Category Archives: Uncategorized

More on the Failings of the Mainstream Media

I wrote the other day about my experiences with CNN and its political coverage and leanings in, The Rise and Fall of CNN.  Interestingly there was an article in the Econoist, August 5th, titled, Media Matters – Attitudes towards the mainstream media take an unconstitutional turn.  The article reports on some survey data that shows a notable shift in the lowering and loss of trust in all number of mainstream media outlets.  The report looked at how the reporting and analysis of Trump’s actions across media firms and the degree to which the firms’ reports are trusted.  It seems we are all trusting of each other less.

And if that was it enough, there was news just the other day that the Whitehouse has launched its own media channel – or as some media outlets call it, a propaganda channel.  If Trump’s “real news” channel is propaganda, that means all media channels are proganda channels – let’s be fair and onset here.  I have not looked into this but it seems to be less a channel and more like a few videos posted periodically on a Trump-related Facebook page.  So it’s hardly a channel but the so called media are arguing over what it means.
I just wish I could find a channel that:

  • Reports what happened in the world
  • Analyses the actions from both sides of the table
  • Ends the debate by discussing what might happen next

I’ll leave it to my own mind to come to a conclusion on what I think is good or bad. I dont need left-leaning, or right-leaning pundits to “tell” me.

The Rise and Fall of CNN

25 years ago I used to travel across Europe working with clients on small projects that kept me away from home for a day or three. My French is weak and German non-existent so I preferred to stay in English speaking and organized hotels. I discovered Marriott and other US centric hotels. After a long day and a client dinner, I would hide out in my hotel room and watch CNN. It was my first regular exposure to ‘America’ from an American point of view. I loved it.

After a couple of years I started to travel to the USA, mostly the Deep South. This was typically for a few days every other month, for about a year. Kent Mercer was playing for the Braves.  Of course I continued watching CNN. In those days I felt that the channel was well balanced; political views of the left and right were equally shared and equally scrutinized. I often compared CNN to my beloved BBC. About 20 years ago I moved to the US.

But about 8-10 years ago I spotted a slight shift in focus. CNN seemed to shift slightly and that shift seems now all but complete. That shift started with less and less coverage of right leaning views and more and more coverage of left leading views. At the same time, left leaning views were examined less and right leaning views were challenged more comprehensively.  The ‘fai, balanced’ view was disappearing.  That balance is now all gone and the channel’s reputation is all but gone.

Last evening is a good example. CNN was examining the current news related to Special Council Robert Mueller who has just impaneled a grand jury in relation to the Trump-Russian probe. To have a balanced review of this news CNN should have explored equally the challenges related to:

  • Mueller’ political leanings and relationships with the Clinton’s and democrats 
  • The fact that there are technical challenges outstanding on his ability to prosecute the case
  • Despite the wide scope of his remit, he has dropped looking directly into Russian collision in the election (what he was supposed to be working on) and now he is digging around in years past financial transactions between Trump, his companies and Russia
  • The location of the impaneled grand jury is fishy since it was called in a region that voted for Clinton by 94% so it is unlikely to be neutral

Yet CNN did not cover these issues at all. They repeated over and over the left leaning views they assume there was collision, there are shady financial deals, Mueller must be a good guy, and everything is fair and above board.

To prove my point there is more. Last evening Trump was holding a rally at which a democratic governor announced he was switching parties and would become a republican. This is stunning news. Yet during the live televised announcement, did CNN switch over to live coverage? Did they even report this on their news ticker on the screen? No they did neither. They ignored the news and failed to examine its implications. Some minutes later they did report the news, post live, as a snippet and moved right back to promoting their own agenda.

It’s a sad day to have to admit and call out that CNN has to come just a mouthpiece for the left. I really did love that channel. I still hope that Jonathan King, come the next election, remains neutral. If he goes, I will have had it with CNN.

What is Wrong with Capitalism

Finally some data is coalescing around a real problem that is hindering capitalism and specifically that part known as creative destruction. For without creative distruction we end up with a pilloried version of capitalism that undoes itself via a painful transition (in our future) rather than peaceful adaptation (what we really want).

