Fareed Zakaria GPS – CNN 01-10-16

Fareed Zakaria said:

The most significant trend in the Middle East is Sunnis versus Shiites, which will continue to limit the ability of any outside power to stabilize the region.

Saudi Arabia faces challenges from ISIS to domestic extremists. Plunging oil prices have collapsed government revenues so its generous subsidies to its people will be hard to sustain.

10% to 15% of Saudis are Shiite and live atop the kingdom’s oil fields.

The single greatest threat to America from the Middle East remains radical Sunni jihadists, many of whom draw support from Saudi Arabia.

Americans should root for China to succeed, else feel the pain at home.

The State of the Global Islamic Economy expects Muslims to spend $327 billion on clothing by 2020, versus $230 billion in 2014, ranked third after the US and China. Muslims spent $54 billion on cosmetics in 2014 and that will grow to $80 billion by 2020.

The Violence Policy Center says Alaska had the highest rate of deaths caused by guns in 2014, followed by Louisiana and Mississippi. Gunpolicy.org says Alaska had a higher rate of gun deaths than Mexico. Hawaii and Rhode Island had the lowest gun death rates.

Martin Indyk at Brookings said:

The US went along with the headstrong young leadership in Saudi Arabia into getting stuck in a war in Yemen. 50% of the Gulf states military capability is embroiled in war that is causing humanitarian crisis in Yemen, to the advantage of Iran.

Pulling out of Afghanistan all together is not a good idea because we at least have a leadership there that we can work with.

The US leverage lies in making clear to the Chinese that if they don’t pressure North Kora then we will have no choice but to boost our presence in their region to protect our allies, South Korea and Japan.

Vali Nasr at Johns Hopkins said:

The US invasion of Iraq in 2003 was the tipping point.

The whole geostrategy of the region changed once the US started talking to Iran and decided that it is not as committed to containing Iran as Saudi Arabia expected.

The problem is not containing Iran but the too many Shiites in the region who have to accept to live under a Sunni political order that existed before 2003 Iraq invasion. A Sunni order in which Iran will have absolutely no influence and the Shiites will have absolutely no ability to rely on Iran.

Afghanistan is going sideways and downwards.

Nawaf Obaid at Harvard said:

Saudi Arabia is taking on a much more assertive and aggressive foreign policy to defend themselves from Iran and loss of US presence and leadership in the region. The Saudis will increasingly battle Iranian presence and influence in the Arab world in the next several years.

You cannot have an agreement with a country, Iran, which supports a Syrian dictator who has killed 400,000 people, funds a Shia militia in Iraq guilty of the most atrocious things, and not expect the new deputy crowned prince of Saudi Arabia for irrational decisions. He did not have the luxury to stand still and await guidance from the US which was not coming in the first place.

Robin Wright at The New Yorker, US Institute of Peace and Woodrow Wilson Center said:

The Sunni-Shia schism is turning into one of the biggest divides in Islam in 14 centuries and playing out politically, ideology, strategically, ethnically, and virtually every range.

The crisis has begun to derail Iran’s desire to end its pariah status and restore its stature.

Both Iran and Saudi Arabia are in transition, which limits the influence of the outside world.

Without Chinese help, the prospect of any moderation in North Korea is unlikely. Their leader is 33 years old and very insecure.

Ruchir Sharma at Morgan Stanley said:

A global recession is due. Since the early 1970s, global downturns have struck every 7.5 years on average.

Every country will be affected by China’s policies in 2016. China is now the world’s biggest driver of economic growth. China’s debt levels have risen to 300% of GDP: no developing country in history has ever taken on debt faster than China in recent years. Furiously rising debt levels are the single most reliable predictor of financial crisis.

China’s leadership is so worried about angering its people with slowing growth and rising unemployment that it has been unwilling to stop goosing its economy.

Niall Ferguson at Harvard said the younger Henry Kissinger was not Machiavellian at all, but inept in his attempts for self-advancement and politically slightly naive.

