Fareed Zakaria GPS – CNN 08-30-15

Salient to Investors:

Fareed Zakaria said:

  • The US economy has recovered nicely.
  • A 2014 UCLA study found that many black and Latino students face almost total isolation from white and Asian students and middle-class peers.
  • Much more Saudi oil wealth has gone into pernicious causes over the last 30 years than Iranian oil wealth.
  • Tharman Shanmugaratnam says half of the Muslim population in Britain lives in the bottom 10% of its neighborhoods by income.
  • The UN estimates the average woman needs to have 2.1 children to maintain the population of a developed country. Every EU country is below that level, though France has one of the best rates in Europe. Demographers say that it is difficult to get people to have children using just financial incentives.
  • Pew predicts that by 2050, populations in Greece, Portugal and Germany will have dropped by double-digit percentages. The UN predicts over-65s in Europe will increase to more than 25% of the population by 2050, Japan’s will increase to more than 33%.
  • The US will be demographically vibrant and growing for decades. Pew predicts that America’s population will grow by 27% from 2010 to 2050 due to immigration and a relatively younger population. The CDC says the US fertility rate hit a record low in 2013.
  • The World Wildlife Fund says half of the earth’s wildlife has been lost in the past 40 years.

Elliott Abrams at the Council on Foreign Relations said:

  • Obama is turning away from America’s responsibilities around the world. Poland, Czechoslovakia, the Balkans, feel less safe facing Russia; Australia, Vietnam, South Korea, Japan feel less safe facing China; Israel, the Gulf Arabs feel less safe facing Iran.
  • The US is asking for nothing and getting nothing on human rights in the Iran and Cuba deals.

Peter Beinart at Haaretz, New America and CNN said:

  • The polls show Obama is much more popular around the world than George W. Bush, while America is more popular than it was.
  • The Iran nuclear deal is a major accomplishment akin to Nixon and China.

Meghan O’Sullivan at Harvard said:

  • Strategic restraint might make sense in a world where the US does not have much at stake, or US allies are active in promoting US interests, or where world order is self-perpetuating; but we don’t live in that world. International order is not in good shape and the Middle East is significantly worse off than 7 years ago.
  • The Iran nuclear deal has very real flaws; including the fact that Iranians get all their benefits up front in exchange for a promise to stick to the deal for a decade or longer.

Gideon Rose at Foreign Affairs said:

  • The international order is not fraying. The US is the world’s strongest power by leap years, with a defense budget equal to the next 7 nations combined. The US and its allies account for 75% of global defense spending. Core allegiances and alliances in the major industrial and economic centers are intact and thriving.
  • Much of the Middle East is no longer a core American strategic interest and US direct involvement there is not necessarily improving things.
  • The Iran nuclear deal is not great but is dramatically better than all the realistic alternatives.

General Stanley McChrystal said:

  • In combat, soldiers are much more frightened of the enemy than their sergeant.
  • You want personnel confident enough in their relationships and in what they do to be able to operate effectively.
  • Personnel must have confidence in the competence of their leaders, and more importantly their values.
  • The confidence of personnel is undermined when they see a difference between what senior management says it will do and what it actually does, or if they believe senior leadership is uninformed.
  • Key to being a leader is personal discipline and empathy.

Watch the video at http://globalpublicsquare.blogs.cnn.com/category/gps-episodes/ or read the full transcript at http://www.cnn.com/TRANSCRIPTS/1508/30/fzgps.01.html

The Curse Of The Euro: Money Corrupted, Democracy Busted – David Stockman’s Contra Corner 07-17-15

Salient to Investors:

David Stockman writes:

