Tag Archives: global politics

America Will Lose Patience With European Appeasement

My Comments: It is much easier to imagine a future as an extension of the past as seen in our minds than to visualize a future with totally new and different dynamics. This is where I have a problem with leaders like Israel’s Netanyahu, with the likes of Rand Paul and others on the right.

They seem unwilling to recognize that the coming years will be dramatically different from those in the past and simply want to turn back the clock. You only need to look at the life of my grandparents as they grew up, married and had children in the late 1800’s and the lives their children lived in the 1920’s and ‘30s. Never mind my life in the 40’s and 50’s. The shifts in what they experienced as “normal” are almost like night and day as I look back.

The issues faced by my children and grandchildren to advance themselves in society will demand different skill sets, different rule sets, and a different mind set if they are going to be happy and productive citizens. The sooner we elect leaders who are sufficiently imaginative and willing to articulate this perspective, the more comfort I will have as my life ends.

( Some of you will note that I’ve been absent for a week or so. I’ve been trying to find a way to legitimately use this site to help promote my business activities without infringing on my ability to simply express ideas that I want to share. If any of you have any ideas about this, I’d like to hear from you. – TK )

Robert D Kaplan April 7, 2015

Why should Washington defend a continent that will not defend itself, writes Robert Kaplan

Appeasement is an age-old tactic of diplomacy. It can be a defensible one, but not as a frame of mind for an entire continent. Yet no word captures the general mood of Europe better than appeasement.

Europeans, it has been said, cherish freedom but do not want to sacrifice anything for it. Only about half a dozen of Nato’s 28 members spend 2 per cent of output on defence, the alliance’s guideline level. When Vladimir Putin’s Russia undermined the strategic state of Ukraine, they stood and watched.

This is of a piece with the EU’s inability to deal with its own economic difficulties. Whatever they may claim, each member follows its own national interest without asking what is best for Europe. Decades into the project, there is still no chill-up-your-spine loyalty to Europe. There is simply no larger purpose and nothing to fight for, other than providing for the good life under welfare state conditions.

Europe has been reduced over the decades to a regulatory regime. Yet a rules-based order, however much it protects the rights of the individual, is not a replacement for conviction: rather, it must evolve out of a healthy and determined national purpose. A supranational purpose might exists in Brussels but not on the European street.

Because of their anaemic sense of national purpose, European elites have in several countries ceded measurable ground to the far right or the far left, resulting in a lumpen and populist form of nationalism. Elites are often stranded in the middle, seeking ways to appease both Mr Putin and their own, homegrown extremists. Lumpen nationalism, defeatism and a latent anti-Semitism all flow together.

Europe’s elites are post-historical. Living in history means living in a world of constant threat where there is no nightwatchman to keep the peace among nations, so nations must keep the peace themselves by maintaining a balance of power. But for 70 years Europe has relied on the US to do exactly that: guarantee its security, so that Europe can spend relatively little on defence and relatively much on providing for the good life. Seventy years is much longer than the distance between the end of the Napoleonic Wars and the outbreak of the Franco-Prussian war; or between the end of that conflict and the outbreak of the first world war.
For 70 years Europe has relied on the US to guarantee its security, so it can spend less on defence and more on the good life.

This American security umbrella will not stay up for ever. Barack Obama’s alleged lack of resolve in dealing with Mr Putin may say less about the US president’s own foreign policy than about a gradual shift in US opinion. Why should America defend a continent that will not defend itself?

The last of America’s second world war veterans will soon be dead. The European-oriented elites that have influenced foreign and defence policy in Washington are gradually being replaced by bright young men and women — many of them the offspring of immigrants from Asia and Latin America — who bring with them different family histories and emotional priorities. This coincides with the security challenges and opportunities that America encounters outside Europe, particularly in Asia, where American allies are willing to maintain robust, deployable militaries.

Or take Israel, a country with which the American public has for more than half a century been stubbornly sympathetic, whatever its often-misguided politicians do to inconvenience US policy. This is (among other things) the result of Israel’s stiff national resolve and gutsy, demonstrated willingness to defend itself.

Gutsy is not a word one would use to describe Europe’s political class. And unless that changes, no US president will be as committed to Europe as his predecessors were during the cold war.

The writer is a senior fellow at the Center for a New American Security

Clinton And Gender Politics No Simple Matter

flag USMy Comments: Unlike many men, especially those from the Middle East and other parts of the world, I’ve never been troubled by a cultural dictum that says women are inferior. I have no problem responding to real leadership no matter where it comes from. I have other faults but I don’t think this is one of them. Hopefully my wife is reading this and agrees.

