Fareed Zakaria GPS – CNN 09-27-15

Salient to Investors:

Fareed Zakaria said the Syrian civil war will not end any time soon.

Bill Clinton said:

  • Without a nuclear agreement with Iran 1 to 4 other states would get nuclear power in the Middle East. 10 years is a long time: from 1979-1989, the Berlin wall fell, the Warsaw Pact collapsed, the Soviet Union ended.
  • Ukraine is very resource rich and can do much with agriculture.

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

or read the full transcript at http://transcripts.cnn.com/TRANSCRIPTS/1509/27/fzgps.01.html

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

A Time Bomb Wrapped in a Ukrainian Peace Deal – BloombergView 02-12-15

Salient to Investors:

Leonid Bershidsky writes:

  • The cease-fire deal is as close to a deal on Putin’s terms as decency allows and too contradictory to work long-term. However, even if the truce fails, it is clear there is a strong will to look for a lasting solution.
  • Ukraine is unlikely to be able to join NATO anytime soon.
  • Putin’s ultimate goal to keep Ukraine within Russia’s orbit economically and politically could not have achieved without a decisive military victory.

Read the full article at http://www.bloombergview.com/articles/2015-02-12/the-ticking-time-bomb-in-ukraine-s-cease-fire

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Fareed Zakaria GPS – CNN 02-08-15

Salient to Investors:

Fareed Zakaria said:

  • ISIS’ strategy is to draw the US into a ground battle in Syria, and hope that a protracted war would sap US strength.
  • David Fromkin wrote that terrorism cannot always be prevented but can always be defeated.
  • India has 97 billionaires – third most in the world.

Fawaz Gerges at the London School of Economics said:

  • ISIS is self-destructive and strangling itself by pitting itself against the Muslim mainstream and public opinion, and Arab public opinion – ISIS should be defeated from within.
  • ISIS represents a fundamental challenge to Arab and Muslim societies, not to American and Western societies. Only Arabs and Muslims can deconstruct  ISIS’ twisted interpretation of the faith – this is a civil war within the Islamic world.

Marwan Muasher at the Carnegie Endowment for Intl Peace said:

  • ISIS have shown their true colors – no sane human being, let alone Muslim, would accept somebody to be burned alive and filmed on TV.
  • The only way to defeat ISIS in addition to the military campaign is for intellectual and religious leaders to openly and proactively talk about a pluralistic society.
  • Building a permanently stable and prosperous Arab society will take a lot more than military strikes.

Rula Jebreal said:

  • A lack of inclusion of moderate Muslims opens them up to being exploited by extremists.
  • Western invasions alone have not worked against terrorism.
  • Europe stripped its 20 million Muslims of a sense of belonging, thereby making them an easy target for radicalization.
  • Saudi Arabia and ISIS share the same ideology, so we need political and economic reform.

The OECD ranks the US 32nd of 39 mostly affluent countries with 38% of 3-yr-olds and 66% of American 4-yr-olds enrolled in preschool. The OECD average for 4-yr-olds is 84% enrolled. Belgium, and France enroll nearly all of their 3-yr-olds.

China claims it educates its children for 3 whole years before primary school, with 68% in pre-school enrollment in 2013 and an expected 75% in 2016.

The Perry Preschool Project study of 123 at-risk African-American children in 1962 found:

  • 77% who went to preschool graduated from high school versus 60% who had no preschool.
  • Preschool graduates had a median annual income of over $5,000 higher than the non-preschoolers.
  • 36% of preschool graduates had been arrested more than 5 times versus 55% of the non-preschoolers.
  • The approximately $15,000 investment per child yielded a total public savings of almost $200,000 not spent on welfare programs, jail, etc.

Stephen Sestanovish at the Council on Foreign Relations said:

  • Putin’s success in Crimea has only benefited him at home, save the diplomatic isolation and economic costs.
  • We are approaching a new Cold War. Ukraine is the most dangerous overall security situation since the end of the previous Cold War.

Stephen Cohen at Brookings said:

  • We are in a new Cold War, potentially much more dangerous than the last one because its center is right on Russia’s border, not in Berlin or in Ukraine.
  • The split in Europe will last.
  • Putin did not initiate the Ukraine crisis, did not want it and wants it ended but not by capitulation.
  • The only people interested in exploring the only way out are Hollande and Merkel and they are not very strong. The war parties in Washington, Kiev and NATO are now running this and we may be heading towards a Cuban missile crisis-like confrontation with Russia.Neither Russians or Americans have an appetite for this.
  • The demonization of Putin is beyond any factual basis and leads to amnesia among people who should know better. Henry Kissinger said this demonization is an alibi for not having a policy.
  • Kleptocracy is not a characteristic of the Russian economy, which was created by Yeltsin and inherited by Putin and which had its biggest grain crop in decades this year. Russia manufactures a lot of stuff.