You have to connect several dots here in order to discover the twisted position of capitalism today. The data points are these:

– The vast and growing majority of profits are created by fewer and fewer firms (see ‘Tech ‘superstars’ risk a populist backlash‘)

– There are fewer and fewer publicly listed organizations (see ‘Why America should worry about the shrinking number of listed firms‘)

– Start-ups are starting up at record low levels (see ‘Where are all the start-ups?‘)

– Competitive sprit is running at all time lows (see ‘Bright Minds in Chicago worry about the state of competition in America‘)

It seems the success of capitalism, the ability to create wealth, has been twisted into a beast that seems out of control and likely to garrote itself out of spite. The populist movement will put this into sharp focus when it notices the situation and then takes aggressive political action to counter it.  This will cause more pain than the current monster we call capitalism.

However this is not capitalism run riot. The issue is that socialist policies have twisted the capitalist model into a hybrid and it’s now a grotesque mess.

In some economic circles there is talk of a ‘winner takes all’ mentality. This is another way to capture what is happening. As firms got larger and more successful, perhaps enabled by globalization, they created the environment that helped protect them. This environment has evolved over a number of years and was partly enabled by lobbying politicians in order preserve change and limit impact of any rules that would undermine their firms’ position. This led to ‘crony capitalism’ and spending on lobbying is at record levels.  This form of capitalism has been transforming for over 20 years.

As an adjunct to this various polices driven from a left-of-center belief have gouged the economies natural ability to re-create itself from the waste of want and failure. Start-ups are running at near all time lows. Regulation, taxes and even social stigma has all but weeded out the individuals’ desire to better oneself and create something for oneself. Socialist policy embedded in every thing we do, now commonplace and taken for granted, suggests we simply reallocate money through taxes rather than seek to grow the size of the pie first.

And finally new data shows that the number of privately listed firms continues to decline and this suggests that the chances for expansion of the investor class is limited, even declining. This just accentuates the ‘winner take all’ body that we now see before our eyes.

If you overlay this with the situation of inequality and the declining level of home ownership (record levels in the US again) and the hollowing out of the middle class, you can see what is happening and it’s not good. But the problem is not easy to fix. For twenty years socialist policies have been adopted and due to the lack of any real capitalist alternative, these left-leaning policies have become standard and even accepted as normal:

  • Higher taxes
  • Larger and larger government (and) spending (with leads to increased regulation)
  • Which leads to emphasis and ability to focus on redistribution over growth

These polices lead socialist and the average less-well educated voter to assume that capitalism is broken and it needs extra help. This all stemmed from the ‘Third Way’ that was promulgated by Tony Blair and his ‘market-based socialism’ that was concocted as a populist message to beat Thatcherism in the 90s. It has now come full circle, feeding a monster that even the socialists cannot control. 

So now we have an odd situation. Left wing populism of the 90s gave way to cronyism in the 00s and now have a neo-right wing populist uprising. What a pickle. What we need is a down to earth shop-keeper or house- keeper to run for office with solid, no-nonsense ‘do unto others’ centered polices. A return to a real capitalist system will rebalance much of what has gone wrong. Too big to fail? Yes. Let’s let the failures start. It is through failure we learn (sometimes). This crony-based maladroit system of today is killing the golden goose.

Peace, and Disaster, In Our Time

Neville Chamberlain was only half correct – and he was not really looking at the big picture. And to be honest, he never actually said, “peace in our time” anyway.

I want to connect two items of interest that do not, as they stand, seem related and push them together in support of a third, longer term view. The result is an idea that might not sit well with us.

The first item concerns a book review for The Great Leveler: Violence and the History of Inequality, in this weekend’s US print edition of the Wall Street Journal. The book, written by Walter Schiedel, sounds like just the book I would read. However the book review seems to summarize the idea of the book too well and in so doing, suggested that the book was not worth the effort to read.  

Conceptually the idea as that for hundreds of years, even thousands, mankind has gone through periods of increasing inequality punctured and repaired by war, famine, or other cataclysmic events. As these events unfold, large swathes of the population are displaced, or removed (as it were) from the story, and so everyone pulls together and for a time, inequality slows or even reverses. But, as stability (or what resembles stability versus war, famine and cataclysm) returns, so the march to ever increasing inequality resumes.

It is a logical and reasonably sounding idea that resonates with ones’ one perception of history and wealth. However, the reviewer highlights multiple gaps with the analysis, such as the impact and role of the inexorable lowering of interest rates through history on how wealth is spread, or changes. The reviewer concludes that the book is descriptive of what one can see, not an explanation for why inequality changes as it does. So armed I won’t by buying the book but I do recognize the historical context.

