Climate change and the risks of denying inconvenient truths

That it was not thought worth raising in the US presidential debates is astounding

by: Martin Wolf

Nature does not care what we think about it. Indeed, nature does not care about us at all. But we should care about nature. Above all, we should care about nature if our actions are affecting it adversely. Probably the most important way in which we are affecting nature is via the climate. Yet our response is foolish denial and fond hope. Nature will not be impressed.

What nature is doing at present is heating the planet. Of this no serious doubt remains. The global warming “pause” of 1998-2013 is definitively over. Even before recent temperature rises to the highest on record, the notion of a pause was absurd. In 1998 there was a strong El Niño — a feature of which is high global temperatures. What was remarkable is that the years after 1998 remained so hot.

Both last year and this one, with another strong El Niño, temperatures have hit records. A straight line between the peaks of January 1958 and February 2016 lies above the temperature in all intervening months. The same is true for a line drawn between March 1990 and February 2016. Twelve-month and 60-month moving averages give a similar picture. No slowdown in underlying rates of temperature rises is happening. After this El Niño another purported pause might occur — but probably at a higher average level than during the previous one. (See charts.)

Just as the world is hitting peak temperatures (relative to the 1951-80 average and pre-industrial levels), so is it hitting peak concentrations of carbon dioxide in the atmosphere. This year, the global average will almost certainly pass 400 parts per million, which is more than 40 per cent above pre-industrial levels. Given the well-known physics of the greenhouse effect, the causal relationship between the rising concentrations of greenhouse gases and consistently rising temperatures is at the very least overwhelmingly plausible.
Finally, we also know that the rise in concentrations of carbon dioxide are sure to continue, and for a long time. This is because emissions have themselves continue to rise, despite the talk about bringing them under control. So not only are the stocks of carbon dioxide continuing to rise but even the emission flows from human activities.

It is a remarkable fact that, given these simple truths, the question of climate change was barely addressed in the US presidential debates. This is not because it cannot matter. It is not because the candidates do not disagree. It is because few wish to think about the implications of these realities.

The two dominant responses to the evident reality of climate risks are denial. But they are very different forms of denial. I think of them as “denial major” and “denial minor”.

“Denial major” comes from the right. It starts from two facts and one supposition. Fact one is that many of the people who take climate change seriously are very suspicious of — if not downright hostile to — the market economy. Fact two is that climate change implies a costly global spillover from market-driven economic activity. The supposition is that doing anything to mitigate climate change must entail massive interference in the market economy and impose large economic costs.

The natural conclusion is that the idea of man-made climate change has to be fraudulent because the possibility of its truth is too painful to contemplate. It would be possible for those who want no action to agree, instead, that climate change is true but not worth any action. The drawback of this is that it would force a discussion about why doing nothing makes sense.

“Denial minor” comes from those who recognise the evident dangers but argue that tackling climate change effectively is a relatively low-cost and simple challenge. This, too, is implausible.

Even if, as some argue, the technologies needed to sustain economic growth while progressively eliminating carbon emissions are either here or arriving at ever-falling cost, the political, social and economic challenge of delivering a decisive break in these trends is daunting. It is too easy to get away with applauding what are in fact little more than gestures in the direction of tackling climate risks as if they are the real thing.
The much-praised Paris agreement of December 2015 is not only toothless but would fall far short even of keeping temperature rises below 2C, let alone below the 1.5C thought more desirable. This has to be a global effort of appropriate scale and urgency. Otherwise nothing relevant would change.

“Denial major” guarantees failure. It is what a President Donald Trump would take with him into the White House. Under him, the US would presumably abandon the modest steps taken under President Barack Obama. But the US is not just the world’s second-largest emitter; it is one of the biggest emitters per head. Without the US, the effort to reduce climate risks would be dead. That this was not thought worth even raising in the debates is astounding.

A President Hillary Clinton would not be guilty of “denial major” but is likely to indulge in “denial minor”, substituting modest gestures for policies able to bring credible change.

Indeed, without at least a start on carbon pricing and a determination to develop technologies far faster, the necessary shift in trends could not happen in time. The world would then have to adapt to the consequences of climate shifts it did not have the capacity to mitigate.

It is impossible to have just a US climate policy or a Chinese climate policy. It has to be a global policy. Much has changed in attitudes since the UK government published the Stern review a decade ago. But little has yet altered on the ground. Only if we collectively recognise and act upon the realities right now is anything much likely to change. On this, I remain pessimistic.

Donald Trump shakes postwar liberal order

President-elect challenges bipartisan principles that underpin US approach to the world

by: Gideon Rachman

As far as America’s allies are concerned, the election of Donald Trump is a case of Apocalypse Now.

Whatever they say publicly, for the governments of countries such as Canada, Japan, Germany, Britain and the Baltic states of Estonia, Lithuania and Latvia, it is simply horrifying to have a man such as Mr Trump as “leader of the free world”.

The fear of Mr Trump is linked both to his personality and to his policies. For people around the world who have looked to the US as the leading democracy, it is astonishing that the country has elected a president who has displayed such little respect for basic democratic norms, such as the legitimacy of political opposition, the rights of minorities and the independence of the judiciary.

Some even fear that the US has just elected a quasi-fascist as its next leader. The thought that Mr Trump will soon be in charge of the world’s largest nuclear arsenal is also alarming to many American allies.

Mr Trump’s proposed policies threaten to take an axe to the liberal world order that the US has supported and sustained since 1945. In particular, he has challenged two of the main bipartisan principles that underpin America’s approach to the world. The first is support for an open, international trading system. The second is the commitment to the US-led alliances that underpin global security.
Mr Trump is the first avowed protectionist to be elected US president since before the second world war. He has promised to renegotiate America’s “terrible” trade deals, such as the North American Free Trade Agreement and threatened to pull the US out of the World Trade Organisation. He has also threatened tariffs as high as 45 per cent on Chinese goods. If Mr Trump were to follow through on these threats, he would spark a global trade war and could well plunge the world into a recession similar to the depression of the 1930s, which was greatly deepened by America’s adoption of protectionist policies.

