1. Barometer of increasing uncertainty continues to creep up
2. Money centered banks are largely frozen in their tracks.
In this environment then, why haven’t more people been able to borrow cheap, long-term money? Partly because the decision making process is under assault in large money centered banks. Top management is afraid to make any decisions. It looks more like game of musical chairs if not Russian roulette. The vilification of Jamie Dimon, the nation’s most astute banker shows that Washington would rather throw flames of blame than truly understand the underlying issues. As a result, rational capital allocation is largely paralyzed in the financial system leaving the horizon widely open for hedge funds and private equity firms.
3. Ending the big anomaly.
Portfolio managers were rewarded for years for nothing but parking in bonds. Before that, for nothing but liquidity. Now with cash being boring and bonds potentially dangerous, money is going to be rewarded for going back to work. This is happening worldwide. Productivity now really matters, not just being clever.
Perhaps the most important question looking forward is understanding what will foster further economic growth and most importantly employment throughout the world? Why is job growth slow in the western world when interest rates are flat or even negative? Perhaps the answer is that government policies create more confusion hence hesitation when they should be focused on clarity and as a result a sense of opportunity.
4. The disastrous management of municipal affairs
Puerto Rico as well as Chicago and numerous other cities have shown that elected officials have been unable or unwilling to deal with any serious problems in heavily unionized cities, while elsewhere in Houston, Dallas, Atlanta, Charlotte, and San Francisco, jobs are being created and new entities formed in places where politicians get there act together.
In some ways, US looks like Asia, where different cities have dramatically different prospects- Singapore vs Manila. The difference here is that they all have the same passport and fiscal code. How will democracy deal with it?
5. Tokyo a role model for Washington?
Historically low interest rates from Tokyo, Inc. and Washington, Inc. are making NPV calculations of future interest rates almost meaningless. Central banks have run out of ammunition. Traditional tools of monetary policy are exhausted. Quantitative easing and bond buy backs may no longer be effective options. Does anybody have experience, understand the impact of negative interest rates? This is an economic vortex.
6. Management focusing on distractions
In many areas we see evidence that management is focused on distractions - tinkering at the perimeter rather than focusing at the core. Airlines charging extraordinary premiums for anybody who dare change their mind. Cable and phone companies with bills that are so complex with so many lines of service fees that citizens simply cannot comprehend but they are paying for basic services. Many of these actions produce minor revenue gains but are in fact distractions and serve to alienate customers rather than embrace them.
The politics of environmental thinking is likely to get larger. Witness Leonardo DiCaprio’s impassioned speech when he won the Oscar for Best Actor.
9. Status Quo No More
The astonishing developments in the U.S. primary elections suggest that people are fed up with the status quo and are looking for something that they can believe actually works. This can have very interesting implications if played out across the political arena. The ability to finance and finesse deficits by kicking the can down the road has meant that the politicians have not been adroit in resolving but rather adroit in sidestepping major issues. Is it true that the population in the USA is getting fed up with their politicians ??? Finally??
The Wall Street Journal’s editorial addressed it with a new insight bypassing partisan politics calling it the increasing distance between the protected and the unprotected. “The protected make public policy, the unprotected live in in. The unprotected are starting to push back, powerfully.” The article continues, “more to the point, the protected are protected from the world they have created.” Voters across both sides of the aisle have noticed and are venting their frustrations not only in the unprecedented dialogue between Bernie Sanders and Donald Trump but also in Europe, UK and increasingly so in China. History has showed us that long standing political rivalries (ex. Tory vs Whig) can disappear and new ones sprout out of popular awakenings. When I was a child the only political party defined by a color was Red - Communism. Who would have thought that a brand new color choice could define a political consensus – Green. A political power base that transcends national boundaries with unprecedented efficiencies.