Fareed Zakaria GPS – CNN 04-17-16

Salient to Investors:

IEA predicts coal consumption in OECD countries will fall 40% by 2040.

Julia Ioffe at Foreign Policy said:

The Saudi regime is in no danger of collapse and is still a strong US ally.

What is happening in Brazil is a sign of healthy cleansing, unlike Russia, where what the Panama papers revealed is far worse that anything Brazil has done. Russian courts will never go after the corrupt, but instead will pursue the corruption fighters.

Ed Luce at The Financial Times said Islamophobia is not weakening democracy but weakening constitutional liberalism.

Brett Stephens at The Wall Street Journal said:

Saudi Arabia could collapse should low oil prices continue, ISIS expanded into Saudi Arabia, the bad war with Yemen, and especially should the current trio of leaders fails.

Brexit would mean Scotland would try to leave Britain and join Europe.

Islamophobia is part of the poison of low growth. Contrast Germany which was able to absorb huge Muslim immigration during the post-war era of 3%-4% growth.

Brazil is the country of the future and always will be.

Gideon Rose at Foreign Affairs said:

Saudi Arabia has internal legitimacy, relatively good finances, strong control over their territory.

Vice President Temer of Brazil is not a particularly strong replacement if President Dilma goes, so no dramatic change or recovery soon.

Brazil’s problems will not destroy the world economy overall.

Julia Rozovsky at Google said their most effective teams all possess psychological safety, i.e. team members can take a risk without fearing being shot down or ridiculed.

Charles Duhigg at The New York Times said:

Researcher Amy Edmondson found that physiological safety has two components: first, the team has to feel like everyone could speak equality and second, the team exhibits social sensitivity, i.e. listening skills.

Saturday Night Live – a team of egomaniacal comedians and writers who for most of their lives hated other people – succeeded because Lorne Michaels forces everyone in team meetings to say something.

Watch the video at http://globalpublicsquare.blogs.cnn.com/category/gps-episodes/ or read the full transcript at http://transcripts.cnn.com/TRANSCRIPTS/1604/17/fzgps.01.html

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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

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Three economic crises, cutting rates and banning cash – The Economist 09-18-15

Salient to Investors:

Andy Haldane at the Bank of England said:

  • Inflationary reputation is hard-earned and easily lost central bank promises to re-anchoring the rate at some future point is damaging to macro-economic stability.
  • Further QE, especially making it permanent, risks blurring the boundary between monetary and fiscal policy and hurts central bank independence.
  • The “Anglo-Saxon” crisis of 2008-09, the “Euro-Area” crisis of 2011-12 and the potential “Emerging Market” crisis of 2015 onwards are all caused by huge global liquidity, inflated then deflating capital flows, credit, asset prices and growth in different markets and regions. The emerging market growth cycle has turned decisively – The IMF forecasts growth will slow to below 4% in 2015.
  • The risk to UK growth and to UK inflation at the two-year horizon is significantly to the downside, so raising UK interest rates is a ways off.

The average central bank rate decrease in a recession is 3%- 5%, currently not possible, so central banks have 3 options. A) Increase the inflation target, say from 2% to 4% – acceptable because economists believe only double-digit rates are damaging – to try to get workers to demand higher wages to compensate and so create inflationary pressures. B) More QE. C) Impose negative interest rates on commercial bank reserves, which would result in consumers keeping their money out of banks.

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

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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 05-24-15

Salient to Investors:

Fareed Zakaria said:

  • Britain, which created the world we live in, has become parochial and has essentially resigned as a global power: a tragedy for us all.
  • The Royal United Services Institute predicts that the British army could shrink to 50,000, smaller than at any point since the 1770s and equivalent to the size of the NYPD.
  • Britain’s Foreign Office budget, down by more than a quarter under PM Cameron, will fall further.
  • More than a third of Londoners were born outside the UK, and the city continues to seek investment from China, Russia, Arabia, and others.
  • The US military budget is becoming like that all American institutions, largely devoted to pensions and health care.
  • College in America costs more than 13 times what it did in 1978, far outpacing inflation and health care costs. Student loan debt has more than tripled in the past decade to over $1 trillion.
  • Germany and Denmark offer free college education. Germany mainly through high taxes and with universities that do not offer billion dollar student union buildings, huge sports facilities, or a lot of student housing.
  • The two paths to solving America’s education cost crisis are a) the government paying or reining in the costs, and b) the use of technology. Technology won’t be enough so state governments  must fund state universities, the real highways to the middle class in America.

