Fareed Zakaria GPS – CNN 07-12-15

Salient to Investors:

Fareed Zakaria said:

  • The Economist says Connecticut bankrolls the weaker states in America: 5% of their GDP over the last 20 years has been net income transfers to states like Mississippi and Alabama.
  • Allen Cooperman says the nuclear deal will only take Iran from 2 months away from breakout to 3 months.
  • Bloomberg says the Shanghai index mirrors the Dow Jones near the beginning of the Great Depression.
  • The Shanghai index is still up 90% over the last year, despite the recent collapse.
  • Gavekal Dragonomics says 5% to 10% of China’s households have stocks vs. 50% percent in the US.
  • Economists say China’s intervention in its stock market screams of panic.
  • The Guardian sees a ridiculous government overreaction, and says there have been up to 1.4 million new investors per week, many of which are novices. Ruchir Sharma at Morgan Stanley says 2/3 of new investors in China’s stock market have no high school degree, and even rural farmers have established their own stock exchanges.
  • Italy has the most UNESCO world heritage sites, 51, followed by China with 48, and then Spain, France and Germany. The US is tenth with 23 sites.

Jonathan Powell said:

  • Historical conflicts like Afghanistan have ended only through negotiations and not military victory.
  • Terrorism reflects an underlying political problem that almost always needs to be addressed politically.
  • Governments usually wait too long to negotiate with terrorists because they wrongly believe that one last military push will put them on the defensive – little evidence to show this works.
  • ISIS is successful largely because it has attracted disempowered Sunnis in Iraq and Syria.

Ken Rogoff at Harvard said:

  • The Greek referendum, which Paul Krugman urged them to do, was very irresponsible and was spitting in the Germans’ face. Never default on a debt when somebody is still giving you money.
  • If you cancelled all Greek debt, they is still a need to close a 10% gap of GDP in their deficit. Greece cooked their books and lied about their debt and deficit. The necessary changes have to come from within Greece, which has shown little will in wanting to become a modern European state. Greece needs to write down the debt more.
  • Everybody made very optimistic projections of Greek growth, including the IMF and the Europeans.
  • Things are looking better because what doesn’t kill you makes you stronger. Europe could handle a Greek exit, though the political fallout is very unpredictable.

Rana Faroohar at TIME and CNN said:

  • The German public never believed the Greeks would reform and wants to let them go this time.
  • Greece is not a Lehman-like moment so we will not see major international dominos toppling. But it does threaten the political integrity of Europe, with questions next about Portugal, Spain, Italy, though not right away. China creates a new Greece every 6 weeks.
  • Europe’s core, with Germany at the center, is very strong. Germany is incredibly competitive. France could be more competitive by making relatively easy changes. Europe needs one integrative fiscal policy.
  • The European economy is looking a lot better than the politics. The concern is if other nations stir up more trouble in the periphery should Europe be perceived as being unable to get its own house in order.

Zanny Minton Beddoes at The Economist said:

  • The Greek problem has moved from the realm of economics into politics. Many people in northern Europe, not just the Germans, think a Greece exit is better, while France and Italy are very keen to keep the Greeks in. The German Finance Minister wants the Greeks out.  However Merkel will in the end want to keep them in because she does not want to be the chancellor who presides over the breakup of the euro.
  • The US has a much more fiscally integrated system than Europe. Europe created a single currency without creating the economic integration and the fiscal integration that was necessary for that to survive. Europeans are champions at kicking the can down the road.
  • Greece should have written the debt down in 2010 instead if kicking the can down the road. But Greece is no longer the systemic, immediate problem to Europe that it was a few years ago, so a Greek exit would not wreck the euro overnight, but would become a real problem again.
  • The US is looking stronger. The European economy is not great but not that bad, and in many ways improving. 

Joe Cirincione at Ploughshares Fund said:

  • A nuclear deal with Iran is almost certain, likely tomorrow. Most of the serious, big issues have been settled. The deal lengthens the breakout time to at least a year to make the material for at least for one weapon.
  • There will be inspections of Iranian military facilities. Prohibiting arms in or out won’t be lifted right away. Sanctions will remain on the ballistic missile program and for their terrorism and human rights violations. 

