Michael Jordan is arguably the greatest basketball player who ever played the game. And yet, rather than remember him for individual points scored or MVPs, many people recall that Michael Jordan always seemed to make those around him so much better. I doubt that I have ever heard Jordan say ‘i’; rather, he always seemed to say “We”.
For Donald Trump, however, he will soon be stepping into, perhaps, the most important leadership role on Earth; but, he still seems focused on his himself. For instance, Trump began an idiotic Victory Tour today–only to the states that voted for him. Such a parade is divisive, rather than showing any attempt to unify a politically-divided nation. He also visited a Carrier Corp. plant in Indiana, claiming that “I” have kept jobs from leaving. Actually, Mike Pence, his Vice President-Elect, is still Governor of Indiana. The State has extended $7 million, per year in tax-preferences, to coerce Carrier to maintain just half the jobs from leaving.
Donald Trump has a lot to learn about governing; but, given his own outsized superiority complex, he just does not realize his own ignorance. Generally, when someone moves into the Oval Office, shouldn’t their personal qualifications be self-evident? But Mr. Trump even claims credit for things that never happened, such as “saving the jobs at a Lincoln plant”, which had only been scheduled for temporary closure. for retooling to make Fords.
At the Presidential level, a true leader should feel confident in sharing the spotlight, allowing others to benefit from their accomplishments? Empowering others to contribute to overall goals, in turn, benefits the the President’s Administration. And, shouldn’t that be the President’s total focus–doing anything, and anything, that would be in the best interests of the Nation?
NOTE: The Carrier deal, which amounted to keeping just half the jobs, was apparently orchestrated by (still) Governor Mike Pence, who will also be Donald Trump’s Vice President. Indiana apparently provided the $7 million “bribe” to provide today’s Photo Op for Donald Trump.
For more information, a NY Times article is linked, as follows:
China’s economic growth, over the past 35 years, has enabled its Economy, by measure of the Gross Domestic Product, to rise to be second only to that of the U. S. Ironically, many of the other nations of East and Southeast Asia have also done so, by educating the girls, as well as the boys. Educating females doubles the labor force and, as the economy grows, the labor force often moves into higher pay-scale industrial and service industry positions, and thereby raises the Nation’s overall Standard-of-Living.
China, like India, is held back, however, by its extremely large 1.35 billion population. Unfortunately, China has been slow to expand beyond its initial economic explosion. Currently, only 25% of Chinese workers are employed in the Industrial Sector, while the remaining 75% are still less-educated, and work mostly on small family farms, or repair and retail shops. China should hardly be considered a fully-developed economy.
During the early years, following the Chinese Communist Revolution, babies were encouraged, and the birth rate per woman of child-bearing age rose to around six. In 1956, Premier Zhou Enlai encouraged women to voluntarily curb the number of babies they had, but that didn’t work. So finally, Chairman Deng Xiaoping established a One-Child Policy in 1980, which carried harsh penalties for non-compliance. Over time, the Chinese birth rate per woman declined from 4.4 to 1.64, which is now far too low to sustain a stable work force.
Such Social Engineering has been a considerable hindrance in maintaining a reliable labor pool, where one generation replaces another. Currently, only one-quarter of China’s population has high-paying jobs in the cities, while the large majority of Chinese are still living and toiling in small, inefficient jobs, and barely existing above subsistence levels. China also has some questionable policies, which seem intended to keep city dwellers tied to their home provinces. (But, that is beyond the scope of this post.)
There are three main problems, that I see, with the One-Child Policy: it has disrupted the natural rotation of generations into the labor pool, as a large portion of the current workforce is approaching retirement; although there were multiple exceptions to the One-Child Policy, they were not disseminated by regional and local officials; and parts of the policy—especially the Forced-Abortions—have caused anger and frustration on the part of many young couples.
Just last year, the Telegraph (UK) newspaper posted the linked article about a Chinese woman, who was eight-months pregnant, being forced by government officials to have an abortion, in order to save her husband’s job: http://www.telegraph.co.uk/women/womens-life/11858723/China-Forced-abortion-late-term-to-avoid-one-child-policy.html.
Additionally, consider the effect that forced-abortions, mostly involving girls, has had on the boy-girl ratio. When the babies born today reach age 20, consider the potential side-effects of many frustrated men looking for wives.
