Tag Archives: economics

These 3 Charts Show The Amazing Power Of Compound Interest

retirement_roadMy Comments: Math was not and remains not one of my strengths. But I understand this part. If you are younger than I am and have an opportunity to put some money to work, you need to push the envelope and make it happen.

Whether you do or not, the price you pay for stuff with your money will also increase via the same compounding mechanism, so it behooves you to make sure your savings are growing at least as fast and preferably, much faster. Remember, money is only useful if you can use it to buy the things you need and the things you want.

By Libby Kane July 12, 2014

One of the biggest financial advantages out there is something anyone can access by opening a simple retirement account: compound interest.

Retirement accounts such as 401(k)s and Roth IRAs aren’t just savings accounts — they’re actively invested, and therefore have the potential to make the most of this benefit.

As Business Insider‘s Sam Ro explains, “Compound interest occurs when the interest that accrues to an amount of money in turn accrues interest itself.”

So why is that so important?

The charts below will show you the incredible impact compound interest has on your savings and why starting to save in your 20s is one of the best things you can do.

1. Compound interest is incredibly powerful.

The chart below from JP Morgan shows how one saver (Susan) who invests for only 10 years early in her career, ends up with more wealth than another saver (Bill), who saves for 30 years later in life.

By starting early, Susan was able to better take advantage of compound interest.

Chris, the third saver profiled, is the ideal: He contributed steadily for his entire career.

chart-jp-morgan-retirement-1

2. When you start saving outweighs how much you save.

This chart by Business Insider’s Andy Kiersz also emphasizes the impact of compound interest, and the importance of starting early. Saver Emily, represented by the blue line, starts saving the exact same amount as Dave (the red line), but begins 10 years earlier. Ultimately, she contributes around 33% more than Dave over the course of her career, but ends up with almost twice as much wealth as he does.

saving-at-25-vs-saving-at-35-continued-saving-prettier-1

3. It can even make you a millionaire.
Compound interest can get you pretty far. In fact, Business Insider calculated — based on your current age and a 6% return rate — how much you need to be saving per month in order to reach $1 million by age 65. You can also see the calculations based on different rates of return.

monthly-savings-chart-new-1

 

J.P. Morgan Weekly Market Recap – July 21, 2014

My original idea was to post these every week or so. (That didn’t work out too well! ) Many people like to make their own investment decisions and this recap is a great way to gain insight into what is going on globally. This weekly broadcast from J. P. Morgan will give you some insights as to what is going on right now. Here’s the essential text.

The Week in Review
– Retail Sales were weaker than expected
– Industrial Production was soft in June
– Housing Starts fell to 893k and Permits
fell to 963k
– Consumer Sentiment fell slightly in July
The Week Ahead
– CPI
– Existing Home Sales
– New Home Sales
– US Flash PMI
– Durable Goods

Thought of the Week
The 2Q14 earnings season is under way, and this week will be an important one with 146 S&P 500 companies scheduled to report. By the end of this week, nearly 60%
of S&P 500 by market capitalization will have reported earnings, giving us a good
sense of where things currently stand. Thus far, we have seen many of the big financial sector companies beat earnings estimates; given that financials and technology are the two largest S&P 500 sectors, this suggests that strong profits in the technology space should help actualize current earnings expectations. Turning to the fundamentals, as shown in this week’s chart, the majority of earnings growth we have observed so far this quarter has been a function of margins, as companies continue to operate with as few expenses as possible. Looking forward, however, it is not clear that margins can continue to materially increase, meaning that the baton will need to be passed to revenues in order for earnings to continue pushing higher over the coming quarters.

If you want the full 2 page file, email me and I’ll forward the link to you. Right now it doesn’t want to work properly so I can’t add it to this page. TK

 

Inflation Vs. Deflation

global capitalismMy Comments: Yes, It’s Monday but please, don’t be turned off by the topic. I know economics is often a complicated and boring exercise, but what follows is not only compelling, but written so that most anyone will understand it.

This is quite different from what you hear on television and from political pundits that make it so easy to switch to another channel. Here, there is no blame to assign anywhere.

But those of you with money to invest, or businesses to build, or saving accounts to grow, need to have a good understanding about inflation, about interest rates, about tactics you can use to benefit yourself and those around you who matter. This is just a start, but a good one.

Comstock Partners | Jul. 17, 2014 | [Originally published on 6/4/2014]

Most investors are bewildered by the fact that interest rates on the 10 year U.S. Treasury have been going down year to date from 3% to 2.5% after rising from about 1.6% to 3% last year. At the end of last year virtually everyone expected interest rates to rise this year while the Fed tapered their purchases and the economy improved. In fact, the surveys taken by CNBC showed that every single economist predicted higher interest rates this year. Whenever you get a consensus so strong in these liquid markets you will find that they almost never pan out, and the masses going along with this crowd get fooled.

