Fareed Zakaria GPS – CNN 10-11-15

Salient to Investors:

Fareed Zakaria said:

  • We cannot solve Afghanistan without recognizing Pakistani army support for the Taliban. No counter-insurgency has ever succeeded where the rebels have a safe haven, so until this is dealt with, the Taliban will never be defeated. Pakistan pretends to help the US while supporting its most deadly foes.
  • Pakistan is a time bomb. It has one of the world’s largest armies, the fastest growing nuclear arsenal, and the most opaque. 5.5 million Pakistani children do not attend school. The US faces a strategic collapse as it withdraws forces from the region unless Pakistan’s military and its mindset are reformed.
  • Any US involvement in Syria has to be aimed at dislodging Assad from power, which would produce total chaos; viz. Iraq, Libya and Yemen.
  • Italy, France et al is the world’s greatest paradise: beautiful countries, amazingly rich, incredibly nice work rules, long vacations, ability to early retire. So why reform?
  • The Economist ranked the UK 1st out of 80 countries in the 2015 quality of death index, Taiwan 6th, the US 9th. Mongolia ranked 1st out of the low-income countries.
  • The US should abandon the outdated 9:00 to 5:00 work-week.
    • Henry Ford pioneered cutting back employees’ hours to make his workers happier and more productive.
    • One study found that people working 40 hours or less each week outperform on certain tasks those who work more than 55 hours per week.
    • A Stanford study found that the number of hours somebody works is not directly proportional to his output, while at 48 working hours, productivity falls.
    • Tony Schwartz says people work better in short bursts than long ones.
    • A 2014 Gallup survey found that American full-time workers averaged 47 hours per week, while almost 20% of Americans work 60 hours per week or more.
    • The OECD found that US workers worked more hours on average in 2014 than workers in many other countries, including the UK, Germany and Japan.
    • Alternet says white-collar knowledge workers have 6, not 8, hours of productive work in them each day.

Julia Ioffe at the Wall Street Journal said:

  • Putin is a tactician, not a strategist, but his economy is cratering and his military much weaker than the US military. Putin is moving into areas that the US has traditionally dominated; Iraq, Syria, Afghanistan.
  • Russian Muslims are all Sunni whereas Putin is aligning himself with an exclusively Shiite coalition and his Syrian move will inevitably blow up on him.
  • The US should take in many more refugees.

Bret Stephens at the Wall Street Journal said:

  • Putin is investing in Syria the way that Trump invests in real estate – with a very small investment for a potentially large payoff. His move into Syria helps distract the Russian people from its sinking economy.
  • Putin is a frog who jumps from lily pad to lily pad when he feels them sinking under his weight – from KGB agent to Leningrad technocrat to reformist president to patron of the Oligarchs.
  • Syria is a metastasizing cancer so the US has both a humanitarian and geopolitical interest. US no fly zones over northern Iraq in 1971 saved many Kurds and effectively helped create the Kurdish Autonomous Region – the single biggest American achievement in the Muslim world in the last 25 years.
  • Syria is many countries and just because we cannot solve it does not mean we cannot help its Kurdish areas become sustainable opposition.
  • The problem in Israel is the failure of leadership by Mahmoud Abbas, by Abu Mazen, in both tamping down and stoking violence.

Ian Bremmer at the Eurasia Group said:

  • Putin is in Syria to shore up Assad and not destroy ISIS. Taking casualties would be very unpopular in Russia.
  • Europe believes Syria is more important than Ukraine and that the only way to fix Syria is through Moscow, which could then ask Europe to back off sanctions. The cease-fire in Ukraine is working because Putin has got the paramilitaries there to back off their election. Europe and the US are moving farther apart every day.
  • Russia’s economy will contract by 4% to 4.5%, but its central bank has stabilized the rubble and during Putin’s tenure, per capita income has risen much.
  • 90% of Russians get their media primarily from state controlled TV with is pretty effective.
  • The problem with Syria is not Obama’s policy but that his rhetoric bears no reflection to his policy.
  • The Trans-Pacific pact is 40% of the world economy and a real pivot to Asia, the most important part of the world for the US – it is Obama’s most important successful foreign policy legacy. That TPP’s former architect Hillary Clinton is now opposed to it is astonishing.

Peter Beinart at the Atlantic said:

  • Putin’s move in Syria will increase terrorism against Russia by positioning it opposite the entire Sunni world and so cannot end well.
  • Obama is right not to get involved in Syria, and should not have done so in Yemen.
  • The rise in terrorism in Israel is a product of the fact that the two-state vision is weakening on both sides.

George Soros said the euro crisis has converted the EU from a voluntary association of free and legal nations, devoted to principles of democracy and human rights and willing to sacrifice some sovereignty for the common good, into an unequal relationship between creditors and debtors, who have difficulty meeting their obligations.

President Bill Clinton said:

  • The immigration/refugee problem in Europe can be turned into an opportunity: e.g. Syrians are overwhelmingly literate, productive, and historically secular, not super religious, and particularly not politically violent.
  • Ireland is the only European country that is younger than America and was growing like crazy, before its banking bubble, because it had many immigrants from Central and Eastern Europe, which made it even younger.