Meanwhile, the national stage marches on and before too many months have passed, Barack Obama will turn the keys over to someone else. The reality is we cannot turn the clock back to some earlier, more simple time, when old white men cast the deciding votes for virtually everything and women weren’t even allowed to vote.

Froma Harrop / March 17, 2015

Carly Fiorina has evidently hired herself as a hit woman, going after Hillary Clinton and her likely run for president. Fiorina is former chief of Hewlett-Packard and onetime Republican candidate for Senate from California. The thinking is that as a formidable woman, she can go after Clinton without being called a sexist male.

Republicans understand correctly that they have a problem attracting female voters and that Clinton is a special case, even next to other female politicians. Clinton has paid a lot of attention to gender equity issues and has weathered decades of sexist attacks, not only from the right but from some backers of her Democratic foes; recall the nastiness of her unsuccessful race against Barack Obama for the 2008 nomination.

As a result, Clinton has an army of women, especially older ones, watching her back. But within this set of facts lie dangers for those who misread the feelings about Hillary.

Some women no doubt yearn for a first female president, but more, I’d venture, simply regard Clinton as the strongest candidate, in intellect and in experience. For decades, they’ve seen her pelted by disrespect tinged with sexist ridicule, the latest incarnation being an obsession with her age not applied to potential male candidates of similar vintage. That’s what has her supporters fuming.

Thus, the assumption that these women would respond warmly to any woman thrown in their face registers as insulting. Such simplistic thinking has gotten Republicans in trouble. It led to the disastrous nomination of Sarah Palin as John McCain’s running mate in 2008. The scariness of having the grossly unqualified Palin one heartbeat away from the presidency may have cost McCain the election.

The gender gap is based on differing worldviews. There is little in Fiorina’s conservative agenda that would appeal to the women who got Obama elected in 2008 and re-elected in 2012. And assuming that her being female is enough to go on opens all kinds of possibilities for Republicans to put their foot in it.

For instance: Republican strategist Ron Stutzman recently told the media that Fiorina could be a “very effective critic of Hillary, which Republicans are going to need.” He added that “obviously there is a space for a very articulate, conservative woman.”

Only one? Why not two?

Speaking for myself, I don’t buy into the ludicrous idea that it’s anyone’s “turn” to be president. Nor do I believe in the need for a “transformational figure” embodying a gender, race or religion that hasn’t presided in the Oval Office before. May the most competent human serve all of us.

I backed Clinton for the 2008 nomination because I thought she had the best ideas and best preparation for the job. When Obama became the nominee, I supported him — not because he is African-American but because of his brainpower and moderate politics.

Nowadays, I’d like to hear more from former Navy secretary and senator from Virginia Jim Webb, another Democrat who’s shown interest in the race. And there’s always a chance, however tiny, that Republicans will come up with a presidential candidate whom I would vote for. It’s happened before.

When it comes to assumptions about female candidates’ appeal to female voters, Democrats should watch their language as much as Republicans. In response to the support Republican men have expressed for Fiorina’s crusade, prominent Democrat Ann Lewis said, “These guys really believe it’s unfair that women are now running.”

Don’t go there, Democrats. Republicans aren’t attacking Clinton because they think it’s unfair that women are running for president. They’re going after her because she’s strong and tough enough to be a serious threat. Clinton has earned the right to be a threat.

Follow Froma Harrop on Twitter @FromaHarrop. She can be reached at fharrop@gmail.com. To find out more about Froma Harrop and read features by other Creators writers and cartoonists, visit the Creators Web page at http://www.creators.com.

Barack Obama’s Gamble on the Future of Iran

Nixon+ChinaMy Comments: I must confess to being tired of all the crap going on in politics, whether its local, state, national or international. Increasingly my opinions, concerns, fears, hopes, expectations, etc., seem irrelevant. The temptation is to walk away and try to ignore it.

That’s an emotional response and there’s a parallel with my universe as a financial planner. I’ve preached that “hope” is not a valid investment strategy. To be successful, you have to be proactive and alert and overcome emotion. And there’s still a chance you’ll fail. The alternative is to roll over and die. Which is not going to happen.