Karim Sadjadpour at the Carnegie Endowment for International Peace said:

  • A nuclear deal is likely.  Iran is experiencing a perfect storm economically, with sanctions on top of a collapse in oil prices on top of sustaining the Assad regime in Syria.
  • The Iranian supreme leader has control over the main institutions in Iran, but is not an absolute dictator like Mao was. 2500 years of Persian civilization makes the current isolated Iran an anomaly of history and geography, but 36 years of the Islamic Republic raises concern that a nuclear deal could empower hard-line forces in the short-term. 

Watch the video at http://globalpublicsquare.blogs.cnn.com/category/gps-episodes/ or read the full transcript at http://transcripts.cnn.com/TRANSCRIPTS/1507/12/fzgps.01.html

Fareed Zakaria GPS – CNN 02-15-15

Salient to Investors:

Fareed Zakaria said:

  • The IEA said Russia faces a perfect storm of collapsing oil prices, international sanctions and currency depreciation.
  • The IMF predicts the Russian economy will contract by 3% in 2015.
  • Putin does not respond to higher costs in a rational calculating manner.
  • Military aid to Ukraine would stoke Russian nationalism, and the loss of men and money in a military operation will not deter it. No one believes that Ukraine can win a military contest with Russia. The consensus believes the only possible strategy is to raise costs for Russia.
  • Paul Krugman at the New York Times says Greece is only asking for what the Germans asked for in the 1950s.
  • Within 5 to 7 years, 800 million Indians will be connected to the Internet, versus 100 million today.
  • Steve Ratner said most southern European economies are fundamentally uncompetitive – there are 2,700 pages of labor laws in Italy.
  • Within 5 to 7 years, 800 million Indians will be connected to the Internet, versus 100 million today.

Bill Browder at Hermitage Capital Mgmt said:

  • The Russian oligarchs and government officials were stealing all the profits out of the companies he invested in.
  • Putin arrested the richest oligarch and told the others that if they did not want to be arrested they needed to share their money with him. Putin is the biggest oligarch and the richest man in the world, worth $200 billion in property, Swiss bank accounts, shares, and hedge funds.
  • In Russia, whoever has the power to arrest people is the person in power.
  • The one thing in Washington that everybody could agree on was that these Russians were bad.
  • While in power Putin will run Russia into the ground and cause the West many problems.

Zanny Minton Beddoes at The Economist said:

  • The Greek crisis will go down to the wire. The limited solution is relatively simple and that is more reform in return for debt relief. Greece cannot possibly repay its debt. Germany is wrong in demanding austerity and refusing to think about the debt.
  • The Greek economy has bottomed and is beginning to grow, but just as it appears they have got through the worst, they are throwing baby out with the bath water.
  • It is not clear that there would be massive contagion if Greece left the EU.
  • We will get the typical European solution which is akin to kicking fudge, but the odds of an accident this time are the highest in a long time.

Gillian Tett at Financial Times said:

  • Greece is only asking for what the Germans asked for in the 1950s and which has enjoyed a lot of debt relief in the last century.
  • The question is this Europe’s Lehman Brothers moment or will we see a chain reaction that could be extremely bad for the economy? The chance of an accident is rising.

Rana Foroohar at Time Magazine said:

  • Germany has benefited more than any other country from being in the euro zone, and will benefit from ECB QE because that will make the euro more competitive in the international market. Eventually the Germans will blink but expect much pain along the way and the problem not being fixed this time around.
  • Germany has done enough to create a consumption economy and bolster wages.
  • The political solution in Europe is a United States of Europe with real fiscal integration and more power in Brussels with Berlin holding the purse strings.
  • The periphery European economy needs to have a comfort zone in which they can reform.

Freedom House said:

  • Democracy has been declining for 9 straight years and is under greater threat than at any time in the last 25 years
  • 40% of the world’s population is free, 24% is partly free, and 36% is not free. In 2014, 61 countries saw their freedom deteriorate from 2013, versus 33 countries that saw freedom improve. The Middle East and North Africa are the least free.
  • Autocrats are no longer paying as much lip service to democracy and are returning to old 20th century modes of oppression: e.g. Russia’s invasion of Crimea, while China is detaining activists under stricter conditions than just house arrests and televising people’s confessions, and Egypt sentenced hundreds of political prisoners to be executed in sham trials.
  • Azerbaijan, Vietnam and Ethiopia do not receive the full ire of the free world despite their oppression.

