Fareed Zakaria GPS – CNN 11-01-15

Salient to Investors:

Fareed Zakaria said:

  • Most transitions to democracy bring bitter struggles, viz South Korea, Taiwan, Chile.
  • Tunisia is almost entirely Sunni so has no sectarian and tribal differences and has had wise political leadership.
  • The end of China’s one-child policy was an admission that its greatest obstacle to long-term economic growth was its demographics.
  • The global population is twice that of 1968.
  • The Pew Research Center reports 98% of the American Association for the Advancement of Science scientists believe in evolution theory versus 65% of Americans. Ben Carson represents the height of arrogance to believe that humans can understand God’s mystery.
  • The Defense Department says that in just 20 months China reclaimed 17 times more land than Vietnam, Malaysia, Brunei, the Philippines and Taiwan have claimed over the past 40 years combined.

Richard Haass at the Council on Foreign Relations said:

  • 50 US ‘so-ops’ in Syria is not the beginning of restoring Syria as a country but an effort to stabilize it to allow diplomacy to succeed. Success in Syria would be 4-6 enclaves. The US goal is not to restore Iraq or a functioning national Syria but to keep innocent people alive and the terrorists from gaining territory.
  • A Middle East where Sunnis are dominated by ISIS would not be a success for Iran, who, along with Russia, understand that Bashar al-Assad has to go eventually.

Ruchir Sharma said:

  • The UN predicts over 2 billion more people in the next 35 years, but the rich world, especially Europe, faces a population implosion. As countries develop, their birthrates plunge: work population growth that averaged nearly 2% per annum for decades is now down to 1%. Women average less than 2 children in 83 countries that account for nearly half of the global population. The fertility rate in India is down to below 3 from over 6 in 1960.
  • Countries will thrive economically only if they become immigrant-friendly or increase their fertility rate.

Ann Selzer at Selzer & Co. said

  • US political debates do matter.
  • A candidate can conquer Iowa but not a California or a Texas in a meaningful way.
  • I never make predictions because they always include a wish.

Richard Dawkins at Oxford said:

  • Evolution is a fact, as much of a fact as the Earth orbiting the Sun.  The most powerful evidence for evolution is molecular genetics.
  • That all the Republican candidates except one say they do not believe in evolution is a disgrace. Evolution is the bedrock of biology, which is the bedrock of medicine, so for Ben Carson not to understand the fundamental theory of his own subject is a terrible indictment.
  • It is arrogant to say we know what God does.

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

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

Fareed Zakaria GPS – CNN 10-04-15

Salient to Investors:

Fareed Zakaria said:

  • Russia’s move in Syria is a desperate effort to shore up one of its only foreign allies and risks making it the great Satan with jihadists everywhere. However, Putin has at least a clearer strategy in Syria than Obama.
  • An US army of less than 30,000 men could easily defeat ISIS but then own problem territory in Syria.
  • Historically, the US when allied with a local force that was capable and viewed as legitimate has succeeded, but without such local allies, has not.
  • Syria will never be an intermingled country ever again whatever happens.
  • Code.org estimates that by 2020, there will be only 400,000 computer science students to fill the 1.4 million computing jobs in the US.
  • Liberal arts are important in teaching creativity, analytic thought and the joy of learning.

Jeff Colvin at Fortune said:

  • Studying humanities could become as valuable as a science degree because some jobs will always be done by “relationship workers”, the ones that emphasize social interaction – the need to interact with others is connected to our very survival, which is why we would prefer to see a real doctor or choose to work in teams.
  • From 2001 to 2009, the McKenzie Global Institute found that jobs involving human interaction, e.g. nurses and lawyers, increased by nearly 5 million in the US, while transaction and production jobs fell.
  • Science and technology disciplines are still crucial, but the humanities strengthen the deep human abilities critical for the success of most people far more than engineering or computer science.

George Soros said that Europe is in a state of disintegration, which started in 2008 and has become non-linear with problems with Greece, Ukraine, migration, and Putin’s Russia.

President Bill Clinton said:

  • Not very long ago, Europeans were killing each other in large numbers. The EU is a miracle, but in times of insecurity, fueled by both political problems and the absence of economic growth, negative identity politics tend to trump positive identity politics.
  • The issue of negative versus positive identity when you have slow growth is also true in America.