Gary Kasparov said:

Russia is at a very dangerous stage because of Putin and things will get worse before they get better because of collapsing oil prices and the Russian budget. There is no visible positive scenario, only choices for lesser evil.

Putin will continue his aggressive foreign policy because his white knight propaganda needs these victories. Putin is a very capable KGB officer and excellent negotiator and poker player. If not for NATO membership, Putin’s tanks would be in Estonia and Latvia. Putin looks for the weak spot on the map and grabs it if he can.

The fundamental problem of the West is complacency after the collapse of the Soviet Union and the end of the Cold War.

Watch the video at http://globalpublicsquare.blogs.cnn.com/category/gps-episodes/ , listen at http://podcast.cnn.com/fareed-zakaria-gps/episode/all/TkwD3eujmTzNlz/fzgps-2016-01-10.html or read the full transcript at http://transcripts.cnn.com/TRANSCRIPTS/1601/10/fzgps.01.html

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Slow-Growth Forecasts Are Wrong – BloombergView 07-16-14

Salient to Investors:

Gary Shilling writes:

  • The pessimistic economic theories are wrong.
  • Weak growth will NOT last forever despite the Reinhart-Rogoff findings that the economy contracts at a 0.1 percent annual rate when government debt exceeds 90 percent of GDP.
  • In the late 1970s and early 1980s many economists presumed high inflation would last forever, yet we got disinflation by the mid 1980s. The post-war baby boom raised fears of a population explosion, yet was followed by the post-war baby bust.
  • Many experts believed that the aggressive monetary stimulus after the 2000 stock market collapse that appeared to have stabilized the economy meant that central bankers had overcome the business cycle, yet they caused the  2007-2009 recession.
  • Glenn Hubbard at Columbia Business School and Tim Kane at the Hudson Institute believe great powers fall into the trap of denying the internal nature of stagnation, centralizing power and rob the future to overspend on the present.
  • Larry Summers worries about persistently slow growth due to slow labor-force expansion and muted productivity growth.
  • Niall Ferguson at the Hoover Institution believes encroaching government is strangling private initiative, especially in the US, and threatens representative government, the free market, the rule of law and civil society.
  • Robert Gordon at Northwestern University believes that all the big growth-driving technologies have been fully exploited and that the era of 2 percent annual output growth per capita from 1891 to 2007 is over and that 1 percent annual growth and personal incomes growing at 0.5 percent annually is ahead.
  • Jonathan Laing wrote in Barron’s that the growth in the US labor force in coming decades will slow due to low birth rates and less immigration – both global trends – as will productivity advances. Laing believes any productivity increase will come from machines replacing middle-income employees.
  • Increased government regulation does stifle innovation and reduce efficiency and, therefore, growth. By 2018, the percent of Americans received meaningful financial support from the government will rise to 67% versus 28.7% in 1950, 52.4 percent in 1970 and 58.2 percent in 2007. Yet the fact that the 50 percent level was breached 43 years ago attests to the American character of deep-seated self-sufficiency.


Read the full article at http://www.bloombergview.com/articles/2014-07-16/slow-growth-forecasts-are-wrong

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Fareed Zakaria GPS – CNN 06-23-13

Salient to Investors:

Fareed Zakaria said:

  • Japan desperately needs real reforms that open up the economy and make it more friendly for business.
  • The Economist says a Japanese company has to actually go out of business to be able fire any of its workers. Japan is 134th out of 144 in the World Economic Forum’s Global Competitive Index in flexibility of hiring and firing.
  • Japanese agriculture gets 3 times the subsidies in the EU and 6 times those in the US. Japan ranks 26th of 31 high income countries in ease of starting a business in the World Bank’s Doing Business report.

Samuel Huntington said the reason why, since WWII, the outcome of almost every US militarily engagement in conflicts around the world has been inconclusive, muddled or worse is because it rarely entered them actually trying to win and Americans rarely saw the problem as one that justified getting fully committed.  Huntington said where we succeeded – the 1990 Persian Gulf War, Grenada and Panama – we did fight to win, used massive force and achieved a quick, early knockout.

