in the rate of potential growth in Britain.

Larry Summers said in November that economies suffering from a persistent lack of demand are hard to fix with monetary policy, and that the US economy may be stuck in a rut because the interest rate consistent with full employment has fallen significantly below zero and central banks cannot cut rates much lower.

Yves Mersch at the ECB said Summers’s outlook was a highly pessimistic, even fatalistic and policy makers should step up structural reforms and encourage innovation.

John Hooley at the BoE said the full liberalization of China’s financial markets over the next decade would be almost unrivaled for its impact on the shape of the global financial system, and China’s international investment position could surge to 30 percent of GDP from 5 percent today if capital controls are reduced and the yuan traded more freely. Hooley said liberalization, if successful, could lead to more balanced and sustainable growth in China and help to rebalance global demand.

Paul Donovan at UBS said:

  • An age of plutocracy is taking hold as income inequality grows and corporate profits approach historical highs. Inequality will be exacerbated because the share of national income accounted for by profits is likely to remain high. He also notes that of all the tax categories, only those on corporate income have been cut more often than raised since 2010 among 20 advanced economies.
  • US corporate profits around their record at almost 13 percent of GDP. Of all the tax categories, only those on corporate income have been cut more often than raised since 2010 among 20 advanced economies.
  • Since 2008, nominal income growth has diverged and within the top 10 percent of the income distribution, the richest 1 percent have seen the most significant gains.
  • Gini coefficients for the US, UK, Japan, France and Canada have each risen since 2005, with the US index approaching 0.48.
  • Pretax income of the top 1 percent of Americans is 20 percent of all US income, comparable to levels in the early 20th century.
  • Poorer earners have suffered from inflation which has tended to be greater on the goods they typically buy.

Jay Bryson, Azhar Iqbal and Mackenzie Miller at Wells Fargo Securities said the US economy needs to rely on homegrown demand if it is to get stronger because even a 1 percent increase in economic growth in the euro area, China and Japan would have only a limited effect on US activity because exports account for just 13 percent of the US economy, lower than the 25 percent average of GDP across all countries.

Read the full article at http://www.bloomberg.com/news/2013-12-13/summers-s-stagnation-draws-doubt-from-hatzius-cutting-research.html

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Elderly Reveal Japan Grows Without Wage Growth: Cutting Research Bloomberg 07-25-13

Salient to Investors:

Kyohei Morita and Yuichiro Nagai at Barclays said:

  • Abe’s policies can succeed even if wages don’t immediately accompany price increases, because 2.21 million people born between 1947 and 1949 are starting to retire and will become buyers rather than workers and savers, even as the total population declines.
  • With wages not growing as strongly as consumption, financial assets become an important source of funding for expenditure as well as income, and so the retirement of baby boomers cannot be overlooked.
  • The emergence of the elderly as consumers tends to prompt a swing from goods to services, while the correlation between consumption and industrial production naturally drops. There is a risk that analysis based on industrial production will underestimate the momentum of private consumption and the economy as a whole.

EC Harris said:

  • Concerns that China is threatened by overinvestment may be misplaced, at least for the time being, but if investment continues to expand at a high rate as expected, overinvestment will become a growing concern.
  • China had $35.45 trillion of built assets in 2012 versus the US with $39.73 trillion. China’s total stock of built assets is estimated to be 286 percent of GDP versus the average of 284 percent of 30 economies. China will have accumulated $75.7 trillion of such assets by 2022, versus $47.3 trillion in the US.
  • The fastest growth of 63 percent over the next decade is expected in the Middle East and Africa and in Asia.
  • A hard landing in China would mean trouble for asset prices and economies far from Beijing.

Patrick Legland et al at Societe Generale forecasts Chinese growth at 7.4 percent in 2013 slowing to 6 percent by 2017; but said a slump in 2013 expansion to under 6 percent could trim 1.3 percent from global growth, drop base metal prices 30 percent to 40 percent drop Brent Crude 30 percent, and hurt equities across Asia.

Julie Ades at the Conference Board of Canada said:

  • Canadian Baby Boomers may have trouble selling their big houses as they retire because condos and smaller multiple-unit dwellings are becoming more popular as fewer young people marry and have smaller families. These trends raise the question of whether future demand for single-detached homes will be enough to support price growth, particularly for homes far from city cores.
  • Boomers will add to the trend as the popularity of living in single-unit houses starts to decline when people hit 55.
  • Boomers are 29 percent of Canada’s population and the biggest owners of single homes. Census data shows the percent of people in their 20s who were part of a couple fell to 30.8 percent from over 50 percent in 1981.
  • Greater immigration and new families will support demand, while builders will reduce the supply of new single-family homes and convert others into semi-detached units.

Ben May at Capital Economics said the euro has not led to true convergence of euro-region economies as evidenced by unemployment rates, output gaps and competitiveness. Nominal economic variables such as inflation or public and private sector debt levels are more similar.

Read the full article at  http://www.bloomberg.com/news/2013-07-25/elderly-reveal-japan-grows-without-wage-growth-cutting-research.html

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1 in 10 Canada Families Highly in Debt: Chart of the Day – Bloomberg 07-02-13

Salient to Investors:

Michael Hsu at Ipsos says the share of Canadian households with debts greater than or equal to 250 percent of gross income reached a record 13.5 percent in 2012 then dropped to 11.4 percent in Q1 2013, though most of the debt is going into real estate which is holding up nicely.

The Bank of Canada said household imbalances remain the biggest domestic risk to the financial system.

Statistics Canada said the ratio of household debt to disposable income fell to 161.8 percent in Q1 2013 from a record 162.8 percent in Q3 2012.

Read the full article at  http://www.bloomberg.com/news/2013-07-02/1-in-10-canada-families-highly-in-debt-chart-of-the-day.html

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Carney Keeps Rate-Increase Bias While Chopping Forecast – Bloomberg 04-17-13

Salient to Investors:

Bank of Canada Governor Mark Carney said economic slack will persist for more than two years and monetary stimulus will continue for a period of time.

Derek Holt at Bank of Nova Scotia said the shine has started to come off the Canadian economy, and policy makers are signaling aggressively they are not entertaining a rate cut and rates are not going anywhere for a long time.

The IMF says Canada is the slowest-growing G-20 country outside Europe.

Ric Palombi at McLean & Partners Wealth Mgmt said Canadian economic numbers are not good and the outlook is for more of the same.

Read the full article at http://www.bloomberg.com/news/2013-04-17/carney-keeps-rate-increase-bias-while-chopping-forecast.html

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Job and Export Drops Show Canada Hurt by Global Weakness – Bloomberg 04-05-13

Salient to Investors:

Canada, the 11th largest economy, is being hobbled by weak global demand.

Avery Shenfeld at CIBC World Markets said the Canadian numbers show no silver lining whatsoever.

Robert Kavcic at Bank of Montreal said as bad as the headline was, there was not much below the surface to make it better, and is suspicious of the improvements in the job market in the last 4 months.

Read the full article at http://www.bloomberg.com/news/2013-04-05/canada-records-biggest-job-losses-since-2009-recession-in-march.html

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