Pride and Extreme Prejudice
Age of Wisdom, Age off Foolishness (25)
“The church is not a place where good people go. It’s a place where bad people go to meet God. It’s a refuge for sinners.”
- Justin Welby, Archbishop of Canterbury
Age of Wisdom, Age of Foolishness (24) “The Short Good Friday” observed the way that policy-makers from the Abrahamic Faiths were using the Easter festivals to frame the worldviews of their “flocks”. Their sheep have lost their way; and are now being driven towards a new dynamic that will coincide with the American Presidential Cycle in 2016.
It was suggested that the “passion” involved in this new dynamic would find some expression “beyond the Pale” in Ukraine. Over the Easter period a negotiated understanding between Russia and the West broke down, as real actors on the ground sought their own political settlement with force[i].
The Pope’s Easter Mass focused the Catholic Faith on the conflicts in Syria, Ukraine and Nigeria[ii].
The position of the Anglican Faith was signalled by David Cameron’s early Easter Message[iii], about the plight of Christians who are being persecuted for their faith globally; and his continued advertising of his own “evangelical” approach to British politics[iv]. This sublime declaration of British Interest was spiritually endorsed in the Archbishop of Canterbury’s Easter Sermon[v]. The Archbishop signalled out three emerging geographical flash-points, where the parallel interest of politics and faith will form the basis of foreign policy. He was careful to avoid the flash-point of homosexual marriage, embraced by Mr Cameron[vi], which has frustrated his attempts to keep all his sheep together under the same roof[vii].
Indeed, Mr Cameron’s evangelising of late has been seen by many as a political overreaction to the opprobrium (and lost votes) he has endured for embracing homosexual marriage. The geopolitical flash-points identified by the Archbishop are Syria, Ukraine and Central Africa; not too dissimilar to the flash-points in the Pope’s Easter Mass. These are all places where Christians are being persecuted.
The Archbishop should know what he is talking about in the temporal world of geopolitical flash-points. As a former chief executive in what serves as Britain’s more humble version of “Big Oil”, before he was called to serve God, the Archbishop was a student and practitioner of the dark arts of geopolitics. As an Old Etonian and scion of a family noted for its years in colonial service of the Empire, his worldview presumably resonates closely with that of his fellow Old Etonian Cameron.
Age of Wisdom, Age of Foolishness (24) “The Short Good Friday” noted that the Pope was trying to regain territory lost to Capitalism. The Anglican Faith has similar spiritual objectives; and the Archbishop is on record for his campaign against the money men epitomised by the Payday Lenders. It seems however that there is something a little more Imperial in the Anglican worldview. The present Archbishop is far more Imperial than his predecessor Rowan Williams, so there is unlikely to be another Thomas a Beckett moment which could undermine British Interest. The current Archbishop’s father had a life similar to that of Meyer Lansky, before he found redemption in Anglicanism, so there is also the recurring Disraelian theme that seems to run deeply through the current Conservative half of the Coalition.
The next big festival to drive the sheep was May Day. Like many of the Christian festivals, there is a sublime theme of Paganism beneath the Christian veneer. In more recent times it was suborned by the apostate Communists. In this new age of faith repositioning, it will be interesting how to see how May Day is repositioned. With this repositioning in mind, it was illuminating to see the recent research being done in America on belief. The Pew Research Centre recently released a study on “Views on Technology and the Future”[viii]. One of the more amusing findings is that nearly 40 per cent of Americans expect teleportation in the next 50 years.
On the one hand, one can argue that policy makers will struggle to reposition faith in such a technologically advanced cultural perspective. On the other, one could argue that any nation, where nearly half the people are capable of believing in teleportation, is fertile ground for making them believe in anything. No doubt American policy makers will be pouring over this study in search of fertile ground to influence public opinion. Far less amusing and perhaps the most interesting finding, was that the vast majority of Americans believe that science and policy makers will solve the problem of “Global Warming”. As the World’s great polluter, this signals the kind of blind faith and complacency, in alarming equal measures, of which disasters of biblical proportions are made.
The growing complacency was underlined by the latest Gallup investment survey, which found that the scars from the Credit Crunch had healed; and that Americans have become evangelical believers in real estate again[ix].
It seems that rising prices are the principal source of this return to the real estate faith[x].