Yes, China has pulled-off an economic miracle; but, it has also created a social disaster. Educate the girls: yes, by all means! But, leave the social engineering to Mother Nature. Here’s my rough outline of what China needs to do: build infrastructure out to the rural areas, including lower and medium-level factories; emphasize consumer spending in order to increase domestic consumption; totally eliminate the One-Child Policy: and pay bonuses to move young women, from one region to another, in order to massage the deficiency of women in some regions–or even consider recruiting some from other countries, such as Malaysia, Singapore or Taiwan. China needs to clean-up its mess!
In several of my recent posts, I have described various concerns that I have, with how Donald Trump might effect our National Economy, among many other things. And so far, for a President-Elect who has neither an in-depth understanding of the various policy issues, nor the curiosity to learn them in detail, Trump appears to be in over his head. Rather than appoint experienced advisors to Cabinet Posts and other key positions, at least so far, he has nominated inexperienced ideologues, whose only redeeming value is that they share his often ignorant points of view.
Right now, 19 days following the Presidential Election, Trump has not nominated any of the Big Three—State, Defense or Treasury Secretaries. Rumor has it that anyone with valid credentials is afraid to go near him. Perhaps that’s the cause for delay! But, I certainly wouldn’t mind even a former deputy to a Colin Powell, Robert Gates or Henry Paulson; but, so far, we are still wondering who lurks behind Door #3!
My concern is because the Financial System touches literally every part of the Government: employees throughout it need to be paid and receive benefits; an adequate amount of supplies need to be maintained; buildings and equipment should be updated and maintained; there is research to fund; teachers must be constantly focused on teaching the job skills of the future, etc. If any of the other departments closed, the nation would probably move backward, but it would still be moving. The Economy, however, is the Nation’s lifeblood, and it flows through the Financial System.
In September of 2008, President George W. Bush advised the Nation that we were looking down into a “Financial Abyss”, and that he had directed Treasury Secretary Henry Paulson to immediately transfer tens of billions of dollars to the eleven largest banks. That was just weeks before the Presidential Election and, shortly afterward, in-coming President Barack Obama announced that Timothy Geithner, President of the Federal Reserve Bank of New York would replace Paulson as Treasury Secretary, and (then) Chairman Bernanke would remain at the Fed, as usual. The transition went quite smoothly.
Soon after President Obama took office in January, he asked Congress to fund a large Stimulus Package—to pump money into rebuilding our Nation’s Infrastructure, thus creating jobs and jump starting the economy. Although it was approved, Congress significantly reduced the amount funded.
That Financial Stimulus, did initiate a Recovery; however, a majority of economists have suggested that it would have been more robust, if it had been fully funded. Trump’s recently announced “Infrastructure” Plan, perhaps which might be the harbinger of things to come, is literally an outpouring scam!
Donald Trump has already vowed to repeal the Dodd-Frank Act, which was intended to prevent a financial crisis, similar to one in 2008. That promise, plus the protectionist tariffs, which he also intends to pursue, could very well lead the Nation back to the edge of that Abyss. That’s exactly where his ignorant ideological “leadership” could take us.
Given Donald Trump’s apparent preference for inexperienced loyalists, who share his views, I am most definitely concerned about Who he will nominate as Treasury Secretary. Will he provide the that Secretary with sufficient leeway to join with current Chairman Janet Yellen, at the Fed, to keep America on the right path of Financial Stability. Trump sorely needs a Secretary who will stand up to him, offer opposing views and be capable of managing the large bureaucracy. I hope that Donald Trump does the right thing?
When President Barack Obama took office, in January of 2009, he had inherited the Great Recession—the worst economic crisis that America had had since the 1930s. Similar to what had worked then, he asked Congress to fund a sizable Economic Stimulus Plan, which would put Americans back to work. Government spending!
Although Congress approved the Plan, they downsized the funding considerably, and (now Speaker) Paul Ryan cautioned the Administration: warning of a budget deficit; a downgrading of our credit rating; and he suggested that no one would buy our bonds. None of that Doom and Gloom, however, ever came to pass. That’s what is so ironic that President-Elect Donald Trump has suggested doing the same thing as President Obama. Well, at least he says it is!
Trump has suggested selling U.S. Treasury bonds and using the proceeds to fund the much-needed re-building and upgrading of dilapidated roads, bridges, tunnels, wastewater systems, environmental disasters, etc.; however, the similarity begins to fade right there. It is an excellent time to sell T-bonds to borrow now, given the current historically low interest rates.
A Plan to Re-build America would help our Nation, both physically and economically—by fixing things and creating jobs. Ideally, the government would retain control of the projects—both in construction and the management afterward—and reap the future revenue stream which some projects might generate. But remember, Donald Trump is not prone to giving much detail!