Watch the video at http://globalpublicsquare.blogs.cnn.com/category/gps-episodes/ or read the full transcript at http://transcripts.cnn.com/TRANSCRIPTS/1510/11/fzgps.01.html

Crisis Gauge Rises to Record High as Swaps Avoided – Bloomberg 02-26-14

Salient to Investors:

The spread between the 2-yr China sovereign yield and the similar-maturity interest-rate swap, a gauge of financial stress, last week reached the widest in Bloomberg data going back to 2007.

George Soros and Bill Gross have drawn parallels between the situation in China and that in the US before the 2008 financial crisis. Nomura said Li’s efforts to curb leverage by driving up borrowing costs need to be handled carefully to avoid wrecking confidence in the financial system.

Patrick Perret-Green at ANZ Banking sees increasing parallels between China and the US in the run-up to the global financial crisis – Shibor-repo is similar to Libor-OIS, shadow banking is subprime, credit spreads are widening as they did in 2007, and money growth is softening as tightening bites.

Wee-Khoon Chong at Nomura said there is a big flight to quality: in times of stress, you sell credits, sell longer-dated bonds into shorter ones and you are going to the government bond market. Chong said if the default situation gets out of control, yields are going to fall a lot, and forecasts the central bank will cut reserve-requirement ratios for lenders to 19 percent this year from 20 percent as higher borrowing costs cool economic growth.

Bin Gao at Bank of America Merrill Lynch said a consistent rally in sovereign debt will be more likely if we see more defaults in shadow banking or credit products, which will lead to flight-to-quality flows and likely PBOC easing.

Yii Hui Wong at BNP Paribas said increased money-market turmoil and the outlook for slowing growth are serving as catalysts for a rally in government bonds as banks increase buying – the rise in the short-end will spread to 5-yr notes. Wong said offshore investors take a longer-term view, and do not feel that the government cannot handle the situation because it is still a very controlled economy. Wong said government bonds at these levels are very attractive.

Read the full article at http://www.bloomberg.com/news/2014-02-26/crisis-gauge-rises-to-record-high-as-swaps-avoided.html

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Did Soros Just Predict a China Crash? – Bloomberg 01-08-14

Salient to Investors:

William Pesek writes:

George Soros believes the main risk facing the world is a Chinese debt disaster that is unfolding in plain sight. Soros said China’s restarting of the furnaces also reignites exponential debt growth, which cannot be sustained for much longer than a couple of years. Soros sees eerie resemblances with the US in the years preceding the crash of 2008, but with a significant difference. In the US, financial markets tend to dominate politics, but in China, the state owns the banks and the bulk of the economy, and the Communist Party controls the state-owned enterprises, so how and when this contradiction will be resolved will have profound consequences for China and the world.

Michael Pettis at Peking University and Jim Chanos at Kynikos Associates have been warning of this for years. Patrick Chovanec at Silvercrest Asset Mgmt said the “shadow” Chinese balance sheet would worry policy makers around the globe but for China’s obsessive opacity concealing the problem. China’s shadow-banking entities is its answer to Enron.

JPMorgan Chase estimates shadow banking is 69 percent of China’s 2012 GDP and is a wildly conservative guess. China fudges trade and other run-of-the-mill data, so you can imagine the lengths it goes to hide the magnitude of its credit bubble.

Stephen Roach warns of China’s propensity for thinking that slogans are sufficient. China can either restructure its economy or grow rapidly, but not both. The higher China’s growth rate, the less retooling that is going on and the more debt the nation is amassing behind the scenes.

The way such regional leaders win Beijing’s attention is rapid growth, causing dozens of nascent super cities all borrowing like mad to deliver big GDP numbers.

Read the full article at http://www.bloomberg.com/news/2014-01-08/did-soros-just-predict-a-china-crash-.html

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Gold Futures Post Longest Slump Since December 2011 – Bloomberg 05-16-13

Salient to Investors:

George Soros and BlackRock cut stakes in gold ETFs in Q1, signaling waning investment demand.

The World Gold Council said gold ETP demand dropped 13 percent in Q1 from a year earlier and outweighed a surge in purchases of coins, bars and jewelry in China and India.

Frank McGhee at Integrated Brokerage Services continue to see rotation out of precious metals as growth and little inflation eliminate the reasons for the original run-up in gold.

Soros Fund Management cut its stake in the in the SPDR fund by 55 percent in Q4 2012, Paulson & Co. maintained its stake in Q1, and Northern Trust and BlackRock funds had reductions of more than half. Schroder Investment Mgmt bought shares.

Read the full article at http://www.bloomberg.com/news/2013-05-16/gold-near-1-month-low-as-soros-blackrock-reduce-etp-holdings.html

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Soros Joins Gold-Stake Cuts Before Bear Market Drop – Bloomberg 05-16-13

Salient to Investors:

George Soros cut holdings of gold ETPs in Q1, 2013.