With respect to Iran, I don’t see a reason not to try and work with them. We hated China, and we are now friends. We hated Japan, and we are now friends. We hated Germany, but are now friends. Hell, if you go back far enough, we hated the French. At some point, someone has to reverse course and I see no reason to favor war without first trying to establish a negotiated truce. For that to happen, you have to at least talk with them.

Edward Luce March 15, 2015

At stake is the idea that talking to your worst enemies makes sense

President Barack Obama is poised to take the biggest foreign policy gamble of his presidency. Ignoring opposition at home, and near unanimous dissent in the Middle East, he looks likely to push ahead with an Iran nuclear deal in the coming days. His bet is that the world’s most hardline theocracy can be induced to change for the better. Over time Iran’s silent majority will gain sway over their ayatollahs.

At stake is the idea that talking to your worst enemies makes sense. Mr Obama’s bet on diplomacy could hardly differ more from George W Bush’s world view. Yet they share a weakness — the belief that one inspired move can transform the game. Mr Bush thought he could implant democracy in the Middle East by toppling its most brutal autocracy. Mr Obama hopes to create stability by engaging its most dangerous regime. In American football they call this a ‘Hail Mary’ pass. Will Mr Obama’s fare any better?

The more you listen to Mr Obama’s critics, the more you sympathise with his approach. From Israel’s Benjamin Netanyahu to Saudi Arabia’s rulers and nearly every Republican in the US Senate, Mr Obama’s detractors believe Iran’s word is not worth the paper it is written on. At best, Mr Obama is naive. At worst he is un-American. Making deals with a rogue regime betrays US values.

In fact, such trade-offs are very American. For the greater good, Franklin Roosevelt struck an alliance with Joseph Stalin, one of history’s most prolific mass murderers. Richard Nixon made peace with Mao Tse Tung, who killed even more people than Stalin. Jimmy Carter and Ronald Reagan backed Afghanistan’s mujahideen. By these standards, Iran’s transgressions are small potatoes.

Furthermore, Iran poses no threat to America’s universal values. Communists claimed to speak for all mankind. Iran only appeals to about 2 per cent of it — the world’s Shia population. As Mr Obama was fond of quoting John F Kennedy: “If you want to make peace you don’t talk to your friends, you talk to your enemies.”

Mr Netanyahu says no deal is better than a bad one. Here again, Mr Obama is more grounded in reality than his critics. If the choice is between a bad deal or war, the former is far better. Others glibly talk about bombing Iran. In an ideal world, Mr Obama would have persuaded Iran to dismantle its civil nuclear programme, rather than capping its resources at a low ceiling. The deal would hold indefinitely rather than for 10 to 15 years. Iran’s “nuclear breakout time” would last for ever, rather than just a year. Tehran would end its support for Hizbollah, Syria’s Bashar al-Assad and others, rather than pledging to do nothing. It would also be legally binding, rather than a political document. Alas, no such terms are realistic. Mr Obama is not permitting the perfect to be the enemy of the good.

So what could go wrong? The flaw in Mr Obama’s logic is that Tehran will pay no real price for breaking its word. Compared with five or 10 years ago, it is negotiating from a position of strength. If it implements the deal, Mr Obama will gradually relax economic sanctions. If it breaks its word, they will be reimposed. Iran’s worst case scenario would mean reverting to today’s status quo. What does it have to lose? This is where Mr Obama’s innate reasonableness can count against him. His administration insists that “all options remain on the table” — including military strikes. But Mr Obama makes no secret of the fact that he would never exercise that option.

His hope is that Iran’s moderates, led by Hassan Rouhani will gain popular support as growth picks up with the gradual lifting of sanctions. Domestic backing for the deal would therefore rise. In turn, Iran will dilute its sponsorship of the Shia militias and terrorist groups in the region. Moderate Sunni regimes will also pull back. The logic of economics will replace the lure of sectarianism. Mr Obama would have converted today’s vicious circle into a virtuous one. It is an optimistic vision that is worth pursuing. No one has any better ideas. But it needs a plan B and Mr Obama does not seem to have one.

His approach has two further drawbacks. First, the US-led war on the Islamic State of Iraq and the Levant is largely being fought by Iran and its Shia allies in Iraq and Syria. Mr Obama is relying on an unspoken alliance with Iran to do most of the fighting. Mr Obama’s reluctance to put US boots on the ground has increased Iran’s leverage.

