Surrounded

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

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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2018

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.

Pre-Holiday Observations

With a nod to  Martin Niemoller (see our previous post), when they came for the Duke La Crosse team Senator Franken said nothing. Then they came for Roy Moore,  Franken cheered. Then they came for Franken and no one was there to speak in his defense. This is the same Senator that tweeted  “@BetsyDeVosED‘s decision to reverse guidelines on campus sexual assault threatens students’ civil rights. We must protect our students.”  Yes, those were the same rules severely limiting the rights of the accused on campuses.  Poetic justice? He certainly won’t be the last they come for.

While on the subject of sexual harassment or worse and those accused of these transgressions, so much of what is discussed never made it to any court.  There has never been or  ever will be any legal determination on the claims of Leigh Corfman, Beverly Nelson, Juanita Broderick or Kathleen Willey.  These cases and so many others just come down to the very subjective “who do you believe?.”  Not so in the case Paula Jones pressed against Bill Clinton  The very existence and ensuing testimony of Monica Lewinsky and Pres. Clinton in this case allowed Linda Trip to convince Lewinsky to preserve evidence proving the then President was a liar under oath. This led him to concede throwing in the towel by paying the maximum amount Jones asked.  Further his lies under oath in this case caused him to lose his law license. No question here on who to believe.  The case entailed the claim the then Governor of Arkansas exposed himself to  state employee Jones while soliciting sexual favors.  Sounds similar to so many of today’s accusations.  What seems to be forgotten, the case was initially thrown out of court to the cheers of all the major woman’s organizations and of course Democrats. It was tossed not on the facts of the case, but for lack of standing. The court just couldn’t see how Ms.Jones was damaged.  In a civil case you have to show harm and the court couldn’t see any.    A lowly state employee subjected to extreme sexual harassment by her ultimate boss but only pain in the pocket-book was recognized. How would this play today? Jones persevered without any help from the “feminists” of the day and their allies through the appeals process to an ultimate victory that netted her little monetarily but much ugly commentary.  To this day her detractors have never embraced her.  If they couldn’t support a lowly public employee, who?  Just Hollywood stars and other elites? Have you ever heard anyone call Paula Jones a heroine? Yet she stood up and fought it out at the time in the courts unlike so so many of today’s “heroes.”

We talk about the mandatory the savings embodied in “Dave’s Plan” and eyes glaze over.  “That will never fly” they say. Yet we just ran across this little snippet in the Week, Dec. 8,

Oregon Retirement005

This trend towards mandatory savings accounts is gaining strength here and abroad simply because it’s a necessity to achieve the future we all desire.  Marry this to the major trend towards Health Savings Accounts (HSA) and we’re on our way to Dave’s Plan’s Personal Benefit Account (PBA). (See the entire series under Dave’s Plan) Add a credit card feature and you’re basically there. We just got there sooner.  After all, in a Capitalist Society it really good to have capital. As a wise man we knew once said, “rich or poor, it’s good to have money.”

Some of the program Republicans pined for ages has been accomplished.  A number of regulations have been rolled back and their growth has slowed. Tax relief for business is a reality.  For a country that had the highest corporate tax rate and fallen out of the top thirty countries for doing business, this has given a much-needed boost to our nation’s competitiveness.  A great number of conservative judges have been appointed.  However, one has to wonder if this just might be the high point and now for the ride downhill. President Trump and the Republican Congress could generally agree on these things, but not so much on the other problems that stubbornly remain. The tax cut looks like it will add to the deficit. (4% average annual growth for the next ten years may produce a bonanza of tax revenue but would you bet the nation on it?)  This brings entitlement reform to the fore.  Lots of luck there with a the president on record as a against any reductions.  The bi-partisan Simpson-Bowles plan could be a starting point but does anyone expect Trump to go where Obama wouldn’t (even though he appointed the commission). A bad Health Care plan died once, can they come up with something that would actually work?  Trade policy under Trump could possibly start trade wars offsetting gains on taxes and regulations. Immigration reform has a constituency on both sides of the aisle but Trump and his followers will never go for the increase we despairingly need.  With a record high stock market and a record low unemployment, the President and Republicans have horrible poll numbers.  What if the market and/or the economy take a dip? What would that portend for the 2018 and 2020? Like Obama, much of what has been accomplished can be reversed by a change in the political winds. Eau de Trump still threatens the Republican’s very existence.  Under these circumstances would you  put more money in the stock market now?  We aren’t.  Would you consider taking money out?  We are? Could this kind of thinking by itself u cause the dip?  Yes!  Are you now sleeping better?  We aren’t.

We’ll save our comments on the Middle east and wedding cakes for later and wish everyone Happy Holidays.

 

 

 

 

 

Trying Everything Else

Our readers are well aware none of our proposed solutions to our various ills have come close to being adopted.  No new and shiny third major party to break the hold of our existing duopoly.  Obama care rolls merrily down the road with no coherent alternative even considered.  More states have increased the minimum wage further proving commonsense continues to lose out to political flim-flam. We have withdrawn from the one proposed multinational trade agreement the Trans Pacific Partnership (TPP) and threaten to withdraw from others (NAFTA).  Not only do we not have a base in Kurdistan, apparently we have tossed our best allies in the fight against ISIS to the wolves. Israel will face nuclear destruction in the not too distant future. The Middle East Cauldron threatens to boil over in the face of our much diminished influence.  China advances its control of a major trade route. Bad actors in Cuba and Venezuela in our hemisphere to North Korea are still in place to continue their evil ways.  By all rights we should be in deep depression, but being cock-eyed optimists we would rather believe the across board policy failures will ultimately open people to real innovative solutions.

Take our domestic politics.  While no new party has yet taken the field, more and more  people have become estranged from the two majors. Senators Corker and Flake have chosen to go home rather than try to continue in a party no longer representing their values.  Most centrist Democrats have been pushed out of their party.  The few left such as Joe Manchin are curiosities.  Maybe they and their followers just going to hide under their beds, but most people active in politics all their lives don’t go quietly into the night. If their political futures are blocked in the two established parties many will want a path forward.  The present leaders inability to solve problems leaves the door wide open for a new approach.  Ambitious talented people will find a way.  Possibly we will see Flake and Corker and others expounding their views on government in a new venue.  We expressed our view that Flake and others needed an alternative to ward off the Trump/Bannon wing of the party in our post THE SHAPE OF THINGS TO COME Remember the inability to solve problems such as slavery brought forth the Republicans causing the demise of the Whigs and changed the Democrats for decades.

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