Category Archives: Global Economics

U.S. Defense Policy in the Wake of the Ukrainian Affair

FT 11FEB13My Comments: I was born in England in 1941 with bombs dropping on and around us almost daily. My father, with the Royal Tank Regiment, was across the Channel in the thick of things. Today I have memories of blasted buildings and walls standing here and there, some with staircases. My mother used to put me to bed at night under the stairs since if the building came down, I was somewhat safer.

What I see happening in the Ukraine is bringing back unpleasant memories. Since the end of the Cold War, state on state conflict has slowly faded. Some of that is simply due to modern technology and some of it because as the richest state on the planet, we’ve been handed the role of global policeman.

But two extended conflicts over the past dozen years have sapped our strength and our desire to keep order. The Russians, in their zeal to Take Back Russia, have elected to return to the solutions that were common in the last century. The question now becomes do we let them, or do we find whatever way possible to kick their ass into the 21st century?

By George Friedman | Tuesday, April 8, 2014 | Stratfor

Ever since the end of the Cold War, there has been an assumption that conventional warfare between reasonably developed nation-states had been abolished. During the 1990s, it was expected that the primary purpose of the military would be operations other than war, such as peacekeeping, disaster relief and the change of oppressive regimes. After 9/11, many began speaking of asymmetric warfare and “the long war.” Under this model, the United States would be engaged in counterterrorism activities in a broad area of the Islamic world for a very long time. Peer-to-peer conflict seemed obsolete.

There was a profoundly radical idea embedded in this line of thought. Wars between nations or dynastic powers had been a constant condition in Europe, and the rest of the world had been no less violent. Every century had had systemic wars in which the entire international system (increasingly dominated by Europe since the 16th century) had participated. In the 20th century, there were the two World Wars, in the 19th century the Napoleonic Wars, in the 18th century the Seven Years’ War, and in the 17th century the Thirty Years’ War.

Those who argued that U.S. defense policy had to shift its focus away from peer-to-peer and systemic conflict were in effect arguing that the world had entered a new era in which what had been previously commonplace would now be rare or nonexistent. What warfare there was would not involve nations but subnational groups and would not be systemic. The radical nature of this argument was rarely recognized by those who made it, and the evolving American defense policy that followed this reasoning was rarely seen as inappropriate. If the United States was going to be involved primarily in counterterrorism operations in the Islamic world for the next 50 years, we obviously needed a very different military than the one we had.

There were two reasons for this argument. Military planners are always obsessed with the war they are fighting. It is only human to see the immediate task as a permanent task. During the Cold War, it was impossible for anyone to imagine how it would end. During World War I, it was obvious that static warfare dominated by the defense was the new permanent model. That generals always fight the last war must be amended to say that generals always believe the war they are fighting is the permanent war. It is, after all, the war that was the culmination of their careers, and imagining other wars when they are fighting this one, and indeed will not be fighting future ones, appeared frivolous.

The second reason was that no nation-state was in a position to challenge the United States militarily. After the Cold War ended, the United States was in a singularly powerful position. The United States remains in a powerful position, but over time, other nations will increase their power, form alliances and coalitions and challenge the United States. No matter how benign a leading power is — and the United States is not uniquely benign — other nations will fear it, resent it or want to shame it for its behavior. The idea that other nation-states will not challenge the United States seemed plausible for the past 20 years, but the fact is that nations will pursue interests that are opposed to American interest and by definition, pose a peer-to-peer challenge. The United States is potentially overwhelmingly powerful, but that does not make it omnipotent.

Systemic vs. Asymmetric War
It must also be remembered that asymmetric warfare and operations other than war always existed between and during peer-to-peer wars and systemic wars. The British fought an asymmetric war in both Ireland and North America in the context of a peer-to-peer war with France. Germany fought an asymmetric war in Yugoslavia at the same time it fought a systemic war from 1939-1945. The United States fought asymmetric wars in the Philippines, Nicaragua, Haiti and other places between 1900-1945.

Asymmetric wars and operations other than war are far more common than peer-to-peer and systemic wars. They can appear overwhelmingly important at the time. But just as the defeat of Britain by the Americans did not destroy British power, the outcomes of asymmetric wars rarely define long-term national power and hardly ever define the international system. Asymmetric warfare is not a new style of war; it is a permanent dimension of warfare. Peer-to-peer and systemic wars are also constant features but are far less frequent. They are also far more important. For Britain, the outcome of the Napoleonic Wars was much more important than the outcome of the American Revolution. For the United States, the outcome of World Was II was far more important than its intervention in Haiti. There are a lot more asymmetric wars, but a defeat does not shift national power. If you lose a systemic war, the outcome can be catastrophic.

A military force can be shaped to fight frequent, less important engagements or rare but critical wars — ideally, it should be able to do both. But in military planning, not all wars are equally important. The war that defines power and the international system can have irreversible and catastrophic results. Asymmetric wars can cause problems and casualties, but that is a lesser mission. Military leaders and defense officials, obsessed with the moment, must bear in mind that the war currently being fought may be little remembered, the peace that is currently at hand is rarely permanent, and harboring the belief that any type of warfare has become obsolete is likely to be in error.
Ukraine drove this lesson home. There will be no war between the United States and Russia over Ukraine. The United States does not have interests there that justify a war, and neither country is in a position militarily to fight a war. The Americans are not deployed for war, and the Russians are not ready to fight the United States.

But the events in Ukraine point to some realities. First, the power of countries shifts, and the Russians had substantially increased their military capabilities since the 1990s. Second, the divergent interests between the two countries, which seemed to disappear in the 1990s, re-emerged. Third, this episode will cause each side to reconsider its military strategy and capabilities, and future crises might well lead to conventional war, nuclear weapons notwithstanding. Ukraine reminds us that peer-to-peer conflict is not inconceivable, and that a strategy and defense policy built on the assumption has little basis in reality. The human condition did not transform itself because of an interregnum in which the United States could not be challenged; the last two decades are an exception to the rule of global affairs defined by war.

U.S. national strategy must be founded on the control of the sea. The oceans protect the United States from everything but terrorism and nuclear missiles. The greatest challenge to U.S. control of the sea is hostile fleets. The best way to defeat hostile fleets is to prevent them from being built. The best way to do that is to maintain the balance of power in Eurasia. The ideal path for this is to ensure continued tensions within Eurasia so that resources are spent defending against land threats rather than building fleets. Given the inherent tensions in Eurasia, the United States needs to do nothing in most cases. In some cases it must send military or economic aid to one side or both. In other cases, it advises.

