Sydney M. Williams
The Month That Was
January 1, 2018
“December’s wintery breath is already clouding the pond,
frosting the pane, obscuring summer’s memory.”
John J. Geddes
Author, “A Familiar Rain,” 2011
Seventy-six years ago, December 7, the Japanese bombed Pearl Harbor, drawing the United States into a World War that had been raging, formally, for over two years, since Germany invaded Poland on September 2, 1939. But Nazi militancy had begun earlier. They had re-armed beyond what they were allowed under the Treaty of Versailles in the early ‘30s. They had reoccupied the Rhineland in 1936 and they had annexed Austria in March 1938. A year later, in March 1939, Czechoslovakia fell. But the Allies did nothing. Eight years earlier, in September 1931, the Kwantung Army of the Empire of Japan invaded Manchuria. The world was aflame when Pearl Harbor was attacked. But a giant was stirred, and by war’s end over 60 million people (roughly three percent of the world’s population) were dead – approximately one killed every three seconds!
The most consequential news for the U.S. this past month, and perhaps for all of 2017, was the passage and signing of the Tax Cuts and Jobs Act of 2017. Its support was narrow and partisan, so has been compared to the Affordable Care Act of 2010. But, there is a significant difference. The ACA was designed to give government more resources, and greater control and power. This Bill gives government fewer resources, and less control and power. Its center piece is the reduction in the stated federal corporate tax rate from 35% to 21%, which is slightly below the world average. The Bill allows businesses to expense capital expenditures (investments) when occurred. As well, companies are incentivized to re-patriate about $2.5 trillion held abroad. Tax rates for individuals were lowered, albeit modestly. The deductibility of state and local income taxes (SALT), which serves to mask aggressive spending on the part of many states, including California, New York, Illinois, New Jersey and my state of Connecticut, will be limited. That will negatively affect high-earners in those states. I would have preferred a simpler bill, and one, for instance, that acknowledges that “carried interest” is income. But this was the first time in a generation major tax reform has been achieved. The Bill should help boost economic growth.
As significant for economic growth has been the rolling back of regulations. For example, an apple farm in upstate New York, according to The New York Times, is subject to 5,000 rules. The repeal of Net Neutrality was a victory for free markets. The Act had nothing to do with neutrality and everything to do with regulation. It re-categorized broadband from Title I to Title II under the 1934 Communications Act, which meant carriers would be regulated as public utilities. Its elimination was a win for competition and the promise of 5G wireless, which may obviate the monopolies and duopolies of cable and fixed-line carriers.
Elsewhere domestically, the Mueller investigation suffered credibility issues, as anti-Trump bias was shown to be prevalent with a number of Mueller’s senior personnel: Bruce Ohr, Peter Strzok, Andrew Weissmann, Jeanie Rhee and Andrew McCabe. Increasingly, it looks like the collusion that should be investigated was that between the Clinton campaign and the FBI, rather than Russia and the Trump campaign. The Santa Barbara County wildfire in California became the State’s largest. Governor Jerry Brown said such fires are the “new normal!” Late in the month, the Northeast and Midwest of the U.S. were subjected to a prolonged arctic freeze. President Trump signed an Executive Order substantially reducing acreage in Utah’s Bears Ears National Monument, a tract of land so-named on December 28, 2016 by President Obama. Mr. Trump’s decision caused an uproar about separation of powers. However, National Monuments are created by Presidential edict, while National Parks are established by Congress. Doug Jones beat Ray Moore for the Alabama Senate seat vacated by Attorney General Jeff Sessions. Whether this proves good for the citizens of Alabama remains to be seen, but it was good for the nation and especially for the Republican Party. In a 7-2 decision, the Supreme Court backed the President’s travel ban from six predominantly Muslim nations. ISIS-inspired Akayed Ullah, a U.S. citizen and native of Bangladesh, was badly hurt when his suicide vest detonated prematurely on a Times Square subway platform. There were no other injuries.
President Trump announced that he would do what the three most recent Presidents promised but never did – move the U. S. Embassy from Tel Aviv to Jerusalem, Israel’s capital. The anti-Israeli (and anti-US) bias of the UN was shown in a ceremonial vote condemning the U.S. decision, which passed 128-9, with 35 abstaining and 21 not participating. Voting with the majority were China, Russia, most EU nations, and such bulwarks of democracy as Cuba, North Korea, Syria, Iran and Venezuela. I am proud that Nikki Haley is our UN Ambassador. She was the first female governor of South Caroline, is the daughter of immigrants, and is a staunch defender of liberty. Guatemala announced it would move its embassy to Jerusalem. The Czech Republic and nine other countries are in discussions with Israel to do the same. An ISIS Caliphate in Syria is over, but in December over 400 people died in about 60 Islamic terrorist attacks.
A 2018 “red alert for the world” was issued by the Secretary General of the UN. Finance ministers from the five largest EU countries warned that the Republican tax proposal would flout international agreements. (They must fear a more competitive U.S.) Brussels dissed Poland’s judicial overhauls, triggering a never-used sanction procedure, a “nuclear option,” – the final stage of which would be the suspension of Poland’s voting rights within the EU. The dispute is over the appointment and removal of judges, with Warsaw claiming the need to purge judges appointed during the country’s Communist past, and Brussels arguing that doing so violates separation of powers. In a New York Times article last month, Liz Alderman wrote of how Europe’s thirst for cheap labor has fueled a boom in “disposable workers” – her words. EU rules allow citizens to work anywhere within the 28-nation bloc, but there are no requirements that contracts be written in a language understood by the employee, and there are no requirements that minimum wages be paid or that overtime matches that of the country in which they are working. (The EU has become less and less democratic. It serves its largest members, Germany and France, at the expense of its southern and eastern members. The Euro has provided Germany with a cheap currency, while giving southern and eastern European countries an expensive currency.) In my opinion, Britain is wise to exit the Union.
