Thursday, December 1, 2016

"The Month That Was - November 2016"

Sydney M. Williams

The Month That Was – November 2016

                                                                                                                                 December 1, 2016

“November always seemed to me the Norway of the year.”
                                                                                                Emily Dickinson (1830-1886)

Apart from the Cubs winning the World Series, the biggest news of the month was Donald Trump winning the Presidency.

The surprise was not that Republicans won, the surprise was that the Presidential race was as close as it was. A year and a half ago, when the race began to heat up, it was apparent, despite Mr. Obama’s personal popularity, that many of his policies were not working. The economy was sputtering along at the slowest growth rate in the post-War period. Federal debt had doubled to just under $20 trillion, while unfunded liabilities (Medicare, Medicaid, Social Security, etc.) had risen from $56 trillion to an estimated $100 trillion in 2016. Debt and entitlement obligations have compounded at 9% over the past eight years. GDP (the nation’s income) has compounded at two percent. When debt expands faster than income, bad things happen. Racial animosities have intensified. Internationally, Russia and China were in ascendancy and the Middle East in shambles. Islamic terrorism showed no signs of abating. Democrats were set on crowning an ethically challenged woman, an individual who epitomized a corrupt Washington establishment and a notoriously poor campaigner to boot. It was expected to be a “Republican year.” Eighteen months later the situation had not improved. What an opportunity for Republicans!

But, in nominating Mr. Trump – the most non-political Presidential nominee ever – Republicans almost blew it. While Trump appealed to vast numbers of working Americans who no longer felt they had access to the American dream, his character was alien to what many people thought proper for a President. But we underestimated the degree of estrangement so many felt toward a government that had practiced identity politics, favored a few special interests and had grown distant from a majority of the American people. Trump’s instincts were more acutely attuned than those of political professionals. He did win, and Republicans held the Senate and the House. Additionally, they control 33 governorships and 32 State Legislatures. While the country remains split, his support was far broader than most Democrats would have one believe. The great irony is that it may take a strong and independent leader to re-energize Congress into resuming its traditional role, as a body that is supposed to check excesses in the Executive, and to work through the ideological posturing that sometimes holds government hostage. Since winning, Mr. Trump’s policy determinants have begun to take shape. The most consequential response – apart from protesters and cries of denial – has been a rise in optimism: Since November 7, the DJIA has risen 4.7%, the U.S. Dollar is up 3.9% and the University of Michigan Consumer Index rose from 87.2 in October to 93.8 in November. It is the prospect of tax and regulatory reform that has the juices flowing.

Thousands on the Left, however, have not yet acknowledged that Mrs. Clinton failed. She had received the financial support of 96% of journalists, according to the Center for Public Integrity, and 99.5% of funds raised by faculty and administrators at the nation’s universities, according to an article in “U.S. News and World Report.” She was the overwhelming choice of the overseas press. Mrs. Clinton raised and spent more than twice as much money as did Donald Trump. Virtually all polls were wrong. In June, when it was obvious that Trump would win the Republican nomination, The Nation published an article headlined: “Relax, Donald Trump Can’t Win?” Yet, Trump garnered more votes than any Republican before and the most Republican electoral votes since 1988, and Mrs. Clinton failed to get as many votes as did Barack Obama in either 2008 or 2012.

One likely consequence of the election is that the 35-year-old bull market in bonds will end. The yield on the Thirty-year Treasury has already risen 12%, from 2.63% on election day to 2.95%. Since 2008, the Federal Reserve, Congress and the President have performed a dance. Fed Funds have been kept near zero for the entire eight years of Barack Obama’s Presidency, something unique in history. Why? Olympians in Washington believe in the omniscience of government, rather than relying on the wisdom of free markets. Blinders prevented them from seeing the results of a policy that has made credit plentiful and cheap for governments, banks, speculators and multinationals, but niggardly and expensive for small and midsize businesses. These policies have hurt savers and the retired. It is true that home mortgage rates are low, and home sales and prices have rebounded over the past few years, but existing home sales are still a million units below where they were ten years ago, and new home sales are only half of what they were in 2006 – despite the country being larger by 20 million people and mortgage rates 30% lower.

Elsewhere domestically, President-elect Trump began the process of building out his advisors and cabinet nominees. He has spoken to early supporters: Senator Jeff Sessions, Donald McGahn, Steve Bannon, Rudy Giuliano, Ben Carson, Steve Mnuchin, Wilbur Ross and Congressman Mike Pompeo. And he has reached out to the more traditional base: Mitt Romney, Republican National chair Reince Priebus, Governor Nikki Haley of South Carolina, Georgia Congressman and former orthopedic surgeon Tom Price, former pentagon official K.T. McFarland, Senator Bob Corker, Michigan Republican Committee chair Betsy DeVos and former Labor Secretary Elaine Chao. Similar to protests during the Vietnam era, students protested the election of Donald Trump. Then they were protesting a war they felt undemocratic. Now they protest a democratically-held election. A recount in three states was demanded by Jill Stein, the Green Party candidate. She has raised more money from the liberal faithful for the recount and has received more airtime than she did as a candidate. After years of investigation, two former aides to Governor Chris Christie were found guilty in “Bridgegate.” At Ohio State Abdul Razak Ali Artan, a student from Somalia, deliberately drove his car into a cluster of people, jumped out of the vehicle wielding a butcher’s knife. Eleven were injured, one critically. Within minutes, police responded. Refusing to drop his knife, he was shot and killed. ISIS named him a “soldier of the Islamic State.” A school bus crash in Chattanooga killed six youngsters; something, as a former school bus driver, I found especially horrifying.