John Paulson maintained a stake and Schroder Investment Mgmt bought in Q1.

Deutsche Bank said assets in SPDR will probably drop by an additional 2 million to 4 million ounces after slumping 9.7 million ounces since mid-December.

Jeffrey Currie et al at Goldman Sachs said the selloff has been faster than expected, and a further drop in ETP holdings will probably mean more price declines.

Jim McDonald at Northern Trust said they made one change to their global tactical asset allocation policy this month: eliminating their tactical position in gold.

Robert Kapito at Blackrock said he would still buy gold despite the firm cutting its holdings by half in Q1.

Farallon Capital Mgmt bought put options on SPDR. Whitebox Advisors reduced its holdings 90 percent.

Frances Hudson at Standard Life Investments said the precautionary demand for gold is not there, the attraction is sinking, and the money that exited ETFs has not returned as people are trading up and migrating to equities.

Elliott Mgmt said gold remains the best store of value in an uncertain economy.

EPFR Global said investors pulled a record $21.1 billion from bullion funds in 2013 through May 13.

Warren Buffett wouldn’t be a buyer even at $800 because it just sits there, and you hope somebody pays you more for it.

Read the full article at http://www.bloomberg.com/news/2013-05-16/soros-leads-gold-stake-cuts-before-bear-market-drop.html

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Most U.S. Stocks Fall Amid GDP Report, Corporate Earnings – Bloomberg 04-26-13

Salient to Investors:

Terry Sandven likes the risk reward for equities but says it’s a ride the highs, buy the dips market.

Frederic Dickson at D.A. Davidson said investors are tiptoeing in to figure out if it’s too hot or too cold.

The majority of economists expect the Fed will lower its benchmark rate to 0.5 percent from 0.75 percent on May 2.

74 percent of 270 S&P 500 Index companies so far reporting have beaten estimates, and analyst are turning more bullish on corporate earnings, expecting Index earnings gained 1.1 percent in Q1 2013.

George Soros disclosed a stake in JC Penney.

Read the full article at http://www.bloomberg.com/news/2013-04-26/u-s-stock-futures-drop-as-investors-await-gdp-report.html

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Soros Sees China Shadow-Banking Risks Similar to Subprime – Bloomberg 04-08-13

Salient to Investors:

George Soros said:

  • China has a couple of years to control risks as t

    he rapid growth of shadow banking is disturbingly similar to the subprime-mortgage market in the US that caused the financial crisis of 2007-2008.

  • China can keep its current economic growth model for another year or two but not for another decade because household savings are no longer sufficient to subsidize the majority of the economy.
  • China is aware of the dangers and has succeeded in changing its growth model several times in its recent history, so is able to do it again with one caveat: vested interests are much stronger now than in previous occasions as the rapid expansion of shadow banking and its considerable influence over state-owned banks demonstrates.
  • 2014 will be turbulent with the euro at the center of the storm, and the decline in the yen and pound will probably aggravate the recession in Europe.

Shadow lending flourishes in China because 97 percent of its 42 million small businesses can’t get bank loans, and savers seek higher returns than lenders pay for deposits. UBS estimates the size of the total industry at 45 percent of GDP.

Read the full article at http://www.bloomberg.com/news/2013-04-08/soros-sees-china-shadow-banking-risk-matching-subprime.html

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Soros Joins Gross in Warning Kuroda Plan Risks Yen Rout – Bloomberg 04-05-13

Salient to Investors:

George Soros and Bill Gross at Pimco said the BOJ plan to end deflation risks weakening the yen.

Gross said the yen has to depreciate much more for the BOJ to reach its inflation target of 2 percent, and other G-7 countries may not be willing to permit that.

Read the full article at http://www.bloomberg.com/news/2013-04-05/soros-joins-gross-in-warning-kuroda-plan-risks-yen-rout.html

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Gross Says Buffett to Soros Careers Fueled by Expansion – Bloomberg 04-03-13

Salient to Investors:

Bill Gross at Pimco said:

  • The most renowned investors from Buffett to Fuss to Soros may owe their reputations to the most attractive era for money management as expanding credit fueled gains in asset prices across markets.
  • Maybe the era made the man, not the man who made the era – the real test of greatness is whether they can adapt to historical changes occurring over half a century or longer.
  • Higher market volatility, an aging population, and climate change could make investing far more challenging in coming decades.
  • What if zero-bound interest rates has led to a mathematical dead-end for bonds in 2012-2013 and other conjoined asset classes? What if QE eventually collapses instead of elevate asset prices?
  • Investors such as Bill Miller are prone to exposing their Achilles heel the longer they stay in the money-management business. Peter Lynch was smart to leave when the ‘gettin’ was good.
  • There is not a Bond King or a Stock King or an Investor Sovereign alive that can claim title to a throne.

Read the full article at http://www.bloomberg.com/news/2013-04-03/gross-says-buffett-to-soros-careers-fueled-by-expansion.html

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