Another fine mess

Donald Trump triggers a Turkish invasion and trashes the national interest

The Syrian regime makes hay; so do the Russians

BASHAR AL-ASSAD surely cannot believe his good fortune. For six years the Syrian dictator has had little control over the north-east of his country, home to Syria’s modest oilfields and some of its most fertile farmland. The jihadists of Islamic State (IS) seized power there in 2014. As their caliphate crumpled, a Kurdish-led militia which was doing much to bring about that crumpling took over, establishing an autonomous fief known as Rojava in 2016.

Then, on October 6th, President Donald Trump ordered the American troops stationed in north-eastern Syria to withdraw. On October 9th Turkey invaded. Four days later the Kurdish militia which ran Rojava, the People’s Protection Units (YPG), made a deal with Mr Assad at Russia’s Khmeimim air base, in the north-west of Syria; if the Syrian army came into Rojava to protect his country’s territory against the Turks, the Kurds would fight alongside him.

A video released by Russian state media soon afterwards showed Syrian troops advancing past Americans withdrawing down the same road, their respective pennants flapping in the wind.

With his flag now flying over towns such as Hasakah, Kobani and Qamishli, and with control of the country’s two largest dams, Mr Assad has reclaimed more north-eastern territory in a few days than he previously had in a few years.

Mr Trump’s decision has reshaped the Levant. Now expanded to include almost all American troops in Syria, it has ensured that America will have no influence over the final settlement of Syria’s civil war. That will be orchestrated by Russia, which benefits greatly from the new situation. Being a friend to Turkey and Syria alike is potentially tricky while fighting continues. But it is a good position from which to broker its end.

The president’s decision has also left American allies around the world newly worried that they too could be left in the wind, just as the Kurds have been. It has put new strains on NATO. And it has given IS a chance to rise again.

Turkey says its invasion is an act of self-defence. The YPG is linked to the Kurdistan Workers’ Party (PKK), a group responsible for dozens of deadly attacks across Turkey since its peace talks with the government of President Recep Tayyip Erdogan broke down in 2015. America’s decision to arm and work with the YPG during the fight against IS was widely seen in Turkey as an act of betrayal.

At the Turkish border troops returning from Syria are welcomed by children saluting and making victory signs. Those who challenge the mood too obviously risk joining more than 186 people detained on terrorist charges for social-media posts critical of the invasion. “People who classify this as a war”, as opposed to a counter-terrorism operation, Turkey’s interior minister, Suleyman Soylu, has said, “are committing treason.”

When backed up by Western air power in the fight against IS the YPG had been a pretty effective force, though the Kurds still lost 11,000 fighters in the struggle. With neither air support nor armour, the militia was no match for Turkey’s army, the second largest in NATO.

Turkey quickly took a section of the M4, an east-west highway about 30km south of the border, cutting the YPG’s supply lines. Much of the advance has been led by ill-disciplined Syrian rebels, a tactic which both reduces Turkish casualties and provides deniability when it comes to crimes such as the murder of Hevrin Khalaf, a Kurdish politician, and the roadside execution of prisoners.

Following the deal with Mr Assad, YPG forces are now under the command of the Syrian army’s Fifth Corps. This is said by the YPG to be a purely military arrangement. The Kurds purport to believe that the bits of Rojava to which government forces have returned can continue to be run as they were before, with “the self-administration’s government and communes intact”, in the words of one official.

But Mr Assad’s regime does not have a history of forbearance with populations returned to its control. Promises of local autonomy made when it retook the southern province of Daraa were quickly broken. “Reconciliation” deals with the locals ended with people jailed or pressed into military service.

In the north-east, Kurds and Arabs who worked with the Americans will be particularly vulnerable to such reprisals. The hasty withdrawal left no time to whisk them out; more than one official likened the situation to the fall of Saigon in 1975. Nor is it easy for people to leave under their own steam. Iraqi Kurds have closed their border to Syrians, Kurdish or otherwise, unless they are sick. Most of the 160,000 people estimated to have been displaced are heading south.

The departing Americans did manage to exfiltrate some of the most notorious IS prisoners being held in north-eastern Syria. But they left behind a great many more. More than 70,000 prisoners taken from the former caliphate—a mix of IS fighters, their families and civilian refugees—are held in camps dotted across north-east Syria. The Kurds who have been guarding them now have other priorities. On October 13th over 800 IS-linked detainees escaped from Ain Issa camp in the chaotic aftermath of Turkish shelling. More will follow.

Jailbreaks will give the battered rump of IS fresh manpower. Mr Assad’s return will give it a new rallying cry—IS will be able to present itself as a pre-eminent adversary. The bits of IS still running a low-level insurgency in northern and western Iraq may be revived, too. All of this is a return to form. IS has been “defeated” before, only to regroup in ungoverned spaces with angry populations. Its blitz across Iraq in 2014 was made possible by massive jailbreaks.