Daniel Drezner at ForeignPolicy.com said the goal of Obama policy towards Syria over the past two years is to ensnare Iran and Hezbollah into a protracted, resource-draining civil war, with as minimal costs as possible – this is has been accomplished at an appalling toll in lives lost.

Niall Ferguson at Harvard said:

  • Bernanke has been consistent in saying that of course there will come a time at some future meeting when the data will be strong enough to justify tapering.  Bernanke has been crucial and must be given credit for having averted a second Great Depression. Janet Yellin is highly qualified as is Tim Geithner.
  • Any kind of business is easier to start in the UK than in the US. The US is no longer number one. It does not have the best rule of law, it has a really expensive and complex system, which is opaque and full of risks for any entrepreneur. The US has more complex regulation for a small business than most European countries. 63 different federal agencies pour out 3,000 or 4,000 regulations a year. Since WWII, only one president, Reagan, has presided over a reduced federal register – it shrank by 30 percent while the economy grew in real terms by 30 percent.
  • Incredibly complex systems of regulation, environmental or financial, advantage the big corporations, because they have the lawyers.  e.g. healthcare.  Small businesses are not becoming medium size businesses, which is what you would expect if this recovery were for real.

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

Niall Ferguson – Charlie Rose 06-18-13

Salient to Investors:

Niall Ferguson at Harvard said:

  • The West is in decline cause by political and economic stagnation and the US and Europe institutions that are degenerating include democracy, regulation, the rule of law and justice, and civil society.
  • Non-Western countries are improving their economic and political institutions and getting richer.
  • US problems are structural and the fundamental problem is the imbalance between generations. Edmund Burke said the social contract is between generations – the living with the dead and the living with the unborn. America has broken that contract in a profound way because the baby boomers have lived at the expense of future generations.
  • The over 70 consume double what people under 20 consume. The next generation will either pay much higher taxes or won’t get the levels of entitlement the current generation enjoys.
  • To establish generational equity, i.e make sure future generations pay the same tax as the current generation, you would either have to cut all government spending by 35 percent or increase all federal taxes by 65%.
  • Off-balance sheet debt is much larger than the stated debt – debt to GDP ratios highly understate the problem. We must change the way government accounts for its spending and collects taxation and adhere to the accounting standards that corporations do. We need to distinguish between capital expenditure and consumption, while government are encouraged to slash investments.
  • We have gone from the rule of law to the rule of lawyers. The US is more litigious than other countries. The too big to fail institutions are fine but the little guy gets crushed. Regulations are much more burdensome.
  • 1/4 of the House and 2/5 of the Senate are lawyers. The great winners from Dodd-Frank are lawyers and compliance departments. Extra regulation actually makes the system more fragile.
  • The tax code is 9 million words.
  • Democracy doesn’t represent the young and the unborn.
  • The US is no longer the best place to start a new business. The World Economic Forum competitiveness index shows the best countries include Singapore, Hong Kong, New Zealand, some Scandinavian countries. The Fraser Institute in Canada says the US has fallen behind all other English-speaking countries. The World Bank says the US is one of only 21 countries in the world where the time it takes to settle a claim against a non-paying debtor has risen. The US generates 3000 new regulations every a year from 63 government departments  and agencies.
  • China is trending towards transitions to a rule of law system. Hong Kong has a better rule of law system than the US.
  • China is overwhelming the US by size but not by innovation. The US stole most of its intellectual property from England in its development.
  • The US is failing miserably at high school education, causing a loss of social mobility. The American class system may be now more rigid than the British.
  • China will overtake the US by some measures like GDP within 4 years, but has its own set of problems. China knows it it has failed to stop corruption – it is now their no 1 priority – and are worried about the stability of their own institutions.
  • Moving people to cities raises productivity because of increased networking.
  • China expects to be treated as equals in a new world where they are already equals in economy and cyber-warfare. China should be given a chance to join G-8 and run the IMF and World Bank.
  • A showdown between China and Japan is building and Obama’s nightmare would be whose side to choose in the event of conflict. China sees the US siding with Abe to devalue the yen as part of a strategy to line up against it.
  • Obama can be more of a realist he always was in his second term. His Middle eastern policy is all over the place and is his biggest problem. Islamists are the winners of the Arab Spring because the US has chosen to be bystanders.
  • Keynes was encouraged to live in the present.