Mr Trump’s effect on the global security system could be just as dramatic. The president-elect has questioned whether the US will honour its security commitments to Nato allies and to Japan and South Korea — unless these countries pay more for their own defence. American annoyance at “freeriding” by its allies is a bipartisan concern. What is new is Mr Trump’s overt questioning of the idea that the US will defend its allies from a military attack come what may. This equivocation — combined with Mr Trump’s open admiration for Vladimir Putin, the Russian president — will raise fears that the US will not oppose renewed Russian aggression in Ukraine or eastern Europe. Asian allies — in particular, Japan and South Korea — fear that Mr Trump’s “America First” policies could extend to accepting a Chinese sphere of influence in East Asia.

And yet, for all their undoubted horror at Mr Trump’s election, America’s European and Asian allies cannot simply turn their back on the US. That is even less of an option for the country’s neighbours, Mexico and Canada. US leadership is so deeply embedded in western institutions that alternative structures do not yet exist. The US is central to Nato and accounts for almost 75 per cent of its military spending. Crucial international institutions such as the UN, the World Bank and the International Monetary Fund are based in the US. The dollar is the world’s largest reserve currency and the US is the largest economy, measured at real exchange rates. For that reason, allies will grit their teeth and attempt to humour Mr Trump.

As one senior British diplomat puts it: “We will get on with the president of the United States — we have to.”

But while supporters of a liberal world order are quaking, opponents will be cheering. Nationalists and the far right in Europe will be delighted that an opponent of “globalism” will now occupy the White House. Marine Le Pen of the National Front will now fancy her chances of winning the French presidency in May, an event that could lead to the destruction of an EU already reeling from the Brexit vote.

The one government likely to be unequivocally delighted by Mr Trump’s victory is Mr Putin’s. The two men have already formed a mutual admiration society. According to the US intelligence services, Russian support for Mr Trump and the Republicans even extended to hacking the emails of the Democratic party and of John Podesta, Hillary Clinton’s campaign manager, and releasing these emails, via WikiLeaks, at strategic moments during the campaign. If this Russian intervention made the difference in a tight election, Mr Putin can toast the world’s most successful ever intelligence operation.


By: Captain Hook

It's all perception management. You are being managed by 'powers that be'. You are being managed in every aspect of your life, with the goal of complete mind and behavioral control. It's Orwell's Nineteen Eighty Four.

The mainstream media (MSM) is the primary tool. The players act as one, set against the public at the behest of their oligarch / corporate masters, as is government. Their goal is to control the narrative in order to influence your perception and behavior in the promotion of central control and consumerism via propaganda. This has been the case increasingly since television overtook the 'American mind', coincident with the 'great quickening' in Western societal debasement, a situation that has now devolved into large percentages of the population living their lives in response to dogmatic cues they need from Facebook, where attention deficit has become a survival tool.

Nowhere has perception management of the American mind been made more obvious than in the present US Presidential election. A glaring example of this was made plain last week's debate, where when Trump was asked if he would accept a Democratic victory, after having just pointed out the election is 'rigged', provided a guarded answer. (i.e. which the next day MSM attempted to make Donald out to be 'the fascist' at the table.) This is of course a 'badge of honor' MSM and their masters' wear. But that's a standard ploy these 'clever bastards' use time and again - project the opposition as the 'bad guy' - what they are. And MSM propaganda is becoming more intensified as election time approaches. They must control the narrative, with special attention on Hillary being ahead in their rigged polls, or the ruse of plausibility when the deep state attempts to steal the election will not be believable.

And it goes much further than this naturally. Although the wall of propaganda is an impressive display of MSM muscle (in the perception management game), some would view this as a sign of growing desperation given the light of truth being shone on these people at the moment, exposing the corruption and hypocrisy up and down the line. So expect desperation (lunacy) to control the narrative right into Election Day on November 8th, when we will find out whether America turns into a full blown fascist state with Hillary at the helm, or just a quasi-version under Trump. Clearly a consensus of 'cake eating' and 'dumbed down' Americans want somebody to 'take care of them'. The only question now is what version of authoritarianism they will get. Do they want a self-indulgent monster that will destroy what remains of America - or a benevolent dictator - The Donald?

If you want to know what life will be like after a few years (months?) under Hillary's rein, just look at Venezuela today, or Hiroshima in 1945. This is what you will have - obliteration or some version of a dystopian nightmare.

So unfortunately we must get past the Dems stealing the election, something they have been doing successfully for 50 years apparently, but perhaps not with quite as much vigor as this time around.

Because again, it's all about 'plausibility' when you are planning to steal an election. That's right - not only do you need rigged polls to show you're 'way ahead', when not the case in reality; but more, you actually need votes come crunch time if the illusion is to be believed (the real gap must be closed as much as possible), which is where guys like Bob Creamer come in.

The idea here is to project Hillary as being ahead in the polls; then get the vote up where the machines can't be rigged by having the same people (including illegals) vote 10 times; then rig the machines when possible - and whatever else I'm forgetting (dead people voting, etc.) - all with the objective of getting her close enough on the surface to make it look 'plausible' when she's anointed President.

And from last week, we have this analysis as to why the deep state must control the narrative, as follows:

"And if that doesn't work to scare the plebs into voting for Hillary, the status quo will just have to blame Putin if the election doesn't turn out right, which is why they demonize him, every chance they get. No doubt they will continue this ploy. The question is 'would they get away with it?' Because calling the election a fraud on this basis and instituting martial law would not go over well - big time.

This is big idea behind keeping non-internal polls close, so when the deep state attempts to steel the election from Trump via fraud (they will play the Electoral College card again), it will look plausible esthetically / logistically in the mainstream. Because if the true popular vote was allowed to be reflected in the poles today - Trump would have his landslide (not just a marginal lead) - where he will get the 'swing vote' at the end. A surprisingly large percentage of voters are incredibly insecure social creatures that need to be on the 'winning team' no matter who they are - believe it or not."