Perfidious America

If IS does rise again, Mr Trump will blame the Kurds. Most others will blame him. American allies in the region felt let down by President Barack Obama, who made a deal with Iran and refused to strike Syria. They hoped Mr Trump would suit them better. King Salman of Saudi Arabia gave him a gilded reception in Riyadh in June 2017. Binyamin Netanyahu, Israel’s prime minister, all but anointed him the messiah.

The welcome given to Russia’s president, Vladimir Putin, when he arrived in Saudi Arabia on October 14th did not have all the bells, whistles and ceremonial swords accorded to Mr Trump two years ago. But his visit, and his promise “to reduce to zero any attempt to destabilise the oil market”, were still significant. So was his subsequent trip to Abu Dhabi.

Despite their differences on Syria—differences which are fading as Arab states quietly reconcile with Mr Assad—Gulf leaders have noted that it was Russia, not America, that stood by its partner. They also note that, for all Mr Trump’s bellicosity, he has done little to stop Iran becoming more assertive—and indeed attacking major oil installations.

The 1,800 American troops deployed to Saudi Arabia on October 11th do not lay those worries to rest, though they do show that Mr Trump’s aversion to foreign entanglements is untroubled by consistency.

Israel is distinctly fretful at the sight of an American ally so swiftly thrown aside. Mr Netanyahu did not mention Mr Trump directly when he condemned Turkey’s attack and warned against “the ethnic cleansing of the Kurds”. Some of his ministers are less cagey.

The purpose of America’s remaining deployments in Syria, in the south-east, is to stop the creation of a permanent supply line between Iran and the Hizbullah forces it supports on Israel’s borders. Should those troops leave too, Israel will be yet more alarmed.

Seeing America’s stock fall so precipitously has alarmed many in Washington. Democrats were quick to make hay. Republicans in Congress were vocal, too. They have frequently made foreign policy an exception to their general rule of not criticising the president’s breaches of decorum and reason.

Even given that track record, though, the dissent from Mr Trump’s decision was striking. Lindsey Graham of South Carolina, a national-security hawk and erstwhile Trump whisperer, called in to one of the president’s favourite television shows to berate him. “I fear this is a complete and utter national security disaster in the making,” Mr Graham later tweeted.

Congressmen from both parties argue that, although they realise that Americans have had enough of foreign wars, abandoning brave allies and letting IS regroup are beyond the pale. On October 16th a measure condemning Mr Trump’s decision passed in the House by 354 to 60, with 129 Republicans voting against the president.

That enraged Mr Trump, who maintains that his decision was “strategically brilliant”. The White House has released a letter threatening Mr Erdogan with the destruction of the Turkish economy if he were to take bloody advantage of the opportunity Mr Trump had provided him with: “Don’t be a tough guy. Don’t be a fool!” If this was sincere it was somewhat belated, being sent on the day of the invasion.

Mr Trump has dispatched Mike Pence to Turkey to press for an immediate ceasefire, though his boss’s professed lack of interest in the fate of the Kurds seems likely to undercut the vice-president’s position. On October 14th he also announced penny-ante sanctions. Mr Graham and Chris Van Hollen, a Maryland Democrat, have crafted a more muscular package.

The crisis has also triggered another threat to Turkey’s economy, albeit indirectly. On October 16th prosecutors in New York unsealed an indictment against Halkbank, one of Turkey’s biggest state lenders, accusing “high-ranking” Turkish officials of operating a scheme to bypass American sanctions against Iran. Mr Trump is reported to have tried to stymie aspects of this case at Turkey´s bidding.

According to Timothy Ash, an analyst at BlueBay Asset Management, the fact that the prosecutors have now made their move shows that “developments in Syria and impeachment have broken the dam.” The news had an immediate impact on Turkey’s banking sector. The bank index dropped by 4%, with Halkbank shares down 7.2%. The government banned short-selling in the stock of Halkbank and six other banks.

Mr Graham also talks of suspending Turkey from NATO. This is nonsensical: the North Atlantic Treaty offers no mechanism for suspensions or expulsions. What is more, Turkey really matters to NATO; its well-trained forces, on which it has been spending a lot, are woven deeply into the alliance’s fabric.

The NATO land command is hosted in Izmir; one of its nine “high-readiness headquarters”, which could command tens of thousands of troops in a crisis, is just outside Istanbul. Turkey’s navy plays a key role in the Black Sea, a priority since Russia seized Crimea.

It has almost 600 troops in NATO’s mission in Afghanistan. Radars on its territory scan the skies between Iran and Europe for missiles. And it hosts American B61 nuclear bombs as part of NATO’s nuclear-sharing scheme.

Turkey and its NATO partners have been increasingly at odds over the past few years. America’s embrace of the YPG was one factor. So was the dismissal of thousands of Turkish officers after the attempted coup against Mr Erdogan in 2016; “A drastic de-NATO-isation of the Turkish armed forces” as a report for the Clingendael Institute, a Dutch think-tank, puts it. Turkey’s purchase of the S400 air-defence system from Russia made matters worse.