  • Germany has set fire to the Eurozone in order to save it. Lending another $96 billion to a bankrupt country makes no sense, while the fiscal targets set for Greece are ridiculous. Greece has a de facto public debt of $400 billion vs. $200 billion of GDP. Within days the entire banking system of Greece will be taken over by the ECB, meaning that depositors will be given a big haircut. Greece will become an outright debtors’ colony and its government will function as page-boys for the Troika occupiers, resulting in political and social upheaval which will spread throughout Europe as Greece implodes.
  • Another recession is coming to Europe. The Eurozone is a fatally flawed monetary union. If any sovereign state of the EU cannot pay its debts, those debts need to be written off or restructured.
  • The euro is the doomsday machine, or more precisely the rogue ECB behind it. The euro will eventually collapse and Keynesian policies will be repudiated and dismantled, but not before European prosperity is extinguished for a generation.
  • Europe had a de facto common currency before 1914 under the fixed exchange rates of the gold standard, which helped produce a multi-decade of prosperity not seen before or since.
  • The ECB printing press has fundamentally falsified the price of debt, produced phony economic growth in the early years and fiscal profligacy after the growth bubble burst after the 2008 crisis, resulting in only 0.9% annual rate of nominal GDP since. The EU-19 debt ratio has climbed steadily towards 100% of GDP since the financial crisis vs. the 60% debt-to-GDP target of the EU treaty.
  • Bond market discipline is fully compatible with national sovereignty and democratic fiscal governance and is a requisite for Europe.
  • Merkel was conned into believing that the original bond sell-off was due to the same speculators who supposedly caused the great financial crisis of 2008.
  • The burst global credit bubbles of 2008 and euro bond crash of 2010 and after had the same cause – central bank financial repression causing government bonds to be underpriced and global investors to scramble for yield; speculators could surf the financial bubbles on the back of cheap carry from the central bank pegged money market.
  • Superstate bureaucrats cannot meaningfully elevate economic growth rates and so enable insolvent state borrowers to grow out from under unsustainable debt. Portugal, Italy, Ireland Greece, Spain – PIIGS – and France prove that quasi-socialist welfare states in the contemporary European setting prove this.
  • When you destroy honest bond markets you eventually end up with Stalinist governance in the name of the free market.
  • Speculators who rode the Draghi bubble made hundreds of billions of profits buying PIIGS debt on 95% repo, and were then positioned to sell their bonds back to the ECB at the first sign of a market break.
  • Spain’s real GDP at the end of Q1, 2015 was still 6% below early 2008, but its debt ratio has risen sharply to near 100% of GDP. There is no possibility of honest fiscal governance in a social democracy like Spain when its debt price is blatantly falsified. Spain’s budget deficit in 2014 remained at 5.8% of GDP so won’t survive another recession, and will be bailed out fueling radical popular movements a la Greece.

Read the full article at http://davidstockmanscontracorner.com/the-curse-of-the-euro-money-corrupted-democracy-busted/

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When It Comes To Total Debt, Greece Is Not That Much Worse Than France (Or The USA) – Zero Hedge 07-17-15

Salient to Investors:

Tyler Durden writes:

  • The IMF has admitted Greece has an unsustainable debt problem.
  • French PM Hollande’s sole focus in the Greek crisis was to preserve near-term stability and his job at any cost – he is guaranteed to lose the 2017 French elections.
  • Once the current generation of French workers retire and realizes their retirement entitlements were a lie, France will have two choices: violence or the more likely printing press.
  • France has had 80 consecutive months of record unemployment and its fiscal and solvency situation will deteriorate dramatically over the next 2 years.

Albert Edwards at SocGen says:

  • Greece’s net government liabilities as a percent of GDP are rapidly approaching 1000% vs. just over 500% for the US and 5 times for France, the most unstable core nation.
  • Germany, Finland, Holland and Austria are traditional fiscally conservative.
  • France’s debt dynamics and sustainability is highly questionable, with worse unfunded liabilities to GDP ratios, along with the US and Germany, than Spain and Italy
  • When adding in off-balance sheet liabilities which are only now coming onto the balance sheet as populations rapidly age, the US, France, Germany and the UK are worse off, in that order. The likely policy response will be a combination of inflation, default on pension and medical promises, and severe fiscal retrenchment, and for the US and UK, QE, devaluation and the printing press.
  • Within the euro zone, the Greek settlement shows that austerity and reform will be the likely solution imposed from above.
  • Germany has net overseas assets of 50% of GDP to call on to pay its unfunded bills. France is a net debtor by 20% of GDP.

 

Read the full article at http://www.zerohedge.com/news/2015-07-17/when-it-comes-total-debt-greece-not-much-worse-france-or-usa

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Fareed Zakaria GPS – CNN 01-18-15

Salient to Investors:

Fareed Zakaria said:

  • The theory that “we fight them there so we don’t have to fight them here” is still wrong and would commit the US to a fool’s errand for decades. Cherif Kouachi, one of the Paris terrorists, testified that it was American intervention in the Middle East that caused him to become a jihadi. Robert Pape and James Feldman found that the vast majority of the terrorists behind suicide bombings from 1980 to 2009 were acting in response to American intervention and involvement in the Middle East rather than out of a religious or ideological motivation – the two spectacular Western plots after 9/11, the Madrid and London bombings, were specifically inspired by the invasion of Iraq.
  • The chance of a global recession in 2015 is greater than people think.
  • US economic prospects look good – PricewaterhouseCoopers predicts over 3% growth in 2015, the fastest since 2005, led by continuing falls in unemployment.
  • India looks good thanks in part to reform minded Modi and a large population of consumers. PricewaterhouseCoopers predicts a growth rate in 2015 that could rival China.
  • Indonesia looks good and has a large population of consumers.
  • Europe will continue to lag without needed reforms.
  • Japan is still in a bind despite Abenomics.
  • The big oil producers, especially those with large populations like Venezuela, Iran, Nigeria and Russia, will be the big losers.
  • The big wild card is will the price of oil continue to stay low?
  • Twice as many Jews left France for Israel in 2014 than in 2013.