We believe that this consensus of people who believed that interest rates would rise will now agree falsely as to why the 10 year Treasury declined. Everyone seems to try to explain the move down as either a weaker economy or a “short squeeze.” We have been calling for a decline in interest rates for some time due to the world-wide deflation which we have been discussing in our comments for years. There is not much difference in the debt levels, especially in the financial sector, between the U.S. and Japan back in 1989. That was when Japan fell into the “deflation trap” (or “liquidity trap” explained later) that lasted for the past 25 years. We have used the “Cycle of Deflation” since the early 2000s and it couldn’t be clearer to us that this is the most likely scenario for the United States.

Last week the financial television shows interviewed numerous extremely sharp economists who all were concerned about inflation being the main problem this country will surely have to deal with over the next few months and years. One of them showed a chart of inflation being 1.1% at this time last year, 1.5% at the end of last year (2013) and 2% presently. He believed that this trend would continue moderately higher over the next few months and accelerate from there over the next few years. He did not think it would be horrible hyper-inflation, but one that would need the Fed to deal with the rising prices. He also believed that Ben Bernanke was not as concerned about inflation as he should have been when he was the head of the Fed.

Another economist stated that, “at a minimum deflation is dead.” He was concerned about the rising prices of food, energy, and rents. He also believed that wages are a lagging indicator and with four months in a row of rising non-farm employment greater than 200,000 (he assumed that May would also exceed 200,000) wages would rise much more than they did in the past and since wages represent 40% of the core CPI index.

The other economists added more concerns to the above bringing up the fact that the cost savings for prescription drugs is now over, and the prices of cars and clothing are now rising. Global wages should rise from 2.5% to 3.5-4% as other central banks like the ECB and the Peoples Bank of China will be following us and the Japanese in easing as their economies slow down. Inflation rates are on the rise and the Fed is “behind the curve.”
These economists that I referred to above are very sharp and present a powerful case for an inflationary scenario not only in this country but globally. We, on the other hand, strongly believe that this onerous debt that was generated from the early 1980s to present will more than likely end with the debt collapsing into a deflationary depression or another “great recession” both here and abroad. We would put a probability of around 60% on a deflationary outcome, but we also agree that if it doesn’t end in deflation, the next highest probability would be hyper-inflation and we would put about a 25% probability on that (with a 15% probability of muddling through with the debt continuing to expand for years).

VELOCITY OF MONEY

Our problem with the inflationary scenario is the velocity of money and multiplier of money. As far as velocity goes, the turnover of our money supply has been declining since the middle of the 1990s from 2.2 velocity to 1.5 now, and as it continues to decline we will not experience the recovery strength we witnessed after every downturn since the “great depression”. The M1 Velocity (GDP/M1-see attachments #3–# 4) has declined from 10.5 in 2007 to 6.3 presently). When the consumer is overburdened by debt he or she is afraid to continue borrowing and spending, and most banks are reluctant to loan money to anyone except the most credit worthy. Under this scenario the velocity will continue declining producing a lower than normal money supply and GDP.

The consumer debt relative to GDP jumped from a long term average of less than 50% for decades leading up to the middle of the 1980s where it grew to over 95% in 2008. We are now at 77% on the way back to the past 50% norm. Consumer debt to Personal Disposable Income (PDI) was under 60% for the decades of 1950 to the middle 1980s to almost 130% of PDI before the “great recession” starting in 2007. After peaking in 2007 the H/H debt to PDI has declined to about 105% presently on the way back to the norm of 60%.

MONEY MULTIPLIER

Another reason we are putting such a high probability of deflation (60%) versus inflation (25%) and muddling through (15%) is because of the money multiplier which determines how much the money supply grows relative to the monetary base. You see, the Fed can only control the Monetary Base and the Federal Reserve’s balance sheet. The Fed balance sheet grew from $800 bn. in 2008 to $4.1 tn. now, and most inflationists believe that unwinding that much money will create hyper-inflation. The Fed uses their tools of lowering the Federal Funds rate (the rate that the banks can borrow money from the Fed) and purchases of government bonds as well as mortgage backed securities (or Quantitative Easing –QE). They can also issue low cost Certificates of Deposit –CDs to the banks as well as reverse repos, but the main tools of the Fed are lowering rates and QE. However, these tools don’t directly control the Money Supply (NYSE:MS). How much M2 grows is dependent upon the money multiplier and if it continues down as it has lately the money supply will continue to be hampered by this multiplier.

“LIQUIDITY TRAP”

Another problem with the inflationary scenario is the “liquidity trap” we are struggling to escape from presently. This is a situation in which prevailing interest rates are low and savings rates are also low, making monetary policy ineffective. In a liquidity trap, consumers choose to avoid bonds and keep their funds in the safest investments because of the prevailing belief that interest rates will soon rise. Because bond prices have an inverse relationship to interest rates, many consumers do not want to hold an asset with a price that is expected to decline.