An EU arms embargo enacted on October 14th will hurt Turkey: about a third of its arms imports come from Spain and Italy. But if such actions push it towards a negotiating table, it will be a table supplied by the Russians—who will be quite happy to supply arms, too, as part of an eventual deal. While it will remain part of the alliance, Turkey may start fielding ever-less-interoperable weapons, and sharing ever fewer goals.

It may also rethink its attitude to Syrian refugees. Part of Turkey’s justification for its excursion into Syria is the creation of a safe space to which Syrian refugees can return—or, if necessary, be sent. If stymied, it might yet decide instead to let them through into Europe.

Some, though, will not go anywhere. In Akcakale on the Turkish-Syrian border, Ahmet Toremen, a construction worker, walks past the broken window-frames, burnt mattresses and bloodstains covering the bottom floor of his ramshackle house. It was hit by Kurdish mortar fire from Syria.

At least 20 civilians have died in such attacks, according to officials in Ankara. For Mr Erdogan their deaths offer a chance to show that the war was a matter of necessity, not choice.

He can rely on no Turkish newspaper pointing out that there were no such attacks before October 9th, just as they do not report the civilians being killed in Syria.

On October 16th the Syrian Observatory on Human Rights put this toll at 71, along with 15 killed in an air strike on a humanitarian convoy.

Mr Toremen’s family was next door when the shell landed in the corner of their living room; the house had been rented out to a Syrian family.

One woman was blinded, one wounded and the family’s baby was killed.

“They escaped war”, says Mr Toremen, “and war found them here.”

Inflation Outlook Supports Gold's Long-Term Uptrend

by: Clif Droke

- Low inflation expectations are why gold's long-term prospects are bullish.

- Recent trade relation improvement is a short-term headwind, though.

- Persistent low inflation will eventually overcome gold's latest obstacle.

It’s a commonly held assumption that gold benefits primarily from inflation.
If that were entirely true, then there should be no reason for gold to be struggling against the prospects of increasing inflation now that trade relations between the U.S. and China are being patched up.
The idea that gold loves inflation is only partially true, however.
What gold responds to more than anything else is the fear of the unknown.
As I’ll explains here, strong evidence for a lack of inflation supports gold’s longer-term uptrend in the year to come.
On a short-term basis, however, gold faces a headwind from the recent improvement in the global trade Outlook.
Gold’s popularity is always greatest during periods of political or economic turmoil. That includes periods of runaway inflation, such as the U.S. experienced in the late 1970s.
But when the inflation rate is coming off extremely low levels and only gradually increases, this isn’t a reason for investors to fear the economic consequences.
To the contrary, a healthy dose of inflation following a period of low inflation (or deflation) would be quite beneficial for the economy and would also be a reason for investors to sell gold and rotate into assets that would benefit from an improved economic growth outlook.
Low inflation rates, by contrast, imply low levels of economic growth. When the economy fails to realize its long-term growth potential, investors get nervous and accordingly start looking around for safe places to hedge their investments.
Gold is naturally one of the first assets they turn to in their quest for safety.
Indeed, gold’s bull market since last year is at least partially predicated on the market’s worries over sub-par inflation rates.
There has been some speculation among financial commentators, however, that the U.S. and the developed world might finally be heading out of the prolonged period of low inflation in 2020.
Yet there are no signs to date that inflation is anywhere on the horizon.
This is one reason for believing that gold’s longer-term bull market is still intact, even if the yellow metal is struggling to re-establish its forward momentum in the immediate term.