At least that's the plan anyway. The only problem is the status quo has impaired the economy to the point the plebs are now broken, no longer the consumers they once were, all part of the Clowerd and Piven Strategy to rule the world. Make no mistake; the deep state thinks you are too gullible and stupid to believe such things are for real. It's all conspiracy theory according to them. And for those who are awake enough to know better, they say right to your face. "What are you going to do about it? We run the government and police. What are you going to do about loser?" That's what you get for trusting 'these people in positions of power' today. (i.e. go through Wikileaks - it's all there.) You get screwed over, right in your face, and then you are told 'you're deplorable' because you are stupid and getting screwed over for trusting these same people. You're 'deplorable' because you're poor, and stupid, and naïve. This is what the elites (oligarchs, MSM) think of you.

Just look at what the Clinton foundation has done to Haiti. Talk about kicking someone when you are down. Who's deplorable? Hillary. However this is where plausible deniability comes in - because the Dems wouldn't let a monster like that head the party - right? 'Plausibility' and 'plausible deniability' are the cornerstones on which these monsters base their sordid strategies.

So make no mistake, they will continue to kick America, and the world, when you are down as well. This is why the Russian's are steaming their navy to Syria - because of threats 'nut job' Dems in charge are making in order to stir up people's fears ahead of the election. (i.e. to make people vote for the safety of the status quo - the nut jobs.)

Unfortunately this is not just Wag The Dog however, not with the neocon nut jobs licking their chops at the prospects of a proxy war in Syria. Remember, these assholes think everybody is stupid, including the Russian's, and that they will back down when pressed. Thing is, the Russian's know this, and will likely turn the tables on these ridiculous people before it's all over. How will it turn out in the end assuming a mistake is not made and World War III is actually triggered? Nobody knows of course, but how about Russia leaving its navy in Mediterranean as it takes over the skies in the Middle East. That's a lose / lose scenario for everybody (except the Russians) including the neocons, because their war engineering days would be drastically impinged. But their greed for an immediate buck blinds them to this possibility. These warmongering assholes are so predictable. Because of this, and the fact they have been exposed to the public, they are set to fail this time around.

On to the rigged markets now, and management of perception economics (MOPE), and how this is set to blow up on the 'powers that be' in the not too distant future as well.

In terms of the stock market, as measured by the S&P 500 (SPX), now that we are part options expiry last Friday, we once again have that brief window this week where anything can happen before status quo price managers come back in as month end approaches (window dressing), and the effect of the present options cycle starts working on prices as the next expiry approaches. In looking at the monthly plot of the 'risk adjusted' SPX below, it would be the least surprising to see status quo rats start jumping ship ahead of time all things considered, with the most important being interest rates are set to rise next year no matter who wins the election. Why is this the case? Because of what I just said. Because next year is the year after the election, the year monetary authorities do their 'dirty work'. And in this case, their 'dirty work' will be centered on getting a hollowed out consumer base 'stimulated' again, with the only problem being they will need to unleash helicopter money (and rising interest rates in response) in order to accomplish this. (See Figure 1)

Figure 1
SPX:VIX Monthly Chart

It's their own fault they are in this situation of course, with the increasing financial engineering / financial repression over the past 40 years, which is another way of saying management of perception economics (MOPE) was used on the public, but has now run into the brick wall of reality. So, don't be surprised if you see the more tuned in status quo'ers start to bail out of both the stock and bond markets this week (especially after seeing this), especially if Trump continues to claw his way back up in MSM polls. Thing is, even they will have to cut the bullshit as the election comes closer in order to attempt maintaining some degree of credibility.

What will happen to them afterward if The Donald gets in - he's hates them now. Let's all hope they are put in their place so that this cannot happen again. Time will tell. In the meantime, you want to watch tech stocks this week for clues the party is over. Although no clues are apparent yet, as can be seen below in their continued relative strength against more conservative blue chips (the Dow), this can change quickly. (See Figure 2)

Figure 2
COMPQ:INDU Monthly Chart

The chart you want to watch closely in this regard is directly below - the risk adjusted monthly NADSAQ plot, which not coincidentally, looks very similar to Figure 1 - set to possibly fail here.

Given such a flag failure would not necessarily be terminal for prospects of higher prices ultimately, because the Feb is talking about printing more money (Yellen's high pressure economy), only the foolish would be betting bullish after such a break without concrete knowledge the Fed is ready to step in again with more QE right away. Of course all this looks very strange and conflict with their present bullshit story that the future's so bright - they must raise administered rates. But that's what the Fed is reduced to these days - talking out of both sides of its collective mouth. (i.e. double speak.)

What this means for stocks in general is while the Fed will undoubtedly be quick to bailout its bubbles moving forward, with future successes far more questionable than past efforts, the thing that needs to happen before more QE can be expected, is the market must first breakdown in order to justify such a response. (See Figure 3)

Figure 3
COMPQ:VXN Monthly Chart

Thing is, this time around, stocks will be pressured lower due to rising inflations expectations and stagflation concerns, much like what happened in the 1970's once the US (and world) went off the gold standard completely. (i.e. the ball got rolling in this regard with FDR in 1933.) And this will be a constant problem for them on an ongoing basis, likely leaving the broads range bound for an extended time best-case scenario. This is not necessarily true of commodity stocks of course, especially precious metals as they trade as currencies as well. However unless investors (including central banks) better embrace precious metals on a global basis to the extent Western pricing influence is finally broken, one must remain realistic. Will a crashing USDollar ($) make a difference? Most assuredly; however, more for the metals themselves than the shares if general stock market liquidity is contracting. And that's the next shoe to drop with margin debt levels at record highs - make no mistake about that. The prospect of rising prices due to increasing money printing will bring higher commodity prices, and along with that higher interest rates as US central planners attempt to stabilize the $.