In this situation, banks sell their bonds to the Fed and receive cash, but instead of loaning the dollars out they deposit the money back with the Fed as excess reserves and therefore the dollars do not recycle or circulate. This prevents the money supply from growing, and eventually has a deflationary outcome. You can supply all the money the Fed wants by increasing the Monetary Base, but if the public and corporations don’t want to borrow the money, the money supply is restricted and when you think there will be inflation, instead there will be disinflation and possibly deflation.

So, it seems to us that because of the velocity of money, the money multiplier, and the liquidity trap, inflation will be postponed indefinitely and replaced by disinflation or even deflation. The global environment for inflation is also on the side of disinflation as the European Union just reported an inflation rate of only 0.5% and Germany’s inflation rate was only 0.6%. The ECB will attempt to address these deflationary indicators this week. And if China’s GDP growth continues on the downward growth path they could lead the way to emerging market weakness and disinflation or deflation.

World Weather Gone Haywire – Effects On… CRB Index and The Economy

My Comments: No, we are not doomed. But I can’t recall this much rain every day, some of it at night, when there wasn’t a hurricane. I’m sure it happened, but I don’t remember.

Does it have an effect on the economy? Experts agree last winters’ storms had an effect. So it’s worth paying attention to from time to time. If you are looking for solace, you won’t find it here. My cousin in England just wrote to tell me their weather is noxious and unpleasant. Have you thought about the price of vegetables and fruit in the coming months, stuff that we normally get from California? No rain there at all.

The people who give us economic data now say that the first quarter of 2014 saw really bad numbers. Early on it was an assumption that the economy was poised to enter another recession. Now, the powers that be say it was largely the weather. That’s a mixed blessing.

If you insist on keeping your head where the sun never shines, sooner or later it won’t matter how hot it is. Regardless of whether this is Gods’ plan, if the oceans continue to rise life is going to be more difficult for my grandchildren. But I guess if God hasn’t yet told you the plan can be changed by paying attention to CO2 levels, you don’t have to worry about consequences. And anyway, I’ll be dead by then and my Tea Party brethren can get all the credit.

James Roemer / Feb. 19, 2014

Cold U.S. Winter Affecting Nation’s Economy

You have heard it on your local news for weeks, read about it in dozens of newspapers around the world and if you live in the deep south, Midwest or Northeast, have “felt” it first hand—the most severe U.S. winter since 1982, at a time when much of the rest of the planet continues to see overall warmer than normal weather.

Look for another potential big storm in the east around February 26th and at the very least, record cold weather next week into early March.

You can hear a broadcast on Bloomberg a while back talking about natural gas prices possibly going over $6.00 and discussing global warming, the Brazilian drought, etc.

The adverse weather is having a multi-billion dollar affect on our nation’s economy. Pipes are bursting in the Northeast, salt companies are running out of supplies to remove snow, and various businesses are running into more economic hardship, as a result of the weather. Florists saw national revenues fall 60% during the Valentine’s Day period, unable to deliver flowers to tens of thousands of loved ones.

Our $16 trillion economy can usually ward off a couple of snowstorms, but NOT the incessant nature of 3 consecutive months of brutal cold and near record snowfall, in which tens of thousands of flights are being cancelled every other week. Other industries such as plastic and rubber products, auto sales, etc. are also being hurt.

The drought in California (one of the top 8 economies in the world), could also have a trillion dollar affect on our nation’s economy as food bills could soar without widespread rains and winter snow cover in the next winter or two. If El Nino forms, this could all change. It’s something I am arduously looking into.

TK – the balance of this article is full of charts and comments that may influence you if you are a short term trader. My primary interest is the long term performance of clients money (and mine) so I tend to ignore short term issues as they are largely noise. But global warming is going to have a long term influence on virtually everything, including our money. To get to the site where you can see the charts and read the rest…

http://seekingalpha.com/article/2032701-world-weather-gone-haywire-effects-on-brazil-natural-gas-crb-index-and-the-economy?source=email_macro_view_edi_pic_2_2&ifp=0

US Economy: Misaligned Policies to Blame, Not Structural Flaws

retirement_roadMy Comments: More than once a week, I have conversations with a client, or prospect or someone I run into, who are gloomy to the point of absurd. There is a pervasive expectation that life will be miserable going forward. I suppose it’s a natural phenomenon, but I don’t share it.

That it will be different is a given; every generation for millenia has lived in a world different from their parents, though granted, these days the changes happen faster. But look around you. In the world you live in today, do you see abject poverty in this country? I’m talking about the kind I experienced as a child when I travelled with my parents to India. From the train station to the hotel, surrounded by beggars, some not more than 4 or 5 missing an arm, removed by a parent to improve their chances of a handout.

How many of us have no bed to sleep in, miss a meal every day, have one set of rags to call clothes? Yes, there are some, probably suffering from a mental disorder, but this has mostly vanished from the civilized world. And that includes India.