U.S. Strategy in Eurasia
The main goal here is to avoid the emergence of a regional hegemon fully secure against land threats and with the economic power to challenge the United States at sea. The U.S. strategy in World War I was to refuse to become involved until it appeared, with the abdication of the czar and increasing German aggression at sea, that the British and French might be defeated or the sea-lanes closed. At that point, the United States intervened to block German hegemony. In World War II, the United States remained out of the war until after the French collapsed and it appeared the Soviet Union would collapse — until it seemed something had to be done. Even then, it was only after Hitler’s declaration of war on the United States after the Japanese attack on Pearl Harbor that Congress approved Roosevelt’s plan to intervene militarily in continental Europe. And in spite of operations in the Mediterranean, the main U.S. thrust didn’t occur until 1944 in Normandy, after the German army had been badly weakened.

In order for this strategy, which the U.S. inherited from the British, to work, the United States needs an effective and relevant alliance structure. The balance-of-power strategy assumes that there are core allies who have an interest in aligning with the United States against regional enemies. When I say effective, I mean allies that are capable of defending themselves to a great extent. Allying with the impotent achieves little. By relevant, I mean allies that are geographically positioned to deal with particularly dangerous hegemons.

If we assume Russians to be dangerous hegemons, then the relevant allies are those on the periphery of Russia. For example, Portugal or Italy adds little weight to the equation. As to effectiveness, the allies must be willing to make major commitments to their own national defense. The American relationship in all alliances is that the outcome of conflicts must matter more to the ally than to the United States.

The point here is that NATO, which was extremely valuable during the Cold War, may not be a relevant or effective instrument in a new confrontation with the Russians. Many of the members are not geographically positioned to help, and many are not militarily effective. They cannot balance the Russians. And since the goal of an effective balance-of-power strategy is the avoidance of war while containing a rising power, the lack of an effective deterrence matters a great deal.

It is not certain by any means that Russia is the main threat to American power. Many would point to China. In my view, China’s ability to pose a naval threat to the United States is limited, for the time being, by the geography of the South and East China seas. There are a lot of choke points that can be closed. Moreover, a balance of land-based military power is difficult to imagine. But still, the basic principle I have described holds; countries such as South Korea and Japan, which have a more immediate interest in China than the United States does, are supported by the United States to contain China.

In these and other potential cases, the ultimate problem for the United States is that its engagement in Eurasia is at distance. It takes a great deal of time to deploy a technology-heavy force there, and it must be technology-heavy because U.S. forces are always outnumbered when fighting in Eurasia. The United States must have force multipliers. In many cases, the United States is not choosing the point of intervention, but a potential enemy is creating a circumstance where intervention is necessary. Therefore, it is unknown to planners where a war might be fought, and it is unknown what kind of force they will be up against. The only thing certain is that it will be far away and take a long time to build up a force. During Desert Storm, it took six months to go on the offensive.

American strategy requires a force that can project overwhelming power without massive delays. In Ukraine, for example, had the United States chosen to try to defend eastern Ukraine from Russian attack, it would have been impossible to deploy that force before the Russians took over. An offensive against the Russians in Ukraine would have been impossible. Therefore, Ukraine poses the strategic problem for the United States.

The Future of U.S. Defense Policy
The United States will face peer-to-peer or even systemic conflicts in Eurasia. The earlier the United States brings in decisive force, the lower the cost to the United States. Current conventional war-fighting strategy is not dissimilar from that of World War II: It is heavily dependent on equipment and the petroleum to power that equipment. It can take many months to field that force. That could force the United States into an offensive posture far more costly and dangerous than a defensive posture, as it did in World War II. Therefore, it is essential that the time to theater be dramatically reduced, the size of the force reduced, but the lethality, mobility and survivability dramatically increased.

It also follows that the tempo of operations be reduced. The United States has been in constant warfare since 2001. The reasons are understandable, but in a balance-of-power strategy war is the exception, not the rule. The force that could be deployed is seen as overwhelming and therefore does not have to be deployed. The allies of the United States are sufficiently motivated and capable of defending themselves. That fact deters attack by regional hegemons. There need to be layers of options between threat and war.

Defense policy must be built on three things: The United States does not know where it will fight. The United States must use war sparingly. The United States must have sufficient technology to compensate for the fact that Americans are always going to be outnumbered in Eurasia. The force that is delivered must overcome this, and it must get there fast.
Ranges of new technologies, from hypersonic missiles to electronically and mechanically enhanced infantryman, are available. But the mindset that peer-to-peer conflict has been abolished and that small unit operations in the Middle East are the permanent features of warfare prevent these new technologies from being considered. The need to rethink American strategy in the framework of the perpetual possibility of conventional war against enemies fighting on their own terrain is essential, along with an understanding that the exhaustion of the force in asymmetric warfare cannot be sustained. Losing an asymmetric war is unfortunate but tolerable. Losing a systemic war could be catastrophic. Not having to fight a war would be best.

Global Markets: At A Turning Point?

My Comments: This article was published two months ago, so it is interesting to see how the ideas expressed were validated or not over February and March. At the time, the focus was a just ended and very dismal January. Everyone was asking me about the rest of the year. And I didn’t have a good answer.

All I can say is that the programs I use for investing our money, yours and mine, have the ability to move to cash on any given day, and if the trend line is negative, to use strategies that allow investors to make positive gains when the rest of the world is watching their investments decline.

What I would have you understand is that two months does not make a year. Or that what happened in 2008-2009 will not define your life if you seek good advice. If anyone would like proof of this for the seven years from January 2007 thru December 2013, let me know. I’ll email you a hypothetical that I think is outstanding.

Edmund Shing / Jan. 31, 2014

What to think about Recent Emerging Markets-Led Volatility

Wow! This has certainly been an exciting few days for global financial markets, led by sharp weakness in various Emerging Markets (stocks, bonds, currencies). Figure 1 below highlights how the Russian Ruble and Turkish Lira currencies have both suffered extensive weakness against the US dollar over the last month or so, the weakness accelerating over the last few days.

( This is a fairly long article so I invite you to CONTINUE READING HERE. )

A Deal Over Ukraine is Ugly But Unavoidable

UkraineMy Comments: Now that the University of Florida’s march to the national title game in basketball is behind us,  (Congratulations, guys, for giving us several months of enduring pleasure as we watched you grow and succeed!) it’s time to come back to earth and consider how life is likely to play out on other fronts.

