Year: 2018

Surrounded

Dave Davis Commentary, Policy, Uncategorized

With all the Trump White House News dominating each and every news cycle, it has been widely overlooked the US backed coalition in Northern Syria repelled an attack by Assad government forces.  Over 100 of the Assad forces possibly including Russians were killed. There were no coalition losses.  This group, the Syrian Democratic Forces (SDF), is made up of 2000 US troops working with Kurdish and Arab militias.   The Assad forces are an alliance of other Syrians, Hezbollah and Iran with Russian support.  It’s well-recognized the Kurds are the backbone of this US led coalition that took the Issis Capitol Raqqa.  The Trump Administration has loudly claimed victory over Issis with this success.  The coalition is still battling Issis remnants and other extremists groups in Northern Syria to keep them from reconstituting.  To further complicate the situation, Turkey on Syria’s northern border with Russian acquiescence is attacking Kurdish forces in the Northwest Syria Afrin enclave and threatening the Kurdish elements of the coalition.  One has to ask, how did our troops end up surrounded by threats, what are we hoping to accomplish and do we really have a workable middle east plan?

The pro Assad alliance in Syria is basically a Shia Army hell-bent on reconquering the majority Sunni Country by any means possible including  chemical weapons.  Remember those were supposed to removed from Syria by the Russians.  No wonder refugees have moved into coalition held areas. So in addition to preventing a resurgence of extremists, the coalition is trying to keep  the Syrian tragedy from getting even worse. This is nothing new for the Kurds.  When so much of Iraq including Mosul fell to Issis, many of those fleeing this horror found refuge behind the guns of the Kurdish Peshmerga.  It’s hard to visualize the recapture of Mosul without Kurdish support. Both in fighting ISiS and our humanitarian efforts the Kurds have been our best ally.  In theory Turkey is our NATO ally.  Under Pres. Erdogaon this almost daily proves to be less true.  An Islamist, he has moved his nation closer to Iran and Russia and away from the West.  In Turkey there is a large  Kurdish  concentration  in the Southeast part of the country, along the Syrian border.  Turkish mistreatment of these Kurds has a long history and Erdegon  has if anything made things worse.  A successful Kurdish uprising is his worst nightmare. He might have treated the Kurds right, but that ship has sailed. Turkey like the Assad Alliance feels the need to crush the Kurdish areas along the Syrian border as a matter of survival

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Simple Interest

Dave Davis Commentary, Policy, The Long Journey to "More", Uncategorized

In our 1/2/18 post “2018” we suggested that the only group that could supply new funds to push the stock market higher was the public at large.  The figures for December and January are in they show this group’s participation was the greatest since the “Great Recession.” They bought pushing the market to the stratosphere. Unfortunately, with no more new money available, the market was set up for a change of direction.  The reason given for the subsequent sharp down move was rising interest rates.  The bulls argue the market hadn’t had a correction for an abnormally long time and was overdue. In any case interest rates are historically low. Even the recent rise and the projected Federal Reserve moves should be easily handled by worldwide growth. After all, economic expansions in the past faced much higher rates and still thrived.  In the US profits will be greatly enhanced by the recent tax revisions.  Wages and optimism are rising.  Solid reasons for expecting the economic expansion to continue accompanied by rising profits.  This should be reflected in higher stock prices.

On the surface this makes a lot of sense but what if the recent interest rate rise even from such low levels is indicative of a much more dangerous situation?  In our series the Long Journey to “More” the post Free Capital to Finance “More”  attempted to show how the world’s central banks led by our Federal Reserve had caused massive distortions to the traditional risk pyramid.  Instead of a base of relatively safe assets tapering up to high risk, we had a pyramid of mostly risky assets.  With so much risk already, investors might really be reluctant to go after the really high risk/high reward ventures.  We thought this might help explain the tepid growth throughout the era worldwide “Quantitative Easing.”  The theory behind the central bankers move to zero or negative interest rates was to drive up the value of risk assets giving their owners gains resulting in a “wealth effect.” This would result rise in greater consumption driving growth.  Some economists claim this indeed added to growing  GDPs.  The consensus in the US is that it added about 1/2% to our GDP.  Even granting this might be true, it has left investors far and wide with horribly unbalanced portfolios.  Across the board they’re out of line with normal risk tolerance.