Watch the video at http://globalpublicsquare.blogs.cnn.com/category/gps-episodes/ or read the full transcript at http://transcripts.cnn.com/TRANSCRIPTS/1510/04/fzgps.01.html

Looking for the lifeboats – The Economist 09-19-15

Salient to Investors:

  • Both equities and government bonds are overvalued but are unlikely to fall in tandem. Long-term investors should ignore short-term market declines because over the long-term, asset prices rise – US equities overcame the dotcom bubble and 2008 financial crisis to reach record highs in 2015.
  • However, equities could be in for a long slow decline, a la Japan, the first rich country to fight deflation and zero interest rates. Japanese equities are still down 50% since the end of 1989, while bond yields have remained very low since the late 1990s. At least Japanese investors could have escaped into foreign assets, but that option is narrowing because all the developed world faces deflation, including emerging markets.
  • Robert Shiller at Yale said more investors fear US stocks are overvalued than at any time since 2000. Deutsche Bank says government bonds are the most expensive they have ever been.
  • AQR research found that:
    • In the 10 worst quarters for global equities between 1972 and 2014, equities lost more than 18% on average, bonds gained 4.8%, commodities and gold gained. Corporate bonds lost value, relative to government bonds.
    • In the 8 bad equity quarters since 1990, hedge funds lost and average of 5.2%, excluding trading costs and fees, but a combination of value, momentum, carry, defensive and trend-following strategies would have produced very good returns, excluding trading costs and fees.
    • In the 10 worst quarters for government bonds between 1972 and 2014, bonds lost 3.9% on average, while equities gained 3.5% on average thanks to a big gain in Q2, 2009, gaining in 6 of the 10, and commodities rose.
  • In the 10 worst quarters for government bonds, cash averaged a small gain.
  • Back-testing strategies is unsafe because there is no guarantee that they will be as successful in future.

Read the full article at http://www.economist.com/news/finance-and-economics/21665026-which-investments-work-best-when-markets-decline-looking-lifeboats

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

The zero rate trap – The Economist 09-18-15

Salient to Investors:

No Fed tightening was a sensible decision. The Fed is in a trap: low interest rates have raised global equity markets, whose collapse in August helped in preventing the Fed from raising rates.

Most British homeowners have variable rate mortgages so while interest rate cuts staved off a potential disaster in the housing market, the UK housing market did not return to more affordable price levels as it did in the US.

May Rostom at the Bank of England says:

  • The ratio of house prices to first-time buyer incomes in London is 9.4 versus 2.6 in 1996 and 7.2 at the last peak in London.
  • The 1971-1980 and 1981-1990 birth cohorts face sharply rising debts to get on the housing ladder but their incomes have not risen near as fast.
  • Since 1995, the debt of older generations has barely budged, while that of those aged 25-45 has shot up in real terms. A world where younger households reach 65 and still have debt is possible.
  • The widening wealth inequality across income or socioeconomic categories is also across generations as the low-rate regime has boosted asset prices for the older generations that own the assets.

The Bank of England is in a trap: if it raises interest rates and forces down house prices, young people not yet on the housing ladder would benefit, but for those with high debts, it would be a disaster. Building more houses is not enough: even Savill’s forecast of a 55% rise in homebuilding over a 5-year period would produce only 167,000 units in 2018, versus the 240,000 needed.

Read the full article at http://www.economist.com/blogs/buttonwood/2015/09/asset-markets-and-monetary-policy

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

Fareed Zakaria GPS – CNN 09-13-15

Salient to Investors:

Fareed Zakaria said:

  • China’s economy is nearly 2.5 times that of Japan so even if growth slows substantially, China will continue to have seismic effects on the global economy.
  • Henry Kissinger said Republican candidate China-bashing is dangerous and could create an atmosphere a la Europe before WW I – a war no one wanted but no one knew how to prevent.
  • China’s renminbi has appreciated substantially against the dollar and yen over the past few years so devaluing it due to market forces is wise, which is why the move was praised by the IMF. China’s inconsistent and ineffective policies in the currency and equity markets does not make it evil.
  • Germany has tried as hard as any nation in history to repent for its past, and is now an exemplary liberal democracy and model global citizen. Reuters said West Germany accepted 13 million people from Soviet-ruled Eastern Europe after After WW II.
  • The countries in the Middle East that have taken in refugees are often not the richest: Jordan has taken in over a million, Lebanon a huge number, Turkey 1.5 million, but Saudi Arabia and Egypt have barely taken any.
  • If you put fruits and salads at the start of a buffet, people are more likely to eat good things. If you want people to save money, make the saving the default option.
  • An Australian study found that the longer humanitarian migrants stay in a country, the more likely they are to start businesses than other migrants. Historical refugees include Chopin, Freud, Einstein and Madeleine Albright.