What I see happening in the Ukraine and in Crimea brings, for me, a level of unease that suggests we need to really pay attention to this. It’s a reversion to what used to be the defining method of resolving conflicts that resulted in the Great War (WW1) and my fathers war, WW2. It involves some of the same players, is state on state, and could end badly for millions of people in Europe.

The dilemma for us is that we have little stomach or even ability to respond in kind to what the Russians are doing. True, not a lot of people have died, but the end game is a long way off. The internal rhetoric in this country is essentially mindless blather. There’s little, if anything, we could have done to prevent it, and now that the game is afoot, little we can do to reverse things.

All we can do is pay attention, and where possible, pull strings and hope for the best.

By Gideon Rachman / March 31, 2014

Any western leader negotiating over the fate of smaller countries in central or eastern Europe does so in the shadow of two bitter historical experiences: the Munich agreement of 1938 and the Yalta agreement of 1945. At Munich, the British and the French agreed to Adolf Hitler’s demands for the dismemberment of Czechoslovakia – without the participation of the Czech government, which was not represented at the talks. At Yalta, the British and the Americans made a deal with Josef Stalin that, de facto, accepted Soviet domination over postwar Poland and other countries under Russian occupation – again, without the participation of those concerned.

These parallels – in particular, Munich – are weighing heavily on western leaders as they attempt to chart a way forward over Ukraine. “We will not accept a path forward where the legitimate government of Ukraine is not at the table,” said John Kerry, the US secretary of state, at the conclusion of weekend talks in Paris with Sergei Lavrov, the Russian foreign minister.

Wolfgang Schäuble, the German finance minister, on Monday compared President Vladimir Putin’s claim that he is acting in defence of the rights of ethnic Russians in Ukraine to Hitler’s claim that he was acting to defend the rights of ethnic Germans in Czechoslovakia. The parallel has also been made by Mr Kerry’s predecessor, Hillary Clinton.

Yet even as Mr Kerry pledged not to strike deals over the heads of the Ukrainians, he was negotiating directly with the Russians – without a Ukrainian representative in the room. The reality is that if a Kerry-Lavrov agreement is eventually reached, accommodating Russian demands for a federal system in Ukraine and safeguards for Russian speakers, the government in Kiev will come under enormous pressure to accept it.

So are the Americans violating crucial principles in discussing the fate of Ukraine in bilateral talks with Russia? Or is some form of Russian-American negotiation both inevitable and necessary?

The bleak reality is that, as things stand, it is in the interests of both the west and Ukraine that talks are held with the Russians. To understand why, it is necessary to imagine the alternative scenario. There are at present thousands of Russian troops massed on Ukraine’s eastern border.

The US and the EU have made clear they will not go to war over Ukraine. Given that fact, a refusal to negotiate with Moscow is likely to be interpreted as a display of indifference rather than a display of strength. It could actually encourage a Russian military intervention, which would have tragic consequences for all concerned.

However, if further rounds of talks are going to be held with the Russians, it is crucial that they are not simply a fig leaf for a Munich-style capitulation. Fortunately, even though the west has made it clear that it will not fight over Ukraine, it still has real leverage over Russia. But if that leverage is to be used it has to be applied to protect principles that are genuinely defensible, both morally and in terms of the resources that the west can credibly threaten to deploy.

So what should those principles be? First, it is clear that the Russians would like the west simply to accept the annexation of Crimea as a fact – and move the discussion on to the rest of Ukraine. The west should reject this idea – a stance that would, incidentally, mark a clear difference with the Munich agreement, where the UK and France signed off on the annexation of the Sudetenland. A refusal to recognise Crimea’s legal incorporation into Russia could impose significant costs on the Kremlin. Crimea would become a black hole in terms of foreign trade and investment and a drain on Russian resources.

The second principle is to make clear that any Russian military move into eastern Ukraine would lead to a complete rupture in the west’s economic relationship with Russia. The EU is already studying the possibility of further sanctions. The nature and extent of any such measures should be spelt out as soon as possible – and they should exceed Moscow’s expectations.

Finally, the principle that the Russian government cannot demand changes in the constitution of a neighbouring state should be spelt out. That is simply too dangerous a precedent to establish.

Within that package of principles, however, there should be room for discussion of other Russian proposals – such as the idea of a federal Ukraine, guarantees for Russian speakers and an assurance that an independent Ukraine would not join Nato, or have a relationship with the EU that damaged Russia’s economic interests.

Any understanding that the Americans arrive at with the Russians cannot be imposed on the Ukrainian government in Kiev – both as a matter of principle and because Ukrainian politicians remain independent actors. Given that an informal Russian-US proposal on Ukraine would not come with the backing of a western military guarantee, or any certainty that it will be respected by Russia, the Kiev government will rightly be highly suspicious. But, unfortunately, Swiss standards of prosperity and security are not on offer.

For beleaguered Ukraine, a Russian-American deal, underpinned by the threat of the west’s economic isolation of Russia if it is violated, is probably the best prospect on offer at the moment. If that deal can be made to stick, it might just buy Ukraine the time to build a properly independent state.

Reset the Reset – Visa Bans Will Not Deter Putin

My Comments: I made a reference last week to the effect that what happened when the Russians took over part of the Ukraine had only a temporary effect on the markets.

Today’s comments are directed toward those who hate Obama and everything he stands for. The gist of those who daily and routinely criticize our president is that he is “weak” and “indecisive.” In other words, Putin would not have dared take over Crimea if the Republicans were in the White House. I have no earthly idea where that notion comes from except from a fellow 3rd grader.

Cosistent with their interpretion of global affairs is a report from the L A Times that 1 in 9 Americans – 11% – believe HTML is a sexually transmitted disease. I wonder how many of those folks also voted for Ted Cruz.

By Philip Stephens / March 6, 2014 / The Financial Times

In its own mind Moscow can break any rule it likes and then deny the fact of the transgression

Europe’s corridors of power are echoing to the cries of agitated equivocation. Yes, Vladimir Putin has violated sacred international norms and put at risk the security of the European continent. Yes, European leaders must roundly condemn the Russian president for his seizure of Ukrainian territory. And yes, those who believe in international law should do something more than wag a finger. All this is well understood. We must not, however, get carried away.