So get over it, figure out what you can do to help your children and grandchildren live in a different but OK world, and focus on the positive. You may be surprised how good life can be these days.

Michael Ivanovitch / Sunday, 4 May 2014

Investors need not worry about naysayers’ myriad structural flaws of American economy. Some of these problems do exist, most are fanciful, but none are currently responsible for America’s Mediterranean style output gap.

The U.S. economy is held back by a misaligned policy mix: Excessive fiscal restraint and an ineffective monetary policy at a time when aggregate demand remains well below its noninflationary potential.

Jobs, incomes and credit costs are the key variables driving America’s economic activity. All of them are in a dire need of more supportive demand management policies.

It is wonderful to see that 288,000 new jobs were created last month in a broad range of nonfarm business sectors. But that still left 9.8 million people out of work, 7.5 million people stuck in part-time jobs because they could not get full-time employment and 2.2 million people who dropped out of the labor force because they were unable to find a job.

Adding all that up, we get an actual unemployment rate of 12.6 percent — double the officially reported rate of 6.3 percent.

And there is nothing structural about this, even though there are sectoral and regional mismatches between the labor skills demanded and those on offer. A meaningful decline in this huge number of unemployed can only be obtained with a steady and sustained increase of labor demand as businesses expand their output to meet rising sales. That is what we have don’t have enough of.

Weak incomes are a direct corollary to such a large labor market slack. The real disposable household income bounced back in the first quarter of this year, but over the last four quarters incomes grew at an average annual rate of only 1.3 percent.

Ask the Fed why the banks are not lending
How can one expect a buoyant household consumption (70 percent of U.S. economy) from these employment and income numbers?

A puny 2.2 percent average annual growth of consumer outlays during the last four quarters is partly a result of households drawing down their savings to maintain their customary consumption patterns. Indeed, the savings rate, now down to 4 percent of disposable income, has been on a steady decline since the middle of last year.

And neither are we getting much help from a near-zero effective federal funds rate and massive monthly asset purchases that have expanded the balance sheet of the Federal Reserve (Fed) to a mind-boggling $3.9 trillion and the banks’ loanable funds (excess reserves) to an equally extraordinary $2.6 trillion – an increase of 32 percent and 49 percent, respectively, from the year earlier.

All we got from that is a 4 percent increase in bank lending to households. People are increasingly turning to nonbanks, whose consumer loans are soaring at annual rates of 7-9 percent and represent 60-70 percent of total consumer lending.

Somebody should perhaps find out why it is that U.S. banks prefer to keep $2.6 trillion at the Fed at an interest rate of 0.25 percent instead of financing car purchases at 4.2 percent or extending two-year personal loans at 10.1 percent.

Residential investments — the other interest-sensitive component of aggregate demand that is directly influenced by jobs and incomes – have also drastically weakened since the middle of last year. They increased in the first quarter at an annual rate of 2.3 percent, practically collapsing after a hefty 15 percent annual gain in the second quarter of 2013.

The most frequently heard explanations that rising real estate prices and higher mortgage costs are the main reasons for the weakening housing demand are largely peripheral to the core issues of high unemployment and virtually stagnant real disposable personal incomes.

I am not dismissing the negative impact of a 12.9 percent increase in real estate prices over the last twelve months, and a 100 basis points gain in mortgage rates. But, as important as these things might be, they literally pale into insignificance compared with the depressive force of high jobless rates and nearly flat incomes.

A low labor participation rate offset April’s better-than-expected jobs report, says David Dietze, President & Chief Investment Strategist at Point View Wealth Management.

Tell the Congress to ease up on the purse
Faced with weak private sector demand, one might expect that the economy would get some help from stronger public spending. Unfortunately, the opposite is happening. While criticizing Germany for palming fiscal austerity on its recession-ridden euro partners, Washington is in fact following the German policy line.

According to recent estimates by the nonpartisan Congressional Budget Office, a severe fiscal retrenchment is expected to cut this year’s federal budget deficit to 2.8 percent of the gross domestic product (GDP), marking the fifth consecutive year of a sharply narrowing budget gap.

That is a laudable effort, but such haste in slashing public spending is the last thing we need when the economy is growing below potential and struggling with high unemployment.

The U.S. Congress should allow the government to, as the White House says, “spend money on infrastructure to fill up the potholes” and attend to other worthy public services. More generally, a reasonable increase in public spending would go some way toward supporting demand, output and employment.

This discussion shows that there is nothing structurally wrong with the American economy that would degrade it permanently – as some observers seem to believe – to the position of a global growth laggard.

Yes, income inequalities have to be watched carefully, but the U.S. needs no lessons on this because its progressive income tax was introduced in 1862. The progressivity has been sharpened many times since, and the public debate of income inequality will probably heat up during the forthcoming election cycle.