The second item emerges from an article in last week’s The Economist. The article was called – Going to Bits: Europeans are splitting their votes among even more parties. The article highlights how as time passes, political factions are fragmenting into ever smaller segments. The analysis gives example after example across Europe and the implication, so the article says, is that democracy is ever harder to process since the factions start to balance each other out. Each new splinter is a little different to the last; interests intersect in a complex overlapping web.  

Some examples need to be extended to political systems. Italy’s political system has favored a more balanced, even gridlocked parliamentary system. This explains to a great degree that countries inability to effect change and avoid economic stagnation that comes about as a result from such a system. It is more stable with fewer bouts of extreme or excessive policy. If you will, the boom-bust cycles are replaced with more steady state performance. But, as other authors have attested, this leads to pent-up pressure that always emerges with a worse “bust”. This in fact explains our most recent steady state global economy that blew up with the financial crisis.

But this idea that a steady dose of peace and stability will lead eventually to fragmentation of political groups, populations and even nations, is all around us. The fractious US election is the most recent example. There are just so many fractional groups that apparently were looked at as “blocs” such as black, white, white middle class, Latino, women, women without colleague degrees, gay, gay middle class and the list is endless. Brexit is a good example before this. The UK’s flirting with the separation of Scotland is a perfect example again. Spain is flirting with the same dialog; Canada does from time to time. An for giggles, Texas even talks of this as a possibility.

The point is this: with stability, peace and wealth, a section of our population end up with more time to sit on their behinds and come up with ideas to extend their advantages; or some others that do not have that luxury of too much time end up triggering conflict. As a result we all end up looking at the ties that bind and undoing and redoing new one’s, often at the behest of individuals that see an opportunity for change. There has to be a catalyst, once we have the environment. Thus economic stability and peace is the environment and political leaders are the catalyst.

So now I try to put the two ideas together and I think they fit quite nicely. Peace and stability help ferment the opportunity for the political, disjointed or advantaged classes to change the rules to maximize their position or to reclaim what is lost.   This is part of the backdrop that is the environment in the second idea. Thus the very things that drive stability and peace seem to automatically sow the seeds of the next disasterous cycle. It just takes a long time to see it happen – and we don’t really even see “it” happen. We just see its consequences.

US Government Sets Up Next Financial Crisis & Brexit Not the Risk at All

Two articles came accross my desk this week – one caused consternation on my part and the other seemed to offer a sanity check.  The former concerned the US economy and specifically how there are signs that consumers, and lenders, are returning to the same behavior that led to the financial crisis at the source or our current economic challenges.  The latter concerned the hype and over blown concern with Brexit and its impact on Britain’s economy.

In the US print editions of the Wall Stree Journal (Wednesday January 11th) there was an article titled, “New Loans, Same Old Dangers“.  This front page article described a government-led initiative (Property Assessed Clean Energy) that provides subsidies loans to encourage homeowners to buy energy saving devices.  The article gives an example of a homeowner who is not able to afford the loan is still encouraged to take it out.  As is common practice this loan is then sliced up with other loans and sold on as a bond – what is called securitization in the financial industry.  This is analogous to the risky mortgage loans offered, and taken up by people who should have known better, and sold on to governments in Iceland as “AAA” opportunities.

The market is very small – the article suggests around $3.4bn of loans have been made so far – but the model is just damning.  FIrst you have big government trying to force its policies on a free market.  With the housing issues that triggered the financial crisis this was Government demanding ever greater home ownership among poor people and those that could not afford it.  Second you have the lowering of standard for the setting up of loans.  This is identical to what happened with dubious sales efforts of mortgage brokers during the 1990’s and early 2000s.  Finally you have the build up of risky loans and owners of the loans not knowing where the real risk is.

The popular uprising that has brought Trump to the White House would do well to heed these stories.  After all people will be people and when offered a bad apple that looks and smells sweet, many will take it.  Perhaps we should not fault those that do – or should we expect a stronger moral aptitude?  Either way we need to get big government out of the way.  It should not seek to foist its social or political wants on you and me – we should be free to do what we want, how we want, when we want, as long as it does not harm our fellow citizen.  Innovation and opportunity will drive improvement in the energy sector.  And perhaps tax credits would be a safer way to encourage small changes in behavior that do not create risky loans.  