Second, America’s Sunni allies, led by the Saudis, Egypt and Turkey, believe Iran will bide its time before abandoning the deal. It will first pocket the rewards. They have little faith in Mr Obama’s grasp of Iran’s internal dynamics. Ayatollah Khamenei’s declining health adds another imponderable. The danger of a Middle East nuclear arms race has never been greater.

Mr Obama risks sharing another legacy with his predecessor. Mr Bush tried to install democracy at the point of a gun. In practice he created a vacuum that was filled by Iran. Baghdad became a satellite of Tehran, which is what it remains today. Iran was the largest beneficiary of Mr Bush’s blunders in the Middle East. Its power has continued to grow during the Obama years. It would be an irony if the impending deal were only to cement that trend.

Germany Is Delusional To The Point Of Insanity

global investingMy Comments: Assertive headlines such as what you see here are usually outside my comfort zone. For one it implies a pathology that I’m not trained to comment on and two, Europe and European values are different from mine, given that I’ve lived here in the US for the past 65 years. (Warning: this post is LONG.)

That being said, what goes on in Europe does influence what happens to our markets, and since investing money is an expertise I have, then knowing and trying to understand this sort of thing is important to me. And perhaps to you.

The Mercenary Trader / Jan. 21, 2015

“It is as if it’s accepted that the euro area’s modus operandi is to clear things with Germany, and for the ECB to constrain its actions to what is best for Germany.” ~ Athanasios Orphanides, former member of the ECB governing council

Most of the eurozone is experiencing deflation. Even the countries who aren’t – Germany etc. – are well below the ECB’s official 2% inflation target.

This is dangerous because deflationary conditions can tip into recession… and depression… and political extremism born of civil unrest. Deflation – or rather the extreme results of such, in the aftermath of harsh slowdown – brought us the Nazis in the 1930s. Post-Weimar economic implosion, not currency erosion, enabled the political conditions for Hitler’s rise to power.
Need we say more?

Apart from political unrest, deflation is like having no fuel in the emergency flight tank.

A lot of people will say “what’s wrong with deflation,” e.g. why is it so bad?

It’s important to clarify there is a big difference between falling inflation levels (disinflation) and inflation falling below zero. Think of a plane that stalls out.
When an economy goes negative, the risk is that the plane fails to overcome the stall… and crashes before it can pull up. Deflation (as opposed to disinflation) can lead to compounding “downward spiral” impacts, not unlike gravity’s increasing pull on a nosediving airplane.

The German attitude toward inflation, and debt, is pathological (indicative of mental disorder).

Germany is paranoid of inflation on a pathological level. Germany is also pathologically allergic to debt. Consider, for example, that Germany as a country has serious infrastructure needs… and there is real risk that Germany’s economy will slow in future. Right now, German interest rates hover above zero (or even dip below it). This is a historic opportunity for “good” financing… for logical spending on real needs, financed by incredibly low-cost debt.

Yet Germany is so debt averse, they aren’t willing to borrow for the future – not even for themselves – even with rates in the zero to one percent range. That’s almost the equivalent of turning down free money, even when it is badly needed for repairs… even when it has obvious strategic use. That is not frugality as a virtue, it’s more like a miser complex worthy of therapy.

Worse still, Germany is delusional about its own economy and dangers.

Think about this: What happens to the German economy when China really and truly slows? And what happens to the German economy when Japan goes “next level” in its competitive devaluation plan?

China is slow-motion imploding. No matter what happens, China has to switch from an infrastructure led economy to a consumer led one. This is very bad news for Germany, one of the world’s largest exporters. As is the increasingly competitive currency stance of Japan. Bottom line: Germany’s present economic strength could easily evaporate… for strong reasons that make logical sense. And how much cushion would they have in that event? None…

Bottom line: Germany would rather slit its own throat, economically speaking, than allow for a rational approach to inflation and debt.

That is a deliberately harsh phrase, it’s true. But the writing is on the wall. Germany’s commitment to austerity is not just pathological, it is economically suicidal.
The entire eurozone is at risk… and Germany’s own economy is too… and the lessons of history speak loudly. Yet Germany continues to live in a bizarro dream world where saving money has been elevated to a fetish regardless of surrounding circumstances.

We don’t choose to pick on Germany. We have friends who are German… family members and loved ones with German roots. It simply “is what it is.” The pathologies of a country, to the degree they go separate ways from rationality, are leading to economic disaster (and who knows what in the aftermath).

There are questions as to whether German provisions will “neuter” euro QE.