Internationally, a poll in the Financial Times suggested that support for the EU had risen since the UK voted to exit the Union. I would be skeptical. The findings do not accord with Angela Merkel’s approval ratings, which are at five-year lows, nor do they reflect what is happening in France, as we head toward next year’s elections. Street fighting has broken out between Muslim refugees and the French police. Marine Le Pen, leader of the National Front, is surging, and free-market reformist Francois Fillon won France’s Republican primary. President Francois Hollande, with an approval rating in the single digits, has not yet decided to seek another term. The FT findings do not fit with events in Austria, which looks ready to elect Europe’s first far-right candidate, Norbert Hofer. In Italy a referendum is scheduled for December 4. Prime Minister Matteo Renzi wants to overhaul their national constitution, giving more power to the executive. If a ‘no’ vote prevails that could lead to Renzi calling an election. A headline in Monday’s Financial Times read: “Troubled Italian banks face fresh risk of failing if Renzi loses vote.” The European Parliament voted to suspend talks between Turkey and the EU over membership. In response, Turkish President Erdogan threatened to re-open Turkey’s gates for migrants and refugees. Russia, in response to NATO’s possible deployment of a “defense shield” in Eastern Europe, threatened to install S-400 surface-to-air missiles and nuclear-capable Iskander missile systems in the enclave of Kaliningrad (between Lithuania and Poland). Truth be told, Europe has problems and the European Union is at risk of collapse.

The New York Times reported last week that 150,000 Venezuelans have thus far fled their homeland, a lesson in what happens when redistributionist policies are carried to extremes. Train derailments killed 115 in India and 45 in Iran. A power station collapsed in China, killing 67. A chartered plane, carrying members of Brazil’s soccer team, crashed in Colombia, killing 76 of the 81 aboard. Mosul was retaken from ISIS by Iraqi forces. The Syrian city of Aleppo remains under siege. Through the middle of the month, Wikipedia lists 123 incidents of Islamic terrorist attacks and executions around the world, with over a 1000 dead. The Taliban are resurgent in Afghanistan. The nuclear deal with Iran had better work, for her position in the region has strengthened, as it has around the globe with the relaxation of sanctions. China’s Defense Minister General Chang Wanquan met with Iran President Hassan Rouhani during the month, Russia is negotiating with Tehran for the sale of arms. Xi Jinping, like his predecessor Mao Zedong, has been named a “core” leader. South Korean President Park Geun-hye is facing impeachment, an event destabilizing the Peninsula. According to Freedom House the number of democracies around the world has declined over the past few years, and this year the United States was assigned a downward arrow. While most of us in the U.S. have much for which to be thankful, there remains a lot of suffering in the world.

Financial markets responded to the election of Donald Trump. Equities surged, as did the Dollar, while bond prices collapsed, as interest rates rose. The Dow Jones was up 5.4% for the month and 4.7% since election day. The US Dollar rose 3.9%, while bond prices declined as yields rose. The way we shop is changing. There were 108 million on-line shoppers this year on “black Friday,” up 5 million from 2015, while the number that shopped in stores fell from 102 million to 99 million. On “cyber Monday” sales from mobile devices rose 33% to $1.2 billion, representing more than a third of total on-line sales.

The Grim Reaper made his appearance: Fidel Castro died at 90 – a murderous tyrant, or a revolutionary icon, as CBS called him? While Cubans mourned, those in the “Little Havana” area of Miami celebrated. Castro was a man who the Associated Press reported “steered their island to greater social equality.” But he did so at the expense of everyone else. In 1958, in terms of GDP per capita, Cuba’s economy ranked 3rd in the region, behind Venezuela and Uruguay. Today they rank either 11th or 12th, and 95th in the world. The AP obviously ignored an article in Forbes that estimated Castro’s net worth at $900 million, while noting that the average Cuban earns $20 a month. If that’s equality, I would like to hear their definition of inequality! At home, we lost two former cabinet officers: Defense Secretary Melvin Laird at 94, and Attorney General Janet Reno at age 78. The Irish novelist and short story writer, William Trevor died in his 89th year. Florence Henderson, better known as Mrs. Brady of the “Brady Bunch,” died at 82. And I lost a good friend in John Perkins who died at 90.

November is a history-filled month. In 1789, George Washington proclaimed the 26th to be a day of “public thanksgiving and prayer.” Seventy-four years later, in 1863, amidst a civil war that would kill 750,000 Americans, Abraham Lincoln issued a proclamation deeming the last Thursday in November a national day of “Thanksgiving and Praise to our beneficent Father...” Another 78 years would pass before Franklin Roosevelt officially made Thanksgiving the fourth Thursday of the month. On November 19th, 1863, Abraham Lincoln delivered the Gettysburg Address. He stood on the battlefield where one third of the estimated 140,000 troops engaged became casualties four months earlier. It was on November 2, 1917 that UK Foreign Secretary Arthur James Balfour sent a letter to Baron Walter Rothschild in which he viewed favorably the concept of a national home in Palestine for the Jewish people. On the 11th hour of the 11th day of the 11th month in 1918, the Armistice was signed that ended hostilities between the Allies and Germany. Twenty years later, on the night of November 9-10 in Germany, Nazi mobs burned synagogues, destroyed Jewish shops and vandalized their homes, in a night of terror known as Kristallnacht (the night of broken glass). And. of course, in an event that is forever etched in the memories of those then alive, President John F. Kennedy was assassinated in Dallas on November 22, 1963.

We move on to December, when the gloom of the year’s shortest days is offset by the joy of Christmas.






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