FEBRUARY 2017- THE MONTH THAT WAS: SYDNEY WILLIAMS
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The month ended with President Trump addressing a joint session of Congress. Eloquence may not be not his forte, but last night he was. He spoke for just over an hour and was interrupted with applause 96 times. It was, in my opinion, a home run of a speech. He was conciliatory toward Democrats, uplifted the American people and evoked empathy with guests he had brought, especially toward the widow of Ryan Owens, a U.S. Navy Seal killed last month in Yemen.
While global stock markets moved higher – the DJIA were up 4.7% for the month – clouds gathered on the horizon. This is a weather pattern we have seen before; however, man-made efforts caused them to temporarily dissipate, but not disappear. I write, of course, of the surge in government debt and obligations, which are growing faster than underlying economies – a situation that must, at some point, end. Adding to (and prolonging) the problem has been the effective socialization of debt, as central banks transferred private obligations to their public balance sheets. The Fed has stopped its QE programs, but the ECB continues. In 2008, such tactics were justified; but, to the extent they are used now to maintain social welfare benefits that would otherwise be unaffordable, they may delay, but will not prevent, future storms.
The problem is particularly acute in the EU, especially in those nations unflatteringly referred to as PIGS – Portugal, Italy, Greece and Spain. While Spain’s prospects appear better than the others, all are experiencing financial hardship and all are facing the demographic challenge of fertility rates far below replacement rates. Declining birthrates is one reason why Europe has been open to Muslim immigration. Somebody has to produce babies and if the native population won’t they must be imported; for economic growth is difficult when populations shrink and productivity is absent.
These trends, which have produced substandard economic growth, were instinctively understood by those in the UK who voted for Brexit and Trump voters in the U.S. They have been misread by elites throughout the West who seem as removed from reality as were those Russian aristocrats who sipped lemonade, as the guns of 2017 harkened the coming Revolution. Keep in mind, Brexit and Trump are symptoms, not causes. The causes were a consequence of hearts bigger than heads, of sensibilities that exorcised sense.
Abnormally, the month saw both ‘risk-on’ and ‘risk-off’ asset prices rise. Stocks rose, as mentioned above, but so did Treasuries, as the yield on the Ten-year declined by 10 basis points. The latter, however, is still 54 basis points above where it was on November 8.
Mr. Trump issued an executive order that would have temporarily banned (three months) immigration from seven countries known to harbor terrorists, countries that happen to be predominantly Muslim. The order was hastily worded – Attorney General Jeff Sessions had not been confirmed – and poorly implemented. A judge in the State of Washington placed a temporary restraining order (later upheld by the 9th Circuit Court of Appeals) on the President’s order. A revised order is expected today.
In other domestic news, the President nominated Neil Gorsuch to fill the Supreme Court seat vacated when Antonin Scalia died a year ago. Governor Scott Walker of Wisconsin released his budget proposal. It includes a 5% cut in in-state tuition, the first decrease in the history of the public university system. In 2013, Governor Walker froze tuitions for in-state students, a consequence of his successful 2011 budget reforms, reforms widely denounced by Democrats at the time. Incidentally, the ten-years prior saw tuitions at the University of Wisconsin rise by 118%. Indicative of structural problems the nation faces, damage to the emergency spillway at California’s Oroville Dam meant 188,000 people had to be evacuated. Most were allowed to return to their homes within two days, but officials admit that if the dam does break there wouldn’t be time to evacuate residents.
Only 15 of the 22 Cabinet and advisor positions have been confirmed by the Senate, making this the slowest formation of a government in the post-War period. National Security Adviser General Michael Flynn resigned amid allegations he had lied to the Vice President as to whether sanctions were discussed with his Russian counterpart back in January. He was replaced with General H.R. McMaster. Three Cabinet nominees had their names removed from consideration: Andrew Puzder, as Labor Secretary, along with Vincent Viola and Philip Bilden, respective nominees for the Army and Navy. Yet to be confirmed are nominees for Interior, Energy, Agriculture, Labor and Housing, along with the U.S. Trade Representative and Director of National Intelligence. If the purpose of Democrats is to hobble the new Administration by using delaying tactics (not enough time to properly vet the nominees is their claim!), they are off to an admirable start. A spokesman for one of the intelligence services even admitted to withholding secret information from the President. To pretend this is politics as usual is to misread what is happening. Listening to CBS news one morning last week, the 7:00AM news began: Millions to be deported. Families to be torn apart. Political discourse, in the age of Trump, has become the worst since Hitler and the 1930s. Granted, birther extremists on the right in 2009 attempted to deny Mr. Obama his rightfully elected position, but the meanness that permeates our culture today is nastier and more ubiquitous than anything I have seen.
Overseas, Europe is preparing for upcoming elections – national ones in France, the Netherlands and Germany, and local ones in the UK. Populist candidates, Marine Le Pen of the National Front in France and Geert Wilders of the Party for Freedom in the Netherlands are both in the running; though Mr. Wilders suspended public appearances because of threats on his life. Angela Merkel is running for a fourth term in Germany, but is saddled with last year’s disastrous immigration program. Other elections scheduled for this year include ones in Albania, Armenia, the Czech Republic, Lichtenstein, Norway, Serbia and Slovenia. British PM Theresa May spent most of the month navigating the shoals permitting Article 50 to be triggered next month, the mechanism which allows the UK to formally begin the process of exiting the EU.