Draghi and the European Central Bank will announce some kind of quantitative easing on Thursday (sic). There is no question of it now. If they tried for another stall – more “wait and see” – European equity markets would simply go into freefall. Investors would start betting on accelerated odds of euro break-up.

But it remains possible that the “shock and awe” of euro QE will be neutered by German demands. Via the FT: To appease QE’s German opponents, which include the chancellor Angela Merkel herself, Mr. Draghi is expected to say that bonds bought will remain with national central banks, so losses will not be spread among eurozone members. But other eurozone countries, as well as the International Monetary Fund, fear the concession could reduce QE’s effectiveness…

OF COURSE giving Germany what it wants would reduce euro QE effectiveness!

• Germany wants to reduce fiscal exposure to weaker eurozone members.
• But establishing a united support front is the whole idea in the first place!
• The house is on fire and liquidity crisis measures (firehoses) are needed…
• But Germany wants to avoid charges for the water…
• And make sure any fires are segregated away from itself…
• Thus increasing the odds the whole thing burns down.

The German justification for not wanting to participate is ridiculous.

The stance of Germany is essentially, “Why should we pay for these bums? Why should we create more risk exposure for ourselves? We are savers, they are spenders… why should we waste money on them?”

The answer is that Germany should have asked those questions SEVENTEEN YEARS AGO. Saying “Nein!” to an insanely stupid monetary union would have been very logical, and the best thing for all… circa 1998 before the euro actually launched! But now it is too late to avoid responsibility for actions.

What’s more, it is no longer a “moral” question… but a question of WHAT THE RISKS ARE.

This is the other amazing / maddening thing about the German stance. Germany still acts as if there is room to say “no” on moral grounds… when the final question is what will happen, not what is right or wrong. When a course of action is highly likely to invite DISASTER, the question of right or wrong has to be put aside…

Because of Germany, we don’t know how euro QE will come across… but we are willing to short more FEZ against our euro position. Our EURUSD position has a sort of partial absolute hedge in short European equities. If Germany throws a spanner in the QE works, and “Super Mario” disappoints, EURUSD could spike in a big short squeeze. But European Equities (NYSEARCA:FEZ) would fall hard in that instance. Conversely, if Draghi and the ECB come through in a big way, the reverse could occur – EURUSD goes into freefall, FEZ rockets higher. So they act as de facto hedges of each other…

Another scary thing… even if Draghi gets his “big bazooka” QE… what good will it do?
The other frightening thing to consider: It may be too little, too late for Europe no matter what size of QE they get. There is little point in lowering eurozone bond yields (already pressing zero). And there is little real hope in stimulating bank lending. So the true point of euro QE would be… what? Making the euro a hell of a lot weaker to stimulate exports one supposes. What else is QE supposed to do?

One argument is that, once euro QE starts, it never stops… until it goes nuclear…
Some argue it doesn’t really matter how much QE the ECB starts with… because QE just gets bigger from that point no matter what. We can’t be sure this is true. Germany might try to stop a “failed” QE program. Then again, if things get really ugly – e.g. if Germany falls into recession too – then maybe it keeps going and going…
And the ECB finally winds up going “nuclear,” taking a page from Japan. Understand this: There are plausible scenarios where the euro goes to 85 cents before all is said and done. That outcome would not be too hot for risk assets. (Hello understatement!)

Division and Crisis Risk Sapping the West’s Power

My Comments: I make no apologies for having supported and voted for Barack Obama in 2008 and 2012. Much of the pressure from the right, in my opinion, is irrational and disguised racism.

Here is an opinion from England, my birthplace and true friend of America. It’s an interesting perspective and to the extent you are interested in understanding the dynamics of global economics, a helpful thing to read.

By Gideon Rachman / September 1, 2014

The people who prepare President Barack Obama’s national security briefing must be wondering what to put at the top of the pile. Should it be the Russian assault on Ukraine, or the advance of the Islamic State of Iraq and the Levant (known as Isis) in Iraq and Syria? And what items should go just below that?

The violent anarchy in Libya, the dangerous stalemate in Afghanistan, the looming political crisis in Hong Kong, or a confrontation between Chinese and US planes, near Hainan island? The US president might reasonably ask why all these crises are breaking out at the same time.

His critics have a ready answer. They argue that the Obama administration has shown itself to be weak and indecisive. As a result, America’s adversaries are testing its limits and the US-led security order is under challenge in Europe, the Middle East and Asia.