Chrystia Freeland said:

  • Putin ultimately wants power and money, having established a personal kleptocracy in Russia.
  • Putin does not have a master plan, but can use extreme nationalism as a new source of legitimacy – it is a house of cards.
  • Russia is not the Soviet Union and is not a very strong regime. Its economy is weak, Putin’s oligarchs are unhappy, and the Russian bourgeoisie is now destroyed.
  • Putin’s Crimea excursion was done impulsively but worked better than he thought.

Bill Browder at Hermitage Capital Mgmt said:The Russian economy is a crook sitting at a world gas station – more than half of all the country’s revenues come from fuel exports.

  • Russia does not make stuff that people want to buy and anything they consume has to come from the West.
  • Everybody in Russia is trying to get their money out as fast as they can.
  • The Ukraine war was created as a distraction from the kleptocracy and economic problems, and Putin has to keep it going and invade other countries to keep the distraction.
  • Putin is entirely rational, just operating with a different set of motives and constraints than we are – throw all morality out the window when it comes to his decision making. Putin will kill people, start wars, destroy the Russian population, if it enhances his position, makes him wealthier or saves him from being arrested.
  • Putin started out as a kleptocrat who wanted to accumulate as much money as he could.
  • When the Russian people started to get mad at him Putin feared the same fate as Yanukovych and so started the war in Crimea which earned him an 88% approval rating.
  • Going into eastern Ukraine is not the same as going into Crimea and Russia is taking casualties, which Russians don’t want.
  • The Russian economy is crashing because of sanctions.

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

at http://transcripts.cnn.com/TRANSCRIPTS/1502/08/fzgps.01.html

Fareed Zakaria GPS – CNN 09-07-14

Salient to Investors:

Fareed Zakaria said:

  • Islamic terror is not the isolated behavior of a handful of nihilists but a broader culture that has been complicit in it or at least unwilling to combat it.
  • Zawahiri’s effort to recruit Indian Muslims will fail.
  • The Arab world produces fanaticism and jihad because it is a place of complete political stagnation. Islam has become the language of political opposition to Arab dictators and the dynamic between dictators and Jihadists has not broken.
  • Egypt is now a more brutal police state than it was under Mubarak.
  • There is little danger of inflation in the US.

Brett Stephens at the Wall Street Journal said:

  • ISIS is a direct threat to the West and to the United States
  • Putin won’t stop in Ukraine but go on to Kazakhstan, the Baltics, and other parts of the former Soviet Union.
  • The US has walked away from the Budapest Memorandum – which guaranteed Ukraine’s borders – showing that its promises are paper deeds and that other countries should not allow the US to handle their foreign policies.

Peter Beinart at The Atlantic said the US tragically does not have the capacity to make a Ukraine that does not accommodate Russia.

Richard Haass at the Council on Foreign Relations said the world is getting messier and the time has come for the US to increase defense spending and use its energy abundance to strategically take on Russia.

The CBO says:

  • The US is firmly in economic recovery with substantially lower federal deficits, lower interest rates.
  • The federal deficit will be just 2.9% of GDP in 2014, slightly lower than the average deficit over the last 4 decades, and versus 9.8% in 2009.
  • The US will spend $95 billion less on Medicare in 2019 than it had predicted just 4 years ago.
  • The US could stabilize its debt to GDP ratio by finding tax increases or spending cuts equivalent to just 1.2% of GDP.

Paul Krugman said:

  • The debt and budget crisis were imaginary and the new CBO projections prove the debt apocalypse has been called off.
  • The debt-to-GDP ratio will increase after the next decade due to the aging population but health care costs have slowed dramatically.

Peter Bergen at the New America Foundation said al Qaeda is very conscious that they are yesterday’s story, while ISIS offers a much more appealing media strategy and are more successful than al Qaeda has ever been in terms of getting territory, money, fighters, and establishing a large foothold in the Middle East.

The World Economic Forum ranked Switzerland as the most competitive nation for the 6th year in a row, with the US moving up to 3rd place.

Watch the video at http://globalpublicsquare.blogs.cnn.com/category/gps-episodes/ or read the full transcript at http://edition.cnn.com/TRANSCRIPTS/1409/07/fzgps.01.html

Fareed Zakaria GPS – CNN 08-31-14

Salient to Investors:

Fareed Zakaria said:

  • Defeating ISIS would require a large and sustained strategic effort from the US but without significant numbers of US ground troops.
  • ISIS videos of executions are designed to sow terror in the minds of opponents who when facing ISIS fighters now reportedly flee rather than fight.