Mr. Putin had a busy month. A Russian spy ship was spotted in waters off the U.S. submarine base in Groton, Connecticut. It then traversed the East Coast, but remained in international waters. Russian planes buzzed a U.S. warship in the Black Sea. Montenegro accused Russian security forces of plotting to kill their Prime Minister, Milo Dukanovic, and overthrow the government. After two years of relative quiet, the eastern Ukraine city of Avdiivka came under bombardment, as Russian aggression intensified.
A machete-wielding Islamist from Egypt, calling out “Allahu Akbar,” was shot by French police outside the Louvre. With Athens facing a big interest payment, the Greek debt crisis returned to the front pages. Donald Trump allegedly hung up on Australian Prime Minister Malcolm Turnbull when the latter insisted Mr. Trump honor a promise Mr. Obama made just before leaving office. He apparently agreed to accept 1600 refugees that Australia refuses to take in, so are keeping in camps on the islands of Nauru and Papua New Guinea. After a phone call with President Xi Jinping, President Trump reverted to the “One China” policy, a cornerstone of U.S.-China relations since 1979. North Korea fired a medium long-range ballistic missile capable of carrying a nuclear warhead. China then imposed sanctions on imported North Korean coal. Kim Jong-un’s half-brother, Kim Jong-nam, was assassinated at a Malaysian airport, most likely on orders from Pyongyang. Iraqi forces, with help from U.S. advisors, are close to liberating Mosul from ISIS. Rioters in a migrant-dominated neighborhood of Stockholm were fired upon by police.
On the 13th of the month the University of Connecticut women’s basketball team chalked up their 100th consecutive win. By month’s end they had stretched that to 104 games. They are, however, far behind the longest winning stretch in sports. That honor belongs to Pakistan’s Jahangir Khan’s 555 consecutive wins in squash from 1981 to 1986. Nevertheless, they are to be congratulated! USA Football (youth football) said it would be testing a new, and safer, version of the game – fewer players, a smaller field, no special teams, elimination of the three-point stance and rotation of players into different positions.
The groundhog did see his shadow, at least he did in Punxsutawney, predicting six more weeks of winter. An avalanche in France killed four at a ski resort in Tignes. A local official in Sweden came up with a novel proposal for addressing two nagging problems: how to improve ‘work-life’ balance and how to address a decline in birthrates. Under his plan municipal workers will be granted an hour-long paid break each week, to go home and have sex! No wonder Vladimir Putin doesn’t seem concerned about Europe. Seven planets, orbiting a single sun, were discovered, three of which may have life. However, they are 40 light years away ( a little less than 240 trillion miles). I am unlikely to visit. Yale University decided to rename Calhoun College, because of John C. Calhoun’s connection with slavery, and his reference to it as “a positive good.” Of course many wealthy men at the time, like Elihu Yale, were slave traders or slave owners. In fact, the Yale Daily News notes that ten of Yale’s twelve residential colleges were named for men that owned slaves. Slavery is a curse on our history that may be hidden but cannot be expunged. Jacob Bernstein, son of Carl Bernstein (of Watergate fame) and a reporter for the New York Times, called First Lady Melania Trump a “hooker.” He was later reprimanded. After one more album and at age 74, Aretha Franklin announced plans to retire. “Moon Light” won best picture, in a crazy mix-up at the Oscars.
Omar Abdel Rahman, better known as the ‘Blind Sheikh,’ died in federal prison. A known terrorist, he slipped by U.S. immigration forces in 1990 when he moved to New York. A year later, he declared jihad against the United States. He was responsible for the 1993 bombing of the World Trade Center, an act that got him convicted to life imprisonment. He served as inspiration to those who, eight years later, took 3000 lives. Mr. Rahman was 78. Michael Novak, a Roman Catholic social philosopher who later in life made the moral case for capitalism, died at age 83. At age 94, General Harold Moore died. With war correspondent Joseph Galloway, he was author of “We Were Soldiers Once…and Young,” a great book made into an okay movie starring Mel Gibson. The story recounts America’s first major battle in Vietnam (a costly victory) in the I Drang Valley in November 1965.
Given the elevated level of political dissonance, I look outside, expecting to see ‘Apocalypse Now.’ Instead I see a typically cool, cloud-filled February day. As I write, markets are drifting lower, which is no surprise. On Monday, the DJIA closed higher for the 12th day in a row, something that has only happened on two other occasions in the history of the Dow Jones Industrial Averages, the last time in 1987. Business confidence is at the highest level since November 2014. February’s consumer confidence was reported at 114.8, the highest level since July 2001. Yet Washington is polarized and in disarray. Were we able to view this scene from 50,000 feet, we might find it amusing – vulnerable Washington souls clinging to one another as they battle a monster that has invaded their sanctuary. But the Country moves steadily on.
And we move on to March, which will bring with it spring and hopes for renewal.
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