John Sawers at Macro Advisory Partners said:

  • The world is chaotic and dangerous due to the rise of ISIS, change in terrorist tactics to killing in shopping malls – much harder to stop – and cyber attacks, where we have no ability to deal with in a conventional way.
  • The great bulk of migrant refugees are people genuinely fleeing conflict. The bigger problem is our citizens visiting Syria and returning radicalized and terrorist.
  • The intelligence communities in America, Britain, France and elsewhere have been successful in combating terrorism, but one cannot have a 100% record.
  • Iran is transitioning from a revolutionary to a more normal state. Rouhani et al have a different vision for Iran’s security and future than the hard-liners in the Revolutionary Guard and Quds Force. Iranians, especially the young, have little respect for the concept of a revolutionary state, and just want a normal life.
  • Putin understands that any prospect of sanctions being lifted requires him to cooperate with the Ukrainian government, while the West has to understand that Ukraine holds a special place for Russians.
  • China is trying to change to a more market-led economy. The US relationship with China is key for global stability for the rest of this century. A failed China is a much more dangerous China.
  • Obama inherited the entrée from hell, but has been calm, steady and reliable. His initiatives on Iran and Cuba are important in normalizing those countries.

Naguib Sawiris said:

  • The war in Syria will not end in months or even years.
  • The whole world is united in identifying the enemy as ISIS, who are killers and gangsters.

David Halpern at Behavioral Insights Team said:

  • Peer pressure is effective in encouraging people to pay their taxes, especially if you tell them that most people in their area pay on time, and even more effective when you tell them they are one of the few who have yet to pay.
  • Most things that governments do actually concerns behavior.
  • People are much more likely to do something if they plan ahead, think more precisely and concretely, when, where and how they are going to do something. Asking questions in a different way makes people much more effective in their job search.
  • If you want people to save money, make saving the default option – as a result, more than 5 million Brits now save. 
  • Most healthy years lost are due to behavioral factors.
  • Economies bounce up and down because of what we think others are doing, and we are often wrong in those perceptions.

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

or read the full transcript at http://transcripts.cnn.com/TRANSCRIPTS/1509/13/fzgps.01.html

Advice After Stock Market Drop: Take Some Deep Breaths, and Don’t Do a Thing – The New York Times 08-21-15

Salient to Investors:

Stocks are most useful for long-term goals so it does not make sense to change your investment strategy based on a blip (sic) of market activity. There is absolutely nothing abnormal going on in the market. Research shows that long-term portfolio performance suffers badly by missing just a few days of the market’s biggest gains.

The fundamentals of capitalism have not changed, not should your confidence in very long-term ownership of equities. Few investments deliver the kinds of returns that stocks can without their own accompanying anxiety. It would take decades of systemic economic erosion to prove that stocks are not the most accessible route to earn the returns you will need to retire.

Read the full article at http://www.nytimes.com/2015/08/22/your-money/stocks-and-bonds/advice-after-stock-market-drop-take-some-deep-breaths-and-dont-do-a-thing.html

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

Birinyi Says You Can Toss Out the Old Tools for Calling S&P 500 – BloombergBusiness 08-05-15

Salient to Investors:

Laszlo Birinyi said:

  • The market is now so dominated by institutional investors, hedge funds and service industries, that sentiment drives prices more than anything else, so predictions based on valuation data going back a hundred years are bound to fail. Recent developments in Amazon, Google, and Chipotle clearly show this is not your grandfather’s market.
  • “This time is different” and “greed and fear are constants” are only clichés.
  • Using cyclically adjusted P-E ratios going back to 1926 would have predicted the S&P 500 returning less than 1 percent a year in the decade after the dot-com bust instead of the actual return of almost 5 times as much.
  • 3 of the 4 biggest bull markets of the last century have occurred since 1982. The S&P may not be cyclical. If this bull market mirrors the performance of the 1990 bull market, then the S&P 500 will rise to 3,200 over the next 2 years.

Read the full article at http://www.bloomberg.com/news/articles/2015-08-05/birinyi-says-you-can-toss-out-the-old-tools-for-calling-s-p-500

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

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/

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.