In Britain, ministers fret that economic retaliation would jeopardise the City of London’s money laundering operations. Russia, with its reliable multi-billion-dollar supply of dirty money, is a much cherished customer in the capital’s booming property market. In Germany, business leaders implore Angela Merkel, the chancellor, not to threaten lucrative exports or invite interruption of Russian gas supplies. In Rome Matteo Renzi, the new prime minister, is told he must not upset Italy’s powerful energy bosses.

It would be nice to imagine that EU leaders had framed a carefully calibrated response to Mr Putin’s aggression. Blending prudence with toughness, Europe is eschewing draconian sanctions now in order to de-escalate the conflict, but will step up the pressure decisively if Mr Putin refuses to admit Ukrainian sovereignty in Crimea. This indeed was the EU summit’s official message. Sad to say, Europe’s caution has been the handmaiden of pusillanimity rather than of diplomatic calculation; and without evidence of serious resolve Mr Putin has no reason to step back.

The EU would have gained a shred of credibility had it followed President Barack Obama’s lead. Visa restrictions and the like have some force when, as is the case with Russia, members of the elite like to travel widely in the course of stashing and spending their billions. At the other end of the spectrum should lie a threat of broad financial sanctions against Russia akin to those applied to Iran.

Yet, even if Europeans were to agree eventually to travel some distance along the sanctions road, piecemeal retaliation is only part of the necessary response to Russia’s territorial grab. The seizure of Crimea – and Mr Putin’s threat of a march into eastern Ukraine – requires a fundamental change in mindset. The so-called reset in western ties with Russia needs to be reset, and the boundaries of engagement redrawn.

The albeit rather threadbare premise behind the west’s approach has hitherto been that Moscow wants to be included, if with some exceptions, in a rules-based order. That, however much he rails against cruel history, Mr Putin wants to remain a member of the club. Hence Russia’s participation in the G8, its “strategic partnership” with the EU, the Nato-Russia Council in Brussels, membership of the World Trade Organisation and so on.

We know now that this is a charade. The march into Ukraine confirmed what should have been recognised some time ago: that Mr Putin’s regime has no respect for international rules and norms. When the game is going against it, its answer is to put tanks on to the chessboard. Rules are for weak westerners, not for resurgent Russia.

This is a strategy of a regime that has removed itself from the international system. Mr Putin’s performance since the weekend – one perfectly mimed by Sergei Lavrov, the weather-beaten cold warrior in charge of the foreign ministry – has been almost as illuminating as the invasion itself. There are no Russian troops in Crimea, Moscow insists, even as its forces (albeit without insignia) appear on our television screens seizing Ukrainian military bases. “We have no control over them”, Mr Lavrov declares, without so much as a blink of the columns of heavily armed soldiers. The idea is cynically simple: night can become day and white become black if only you say so often enough.

This is the strategy of a regime that has taken itself out of the international system. In its own mind Moscow can break any rule it likes and then deny the fact of the transgression. If Mr Putin can be so dismissive of law and treaties in matters of war and peace, why should he respect any of the other rules of the game?

Some wonder whether western governments should boycott the next meeting of the G8 in Sochi. The more apposite question is why on earth they should continue with the pretext that Russia is part of the club. The same can be said of other agreements – on trade, investment and energy – under discussion with Moscow. Why sign accords that one side feels no obligation to respect?

Of course, there will always be business to be done with Mr Putin. Russia is an important power. But the west should shed its illusions in favour of a transactional approach. Interests will sometimes coincide and sometimes collide. There may be bargains to be struck and trade-offs to be made when it suits both sides. But Europe should not imagine the Kremlin leadership is playing on the same board. Oddly enough, hard-nosed realpolitik could over time promote a better relationship.

As for Ukraine, the west’s goal should never be to wrench it out of the arms of Moscow. Russia has deep interests, rooted in history, culture and security, in the future of its neighbour. Europe’s objective should be the restoration of Ukraine’s territorial integrity, and a constitution and a government that properly represents all sections of the population. Economic ties with the west should not exclude a strong partnership with Russia.

Mr Putin says he shares this ambition. The problem is that the Russian president also insists that none of his troops is in Crimea.

Don’t Fret About Soaring Asset Prices – This Time Is Different

global econMy Comments: I hope everyone had a safe and happy celebration to start 2014. With it coming during the middle of the week, my internal calendar is kinda messed up; it seems today has to be Monday. But back to the real world.

My first inclination when asked to understand something not readily understood, is to be positive. Some of you would think me naive, or simply a wishful thinker. But it’s who I am and how I’ve reacted to things all my life.

As 2013 is now behind us and we start 2014, it’s rational to think that, for the stock market at least, 2014 CANNOT be as good as 2013. In historical terms, great years are almost never followed by great years, and that is likely for 2014. But rather than 2014 be the start of another secular bear market, I don’t thnk so. There might be a cyclical downturn, relatively short, returning again to what is a secular bull market. It may be 2016 before things turn south and we begin a secular bear market. Maybe.

But regardless, the world will NOT end in 2014. Happy New Year to all of you.

By Wolfgang Münchau | The Finacial Times

The probability of a rerun of what happened in the past decade is low

Back in 2006 and 2007, commentators (including this one) warned about the rise in stock prices, housing credit and other forms of risky lending in several advanced economies. House prices are rising again. Stock indices have broken records. Derivatives with three-letter acronyms are back. So are long-forgotten old favourites, such as the “cov-light” loan (don’t ask). Should we be worried?

Not really. This time really is different. I do not mean that the world has entered a new phase allowing us to use silly arguments, such as a change in demography, to defend high and rising asset prices. My point is a different one: if some of these bubbles burst, as they undoubtedly will, I do not see similarly devastating effects as I did last time.

For starters, what matters for economic stability is not the level of asset prices, and their subsequent deflation, but leverage and contagion. By 2007, several advanced economies had reached the final third stage in Hyman Minsky’s financial instability hypothesis. This was what the famous economist called Ponzi-finance – a snowball-type financial racket that was bound to end badly. The bursting of the bubble triggered bank failures, which in turn had contagion effects throughout the financial system. The US subprime mortgage market was, of course, the most extreme case of late-stage Ponzi-type finance, which ultimately triggered a near-meltdown of the global financial system.