The other article, a commentary piece in the US print edition of the Financial Times (Thursday Janary 12th) was titled, “The City has nothing to fear from Brexit“.  It was penned by Stanislas Yassukovich who is a former chief executive officer of European Banking Group.  The article is a breath of fresh air since it refutes many of the risks and issues that most other “specialists” report in the press.  For example we have heard a lot about “passporting” – the idea that a financial institution authorized to trade in one country of the EU can freely trade in another country.  It turns out that non-member states can use this capability quite easily – so it’s not even needed as a negotiation.  The article goes further.

Passporting was a means to try to level set the complexities of rules across what was meant to be a single market.  It turns out that even with passporting there remains complex and different rules that still need to accommodated when trading across the member-states.  As such, “core retail financial activities – residential mortgages, deposit and savings products and so on – remain almost entirely national, and highly protected.”   This whole think stinks to me.  

The recent news that PM Thresa May fired her senior most civil servant who worke with the EU was greeted in the press as bad news.  It seems he kept repeating to the PM that it was not going to be possible to complete all negotiations in time before the two year window closed for leaving the EU.  Why is this?  He may have had a practical view on things but he certainly did not have a positive view on what is possible.  I think we need clean out the cupboard and get a fresh new look at everything.  Good for PM May to do so.  If the author of this article is right, there is little we should fear from Brexit.   

The Home Owners/Renters Market is Upside Down

Two articles today suggest that two of the world’s largest economies are swapping roles and focus for home ownership and renting. Germany has been a nation of renters; home ownership has run at relatively low levels compared to the UK or US. The US has operated under the assumption that home ownership is central to the American Dream.

As we all now know, policies adopted by the US government in the 1980s led to a relaxation of requirements for those seeking a mortgage and low income, even zero-income families, obtained mortgages they could never afford. The result, when combined with human greed both by home buyers and the investment community, led to the financial crisis that is the cause of the situation we are in today: near zero interest rates and massive influx of quantitive easing that has filled the coffers of the investor class.

But what is happening now? It seems that the near zero interest rates in Germany are driving record levels of home ownership and low interest rates in the US is driving up demand for rental property with record low-levels of home ownership. The world is turning upside down!

In the US print edition of the Financial Times, the article, “German’s switch to home ownership fuels bubble fears“, reports that house prices are rising as demand for mortgages continues to rise. The good news is that many of these new mortgages are fixed rate plans- which protects home owners as interest rates increase.  Germany has been a relative laggard when it comes to home ownership. See Most Germans don’t buy their homes: Theey rent.  Here’s why.  

In the US print edition of the Wall Street Journal, in an article, “Millennials Fuel House Rental Boom“, we hear of the later boom afflicting the US market. It turns out that US home ownership is at record lows, yet house prices around the country are recovering and in some regions, back to pre-crisis levels. How can this be?   Turns out that firms flush with cash and low cost loans have been buying up property in the cheap and renting them. The article above goes even further and explains how firms are now increasing investing in entirely new property developments specifically for the rental market.  

This all might alarm you. The American Dream, perhaps western democracy, was assumed to be predicated on home ownership. But this is not the case. The German economy has done very well with relatively low home ownership rates. The US might have to learn from the Germans how to run such an economy; likewise the Germans need to take a leaf out of the US’ books to avoid bubble blow-out.  

But in all practical terms we should be alarmed. Germany is an export-based economy. Other counties want (or need) to buy Germany’s products. Exports from the US is vastly less of a proportion of it’s GDP than it is for Germany. So there is little room for the US to behave more like Germany. Additionally Germany cannot set its own interest rates; even now the stresses between the EU center and periphery are growing again. Greece, Spain and Italy continue to need low interest rates to help nurture their local economies to recovery. Germany, never near a recession, is showing signs of too rapid growth (and growing inflation) and may approach overheating before the periphery is even back to positive growth.  

Bottom line: zero interest rates and quantitive easing (and resulting central bank balance sheet ballooning) is changing our economic foundations. This will impact our societies in ways it is hard to predict. Hang on guys, it’s gonna be a bumpy ride!

My Top 5 Biggest New Year Risks to the Global Economy

In order or scale, priority and impact, here are my picks for the five most critical trigger-points that may impact, negatively, a return to ‘old normal’. Currently we stand at the edifice of a new normal, the great stagflation, but the anti-establishment and populist changes taking place seem to suggest a knew-jerk reaction by nations fed up with socialist dressed-up-as-market politics that have led the West for 20 years.

