Morning in Arizona

Morning in Arizona
Rainbows over Canyonlands - Dave Stoker

The Headline Animator

Friday, September 12, 2014

We Have Met the Enemy

Financial Review with Sinclair Noe
PlayPodcast: Play in new window | Download (Duration: 13:15 — 6.1MB) 
DOW – 19 = 17,049
SPX + 1 = 1997
NAS + 5 = 4591
10 YR YLD – .01 = 2.53%
OIL + 1.38 = 93.05
GOLD – 8.80 = 1241.20
SILV – .27 = 18.77

I’m fairly certain that at some point during this day you have taken at least a moment to recall where you were 13 years ago, how you heard the news, how you responded to the news. Maybe you can recollect specifics or maybe some of the memories have faded in time. What you knew exactly 13 years ago is probably quite different than what you know today.

Last night I watched the president announce another war; this one will be different than the last one; so we are told. The plan is to expand the airstrikes against ISIS and take the fight to their base in Syria. It is no longer just about protecting American embassies and limited humanitarian efforts. The new plan is open-ended, and will likely be long-term. We won’t have combat troops on the ground, but we will have troops in Iraq; about 1600 US troops; I’m fairly certain they are capable of combat if pushed. Boots on the ground combat will come from Iraqi forces and Syrian rebels, apparently.

House Speaker John Boehner says the country should unite behind the administration, even if we don’t know all the details of the plan. Some opposition has come from both the left and right wings. Congress will vote on it next week, and it will likely pass, but there are no guarantees of passage; it may be the only thing Congress can agree on.

Even if nobody actually knows what the threat is or why it’s imminent. American intelligence agencies have concluded that ISIS poses no immediate threat to the United States. Some officials and terrorism experts believe that the actual danger posed by ISIS has been distorted in hours of television punditry and alarmist statements by politicians, and that there has been little substantive public debate about the unintended consequences of expanding American military action in the Middle East. One thing that politicians are good at is spinning the public into a panic.

The big issue in Washington is how war might affect the midterm elections; which is entirely the wrong reason for doing anything. Administration officials told lawmakers in a closed briefing that the new counter-terrorism campaign is covered by the broad authority Congress granted President George W. Bush in 2001, after the 9-11 attacks, and in 2002, to enter the Iraq War.

Secretary of State John Kerry is traveling the region this week to build the international coalition Obama is seeking to take on ISIS. Today, Arab states vowed to “do their share” to destroy ISIS. A joint communiqué issued by the United States and 10 Arab states endorsed a broad strategy to stop the flow of volunteers to ISIS, curtail its financing and provide aid to communities that had been “brutalized” by the militants. It also called for a coordinated military campaign in which nations would contribute “as appropriate.” None of the Arab participants said precisely what they would do, and it remained unclear whether any would join in the actual fighting.

Kerry hopes to sign up as many as 100 countries, which would make for some strange bedfellows. Decades of entrenched autocratic mismanagement and abusive rule in the Middle East and North Africa cannot be erased overnight; I am not confident they can be reversed by foreign intervention. Populations in the region will have to chart their own course in struggles that are likely to be volatile and deadly. The US and others cannot do it for them. Maybe we can help in some way, but our help tends to have unintended consequences and high price tags.

I don’t know how this will all play out over time, but my guess is that it will be a nasty, slow-motion train wreck. And 13 years from now, we’ll look back and be amazed at where we are and how we got there. Yes, I remember where I was on 9/11. I think where we ended up is more important.

Meanwhile, America’s NATO allies face other security challenges, foremost of them Russia’s aggression against Ukraine. Despite the current ceasefire in Ukraine, the US will unveil new sanctions against Russia’s financial, energy and defense sectors. President Obama said that the US “has yet to see conclusive evidence that Russia has ceased its efforts to destabilize Ukraine.” If Russian President Vladimir Putin pulls out of Ukraine, the sanctions could be rolled back, but if “instead Russia continues its aggressive actions and violations of international law, the costs will continue to rise.”

Russia offered up some of the strongest reaction to the plan to go after ISIS. Remember, Russia is Syrian President Bashar Assad’s main international ally. A Russian Foreign Ministry statement said such military action without a UN Security Council resolution “would be an act of aggression and flagrant violation of international law.”