In the UK, Northern Rock funded house purchases with a loan-to-value ratio of well over 100 per cent of the purchasing price. Loan-to-value ratios are rising again, but not yet to levels that are remotely dangerous. It is right that the central banks keep an eye on these exposures. But with all the changes that have taken place in global banking supervision and regulation, it is hard to imagine that we are going to see even a remote rerun of the US subprime crash. I would acknowledge that the rise in UK property prices is credit-driven. I also find it hard to see how UK house prices could rise by much in real terms from the current levels in a sustainable manner. But even the return of a 95 per cent loan-to-value ratio would not be scary in itself. The UK has been there before.

The second reason I am more optimistic is that there is a greater consensus among central bankers in favour of using macroprudential tools. In several markets we may be in a late-stage one or early-stage two of the Minsky financial instability cycle – somewhere between what he calls hedge finance and speculative finance. There are signs of unusual risk-taking. The instruments of choice to control a housing bubble, for example, are loan-to-value caps and property transaction taxes. Since the dangerous type of housing bubble is credit-driven, a capping of loan-to-value ratios would be particularly effective.

And finally, the upturn in the business cycle in the US and the UK reduces to some extent the conflict between economic stability and financial stability. It has been necessary for central banks to keep policy interest rates low to prevent deflation and stabilise employment. If low nominal interest rates persist for long periods, we know that they tend to encourage financial speculation. As the business cycle in the advanced economies turns upwards, interest rates will begin to rise. There will be less incentive for speculative borrowing then.

I am aware that the interest rate tool alone is far too crude to control economic and financial stability simultaneously. Even if the US Federal Reserve and the European Central Bank had run tighter monetary policy in the earlier parts of the past decade, they could not have stopped the subsequent bubble, although arguably they might have reduced the collateral damage somewhat. But if you combine a rise in the cost of credit with macroprudential policy you should have all it takes to control a housing bubble.

The probability of a rerun of what happened in the past decade is thus comparatively low. But beware: history is the study of events that do not repeat themselves. There are different types of financial instability that may arise this decade. Watch out, for example, for instability arising from global financial flows, including through mismatched foreign currency borrowing.

The single biggest risk to global financial stability remains the eurozone. The present calm is deceptive. Regular readers know that I see the eurozone heading towards a moment of truth at some point in the next few years for which it will not be prepared. The date is impossible to predict. What we do know is that each time the crisis subsides, the EU’s leaders become complacent: the botched banking union is the latest example. If you are on the optimistic end of realism, you might believe that a debt conference would negotiate an orderly managed default. But our experience of negotiated settlements in the eurozone is that negotiations never produce a full resolution. While several scenarios are plausible, it is hard to envisage one that does not produce further serious risks to financial stability.

So watch out for those global macro imbalances as the main threat, plus mismanagement of micro-imbalances in specific sectors and countries. Financial bubbles may all have a similar underlying dynamic, and like Tolstoy’s unhappy families, they are each calamitous in their own way. But not all of them matter.

Why Taxi Cab Drivers Cannot Put Down Their Smartphones

By John Gapper | The Financial Times

The New York minicab service I used to favour communicated in code. When you rang and gave your address, the radio dispatcher would reply “five minutes” and hang up. This meant a cab would arrive at any time from one to 10 minutes later. “Seven minutes” meant 20, and “10 minutes” meant that anything, or nothing, could happen.

This week, when I wanted a ride to London’s Heathrow airport, I used a computer account with Addison Lee, the biggest London service. The software told me when the car would come, showed me the likely route and deducted the fare from a credit card. A clean Ford Galaxy van arrived early and took me there smoothly – at twice the price of my former, less predictable journey to John F Kennedy International.

The revolution in the 400-year-old industry – from standing on the pavement to hail a taxi to summoning it by smartphone – is not cheap. But the cab-hiring applications, from Hailo to Uber, that challenge global tradition (Hailo launches on Thursday in Japan) are having a profound impact.

It is often possible to imagine what technology might achieve years ahead of it happening in practice. Think of the services in the dotcom boom that only worked properly when broadband came. A similar turning point has finally arrived in mobile, through a combination of smartphone apps, digital mapping and location tracking.

Every Silicon Valley buzz-phrase – the app economy, the sharing economy, social networking, the internet of things – has converged on the taxi industry. It has upset as many drivers and regulators as the invention of the hackney-coach in 17th-century London (“They have undone my poor trade, whereof I am a member,” lamented John Taylor, the Thames ferryman-poet), but is a boon for passengers.

If you include all the world’s cities, the taxi industry is big – Uber, the Silicon Valley limousine-hiring app, gained a $3.5bn valuation when Google and the private equity group TPG invested in August – and the competition is going global. As importantly, it illustrates how other local services could be transformed.

The industry is ripe for disruption because it is highly regulated, based on principles reaching back several centuries, and bespoke. Most cities divide cabs into licensed taxis – the only kind that are allowed to “ply for hire” by stopping in the street when hailed by a passenger – and minicabs that must be booked.

The tradition is that licensed taxis are of higher quality, especially in London, where drivers study for three or four years to gain “the Knowledge” of its streets and must go to any destination a passenger wants. In return, they gain privileges that go with their official status, such as the right to use London bus lanes (much to Addison Lee’s annoyance).

Mobile technology undermines this. The passenger can now “e-hail” either a taxi or a minicab by pressing a button on an app and waiting for the vehicle to arrive, which weakens the “ply for hire” privilege. “It has been fantastic for private hire because our cars can be hailed like taxis,” says Liam Griffin, Adddison Lee’s managing director.
Meanwhile, satellite navigation is reducing the Knowledge barrier; a machine can guide a driver who lacks it. No satnav device fully matches human expertise – an experienced driver will often reach the destination faster – but London is an unusually skilled market (take a New York taxi driver off Manhattan’s grid and see what happens) and technology keeps improving.

It is not all bad for licensed taxis. A set of technology companies, such as Hailo, Easy Taxi and GetTaxi, have offered apps to taxi drivers that allow passengers to book without making eye contact. “This is one of the first truly mobile app technologies that is functional and useful, not a game or a fad,” says Ron Zeghibe, Hailo’s chairman.

Arguably, the only real losers are the radio networks that take bookings for licensed cabs at call centres. Technology can now do the job more effectively by matching buy and sell orders on a spatial network, the cab equivalent of the automation of stock exchanges. The elimination of floor traders hurt those affected but increased the speed of trading.

At peak times, after all, there are too few licensed taxis to meet demand – London has 23,000 black cabs in a city of 8.3m people – and the app networks draw on a bigger pool. Outside peaks, taxi drivers can spend half their time trawling for fares, so technology helps reduce the waste of time.