Bill Gates said:

  • We are innovating at a wonderful speed and we will be reducing inequity for the basics faster than ever before.
  • Economists have always had a hard time with innovation because it is exogenous.
  • China’s growth is lower than it was but is still at a level that the US and the world would love to have.
  • Improving economic fundamentals will accelerate in the next 15 years.

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

at http://transcripts.cnn.com/TRANSCRIPTS/1502/15/fzgps.01.html

Zanny Minton Beddoes – Charlie Rose 02-10-15

Salient to Investors:

Zanny Minton Beddoes at The Economist said:

  • The economy’s fundamental drivers, particularly rapid technological change, means that the rewards disproportionately go to the top.
  • The latest IMF research suggests that you get stronger and more lasting economic growth in societies that are more equal.
  • The last time we had this huge a technological change – the Industrial Revolution – we also had huge changes in public policy.
  • The world has incredibly low interest rates and a big need for more spending on infrastructure so it is a no-brainer to do that.
  • India is the shining example of a country with remarkable economic growth and devotion to classic liberalism and to free markets.
  • A lot of China’s growth came from liberalization but more recently from debt-fueled investment binge. China is naturally slowing because it is richer and aging fast.
  • The US economy has accelerated in the last 6 months. Inequality and an aging population are challenges so rapid growth is going to be lower than it was 30-40 years ago.
  • Europe is still a mess. Japan shot itself in the foot with its consumption tax. The emerging world, including Brazil, is slowing.
  • The difference to the last time the Saudis let oil prices stay down for a while is that this time the shale investment time is much shorter than for traditional oil drilling. The oil market economics has shifted from one of OPEC domination to one that is supply and market driven.
  • Putin’s paranoia is under-appreciated as is the depth of his desire to remain popular.
  • Venezuela is headed for default quite soon.
  • The disproportionate losers from lower oil prices are also the tricky regimes, like Nigeria, Russia, Iran.
  • The short-term risk to the global economy is too much reliance on one engine, the US, an echo of the 1990s. Longer term, the risk is political economy fueled by stagnant living standards for the majority.
  • We are nearer the beginning than the end of this huge technology revolution.

Watch the video at http://www.charlierose.com/watch/60514294

Fareed Zakaria GPS – CNN 05-19-13

Salient to Investors:

Fareed Zakaria said:

  • The fundamental rule of international relations is that as a country becomes powerful, others gang up to bring it down – viz the Habsburg Empire to Napoleonic France to Germany to the Soviet Union. The one great exception in modern history is the US, which allies with many of the next most powerful nations; Britain, France, Germany, Japan.
  • Fracking has dramatically lowered America’s carbon emissions to an 18-year low in 2012 because it replaces coal, the world’s dirtiest source of energy, both in emissions of CO2 and particle pollutants.
  • The IEA says the world’s energy consumption has gotten cleaner by only 1 percent over the past two decades. China now burns nearly as much coal as the rest of the world put together, and opens new coal plants every week.
  • China has shale gas reserves that are 50 percent larger than the US.

The CBO projects the US federal deficit will be only 2.1 percent of GDP in 2015 versus 4 percent in 2013, 7 percent in 2012, and a high of 10 percent in 2009.

Glenn Hubbard at Columbia Business School said:

  • Looking at the 10-year numbers, the federal deficit gets better in the near-term, but continues to get worse because of Medicare and long-term entitlements which threaten to crowd out every other kind of spending.
  • Infrastructure spending takes years to stimulate the economy and is more about long-term capital planning.
  • The US is not in decline but it is hard to see our political process really coming to grips with the challenge.

