Five years ago, I tried to identify the great forces that would shape the 21st century. The following is that post in its entirety. As any model, it needs to be reviewed and if necessary, updated. I will do so in the following days.
In my opinion, history rides on forces that change; not the other way around. In the 20th century the three great forces were alternative economic/political models, nation-state boundary establishment and scientific enlightenment.
So if we want to have a clue as to 21st century history, a helpful primer would be to identify the great forces of the current century.
In my opinion, there are three great forces of the 21st century - Individualism, The Disconnect of Value and Technology
Individualism is on the rise due to -
The Disconnect of Value is due to -
July 28, 2015
I wrote the blog above three weeks ago. It contained an observation and a prognostication.
Since I wrote "China - The Paper Tiger" on June 15th, the Shanghai Composite Index has dropped a staggering 28%. Back in mid-June, China attempted to essentially freeze easy credit (buying on margin) in equities. That is why the stock market fell 28%.
Now China has no other option than to reverse that policy. And they did last week. They have eased margin and other equity favoring policies - more reckless than before.
The end result, in the short-term, undoubtably will be something like a 22% rise in Chinese equities. But with more of a mountain of leverage, it is just a matter of time, when Chinese equities crash. And crash hard.
Today's Headline -
The Shanghai Composite Index ended down today 8.5% at 3,725.56, its second-straight day of losses and worst daily percentage fall since February 2. Analysts say the selling came as investors fear the government is curbing its buying of blue-chip stocks—and could even be testing whether the market can support itself.
This Chinese stock market crisis is all about China. Chinese blue chip fundamentals are deteriorating because their quasi-capitalism/central control model and use of leverage is failing.
Look out below.
What does this mean to US stocks? Very little. The US imports Chinese-made products and services; but it doesn't sell its billion people anything but fast food. Furthermore, due to a lack of financial transparency and fundamentals, foreign investment will continue to dry up. That money has to go somewhere. And its likely going to be diverted back to the US.
What does this mean for geopolitics? That's the scarier wildcard. How will the Chinese central government act without enough money to satiate its people? Retrenching? Or rallying-around-the-flag nationalism? The latter should be of the most concern.
That is why the Obama administration has purposely been diverting its military away from the Middle East and deploying military assets to the Pacific Rim.
July 27, 2015
I know news cycles can become fickle, but when is the last time you heard about Russia and Ukraine?
This week, the Russian Federation, announced it would not support Ukrainian separatists, held in Kiev.
Now East Ukraine separatists are complaining they are not getting any support from Russia.
There is a tendency in the West, to look upon Russia, through their own versions of "good" and "bad". Putin is not good or bad. Rather he is a leader by default, in a country that spans 7 times zones, that requires strong central control.
Putinism has so far been based on leveraging oil and gas resources to create a rich ruling class and an economically placated populous. When oil dropped by 50%; Putin or any strong central leader that would replace him, had to react to this threat.
So Putin destabilized Ukraine. And did it on the cheap. He needed nationalism to divert the populous from their economic conditions. What he ended up with though, was economic sanctions on his rich ruling class.
Something had to give. And we are seeing it played out. While Russia is covering up its tracks by military plane flight engagements with the West; it is obvious that is for internal consumption.
The Iranian deal couldn't get done without Russian support. Quid pro quo - like so many other US/Russian deals - their help with Iran and stopping the support of Ukrainian separatists - means the ending of economic sanctions is just a matter of time.
The Obama administration played this out exactly how one would hope they would. While hawks wanted a transfer of arms to Ukraine; Obama stuck to economic sanctions and gave Putin a careful exit ramp.
Many in the West don't seem to remember that Russia has never been an invading land threat. They already have too much land. They are more defensive than offensive. Access to the Black Sea - in their way of thinking - was a defensive maneuver. They roiled up Eastern Ukraine simply for access to the Black Sea. Once they got it, they left the separatists on their own like the US did at the Bay of Pigs.
Again Putin and Russia don't fit the stereotypes of good and evil. Rather Putin is the latest central controller in a country that can't be ruled any other way. All of his actions have to be seen in this light.
This is just another example of the need for diplomacy rather than saber rattling. Central to the doctrine of diplomacy is empathy for the other side. To put one's shoes in the other person's position, to understand what lies behind their fears and actions.
The West provided a careful exit ramp. And everything now points to Putin and Russia using the exit ramp that was carefully constructed.
July 25, 2015
Police have identified the shooter in Thursday night’s attack inside a Louisiana movie theater as 58-year-old John Russel Houser. Authorities say Houser is from Alabama and had been staying at a local hotel recently. He appeared to have been armed only with a .40-caliber handgun, and his car was parked outside an emergency exit door and had disguises in it—indicating that he planned to get away.