It has upset incumbents, including regulators who prefer clear distinctions between hailable taxis and bookable minicabs. The District of Columbia Taxicab Commission has drafted silly new rules, such as minimum weights for “digital dispatch” cars, while New York’s liveried taxi companies want to stop yellow cabs taking smartphone bookings. They will not succeed in obstructing technological advance any more than the 17th-century ferrymen of the Thames. There are good reasons for licensing of taxis – public safety and service consistency – as well as bad ones, such as the restriction of trade and giving regulators power. Drivers who meet high standards will do fine.

Indeed, a striking aspect of the taxi upheaval is that it has come at the top end of the market. There have been cheap, low-quality minicabs for years but this wave of disrupters offers services akin to licensed taxis or limousines, albeit a bit cheaper and easier to book. (Uber has added UberX, a lower-cost service, to its original luxury vehicles). Despite the commotion, the taxi business has not fallen apart. To this passenger, it feels like an improvement.

The Future of OPEC

My Comments: In part this is a follow up to the posts about the US-Iran deal recently completed. What is often not seen or talked about is our increasing lack of dependance on Middle East oil. That dependency has been the reason for our friendship with Saudi Arabia. This despite where most of the 9/11 hijackers came from: Saudi Arabia. This rapidly changing dynamic will have huge implications for the US and the rest of the ‘western’ world before the end of this decade.

And by extension, where you will invest your money to realize the best return for your retirement accounts , etc.

The prospect of revitalized oil production in Iraq and Iran may add to tensions between those two countries and Saudi Arabia over export quotas. On Dec. 4, representatives of the Organization of the Petroleum Exporting Countries (OPEC) will meet in Vienna to discuss a number of topics. OPEC is facing two challenges. First, OPEC’s historically biggest consumer — the United States — is rapidly increasing its own domestic production. At the same time, OPEC must deal with plans to expand oil production envisioned both by Iraq and Iran, which could lead to lower prices than the cartel desires. Ultimately, however, emerging markets in Asia will set global demand, and their energy thirst will determine the scale of the problem OPEC faces.

OPEC was organized in the early 1960s by Saudi Arabia, Iran, Iraq, Kuwait and Venezuela with the primary goal of unifying the five countries’ oil export policies — and hopefully dictating a high price for their oil. The five countries certainly possessed that power when the cartel was initially formed, and while the cartel still produces about 40 percent of the world’s oil, OPEC’s dominance has declined over the years. Today, only Saudi Arabia and to a certain extent the United Arab Emirates, Qatar and Kuwait retain the ability to voluntarily adjust production levels. OPEC’s other members — Indonesia, Libya, Algeria, Nigeria, Ecuador, Gabon and Angola — must maintain production to finance their national budgets. Effectively, this means that OPEC wields nowhere near the power it once did. Even a producer of Saudi Arabia’s size is barely able to change the price of oil through boosting or cutting production.

A new wave of oil production outside the cartel has already hit. Production in the United States has increased to an estimated 8 million barrels per day — the highest level since the 1980s. Elsewhere, production is set to take off in Canada and potentially Brazil. At the same time, increased production outside OPEC is dwarfed by the ambitious expansion plans put forward by OPEC members Iraq and Iran. While production outside the cartel is manageable, together with Iraq and Iran’s plans it could represent a significant threat to oil prices in the latter half of the decade.
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Excess Self-esteem and the Tea Party

flag USMy Comments: I’m stepping in political waters here but I can’t help myself. This came from the Financial Times and the insights shed a lot of light on how we got to where we are in Washington. There is no reason to think this doesn’t apply to both the Republicans and the Democrats alike, but right now the focus is on those NOT in the White House.

For most of us, our value systems are largely a function of the world we grew up in when we were between ages 11 through 20. The forces at work during those years have a huge impact on what we become as adults. As an investment advisor, I can attest to this when I compare those whose lives were impacted by the Depression years compared with those whose early lives were spent following World War II.

By Gary Silverman in New York | October 3, 2013

The Republicans who shut down the government are like overindulged, trophy-laden children

Call them the trophy kids. They grew up at a time when every young American was a winner and every Little League sports season ended with the presentation of a shiny self-esteem booster to every player on every team, no matter what they did.

I saw them in action as I cheered on my own little leaguers, and I wondered what would happen to all these young people with shelves full of happy endings when they grew up and had to deal with the non-MTV version of the real world.

I’m beginning to think that some of them became the kind of adults who would shut down the government. Maybe I’m getting curmudgeonly in my old age, but I have detected a decidedly trophy-kid sensibility in the young guns of the Republican party who have caused much of our federal apparatus to grind to a halt this week.

The mark of a trophy kid, to my mind, is a self-confidence as well reinforced as an underground Iranian nuclear reactor. They feel as if they are winning even when they are losing – and if we know anything about the Tea Party contingent on Capitol Hill, it’s that they practice this kind of accounting.

The Republican hard core in the House of Representatives has been labelled the “suicide caucus” – by a conservative commentator, Charles Krauthammer. They essentially voted to shut down the government in the hope of blocking implementation of President Barack Obama’s healthcare reforms. But they can’t do that because they lack both sufficient support in the Democratic-controlled Senate, and a friend in the White House, which remains occupied by the very man who supplied 75 per cent of the syllables for “Obamacare”.

Yet that isn’t getting the Tea Partiers down. Like any proper trophy kids, they aren’t hung up on results. To them, winning is a sensation – a buzz. The zeitgeist was captured a few days before the big House vote by Rand Paul, the Kentucky senator, who compared the current feeling in the Republican ranks to that reported by the actor Charlie Sheen during his infamous internet rants of two years ago.

“Does anybody remember Charlie Sheen when he was kind of going crazy … and he was going around, jumping around, saying, ‘Winning, winning, we’re winning’,” Mr Paul said. “Well I kind of feel like that. I think we are winning. And I’m not on any drugs.”

No, he’s high on life – but one that could scarcely have been imagined by your humble narrator when he started playing little league baseball in the late 1960s. It was, to use the technical term, a simpler time, when we measured ourselves by more objective criteria.

Trophies, as a result, were dear. You only earned one if your team won a championship or the coaches picked you for an all-star team. By the time I hung up my sneakers, I had won four, and even today I wish I knew where my mother put them after I left home.