David Miliband at the International Rescue Committee said:

  • As the Syria war continues, the choices get worse, and the dangers of inaction become clearer and clearer.
  • America may not want to have anything to do with ISIS et al, but they will end up having something to do with us. America cannot have the blessings of globalization with none of the burdens.
  • Without American leadership for a rules-based international system, we have a vacuum, and thus danger.
  • China is not trying to upend the international order and it worries about the meaning of America’s decline.

Gideon Rose at Foreign Affairs said:

  • The real problem in Iraq and Syria is not ISIS, but the lack of any kind of political order to oppose it.
  • The US has to show that it actually cares about maintaining and reviving the liberal international order.

Danielle Pletka at the American Enterprise Institute said:

  • The US left Iraq in 2011 with comity between the Shia and the Sunni.
  • The narrative of Sunni vs. Shiite, Persian empire vs. Ottoman empire, is enormously detrimental to US interests, so the more Saudi Arabia et al support the Sunnis, and Iran support the Shias, the more likely is conflict.
  • Ultimately ISIS, al Qaeda, Jabbath al-Nusra will come for us.
  • Even if we wanted to, and even if the Middle East was not on fire, the US no longer has the necessary resources to fully resource a pivot to Asia.
  • At the end of the day, the American electorate values security and genuineness in a candidate.
  • The US defense budget is a declining piece of a declining pie: 50% of which is spent on personnel. The US does not have the carriers, the attack ships, the refueling capability, the new technology to be in Asia in the way that we need to, or to contend in the Middle East. 

Ian Bremmer at Eurasia Group said:

  • There is a huge generational divide in America over its role as a global policeman, with the younger you get, the more Americans want to leave things alone.
  • Defeating ISIS with no boots on the ground does not stand.
  • ISIS is a much greater threat in the region and to Europe than the United States – America has the energy production now.
  • China, not the US, is the one country in the world with a global strategy, creating institutions like the BRICS Bank, the Asian Infrastructure Bank, and spending over a trillion dollars on infrastructure and equities to align other countries economically towards China over the long-term.
  • With 37% of the world’s defense budget, the US is capable of pivoting to Asia, but it requires US leaders that engage in consistency, and a president who believes that strategy matters and is a top priority.

Jeff Hawkins at Redwood Neuroscience Institute said:

  • Artificial Intelligence is not a real threat for the foreseeable future because machine intelligence is not about recreating humans, if that was even possible.
  • Machines will get smarter than humans, like IBM’s Deep Blue or Watson, but the idea of a runaway intelligence explosion is nonsense – brains take a long time to train.
  • There is nothing we are doing today, that is dangerous, that we could not undo.
  • It is impossible to answer now what will be the big benefit to the world of AI.

Charles Murray said:

  • Ordinary people cannot live their lives as they see fit anymore and live under a constant presumption that they need permission.
  • The number of stupid, pointless regulations has just grown astronomically. The Federal Code of Regulations is now 175,000 pages.
  • The only time drivers get stopped by police going 5 miles over the speed limit is when they are on a deserted stretch of highway. On an ordinary interstate, 70% of vehicles are going 6 miles over the speed limit.

Igarape says:

  • 10 countries account for 58% of the world’s homicides: Brazil, India, Nigeria, Mexico, the Democratic Republic of Congo, South Africa, Venezuela, Colombia, Pakistan and the US, the world’s deadliest Western democracy. Lebanon, the United Arab Emirates, Kuwait, Bahrain, Saudi Arabia Libya, Egypt, Tunisia, Algeria and Morocco, all have rates lower than that of the USA.
  • Countries with a very low homicide rate include Monaco, Liechtenstein, and Singapore.