The latest Existing and New Home Sales data suggest that optimism may be peaking just as the market is headed lower however. Greedy homebuilders and sellers, who are holding back supply, have now pushed prices beyond levels that buyers are willing to pay; especially as the view is that mortgage interest rates are headed higher. Offer prices are higher, inventory is lower; and therefore demand is eroding.
Despite the amnesia in relation to real estate, the scars are still open in relation to consumption; especially amongst lower income groups[xi]. These conflicting statistics on consumption and investment, illustrate clearly the impact of QE. QE has impacted asset prices, but has done little good to the real economy. This explains why the Fed is now pushing for a fiscal stimulus, which involves income redistribution via the tax code.
The Basel Committee also seems to have developed selective amnesia, which will result in another systemic crisis. Rules on derivative counterparty risk have been watered down again; so that there are now even less banks, after Lehman and Bear Stearns have gone, with even greater concentration of derivative risk between themselves[xii]. The banks have done a great job scaring the policy makers into thinking that they will never lend to the real economy again, unless capital rules are dialled back to where they were pre Credit Crunch. In addition, central banks have signalled that they will underwrite all the credit and price risk associated with the toxic debt instruments which were termed Weapons of Mass Destruction immediately after the crisis unfolded. Financial markets are at a new expansion point in the current bubble cycle, despite all the headlines that the “Taper” and higher interest rates are getting.
In Age of Wisdom, Age of Foolishness (24) “The Short Good Friday” Janet Yellen was heard to be struggling to hold the tune of subdued inflation, that the markets were supposed to be dancing to in relation to discounting future interest rate rises[xiii]. Her struggle was once again highlighted in her frank admission that the Fed has got a problem understanding deflation and inflation[xiv]. The Fed had expected inflation to be lower during the recession and higher during the recovery.
Her candour is worthy of Bernanke, however it does little for her credibility. In the “Short Good Friday” it was suggested that the Fed was unaware of how the average CEO behaves. A CEO’s mandate is to maximise shareholder value and hence his/her own compensation. Let’s shorten this to say that the CEO mandate is simply to maximise their compensation. During the recession, when the Fed was throwing liquidity at CEO’s, they responded by cutting headcount, reducing worker compensation and by raising prices on the goods and services that had inelastic demand. CEO’s also cut output, which allowed them to maintain prices. Abundant liquidity from QE allowed higher balance sheet gearing, which funded share buybacks and acquisitions, as well as dividend payments. CEO’s therefore downsized but maintained pricing power. The Fed’s expected deflation never occurred, because QE had enabled the corporate downsizing and margin maintenance.
Inflation is a relative phenomenon, which the Fed seems to think is absolute. When worker compensation is falling relative to the price of goods and services, there is inflation and not the deflation that the Fed threatened. The Fed’s current fascination with worker compensation, underlines the fact that it is now trying to justify the current level of price inflation by engineering wage inflation. Japan is trying something similar; unfortunately however the level of wage inflation never seems to catch up with the level of price inflation. Policy makers, narrowly focusing on wages, see deflation when in fact inflation has been hiding there in plain sight all along.
Going into the recovery, there was very little incentive for CEO’s to adjust strategy, whilst the Fed kept the liquidity taps open. Faced with Fed tightening however, CEO’s are now revisiting their pricing power again. Capital investment and expansion are off the table, because the Fed is expected to tighten. In the absence of stimulative fiscal policy, CEO’s are hunkering down, raising prices and investing in their own shares and those of competitors that can be acquired. The Fed now wishes the Federal Government to engineer wage inflation, via wealth redistribution in the tax code, in a misguided attempt at a fiscal stimulus. CEO’s will then raise prices even further, once they feel the stronger pricing power from those who have been given greater purchasing power through the tax code.
Porter’s Case Study for the FOMC
GE gave the classic signal of this strategy in its recent move to acquire the French engineering giant Alstom[xv]. Rather than invest in a division in Europe to compete with Alstom, GE is buying it. Allegedly there will be no anti-monopoly issues, because a US company is buying a French one. Observers have overlooked the fact that companies now operate in a global economy, so issues of company “nationality by share listing” are obsolete. This behaviour is well understood by strategists such as Michael Porter, but totally overlooked by the pure academics like Bernanke and Yellen who have never run a business, least of all tried to understand one. Kocherlakota has hinted that the Fed is starting to understand however, which is why he has been advocating a fiscal stimulus to get the Fed off the hook[xvi].
