Why I am in a good mood lately…
I’ve been worried about some things, admittedly far beyond my influence, for a number of years.
Now you might ask, with things such as they are in the world, would I suddenly be less worried? I will give you a rundown of a few items I think were going badly for years and years — and now are looking somewhat better.
CHINA – Our trade imbalance with China, their communist dictatorship, their ambitions beyond their borders, their cyber activities and most importantly their internal rate of growth — all bothered me for years. NONE of that concerns me anymore.
My math indicated their gdp growth rate has been declining now for 5 straight years and is currently under 5%. But that was just me, and I don’t believe my own math enough, to not be worried anyway. Now Harvard has published a study ALSO putting the number under 5% and they agree with me, it’s never going above 5% again in the next decade. Thank God. Economists are shaking their heads trying to figure why I would think that is good, but it is. As long as the communist dictatorship in China has no political opposition and military ambitions — we don’t want them any richer than they currently are.
Politically this guy Xi is a real hard ass and that has repercussions. Taiwan, Hong Kong, Vietnam, the ASEAN countries, the Philippines, India — everyone is on to Xi’s shit now. His days of plus 10% growth, unlimited FOREX, and island building in secret are all gone. His Belt and Road initiative is a big loser, probably along the lines of $1 Trillion dollars, and domestically I also see nothing but trouble ahead for him. The SOE’s remain a huge drag on the rest of the economy, pollution is $4 Trillion ahead of him, and politically he has only 2 constituencies left, the afore mentioned SOE’s – HALF of which must shrink and/or go bankrupt and the party/military types which I predict he has a lot of trouble keeping happy. This purge left bad feelings and he’s had to back off it or risk splitting the party further.
But the biggest change occurred 2 years ago when the PBoC had to start SUPPORTING their currency, reversing a two decade long trend of weakening their currency. I thought Xi would reverse this, and he tried, but then something I never anticipated happened, capital flight out of China exploded, and Xi realized something — he cannot weaken the currency AND have a strong growth rate.
Investors the world over, flee a weakening currency like rats from a burning ship and Xi has millions of investors in his economy.
Xi may be a Communist — but the laws of Capitalism are like the laws of physics, they apply whether you believe in them or not. The harder he struggles to control these conflicting priorities, the slower his economy will grow and a strong economy is how you build a strong military.
Freedom is a force. The will to speak out, vote and control your own destiny is not restricted to Americans. The laws of Capitalism have created the perfect Chinese Put — they can have Freedom and strong growth, or continued communist encroachment and slow growth, but NOT suppression and fast growth and that means I’m happy with either of those they choose.
This leaves China in a different position than they were 10 years ago and that position is LESS of a threat to the United States. They wanted to a world power, lets see how they deal with it, so far, from my POV; everything they have attempted has compromised their advantages, not extended them.
ISLAMIC TERRORISM – Neither Bush or Obama made me happy on this problem. Bush upset the power balance in the region and Obama willingly aided and abetted the enemy. At home, we were pushing agreements to bring refugees/potential terrorists here, the Syrian mess — which John Kerry mishandled as badly as can humanly be mishandled – was flooding Europe with refugees and they were further destabilizing 10 more countries, almost all allies. Nasty. Huge dollars. No easy way out. Then a miracle happened, and Trump was elected, and he single handily reversed the many directions we were going wrong on this issue. Still a fight, but we’ve got the main guys out of the way, we’ve turned the corner with our problem (Obama) with Egypt, Saudi Arabia, the GCC, even the Qatar thing is positive. This will slow down terrorist funding and terrorism only happens because it’s funded.
IRAN – Anyone who reads me knows I hate this Iranian Nuclear deal from top to bottom, Wendy Sherman, Ben Rhodes, John Kerry and of course Obama, are all to blame for this deal, which I predict has not changed Iran’s time to build by even a day, but has financially, militarily and materially strengthened not the country of Iran, which I have no beef with, but the crazy cabal of Khomeini’s who want to destroy the US more than they want Iran to succeed.
All of this was on my mind for years, but now — a few hundred-blog pieces later — I think the Iranian moment in the Sun came and went under Obama.
Israel, Trump, Saudi Arabia, all have one mind now, stop Iran. Stop their terror funding, their insurgency backing, their nuke program, stop the whole damn show, not by force, but by something I now realize FINALLY does have power over Iran, SANCTIONS. The people are tired of the revolution and want things. Sanctions make it hard for their economy to provide those things.
They are desperate to create growth as well. This will never end because the mullahs won’t surrender power or become economists – so they’re *ucked basically. Every dollar they spend on a nuke at this time is wasted money because Israel has the capability to stop delivery — and there are no other targets that don’t ensure MAD, with the possible exception of SA.