Zbigniew Brzezinski at the Center for Strategic and International Studies said:

  • What is happening in Ukraine is a Russian invasion but also a major blow to Putin’s personal and international ambitions, namely to recreate something like the Soviet Union.
  • The West has been very slow in convincing Putin that he cannot go all the way.
  • Increasingly all the major partners in NATO and the EU.
  • Putin clearly has indicated that if he succeeds in Ukraine, he’ll do the same to the Baltic states.
  • Nato members are very glad to have American protection in NATO but not all of them are prepared to carry their burden, to stand together.
  • China is worried that if Putin’s adventurism produces a major conflict, that would be a very serious threat to global well-being and a fundamental disaster to China.
  • China must tell Putin that using force to change borders nowadays is not the way to deal with international problems.
  • ISIS is not a state but a bunch of decentralized brigands united by extremist views managed from a single leadership but not very effectively. It will have to be dealt with in different ways in different areas but cannot be led by America.

Americans take much less vacation and work longer work weeks than most of their counterparts in advanced industrial countries. The US is the only advanced economy where workers are not guaranteed paid vacation time. European workers are guaranteed at least 20 paid vacation days a year.

South Koreans worked nearly the longest hours of any OECD country but were less productive than the average OECD worker. Asian workers have historically been less productive than Americans though the gap is narrowing. Germans work 600 hours less every year than Greeks but their productivity is 70 percent higher.

Ernst and Young found that for every additional 10 hours of vacation an employee took, the company saw an 8% improvement in performance ratings.

The US Travel Association said that if Americans used all of their allotted time off, there would be an additional $160 billion in sales across several sectors, generating an additional $52 billion in earned income and 1.2 million additional jobs.

By 2025, 58% of the world’s population will be living in cities.

China has the most financially literate teens, followed by Belgium and Estonia. The US was on a par with the OECD average.

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

at http://edition.cnn.com/TRANSCRIPTS/1408/31/fzgps.01.html

O’Neill Says Emerging-Market Selloff Creates Buying Opportunity – Bloomberg 02-04-14

Salient to Investors:

Jim O’Neill said:

  • We are closer to a buying opportunity in emerging-market stocks than to joining in the panic.
  • While some places in the emerging world have real problems, to herald an emerging-market crisis is ridiculous. Ukraine, Thailand, Argentina and Turkey have some serious issues.
  • The Fed decision to taper is amplifying the selloff in emerging-market assets. Tapering is more problematic for emerging economics but affects everywhere, but is not to be confused with individual emerging countries having genuine problems.

Read the full article at http://www.bloomberg.com/news/2014-02-04/o-neill-says-emerging-market-selloff-creates-buying-opportunity.html

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Slump-Watchers Dump Yield Curve for 1970s Tool: Cutting Research – Bloomberg 11-26-13

Salient to Investors:

Ellen Zentner at Morgan Stanley said:

  • The Fed’s near-zero interest rate and QE is holding down US bond rates, meaning the US Treasury yield curve would struggle to invert, crimping its effectiveness as an indicator of business cycles.
  • Yield curve inversion signals investors are betting on weaker economic growth – recessions have followed 6 of the 8 times that has happened since 1960, and no US recession in the period was not preceded by an inverted curve.
  • The upturn in the Duncan Leading Indicator since Q2, 2009 confirmed the end of the last recession and its subsequent gain over the past 17 quarters indicates the risk of an economic slump in 2014 remains low. The DLI looks at components that react to cyclical demand, such as household spending, and compares them with economic growth. Since 1970, the DLI has indicated imminent downturns by an average of four quarters. A 1985 FRB of San Francisco study found it a more reliable indicator of business cycle peaks than other tools.

Paul Mortimer-Lee at BNP Paribas said:

  • Arguments that QE can choke consumption could apply to any easing of monetary policy and the Fed’s 3 rounds of asset buying have added 1.5 percent to US consumption.
  • QE cannot both stimulate and deters excess investment
  • Market distortions are often needed to help the economy
  • QE may have had a limited effect on activity, but it has helped to fend off deflation.

Ralph Solveen and Bernd Weidensteiner at Commerzbank said Japan’s stagnation does not provide a template for the euro area because prices fell in Japan not because of a weak economy but because their level stayed elevated during the preceding boom and needed to be corrected, whereas there was no such jump in prices in the euro area, where inflation is likely to grow at an annual rate of 1 percent, excepting peripheral economies like Greece and Spain, where a price correction is now under way.

Bank of America said Ukraine, Turkey and South Africa are the emerging markets most vulnerable to Fed tapering, while China and South Korea should be the most resilient. Ukraine and Turkey suffer from high external debt and a lack of reserves, while South Africa is weakened by its current account deficit. South Korea benefits from low inflation volatility and a strong fiscal position, and China has a current account surplus and large currency reserves.

Bank of America said a 1% shock to US growth would have the most durable impact on Mexico but provide a pickup for South Korea, add 0.2 percent to expansion in Turkey and India, and a modest and short-term effect on China.