By contrast, if you lost back then, you cried. Because baseball was the most popular little league sport of that era, we all generally came equipped for such moments with a leather glove in which we could bury our faces when the tears began to flow. Viewed from the touchy-feely, tell-it-all-to-Oprah perspective of today, that may seem cruel. But it was fair, and it produced people prepared to be citizens of a republic. We could pull for our team, fight for our cause – and then live by the numbers on the scoreboard.

By that measure, I spent most of my life thinking of the Republicans as the party of actual winners. From 1952 to 2004, the Grand Old Party won nine of 14 presidential elections. Twice, a Republican – Richard Nixon in 1972 and Ronald Reagan in 1984 – carried 49 of the 50 states (with both receiving 55 per cent or more of the vote in such current “blue” states as California, Illinois and New Jersey).

It’s hard to imagine the current government-closing GOP matching that record of success. At the risk of running foul of libel laws, I would suggest that many of today’s Republicans remind me of those fey Democrats of yore who inspired Will Rogers to say: “I belong to no organised party. I’m a Democrat.”

The sad thing for Republicans is that so few of their national leaders – trophy laden and otherwise – seem to understand their position. Mr Obama knocked them on their posteriors almost a year ago, but they still can’t distinguish that particular body part from their elbows, as the old saying goes.

Next Steps for the U.S.-Iran Deal

My Comments: We live in a world of competing economic forces that in the past were almost always resolved by conflict. Since the end of WW2, those types of conflicts have diminished, even though the media would have us believe its the end of the world as we know it when they happen.

All of this will influence how money is spent in this country going forward. That in turn will influence the profit/loss statements of companies in which we invest our money. In a perfect world, Iran will be re-integrated into the global economic society, they will spend money on goods and services, and millions of people will once again be part of the solution and not part of the problem.

While this sounds polyannish, the steps being taken to get this right will not please everyone, but we have to push hard to find solutions that are in the best interest of the citizens of the US. This is an clear explanation of what seems to be happening.

November 25, 2013

What was unthinkable for many people over many years happened in the early hours of Nov. 24 in Geneva: The United States and the Islamic Republic of Iran struck a deal. After a decadelong struggle, the two reached an accord that seeks to ensure that Iran’s nuclear program remains a civilian one. It is a preliminary deal, and both sides face months of work to batten down domestic opposition, build convincing mechanisms to assure compliance and unthread complicated global sanctions.

That is the easy part. More difficult will be the process to reshape bilateral relations while virtually every regional player in the Middle East seeks ways to cope with an Iran that is no longer geopolitically encumbered.


The foreign ministers of Iran and the six Western powers that constitute the so-called P-5+1 Group clinched a six-month deal that begins the curtailment of Iran’s nuclear program while relaxing as much as $6 billion in sanctions — basically those embargoes that do not require U.S. President Barack Obama to secure approval from Congress. Allowing Iran to enrich uranium to “civilian” levels while making sure the know-how is not diverted to military purposes will be complex.

There will be disruptive events along the way, but the normalization process is unlikely to derail. Both sides need it. The real stakes are the balance of power in the Middle East.

Iran is far more concerned with enhancing its geopolitical prowess through conventional means. Meanwhile, the United States wants to leverage relations with Iran in order to better manage the region in an age of turmoil. Contrary to much of the public discourse, the Obama administration is not facilitating a nuclear Iran.

Washington and the Middle East

The United States is prepared to accept that Iran will consolidate much of the influence it has accumulated over the 12 years since the Sept. 11 attacks. From the point of view of the Iranians, they had reached the limits of how far they could go in enhancing their geopolitical footprint in the U.S. war against Sunni Islamist militancy. The tightening sanctions threatened to undermine the gains the Islamic republic had made. Thus the time had come for Iran to achieve through geopolitical moderation what was no longer possible through a radical foreign policy.

Though the United States is prepared to accept an internationally rehabilitated Iran as a major stakeholder in the Greater Middle East region, it does not wish for Tehran to exploit the opportunity in order to gain disproportionate power. The strategic focus must now shift from nuclear politics to the imperative that the United States balance Iran with other regional powers, especially the Sunni Arab states.

The post-Arab Spring turmoil in the region has plunged U.S.-Arab relations into a state of uncertainty for two reasons: First, the autocratic regimes have become unreliable partners; second, the region is seeing the rise of radical Sunni Islamist forces.

A rehabilitated Iran, along with its Shiite radical agenda, serves as a counter to the growing bandwidth of Sunni radicalism. All strategies have unintended consequences. A geopolitically unchained Iran, to varying degrees, undermines the position of decades-old American alliances in the region. These include Turkey, Israel and the Arab states (the ones that have survived the regional chaos defined by anti-autocratic popular agitation, such as Saudi Arabia, Egypt and others).

Washington is not the only actor anticipating a shift in its regional ambitions. France initially challenged earlier attempts at a U.S.-Iranian accord, placing greater pressure on the Iranians — much to the enjoyment of regional states such as Israel and Saudi Arabia. Though Paris has been eying the Middle East — specifically the Sunni monarchies of the Persian Gulf — as a larger potential market for its energy firms and defense exporters, France stands to gain little from unilaterally opposing a U.S.-Iranian deal. Rather, France sought to shape the talks and regional reactions to the benefit of its domestic industries. Germany and the United Kingdom, the other EU powers present at the talks, are hoping to gain greater exposure for their energy firms and exports to Iran’s large domestic consumer base. Germany in particular enjoyed one of the largest non-energy trade relationships with Iran before the most recent sanctions program took effect.

Regional Reverberations

The United States and the rest of the P-5+1 are not the only ones attempting to reset their relationship with Iran. Ankara, though initially opposed to Iranian ambitions in Syria and competing for influence in Iraq, has pursued a warming of ties with Tehran over the past several months. Turkey is a rising regional power in its own right, but domestic infighting within Turkey’s ruling Justice and Development Party is coinciding with a slump in the national economy. Meanwhile, Ankara is struggling to find a peaceful, political solution to its Kurdish issue. Turkey faces an uphill challenge in moving beyond the ring of Iranian influence on its borders, but a potential normalization of relations between Washington and Iran provides some opportunities for Ankara, even at the risk of empowering Iran’s regional ambitions. The two countries face similar challenges from Kurdish separatism in the region, and the Iranian market and potential energy exports could help mitigate Turkey’s rising dependence on Russian energy exports and potentially boost its slowing economy.