Virtually all the latest major economic reports confirm the near-absence of inflation. Last week it was announced that U.S. consumer prices were unchanged for September as inflation was acknowledged to be in “retreat.”
According to the Labor Department, the flat consumer price index for September recorded its weakest reading since January.
Worries about slowing global growth and continued chaos over Britain’s planned exit of the European Union have contributed to the decline in business investment spending and lower commodity prices.
Not only do the economic numbers testify to the lack of threat posed by inflation, but consumer sentiment reflects continued fears that low inflation is still a problem.
The latest New York Fed survey, for instance, revealed that the inflation outlook for U.S. consumers was muted in September and fell to its lowest level on record over a 3-year timeframe since the bank began its monthly consumer expectations survey in 2013.
This should be regarded as good news for long-term holders of gold or gold-related assets.
On a short-term basis, however, investors aren’t overly worried that the inflation rate will continue to decline.
One way to measure the extent to which inflation prevails on a short-to-intermediate-term basis is to compare the gold and copper prices from a relative strength perspective.
Not only does the copper/gold ratio be used to show where long-term Treasury yields should ideally be (based on current inflation rates), but the gold/copper relationship is useful for gauging the safe-haven demand for gold as well.
When the price of copper is weak relative to gold for a period of several weeks-to-months, it implies that investors have serious concerns about the rate of global growth.
Historically, copper is weak versus gold, investors turn to gold and other safety-oriented assets (namely Treasuries) as an insurance policy against a slowing economy.
Shown here is a ratio comparison of the gold versus the copper price in the last two years.
This graph underscores the tendency for rallies in the gold/copper ratio to precede declines in the gold price.
The reason for this is that relative strength in copper suggests that investors’ confidence in the global outlook is temporarily on the rise after the latest improvements in U.S.-Sino trade relations.
When investors are feeling more assurance about the economic growth outlook, they tend to move away from safe havens like gold and turn to risk assets like equities.
This partly explains why the gold price has remained stuck in a trading range since peaking in September.
Copper vs. Gold Price Source: StockCharts
When the copper/gold ratio is trending lower, however, it implies investors are definitely concerned about slowing global growth.
This was the case in late 2018 and also during the May-August period this year.
The downward trend in the gold/copper ratio shown above illustrates these two periods of worry.
Based on the copper/gold relationship described here, it should come as no surprise that gold’s best performance this year so far was during this period when investors were deeply worried about the U.S.-China trade war and its potential impact on the global economy.
Lately, however, investors have received assurances from the governments of the U.S. and China that they are collectively working toward an agreement which would mitigate the impact of trade tariffs on both sides.
Currently, the copper/gold ratio is above its 15-day moving average and is also above its year-to-date low.
This reflects the short-term headwinds standing in the way of higher gold prices, namely increased investor confidence in the short-term outlook.
Indeed, the bounce in this ratio in September was enough to scare off new gold buyers and also encouraged traders to book some profits in existing long positions in the yellow metal.
But the copper/gold ratio hasn’t reversed its long-term downward trend and this implies that the inflation outlook is still muted. It further suggests that the long-pull bull market for gold which began last year is still very much intact.
On a short-term basis, however, as long as the gold/copper ratio remains above its 15-day moving average, gold’s immediate-term (1-4 week) trend will remain unsettled and new highs in the gold price will have to wait.
What’s more, if the copper price starts to rally on perceptions that China’s industrial outlook is strengthening then we may even see some downward pressure on the gold price.
Yet there are still plenty of geopolitical and global economic uncertainties to keep

Meanwhile, the copper/gold ratio is current at 0.0018, which is telling us that the U.S. 10-Year Treasury Yield Index (TNX) should be at around 1.80%.
Currently, the 10-year yield is at just under 1.80%, almost exactly where it should ideally be according to the ratio.
The recent rally in TNX represents a an improvement from the last several months when yields were plummeting to unnaturally low levels, due largely to the panic over a global slowdown.
Those fears have been temporarily suspended thanks to the latest developments on the global trade front.
But by no means should investors assume that trade-related worries are a thing of the past.
Accordingly, long-term gold investors are justified in maintaining investment positions in the metal.
CBOE 10-Year Treasury Yield Index Source: BigCharts
However, the higher low that was established in the copper/gold ratio since September is enough to warn investors to steer clear from initiating new long positions in gold for now.
Gold will likely continue to struggle against the efforts of the major industrial nations to lower or eliminate tariffs.
Moreover, until the gold price closes at least two days higher above its 15-day moving average (below), gold will remain vulnerable to any positive news developments on the trade front.
Gold Continuous Contract Source: BigCharts
In conclusion, the bull market for gold which began last summer is still being supported by geopolitical concerns and global growth worries.
What's more, an outlook that points to continued low inflation in the coming years is supportive of bullion prices.
On a near-term basis, however, investors should exercise caution and wait until the next technical breakout signal is confirmed in the gold price before adding to existing long positions.

On a strategic note, I’m waiting for both the gold price and the gold mining stocks to confirm a breakout before initiating a new trading position in the VanEck Vectors Gold Miners ETF (GDX), my preferred trading vehicle for the gold mining stocks.
I’m currently in a cash position in my short-term trading portfolio.

The Middle-Class Crunch: A Look at 4 Family Budgets

By Tara Siegel Bernard and Karl Russell

Examine the typical American family’s monthly budget, line by line, and a larger story emerges about how the middle class has evolved.

What it means to be middle class hasn’t changed much — there’s a steady job, the ability to comfortably raise a family if you choose to, a home to call your own, an annual vacation. But what it takes to achieve all that has become more challenging.

The costs of housing, health care and education are consuming ever larger shares of household budgets, and have risen faster than incomes. Today’s middle-class families are working longer, managing new kinds of stress and shouldering greater financial risks than previous generations did. They’re also making different kinds of tradeoffs.

Most people believe that they belong somewhere in the middle class, but its boundaries and markers are subject to interpretation.

Based on income alone, about half of all adults in the United States fall in this category, according to a 2018 report from the Pew Research Center, a nonpartisan research group. It defined being middle class as having an annual household income from about two-thirds to double the national median, which translates to roughly $48,000 to $145,000 for a family of three (in 2018 dollars).