  1. China’s economy stagnates or crashes. Debt levels are above EM levels and are now among the largest, approaching the incredulous Japanese levels. This dynamic is not sustainable for a nation whose currency is not a reserve currency. However the economy is the world second largest even without the development and emergence of whole swathes of other sectors such as healthcare and leisure, which may offset contracting first world growth over the next year or two. So the risk is there and there is no clear leaning one way or the other, yet. But debt is growing faster than these new sectors; exchange reserves at $3bn are limited (though huge), and currency value management is not market-bases. So greater risk is with the downside. China’s growth flags, currency sinks, counterbalancing US growth and confidence, creating a massive imbalance in the global economy. Europe watches on as global GDP sinks under its own debt weight. KPI’s to avoid/watch out for: China GDP falls to or below 4.5%; China’s debt load surpasses 300% of GDP.
  2. Trump quits after 18 months due to intractable political limitations that prevent policy changes he seeks related to healthcare, regulatory complexity, tax reform and trade. Trump’s political rhetoric is being replaced with solid business-based policy. However not all such policies have ever been tested at a national level and scale. Some efforts will fall foul to physical, social and political limitations. This may prove frustrating for Trump. As growth will return short term, such medium term frustration will lead Trump to claim, “My policies worked, see? But now the system has reached its limit and there is nothing I can do until the country agrees with me to shut down the whole government system! Since they are not ready, yet, I am ‘outa here’ until they are!” Markets crash, interest rates balloon, inflation rages all within a year. World economy sinks into the abyss. KPI’s to avoid/watch out for: US GDP 1H 2017 reaches 4.5% but Congressional conflict leads to policy deadlock ; vacancy in position at Whitehouse. 
  3. Emerging Marker currency crisis as massed capital investment is siphoned away towards a resurgent US economy and dominant dollar, as well as a stable and even growing China economy. This situation is already underway. The risk is that what is currently a reasonably ordered trend becomes a financial route. This is possible since the financial markets are starved of yield due to the collective policies of central banks to keep interest rates very low for too long and for the build up in their massive balance sheets. If the trend becomes a torrent, EM’s will have to yank up interest rates far beyond what their local economics can support and economic disaster will follow. This will ferment more political instability and drive increased destabilizing ebonies to ruin. Though the US may be growing well, compared to its peers, it’s the imbalance they tips the ship over. KPI’s to avoid/watch out for: dollar index, the weighted value against basket of currencies, surpasses 115. It is currently at 103.33, which is a 14 year high; EM interest rate differential balloons.
  4. Hard Brexit forced through by intransigent Europeans who think the EU experiment is more about political union than economic liberalism. A new trade deal, legal framework and social contract can be negotiated within a two year window. But only if politicians and civil servants want it too. Continental politicians however, under the strain from populist pressures, will equate intransigence over Brexit negotiations with an improved politicos standing with their electorates. Fool for them as this will actually create the opposite response for such behavior will simply worsen the economic climate. The lack of any sign of return to old normal will lead to political paralysis and the clock will time-out. Hard Brexit will be forced upon a supplicant Britian. Europe and UK economies will tank; currency wars will wage; global trade will collapse further. This will not sunk the global economy short term but will act as a dead weight slowing its resurgence down. KPI’s to avoid/watch out for: no agreement at end of two year period lost triggering of Article 50. 
  5. Latin or Indian debt or economic crisis. Much like with other EM’s, growing sectors of significant size around the world may blow up- India being the best example. India’s growth is different to China. It is more integrated socially and politically with the west, but it’s corruption levels are far greater than what one can see or observe in China. It is possible that local economic difficulties, hard to observe today, may trigger a collapse in confidence that leads to a destabilizing debt or currency crisis. Brazil’s economy is certainly in the dock currently; Argentina is struggling. India’s economy looks like paradise right now but the growth across the country is extremely uneven- you only have to look at public sector infrastructure investment. So should two such countries suffer local difficulties, the combination may result in significant risk to the global financial system. KPI’s to avoid/watch out for: two simultaneous financial/debt crisis afflicting EM or India.

These are my top 5 risks the global economy faces in 2017. I hope I am wide of the mark, in a positive way. I left Japan off the top 5 list yet their economy remains anathema to growth. The Japanese market invented the whole new normal cycle with a anaemic growth, massive debt, low inflation, and demographic contraction. And Japan has an amazing debt load that refuses to spook investors. Things may yet have a Japanese tinge before the year end. Does Japan, along with the US, lead the global economy back to the old normal!
What potential risks do you see?