Trump’s vision of Infrastructure, however, would be to sell the same T-bonds; but, focus only on those projects, which corporate buyers could profit from. The U.S. Treasury would raise $800 billion in debt, sell (really “out-source”) the actual projects to large corporations—mostly public utilities and construction companies. Those corporation, in turn, would then reap the revenue from the projects, which they would own in perpetuity. And, believe it or not, his outsourcing plan gets even stranger. Tax breaks!
After the Trump Administration finances the projects, the corporations would then be given tax-credits of up to 82% of the equity capital that they invested. Now, unlike a tax-deduction, which is deducted from taxable income, a tax credit provides for a 100% reduction of the actual taxes payable proportionately by the various corporations.
As such, the corporate partners would collectively borrow $800 billion from the Government, put-up just $200 billion, and they would only have to commit $36 million, as a group, after their collective tax bill is reduced by the $164 million tax credit. The real problem, however, is that the out-sourcing would only apply to those projects that could be turned into profit centers. Repairing levees, cleaning-up hazardous waste, and other projects without recognizable revenue streams, would remain in the same sorry states.
The Trump Infrastructure Plan is not really intended to repair, re-build and clean-up America after all. It is designed as the continued GOP out-sourcing of America, and it is a true form of Corporate Welfare. The U.S. Government finances the projects, extends exorbitant tax breaks, gives-up complete control, has it no guarantee that Americans would even be hired.
Consider that: America would take the risks under a Trump “Infrastructure” Plan, and the corporations would reap both the tax breaks and the virtually-guaranteed profit benefits. I’ll leave it to the reader to figure-out how some of the corporate welfare recipients might scam the Trump Infrastructure Scam.
NOTE: The Trump’s Plan also provides for a Corporate Tax Holiday. The last time that one was implemented was 2005, at a tax-rate of 5.25%, corporations laid-off 20.000 employees and retained the overseas profits offshore, waiting for the next Tax Holiday. A prior blog posted on this subject is linked as follows: https://thetruthoncommonsense.com/2016/10/20/corporate-tax-holidays-just-dont-work/.
FULL DISCLOSURE: I do not provide specific investment advice on this blog; however, I did sell all of my Apple stock last Monday. Now, I did this for my personal reasons, and I certainly am not suggesting that you should consider selling the stock, as well. Apple is still a great and admirable corporation, and I might even buy some back in the future. I believe, however, that the manner in which I approached that decision might be of interest to some readers.
I came to my conclusion, to re-shuffle my portfolio, oddly enough, while lying on a hospital gurney, waiting for a very simple procedure. At the time, I realized that I wanted to have a bit more liquidity until I knew more about who would be on Trump’s Financial Team, and what his final agenda might be. At least, he would still have to go through Congress, once he takes Office, and prior to making any devious moves.
In September of 2008, President George W. Bush told the nation that we were looking into a financial abyss. The markets were a little skittish, as they always are during a Presidential hand-over; but, the anxiety was quite a bit worse due to the financial crisis.
Luckily, the transition from Bush’s Team to in-coming President Barack Obama’s went smoothly. The next Treasury Secretary, Timothy Geithner, was merely moving over from the Fed-New York. So, everyone involved were experienced hands, and known quantities–both domestically and globally!
My concern this time around stems from Trump’s lack of policy knowledge, his unpredictability, and many of his ideological views that just do not stand-up to the “smell-test!” His vow to impose tariffs on imports from Mexico and China would result in counter-tariffs on our exports to those countries. Additionally, such Protectionism could lead to higher prices, an economy weakened by reduced consumer spending, and significantly higher unemployment. In fact, that outcome would certainly work counter to Trump’s promise to bring the jobs back!
As the world’s largest corporation (by market capitalization), and one that assembles its iPhones in China, Apple would certainly be at the top of Donald Trump’s list of companies to harass. I also sold a much smaller amount of First Solar since his preference to ignore the value of new technology will probably harm the overall Renewable Energy Industry.
As I liquidated Apple, I shifted some of the proceeds into Sector SPDRs, which are ETFs that invest in just the corporate components of one particular sector (i.e,. Energy, Health Care, Telecom, Utilities, etc.) within the S & P 500 Index. ETFs trade like stock; however, when an investor buys even a narrowly-defined sector, they get the strong companies, along with the weak. I have linked the inter-active web site, which enables the reader to check the performance of a particular sector at various time-frames. The link is as follows: http://www.sectorspdr.com/sectorspdr/tools/sector-tracker.