The above was penned two weeks ago, however you would never know it looking at what is happening right now.

What a lovely mess we have gotten ourselves into - no?

See you next time.

The Origins of American Incivility and Fear

U.S. history has left Americans unsettled even in prosperous times.

By George Friedman

One of the more striking things about the United States is the sense that it is in decline. Donald Trump’s main theme is that he would make America great again and that it has been in severe decline over the last decades. It was an effective campaign theme because it touched on a deep American dread. In Europe you will find a different sensibility, which is that while Europe has problems, they are nothing compared to the problems in the past – the Soviet threat, Nazi Germany, the mass slaughter of World War I. Europeans look at their past and are grateful to be living when they are. Many Americans feel a sense of a lost greatness and a looming catastrophe.

This sensibility is not new. During the 1970s, there was a deep and oft stated sense that America was in decline. At the end of the Vietnam War the enemy’s flag flew over a capital we had been defending. During the same time, there was a massive social and cultural divide. The culture of the lower-middle class and that of the graduates of the best universities were in sharp contrast. On the whole, it was the lower middle class that fought the war and supported it. The universities were the center of antiwar sentiment and contempt for those who supported the war. The contempt was mutual. The economic situation was catastrophic for many. Unemployment and inflation were both around 10 percent for a good deal of the decade. Interest rates were in the high teens, and buying a house was out of reach for many. At the end of the decade came the Iranian Revolution, with Iranians taking American diplomats hostage and the United States helpless to protect them. The disaster at Desert One followed – a task force sent to rescue the hostages collapsed, with planes destroyed and men dying before the rescue attempt began.

The sense of decline was rampant. It could be seen in crime and decay in the cities, the surge in Japanese exports to the United States, and the sense that the Baby Boomer generation, unable to settle into family or career, was destroying the fabric of society. The feeling was that the Japanese were surging ahead of the United States economically, the Soviets were surging ahead militarily and we were held in contempt by the world.

That was some 40 years ago and clearly the sensibility was wrong. What followed was the Japanese economic crisis, the collapse of the Soviet Union, recovery of the hostages from Iran and the United States emerging as the only global power. Interest rates plunged, as did inflation, and we came into a period of intense innovation and economic growth.

Having passed through the 1970s, as we did, it would seem reasonable that it would serve as a benchmark. A lost war, an extended economic crisis and social stress had not led to catastrophe. Yet, there are few lessons taken from the 1970s to provide some perspective. Similar circumstances are expected to yield the same dreaded disaster.

The sense of dread is more than a response to a particular time. It is also not that Americans lack the ability to use history to frame our concerns – although that may be the case. It has deeper roots, particularly in the 20th century. Two events, about 12 years apart, have left a permanent scar on the American psyche. One was the collapse of the stock markets in October 1929 and the following depression. The other was the attack on Pearl Harbor on Dec. 7, 1941 and the following war.

U.S.S. Arizona survivor Louis Conter salutes the remembrance wall of the U.S.S. Arizona during a memorial service for the 73rd anniversary of the attack on the U.S. naval base at Pearl Harbor on Dec. 07, 2014. Photo by Kent Nishimura/Getty Images

There was a common link between the two. Neither was expected by the public. Both were a shock that transformed everyday life for the worse. An argument can be made that both should have been expected. But they weren’t. These two events engraved a single principle on the American soul: that lurking beneath the surface of peace and prosperity are forces that break through and destroy both. In the more extreme formulation, both 1929 and 1941 were known to the elite, who not only protected themselves from the consequences, but also profited from them.

The 1920s were a time of prosperity in the United States (outside of the regions that experienced the Dust Bowl). As with all times of prosperity, the seeds of its own destruction were there from the beginning; people began to believe that it was the new, permanent normal. 1929 stunned people because it was unexpected, but it was the brutal grinding of the Great Depression that scarred the American soul. It created a national memory of hardship emerging without warning. At least some of us approach the best of times with a bitter certainty that hidden behind the false screen of prosperity, disaster is lurking, whether rooted in impersonal economic forces or the hidden hand of the powerful.

Pearl Harbor drove home to Americans that an enemy might strike the United States at any time, without being detected, and decimate the country. Most Americans suspected that the United States would enter World War II at some point, but they believed that it would be at the time and place of our choosing. The idea that the Japanese, whom many Americans held in contempt, could strike without warning and destroy the Pacific Fleet changed the world. The change was not simply that the U.S. was at war, it was deeper. It was the sense that war would come without warning and perhaps destroy us.

These two events changed the American sense of the world. It is overstated to say that before these events, the United States was innocent and carefree. The 600,000 dead in the Civil War would prove otherwise. But the Civil War did not strike out of nowhere, nor did the previous economic crises last for a decade. Combining the surprise at the events with how long and deeply they cut into the United States, a new sensibility was born. It was a sensibility of deep suspicion, not so much of people (although a fear of conspiracy was implanted), but simply of the fragility of American life and power.

The fear of the hidden disaster lurking to destroy us is not necessarily delusional. I happen to think that the 1970s provide a framework to think about our current decade and discount the worst fears we have. But there are reasonable fears and fears that will turn out to be reasonable regardless of my view. These fears serve as an engine for intensifying emotions and going to extremes.

Take two examples from opposite sides of the political spectrum. The concern that massive immigration from Mexico will transform American society and cause crime and disorder is not an unreasonable fear. Most immigrant movements to the United States resulted in some criminal activities and social instability. That is in the nature of immigration. However, when you attach the underlying engine of dread to an argument that may be wrong in this case, but isn’t absurd, you reshape the argument to a level of fear that means anyone who disagrees is a fool or a monster.

There is the concern that human activity is changing the climate and that that change poses a threat to humanity. The argument is not irrational, as we have seen increased temperatures that might well cause serious harm. When the argument on global warming is linked to the culture of dread, then the argument becomes a certainty and the only outcome is catastrophe. And those who take issue with it are fools or monsters. If things are as bad as those who want to stop Mexican immigration or those alarmed by climate change claim, then anyone who rejects the argument is like someone who refuses to see that the house is on fire.

