Wednesday, December 23, 2015


I think I have survived and lived to think an extra day and it was quite a day.  In equities,  a full fledged Santa Claus rally led by a surprising drop in oil supplies which resulted in a overall commodities rally.  The DOW was up 185 at the close and the ten year showed a 2.25% yield.  Not a bad way to await the arrival of the Chubby guy or did we miss it and he's been here and gone?

It's an odd phenomenon.  The United States which has always been a somewhat provincial nation seems in some respects becoming more and more of the same.  And yet, we exist more and more in an integrated world--particularly in a financial sense--which we in this country continually overlook whenever it is convenient for us to so do.  Stocks fall in Cushing...BUY OIL!  The fact that 500,000 bpd are ready to spew out of Iran seems to make no difference.  Are we aware of global events, immune to them or do we simply not care?

This past year has not been an easy one anywhere but the U.S. has indeed been fortune to whether difficult times better than most despite (or because of) what at times appears to be a dearth of leadership at various levels.  And yet, one must also question our relative prosperity which is indeed occurring, and wonder whether we will be as fortunate in the coming year.

At the top of our success has been the recent uptick in worker compensation which has been flat for so many years.  perhaps the unemployment number of 5% is responsible for this (I leave all discussion as to whether the statistics are reliable or not) as it could be but one is also faced with the terribly low utilization of work force number that remains depressingly low and has continued to decline all year which argues for a different result.  So too, are the GDP figures which not only are subject to remarkable fluctuations between quarters but in any case remains stuck at below 3% with little prospect for an improvement in 2016.  Most troubling is that these mediocre results have been achieved despite the astounding drop in energy costs caused primarily by the advent of fracking and the brilliant advances therein which, if viewed in terms of a tax cut and the stimulative effect thereof, would be the largest of all time.  Surely, we should be expanding greatly but we are not:  capital expenditures remain meagre despite profitability which has been used to return wealth to shareholders either in the form of dividends or buy-backs; consumer spending, though up remains below expectations as the reduction of debt was the primary focus of many; consumer confidence throughout the year has never achieved the high of January; M & A activity has been remarkably high  which while providing a handsome living for a fortunate few, is hardly a sign of business confidence as is the increased number of corporate inversions which are he result of a ridiculous tax code and the lack of belief that this administration (or perhaps ANY administration) will correct the same...a view supported by the utterly incompetent efforts of Treasury to address the issue.  Yet, we muddle along.

There would no doubt be more optimism on my part if it were not for the even deeper problem that surround many if not all parts of the world.  We shall set aside the disgrace of the Middle East in itself and the complete lack of leadership on the part of the U.S. which either to one's chagrin or opinion reinforcement proves once again that the U.S. is the one, indispensable nation.  Whilst hardly happy about it, the rest of the world is prepared to accept this designation: only the present leadership of the U.S. remains opposed to this clear reality.

Perhaps even with bold foresight and aggressive leadership the situation might be the same but the other reality is that the collapse of the region and the resulting mass of humanity made refugees will probably have a profound effect upon Europe which, in a moment of simple morality (for which Europeans have never been noted) agreed to play the role of savior to these oppressed--far too late came the realization that this, whist admirable, might not have been the best idea the Zone ever had.  Europe will be profoundly changed in the coming years.  Ms. Merkle, blinded somewhat by the fulfilling of the need required by Germany as a result of disinterest in the bedrooms of the nation, finds herself with hundreds of thousands of new workers who have absolutely no interest in becoming Germans or in German society, existing in an almost semi-autonomous state among their rescuers.  To a lesser extent (except for France) how Europe deals with this issue will determine the fate of the continent over the next few generations.   Everything will be affected.  As will the United States.

China has overstepped.  In a commercial sense but also in a geopolitical sense as it misinterpreted the full meaning of the Obama administration's "pivot" to Asia (probably because the administration had no idea what it was doing as well) and chose to repost in a military sense.  China the extent anything that large can...turn on a dime domestically but internationally and intra-Asia, correction is not so easy.  A pull-back would be seen as a tremendous loss of face and undoubtedly affect the leadership within the country.  As a result, unneeded tension will remain in the region throughout the coming year taking resources away from desperately need domestic reforms at the worst possible time; the year of a Presidential election.  The continued confrontation with China ( with a small "c") will also affect U.S. domestic politics--no candidate will wish to be considered "weak"--leading to what could be some premature and therefore poor policy decisions which will affect the relationship in the years to come.  This overhang of potential conflict will have its economic effect as well throughout the region.  Asia is not the cure for what ails the world economy and will not be so in the coming year.

I could continue in this grand, global overlook in regard to our hemisphere but I think approaching this region is better done in a more individualistic sense.  There's a lot more to come so I hope you stick with me through at least the middle of next week.  I would really like to hear your views in regard to MY views, so please respond.  Right now, I have to go and make sure the chimney is clean and clear...don't want that task left to the last minute.

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