Zanny Minton Beddoes at The Economist said:

  • The long-term problem is one of entitlement spending and Medicare particularly but stimulus spending was entirely appropriate in the aftermath of the huge financial bust. However we are cutting spending in the short-term and that is not optimal policy.
  • The policy is what matters rather than the actual outcome. The real problem is the medium and long-term, and not on sequester cuts and tax increases in the short-term.
  • Europe has failed to deal with the basic problems of the euro zone, to get credit going again in the periphery. Europe has not cleaned up its banking mess.
  • The CBO is one of the best things that’s happened to US fiscal policy ever because it forces people to come to terms with the consequences of what they’re doing.

William Dalrymple said China has played the trump card in Afghanistan by buying up the mineral rights – the largest copper reserve in the world, lithium, rare earths.

Betsey Stevenson and Justin Wolfers found that more money meant more satisfaction in poor and rich countries, and Americans hit the highest levels of satisfaction among the 25 most populous countries in the world.

Watch the video at http://globalpublicsquare.blogs.cnn.com/category/gps-episodes/ or read the full transcript at http://transcripts.cnn.com/TRANSCRIPTS/1305/19/fzgps.01.html

Why Hasn’t the Euro Debt Crisis Been a More Prominent Campaign Topic? – PBS Newshour 10-25-12

Salient to Investors:

Overall debt of the 17 euro countries reached 90% of output, the highest since the euro’s creation in 1999, and 9 are in recession.

Ford is closing a major plant in Belgium and two facilities in Britain

Zanny Minton Beddoes of The Economist said:

  • Europe has a very big, chronic problem but has moved away from an acute phase. The risk that the Eurozone would fracture has receded quite dramatically in the past couple of months. There has been a profound shift within certain parts of Europe, particularly within Germany. For the next year or so, until the German election next year, Europe will maintain some form of calm.
  • The real problem is where Europe ends up in five years. There’s little that the U.S. can do about Europe.
  • China is being vilified which is a dangerous thing to do when there is a leadership transition.
  • Europe remains the biggest uncertainty hanging over the world economy. A Europe that is stagnating for the next five or 10 years would be a big drag on the US economy, but any kind of financial catastrophe in Europe would be worse.
  • Slower growth in the emerging world is here to stay which will hurt US plans for an economy focused more on exports to faster-growing economies.

James Surowiecki at The New Yorker said:

  • The ECB has basically said it would backstop the debt of a number of these countries. The threat to the US is not so much the debt crisis in Europe, but the significant weakness of Europe’s economy as a whole.
  • Spain got into trouble not because of too much government spending, but because of a real estate bubble that burst.
  • China’s economy has slowed significantly. which has a profound impact on the US.

Watch the video or read the full transcript at http://www.pbs.org/newshour/bb/politics/july-dec12/europe_10-25.html

Fareed Zakaria GPS – CNN 07-15-12

Salient to Investors:

Over the last two decades, US recoveries have been slow and jobless, In every recession from 1948-1990, jobs came back to pre-recession levels an average six months after the economy returned to its pre-recession level. In the 1990s, jobs came back 15 months later, and since 2001, 39 months later. McKinsey estimates jobs will take 60 months to recover to  pre-recession levels this time. In the last quarter century, globalization has made it much easier to use machinery or lower wage workers.

Government spending on infrastructure is only half what it was a generation ago.

Larry Kudlow said the shale revolution is phenomenal but limited to private fields – drilling on federal lands is down. Kudlow is worried about the cyclical recovery, and says Europe is making an austerity mistake.

Chrystia Freeland of Thomson Reuters Digital says the shale revolution is a big thing and the new reality. Unlike in America, Europeans cannot walk away from their mortgages.

Zanny Minton Beddoes of The Economist says the cyclical recovery has weakened and the short-term outlook is weak, but sees secular improvement. America has gone far further than the other economies to undo the excesses that had built up, Housing is recovering, household debt is falling, Europe is worsening, the policy mix is mad, there’s an investor strike, and a  “Lehman-type cataclysm” is possible.

Zachary Karabell of River Twice Research says the American debate is too obsessed with government policy, and is missing the fact that 70% of economy is the private sector. Karabell doesn’t buy the uncertainty argument as to why companies aren’t spending.

To view the full episode go to http://globalpublicsquare.blogs.cnn.com/category/gps-episodes/