Pearl Harbor defined the Cold War. If an attack can come at any time, then the United States must be ready for war 24/7. We drilled out a mountain in Colorado Springs to house the North American Air Defense Command. We had B-52s constantly airborne, submarines on constant patrol and crews in missile silos standing by ready to fire. I am not sure there was another course, but I do know that having raised the possibility of another course would have encountered rage.

When people write to me talking about the trillions of dollars of debt that will crush the American economy, they do so out of fear of the lurking force that will destroy everything. If you say, “It’s a problem, but we can probably manage it,” you might be called a fool or perhaps part of a conspiracy to destroy the economy.

Mexican immigration, climate change, mutual assured destruction and the national debt are all topics worth serious discussion among serious people, each holding open the possibility that the other is right. But when it is declared that the debate is over, that means that there can be no debate and no changing of minds. If it is a matter of the apocalypse, that is a reasonable thing to say. But if everything is apocalyptic, then no conversation on anything is possible.

In retrospect, we were all fools not to expect the Great Depression or Pearl Harbor. If we missed those, then what else are we missing? Someone will be happy to show you what else you are missing and with utter sincerity, he will try to convince you that you are not two reasonable people disagreeing, but that he is trying to save the country, and you are trying to destroy it.

We wonder at the growing incivility of American culture. Going back to the 1960s and 1970s, I remember the chant “hey, hey, LBJ, how many kids did you kill today?” Even in this election, I have heard nothing that uncivil. Nor have I heard that someone has a list of 100 communists in the State Department. Nor have I seen the dead of Antietam. So no, I don’t believe this is the most uncivil time in America. Not even close. But given the deep anxiety bequeathed us by 1929 and Pearl Harbor, we can see the fear of unexpected disaster can fuel spectacular incivility.

A belief has emerged in America that we are surrounded by hidden dangers that will strike when we least expect it and with a terrible fury. We are enraged when others don’t see it, for the same reason someone being ignored when he says there is a fire will be justly enraged. But everything is not on fire. Our time is no worse than the 1970s and that time was not nearly as bad as the 1930s. But then we think of the Depression and Pearl Harbor and we wonder if we are being lulled into a false sense of security. We are not uncivil. We are afraid. Our fears have serious origins. But reality does not always lead to the apocalypse.

miércoles, noviembre 09, 2016



Three Threats to China’s Economy

Zhang Jun
Newsart for Three Threats to China’s Economy

SHANGHAI – After a decades-long “growth miracle,” China’s economy has lately become a source of mounting concern. Some factors – from high corporate debt to overcapacity in the state sector – have received a lot of attention. But three less-discussed trends point to still other threats to the country’s economic growth.
First, despite the decline in GDP growth, total social financing – and especially bank credit – has increased. This relates directly to China’s debt problem: the continual rolling over of large liabilities creates a constant demand for liquidity, even if actual investment does not increase. Such “credit expansion” – which is really just rolled-over debt – is not sustainable.
Clearly, the debt issue must be addressed. And the Chinese government has been working to do so, implementing policies aimed at supporting debt restructuring. For example, the central government has helped local authorities to replace CN¥3.2 trillion ($471.9 billion) of risky debt in 2015, and an expected ¥5 trillion this year. Its corporate debt-for-equity swap plan could augment the impact of these efforts.
But these strategies cannot fully address China’s debt problem, not least because the largest share of debt in China is held by state-owned enterprises. One important solution that has not yet been proposed would involve a far-reaching restructuring of large SOEs. The sale or transfer of state-owned assets would cover liabilities, breaking the state sector out of its debt-ridden status quo. This approach would also create an opportunity to advance privatization, which could bolster innovation and competitiveness.
The second risky trend is the rapid decline in fixed-asset investment, from 20-25% to around 8% today. The decline has been particularly marked in the private sector. In 2002-2012, growth in private-sector investment averaged around 20%; by the end of last year, it amounted to just 10%, and from January to August of this year, it reached just 2.1%, including a stunning 1.2% contraction in July. Investment in real estate has also slowed, having increased by just over 1% last year, owing to a number of policy constraints.
Given that private investment accounts for at least 60% of total investment in manufacturing, this will undoubtedly have macroeconomic consequences. And, though double-digit growth in state-sector investment will temper the overall effect, this trend also reflects problems with state-sector dominance. Private companies struggle to gain credit from state-owned commercial banks and are at a disadvantage in the direct financing market. Moreover, private firms are blocked from entering SOE-dominated, capital-intensive, and high-end service industries. In most of the modern service sectors, the share of non-state actors remains small, limiting private investment.
The third trend that should be worrying China is that unemployment remains relatively steady.
Because the unemployment rate is not excessively high, this might seem like a good thing. But it reflects some negative trends – starting with long-term weakness in productivity growth.
China’s productivity growth rate, which averaged 8% over the last 20 years, may have dropped now to less than 6%. And the country is not exactly positioned for a surge in productivity.
According to the National Bureau of Statistics of China, the services sector has far outpaced manufacturing in employment growth since 2010, a reversal of the earlier trend.
Given the need for China to move away from manufacturing, this is not altogether bad news.

But most of the service-sector jobs being created are in low-end, low-productivity activities.