No. I am not going to go off on my anti-gun agenda.
I am just trying to understand the phenomenon of mass shootings where people are congregated.
The link above is the most deadly mass shootings in the US. The only thing I find noteworthy is the phenomenon started in 1984.
The scientific research shows that mass shooting stem from both individual and societal factors.
Of the societal factors - not every crazy person acts upon their violent tendencies - lack of social acceptance and learned behavior seem to be correlated to mass gun shootings.
Karen Sternheimer's research concludes that the “meaning of violence” is made within particular social settings. Some people are more easily fascinated by destructive incidents, and may find inspiration from violence and other mass shootings.
So it seems that since 1984, an "inspirational" contagion has been forever unleashed.
And the only way to stop mass shootings is through ubiquitous metal detectors in public and private buildings. And gun control - which seemed logical - isn't the answer.
July 24, 2015
Like it or not - the US-Iranian deal will get done. The Senate may reject it. But the president will veto and the Senate would need a 2/3 majority to reverse. That's just not going to happen.
In order to understand the world from the Obama administration, one must sift though the shifting sands of the Middle East.
1. The US is now a net exporter of oil.
2. The US-Saudi relationship has been based solely on controlling the oil cartel, while the US looked past its support of Sunni Wahhabi extremism human and temple exports.
3. The nexus of the Middle East is Sunni Saudi Arabia and Shia Iran. They are mortal enemies.
4. Saudi Arabia is a World War I carve out of various tribes. While Iran - which is Persian - has been around for thousands of years.
5. Obama wants out of Afghanistan and Iraq. For Obama, ISIS/ISIL is less a threat to national security, than it is political problem. ISIS/ISIL is Sunni based. Obama needs Shia Iran to help defeat it. It's not like Saudi Arabia and Jordan can or are willing to make a dent.
6. 99.99% of Muslims are beautiful people. Every religion has crazy people. But it is a fact, that the other 0.01%, is made up of mostly Sunni's. Shia's on the other hand, while they have blood on their hands, are more businessmen. Choosing to sell weapons? Less terrorists and more American.
7. The US under Obama has rightfully so, moved beyond the old Middle East centric foreign policy, and has it sights set on the bigger 21st century challenge: China.
Iran, Iraq, Saudi Arabia? A 20th century problem. China? A 21st century problem. Time to move on.
July 23, 2015
Well, Apple announced their gigantic numbers. Apple stock declined in after hours trading.
I have written two posts about why the iWatch is a mistake. The link above is the second post and contains a link to the first post.
So how is the iWatch doing? Forget all my guesses. It's earning season. I wanted to see how many iWatch's had been sold.
Check this out: Apple put iWatch into their "other" category.
"Other" grew by $1 billion. Nothing to sneeze over. But not the next killer device either.
Apple was expected to sell 4 million iWatch's. By my count they sold about 1 million iWatch's.
"Other" includes iPods (when is the last time you saw someone using an iPod?) and Apple TV (Google Chromecast allows everything on a computer to work with a large flat screen, while Apple TV, only allows you to access your iTunes store on a large flat screen).
In my last post, I noted that iWatch sales - after the geeks initially consumed them - dropped like a rock. In my first post I noted why I thought iWatch was a mistake.
Apple had two choices. Both bad. Announce disappointing iWatch sales. Or "hide" iWatch into "other".
With a company so big - that has to grow in a massive way due to the law of big numbers - the iWatch had to be Apple's new "killer device". So far its not. And I don't believe it will ever be.
Conclusion? Apple's stock might be a good "short".
July 22, 2015
The chart above is based on the inflation discounted price of gold since 1791. Meaning it uses 2014 nominal prices and discounts the past by the inflation rate.
Clearly gold has been steady for most of the last 200 plus years. The two major exceptions were (a) a period in 1970s and early 1980 when inflation was out of control and interest rates were so high to combat it and (b) the 2008 banking crisis.
Gold peaked at $1,895 per ounce in 2011. As of this writing, gold is trading downward and is at $1,107.
I expect it to fall back to the average of $600 per ounce.
But the days of making money shorting gold are over. Years ago I posted to short gold when it was trading at close to its peak based on the above chart. That was the easy money.
Now gold is in no man's land. While I could absolutely short gold years ago at its peak - all the while believing that it should fall back to $600 per ounce - there is no real money to be made on what will likely be a choppy and slow decent back to gold's real price.
Irrational peaks are easy to short and make money fast. Unexplainable peaks are not as easy and not worth the risk.
July 21, 2015
At a White House Correspondence Dinner, back in the last general election, Seth Meyers brought the house down by a quick rejoinder describing Donald Trump running for president as a Republican by saying "I had always assumed Trump was running as a joke".