Education, healthcare and a more enlightened approach to immigration are also issues of continuing concern for every administration.

U.S. trade imbalances are another ongoing question of public policy. Clearly, the economy could benefit from a more aggressive enforcement of sound trade practices to even out the playing field for American companies and to protect their intellectual property.

But more than anything else, the American economy needs effective fiscal and monetary policies to narrow its large output gap and to stimulate employment creation.

Don’t sell the U.S. short; its world-beating companies offer some of the best and safest investment assets you can find – anywhere.

Michael Ivanovitch is president of MSI Global, a New York-based economic research company. He also served as a senior economist at the OECD in Paris, international economist at the Federal Reserve Bank of New York and taught economics at Columbia.

The Outlook for Yields

My Comments: Guggenheim Partners has recently been sending periodic macro insights about investments and opportunities for investors. Good stuff, so if investments interest you, I encourage you to grasp as much of it as you can.

global investingGlobal CIO Commentary by Scott Minerd of Guggenheim Partners – July 03, 2014

As U.S. economic growth gathers pace, yields on 10-year U.S. Treasuries should shift higher over the next two-three years, eventually moving as high as 3.25 – 4 percent.

While a broad-based secular increase in inflation will be a problem that comes most likely in the next decade, a number of technical and cyclical forces, such as healthcare and shelter costs, are working to push consumer prices higher over the next six months or so.

However, these forces are unlikely to spark sustained inflation in the near term, given that the U.S. unemployment rate is still quite high, the labor force participation rate has been on a downward trend for a number of years, and capacity utilization is still significantly lower than the threshold associated with a broad increase in consumer prices. In the medium-term, wage pressure will continue to rise and aggregate demand should improve. Rather than being the harbinger of an inflationary spiral many investors fear, that should be positive for economic activity.

Our research suggests that the yield on the U.S. 10-year Treasury bond should now be 3-3.25 percent, yet yields have been hovering around 2.6 percent. Keeping rates low in the near term are technical factors such as central bank accommodation flooding global markets with liquidity and some form of quantitative easing likely coming in Europe.

This week’s ADP report showing U.S. firms added 281,000 jobs in June, the most since November 2012, is the latest sign that the U.S. economic recovery is picking up steam. Over the next two to three years, given that economic growth is likely to be stronger, unemployment is likely to be lower, and inflation is likely to be higher, we will eventually start seeing fundamentals take over, resulting in higher yields on U.S. Treasuries. Assuming the U.S. Federal Reserve starts raising interest rates mid to late next year, we could see the U.S. 10-year Treasury bond reaching a cyclical high of somewhere around 3.75-4 percent.

U.S. Wage Pressure Approaching, But Not Here Yet

An improving labor market, brighter growth prospects, and higher capacity utilization are pointing to a U.S. economy approaching equilibrium. Historically, once the economy moves past equilibrium, whether defined by unemployment, output, or capacity, significant wage inflation tends to follow. Though we are drawing nearer to these levels, it is likely to take one year or longer before the gap is closed and broad-based wage inflation emerges.

Source: Haver, Guggenheim Investments. Data as of 7/2/2014. Note: We define the output gap using Congressional Budget Office (CBO) data on potential GDP, where the gap is the difference between actual and potential GDP as a percentage of potential GDP. We define the capacity utilization gap in the same way, using 82 percent as the natural rate. We define the unemployment gap using CBO data estimates of the natural rate of unemployment.

U.S. Data Points to Strong Second Quarter

• The ISM manufacturing index cooled slightly in June but remained well in expansion territory, inching down to 55.3 from 55.4.
• Personal Consumption Expenditures (PCE) rose less than expected in May, up 0.2 percent after April’s flat reading.
• The University of Michigan consumer confidence increased in June to the highest level this year, to 82.5 from 81.9.
• Pending home sales increased in May for a third consecutive month, rising by 6.1 percent from a month earlier, making it the best month in over four years.
• Construction spending rose for a second month in May but was below expectations, rising just 0.1 percent from April.
• Initial jobless claims inched down by 2,000 for the week ended June 21, to 314,000.
• Factory orders fell by 0.5 percent in May after rising during the previous three months.
• The core PCE deflator, the Fed’s preferred measure of inflation, rose in May for a third straight month, to 1.5 percent — the highest since January 2013.