Four families, from Sheboygan, Wis., to San Francisco, gave us a glimpse at their monthly budgets. Their stories help illustrate how a middle-class existence has fundamentally shifted over a generation.

‘Such High Levels of Stress’

For Lauren and Trevor Koch of Sheboygan, making their finances work on one salary was a struggle. Mr. Koch, a chef earning $51,000, often worked 50 hours or more a week. Ms. Koch decided to give up her job as a restaurant server after the couple had the first of their two children. Given the high cost of child care, she felt her time was better spent at home.

Life got trickier when Mr. Koch lost his job as a chef at the end of February. Now he cares for the children in the morning, while Ms. Koch works part time at a shop that sells CBD, or cannabidiol, products. When she gets home at 1 p.m., he leaves for his job as a line cook, where he is paid hourly and works until 11 p.m. Neither of them receives paid time off or health insurance.

“We have such high levels of stress from juggling our schedules,” Ms. Koch said. Collectively, they earn slightly more than before, she said, but it’s unclear if their hours will dwindle during the winter months.

As family incomes have become more volatile, academic experts said, the trend has contributed to greater feelings of financial insecurity. For many people who experience a drop in income, whatever the reason, the declines tend to be greater than in the past, according to an analysis by Jacob Hacker, the director of Yale University’s Institution for Social and Policy Studies.

The share of Americans who experience income loss tends to rise and fall with the economy. But the share of Americans experiencing larger losses has increased.

“The gap between Richie Rich and Joe Citizen is a lot larger than it used to be,” Professor Hacker wrote in “The Great Risk Shift,” “but so too is the gap between Joe Citizen in a good year and Joe Citizen in a bad year.”

That’s just one indicator of the deeper structural problems reshaping the middle class, he said. Employers and government institutions keep shifting responsibility to workers, forcing them to navigate more threats to their financial well-being. Pensions have been largely replaced by 401(k) plans. Comprehensive health coverage has given way to high-deductible plans. Paid family leave is uncommon.

So families make tradeoffs. Even when Mr. Koch had a salaried job with benefits as a chef, he and his wife couldn’t afford to save for retirement. Their biggest expenses were rent, food and debt payments, and they were just scraping by. At $80 a month, their health care premiums seemed reasonable, until they needed a doctor: Both had deductibles of $3,000.

Such a fragile existence is threatened even further when major investments meant to cement a middle-class life — getting a college degree, buying a home — backfire. Mr. and Ms. Koch both have more than $70,000 in loan debt for college educations they never completed, meaning a good chunk of their money is effectively gone every month before they have spent anything at all.

If their finances were stronger, Ms. Koch said, they would seek help handling life’s stresses and complexities. “Therapy is probably the first thing we would add into our lives,” she said.

‘We Are in Survival Mode’

Melanie Espinosa, 30, and her fiancé, Brett Townsend, 33, of Layton, Utah, have mastered a morning routine: She is up at 6:45 getting ready for work. He rouses and dresses their two toddler daughters about 15 minutes later and gets them a snack. They buckle the girls into their carseats by 8 and head to preschool. They’ll have breakfast there.

Ms. Espinosa, a purchasing specialist at a transit technology company, and Mr. Townsend, an internet sales manager at a car dealership, together earn about $90,000 a year. And yet their income never seems to go as far as they need it to.

Ms. Espinosa said they would like to save for a down payment on a home and for the girls’ college educations. But that isn’t possible right now.

“We are in survival mode,” she said. “We can mostly break even.”

Even with two paychecks, middle-class status has become more elusive. The soaring costs of those three big-ticket items — housing, health care and college — have made it more difficult for some people to achieve certain milestones.

The struggle is not unique to the United States. In April, the Organization for Economic Cooperation and Development reported that pressures on the middle class around the world have increased since the 1980s. What sets middle-class Americans apart, the study found, is that they are struggling under several burdens — low income growth, rising costs, declining job security — while those in many other countries face just one or two.

Spending patterns have also shifted drastically over the past century. American households spend significantly more of their budgets on housing and less on items like food than they did in previous decades.

Housing accounted for 23 percent of the average household’s total expenditures in 1901, 27 percent in 1950, and nearly 33 percent in 2018, according to data from the United States Consumer Expenditure Survey. Those squarely in the middle of the income distribution spent slightly more, or 34.5 percent. (The data doesn’t account for homes today being larger and having more amenities.)

“Young families with kids are really getting slammed on all sides,” said Jenny Schuetz, a fellow at the Brookings Institution who studies housing policy. “They are more likely to have some student debt, and child care has gotten more expensive. So if you are trying to pay off student debt, pay for child care and rent, it will be tough to save for a down payment.”

Child care is a substantial expense for Ms. Espinosa and Mr. Townsend — and it just swelled. They were paying about $800 a month, a relative bargain because they relied on someone who watched children in her home. But they had to find a replacement quickly when their caregiver stopped working recently. Two spots at a Montessori school were available, but they’re now paying $1,200 for that — nearly as much as their rent.