Watch the full video at http://www.charlierose.com/view/interview/12982. Click here to receive free and immediate email alerts of the latest forecasts.

Why everyone is wrong about austerity – MarketWatch 04-26-13

Salient to Investors:

Brett Arends writes:

It is not clear if high debt levels lead to slower growth, or result from slower growth, or that the two have only a loose connection, but we cannot borrow and print money indefinitely with no consequences whatsoever.

Rogoff and Reinhart got their math wrong but their data still shows some correlation between debt levels and lower growth rates. The UMass–Amherst economists who revealed Reinhart and Rogoff’s errors found that economies with government debt over 90% grew by just 2.2% a year on average, versus just over 3 percent for economies with debt between 30% and 90% of GDP, and over 4 percent for economies below 30% of GDP.

However their study was mostly based on data for advanced economies from 1946 to 2009, and you cannot deduce universal rules for the future from a 63-year snapshot of history. Historians like Harvard’s Niall Ferguson, a leading champion of the Reinhart-Rogoff view, should have been more skeptical.

New Zealand right after World War II had high debts, yet grew very quickly in the late 1940s because everyone needed food and wool.

Anti-austerians, who cite the biggest, broadest, longest period of growth and prosperity in US after WWII, despite debt at 120% of GDP in 1945, ignore the fact that taxpayers effectively repudiated a large chunk of it with a falling dollar and surge in inflation.

In the 1970s, huge government debts were partially repudiated every year through inflation – Treasuries became known as “certificates of confiscation.”

ICI reports the public holds $3.4 trillion in bond funds so will pay a vicious price if inflation surges again.

US household, corporate and state and local governments owe a total of $40+ trillion, nearly 3 times GDP, au contraire to just after WWII when corporate and household balance sheets were in excellent shape due to the high savings rates during the war years, and the war-time inflation which wiped out the debt of the Depression. In addition, today we also have off-balance-sheet liabilities for Social Security and Medicare.

Read the full article at http://www.marketwatch.com/story/why-everyone-is-wrong-about-austerity-2013-04-26

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Has the World Managed to Conquer Inflation? – BloombergBusinessWeek 01-28-13

Salient to Investors:

Handing monetary policy to independent central bankers appears to have worked.

The Cleveland Fed says markets expect US inflation over the next 10 years to stay below 1.5 percent, while the IMF expects below 2 percent in advanced economies and 6 percent in emerging markets for the next two years.

The World Bank reports average annual inflation across 175 countries in the first decade this century was under 8 percent, versus 66 percent for the prior decade and and 48 percent for the decade before that. Since 1999, 75% of all countries have had inflation below 10 percent. Only one country had a 66 percent inflation rate in 2012 versus 20 countries in 1993.

Haroon Mumtaz and Paolo Surico at the Bank of England said the drop is due by the lack of an external shock, like the oil shock in the 1970s, and by better government policies.

Jeroen Klomp and Jakob De Haan at the University of Groeningen say the growing independence of central banks has kept inflation low.

Sami Alpanda and Adam Honig says monetary policy loosens in the runup to elections in developing countries where central banks are beholden to politicians.

Nicola Baini and Douglas Laxton at the IMF found 12 emerging economies that adopted inflation targeting between 1998 and 2002, resulting in lower inflation and lower volatility in inflation over time, without a negative impact on growth or interest and exchange rate volatility.

Niall Ferguson says high inflation helped collapse democracy in Weimar Germany in the 1930s.