For all its rhetoric opposing the deal, Israel has very little to worry about in the immediate term. It will have to adjust to operating in an environment where Iran is no longer limited by its pariah status, but Iran remains unable to threaten Israel for the foreseeable future. Iran, constrained by its need to be a mainstream actor, will seek to rebuild its economy and will steer clear of any hawkish moves against Israel. Furthermore, Iran is more interested in gaining ground against the Arab states — something that Israel can use to its advantage. The report about the Israeli security establishment seeing the deal as a positive development (in contradiction to the position of Israeli Prime Minister Benjamin Netanyahu’s government) speaks volumes about the true extent of Israeli apprehension.

That leaves the Arab states, in particular Saudi Arabia and its Gulf allies, for whom a U.S.-Iranian rapprochement is a nightmare scenario. Riyadh and its neighboring monarchies are caught in the middle of the Arab Spring, which challenges them from within, and were long concerned with the rise of Iran. But now that their biggest ally has turned to normalizing ties with their biggest adversary, these countries find themselves bereft of good options with which to manage an Iran that will gain more from normalizing relations with the United States than it did with the American response to the 9/11 attacks.

Iran has played a large and visible role in bolstering the beleaguered al Assad regime during the Syrian civil war. Iran’s potential reset in relations will bring no easy or quick resolution to Damascus. The Syrian regime will still face the daunting task of having to rout the rebels and secure large swathes of Syrian territory, a difficult task even in the unlikely scenario of a precipitous drop in Sunni Arab backing for the rebels following a more comprehensive agreement between Tehran and the West. Indeed, the Syrian conflict, Iran’s support of Hezbollah and the future of Iranian influence in Iraq will form the more contentious, difficult stages of U.S.-Iranian negotiations ahead.

The Saudis, domestically at a historic crossroads, are trying to assert an independent foreign policy given the shift in American-Iranian ties. But they know that such a move offers limited dividends. Riyadh will try to make most of the fact that it is not in Washington’s interest to allow Tehran to operate too freely in the region.

Likewise, the Saudi kingdom will try to work with Turkey to counterbalance Iran. But again, this is not a reliable tool, given that Turkish interests converge with those of Iran more than they do with Saudi Arabia’s. Quietly working with Israel is an option, but there are limits to that given the Arab-Israeli conflict and the fact that Iran can exploit any such relationship. In the end, the Saudis and the Arab states will have to adjust most to the reality in which American-Iranian hostility begins to wither.

Read more: Next Steps for the U.S.-Iran Deal | Stratfor

How to Snag Totally Free Two-Day Shipping Indefinitely

My Comments: Just in time for Christmas! No, wait, it’s not even Thanksgiving yet.

Increasingly, I find myself buying items over the internet. My son and daughter probably purchase almost everything short of groceries and gasoline. They have bought into the “free shipping” concept, paying an annual fee whenever it seems reasonable, especially from Amazon.

The other day we happened to drop and break the coffee pot that came with our 20 year old coffee maker. Local shops had nothing that would fit. But Amazon did, and it arrived a couple of days later with no additional shipping charges. It works, too!

The “shopping” experience is changing, and you can argue its for the better or not. But it is changing. And that will cause ripples across the entire retail marketing industry, from those who build malls, to the survival of the small town store whose profit margins are already paper thin.

By Brad Tuttle | Nov. 07, 2013

Online shoppers love free shipping. And they love fast free shipping even more. Now, there’s an easy way to get just that: free two-day shipping on most purchases, with no membership fees or minimum buy requirements involved.

Increasingly, online shoppers demand free shipping before officially checking out and paying up at an e-retail site. In consumer surveys, “free shipping” is often singled out as a top “must-have” for holiday purchases made via the web. And increasingly, retailers are obliging shoppers with their demands.

According to a survey conducted for the National Retail Federation, 35% of retailers now offer free shipping year-round, compared to 23% a year ago. A report from Forrester Research stated that 92% of 50 top e-retailers offer free shipping in some form.

Understandably, the most popular free shipping offers come with some stipulations—minimum purchase requirements of, say, $50, and delivery that takes a week or more via standard ground service—so that retailers can keep their costs down. But if there’s anything that shoppers love more than plain old standard free shipping, it’s free shipping that’s speedy, and that has no caveat involving some minimum purchase threshold.

Increasingly, retailers and payment processing services are extending exactly this form of free shipping to entice consumers to bite as well. In early October, PayPal introduced a promotion giving free two-day shipping for customers making electronic purchases from Sports Authority, Levi’s, Dockers, and handful of other major retailers. There is no minimum purchase requirement, though using PayPal is part of the deal.

Similarly, a freshly announced partnership from American Express and ShopRunner allows shoppers to get totally free two-day shipping on orders from more than 80 retail sites, including Calvin Klein, Toys R Us, PetSmart, Tommy Hilfiger, and Eastern Mountain Sports. ShopRunner is similar to Amazon Prime in that both services normally grant unlimited no-cost two-day shipping for members who pay an annual fee of $79. However, with the new offer on the table, the usual ShopRunner membership fees are waived for subscribers who register an American Express card as their primary form of payment in their ShopRunner account. Current ShopRunner members can get a prorated portion of their annual fee refunded if they enroll an AmEx card.

The change is being introduced as a new policy, not a short-term promotion, so it looks like AmEx cardholders will be able to enjoy ShopRunner services for free indefinitely. The new policy could shake up the upcoming holiday shopping period in particular, as it’s likely that many shoppers will elect to sign up for a no-fee ShopRunner account to get simple, free two-day delivery on gift items.

Shoppers and analysts will be watching if and how Amazon responds to ShopRunner’s move. Now that it’s possible to get totally free two-day shipping with one-click purchasing from dozens and dozens of retailers, the prospect of paying $79 annually for essentially these same benefits from an Amazon Prime membership seems a lot less worth it. (Prime also includes access to Amazon’s video on-demand services, but first and foremost customers sign up and pay their fees to get the benefit of fast and free shipping.)

Thus far, Prime has been enormous success for Amazon, in that customers’ spending on the site typically soars after they become members. Recently, Amazon hiked its purchase threshold for free standard shipping from $25 to $35 for non-Prime subscribers at least partly so that a $79 Prime membership appeared like a better value.

Now that ShopRunner’s two-day shipping is free for anyone with an AmEx card, however, both the $35 purchase requirement and a $79 annual membership fee look pretty unappealing—and perhaps unnecessary.