Andrew Bacevich said that before Syria, the US launched interventions in 13 countries in the Islamic world since 1980.

Leon Panetta at the Panetta Institute said:

  • We are entering a more threatening and more dangerous period in the war on terrorism.
  • Paris was a French intelligence failure because they had these individuals on watch lists.
  • Europe is less aggressiveness than the US at going after these individuals when they return.
  • The presidency is not just about policy and substance, but also about the optics of leadership.

Ruchir Sharma at Morgan Stanley said:

  • The world was perilously close to recession in 2014 – only 2.6% growth versus the recession benchmark of under 2% growth.
  • Global recessions happen regularly – in the early 80s, two in the 90s, in the early 2000s, and the one that began in 2007.
  • We are due a global recession. The catalyst could be China, which contributed 38% of global growth in 2014, versus 20% from the US, and 13% from the EU. In 1994, the proportions were 8%, 33% and 26% respectively.
  • Persistent low oil prices can signal weak demand and could be a leading indicator of the next global recession.

Doug Saunders at The Globe and Mail said:

  • Muslim minorities in European countries have grown during the last 20 years to between 1%-5%. In places like France for over 50 years, to almost 8% percent of the population.
  • Muslims could peak around 10% in a couple of countries in Europe within the next 20 or 30 years, so there is no chance of a Muslim population takeover.
  • Immigrants are extremely loyal to the countries they live in and their institutions, even Muslim populations that are not integrating well in terms of their beliefs.  The Pakistanis of northern England have done very poor economically yet are by some measures more loyal to Britain and its institutions, including the military, than the Anglican population of Britain. The percentage of Muslims who value their religion above their country is about the same as for Christians in those countries.
  • Muslim communities in Europe, despite being marginalized economically and educationally, tend to be among the most contented with their lives of any minority group, often more so than the general population.
  • No-go zones are a fiction. I have never seen a prayer mat in any of the hundreds of hotels in Europe that I have stayed at.

Malcolm Gladwell said the cause of the dramatic long time reduction in NYC crime is more complicated than simply an attention to visible signs of disorder: one very successful policy is based on police establishing real ties with their communities, to win the trust of families.

Bernard Harcourt  at Columbia Law School said the huge drop in NYC crime is due to reversion to the mean – what goes up a lot goes down a lot. San Diego had a very different policing approach yet exhibited similar drops in crime rates. Harcourt said Times Square has changed not because of broken windows policing, but because of real estate redevelopment that was planned in the 1970s.

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

at http://transcripts.cnn.com/TRANSCRIPTS/1501/18/fzgps.01.html

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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Fink Sees Equities Returning 7% as Dalio Expects 4% Gains – Bloomberg 11-12-13

Salient to Investors:

Laurence D. Fink at BlackRock said:

  • Stocks may decline as much as 15 percent because of political risks in China, Japan, France and the US.
  • Stocks may return more than 7 percent in the long-term, assuming the global economy expands at 4 percent
  • Investors already invested 100 percent in equities should hold.
  • France may be the cause for an eventual failure of the euro currency.

Ray Dalio at Bridgewater Associates said:

  • Equity returns will slow to 4 percent annually in the next decade.
  • The Fed won’t be able to raise interest rates for years as the economy has not strengthened sufficiently.
  • The next major financial crisis will come from France because of a rise in their debt-service payments that will constrict their economy.

Read the full article at  http://www.bloomberg.com/news/2013-11-12/blackrock-s-ceo-fink-sees-potential-15-drop-for-equities.html

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OECD Lifts European Growth Forecasts on Recovery – Bloomberg 09-03-13

Salient to Investors:

The OECD said:

  • Germany will expand 0.7 percent in 2013 versus 0.4 percent predicted in May
  • France will grow 0.3 percent in 2013 versus shrinking previously predicted of 0.3 percent
  • The UK will grow 1.5 percent in 2013 versus 0.8 percent predicted in May.
  • In the euro area, re-balancing remains incomplete with weak domestic demand in high debt countries having been offset by stronger exports only to a limited extent. Supportive monetary policy must be continued, with further monetary easing should the recovery were to fail to take hold.
  • Italy will shrink 1.8 percent in 2013.
  • The US will expand 1.7 percent in 2013, down from 1.9 percent predicted in May
  • China will grow 7.4 percent in 2013, down from 7.8 percent previously predicted. China has seemingly passed the trough and looks set to recover further in half2 2013
  • In a number of other emerging economies, recent financial market tensions and weak momentum suggest both a reappraisal of trend growth and deterioration in cyclical conditions.