But the blow that will keep on hitting Iran in the solar plexus for the next 5 years, is low Oil prices, which for reasons explained below, will remain low, strangling the mullahs cash pipeline, which is the source of much misery in the world.
North Korea – I thought for years (and I think the Chinese thought) that NK was a Chinese pawn to be played as they saw fit for their purposes at different times. But each Kim is crazier than the next and I don’t think they have positive control anymore –in fact – NK has become another Chinese albatross. If the state fails, they are flooded with refugees, if it doesn’t and Kim stays crazy –it drives SK and Japan toward the US military umbrella with THAAD, F-35’s, possibly a Ford class super carrier lease to Japan.
Essentially NK has FRIGHTENED these countries into higher defense spending, a looser constitution militarily in Japan and political choices in SK they would not have made otherwise. If it’s true (the Chinese claim this) that this NK stupidity is the result of the US and SK joint war maneuvers there every year — than I say congratulations to the Pentagon for the political coup of the century. I like how Trump has painted the Chinese into the corner on this, it’s their problem, they created it, don’t pretend otherwise, solve it, or else. With Obama that threat would have made them chuckle in Beijing – but they aren’t chuckling at Trump.
Russia – Putin had me on edge for a few years now. His big FOREX account, his Oil wealth, his SU-27 and future variants, Georgia, Crimea, Ukraine, Syria, all looked negative to me. Then Heidi Heitkamp outfoxed the President of the United States (Obama) and got the domestic restriction on US Oil sales lifted. This made every domestic supplier $10 better off per barrel, or, the difference between drilling and not for most shale pro forma’s.
Shale exploration technology itself also made a few unexpected leaps and bounds, and like magic the US shale industry exploded. Like a domino SA decided to protect market share with high production. At one special moment in time the scales rebalanced, and at a rate range ($40-$60bl) that producers here in the US like the Permian and the Scoop & Stack can make money at. Lower Oil prices aren’t just good for the consumer; they have devastated Putin’s chances to dominate Europe. Again, no war funding, no war. Obama, Kerry, Merkel, the military, all think they stopped Putin. Heidi Heitkamp the brilliant Senator from North Dakota stopped Putin.
The US Economy – I love the US economy. It is the shining star in all the world for size, diversity, productivity, adaptability and brute force in places. But the Federal Reserve Balance Sheet issues from QE 1 through today, nagged at me. Why didn’t the currency reinforcements done by the west after the Great Recession cause INFLATION?
Every black box model say it should, and instead we got a deflationary spiral, which appears to have flattened – but still — this troubled me. However the recent rate increases and the FOMC decision to begin tapering, all seem to have been met, accepted and digested by the markets. If the Fed can work off the balance sheet without freezing credit markets again, the grand experiment will have worked. I would have bet against this, and things like the missing inflation PLUS lousy productivity numbers still bother me, but the market seems strong and if Trump passes Tax Reform, I think the economy is in for a 5-year ride up.
Oil – This was the key. We don’t spend $400 billion on Oil anymore, we export it. Iran, Russia, the two worst players on the planet, both depend on high Oil prices for the cash flow they need to make mischief all over the globe. That’s over. It took a lot of stuff to happen no one expected, but it did — and it will stay this way for a least the next 4 or 5 years.
Pollution – under control here in the US, out of control in China. If they fix it, it will slow growth, if we relax our excessive regulations, we grow. Win-Win.
Global Warming – it broke my heart to see them spending billions on this farce while real pollution the world over is threatening mankind and all the rest of the species. Fortunately Trump arrived in the nick of time to scuttle the Paris Accord, and now that we’ve withdrawn it will collapse, ($$) and just like that 8 years of Obama’s climate lies, went up in smoke. Whew, that was close.
Species Extinction – I used to preach about how quickly we are approaching extinction as a species IF — we continue to kill off the world’s OTHER species through habitat encroachment, deforestation and poaching/hunting. Now, a group of scientists have come out with a publication detailing this problem and drawing attention to it on a scale I could not have duplicated.
The F-35 – I hated the VTOL idea and now we have this great fighter. Was I wrong? No, of course not, the F-35 STARTED out as a VTOL, that EVOLVED into the 3 versions we have today, all of which use take off assist or a runway, and therefore, my Trillion dollar headache white elephant that would have needed 40% of it’s fuel capacity just to get airborne became a savior. Now, pair it with squadrons of less expensive F-18’s and you have financial efficiency and battlefield dominance. This change in the parameters of the VTOL concept for the F-35 — also forced us to change thinking about the continued importance of carriers, something to our advantage since our enemies don’t have them.
What a GREAT year it’s been so far!