Worse, these are often informal jobs characterized by high turnover, which impedes long-run human-capital accumulation.
Stable employment levels in China also reflect – yet again – shortcomings in the state sector.
Few workers have been released from SOEs, despite the overall growth slowdown. In other words, there is considerable hidden unemployment in China’s state sector, which is already plagued by other kinds of overcapacity.
China has no easy option for addressing this problem. If the government continues to prop up SOEs, especially “zombie” firms, the concentration of a large number of workers in low-productivity, stagnant SOEs will continue to undermine productivity growth. But if China pursues state-sector restructuring, unemployment will rise. And, once unemployed, state-sector workers tend to take much longer to find a new job than their private-sector counterparts do.
Yet state-sector restructuring seems unavoidable. Indeed, it would help to address a number of the most fundamental challenges facing China, from debt and overcapacity to lack of competitiveness.
To be sure, some claim that SOEs should be allowed to continue their operations, citing their huge profits. But those profits are the result of their monopoly status and massive state investment, which brings lower returns than private-sector investment. That is why progress on SOE reform is so urgent, regardless of the short- and even medium-term challenges that it might create.
Two decades ago, then-Premier Zhu Rongji began to pursue such reform, with the goal of bolstering the efficiency of SOEs and creating space for private-sector investment. But the reforms were incomplete, and some have even been rolled back, with SOEs regaining market share in some cases.
In 2013, the Third Plenum of the 18th Central Committee of the Communist Party of China took up the mantle, with a plan to reform SOEs through mixed ownership. But here, too, progress has been inadequate. And, in fact, without a strategic reorganization of SOEs, mixed ownership will become a feature of only non-essential sectors.
If China is to succeed in its economic restructuring, industrial upgrading, and expansion of high-productivity services, the role of SOEs needs to be once again limited to a few relevant sectors. Only then can China recapture its dynamism and keep its economic growth on track.

A Political Catastrophe

Trump's Victory Ushers in Dangerous Instability

A Commentary by Roland Nelles

US President-elect Donald Trump in Manhattan after his election win

With Donald Trump's victory, the world is entering a new and dangerous phase of instability.

To fulfill his campaign promises, he will need partners. But there is no indication that the president-elect is interested constructive solutions.

It really happened. He did it. Donald Trump proved all experts wrong. All of the allegedly certain predictions that he could not become a president of the United States have been reduced to absurdity. A man who insults foreigners, women and people with disabilities, who preaches hate and snubs America's most important partners, will run the most powerful country on Earth. It is a political catastrophe.

Crude populism has triumphed over reason. Trump's success is a shock for all those who had counted on the political wisdom of American voters. The real-estate tycoon promised the Americans a fundamental political shift and a majority -- even if slim -- have followed his promises. The American voters have opted for change, though no one knows what it will look like. Given Trump's Islamophobic, nationalistic, hateful statements during the election campaign, only one thing can be said for sure: It won't be good.

Trump scored points with hateful slogans against the so-called political establishment and the media.

He won over a white middle class that has been destabilized by globalization. "I alone can fix fit" was the motto of his campaign. It's an arrogant phrase, an empty promise. What is certain is that Trump on his own will not be able to solve the problems faced by America and those of a highly complex world. Those who believe he will have only themselves to blame.

The World Enters a New Phase

A president who wants to make the lives of his citizens better and more secure must seek reconciliation and dialogue with other states and cultures. He needs partners. None of this seems to interest Trump. Trump is a destroyer, a divider. An examination of his biography and of his election campaign shows that he is not interested in constructive solutions, he isn't looking for reconciliation, he only wants to egoistically and self-righteously impose his and his supporters' nationalist interests.

The world, and America, is now threatened by a dangerous phase of instability: Donald Trump wants to make America "great" again. If one believes his pronouncements, he will proceed ruthlessly: He wants to throw 11 million migrants out of the country, renegotiate all major trade agreements and make important allies like Germany pay for US military protection. That will trigger significant conflict, incite new rivalries and spur new crises.

The most important question is now: Will the American system of "checks and balances" between the institutions manage to prevent a man who speaks like an autocrat from governing like one? Is it even possible to control Trump with a Republican Congress?

America's democracy now faces a significant test: It is to be feared that Trump will do everything he can to checkmate his opponents. He threatened journalists who were critical of him during his campaign. His followers yelled "lock her up" in reference to his opponent Hillary Clinton. Such rhetoric leaves marks, even if he struck a more conciliatory note in his acceptance speech.

Of course hope remains that the political system is strong enough to restrain a president with absolutist fantasies. But there are no guarantees.

Trump’s Victory: Politics Takes Center Stage in Global Markets

Move over central bankers. Donald Trump’s victory puts the focus back on politicians

By Richard Barley

Markets have proved once again that they just don’t get politics. Donald Trump’s victory in the U.S. presidential election is rocking bonds, stocks, currencies and commodities. While monetary policy has driven markets to dizzy heights, politics seems likely to be the bigger influence from here.

As after June’s Brexit vote, the knee-jerk market reaction was to flee from risky assets and seek safety. The yen and euro rose against the dollar, stocks fell sharply, government bonds and gold rallied. All of that is to be expected: it is the typical hard-wired reaction to a shock. The Mexican peso, the poster boy for the risk of a Trump victory, fell more than 10% against the dollar before recovering a little.

The reversal is all the more painful because markets once again followed the same path as Brexit: faced with close polling, investors believed that Hillary Clinton would prevail, preserving the status quo, and risk appetite had improved in the first two days of this week.

But there are key differences: Brexit wasn't, in the end, a global event, while Mr. Trump’s victory is. There are market wrinkles too. One of the most interesting is in the U.S. Treasury yield curve. Short-dated yields fell as expected, as markets revised their thinking about the likelihood of a December rate increase from the Federal Reserve.

But moves in longer-dated Treasurys were mixed: by London’s morning, 10-year yields were only 0.01 percentage point lower, a tiny move, and 30-year yields were actually 0.09 point higher. The steeper yield curve suggests concerns about the fiscal and inflationary consequences of Mr. Trump’s potential policies, including higher deficits, sacrosanct entitlement spending and changes at the Fed.

While one form of uncertainty has been resolved by the election, another form of uncertainty has risen that is potentially far more difficult for investors to evaluate. A win for Mrs. Clinton would have represented greater continuity; Mr. Trump’s victory brings many more questions about what his actual policies will be. Foreign, trade and fiscal policy will be in particular focus, but the quantum of the changes is impossible to assess in the near term.