Read the full article at  http://www.bloomberg.com/news/2013-09-03/oecd-lifts-european-growth-forecasts-on-recovery.html

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Treasuries Rise Most in Year on Bets Stimulus to Continue – Bloomberg 07-12-13

Salient to Investors:

Christopher Sullivan at United Nations Federal Credit Union said Bernanke went out of his way to comfort and convince the markets that a reduction in QE is by no means to be regarded as a financial tightening, and that easing remains highly conditional.

Fitch cut France’s credit ranking to AA+ from AAA. while Dan Mulholland at BNY Mellon Capital Markets said there is pressure on Portugal, which is significantly higher in yields.

Charles Plosser at FRB of Philadelphia said the Fed should begin tapering in September and end the QE by year-end.

Donald Ellenberger at Federated Investors said the Fed has been able to arrest the rise in yield, but it is clear they have rung the bell and the beginning of the end of easing is upon us, though still a little ways down the road.

MacNeil Curry at Bank of America Merrill Lynch said we are in a bear trend and the momentum points to higher yields –  a 10-year yield break above 2.62 percent would signal a rise to as high as 2.95 percent.

Read the full article at  http://www.bloomberg.com/news/2013-07-13/treasuries-rise-most-in-year-on-bets-stimulus-to-continue.html

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IMF Reduces Global Growth Outlook as U.S. Expansion Weakens – Bloomberg 07-09-13

Salient to Investors:

The IMF said:

  • Global growth will struggle to accelerate in 2013 as the US expansion weakens, China’s economy levels off, and Europe’s recession deepens.
  • Global growth will be 3.1 percent in 2013, unchanged from 2012, and 3.8 percent in 2014. Developing economies will grow 5 percent in 2013, while developed economies will grow 1.2 percent. Downside risks to global growth still dominate, with the possibility of a longer growth slowdown in emerging markets.
  • US growth will be 1.7 percent in 2013 and 2.7 percent in 2014.
  • Wealthy nations facing low inflation and economic slack should keep injecting stimulus until recovery is entrenched, while rising longer-term interest rates have hurt emerging markets the most.
  • China will grow 7.8 percent in 2013, the Euro-pe will shrink 0.6 percent as France, Italy and Spain contract.
  • Growth in emerging markets including China will weaken as external demand growth has slowed and advanced economy longer-term interest rate volatility has risen.
  • Euro-pe should work towards a fuller banking union.
  • In 2013, Germany will grow 0.3 percent.  Brazil will grow 2.5 percent, Russia will grow 2.5 percent, Italy with contract 1.8 percent and France will contract 0.2 percent. Japan will grow 2 percent in 2013 on plans for record monetary easing and increased private demand.

Jay Bryson at Wells Fargo Securities said this is not the US economy of the 1990s that was a locomotive for the rest of the world, though the US remains one of the primary engines of growth.

Read the full article at  http://www.bloomberg.com/news/2013-07-09/imf-reduces-global-growth-projections-as-u-s-expansion-weakens.html

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IMF Reduces Global Growth Projections as U.S. Expansion Weakens – Bloomberg 07-09-13

Salient to Investors:

The IMF said:

  • Global growth for 2013 will be unchanged at 3.1 percent as US growth slows to 1.7 percent in 2013 and 2.7 percent in 2014. Global growth will be 3.8 percent in 2014.
  • Downside risks to global growth prospects still dominate, with the possibility of a longer growth slowdown in emerging markets, especially if the anticipated unwinding of QE in the US leads to sustained capital flow reversals.
  • Central banks in wealthy nations facing low inflation and economic slack should keep stimulating until recovery is entrenched.
  • Rising longer-term interest rates have hurt emerging markets the most.
  • China will grow 7.8 percent in 2013, and the euro area will shrink 0.6 percent as France, Italy and Spain contract.
  • Growth will weaken in China and other emerging markets as external demand growth has slowed and advanced economy longer-term interest rate volatility has risen. The US is held back by fiscal contraction and Europe will remain in recession.
  • Japan will increase growth to 2 percent growth in 2013 on record monetary easing and increased private demand. Italy will contact 1.8 percent, France will contract 0.2 percent, Germany will grow 0.3 percent. Brazil will grow 2.5 percent, and Russia will grow 2.5 percent in 2013. Developing economies will grow 5 percent in 2013, versus 1.2 percent for advanced economies.
  • Monetary stimulus should continue until the recovery is well-established. The euro area should work towards a fuller banking union, and reform product and labor markets.

Read the full article at  http://www.bloomberg.com/news/2013-07-09/imf-reduces-global-growth-projections-as-u-s-expansion-weakens.html

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