You might think that the geopolitical problems might give Wall Street a pause, but that doesn’t seem to be the case. The Wall Street Journal’s monthly forecasting survey polled economists on whether their outlook for the world’s largest economies had improved or deteriorated. The survey of 48 economists showed that a resounding majority believe things in the US are likely to improve over the coming year, versus the first half of 2014. But their attitudes towards the eurozone, Japan and China were mixed. One-quarter of economists said their outlook for China had improved, versus nearly 40% that said it had deteriorated. Around 40% said their outlook for Japan had improved, while around one in eight said it had deteriorated. For Europe, about one-third said their outlook had improved, roughly balanced with the share seeing a worse outlook. There was no apparent concern about geopolitical hotsppots.

If anybody is going to end the bull market party, it’s more likely that we will just make a mess of things all by ourselves.

Corporate America celebrates 9-11… no, that’s not the right word, they commemorate…., no that’s not the right word either; they stupidly think they are required to send out social media messages marking the day. That’s it, they’re marking the day: CVS Pharmacy says: We Remember. White Castle hamburger also says: We remember. The Vitamin Shoppe says: We pause and remember. Bikram Yoga says: 9 + 11 = 20% off! Patriot Day Sale. If you ever needed absolute proof that corporations are not people, just check the corporate 9-11 tweets.

And as for the idea that corporations are patriotic, well, tax inversions destroyed that myth. You might think the shame would push them to do the right thing, which is funny. But now we find out it is bad business. Standard & Poor’s Rating Services warned tax-dodging deals known as “tax inversions” could hurt the credit ratings of the companies that do them. When humans have lower credit ratings, they have a harder time borrowing money for new Camaros or iPhone 6 Pluses or whatever. When companies have lower credit ratings, they have a harder time buying computers or private jets or whatever.

But wait, you might be thinking, isn’t the whole point of dodging taxes to get more money, which usually means better credit ratings? Sure, but it doesn’t always work out that way. Here’s why S&P thinks tax inversions are bad: Companies will often borrow a bunch of money today to buy a company to get that sweet tax-free cash in the future. That’s not good for credit ratings. And sometimes they’ll buy another company just for the tax break and then realize, too late, that merging with that other company makes no actual business sense. Everybody suffers, business suffers, credit ratings suffer, and those tax breaks don’t seem so sweet any more.

Companies will also do kind-of-stupid things once they get their hands on money. Tax-inversion deals let them tap all the cash they’ve been hiding offshore from Uncle Sam. Then they give it all away to shareholders and their executives, or maybe they place a bet at the racetrack. Next thing you know, the money’s gone. That’s also bad for the credit rating.

Now you might think that the bad PR would be another reason why companies should not do tax inversion deals, but that would be wrong. There might be some fallout from a boycott of Walgreens or Burger King, but you know and I know and corporations know the consuming public is an unorganized mess. And the threat of boycott or angry speeches from politicians threatening to actually do something, which we all know is just bluster; that has just encouraged the companies to hurry up and do deals while they still can.

Ever notice how the stock market and corporate profits are at all-time highs, while our wages are flat and roughly half of us still think the economy is in recession? America’s capitalists take every chance they get to remind us that they are our “job creators,” but it turns out that their least-favorite thing on earth to do is create jobs. Most U.S. business leaders would rather build robots, outsource work or use part-time employees than hire workers full-time, according to a new Harvard Business School survey; 46 percent of our job creators would rather spend money on technology than employ humans, compared with a sad 26 percent who prefer people to robots, and another 29 percent who were confused or indifferent about the question or fell asleep while the survey taker was talking. Forty-nine percent would rather outsource than hire, compared with 30 percent who’d rather hire.

This is also bad news for the future of the economy because it means fewer workers are getting the training they need for our super-awesome, high-tech, no-job economy, Harvard pointed out: “Firms invest most deeply in full-time employees, so preferences for automation, outsourcing, and part-time hires are likely to lead to less skills development.” This will give business leaders, who already think we lack the necessary skills for their precious jobs, even less reason to hire us in the future.

Pogo said it best: We have met the enemy and he is us.

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