The girls are thriving, Ms. Espinosa said, but the extra cost will probably push the prospect of owning a home further into the future.

The couple’s only debt is from Ms. Espinosa’s student loans, now just under $16,000, and car payments on their six- and 11-year-old Hondas.

Ms. Espinosa said she had always thought being middle class meant living a humble life, without having to constantly worry about which bills were coming up.

“We have a good income for where we are,” she added. “But for some reason every single month it seems like, ‘Oh, something came up or we didn’t make enough.’ It’s just a constant battle.”

‘If It Had Not Been for Women’

Until a few weeks ago, Amanda Rodriguez and David Allen together earned about $154,000 annually, which would place them on the upper-income tier in many American cities. But in San Francisco, where they live, it’s considered middle class, according to Pew’s calculations.

The couple welcomed a baby girl in May, meaning their income will have to stretch even further: They will likely spend roughly two-thirds of their take-home pay on child care and rent on their two-bedroom apartment. For now, they’re managing on less money.

Ms. Rodriguez, who has been on maternity leave, had planned to return to her job — managing a program that trained medical providers to help victims of violence — in mid-September. But little more than two weeks before her scheduled return, she learned she no longer had a position to return to — federal funding had been slashed, eliminating the program.

So her leave from the work force has effectively been extended — she plans to look for another job in public health in the coming months.
The shape of the American family is in a steady state of flux, but two-earner households are the norm now. In perhaps one of the biggest shifts of the past 50 years, married mothers entered the work force in ever-greater numbers in a wave that peaked in the 1990s before leveling off and retreating slightly. Women, in general, followed a similar pattern.

But for many families, the addition of women’s earnings has simply helped maintain their position or kept household income from dropping, according to an analysis by Heather Boushey, the president and chief executive officer of the nonprofit Washington Center for Equitable Growth.

From 1979 to 2018, middle-income families’ incomes rose 23.1 percent, adjusted for inflation, according to the study. Professional families’ incomes, by contrast, rose 68.3 percent. Over the same 39 years, the average American woman experienced a 21 percent increase in annual working hours, according to Ms. Boushey’s analysis.

Most of the earnings gains among families in the period Ms. Boushey studied can be traced directly to working women. They accounted for three-quarters of the rise in income among middle-class families in that time. Among professional families, women’s earnings were the most important factor, but men’s incomes rose, too.

“Many families would have seen their income drop precipitously over the past few decades if it had not been for women going to work,” Ms. Boushey said.

Low-income households: those in the bottom third of the income distribution, or earning less than $26,080 annually in 2018 dollars; Professional families have income in the top 20 percent, or roughly $71,913 or higher, with at least one member holding a college degree or higher. Everyone else is middle class.·Source: Heather Boushey, president and chief executive of the Washington Center for Equitable Growth.

And though it’s more common now than it once was in households led by two adults for both to be working, it can introduce new costs and stresses. Ms. Rodriguez wasn’t comfortable with leaving her infant in a big day care, so she and Mr. Allen will most likely pay a little more to share a nanny with another family.

That means they will be forced to set aside significantly less for retirement, eliminate trips to the chiropractor and cut back on weekend jaunts out of town. Saving for a down payment on a home isn’t a priority because they don’t have any aspirations of ever owning in high-cost San Francisco.

“We will rearrange things,” Ms. Rodriguez said. “It’s a very expensive city, and we are actively making a choice to be here.”

‘We Have Been Incredibly Lucky’

Mike and Lindsey Schluckebier and their two children, 9 and 6, live comfortably on two salaries in Iowa City. The investments they made to secure a middle-class life — earning three graduate degrees between them, buying a home — have paid off.

“Middle class to me means being able to work and afford the things we need and some of the things you want,” said Mr. Schluckebier, a 38-year-old academic adviser at a university, who recruits students and helps them navigate the curriculum. “And I’d say we are on the upper end of that.”

Families like the Schluckebiers — on the cusp of what could be considered upper middle class or above — have experienced greater income gains than those squarely in the middle. That has allowed their collective net worth to grow far more, even if they feel pinched by rising costs.

“A good proxy for points at which we can be pretty sure people are in a strong financial position is if their income is congealing into wealth,” said Richard Reeves, director of the Future of the Middle Class Initiative at the Brookings Institution and the author of “Dream Hoarders: How the American Upper Middle Class Is Leaving Everyone Else in the Dust.” “It is not what is coming in, but what is staying in.”

There is no magic formula for creating that congealing effect, but achieving it often involves several factors, including a bit of luck and a bit of help. 