Well here it is. Close to the beginning of the 2016 primaries and general elections. And Donald Trump is saying more crazy things than Michelle Bachman.
But the most incredible, were his comments on Saturday -
Trump mocked McCain’s failure to beat Barack Obama in the 2008 election and demurred when the moderator suggested the Arizona lawmaker was a war hero.
"He’s not a war hero. He’s a war hero because he was captured? I like people who weren’t captured".
Comedians hate when comedians steal their jokes. But I am not sure how a comedian feels about a politician stealing their jokes.
Trump's comments on John McCain should disqualify him. But nobody in the mainstream press has picked up on this yet -
Trump ripped off the McCain lines from Chris Rock's "Kill The Messenger" 2008 HBO Comedy Special.
Chris Rock - who I consider to be the best stand up comic, on society and politics, since George Carlin - was making a joke. And Donald Trump stole it.
I would end this post by saying Trump is a joke. But Seth Meyers already said it.
July 20, 2015
I don't know about you, but I have never used an illegal substance in my life. I have never even seen an illegal substance. As a matter of fact, if you held a gun to my head, and said I had 24 hours to find an illegal substance, I would just say "go ahead and shoot me".
All of my friends since first grade, up until I was 40, went camping every year. An amazing amount of my long-time friends - although we grew up in the "hood" - went on to become pretty successful. We went camping because it allowed our poorest friends to "vacation". Those friends were always worth the trip. I always felt better about myself afterwards.
I think that is why I like shows like "Orange Is The New Black" and "Hard Time". It makes me appreciate the life I have.
America incarcerates the most citizens per capita in the world. And too many are in prison for possessing/distributing illegal substances. They are locked up for years and decades.
Federal crimes are the worst. Judges have the ability to throw the book on petty criminals. Plea bargaining in Federal Court is non-existent. No juries of their peers. Just a judge with mandatory sentences.
Now Obama and the Koch brothers - the most unlikely of partners - are pushing for prison reform. It is personal for both. Obama knows - just like professional colleagues of mine - that they could have been caught and their lives turned around for the bad. The Koch brothers business was prosecuted for their businesses by the Federal government.
Obama wants prison reform for illegal substances. The "conservative" Koch brothers want to take the reform further: eliminating the check box on job applications for having committed a crime.
Now Obama and Republicans have something in common: prison reform. Obama is driven by an acknowledgement that young people make mistakes. While the GOP knows that eliminating people with prison records is pro-business.
I only ask the Federal government to do two things: keep us safe and battle poverty. 48 cents of every dollar I make every year goes to the government. If you want to see how out of control the Federal government is; all you have to do is visit Washington DC. It is a dense amount of buildings doing business with the government.
In another potential bipartisan effort, the GOP is trying to go back to fighting poverty by eliminated the destructive affects of welfare and instead using less money to invest in inner cities to turn these communities into thriving businesses with the government's help. That is the only way to fight poverty.
I have said before that Obama will be viewed as a great president. Instead of using his lame duck status to traditionally make ground-breaking foreign policy; his best efforts should instead be placed on bipartisan efforts back home.
Forget about Iran. We need help back home. Prison reform, welfare reform and curbing federal power is a winning formula to cap off his presidency.
With liberals like Hillary Clinton and Bernie Sanders lurking around as Democratic 2016 nominees - lame duck bipartisan efforts along with his legacy of bringing us out of the Great Recession - may leave him with the fondness of the next Harry Truman. A president that ends up in history respected and admired by both parties.
July 18, 2015
I think this week we can safely say that the notion of a United Europe is over.
Cast of players -
Germany - Humiliated the Greeks in a manner that is somewhat short of what Germans have historically been capable of. That's as nice as I can put it.
Greece - Maybe one more bailout. And they will leave the euro. Hell, German's finance minister said they should, as a parting humiliating shot.
France - In two years, National Front leader Marine Le Pen will make a serious bid for the presidency of France against a Socialist Party led by their current leader François Hollande. She has already stated she wants France off the euro.
Spain - Voting later this year to leave.
Poland, the Czech Republic, and other new members of the EU - They will continue drag their feet in joining the common currency as they await its eventual unraveling or retrenchment to the immediate core of countries around Germany.
The EU and Europe, in a footprint smaller than the US, never took the steps to create a political and an economic union. They never tried to build a United States Of Europe.
Not that I advocate one. These countries are not states. The cultural differences between say the borders of Germany and France; is quantumly more different than say the borders of Illinois and Wisconsin.
The Euro was doomed from the start. Without a political union you can't have a financial union (real central banking and oversight). And a political union was never going to work in the first place.
July 17, 2015