Discover more from The Credit Writedowns Newsletter
Watch Congress on Saudi not Trump, and look at China as the key to climate change
1 - Saudi
The foreign policy crisis around Saudi Arabia's alleged assassination in Turkey of a dissident US-resident journalist is dominating headlines. As is often true, it's not clear where Trump stands on the issue. And given the escalation in rhetoric coming out of Riyadh at the weekend, a lot of people think this is important. I don't. Ultimately, Congress is going to be forced to respond irrespective of what Trump does. And this leaves open the possibility that we see a punishment for Saudi, followed by an escalation on the oil front.
Saudi Arabia’s dream of becoming an investment hub in the desert is unraveling.
JPMorgan Chase & Co. Chief Executive James Dimon on Sunday became the latest prominent executive to back out of the kingdom’s premier business conference amid questions about the disappearance of journalist Jamal Khashoggi. Mr. Dimon had been a featured speaker, and his bank has longstanding ties to Saudi Arabia and is advising it on deals.
Mr. Dimon’s decision was swiftly joined by two other Wall Street titans: Laurence Fink, chief executive of the world’s largest asset manager, BlackRock Inc.; and Stephen Schwarzman, CEO of private-equity giant Blackstone Group, according to people familiar with the matter.
Just spoke to the King of Saudi Arabia who denies any knowledge of whatever may have happened “to our Saudi Arabian citizen.” He said that they are working closely with Turkey to find answer. I am immediately sending our Secretary of State to meet with King!
— Donald J. Trump (@realDonaldTrump) October 15, 2018
“It sounded to me like maybe these could have been rogue killers — who knows,” Trump added.
The president also said he told King Salman, “The world is watching. The world is talking, and this is very important to get to the bottom of.”
"The president has called for a prompt and open investigation into the disappearance of Washington Post journalist Jamal Khashoggi," department spokeswoman Heather Nauert said in a statement.
My view: Trump is in a difficult spot here because he has treated the Saudis like the closest of US allies. And now, they have engaged in an unthinkable breach of human rights and international law, against a US permanent resident, no less. If the Saudis were considered an enemy like Iran, Trump would use military force and sanctions to exact revenge. Here, he has to walk a fine line between condemnation and support for alleged friends of the US.
The result is that he is simply going to stall and fall back on, "but they denied it" excuses, as he has done with Kavanaugh and Putin, two individuals he felt he needed to support. And because Trump is basically an amoral person with few real convictions about human rights, nothing will guide him to do more except external pressure. Congress is a different story, because many members fear the loss of moral authority vis-a-vis China, Russia and Iran.
As Saudi Arabia warned of possible economic retaliation of its own, Sens. Marco Rubio and Jeff Flake, members of the Foreign Relations Committee, said Congress was prepared to move quickly and firmly if President Donald Trump failed to adequately respond to the Oct. 2 disappearance of Khashoggi, a Washington Post contributor. Rubio said U.S.-Saudi relations may need to be “completely revised” and stressed the U.S. would lose credibility on human rights if the Trump administration remained silent.
He also urged Treasury Secretary Steven Mnuchin to skip a conference this week in Saudi Arabia.
2 - Trump and the Republican Party's priority
Sharon Hurd didn’t know that President Trump had used the phrase “dumb Southerner” to describe his attorney general, but hearing it didn’t bother her.
“We’re ready for somebody to be that outspoken, because he seems to be getting the job done,” said Ms. Hurd, 73, a retiree who once owned a restaurant and a gift shop, standing on a street corner about an hour after Mr. Trump’s rally ended here this month. “He doesn’t try to take his words and make them please everybody, and I think that Southern people are noticing that.”
Few things have appeared to test the bond between Mr. Trump and the South, a political coupling of a thrice-married New Yorker and voters in the Bible Belt that seemed unlikely from the start. The president’s swing this month through deep-red Tennessee and Mississippi, where he basked in the warmth of supporters at political rallies, confirmed that despite the scandals and chaos that have churned out of the White House, their relationship endures.
“It is ironic that the warrior that they have found is a billionaire from New York, but he really speaks their language fluidly,” said Henry Barbour, a Republican National Committee member and party strategist based in Mississippi.
Republican President Donald Trump has made transforming the federal judiciary one of his top priorities. Now in his second year of office, Trump has appointed 29 judges to the U.S. appeals courts — a record pace. By comparison, Democratic former President Barack Obama appointed 55 appellate court judges during his eight years in office. Trump appointees are on track to tilt the ideological balance on several appeals courts in a conservative direction.
In theory, the depreciation provision is supposed to shield real estate developers from having their investments whittled away by wear and tear on their buildings.
In practice, though, the allowance often represents a lucrative giveaway to developers like Mr. Trump and Mr. Kushner...