There is no doubt that the US is war-weary after the conflicts in Iraq and Afghanistan. However, the multiplication of security crises around the world is not just about Mr Obama and the US. In fact, the obsession with what the Americans are doing points to the underlying problem. Its allies have come to rely excessively on the US to guarantee their security.

As a result, the biggest weakness in the global security system is not a lack of resolve in Washington, but the learned helplessness of America’s regional allies. The Nato summit this week in Wales represents a crucial opportunity for America’s most important allies to start doing more to share the burden. If they fail, the inability of the US to police the world alone will become increasingly apparent, and the various global security crises will intensify.

The pattern of Nato spending reflects Europe’s increasing reliance on the US. At the height of the cold war, America accounted for roughly half the military spending of the alliance, with the rest of Nato accounting for the other 50 per cent.

Now, however, the US accounts for some 75 per cent of Nato spending. Last year, of the 28 Nato members, only the US, Britain, Greece and Estonia met the alliance’s target of spending at least 2 per cent of gross domestic product on defence. Even the UK may soon slip below 2 per cent, with the British army on course to shrink to about 80,000, its smallest size since just after the Napoleonic wars.

Even when it comes to the non-military side of security, the Europeans have lagged well behind. The US was quicker to push through sanctions on Russia, and its measures have been tougher, despite the fact that Russia’s undeclared war in Ukraine is a much more direct threat to Europe.

This same over-reliance on the US is evident in the Middle East. The rise of Isis is a massive threat to the dwindling band of stable regimes in the region, above all Saudi Arabia and the Gulf states. In recent years, these countries have spent lavishly on their armies and air forces. And yet it has been left to the US to wage the bombing campaign against Isis, while the nations of the Gulf Co-operation Council keep their 600 combat planes on the tarmac and complain about American weakness.

A similar pattern is on display in Asia, where US allies such as Japan and the Philippines agitate for the US to increase its military commitment to the region in response to an increasingly assertive China. And yet, even as they call for US help, America’s allies in east Asia have been unable to present a united front, in opposition to China’s maritime claims.

This litany of allied weakness is dangerous precisely because America is indeed more reluctant to “bear any burden” (in President John F Kennedy’s famous words) to uphold the international order. The Iraq and Afghanistan wars have left their marks. So has the financial crisis of 2008. Mr Obama’s reluctance to deploy military force is not an aberration or a personal folly. It is an accurate reflection of the mood of the American people, with opinion polls showing the highest levels of isolationism in more than 50 years.

That mood could shift in response to Russian aggression and to the chaos in the Middle East. However, even if it does, the days when the US was capable of being the world’s super-cop – with relatively little assistance – are coming to a close.

The World Bank estimates that this year, China will probably become the world’s largest economy, measured by purchasing power. America’s defence budget is falling, as the US struggles to control its national debt. The gradual relative decline of the US is a much worse problem than it might otherwise be, because America’s closest allies in the EU are in the grip of severe economic crises, which are eroding their ability to exercise power.

Collectively, the west now accounts for a decreasing share of the world economy – as new sources of power and wealth rise up in Asia. A western-dominated world is therefore in danger of looking increasingly like an anachronism – and that is the proposition that, in their different ways, President Vladimir Putin of Russia, Isis and the Chinese military are testing.

The perception of declining western power now threatens to become a self-fulfilling prophecy. The only way for North Americans and Europeans to stop that happening is to work together with greater determination and purpose to combat the crises burning out of control on the fringes of Europe, in Ukraine and the Middle East. That work needs to start at this week’s Nato summit.

As Benjamin Franklin put it: “We must all hang together or, assuredly, we will all hang separately.”

Boehner’s Lawsuit Is Betrayal Of Congress

babelMy Comments: I don’t normally upload any posts on the weekend. I’m usually distracted by other matters and assume you are too.

However, I happened across this and it resonated with me. It’s another example, in my opinion, of a dysfunctional Congress that is leading us down a path that I don’t want to follow.

As a naturalized American, mostly educated in this country, I’m sensitive to immigration matters and the needs of those folks on the lower end of the economic spectrum. I lived in India in the early 1950’s and abject poverty was the norm, especially in the cities. I can tell you stories that would curl your hair. I suspect it influenced some of my later thinking.

If this effort by the House Republicans is to be believed, there are enough people elected to lead that have no clue. This past election saw over 90% of incumbents re-elected, in spite of an approval rating by the general public of less than 20%. At some point, enough of us have to say “end this crap” or the light at the end of the tunnel will not be the future, but a large oncoming locomotive.