The problem remains that CEO’s now have less competitors as a result of the recession; and therefore have greater pricing power. Once they exercise their prerogative to exploit this pricing power to maximise shareholder value, the Fed will see the kind of cost push inflation which the fiscal stimulus of wealth redistribution will enable. In China, the factory of the world, unprofitable companies are now being deliberately put into failure or they are being merged. The global supply overhang is swiftly being cut. China is therefore getting its pricing power back; which has huge implications for the global economy.
Exter’s Pyramid = Inflation Reservoir
In addition to misunderstanding how companies operate, the central bankers (with the notable exception of Jeremy Stein) have misunderstood how capital markets are involved in the inflation-deflation dynamic. Capital markets soak up the liquidity, which otherwise would create hyperinflation when overzealous central bankers open the liquidity taps. This potential inflation is soaked up as bubbles in risk assets.
The trick for central bankers is in understanding where they are in relation to Exter’s Inverted Pyramid, so that these bubbles do not develop into systemic risk problems. Jeremy Stein recently suggested that the US capital markets were at a dangerous bubble point. He also said that this bubble had a direct relationship to inflation, which could be triggered unless interest rates were used to deflate the current asset bubble[xvii]. Janet Yellen does not like what Stein says in public, although it is clear that she does not reject the veracity of his conclusions. Since his conclusion does not fit with her current dogma however, he has had to go back to academia. Stein’s analysis explains why Bernanke and Yellen could never understand the behaviour of inflation.
In the immediate crisis in 2008, liquidity ran to the safe-haven of US Treasuries and cash, causing a deflation of both risk assets and prices in the real economy. Had the capital markets lost all faith in the American ability to pay its Federal debts, the cash would have sought physical alternatives. This is why Gold became popular, especially when the Fed appeared to be buying up the US Treasuries in the absence of willing lenders.
Had the loss of faith in US Treasuries continued, the US Dollar would have been in free-fall and hyperinflation would have occurred. Fiscal austerity and the “Sequester” restored faith in US Treasuries, after which the Fed forced yield hungry investors into riskier assets by buying up the lion’s share of US Treasuries in circulation at ridiculously low yields.
The Fed’s various iterations of QE have caused liquidity in the capital markets to run from the base level of Gold, all the way to the top of the pyramid. At each higher level, liquidity has then been able to slosh back into the real economy to do its inflationary damage. This inflation is not the hyperinflation when a currency loses faith at the bottom of the pyramid, but rather the inflationary attrition created through the incremental rise in pricing power of producers of goods and services.
Consumer willingness to take on more debt, in order to pay this incremental rise in prices, is evinced through a general recovery in consumer credit. The asset bubble that the Fed has created goes a long way to fooling consumers into thinking that they can afford to take on more debt to fund consumption. Rather than ask for a pay rise, which may lead to them losing their jobs because there is competition from the unemployed, consumers take on more debt. Mr Stein has called time out, but Yellen would like to see a little more inflation in the real economy first.
It is clear however that she is less than comfortable with this position, because she has no real measure of where inflation is or where it is moving. The current gap between prices and wages suggests that inflation is a problem. The American consumer could simply retrench or even collapse, under his/her current financing of rising consumer prices through personal debt. A tipping point has been reached. Rather than encourage prices to fall, Yellen wants wages to rise. She is supported by Sarah Bloom Raskin, formerly of the Fed and now over at Treasury, who is pushing for the same thing. They have Japan as the case study, which is showing them that it does not pay to meddle however.
“Et tu Kuroda”
The three arrows of Abenomics seem to have worked themselves into self-inflicted fatal wounds. The latest inflation data, showed that it had been driven higher by the March Sales Tax hike. Rising taxes and rising prices have now created a double-whammy to slow the economy[xviii]. There are also increasing signs of discomfort from the BOJ. First Governor Kuroda announced that he was unhappy with the prospect of monetising a budget deficit which shows no signs of declining[xix]. He then went even further and stated that bond yields do not accurately reflect the rising level of inflation[xx]. The BOJ is however on record as being committed to its existing QE package, which is pushing yields lower.