China Manufacturing Positive, European Prices Muted

• Euro zone consumer prices rose 0.5 percent year over year in June, equaling May’s gain.
• Euro zone economic confidence unexpectedly declined in June to 102.0 from 102.6.
• Retail sales in Germany unexpectedly fell for a second consecutive month in May, decreasing 0.6 percent.
• Germany’s CPI accelerated to 1.0 percent year over year in June, the highest in four months.
• Spain’s manufacturing PMI rose to 54.6 in June, a seven-year high.
• The manufacturing PMI in the United Kingdom expanded to 57.5 in June, the best level this year.
• China’s official manufacturing PMI showed a faster pace of expansion for a fourth straight month in June, rising to 51.0.
• Japan’s Tankan survey of large manufacturers dropped to 12 from 17 in the second quarter. The outlook index, however, reached its highest level since 2007.
• Japan’s industrial production showed a small rebound in May, rising 0.5 percent after a 2.8 percent drop.
• Japan’s CPI climbed higher in May to 3.7 percent year over year, reflecting the recent sales tax hike. Core prices rose 3.4 percent, the highest since 1982.

Moscow’s Moves and Your Investments

My Comments: Geopolotical events almost always influence the world of investments. Today, global economic health, or lack of it, dictates to some extent how we invest our money, where we invest our money, and what we can expect going forward.

All of us saw recently how the ISIS jihadists in Iraq caused the price of gas at the pumps in far away Gainesville to jump upward. That means that if your business involves moving stuff from point A to point B, somewhere in the continuum from start to finish, the cost of transportation increased. Either you absorbed the increase, meaning you made less money, or you passed it on the next guy, which means somewhere in the chain, the final price went up also.

Don’t for a minute disregard the events going in Russia and the Ukraine. That doesn’t mean we should obsess about it, but it will affect our lives, and the lives of those around us. If you ignore it, that too will have consequences, however small. It’s just that the outcome in Ukraine is and will remain a part of the fabric of our financial future.

By Dmitri Trenin / July 1, 2014

Russia needs people and should think of the Eurasian Union as a Nafta, says Dmitri Trenin. It needs to build a nation, not an empire.

If the Maidan protests and their aftermath did not disabuse Russia of the hope of a Eurasian Union that includes Ukraine, the signing last week of EU association agreements on economics and trade with Ukraine, Georgia and Moldova should have done so. Three former Soviet republics are now linked, however loosely, to the EU.

President Vladimir Putin is discovering that the “Russian world” he often refers to is a soft-power category – geocultural rather than geopolitical or geoeconomic, and that Ukrainians and Russians are not “one people”.

At this point, rather than worrying about what it sees as its losses, Moscow should consolidate its gains.

It has managed to reincorporate Crimea, arguably the only part of post-Soviet Ukraine that had a strong affinity with the Russian state. It should work hard to turn the peninsula, particularly its southern coast, into a thriving region, economically on a par with the Greater Sochi area, making it a showcase of Russia’s capacity to develop depressed areas with significant potential for tourism.

It also needs to keep Crimea’s diverse population happy, including the ethnic Russian majority; the ethnic Ukrainian minority (about 25 per cent); and, particularly, the Crimean Tatars (more than 10 per cent), Muslims who regard the territory as their ancestral homeland.

Next, its main strategic interest lies in keeping Ukraine out of Nato – and here the prospects are good. Washington has to balance its global commitments, from the South China Sea to Iraq, and Ukraine is nowhere near the top. Berlin and Paris are adamant neither Ukraine nor Georgia and Moldova should join. London sees no reason to extend the borders of common defence to Russia’s heartland.

Moscow should shift to a longer-term approach to relations with Kiev, switching from using armed rebellion in the eastern region of Donbass as a means of protecting its interests to a broader political strategy involving all of Ukraine. As the Russian defence industry’s ties with Ukrainian contractors grow unreliable, it should seize the chance to create a fully sustainable defence industry within own borders. Russia will also need to adjust its overall trade relations with Ukraine, and do so in full compliance with World Trade Organisation norms and principles.

One clear gain, besides Crimea and Sevastopol, may be the Ukrainians who cross the border into Russia. Sharing a common language and culture, they can be perfectly integrated. Rather than gathering further lands, Moscow needs to gather people from the former Soviet Union who would help it build a motivated and younger workforce, and a greater consumer base. Such a policy should favour those who can contribute the most to its wellbeing – primarily the engineers and other workers producing aircraft engines and missiles, enterprises that used to be important to Russia but face contraction or extinction as Ukraine adapts to the EU’s trading requirements.

The Russian Federation needs to continue its transition from an empire to a continent-size nation state. While it needs more people, it does not need more land. It should not think of the Eurasian Union as a replica of the EU but rather as a kind of North American Free Trade treaty. Economic interest, rather than common ethnicity or shared history, is the glue to seal the new association.

Moscow’s longing, in the past quarter century, to be admitted into the west has suffered a setback: it should see this as a blessing in disguise. With its occidental option closed for now, its choices are clearer than ever. If it embraces a “fortress Russia” concept and practises economic isolation and political repression, it will head for a catastrophe on the scale of the Soviet Union’s. If it turns east, it will make itself a raw materials appendage and a tributary of China, destroying its self-image as a strategically independent power.

If it wants to stay in the game of global competition, it has no choice but to work towards becoming a civic nation, a rules-based polity and a modern economy.

