Better the Trump We Think We Know

These last weeks have been exasperating. In my attempts to keep abreast of what’s is going on, I have virtually lost faith in TV and radio channels. The constant flow of information from the President, often via Twitter, is at a speed and of a form that we can hardly keep up with.   See The First Digital President.  Pundits are mostly out of date and irrelevant. Universally they suggest that President Trump’s style is outrageous and not presidential. The use of Twitter is new, but is Trumps’ combative style really that new?

I found an Opinion piece in this weekend’s US print edition of the Wall Street Journal that seems spot-on in capturing the current dynamic. The article, The Method in Trump’s Tumult, by Christopher DeMuth, a distinguished fellow at the Hudson Institute, suggests that Trump’s methods might look odd and different to those of us used to the monotonous dogma of political rhetoric subscribed to by politicians in recent years.  But really his methods are not new at all.  They are provan and well trod by previous Presidents.

“President Trump may be rediscovering a venerable method of leadership that has been forgotten in our era of ideological messaging. Rather than viewing disagreements as a problem, previous American leaders wielded it as a tool. The surrounded themselves with highly accomplished, strong minded advisers, and used vigorous debate among them to generate fully considered options for confronting the intractable problems of the day.”

Given that his political enemies suggest his methods create disarray, Mr. DeMuth’s ideas make a lot of sense since this disarray might be a means to an end – not the end itself.  His article explores multiple examples of past President’s (including Washington) and how they surrounded themselves with folks who often spoke out and at odds with each other. After reading the article one is left with the feeling that Trump’s lack of political experience and rich management flora, resulting in this behavior, is refreshing. It is, but it seems to be misunderstood and at odds with his detractors. Maybe the left-leaning press will grasp this eventually and start to analyze policy, rather than pick and snipe at Tweets.

The First Digital President: Trump and his Tweets

This article will not discuss the pros or cons of any of President Trump’s policies.

This blog will discuss the fascinating impact of a President that tweets his feelings, inclinations and possibly inferences to his policy preferences. In a nutshell we are not ready, we are not even able, to cope with the speed with which information is coming from the presidents Twitter account.

Several times a day a new Tweet is posted and literally the world is turned-over again. Before Trump came to office we would all have to wait for the press briefing. We would wait to browse the headlines of our favorite news site. We might wait for the 6 o’clock news. We might even browse the newspapers.  

But now, three or more times day, everything turns upside down. You could even subscribe to the presidents Twitter feed and join in the turmoil. Media outlets, political junkies, other nations are all on edge as every nuance and implication is explored with outdated tools and perspectives as one tweet follows another. The use of big data, reportedly a key to Obama’s first victory was a digital innovation. Trump and his Tweets is another.

We should factor in the nature of which such digital communication is being used. It would seem that the tweets themselves are not carefully, developed and totally thought through messages. Equally they are not random thoughts of a madman. Whatever they are (and some of you will assume they are rants of a mad man or deeply held beliefs and policy guidelines), the speed with which such communications protrude from the White House are breathtaking.

The entire political and press establishment are running at a hundred miles a hour 24×7. And I mean 24×7 since Trump might tweet at 2am. I actually love his energy and enthusiasm. But can our systems survive this onslaught?

I find now that watching the TV in the evening a waste of time. Channels that lean left or right are out of date. They try to analyze (if we are lucky) the day’s news yet a new tweet reverses everything. The radio channels are as out of date and as unable to keep up. Newspapers are getting to be very boring. 

The torrent and speed of new information is not yet displacing channels and reporters from the past era. But perhaps we need to rethink the system. Even the briefing room of the White House seems to be a circus. They spend their time trying to understand a tweet and are missing the real news. It really is a major challenge.

Maybe we need a new digital news system that leaves televisions and traditional media sources behind. Maybe we need a purely digital platform that can parse tweets and merge them into the panoply of policy and White House edicts. We need news reporters to report the news with a big (data) lens.  

As it stands few are able to understand let alone put a tweet into perspective. The result is the left and right spend their time arguing over trifles and nothing is actually analyzed or concluded before the next tweet arrives and the dance starts anew. It’s breathtaking, and getting boring. The problem is not with the tweets: it is just a medium. The problem is with our news reporting system of press briefings, television and media pundits: they and it are out of date and not able cope with the new medium.

Whatever your feelings concerning President Trump, you have to acknowledge he is effecting change on many levels.

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.   

New Cracks in the Euro

News today suggests that the central European economies are beginning to surge ahead with growth while at the same time the periphery continues to struggle terribly.

In today’s US print edition of the Wall Street Journal there is news that German GDP in December continues to grow. We only just read that house prices are surging too. As Germany starts to surge ahead, it will need to push interest rates up to help control growth and prevent overheating.  

See German Economy Accelerated Last Year and Eurozone Output Data Suggests Strong Upturn.  
But Greece, Spain, and even Italy, really don’t want and may not even be able to sustain an increase in interest rates. The Greek economy has not yet recovered. It needs persistent low rates and in fact additional help (or changes in policy) to help repair the damage.

As such the pressure-cooker-politics of the Euro is about to get a dose of heat. It won’t be another six months before the pressure becomes clear to all.
 

Healthcare under TrumpĀ 

Healthcare’s Bipartisan Dilemma” in today’s US print edition of the Wall Street Journal  details several ideas and alternatives being discussed that might replace the ACA. Every example considers tweaks to the current system that abuses the market based approach. As with the ACA, the costs to cover sick folks is mashed together with the larger population of healthy people. The result, as with the ACA, is massive price and market distortion. In fact the very essence of risk (with respect to insurance and premium) is undermined. As such the free market is a monster.

There is a different way that should be considered yet it is not (yet) in the news. Literally, return the market to where it was: remove the entire ACA and permit risk to be priced into he market as it was.  

For those that fail to get insurance, offer a subsidized state-health insurance. This is the equivalent of the UK’s National Health Service but at a state level. Federal funds and state taxes would be used to pay for the service. This idea was floated in the run up to the ACA being signed and this represents a simple subsidized pool. It would be transparent and visible. The costs of this aspect of healthcare would be clear.

Finally another issue in healthcare needs to be addressed at the same time: costs. Additional efforts need to be enhanced to shift the reward system for healthcare, public (Medicare, Medicaid etc) and private. Rewards need to be explicit and focused on health, not piece-rate and work. Visits to the doctor and specialist are not relevant; results are. This program needs to be led by business people in Washington, not politicians.

Along with this is a revamp of regulations to help reduce the risk of insurance against negligence. This part of the industry puts too much of a burden on costs and needs to reduced.   

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!