Japan has serious case of Stagflation in the works. Thus far, the BOJ is being equivocal about what it will do about it. One suspects that the markets will tell the BOJ what to do about it. Thus far, the markets want the BOJ to continue with QE; however the more the markets demand the more violent the correction will be when the markets decide to acknowledge that this QE is not working. We suspect that Mr Kuroda understands this dangerous unstable dynamic equilibrium and wishes to address it indirectly now, before it gets further out of hand. In doing so he is effectively undermining “Abenomics”, which may also be his objective.
From our perspective, Japan is at the point in Exter’s Pyramid where its own currency and government debt are starting to be scrutinised very closely. A loss of faith in the government debt, either because it is too large or because it does not pay enough interest to cover the risk, could swiftly move to a loss of faith in the currency. Perversely the BOJ has been deliberately undermining the faith in the currency with its actions from 2013 to date. Something has to give and Governor Kuroda knows it. A fall in the Yen, without a corresponding rise in Japanese Equities, combined with a spike in JGB yields would be the signal that this something has just given.
On Europe, we will just say that Mr Draghi is still all words and no ease. His latest pronouncement threatened asset buying if inflation falls[xxi]. Draghi needs to move fast if he is going to ease, because the global corporate pricing power coming out of America has already landed in Europe. A weakening of the Euro, which he allegedly desires, would just give this latent inflation another boost.
The Crusading Spirit, observed in Age of Wisdom, Age of Foolishness (21) “All the World’s a Stage”[xxii] and elaborated in Age of Wisdom, Age of Foolishness (24) “The Short Good Friday”, was articulated with more inflammatory venom by Senator Corker (R)[xxiii]. The momentum is now building for a full scale debate of President Obama’s “appeasement” strategy of Assad, Rouhani and Putin. The “Party of War” is now finding its voice and its political momentum. Congruent with this development is the momentum building for “Team Bush 2016”[xxiv].
Wear Those Socks with “Pride”
Get Your Limited-Edition...George H.W. Bush Socks
Having broken the ice with George W’s daubes[xxv], more political capital was found by the GOP in his father’s wardrobe. Never afraid to use biblical allegory, “Team Bush” used Moses’s technicolour dream-coat, in the form of George H W Bush’s technicolour socks, to lead the political faithful (and their donations) to the Promised Land in 2016[xxvi]. Apparently “H W” is a “sock man”. The socks chosen to raise funds for the party may prove to be as controversial as they are colourful; which seems to be in-keeping with the Bush strategy of attracting minorities into the GOP broad church. “Team Bush” is already established, in the hearts and minds of the party faithful, as a viable option in 2016. It is now establishing its bona fides with significant minorities. Following in his father’s sock-prints, Jeb Bush then affirmed that he is considering running in 2016[xxvii]. The momentum keeps building.
Age of Wisdom, Age of Foolishness (24) “The Short Good Friday” noted Jimmy Carter’s apocryphal warning that the “warmongers” were back on their Crusades.
“Hide your wife, Casanova’s back”
This was auspiciously confirmed on St George’s Day, by Britain’s patron saint of conflict aka Tony Blair. Blair unlike Cameron is Catholic, however both are evangelical[xxviii]; which has far reaching consequences only just being understood by Britons. They have recently both been singing from the same page in the hymn book. Having originally achieved notoriety for his warmongering in Iraq and Afghanistan, Blair once again followed his old partner George W Bush’s lead.
“Osama Don’t Surf”
This time, unlike the sketchy outline being painted by Bush[xxix], the more assured brush strokes of Blair depicted a common scene of political rehabilitation; with a new speech painting over the controversies on the canvass of the dynamic duo’s last works of art. Blair opined that he “told you so” about Syria two years ago[xxx], when he advocated military intervention. Having been vindicated, in his own opinion, he now advocates making peace with Assad in a short transition phase to a new democracy in Syria. In Blair’s opinion, Radical Islam is the greatest threat to human civilization; and should take priority over the Ukraine[xxxi]. In a classic case of selective amnesia, he seems to have forgotten his own significant contribution to the creation of the said Radical Islam, which he now advocates using the same inflammatory strategy to curtail. His sincerity is equally matched by his absurdity; however observers should not dismiss his words so easily.