The White House last year championed a sweeping revision of the nation’s tax laws that expanded many of the benefits enjoyed by real estate investors, allowing them to reap even larger deductions.
“The Trump administration was in a position to clean up the tax code and promised to get rid of some of the complexity that certain taxpayers use to their advantage,” said Victor Fleischer, a tax law professor at the University of California, Irvine. “Instead, they doubled down on those provisions, particularly the ones they have familiarity with to benefit themselves.”
With the midterm elections less than a month away and Republicans fighting to retain control of both houses of Congress, more Americans continue to disapprove than approve of last year's sweeping tax overhaul bill signed into law by President Donald Trump, 46% to 39%. Americans' approval of the 2017 Tax Cuts and Jobs Act, which included tax cuts for individuals and businesses, is unchanged from the previous reading seven months ago but is slightly higher than measures prior to and immediately after its passage.
At an event hosted by WisPolitics president Jeff Mayers, Speaker Paul D. Ryan said he thinks Republican will retain control of the House.
The future of health care and entitlement overhauls sought by the GOP hinge on whether Republicans make gains in the Senate in November in addition to keeping the House, Ryan said.
My view: On midterm economic issues, the tax cuts are bad enough given that they don't register for most voters. But, at least the Republican base is behind them. This entitlement reform stuff is what could really move the Republican base away from the party. It's a third rail. And no one who expects to still be in politics after the midterms is talking about it. Ryan, who is leaving office, is talking about it because he is emboldened by not having to run. This is how the Republicans want to deal with deficits. It probably won't happen though given the poor outlook for the Republicans in the House.
3 - Midterms
At least 53,000 voter registration applications, the large majority of them from black voters, are being held for additional screening in the state of Georgia, potentially removing the ability for a significant number of people to vote in the November election, the Associated Press reported this week. The news has ignited a controversy closely tied to Georgia’s upcoming gubernatorial election, with voting rights advocates arguing that Republicans are attempting to suppress the black vote and rig the election just weeks before Election Day.
These concerns mostly revolve around Brian Kemp, Georgia’s current secretary of state and the Republican candidate for governor. Kemp refuses to leave office before the election, prompting voting rights advocates, civil rights groups, and the campaign of his Democratic opponent, Stacey Abrams, to argue that it’s inappropriate for the man in charge of voting systems in the state to continue to manage those systems while running for office. Kemp’s opponents argue that the pending applications prove he cannot be trusted to oversee the election.
4 - US political history
In the clamorous story of Donald Trump’s Washington, it would be easy to mistake Gingrich for a minor character. A loyal Trump ally in 2016, Gingrich forwent a high-powered post in the administration and has instead spent the years since the election cashing in on his access—churning out books (three Trump hagiographies, one spy thriller), working the speaking circuit (where he commands as much as $75,000 per talk for his insights on the president), and popping up on Fox News as a paid contributor. He spends much of his time in Rome, where his wife, Callista, serves as Trump’s ambassador to the Vatican and where, he likes to boast, “We have yet to find a bad restaurant.”
But few figures in modern history have done more than Gingrich to lay the groundwork for Trump’s rise. During his two decades in Congress, he pioneered a style of partisan combat—replete with name-calling, conspiracy theories, and strategic obstructionism—that poisoned America’s political culture and plunged Washington into permanent dysfunction. Gingrich’s career can perhaps be best understood as a grand exercise in devolution—an effort to strip American politics of the civilizing traits it had developed over time and return it to its most primal essence.
When I ask him how he views his legacy, Gingrich takes me on a tour of a Western world gripped by crisis. In Washington, chaos reigns as institutional authority crumbles. Throughout America, right-wing Trumpites and left-wing resisters are treating midterm races like calamitous fronts in a civil war that must be won at all costs. And in Europe, populist revolts are wreaking havoc in capitals across the Continent.
Twenty-five years after engineering the Republican Revolution, Gingrich can draw a direct line from his work in Congress to the upheaval now taking place around the globe. But as he surveys the wreckage of the modern political landscape, he is not regretful. He’s gleeful.
Hillary Clinton: Bill's affair with Monica Lewinsky wasn't an abuse of power because 'she was an adult'
The former secretary of state said Sunday on CBS’ “Sunday Morning” that Bill Clinton was right when he refused to step down in 1999, after the House of Representatives impeached him for perjury and obstruction of an investigation into his affair with White House intern Monica Lewinsky.
“Absolutely not,” she said when CBS correspondent Tony Dokoupil asked if the former President should have resigned...
The 2016 Democratic presidential nominee said there was no abuse of power in the relationship, either, despite the clear imbalance in authority.
“She was an adult,” Clinton said, before quickly turning the conversation to President Trump.
