Showing posts with label Kim Jong Un. Show all posts
Showing posts with label Kim Jong Un. Show all posts
Thursday, June 28, 2018
Trump Defeated by North Korea
Notwithstanding President Trump's summit with Kim Jong Un early this month, North Korea has continued to make progress in building its nuclear arsenal (https://www.cnn.com/2018/06/27/politics/north-korea-infrastructure-improvements-nuclear-facility/index.html). Trump has abysmally failed. He agreed to a no-conditions summit with Kim, a gesture that legitimizes Kim's standing in international diplomacy. Trump also ordered the U.S. military to stop participating in war games with South Korea, which the North Koreans have whined about for years as a major provocation. These were substantial concessions that Trump made, and he got nothing in return. It's business as usual in North Korea, with strengthening their nuclear arsenal while the U.S. retreats.
Trump has done far worse with North Korea than Barack Obama did. After taking office, Trump scared the North Koreans badly, and Kim accelerated work on his weaponry. Now he has intercontinental ballistic missiles that can reach the American mainland and perhaps can or soon will be able to carry the hydrogen bomb he developed in response to Trump's belligerence. While arranging for the no-conditions summit, Trump called Kim "very honorable" (https://nypost.com/2018/04/24/trump-calls-kim-jong-un-very-honorable/). With war games halted and Kim diplomatically elevated, America is now weaker and North Korea is much stronger. Trump was snookered by a kid tyrant. And he thinks he knows something about the art of the deal?
We must be concerned about Trump's forthcoming summit with Vladimir Putin. Putin is far more formidable than Kim Jong Un. What could happen at this summit? Will Trump surrender to Putin? Will Western Europe become part of the new Soviet Union? Will America become a province of Russia?
Wednesday, August 30, 2017
Hurricane Harvey? North Korean Missiles? Stocks Shrug
So, okay, Hurricane Harvey may be the worst storm to hit America in a while. The damage is really bad, and getting worse. Projections for recovery time are lengthening by the minute as rainfall totals rise. The economic impact will clearly be big. Energy extraction and refining are being hit. The Gulf states have a number of petrochemical and plastics plants, but they aren't manufacturing much. The Gulf ports are major transshipment points for a lot of stuff, but not much transshipment is taking place. The cost of rebuilding may reach $100 billion or more.
Meanwhile, the fat kid in North Korea keeps firing off missiles, in one instance over northern Japan. He may think he's being clever, pushing the world to see how far he can go. But shooting missiles over another country is a way to start wars. The Japanese held their fire. But North Korea's missiles aren't the picture of reliability and sturdiness. If one flies in an unintended trajectory, or falls apart at the wrong time, physical impact on Japan or maybe South Korea is quite possible. Then what? Kim Jong Un has been on a path of escalation in recent months. He's announced that Guam--U.S. territory--is his next target. Since he seems intent on escalating, he will approach a flashpoint.
But do stocks care? Not one bit. Even though U.S. stock futures dropped sharply last night, all indexes closed up today. Mega hurricane--meh. Barrage of North Korean missiles--meh. Discord rife between and among the President, Congress and both political parties--meh. Merrily we roll along. Plus ca change, plus c'est la meme chose.
Why do we have such insouciant stocks? The likely explanation is the Fed. Market participants have gotten so used to Fed bailouts that no one believes stock indexes can fall more than about 3% at the most, and therefore don't panic sell portfolios. In some respects, this market stability may seem desirable.
But market stability based on government subsidies is ultimately chimerical. The Fed produced that stability by screwing over large numbers of people. By keeping interest rates extraordinarily low for almost a decade now, the Fed has decimated pension plans. A lot of middle class people who depended on their pensions are now lower middle class, or even poor. Retirees and others who relied in part on interest income from their savings have learned to like dog food in lieu of steak, or even hamburger. Holders of long term care insurance policies have faced extortionate rate increases, or possibly the prospect of spending old age in homeless shelters until they qualify for nursing homes that take Medicaid (which sometimes aren't exactly top class institutions). Those that still have some faith in the future and want to save for a rainy day need to tighten their belts and put aside more principal, rather than count on the compounding of interest income to make their golden years glow. That means reducing current consumption, which is a drag on the economy and may partially explain why economic growth remains tepid.
As long as the Fed supplies financial opioids for stocks to mainline, the market will be copacetic. But problems lurk. Stock valuations may not truly reflect investment values. Instead, they probably incorporate a large dose of government subsidy. That would mean people are paying too much for stocks. This story won't have a happy ending. Market forces can't stay suppressed indefinitely and government subsidies can't last forever. The failure of Communism in China and the Soviet Union prove that point. Things generally feel good when you're on narcotics. But you don't get good quality sleep on opioids--and investors shouldn't be sleeping too soundly now.
Meanwhile, the fat kid in North Korea keeps firing off missiles, in one instance over northern Japan. He may think he's being clever, pushing the world to see how far he can go. But shooting missiles over another country is a way to start wars. The Japanese held their fire. But North Korea's missiles aren't the picture of reliability and sturdiness. If one flies in an unintended trajectory, or falls apart at the wrong time, physical impact on Japan or maybe South Korea is quite possible. Then what? Kim Jong Un has been on a path of escalation in recent months. He's announced that Guam--U.S. territory--is his next target. Since he seems intent on escalating, he will approach a flashpoint.
But do stocks care? Not one bit. Even though U.S. stock futures dropped sharply last night, all indexes closed up today. Mega hurricane--meh. Barrage of North Korean missiles--meh. Discord rife between and among the President, Congress and both political parties--meh. Merrily we roll along. Plus ca change, plus c'est la meme chose.
Why do we have such insouciant stocks? The likely explanation is the Fed. Market participants have gotten so used to Fed bailouts that no one believes stock indexes can fall more than about 3% at the most, and therefore don't panic sell portfolios. In some respects, this market stability may seem desirable.
But market stability based on government subsidies is ultimately chimerical. The Fed produced that stability by screwing over large numbers of people. By keeping interest rates extraordinarily low for almost a decade now, the Fed has decimated pension plans. A lot of middle class people who depended on their pensions are now lower middle class, or even poor. Retirees and others who relied in part on interest income from their savings have learned to like dog food in lieu of steak, or even hamburger. Holders of long term care insurance policies have faced extortionate rate increases, or possibly the prospect of spending old age in homeless shelters until they qualify for nursing homes that take Medicaid (which sometimes aren't exactly top class institutions). Those that still have some faith in the future and want to save for a rainy day need to tighten their belts and put aside more principal, rather than count on the compounding of interest income to make their golden years glow. That means reducing current consumption, which is a drag on the economy and may partially explain why economic growth remains tepid.
As long as the Fed supplies financial opioids for stocks to mainline, the market will be copacetic. But problems lurk. Stock valuations may not truly reflect investment values. Instead, they probably incorporate a large dose of government subsidy. That would mean people are paying too much for stocks. This story won't have a happy ending. Market forces can't stay suppressed indefinitely and government subsidies can't last forever. The failure of Communism in China and the Soviet Union prove that point. Things generally feel good when you're on narcotics. But you don't get good quality sleep on opioids--and investors shouldn't be sleeping too soundly now.
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