SYDNEY WILLIAMS: THE MONTH THAT WAS
Columbus Day and Halloween are in the past; Veteran’s Day and Thanksgiving are in our future. October is the subject at hand. While the month is renowned for financial debacles, it was human tragedies that took center stage this past month. October began with nine students shot at a community college in Oregon. Two other campuses, one in Texas and the other in Arizona, were the venues for two students being shot and killed. A car plowed into a homecoming parade in Stillwater, Oklahoma, killing four and injuring forty-seven. Nineteen people were killed when a doctors-without-borders hospital in Afghanistan was mistakenly hit by U.S. forces. Two suicide bombers at a peace rally in the Turkish capital of Ankara killed at least a hundred. The month ended with a Russian passenger airliner, an Airbus 221, crashing in the Sinai Peninsula, killing all 224 people aboard.
Mother nature, not wanting to be out-done, did her own damage. Hurricane Joaquin, an Atlantic storm that missed mainland USA, sank the U.S. based cargo ship El Faro, drowning all 33 aboard, including 28 Americans. At least 17 people died in South Carolina, as drenching rains temporarily wiped out 75 miles of I-95. A mudslide in Guatemala killed at least 240, with dozens missing. Hurricane Patricia, the largest storm to ever hit the Western Hemisphere with winds of over 200 miles per hour, slammed into Southwestern Mexico with sustained winds of over 165 miles per hour. Luck and prior evacuation plans limited deaths and damage. Remnants caused intense flooding in Houston and Galveston a day or so later, with rainfalls of over an inch per hour. At least 340 people were known dead from a 7.5 earthquake that hit remote sections of Afghanistan and Pakistan. No matter hand-wringing claims of those on the Left, man has limited ability to prevent natural disasters. Nature heeds her own drummer.
At home, politics grabbed the headlines. Democrat front-runner Hillary Clinton’s performance at the first Democrat debate was enhanced when, unexpectedly, she was given a boost by Bernie Sanders who blurted out that the American people were tired of hearing about e-mails. Of course it is not e-mails per se that are the question, it is the fact that they prove she lied about the cause of the deaths of Ambassador Chris Stevens and three others in Benghazi on September 11, 2012. She publically blamed the riots on a anti-Islamic video, while privately acknowledging that the cause was a “planned Al Qaeda-like terrorist attack.” But at the time, President Obama was in a close race for re-election and the attack refuted his campaign claim that “Al Qaeda is on the run.” (Incidentally, no terrorist has been apprehended, while the maker of the video still languishes in prison.) Ms. Clinton came out against the Trans-Pacific Partnership, a trade deal she, as Secretary of State, helped negotiate. However, it is inconvenient to the narrative she is now spinning. Regardless, mainstream media has little interest in disclosing anything that could derail the coronation of their favorite. It is advocacy, not news, that has become their raison d’etre. Also helping Ms. Clinton – at least over the near term – was Vice President Joe Biden’s decision not to run. When Jim Webb and Lincoln Chaffee departed the Democrat race, nary a ripple could be seen in the polls.
Chaos among Republicans persisted, especially early in the month when House Speaker John Boehner announced his intent to resign. Kevin McCarthy, House Majority Leader who was expected to move up to Speaker, idiotically (and wrongly) suggested the Benghazi hearings were politically motivated. While there is no doubt that Republicans are interested in embarrassing Ms. Clinton, there is also no question that the facts have never been fully exposed. Denial, stonewalling, followed by claims that accusations are old news is standard operating procedure for the Clintons. It has worked in the past. We shall see if it works this time. By the time the month ended, Paul Ryan had become Speaker. He is respected and knowledgeable about fiscal matters, as anyone who read his 2010 Contract with America knows. He was approved by a majority, including a majority of the Conservative Caucus.
In the race for the nomination, latest national polls showed Dr. Ben Carson, a neuro-surgeon of enormous talent, nosing out Donald Trump, best known for his celebrity and his attacks on those who threaten his standings. Neither man appears to have much knowledge about world affairs or the policies necessary to jump-start the economy. In the third Republican debate, questions asked by an obviously biased CNBC news team created a theater of the absurd. Contestants were asked, for example: Should fantasy football be regulated? What is your greatest weakness? Nevertheless, Marco Rubio did well, as did Chris Christie and Ted Cruz. That Christie did well could be seen in the lead editorial of The New York Times the next day: Christie “go home.” CNN did their best to prop up what appears to be a flailing Trump by declaring him the winner. Trump, as Kimberly Strassel noted in The Wall Street Journal, “can talk (and talk and talk), just not on one subject for more than 37 seconds.” Citing a “bad faith” performance by CNBC, the RNC (Republican National Committee) canceled their partnership with NBC for a February 26 debate at the University of Houston.