“But let me ask you this: Where’s the investigation into the current incumbent, against whom numerous allegations have been made and which he dismisses, denies and ridicules.”
My view: This framing is the problem with Hillary Clinton in a nutshell. It's why she was vulnerable to Trump like no other figure in the Democratic Party.
5 - Micro
Reorganizing Sears will not be easy. The company’s e-commerce business has only a tiny fraction of the sales of Amazon, one of the world’s most valuable companies. And bringing customers back to Sears stores would require a level of investment that the company probably cannot afford...
As many as 100,000 retired Sears employees still receive pensions, which are expected to emerge largely unscathed in the bankruptcy. As the company was bleeding cash and selling off assets in recent years, federal regulators required Mr. Lampert to inject cash into the pension plan. Other benefits for retirees like life insurance, however, could be in danger.
My view: Liquidation is coming in due course. Note what happens to retiree benefits in bankruptcy. They get eviscerated.
Tech companies are spending a large portion of their capital toward paying a limited number of research and development staff to design new products and software, but not toward maintenance and service staff like factory and maintenance workers — roles that are increasingly outsourced to third-party firms.
A “winner-take-all market” for many tech companies. Increasingly, a few tech companies have been able to dominate as “winners” in their markets — such as Google in search or Uber and Lyft in ride-sharing — and the report argues that this leaves the other “loser” companies in those markets more likely to pay their workers less than they did before.
Growing inequality between global and local industries. Local service industries face lower margins than globalized tech firms and can’t keep up with paying their employees as much.
With the value of Bitcoin having fallen by around 70% since its peak late last year, the mother of all bubbles has now gone bust. More generally, cryptocurrencies have entered a not-so-cryptic apocalypse. The value of leading coins such as Ether, EOS, Litecoin, and XRP have all fallen by over 80%, thousands of other digital currencies have plummeted by 90-99%, and the rest have been exposed as outright frauds. No one should be surprised by this: four out of five initial coin offerings (ICOs) were scams to begin with.
Faced with the public spectacle of a market bloodbath, boosters have fled to the last refuge of the crypto scoundrel: a defense of “blockchain,” the distributed-ledger software underpinning all cryptocurrencies. Blockchain has been heralded as a potential panacea for everything from poverty and famine to cancer. In fact, it is the most overhyped – and least useful – technology in human history.
In practice, blockchain is nothing more than a glorified spreadsheet...
As for blockchain itself, there is no institution under the sun – bank, corporation, non-governmental organization, or government agency – that would put its balance sheet or register of transactions, trades, and interactions with clients and suppliers on public decentralized peer-to-peer permissionless ledgers. There is no good reason why such proprietary and highly valuable information should be recorded publicly.
My view: I am not as categorical as Roubini on crypto. The blockchain has value but not in the public form used for cryptocurrencies. Instead, it can be used by companies themselves in a more private form.
6 - Macro
there are countries that are prepared to self-immolate their economies in pursuit of growth at all costs. America is one. Australia appears to be another. At the other end of the spectrum are those who say there will be a future for the planet only if the idea of growth is ditched altogether. Politically, this has always been a hard sell, and has become even more difficult now that populations in the west have experienced an entire decade of flatlining living standards.
the bulk of this massive, unprecedented investment will have to be done not in wealthy nations, but in developing countries. And one developing country looms much larger than the rest. China now releases almost as much carbon dioxide as the U. S. and Europe combined..
...As China continues to catch up, its already enormous share of global emissions will only grow, unless it takes dramatic steps to decarbonize its economy...
This leads to a painful but inescapable truth -- no matter how much they spend, no matter how dramatically they change their societies, the U.S. and Europe won’t be able to put much of a dent in global warming on their own. Yes, the U.S. should ban coal power, tax carbon heavily and spend lots of money on building green energy infrastructure. But without a huge change in China, none of that will matter -- the battle against climate change will be lost.
The mayor, known as Mimmo, made headlines around the world for his unusual programme that welcomed migrants to the sparsely-populated town in Calabria, giving them abandoned homes and on-the-job training, in the hope that the new arrivals would rejuvenate the economy.
He started the system in 1998 under a previous government, and since then hundreds of migrants have joined the small town of about 2,000 people.
The success of the programme, lauded by many as a model of integration, led to Mayor Lucano being named one of the world's 50 greatest leaders by Fortune magazine in 2016.
His arrest earlier this month sparked protests and a national debate about the project...
The first charge against Mayor Lucano involved the arrangement of marriages of convenience to get around immigration regulations.
Prosecutors said they had wire-tapped Mr Lucano's phone and recorded at least one exchange in which the mayor appeared to suggest marriage as a solution to a woman's immigration problems, in a way they said could not be misunderstood.