By Jonathan Bernstein November 21, 2014

Nov. 21 (Bloomberg View) — Republicans have finally filed their lawsuit against the president over implementation of the Affordable Care Act. Actually, the president isn’t a respondent; the suit names the Secretary of Health and Human Services and the Treasury Secretary. It’s still a horrible idea.

Michael Lynch and Rachel Surminsky at the Monkey Cage provide one reason: The suit is likely to fail. The first issue is “standing.” To get into court, the House would have to prove that it was damaged by the way the administration carried out the ACA, and courts have consistently rejected that idea. Beyond that, it’s far from clear that the administration’s actions, including the delay of the employer mandate and cost sharing for insurance companies, were beyond the normal discretion the executive branch has to carry out laws. Just because some Republicans want to pretend that before January 2009 presidential power had been limited to pardoning Thanksgiving turkeys doesn’t mean they are right.

And if Republicans win, it would be terrible for Congress.

I’ll say it again: Speaker John Boehner and House Republicans aren’t asking for authority to be returned from the White House to Congress. They want an imperial judiciary that could trump either of the elected branches.

In a system of separated institutions sharing powers, which is what the Constitution created, all three branches do things that look a lot like legislating, but laws can trump administrative or judicial rule making. That gives Congress serious clout within the system. This lawsuit, however, is an abdication of that clout. In effect, it says that the courts, not Congress, should have the last word when there’s a dispute between branches.

Filing this lawsuit amounts to institutional treason. Boehner and House Republicans should be ashamed. The rest of us can only hope that the courts rescue them by keeping to precedent and tossing this lawsuit into the garbage. Then, perhaps, the House could consider getting back to legislating.

Impossible Germany

Pieter_Bruegel_d._Ä._037My Comments: I’ve mentioned before how easy it is for us to discount the economic influence of Europe on the world stage. But it’s a mistake to do so. Collectively, the European Union is an economic engine that is just as critical to the economic welfare of the world as we are. If they go down the tubes, so do we, just not so far. But down is down and not a fun place to be.

One reason Europe has been reluctant to respond aggressively to what Russia has been doing to Ukraine and it’s environs is because Germany, and much of the rest of Europe, know they are already walking on thin ice. Shutting out Russia means pissing in your own well, to borrow a phrase.

And, of course, Russia is happy to push those buttons as long as they can get away with it. What makes it troubling for me is that it might simply be delaying the inevitable. And I for one don’t want that inevitable to be known 25 years from now, as World War III.

Nov. 16, 2014 Eric Parnell, CFA

Summary
• The economic and market outlook appears impossible for Germany over the next few years.
• The world’s fourth-largest, heavily export-dependent economy is facing a fundamental problem.
• With future growth prospects increasingly fading, this bodes ill for the future performance of the German equity market.

The economic and market outlook appears impossible for Germany over the next few years. The world’s fourth-largest, heavily export dependent economy is facing the fundamental problem of struggling to thrive within the currency union it went to such lengths to help form over the last several decades. Future growth prospects are increasingly fading, and this bodes ill for the future performance of the German equity market.

German economic growth has effectively ground to a halt in recent years. After what was initially a fairly solid bounce in the early years of the “post-crisis” period, real GDP growth in Germany slowed to +0.7% in 2012 and +0.4% in 2013.

As for 2014, German real GDP growth projections for the year were recently revised meaningfully lower from 1.9% to 1.2%. More specifically, the economy just barely skirted past entering a technical recession by generating +0.1% growth in the third quarter, after having posted a negative -0.3% growth reading in the second quarter. It is worth noting that Germany managed to clear the bar into positive territory thanks to a surprisingly solid export number to non-Euro trading partners in September, a outcome that may not prove repeatable in future months. And despite the fact that Germany just barely avoided officially having the dreaded “R” word tied to their economy, these are still hardly growth numbers about which to get excited.

As for 2015, the growth projections have already been reduced to just 1.0%. And experience in the post-crisis world has repeatedly shown us that future economic and corporate earnings growth projections are simply made today to be lowered in the future. As a result, a final number for 2015 that is closer to 0%, if not outright negative, should not be completely ruled out.