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“I think it’s a disgrace” Trump

Dave Davis Commentary, Uncategorized

“It’s terrible, You wanna know the truth? I think it’s a disgrace You wanna know what’s going on in this country, I think it’s a disgrace” so says Pres. Trump in support of the Memo released from Rep. Nunez’s Republican majority House Intelligence Committee.  He’s right of course, just not in the way he thinks. Nothing before this 3 1/2 page document highlighted how much the right has fallen in line with President Trump.  Legislators,  pundits, editorial boards, website and talk radio hosts are dancing to the Trump tune.  Now the right had every reason to unite with the President on taxes, judges and regulations.  These were on the right’s wish lists long before Trump traveled in their direction to run for President.  However, his problems with the Russian probe are of his own making and have nothing to do with the aims of the right.  Why then are they for the most part rallying to the defense of Trump and this ultra partisan memo?

Last week, traveling to their to their West Virginia Retreat,  Republican members of congress were looking forward to taking  bows on the tax cut and the economy.  Polls were up ticking. They were going to present their agenda going forward as a springboard for success in the 2018 elections.  Instead, this memo drowned out their upbeat message focusing the nation’s attention on Trump’s Russian problems even before its eventual release.  Maybe the wreck of the train taking them to the retreat was an omen.  Why rush the memo out. without waiting for the Democrats minority report as is customary? By not waiting, their memo could only be seen as a partisan attack on the Mueller investigation. Even though they never shared Trump’s pro Putin stance which drew the original scrutiny to his campaign, they were sucked into Trump’s mess.  Amazingly, one of the few recent bi-partisan Congressional Acts, putting additional sanctions on Russia for interfering with our election, lies dormant because Trump to date has refused to implement them.

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Don’t Blame the Founding Fathers

Dave Davis Commentary, Uncategorized

With the recent government shutdown, the pundits are working overtime providing explanations for the mess in Washington.  One of the more popular is the Senate’s archaic rules.  Our old two-party system with its primaries are just too divisive, making compromise more difficult if not impossible. This implies the work of the founding fathers is somehow standing in the way of a functioning government.  In fact, this couldn’t be further from the truth. There is nothing in our constitution about Senate Rules, political parties or primaries. All have at best a mixed record.

In order to have a budget and pay our national bills we presently need 60 votes in the Senate thereby handing veto power over to the minority.  Sounds as if this was one of the check and balances embodied in the Constitution.  Not so. This is just a rule of the Senate itself.  The idea of speaking endlessly to delay or defeat certain legislation goes all the way back to the Roman Senate. Our Senate in its wisdom instituted the rule in 1806 that debate on an issue could only ended by cloture vote of generally 60% of the Senate.  Super majorities were frowned on by both Madison and Hamilton as one of the great weaknesses of the Constitutions ‘s ineffectual predecessor, the Articles of Confederation.  In any case, it was never used until 1837 and then rarely for our first two centuries.  The fact that you had to actually talk for endless hours if not days, probably made it an unattractive option.  One only has to see the worn down and haggard Jimmy Stewart in Frank Capra’s classic movie”Mr. Smith goes to Washington” to know what a filibuster was in those days.  It was only in the 1970s and later the rules changed to where the mere threat of filibuster brings about vote for cloture needing 60% “super majority” (60 out of the 100 senators).  The reasoning was either way the Senate could move on to other business rather than being tied up with endless speech making.

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2018

Dave Davis Commentary, Policy, Uncategorized

Some thoughts looking for the new year.  Things that just might make a difference.