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

at http://transcripts.cnn.com/TRANSCRIPTS/1505/24/fzgps.01.html

IMF downgrades global growth forecast – BBC News 01-19-15

Salient to Investors:

The IMF said:

  • The global economy will grow 3.5% in 2015 and 3.7% in 2016.
  • The boost from the sharp fall in oil prices will be more than offset by negative factors, including weaker investment.
  • The euro area recovery will continue at only 1.2% growth in 2015 and 1.4% in 2016.
  • China will slow to 6.3% growth in 2016 – versus an average of 10% over the three decades up to 2010 – but an orderly slowdown, though will have important effects in other emerging economies in Asia.
  • Russia will contract by 3% in 2015 and 1% in 2016 due to the fall in oil prices and the crisis in Ukraine and Western sanctions.
  • Nigeria will grow 4.8% in 2015.
  • The US will grow 3.6% in 2015 and 3.3% in 2016.
  • The UK will grow 2.7% in 2015 and 2.4% in 2016.

Olivier Blanchard at IMF said:

  • Deflation in Europe is not the kiss of death and won’t derail the recovery.
  • Many countries have recovered from the global crisis, notably the US, but countries with very high debt will take a very long time to rectify, especially Japan.
  • Things are improving though not as quickly as we would dream.

Read the full article at http://www.bbc.com/news/business-30876954

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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

Income Inequality Significantly Hurts Economic Growth, OECD Says – Bloomberg 12-08-14

Salient to Investors:

The OECD said:

  • Widening inequality creates a drag on economic growth that can be counteracted by tax policies to benefit the less well-off. Changes in wages and salaries have been the biggest direct driver of inequality. The earnings of the 10% best-paid workers have risen relative to the 10% at the bottom, who also saw a drop in annual hours worked.
  • Inequality undermines growth by preventing disadvantaged people from accessing education to develop their skills, impeding social mobility.
  • Policy makers need to be concerned with the general welfare of the bottom 40% of society and not just the poverty of the lowest 10%. Tackling poverty won’t be enough. Needed are government transfers, including policies to improve access to public services such as health care and education. Policies that help to limit or reverse inequality may also make societies wealthier.
  • Inequality knocked 6%-7% off US GDP growth between 1990 and 2010, and hurt growth in the UK, Italy and Mexico.
  • A widening in inequality like that seen in OECD states over the past two decades would slow growth by a statistically significant 0.35% a year, or 8.5% over a quarter century.

Read the full article at http://www.bloomberg.com/news/2014-12-08/income-inequality-significantly-hurts-economic-growth-oecd-says.html

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Almost Half of China’s Rich Want to Emigrate – BloombergBusinessWeek 09-15-14

Salient to Investors:

  • Barclays said 47% of China’s wealthy are planning to move abroad within 5 years, versus 23% in Singapore, 16% in Hong Kong, 20% in Britain, 6% in America and 5% in India.
  • 78% named bettering children’s education and their future job prospects as their main reasons, 73% said a better economic situation, 18% cited health care and social services.
  • The US and Europe were the favored destinations.
  • Liam Bailey at Knight Frank said most ultra-high net worth individuals in China are making money in China right now, so, for business reasons, they need to be relatively close.

Read the full article at  http://www.businessweek.com/articles/2014-09-15/almost-half-of-chinas-rich-want-to-emigrate#r=rss

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U.K. Workers Get No Relief as Wage Squeeze to Extend Into 2015 – Bloomberg 09-15-14

Salient to Investors:

  • 74 percent of 34 analysts expect wage growth to begin to outpace inflation on a sustainable basis in Q2, 2015 or later.
  • Rob Wood at Berenberg Bank said real wages will start to grow in half1 2015 but it will be several years before we get back to normal.’
  • Daniel Vernazza at UniCredit said the central scenario is very good and the data warrants an increase in rates – these are emergency rates but the economy is not in an emergency state – and after the Scotland vote regular pay growth may rise over the next few months.
  • Philip Rush at Nomura Intl expects the first rate increase in February.

Read the full article at  http://www.bloomberg.com/news/2014-09-15/u-k-workers-get-no-relief-as-wage-squeeze-to-extend-into-2015.html

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