SHARE OF INCOME: Income after accounting for federal taxes; social insurance benefits like Social Security, Medicare, unemployment insurance; and mean-tested benefits like Medicaid and food stamps. SHARE OF WEALTH: Income groups are measured by usual income, which is designed to capture income without economic fluctuations. Does not count value of Social Security benefits or defined benefit plans; also excludes Forbes 400, so likely underestimates wealth held by top 1 percent.·Source: Brookings Institution (using data from the Congressional Budget Office and the Federal Reserve’s Survey of Consumer Finance)

A few factors helped shape the Schluckebiers’ circumstances. They made deliberate financial decisions that have worked out well: Both kept the cost of college down by working on campus as resident assistants. They also worked full time during graduate school — Mr. Schluckebier was a residence hall director, so they had free housing — and eventually saved $16,000 for a down payment on a house.

Once they were ready to buy, they didn’t reach for a more spacious house in the parts of town where two-car garages are the norm. They chose a modest, 1,500-square-foot ranch, then dedicated an extra $800 a month to paying off the principal on their mortgage while making healthy contributions to their retirement accounts. That may be easier to do in a relatively low-cost locale with healthy job opportunities like Iowa City than in a big city on one of the coasts.

Timing also helped. They were ready to buy a home in 2008, as prices were trending lower. They also have the good fortune of having what Mr. Schluckebier calls “spectacular” retirement and health benefits at work. His employer contributes 10 percent of his salary to his retirement account.

The couple’s student debt, now paid off, was manageable, in part because their parents contributed to their tuition payments.

But they worry about whether they will be able to contribute enough toward their own children’s college expenses, given what college might cost 10 years from now. More broadly, they are concerned about the state of the country, and how other Americans are faring.

“We have been incredibly lucky,” Mr. Schluckebier said, “which is why I don’t necessarily worry about us as much as I worry about the macro picture across the country.”

Is Post-Brexit London Really Doomed?

Despite the likelihood of a harder-than-expected Brexit, and the certain loss of the so-called passport, which would allow financial services to be sold freely across the EU, the feared large-scale exodus of firms and financiers from London does not seem to be under way. Why?

Howard Davies

davies65_Richard Baker  In Pictures via Getty Images Images_londonwingsculptureman

EDINBURGH – It is now well over three years since the United Kingdom voted, by a narrow but significant margin, to leave the European Union. Yet we still have no idea what kind of economic relationship the UK will have with the 27 countries it leaves behind. (Some of the debate in London recalls in its insularity the apocryphal 1930s headline: “Fog in Channel: Continent Cut Off.”) Insofar as one can hazard a guess, the most likely outcome seems to be a more remote relationship than “Leave” supporters talked about in the referendum campaign and than most commentators envisaged shortly after the vote.

But, despite that change of direction, and the certain loss of the so-called passport, which would allow financial services to be sold freely across the EU, the feared large-scale exodus of firms and financiers from London does not seem to be under way. The French bakeries and German sausage shops are still doing a roaring trade. Why?

Two very recent pieces of evidence give a sense of what is happening on the ground, while politicians continue to argue. The accounting firm EY has monitored firms’ declared intentions in response to Brexit over the last three years. The latest survey, published in mid-September, indicates that 40% of firms plan to move some of their operations and staff out of London, while 60% of larger firms have announced such moves.

But the number of jobs that are to be moved from London to another European city is now only 7,000, far lower than estimates made a couple of years ago. Interestingly, the two locations that, according to EY, have benefited most so far are Dublin and Luxembourg. That is good news for London, because both are niche centers and unlikely to emerge as powerful rivals across the full spectrum of financial activities. Had Paris and Frankfurt been the principal beneficiaries, the long-term consequences could be far more threatening. Their marketing campaigns are so far yielding only modest returns.

There is, however, some more worrying news for London in the survey. Firms confirm that they are likely to move assets out of the UK on a large scale. The latest estimate is that around £1 trillion ($1.2 trillion) of assets under management may move to other centers when the UK leaves the EU. Many employees who are responsible for these assets will remain in London for now, but that could change over time.

And a second data point suggests that London’s reputation is beginning to suffer. A consultancy called Z/Yen has published a Global Financial Centres Index every six months for more than a decade. The latest ranking, in mid-September, showed that while London remains second only to New York globally, its relative position has been slipping. New York’s lead has more than doubled in the last six months. London’s relative decline has been sharper than any other of the top centers, and Paris has moved up.

Indeed, the gap between London and Paris has fallen to 45 points from 88 points in March (the top mark is just below 800). The European Banking Authority’s move to Paris, and Bank of America’s decision to relocate its euro trading there, are probably the main factors behind that change of perception.

Moving from survey to anecdote, managers say they have found it harder than expected to persuade senior staff to move. Even Italians and French who have been asked to relocate back to Milan or Paris are often reluctant to agree. Their children are settled in school, their spouse or partner has a non-mobile job in London, or they can’t bear to find themselves so close again to Mom and Dad!

More significantly, perhaps, a global market is a complex ecosystem. The traders may move, but will the IT infrastructure and support be as sophisticated elsewhere as it is in London? Will skilled consultants and lawyers be available on demand, as they are in the Square Mile?