For markets that have spent much of the past few years hanging on the every word of central bankers, this has major consequences. Investors have now had two enormous wake-up calls in 2016 about the changing political landscape after the global financial crisis. Political risk often gets tacked onto the list of worries investors have as a catchall. Now those risks are all-encompassing.

Politics Aside, the Dollar Is Still Looking Strong

The dollar’s recent news-driven pullback and subsequent

By Michael Kahn 

Before Monday, the U.S. dollar was having a rough go, steadily for eight days. With just one news report over the weekend, that slide abruptly ended - and the bulls can once again look forward to a possible major upside breakout.
If there is one thing technical analysts have to accept it is that events from outside the market can completely invalidate their analysis. Last month, Federal Bureau of Investigation director James Comey announced that he had reopened what was thought to be a wrapped-up investigation into Hillary Clinton’s emails. Markets went into a tizzy.
Then Comey announced over the weekend that there was nothing new to investigate, and markets soared.
For the PowerShares DB US Dollar Index Bullish exchange-traded fund (ticker: UUP), it still appears that it was a rather normal pullback from resistance that ended with a sharp rally.

And taken in context, that leaves the bulls in a rather strong position near the top of a 19-month falling trend channel (see Chart 1).

Chart 1

PowerShares DB US Dollar Index

It’s a bullish sign when a market reaches resistance and falls only a small amount relative to the overall pattern in which it resides. After all, when the bears take over at resistance but cannot really drive the price down very much, we have to assume that demand is still rather strong.

The bulls will likely attempt another breakout, and the odds of its success are good.

Of course, it was election-related news that got the dollar to pull back, and it was election-related news that reversed that slide. When the election results are tallied, it is entirely possible that they will once again dominate the technicals. Trading in this environment is inherently riskier than normal.
Still, the election, while it can have long-lasting policy implications, is still likely to roil the markets for only a short period of time. The long-term charts are still going to give us a good framework going forward.

The dollar index and the PowerShares dollar ETF both track the greenback against a basket of currencies, with the euro getting more weight than the other component currencies combined.

A chart of the CurrencyShares Euro Trust ETF (FXE), which tracks the euro, shows a narrowing trading range and no immediate threat of a breakout in either direction (see Chart 2).

Chart 2

CurrencyShares Euro Trust ETF

However, the pattern is fairly mature, suggesting a breakout could be only a few weeks away.
Given the short-term trend currently in progress, my own read is that the euro still has downside room. A falling euro gives the U.S. dollar a bullish wind behind its back.

Trends in the Swiss franc and British pound concur. The franc mirrors the euro, while the pound is still reeling in the wake of the Brexit vote.

One currency that usually gets little press is the Mexican peso, but it has been thrown front and center into the current election coverage.

Peso futures have been in a brutal bear market versus the U.S. dollar for years, but the current steep declining trend began in earnest in mid-2014 (see Chart 3). This market was in trouble long before Donald Trump announced his candidacy in June 2015 and trade with Mexico was perceived to be under threat.

Chart 3

Mexican Peso

Curiously, the peso peaked a few days before the FBI’s October announcement and reversed course to the upside last Friday, before the FBI’s follow-up announcement. Based on chart action, either moves in the peso predict election-related news, which seems highly unlikely, or there is no meaningful technical correlation between the peso and the election.

The Mexican peso is still dominated by a long-term bear market. Trading in 2016 has formed what looks to be a terminal wedge pattern. This is a triangle-like pattern that points in the direction of the existing trend.

However, its contracting ups and downs suggest that the trend is getting very tired and nearing its end.

Rising momentum indicators confirm that the bears’ power is diminishing, and that does set the stage for an upside breakout in the peso fairly soon.

Pundits will likely credit the election for the success or failure of that breakout attempt. But with a bear market this deep and a potential bottoming pattern lasting for nearly a year, they cede too much power to politics. This market has been developing for a long time away from the spotlight.

In my view, the U.S. dollar still looks to be strong and on the verge of a long-term breakout. It is just too risky to try to use technical analysis today to call what will happen on the other side of this most contentious election.

Earnings Fairytale Has an Unhappy Ending

By: Michael Pento

The air underneath stock prices is indeed getting very thin at these altitudes. According to none other than Goldman Sachs, median stock prices are positioned at the 97th percentile of historic valuations.

Other metrics such as Median PE ratios, Market Price to Sales and Total Market Cap relative to GDP all validate the extremely overvalued condition of U.S. stocks.

In order to justify these near-record valuations, analysts are once again predicting a J-curve in earnings growth for next year. S&P 500 earnings are projected to rebound from the trailing twelve months earnings per share (EPS) of $111, to about $130 for the forward 12 months EPS.

The S&P 500 has produced five consecutive quarters of negative earnings growth. According to FactSet, earnings growth for the index so far in the third quarter of 2016 has a blended increase of just 1.6%. And even if earnings manage to produce a small single digit rise in year-over-year earnings growth for the first time in the past one and one half years, it would hardly support near record market valuations.

Since 2010, economic growth in the United States has been slightly above 2%, and for the first three quarters of this year GDP growth has averaged just 1.7%. Yet despite this anemic economic growth and shaky earnings backdrop, perma-bulls are still betting on a huge earnings surge next year of 16% in order to reach that illusory target of $130 EPS.

But the news coming out of multinational conglomerates so far this quarter proves EPS won't even come close to that Wall Street earnings fantasy.

Right out of the earnings gate light weigh metals giant Alcoa blamed, "near-term challenges in some markets" for missing its earnings estimate, as its revenue declined 6% year-over-year.

General Electric lowered its revenue growth and narrowed its profit forecast for the year. The multi-national industrial giant noted its revenue rose less than expected, to just 1 percent in the quarter. The company also trimmed its full-year revenue forecast, now expecting revenue to be flat to 2 percent growth.

Honeywell cut its full-year EPS guidance for 2016, noting that its core organic sales are now expected to be down 1-2% for the year.

Manufacturer Dover (DOV) cut its full-year sales and profit forecasts, citing a weak global economy.