Countries, like people, often do the right thing when all other options are closed. For Russia, the choices have rarely been starker.

The writer is director of the Carnegie Moscow Center

Powered by the U.S., Global Assets Forecast to Hit $100 Trillion

My Comments: So, just how much is $100 Trillion?

Can you say “A lot!”?  What’s equally mind boggling to me is that in 1967 ( or maybe it was 1966?) I built a house for myself and my wife. In those days I acted as my own general contractor. Back then, I could also dig my own footers. The plans were drawn by an architect friend who charged me something but I have no idea what.

My point is the house cost less than $10 per square foot to build. And today is stands proudly in a quiet Gainesville neighborhood, though it could use a coat of paint. At the time, though the total was less than $17,000, it was a lot of money. Back then, to have been told that in 2014 it would cost at least $250,000 to build a house of similar size would have been equally mind boggling.

So while $100 Trillion is a lot of money, it’s all relative. It’s what you do with the money that counts, not how much there is. And if you can’t use it to spend on stuff you need and want, it has very little value.

By Nick Thornton / July 1, 2014

Worldwide assets under management are poised to hit $100 trillion by 2018, so long as U.S. markets continue to lead the way, according to Cerulli’s latest research.

The U.S. accounts for just under half of global assets under management.

Low interest rates around the globe have pushed cash into equity, boosting financial markets.

Cerulli’s five-year prognosis is optimistic, though the report predicts that managing assets going forward will be trickier than in the past several years.

“The dark days of late 2008 and early 2009 may be well behind us, but there continues to be pressure on net revenues,” said Shiv Taneja, a London-based managing director at Cerulli.

The firm’s annual report, now in its 13th year, is a massive analysis on markets around the world, from emerging markets to the developed economies of Europe, Asia and North America.

“For all the bashing the global emerging markets have taken over the past couple of years, Cerulli’s view is that it will be markets such as Southeast Asia and a handful of others that will top the leader board of mutual fund growth over the next five years,” said Ken F. Yap, Cerulli’s Singapore-based director of quantitative research.

US Cable Barons And Their Power Over Us

Internet 1My Comments: Professionally, I live in the world of finance and investments. Regulation is pervasive, most likely increasing, since there is a pervasive threat of abuse by the big players. I think it would help all of us to have a level playing field, including individuals, corporate America, and society as a whole.

I cannot run my business today without the internet. My predecessors couldn’t run their businesses without newspapers and telephones. Over the years, no one had a problem keeping those industries from being dominated by a few companies who just might become monopolies.

So why is Congress apparently willing to let Comcast become a virtual monopoly without restriction?

By Edward Luce | April 13, 2014 | The Financial Times

No one in Washington seems to have the will to stop industry moguls from tightening their grip on the internet.

Imagine if one company controlled 40 per cent of America’s roads and raised tolls far in excess of inflation. Suppose the roads were potholed. Imagine too that its former chief lobbyist headed the highway sector’s federal regulator. American drivers would not be happy. US internet users ought to be feeling equally worried.

Some time in the next year, Comcast’s proposed $45.2bn takeover of Time Warner Cable is likely to be waved through by antitrust regulators. The chances are it will also get a green light from the Federal Communications Commission (headed by Tom Wheeler, Comcast’s former chief lobbyist).

The deal will give Comcast TWC control of 40 per cent of US broadband and almost a third of its cable television market.

Such concentration ought to trigger concern among the vast majority of Americans who use the internet at home and in their work lives. Yet the backlash is largely confined to a few maverick senators and policy wonks in Washington. When the national highway system was built in the 1950s, it provided the arteries of the US economy. The internet is America’s neural system – as well as its eyes and ears. Yet it is monopolised by an ever-shrinking handful of private interests.

Where does it go from here? The probability is that Comcast and the rest of the industry will further consolidate its grip on the US internet because there is no one in Washington with the will to stop it. The FCC is dominated by senior former cable industry officials. And there is barely a US elected official – from President Barack Obama down – who has not benefited from Comcast’s extensive campaign financing. As with the railway barons of the late 19th century, he who pays the piper picks the tune.

The company is brilliantly effective. Last week, David Cohen, Comcast’s genial but razor-sharp executive vice-president, batted off a US Senate hearing with the ease of a longstanding Washington insider. A half smile played over his face throughout the three-hour session. One or two senators, notably Al Franken, the Democrat from Minnesota, offered skeptical cross-examination about the proposed merger. But, for the most part, Mr. Cohen received softballs. Lindsey Graham, the Republican from South Carolina, complained that his satellite TV service was unreliable when the weather was bad. Like many of his colleagues, Mr. Graham either had little idea of what was at stake, or did not care. With interrogations like this, who needs pillow talk?

Comcast is aided by the complexity of the US cable industry. Confusion is its ally. The real game is to control the internet. But a lot of the focus has been on the merger’s impact on cable TV competition, which is largely a red herring. The TV market is in long-term decline – online video streaming is the viewing of the future.