There is currently no elected western politician who dares to address this issue. It is therefore down to the unelected types, with egos to match the enormity of the problem, to embrace it and provide the easy way out for the elected types. In relation to the radical Islamic threat, Britain laid down its marker early in the game with the announcement of the “martyrdom” of its first suicide bomber in Syria[xxxii]. This isolated incident then became a pattern, with the controversy surrounding the “Trojan Horse” in British Schools[xxxiii]. This pattern has now become a programme, with Blair’s speech and the ensuing remedial action to try and prevent the further flow of young British Muslim men to Syria[xxxiv]. Britain appears to have all the bases well covered, in anticipation of future developments.
Blair now advocates that Russia and the West should join together to defeat the common existential threat of Radical Islam. Readers should also note that China has its own issues with Islamic separatists; so one should expect Blair to reach out to China also. If all parties join forces (a) his own past actions will appear to be vindicated, (b) he will have found new gainful employment and (c) his political legacy will be ensured. Blair therefore has no rational choice other than to advocate this course of action. Radical Islam, the civil war in Syria and the crisis in Ukraine are in fact blessings for Blair.
In the recent controversy surrounding Blair and Rupert Murdoch’s estranged wife[xxxv], most people forgot that he is still the Middle East Envoy for the quartet of Russia, America, the EU and the United Nations. His latest speech is a timely reminder of his continued global strategic importance as a deal-maker; and of his attempt to reinvent himself in time for the American changing of the guard in 2016. It should also be noted that his Faith Foundation is supported by the Ukrainian Oligarch Victor Pinchuk[xxxvi]; so in addition he appears to be totally conflicted on all sides.
Blair’s conflict of interest, in addition to his words on Syria and Ukraine, once again confirm what some readers thought was the absurd linking of Syria and the Ukraine in Age of Wisdom, Age of Foolishness (18) “Beyond the Pale”[xxxvii]. In addition to William Cohen[xxxviii], the thesis is now supported by Tony Blair. The emerging temporal global agenda of his Faith Foundation is now becoming clear. The staged fait accompli that is Ukraine appears to resonate strongly with Blair’s worldview as Middle East Envoy.
“Look out ladies, there’s a new face in town”
Given his position as Envoy, this resonance has a clear context. The Yalta allegory has therefore been updated to reflect the key figure of Blair.
Blair’s latest prognosis for Syria advocates first giving Assad the opportunity of a short term in political control; during which time he must implement the necessary changes required to hold democratic elections. To enforce this compliance, the threat of no-fly zones and other military leverage should be applied. If Assad fails to deliver he will then be removed by force. It is very hard to see either Russia or Iran or Assad unconditionally signing up for this, although the latter has promised to have elections on June 3rd[xxxix]. Syria is therefore destined to follow Iraq into disintegration as a nation state. Russia and America can appear to try and play along with each other, in attempts at achieving Blair’s new deal, whilst Ukraine and Syria get carved up. They can then blame each other when failure occurs and both countries are fragmented. Blair’s faith vehicle, like the boat in Apocalypse Now, becomes a convenient mode of transport as the passengers descend into a new Heart of Darkness.
In the face of the new Blair swift-boat, the actions of the besieged Palestinians were telling. Understanding that they now face total defeat by an expansionary Israel, the Palestinians have decided to go down fighting[xl]. Hamas and Fatah embraced. Since Hamas is defined as a terrorist organization by America, it’s game over for the Palestinians. Unwittingly or perhaps knowingly this alliance is what Israel requires in order to justify its aggressive position going forward. Prime Minister Netanyahu didn’t wait long to announce that all dialogue with the Palestinian Authority was over[xli]. It never ceases to amaze how enemies mutually reinforce each-others’ positions, in order to maintain the leadership of their own people, by the projection of existential threats.
In the face of these new developments, the behaviour of the Obama Administration was predictable. “Team Obama” has gone into a holding formation. The President intends to persevere with the “Pivot”, despite his footing not being totally secure in the Middle East. Joe Biden was put in motion to Ukraine; to uphold the façade of American leadership[xlii]. This has had the consequence of making Russia go for the blitz play, of being even more assertive in its claims for justification for direct intervention in Ukraine[xliii]. The would-be President of Egypt was given some new American weapons[xliv]; presumably in order to bolster his country against Islamist threats.