Anja K. Leist at the University of Luxembourg, Philipp Hessel at the London School of Economics and Mauricio Avendano at Harvard School of Public Health found that men aged 45 to 49 and women aged 25 to 44 in 11 European countries who suffered through an economic slump showed worse cognitive functions 25 years later.

Read the full article at http://www.bloomberg.com/news/2013-11-27/slump-watchers-dump-yield-curve-for-1970s-tool-cutting-research.html

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What’s Good for U.S.-China-Japan Hurts Emerging Markets – Bloomberg 07-09-13

Salient to Investors:

Fed tapering, China’s credit squeeze, and Japan’s reflation ultimately prime the three biggest economies for less volatile and longer-lasting expansions, but near-term, emerging markets, commodity producers, and economies that need cheap cash or weaker currencies, including the euro area, could suffer.

Stephen Jen at SLJ Macro Partners said that parts of the world are moving, creating frictions and divergence, and more volatility for financial markets.

The IMF says the gap between developed-and emerging-market growth rates will remain close to the narrowest in a decade, at 3.8 percent in 2013, while a slowdown for emerging markets will slow global growth to 3.1 percent in 2013.

Morgan Stanley says the new environment leaves emerging countries like Brazil, Mexico, South Africa, Turkey and Ukraine, vulnerable to a sudden stop in which capital flows are thrown into reverse.

Holger Schmieding at Berenberg Bank said we are seeing significant progress in the global economy, so people need not worry because the gradual return to a more balanced global growth should be good rather than bad for almost everyone in the medium term.

Jim Paulsen at Wells Capital Mgmt says the “good” yield rise reflects mounting confidence by the Fed and investors in the US economy – since 1967, whenever the 10-yr bond yield has been below 6 percent, any increase typically has been associated with improving sentiment. Paulsen said higher interest rates should not materially impact economic activity, and the stock market may continue to provide favorable results.

Blackrock said tapering is actually healthy given that an expansion in the Fed’s balance sheet beyond $3 trillion has failed to spur much growth in credit or the economy. Peter Fisher at BlackRock says emerging markets again may suffer, as the weaker yen is drawing investment away from these countries and toward Japanese equities.

Stephen King at HSBC said the UK, Russia and the euro area periphery may suffer from unwanted yield increases as it will make it costlier for governments to finance their debt and for consumers and companies to access credit. King said a sudden spike in bond yields might send some economies off the rails altogether, and the US could suffer a backlash if trade dries up as a result.

Michael Saunders at Citigroup said less US-led stimulus could hurt economies that took advantage of easy money to run up current-account deficits and borrowing imbalances. Outside of China and the Middle East, emerging economies have aggregate current-account shortfalls of 2 percent of GDP, the highest since the late 1990s. Saunders said many emerging-market countries face the long-absent challenge of rising capital needs with worsening fundamentals at a time when global-liquidity conditions may not be easing further.

Nomura said China, Hong Kong and India are in a high-risk danger zone if a pullback by the Fed prompts investors to punish Asian countries that have weak economic fundamentals and are too slow to reform.

Oxford Analytica says Hungary and Poland are at risk because foreign investors have large holdings of local-currency debt, while Turkey is especially vulnerable because of its reliance on foreign cash to finance its large current-account deficit at a time when political tensions are rising.

HSBC and Goldman Sachs say China will grow 7.4 percent in 2013.

Shane Oliver at AMP Capital Investors said China may be trying to make economic performance more consistent and so avoid the mistake the US and Europe made in not tackling excesses before they sparked crises.

Julian Callow at Barclays said China accounts for one-sixth of global output, but a domestically driven Chinese slowdown would be much more significant than this implies, given China’s role as a major importer of commodities and capital goods, and in supporting business confidence across Asia. Callow says China accounted for 43 percent of worldwide growth from 2007 to 2012. Callow says cheaper commodity prices would be good for advanced nations but would hurt producers.

Deutsche Bank says China accounted for a quarter of worldwide demand for major raw materials in recent years. Bank of America Merrill Lynch says Chinese purchases of copper, coal, iron ore and oil are closely connected to loan-growth conditions and so are at risk if the credit crunch continues.

Larry Hatheway at UBS says companies and countries that produce materials for transportation, power and property development will be particularly hit. Over 80 percent of exports to China from Russia, Brazil, Australia, Canada and Indonesia are for domestic use. Hatheway says a slowing China would have a disproportionate impact on commodity producers and chunks of emerging markets.

Takuji Okubo at Japan Macro Advisors says Abenomics is essential and seems to be on the right track.

Lena Komileva at G+ Economics said Japan is exporting deflation risk to Europe, increasing competitive pressures when much of Europe is suffering chronic growth deficiency.

Read the full article at  http://www.bloomberg.com/news/2013-07-08/what-s-good-for-u-s-china-japan-leaves-emerging-markets-losers.html

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