Yet Comcast has won plaudits for saying it would divest 3m television subscribers to head off antitrust concerns. Whether that will be enough to stop it from charging monopoly prices for its TV programmes is of secondary importance. The internet is the prize.

The public’s indifference to the rise of the internet barons is also assisted by lack of knowledge. Americans are rightly proud of the fact that the US invented the internet. Few know that it was developed largely with public money by the Pentagon – or that Google’s algorithmic search engine began with a grant from the National Science Foundation. It is a classic case of the public sector taking the risk while private operators reap the gains. Few Americans have experienced the fast internet services in places such as Stockholm and Seoul, where prices are a fraction of those in the US. When South Koreans visit the US, they joke about taking an “internet holiday”.

US average speeds are as little as a tenth as fast as those in Tokyo and Singapore. Among developed economies, only Mexico and Chile are slower. Even Greeks get faster downloads.

So can anything stop the cable guy? Possibly. US history is full of optimistic examples. Among the dominant platforms of their time, only railways compare to today’s internet. The Vanderbilts and the Stanfords had the regulators in their pockets. Yet their outsize influence generated a backlash that eventually loosened their grip.

For the most part, electricity, roads and the telephone were treated as utilities and either publicly owned, or regulated in the public interest. The internet should be no exception. Much like the progressive movement that tamed the railroad barons, opposition to the US internet monopolists is starting to percolate up from the states and the cities. It is mayors, not presidents, who react to potholed roads.

Last week, Ed Murray, the mayor of Seattle, declared war on Comcast even though it donated to his election campaign last year. Drawing on the outrage among Seattle’s consumers, Mr. Murray seems happy to bite the hand that fed him. “If we find that building our own municipal broadband is the best way forward for our citizens then I will lead the way,” he said.

Others, such as the town of Chattanooga, Tennessee, which is distributing high-speed internet via electricity lines, are also doing it for themselves. Forget Washington. This is where change comes from. “We need to find a path forward as quickly as possible before we [the US] fall even further behind – our economy depends on it,” said Mr. Murray. As indeed does America’s democracy.

World Weather Gone Haywire: Effect On… and the Economy

My Comments: No, we are not doomed. But it’s worth paying attention to from time to time. If you are looking for solace, you won’t find it here. My cousin in England just wrote to tell me their weather is noxious and unpleasant. Have you thought about the price of vegetables and fruit in the coming months, stuff that we normally get from California? No rain there at all.

The people who give us economic data now say that the first quarter of 2014 saw really bad numbers. Early on it was an assumption that the economy was poised to enter another recession. Now, the powers that be say it was largely the weather. That’s a mixed blessing.

If you insist on keeping your head where the sun never shines, sooner or later it won’t matter how hot it is. Regardless of whether this is Gods’ plan, if the oceans continue to rise, life is going to be more difficult for my grandchildren. But I guess if God hasn’t yet told you the plan can be changed by paying attention to CO2 levels, you don’t have to worry about consequences. And anyway, I’ll be dead by then and my Tea Party friends can claim all the credit.

James Roemer / Feb. 19, 2014

Cold U.S. Winter Affecting Nation’s Economy

You have heard it on your local news for weeks, read about it in dozens of newspapers around the world and if you live in the deep south, Midwest or Northeast, have “felt” it first hand—the most severe U.S. winter since 1982, at a time when much of the rest of the planet continues to see overall warmer than normal weather.

Look for another potential big storm in the east around February 26th and at the very least, record cold weather next week into early March.

You can hear a broadcast on Bloomberg a while back talking about natural gas prices possibly going over $6.00 and discussing global warming, the Brazilian drought, etc.

The adverse weather is having a multi-billion dollar affect on our nation’s economy. Pipes are bursting in the Northeast, salt companies are running out of supplies to remove snow, and various businesses are running into more economic hardship, as a result of the weather. Florists saw national revenues fall 60% during the Valentine’s Day period, unable to deliver flowers to tens of thousands of loved ones.

Our $16 trillion economy can usually ward off a couple of snowstorms, but NOT the incessant nature of 3 consecutive months of brutal cold and near record snowfall, in which tens of thousands of flights are being cancelled every other week. Other industries such as plastic and rubber products, auto sales, etc. are also being hurt.

The drought in California (one of the top 8 economies in the world), could also have a trillion dollar affect on our nation’s economy as food bills could soar without widespread rains and winter snow cover in the next winter or two. If El Nino forms, this could all change. It’s something I am arduously looking into.

TK – the balance of this article is full of charts and comments that may influence you if you are a short term trader. My primary interest is the long term performance of clients money (and mine) so I tend to ignore short term issues as they are largely noise. But global warming is going to have a long term influence on virtually everything, including our money. To get to the site where you can see the charts and read the rest…
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