  • Markets.  For those in the stock market, this has been a string of good years, capped by a great 2017.  Better still the great majority of market prognosticators are predicting more of the same.  However, markets need new money to go higher.  The only group not already in  is the public at large.  Since the 2008 debacle the public has largely been on the sidelines.  If the bright forecasts and coupled with greed encourage a mass move into the markets their will be no one else down the road to buy at ever higher prices. Historically, the markets are richly valued.   At higher prices logically they  will be more vulnerable to unforeseen shocks.  Super low-interest rates courtesy of the Central Banks have underpinned this long rise.  Now the Fed and it’s counterparts are reducing their portfolios i.e selling.  In the US unemployment rate at 4.1% is really low. To grow, economies need to add workers and this might push up wages and the rate of inflation.  We know workforce participation is low meaning there might be a reserve of workers that could enticed back to work by higher wages but even if they do reenter, they probably don’t have the needed skills and might prove to be costly and inefficient. These factors point to higher interest rates.  Earnings will have to expand in the face of this drag.  Also ultra low interest rates tend to lead to asset bubbles.  China given its enormous use of credit to expand its economy could be the biggest bubble around.  Unrest and/or a trade war could provide the “pop”.  In fact a trade war anywhere could cause major problems. Besides, higher interest rates don’t favor asset bubbles. These are just some things we can see.  Can a very highly priced markets survive the unforeseen?
  • Politics. With the economy in the best shape since the “Great Recession”, it’s amazing the party in power is held is such a low regard.  The president is mired under 40% approval while Democrats are favored by double digits in the generic Congressional polls.  Republicans pass a tax bill putting more money this year in most people’s pockets and according the latest polls, most people dislike it.  What gives?  President Trump is the face of the party whether Republicans like it or not and a majority of people never cared for him.  Since the election, this disapproval has widened and hardened. into active dislike.  Where Reagan’s natural likability greatly helped him over various rough patches, the opposite is true of Trump.  Tip O’Neal the Democratic House Speaker, could be pictured favorably trading Irish stories with Reagan over drinks while such a Trump-Pelosi cordiality is now almost inconceivable.  Right or wrong, Trump is held responsible for the nation’s widening divide.  Given this background, the Mid-Term elections are less than favorable for the Republicans.  The only thing they have going for them is a far greater number of Democrats in the Senate up for re-election.  Maybe the economy will be so good it’ll rescue them, but what if the the markets and the economy go in the other direction?  Can Trump and the Republicans exist after a super Democratic wave?  Still remembering Hillary, Democratic  lack of purpose other than opposing Trump,  the Republicans could still snatch defeat from the jaws of victory.
  • World.  Trump departed from a long-held conventional wisdom by recognizing Jerusalem as Israel’s capital, so there is hope for policy thinking outside the same old boxes.  However, the destruction of the Islamic State hasn’t made the world safe from terrorism.  So long as there is Moslem extremism. with a background of Sunni-Shia conflict, there is little reason for optimism.  Maybe this why the Iraqi government has invited a continued US presence in the country.  We should only agree if our logistics are run out of Kurdistan rather than Baghdad or Turkey.   American personnel would be a lot safer than in the Iraqi capital and we have to recognize Turkey under Erdogan isn’t our friend.  Once established in Erbil we would be in the position envisioned in our post SSSHHH! A MIDDLE EAST POLICY ON THE QT.  With the present turmoil, think how much greater Iran’s dilemma  if they were looking across the border at a de facto US base in Kurdistan.  One of the affected cities is  Kermanshah, the largest Kurdish speaking city in Iran.  Killing Kurds to maintain Supreme Leader Khamenei  control in the area would have a whole new meaning with millions of US allied Kurds just across the border.  We wouldn’t even need to say a word to cause great anxiety in Tehran.  In the same light, dealing with North Korea and China in a different way could change the conversation.  Instead of thinking of them separately, think of them as one unit.  During the cold war we would never have dealt with Poland or Czechoslovakia as separate entities on nuclear weapon matters.  A nuclear attack from either would result in retaliation on their then master the Soviet Union.  No ifs, ands or buts. In reality, North Korea is just as under China’s thumb as Poland was under the USSR’s.  Treating them separately leaves us  focused on North Korea while leaving China free to expand in the South China sea.  China might be much more cooperative if they knew a North Korean missile hitting the US or its allies would result in retaliation on Peijing or Shanghai.  Would they really let little Kim make war or peace decisions for them?  Dealing with China and North Korea as one unit would pay great dividends.  Let’s make 2018 a year of fresh approaches.