Economic growth is grinding to a halt in Germany. But so what? Economic growth has been sluggish in the United States for years, yet the stock markets in both countries are now well above their pre-crisis highs. Can’t we simply expect the same degree of perpetually blind optimism among German stock investors to bid their own stocks to the stratosphere as well, fundamentals be damned? After all, it has worked well so far, as both the U.S. S&P 500 Index (NYSEARCA:SPY) and the German DAX have moved in virtual lockstep with each other in local currency terms dating back to the very beginning of the financial crisis in July 2007. That is, of course, until this past July, when these markets suddenly started to diverge widely from one another.

It is worth noting that currency effects have amplified the return differences between the U.S. and Germany since the summer of 2011. This is due to two specific periods – the first from the summer of 2011 to the summer of 2012, and the second since April 2014 – where the euro currency weakened sharply relative to the U.S. dollar. Thus, for those investors that have not hedged the currency, exposures associated with their German stock investments through vehicles such as the iShares MSCI Germany ETF (NYSEARCA:EWG) have not performed nearly as well.

But what about a monetary policy rescue in Germany and across the eurozone? Unfortunately for stock investors in the region, Germany does not claim to want such stimulus, and even if the European Central Bank decided that it wanted to provide it, they, unlike their American and Japanese counterparts, do not have a central bank that has the unchecked power to decide to print a few trillion euros out of thin air simply because their central bank head thinks that it is a good idea over his cereal one morning. Instead, ECB President Mario Draghi faces far more restrictions on his ability to engage in outright quantitative easing, and that includes getting clearance from German policymakers that have stated they do not want it.

What has been absolutely extraordinary to this point is how Mr. Draghi has been able to repeatedly boost regional stock and bond markets including Germany for years by doing nothing more than making promises about things he intends to do (and may not technically be able to do), without actually doing much of anything. How much longer his power of the podium can sustain itself remains to be seen, but the recent performance of stocks across the region suggest that equity investors both in Germany and elsewhere may be growing increasingly tired at this stage, particularly now that the spillover tailwind from the Fed’s quantitative easing has finally gone away.

Looking forward, the German stock market faces a fundamental problem that investors would be well served to confront sooner rather than later. In short, the German economy has experienced real growth of only 3% above pre-crisis levels from late 2007 and early 2008. Yet, the German DAX is nearly 20% above pre-crisis levels. More specifically, the German economy has posted a real GDP increase of just 1.4% since the summer of 2012, yet the DAX is up nearly 50% over this same time period. Put more simply, German stocks have skyrocketed over the last two years based on virtually nothing fundamental. Such are not the strong foundations of sustainable stock market gains into the future.

Adding to the forward-looking challenges for German stocks is the highly cyclical and economically sensitive make-up of the market. German stocks are more heavily concentrated in the variety of cyclical industries, including consumer discretionary, financials, industrials and materials. Overall, the allocation of the German stock market to cyclical industries is a notably high 82%. This is well above the U.S. reading at just over 70%. As a result, the German stock market is expected face more pronounced downside pressure if economic conditions in Germany deteriorate as we move into 2015.

Yet another issue for German stocks is valuation. For example, Germany’s 10-year cyclically adjusted price-to-earnings ratio is 16.4. While this reading is not the extraordinarily high 26.6 reading currently hanging over the United States, it is still a fairly lofty number in its own right. Moreover, Germany’s trailing 12-month price-to-earnings ratio is a notable 17.1, which is fairly reasonable but not necessarily what would be considered cheap. As a result, German stock investors should not expect to find comfort and support in deeply discounted valuations, as we are far from such an outcome at this point.

For those possibly interested in exploring individual German stock themes as an alternative to a broader exchange traded fund, it is worth noting they will find a limited selection of stocks from which to choose. At present, only six companies that are domiciled in Germany trade on the U.S. exchanges. And only three – SAP (NYSE:SAP), Deutsche Bank (NYSE:DB) and Fresenius Medical Care (NYSE:FMS) – are of any meaningful size from a market capitalization standpoint. Other larger names such as Siemens (OTCPK:SIEGY) and BASF (OTCQX:BASFY) that once traded in the U.S. have since departed from the American exchanges back to Germany.

For reasons discussed here and more, owning German stocks is less than desirable at the present time even after the recent pullback, given the persistent potential downside risks. And while U.S. may not be listening, what is unfolding in Europe along with many other global stock markets is important, for it is foreshadowing what is likely to arrive on U.S. market shores someday. For while U.S. stock investors can continue to ride off of “the best house on a bad block” theme, if conditions on the block continue to deteriorate, it is only a matter of time before the spillover effects begin to adversely and directly drag down this remaining “best house”.