For instance, I believe that the Energy SPDR, which is composed mostly of oil, gas and coal companies would benefit by having less competition from renewables, under Trump. Health Care, with Trump’s threat to repeal “Obamacare”, is one to watch, since we do not know what, if anything, will replace it. Telecom might prosper from the elimination of “Net Neutrality”; but, Utilities would be harmed if his protectionist trade policies result in higher inflation, and rising interest rates.
I tend to consider myself to be a Macro-Investor. There are so many extraneous factors that impact the financial markets, which many investment professionals either ignore or simply do not understand. But the markets can be effected by trade policy, global political alliances, health care pandemics, and cultural discrimination, among other things. In essence, financial markets do not exist in a vacuum.
NOTE: If you have any questions about this post, just leave a Comment below.
Donald Trump doesn’t have any idea as to what the job, which lies ahead, actually encompasses. It will not be a wholly-owned dictatorship, off the cuff comments will not suffice in place of actual facts, and Congress must approve just about anything that he wishes to achieve. Also, Donald Trump will even have to win-over some of his own party in both Houses, as well as a few Democrats, to get anything accomplished.!
Incoming Presidents generally surround themselves with capable professionals to fill most Cabinet posts, as well as other key advisory positions. Experience in government affairs and a firm grasp of the relevant policy areas—State, Defense, Treasury, etc—should be required. But for someone like Trump, who has no government experience, at any level, and seems to dislike details or studying policy briefing books, he has an even much greater need of experienced professionals.
So far, however, Donald Trump has been surrounding himself mostly with loyalists who have little more knowledge than himself. And his appointees, so far, are wedded to the same iron-clad intellectual systems, which he expects to function in any and all situations. And lastly, if he only hires people who have the same fact-less viewpoint as his own—and they are incapable or unwilling to advise a President Trump of alternate, perhaps more suitable courses of action—his Administration might simply become a fearful case of the of the Clueless leading the Mindless!
Throughout Donald Trump’s Presidential Campaign, both during the Primaries and the General, he has focused his rhetoric on bringing industrial jobs back to America. Perhaps it doesn’t matter that many of those jobs have transferred into the service industry, been upgradeded into the Digital Age or been replaced by new technology. Needs sell, facts don’t!
Two of Trump’s more often expressed promises have been that: he will slap tariffs on Imports from Mexico and China, and he will rein-in Chinese currency manipulation, so its value won’t be overstated. Once the harangue is brushed away, however, these assertions don’t make much sense! Let me separate the two and, first discuss Tariffs and, then consider Currency Manipulation. Boring? Yes, but bear with me!
Trade usually takes place between two countries; so, if if Country A imposes a tariff on imports from Country B, Country B often reciprocates and levies a tariff against Country A’s exports. So, in the end, such trade wars are inflationary, the tariffs are passed-on to the consumers of each country. Inflation rises, and workers in both countries may face job cuts.
For instance, the $25,000 Ford Fusion, which is imported from Mexico, might now cost $33,750, after the proposed Trump 35% tariff. Assuming that less Fusions would be sold at the higher price, some Mexican workers would probably be laid-off. But, so would some American workers in the U. S, who make many of the Fusion components, that are exported to Mexico. Therefore, consumers and workers, in both nations, would lose!
The Chinese currency, the Renmimbi (or Yuan) has declined by 11% in value over the past 18 months, versus the U. S. Dollar. The weakening Chinese economy caused the decline in the value of its currency. Additionally, the Renmimbi became one of the (now five) “Reserve Currencies” this past October 1 and, as such, it is now generally acceptable in many international transactions. Accordingly, the Renmimbi is now subject to greater scrutiny, with regard to possible manipulations, in order to maintain its new elite status..
Propping a currency up above its true value, however, would make Chinese products more expensive in the overseas markets and, thus, reduce sales. The weak Renminbi also encourages wealthy Chinese to maintain their liquid funds in stronger overseas currencies, including the purchase of hard assets. Currently, the U. S. Government is monitoring Chinese investments in America, which have doubled in value since 2015.
As far as these two components of Donald Trump’s Trade Policy, tariffs just serve no constructive purpose whatsoever, and manipulation of the Renmimbi appears to be non-existent. Only time will tell us which among Trump’s vague policies: will receive Congressional approval, might be enacted through executive order, and which policies were merely ideas that he had no real inclination to pursue.