During the month, President Trump made a major foreign policy speech, which Arthur Herman of the Hudson Policy Institute suggested may usher in a new era of global stability – something at odds with conventional thinking. Chile’s former president Sebastián Piñera defeated center-left candidate Alejandro Guillier who had been backed by the outgoing Leftist president Michelle Bachelet. The shift to the right saw the Ipsa stock index jump seven percent. Separatists won the majority of elections in Catalonia, indicating concerns with Madrid remain. In a replay of the failed 2009 Green Revolution, protests broke out in Iran, with twelve people killed, so far. Further sanctions were imposed on North Korea.
In financial markets, stocks rose modestly for the month, but provided the year with their best performance since 2013. The bull market is now nine years old. Nobody can predict its end. But, as one investment advisor recently wrote, “…be careful what you buy.” In the U.S., the value of IPO’s (initial public offerings) doubled in 2017, after 2016’s ten-year low. Volatility, measured by the DJIA rising or falling more than one and a half percent in a single session, fell to record low levels. In 2017, there were only two such days. To put that in perspective, 2016 had that level of volatility on nineteen days, and in 2008, at the height of the credit crisis, the DJIAs rose or fell by more than one and a half percent on a hundred days. A dangerous complacency? Perhaps, but consumer confidence is at a 17-year high (or just below, as it fell modestly in December) and unemployment is at a 17-year low. During the month, the Federal Reserve raised Fed Funds rates by 25 basis points to 1.5%, double what it was a year ago, with the consequence being a yield curve flattening. During the year, the yield on the Three-month rose from 0.46% to 1.39%, while the yield on the Ten-year fell from 2.48% to 2.43%. Bitcoins began the month at $9,872.15, reached $19,597.75 on December 17, and closed at $14,405.00. (Keep in mind, they began the year at $976.65.) Are they a fraud? I don’t know, but they have no intrinsic value. I don’t own any and would not. Goldman Sachs announced on December 7 that they would clear Bitcoin futures’ contracts, “for at least some clients.” A $69 billion CVS proposed merger with Aetna was announced, which will result in the latter’s CEO having a $500 million pay day! The Dakota Access Pipeline has increased oil production, and reduced oil-train traffic, a bane for Warren Buffett’s Burlington Northern, but a boon for the environment. A strong Holiday shopping season and a boost in November jobs suggest fourth quarter GDP growth will come in above 3%. If it does, it will be the strongest consecutive period of economic growth since 2007. Interest rates in Europe remain low: At the start of the month Portugal issued €1.3 billion of five-year, floating-rate notes with a yield of 1.1%. Given their reported consumer price inflation of 1.4%, the buyer is getting a negative return of minus 30 basis points, before taxes. Do we have any bridges for sale?
In other news, Russian election officials barred opposition leader Alexei Navalny from running in next year’s election. In Australia, Chan Han Choi, a native of South Korea, was arrested for brokering the sale of missiles and missile components to North Korea. Fifteen UN peacekeepers (all from Tanzania) were killed in the Democratic Republic of Congo by “militant extremists.” Playing God has consequences. Efforts to save the Sumatran tiger is negatively impacting the Sumatran elephant, and requiring the need for more protected forests on Indonesia’s largest island. Uber is the disruptive technology the establishment hates most. It is anti-union. The European Union’s highest court ruled that the company, which owns no cars, is a transportation company, not a technology platform, so subject to myriad rules and regulations.
A Gallup Poll showed millennials are growing skeptical toward capitalism and favorable toward socialism. A failure to check sources, along with a visceral hatred for President Trump, have given legitimacy to White House charges of “fake” news. According to a report in The New York Times (which excluded itself from any culpability) examples of fake news have been seen in stories published by CNN, ABC and “several news outlets, including Bloomberg and The Wall Street journal,” The Times also commented – oddly – that the tax bill risks “overheating” the economy. For the second year in a row, life expectancy in the U.S. fell. The drug overdose epidemic was blamed. An apartment building fire in the Bronx killed twelve. A daughter was born to a couple from an embryo frozen twenty-four years ago – the oldest to result in a live birth. And, sadly, twenty-four horses died of smoke inhalation in a barn fire in Simsbury, Connecticut.
Death appeared. The infamous Christine Keeler died at 75; corporate star from the 1980s William Agee at 79; M&T Bank chairman Bob Wilmers, who I knew slightly in the 1960s, at 83; Olympian Bill Steinkraus at 92; Author William Gass at 93; John Anderson, 1980 Presidential candidate, at 95, and King Michael of Romania at 96. Also dying in December was a good friend, John Willson, an expert on Theodore Roosevelt.
December ends with the Christmas season, the most joyous time of the year, even if many of us no longer celebrate its religious aspects with the fervor we once did. Nevertheless, we should not forget its origins, nor its enormous impact. Two thousand years after His birth, Jesus is celebrated by almost a third of the Earth’s population. His message was (and is) one of peace and love. He encourages generosity and fosters the relieving of suffering. But, we know that we (and it) are fallible, that envy, greed and disloyalty entice us. We know that Christian nations were, in part, responsible for the horrors of the last century’s two world wars. But we also know that it was Christian-Judeo nations who stood up to the evil of Nazism, Fascism and Communism. A steep price was paid, but ultimately the good guys won. As we leap into the New Year, I wish you the very best, that peace may reign and that we may voice our opinions without rancor or fear. And I thank you again for your readership.