“Just remember who shook your hand first mate”
Age of Wisdom, Age of Foolishness (15) “Putting the ‘F’ Back in Federal Reserve” February 26th 2014
It should however be remembered that President Putin was there first, when he gave his support to the presidential ambition of General Sisi[xlv], whilst the Obama Administration was dithering over what attitude to adopt over the methods that the new military rulers used to gain office.
“You’ve got to have a dream...”
In the meantime, the President sang Happy Talk, for his Asian partners, in a contemporary version of the musical South Pacific which should be re-named South China Sea[xlvi]. Keeping up the appearance, of business as usual, seems to be the order of the day. Unfortunately, the usual business is conditional upon the actions of others. With all this global chaos and only two year’s left in office, it’s hard to see the Asian trade partners making too many firm commitments to an American president this side of 2016.
- Easter Sunday gun battle at eastern Ukraine check-point leaves 3 pro-Russians and 2 Ukrainians dead in bloodiest clash so far
- Pope Francis, Huge Crowd Joyously Celebrate Easter
- David Cameron says Christianity is the most persecuted religion but fails to act
- David Cameron 'does God' and puts faith on the table
- Families left 'broken and weeping' by hunger and debt: Archbishop of Canterbury to say struggling families are 'too ashamed' to seek help from food banks in Easter Sunday Sermon
- David Cameron welcomes first gay marriages
- Justin Welby: the anguish I face over gay marriage
- U.S. Views of Technology and the Future
- Americans Sold on Real Estate as Best Long-Term Investment
- Increasingly Optimistic Attitudes on Housing Market
- Americans Continue to Enjoy Saving More Than Spending
- JPGoldman Stanley Intact as Basel Change Keeps Bank Ties
- Yellen Concerned Fed Model Fails to Predict Price Moves
- Alstom shares jump on GE takeover bid report
- Kocherlakota: Tax Cuts on Business Investments Could Boost Economy
- Fed Stein: Reserves Not Inflation Threat If Hike Rates Enough
- Tokyo Inflation Quickens to Fastest Since 1992
- Kuroda Says Bank of Japan Won’t Take on Debt-Servicing Role
- BOJ Said to Be Concerned Japan Bond Market Ignores Inflation
- Draghi Prepares Ground for ECB Bond Purchases If Needed
- Jeux Sans Frontieres
- GOP SENATOR: 'The Wisest Thing Assad Did Really Was To Kill 1,200 People With Chemical Weapons'
- The Republican Party Would Like To Sell You George H.W. Bush's Technicolor Dream Socks
- Jeux Sans Frontieres
- Get Your Limited-Edition...George H.W. Bush Socks
- REPORT: Jeb Bush Admits He's 'Thinking About Running For President'
- Tony Blair wanted to end speech with: "God bless Britain"
- Jeux Sans Frontieres
- Blair Says Syria Peace Pointing to Transition With Assad
- West and Russia must unite to tackle radical Islam, says Tony Blair
- UK suicide bomber in Syria named as Abdul Waheed Majid
- Top anti-terror chief who led investigation into 7/7 bombings to take charge of probe into claims Muslim hardliners tried to infiltrate 25 Birmingham schools in 'Trojan Horse' plot
- Britain Moves to Prevent Young People From Joining Syrian War
- 'I was shocked': Rupert Murdoch opens up about ex-wife Wendi's 'love note' to Tony Blair and the betrayal that made him file for divorce 'as soon as I could find a lawyer'
- Revealed: Tony Blair and the oligarch bankrolling his charity
- Age of Wisdom, Age of Foolishness (18) “Beyond the Pale” March 17th 2014
- Iran May Keep Nuclear Program After Ukraine, Cohen Says
- Activists say airstrike on Syrian school kills 9
- Hamas and Fatah unveil Palestinian reconciliation deal
- Israel Suspends Mideast Peace Talks Over Hamas Deal
- BIDEN: Russia Is Making 'Humiliating Threats' To Ukraine
- Ukraine crisis: Russia 'to respond if its interests' attacked
- U.S. Supplying Egypt With Attack Copters Easing Aid Halt
- Putin supports Sisi’s bid for Egypt presidency
- Obama Visit to Japan to Set Tone for Four-Nation Asia Tour