Elsewhere overseas, China dropped its one-child law, allowing married couples to have two children. According to China’s 2010 census, the national fertility rate is 1.16, while 2.1 is the replacement rate. Justin Trudeau, son of the late Pierre Trudeau, became Canada’s Prime Minister-designate when he defeated incumbent Stephen Harper. Angela Merkel, who has been Europe’s strongest and longest serving leader, saw her poll numbers drop precipitously, a consequence of the refuge crisis. President Obama reversed an earlier decision when he sent a small number of Special Forces into Syria. Russia continued to provide military assistance to Assad and the United States invited Iran to talks regarding ISIS in Vienna. The United States did send a destroyer, the USS Lassen, to within twelve miles of the Subi Reef in the Spratly islands where China looks to be constructing an artificial island in the South China Sea for the possible deployment of naval forces. China’s construction of these islands is disputed by Vietnam and the Philippines. Safe passage through the South China Sea is critical to the global economy. According to the Council on Foreign Relations, 20% of world seaborne trade ($5.3 trillion) passes through those waters, as do 50% of global oil tankers. For seven decades, the United States has guaranteed freedom of the seas. Would (or will) China be as benevolent?
The Federal Reserve left interest rates unchanged, not a surprise, but likely only prolonging the inevitable. Normalization will, at some point, return to credit markets. While zero interest rates have aided financial assets, they have masked the true costs of government borrowing and have done little to help the real economy. In the quarter just ended, corporate earnings decline – the first time that has happened since 2009. Preliminary numbers show that GDP limped along at 1.5 percent. But volatility was absent from equity markets, with the Dow Jones Industrial Average’s moving up or down more than 1.5% on only two days. Demonstrating that markets can be humbling and predictions often wrong, the DJIA put in its best monthly performance in four years, rising 8.3 percent.
Two hundred and ten years ago, on October 21,1805 at the battle of Trafalgar, Lord Nelson was killed aboard his flagship, the HMS Victory. Despite his death, the British defeated a combined French and Spanish armada, thereby giving Britain control of the seas for the next hundred and thirty years. Following the defeat of Napoleon at Waterloo ten years later, the consequence was a century of peace for Europe. With the gradual spread of political freedom and rapid economic growth, the Continent enjoyed a golden century. One hundred and thirty-four years ago P.G. Wodehouse was born on October 15, 1881. Incredibly, a hundred and thirteen years after his first novel The Pothunters was published Wodehouse is still read and adored. Seventy years ago this month, with the defeat of the Axis, the largest display of naval power ever assembled was celebrated in New York’s harbor with Navy Day. The U.S. was master of the seas.
October is also a reminder of less pleasant times. Over Monday and Tuesday, October 28 and 29, 1929 the Dow Jones lost 24% of its value. Speculators, fueled by low margin requirements, had driven stocks to risky valuations. The market’s sharp decline, compounded by some foolish policy decisions like Smoot-Hawley, increased taxes and attempts to balance the budget, precipitated further market declines and birthed a Depression that only ended when the U.S. began to arm for World War II. Fifty-eight years later, on October 19, 1987, the market fell 508 points, or a little more than 22 percent. The market had been on a tear since the summer of 1982. In the past year, stocks had risen over 40 percent. High valuations were compounded by a Wall Street-devised product called portfolio insurance, which gave false promise to portfolio managers. Unfortunately, like so many ideas that work in the laboratory or in text books, this one did not in the marketplace. While government helped stem the panic, it was the natural forces of free market capitalism that allowed confidence to be restored and economic growth to persist. It would be another thirteen years before the market suffered a major bear market.
October saw two baseball teams go to the World Series that had not been there in three decades. The Kansas City Royals won the American League pennant and the New York Mets the National League. As the month ended, Kansas City was up three games to one[1].
Playboy decided to stop publishing photographs of nude women. Does this signal a shift toward modesty? I suspect not. The internet has meant that provocative pictures have become pervasive. Cultural attitudes have meant that young men are less likely to sneak looks at titillating photographs when the real thing, or its proximation, can be easily found. Reflecting the electronic distribution of media, Playboy’s circulation has declined, according to The New York Times, from 5.6 million in 1975 to 800,000 today. With pornography ubiquitous, will feminists who once found the magazine offensive wish for her return?
The world is ever-changing. Like a snake that sheds its skin, the complexion of the earth changes and so do its constituents. Politicians will come and go. Markets will fluctuate, but should move inexorably higher, as long as policies don’t impede economic growth. Nature provides change, and so does the natural continuum of life. In our part of the Northeast, the month begins with trees looking as they had all summer. By month’s end, most of the deciduous trees are bare. Each month approximately eleven million babies are born and about five million people die. October, in that regard, I am sure, was no different than other months, nor will be November. No matter disasters encountered, it is the miracle of life that remains.
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