On their conference call they noted, "The primary factors driving this revision are generally weaker capital spending across several industrial end-markets..."

PPG Industries, who makes paints and coatings for the construction and other markets, said it was, "disappointed with this quarter's EPS growth rate as we continue to operate in a sluggish economic environment with no clear near-term catalyst for improving global GDP growth."

Global construction and mining equipment maker Caterpillar reported an astounding 18% decline in its global retail sales for the three months ended Sep 2016. The company cited listless demand for heavy machinery in its core markets due to a slowdown in construction and mining activity. For the past few quarters Caterpillar has suffered from a weak mining industry, low oil prices, stronger U.S. dollar and China's economic woes. In addition to all this, its third-quarter profit was cut in half due to the global economic slowdown that the company expects to extend into next year.

3M sited challenges in its Electronics and Energy Sales Division for the reduction in profits for 2016, which saw a decrease of $1.3 billion, or down 7.5 percent in those key segments.

And finally, if you needed more proof, YRC Worldwide Inc., a leading provider of transportation and global logistics services, saw its profit drop 9.5% YOY, blaming a "soft industrial backdrop".

There are many more examples of earnings shortfalls, and to be sure, not all companies reported bad numbers. Nevertheless, these earnings and revenue warnings regarding current and future global economic weakness from multinational industrial giants should not be ignored.

But it is not just multinational industrial conglomerates that point to a lack of earnings growth.

There are numerous examples of weakening revenue and earnings--along with projections of further weakness—across various enterprise sectors. For example; Fast Food chain Sonic dropped 17%, Home appliance maker Whirlpool fell 11% and Sports Apparel provider Under Armour plunged 13%, all on the same day they reported earnings.

It may have been acceptable for investors to maintain hope for a huge earnings rebound as long as the epic bond bubble was still inflating (yields falling), the dollar stopped rising, oil prices were well on their way back toward triple digits and the Fed had your back. However, this is no longer the case.

Long-term interest rates have been rising sharply across the globe due to the new central bank strategy of steepening their respective yield curves. The Trade-weighted Dollar Index has jumped 4% since August of this year and is up 20% since the summer of 2014 in anticipation of a resumption in the Fed's tightening cycle. The price of WTI Crude Oil seems to be stuck below the $50 per barrel range, despite numerous attempts by OPEC to construct a deal to freeze production at all-time highs.

And, as mentioned, the weakening multinational earnings picture has not yet dissuaded the Fed from recommencing its rate rising campaign come December 14th. Indeed, the Fed's median dot plot projects short-term borrowing costs will rise close to 1¼ percent by the end of 2017.

When near record-high market valuations slam into slowing global growth, rising interest rates on both the long and short end of the yield curve and the epiphany reached by investors that there will be no robust or sustainable earnings rebound, it will lead to the end of this equity bubble. A prudent investor should listen to the message of markets not the perpetually-inane optimism of Wall Street analysts. Therefore, expect a 7-10% correction in the major averages between now and the end of this year.

This selloff in stocks should continue until our inflation-loving central bank returns to the printing press with the futile hope that a rising CPI will bail out the economy. And even though stock prices may then catch a bid, expect the chances of viable economic growth and a strengthening middle class to fall further down the cesspool.

The Polls Say Clinton, the Market Says Trump

The S&P 500’s decline in recent months augurs well for the Republican nominee.

By John Kimelman

Those who want Donald Trump to be the next president may need to stomach at least a short-term hit to their stock portfolios.

Indeed, the U.S. stock market’s recent decline could be playing right into the hands of the real-estate developer and his supporters.

As Barron’s and other publications have pointed out in the past, the Standard & Poor’s 500 has a strong record in choosing the next president.

As we wrote in August, “Going back 88 years, when stocks advance in the three months before the election, the nominee representing the party in the White House almost always wins. When stocks are down in that period, the candidate challenging the incumbent party usually triumphs. Thus it can be said that the Standard & Poor’s 500 index has correctly predicted 19 of the past 22 presidential elections.”

In past elections, however, many of those candidates likely had little to do with the reasons behind the rise or fall of the stock market in the race’s final months. For example, in 2008, the collapse of Lehman Brothers in September of that year and a building financial crisis were the main culprits behind a declining stock market; the policies and personalities of Democrat Barack Obama and Republican John McCain were far less significant to the market’s actions.

But this fall, Trump may be both contributing and benefiting from the stock market slide, as many investors worry about the prospect of a future president with a brash, unconventional personal style and draconian views about trade and immigration.

It’s arguably good news for Trump that the S&P 500 has fallen by more than 4% since early August. Indeed, in the past four days, the Republican nominee may have gained on Clinton based on shifting poll results. Clinton is now up by only 2.2 percentage points in the RealClearPolitics average of polls, a roughly three-point shrinkage in the lead she had last Friday.

This aforementioned S&P 500 indicator of election results has gotten even stronger over the past three decades.

As Bloomberg’s Rebecca Spalding pointed out in a piece filed earlier Tuesday, the performance of the S&P 500 has signaled the outcome of every presidential election since 1984, according to an analysis by Strategas Research Partners.

In addition, the index on Tuesday fell another 0.68%, to 2111.72.

In addition, the CBOE Volatility Index, or VIX, the market’s so-called fear gauge, gained 8.79% to 18.6 on Tuesday. As MarketWatch points out, the last time the so-called fear gauge closed at such an elevated level was June 27, in the weeks after the U.K.’s surprise vote to leave the European Union.

As Bloomberg’s Spalding points out, “the reputation of markets in handicapping politics took a beating in June, when stocks around the world soared prior to the U.K. referendum only to fall the most in five years when voters chose to secede.

“Just four months removed from that shock, anxiety levels have spiked in the final week of an election season marked by twists,” she adds. “Clinton’s once-dominant lead over Republican Donald Trump has withered in polls since news Friday that her e-mails remain a topic of interest to the FBI.”