Michael Bruno and William Easterly when at the World Bank found no clear link between growth and any inflation rate under 40 percent.

Read the full article at http://www.businessweek.com/articles/2013-01-28/has-the-world-managed-to-conquer-inflation#r=read

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Fareed Zakaria GPS – CNN 07-22-12

Salient to Investors:

Fareed Zakaria said:

  • Outsourcing jobs to ensure a company’s survival is acceptable and is how you run a business.
  • America needs and already has a tax and regulatory structure that creates strong incentives for private businesses to flourish. The great shift in the U.S. economy over the past 30 years has been a decline in investment in human and physical capital and not an increase in taxes and regulation.
  • The World Economic Forum Global Competitiveness Report ranks the US fifth in the world and first among large economies. America has become more business friendly over the last thirty years, but spends much less as a percent of GDP on infrastructure, R&D, education, and training, than it did in the 1960s, 70s and 80s.  The World Economic Forum ranks U.S. infrastructure 24th in the world, versus second in 2001. In 2009, the OECD ranked America 14th in college graduates, versus first in the 1970s.
  • The single biggest threat to the world economy is the European crisis.
  • Cities going bankrupt is not much different from companies going bankrupt. Cities cannot go Chapter 11 but can go Chapter 9. Declaring bankruptcy brings benefits – agreement has to be reached, no matter how painful. Recent bankruptcies are not about low taxes or high spending on city services but about pensions. California’s pension-related costs rose 20-fold in the decade since 1999, an unsustainable trend almost everywhere in America.  Pew research found that the gap between state assets and their obligations for public sector retirement benefits is $1.38 trillion – up nine percent in 2010 and likely to keep rising until these obligations are renegotiated. To keep up with burgeoning pensions, states and cities are slashing services and feeding into the unemployment problem. State and local governments have 445,000 fewer workers today than in 2007, 231,000 fewer excluding teachers.

Steve Rattner said private equity is a perfectly legitimate business whose goal is to make money, but not in practice to create jobs.

Harvard’s Niall Ferguson said a Greek exit from the euro hasn’t happened yet because it is much harder to do than leaving an exchange rate mechanism or a gold standard. Most money today is in bank accounts, so a Greek exit would cause pandemonium throughout Europe; and disrupt the entire European banking system because the question would rise of which country is next.

Ferguson said the big problem would be what to do with outstanding debts – does it suddenly go from being a euro debt into being a drachma debt and at what rate? Debtors who owe money in euros inside Greece would benefit because suddenly those debts would be worth much less, but creditors would face a disaster. It would be hugely disruptive in terms of relationships between creditors and debtors. Would money that Greeks owe to other Europeans stay in euros or become drachmas?  Last month we started to see people moving their money out of Spanish banks and into German banks, but not yet a fully fledged bank run. The monetary union is still hanging together because the cost of dismantling it is incredibly high.

Ferguson said the macro-economic outlook is not great for President Obama. The U.S. and world economy is slowing down. Nothing is going to happen in Europe that’s going to improve matters before November. Europeans take very long summer holidays so not much will happen before Labor Day, though the uncertainty will linger during the summer. The U.S. is heading towards the fiscal cliff regardless of the European crisis.

View the full episode at http://globalpublicsquare.blogs.cnn.com/ or read the full transcript at http://transcripts.cnn.com/TRANSCRIPTS/fzgps.html

Merkel Rebuffs Rajoy Plea, Shuts Door to Euro Area Bonds – Bloomberg 06-27-12

Salient to Investors:

Professor Niall Ferguson at Harvard said the key negotiators, including Merkel, do not understand that the timeframe for financial crises is days, for structural reforms is years. Merkel has to realize that the cost of disintegration to Germany would be mind-blowing, and whatever happens, Germany pays – either through massive defaults or fiscal transfers.

Read the full article at http://www.bloomberg.com/news/2012-06-27/merkel-rebuffs-rajoy-plea-shuts-door-to-euro-area-bonds.html