These factors are making firms hesitant about large-scale moves. Instead, many have been looking for workarounds to overcome the regulatory problems they will certainly encounter once the UK leaves the single market.

Moreover, the politics of Brexit remain fraught and complex, and there is a small chance that the UK will hold another referendum and reverse course, which would render nugatory the £4.2 billion that the government vowed to spend on contingency plans. But the most likely outcome is that the UK stumbles toward the exit and falls untidily over the threshold, without a structural new relationship or a lengthy transition period.

Thereafter, we will see how Europe’s financial markets evolve. But the central expectation, given what we have seen so far, must be that Europe will migrate to a multi-polar financial model, with different centers, small and large, exploiting their respective comparative advantages.

Dublin and Luxembourg will strengthen their positions, especially in asset management. The European Central Bank will act as a pole of attraction for Frankfurt. Euro-denominated transactions will increasingly take place in the eurozone, while London looks likely to remain, for the foreseeable future, Europe’s window on the wider world.

There will be a price to pay for users of financial services, as a dominant single center is almost certainly more efficient and cheaper. But, after Brexit, that solution will no longer be available in London, and there is certainly no consensus among the other 27 countries on a single alternative.

Howard Davies, the first chairman of the United Kingdom’s Financial Services Authority (1997-2003), is Chairman of the Royal Bank of Scotland. He was Director of the London School of Economics (2003-11) and served as Deputy Governor of the Bank of England and Director-General of the Confederation of British Industry.

ETFs: Are retail investors missing out on the message?

Poor financial literacy, reluctance to discuss money and poor access blamed for low take-up

Rebecca Hampson

M41HM7 Speaker at a business training conference taking a question
© Alamy

Most people find investment a daunting subject, and market watchers blame poor financial literacy for so few retail ­investors using exchange traded funds.

The ETF business may be growing quickly — global assets were $5.65tn at the end of August, according to ETFGI — but the retail sector accounts for just 15 per cent of European investment, says Deborah Fuhr, co-founder of the consultancy.

The group says there are 2,351 ETFs in Europe with 8,662 cross-listings. With that many products, why are retail investors so reluctant to enter the market? One reason is education.

This is much vaunted by the industry but may not always be targeted properly.

“We could do a lot more as an industry. It’s a topic that crops up most of the time across all investor channels”, says Marcus Miholich, head of capital markets for Asia-Pacific, Europe, Middle East and Africa at SPDR Exchange Traded Funds. “We get asked a lot about liquidity in stressed markets and when it makes sense to use an ETF. These are all areas where we are able to directly educate clients but it’s not always this linear with other investor channels.”

The simplicity, low cost and liquidity of ETFs make them a natural choice for institutional investors, which often use them instead of futures.

James McManus, head of research at Nutmeg, says: “We are seeing the likes of insurance companies, hedge funds and charities turning to ETFs. Choosing ETFs over futures indicates that there are naturally more drivers for institutional investors to use ETFs.”

It is ironic that while a lot of information and education is made available to institutional investors, retail investors miss out on the message.

Part of the reason is that ETFs can be hard to invest in — which the industry agrees is one of its biggest challenges.

A typical retail investor will decide how to invest by going to a platform or independent financial adviser. Many platforms offer only a few ETFs while advisers often do not make them available as part of a portfolio.

Mr Miholich says: “Platforms continue to be fairly slow in introducing ETFs to investors and we have conversations about frustration at the lack of ETFs available on certain platforms.

“The reason for this slow uptake is apparently a result of technology constraints but ETFs are still a simple wrapper with an easy-to-use structure. Because they aren’t available on the platforms that the IFAs use, there is a block to a large section of the retail market, particularly in this country [the UK]. Until this changes it is going to be quite limiting to retail growth.”

ETFs are also still competing with actively managed funds. Mr McManus explains: “There is still bigger cash flow into actively managed strategies, which are easier to market because the money is there. This is the case with many of the retail platforms in the UK.”

The situation is reflected in the lists of top funds found on many platforms, many of which feature no ETFs. In Hargreaves Lansdown’s Wealth 50, a shortlist of its experts’ favourite funds, there are 10 trackers and no ETFs among the 58 funds.

Emma Wall, head of investment analysis at Hargreaves Lansdown, says it has an open architecture and so offers UK investors almost all the ETFs on the market.

Frustratingly, however, the issues run deeper than education and access. ETFs gained a bad reputation after they were likened to “collateralised debt obligations and other three-letter abbreviations that caused the financial crisis”, says Peter Sleep, senior portfolio manager at Seven Investment Management.

“Their difficulty now is sometimes made more complex than it needs to be. I personally do not think doing due ­diligence on ETFs or doing education on ETFs is very difficult. Consultants like to play up the difficulty but I don’t buy it.”

Ms Fuhr adds: “People in general are creatures of habit and do not change. Social norms frown upon the discussion of wealth and finances, it is a scary topic for many as they do not know who to turn to for advice — so financial literacy is low. It all just needs to start at a young age.”