Tuesday, June 30, 2015

American Express --- yet another negative comment here

As previously mentioned, being a shareholder of AXP in several accounts, it is painful to report on the company's problems of  late.  First, there was the Costco fiasco, which the company explains as one made because the terms of renegotiating the expiring deal would be bad for customers.  Then there was the recent experience, in the roll out now in progress over their entire card base, requiring all cardholders to accept a new chip security enhanced card(fine), but in doing so changing the last four digits of the card numbers of all newly issued cards.  Somehow Visa and Master Card did not need to put their customers through this administrative wringer in issuing their new cards. This cannot be a good move for cardholder usage and retention.

On the weekend a discrepancy was noticed on the latest American Express bill received here.  Calling the company mid-Monday morning, there was a recording that said, possibly paraphrasing, that "due to massive call volume I should call back tomorrow."   TOMORROW?    Not accepting that, I did call back later that afternoon and after a five minute wait reached a live human.  Explaining that I had no idea what one unidentified charge was, I filed a dispute, and paid the remaining balance owed. Further examining the overall bill the next day and looking at the other family accounts included in my bill, it occurred to me that a charge listed under my name, attributed to my card, was actually a purchase by one of my daughters.  It was legitimate but completely accounted for incorrectly.  My daughters do not have access to my card, just my ability to pay.  The Amex representative said that he had never seen such a thing happen.  Can this be good?

To repeat what has been said in earlier posts, a great franchise has been taken for granted by current Amex management for too long and is now beginning to fray due to lack of newer and less bureaucratic management and possibly a lack of adequate technology investment relative to other firms.  It seems that it is time for Chenault to leave, no matter how fine a person he may be.

Can my thoughts or experiences be unique?  That's doubtful.  AXP is a too powerful franchise to collapse and it is too widely held at significant capital gains exposure to be quickly sold.  It will just linger and underperform like IBM, unless meaningful management change takes place and strategic lethargy ends.  As an example of its stasis, look at the Expedia's, Priceline's and all the major travel sites now. Just 10 years ago that was Amex's game for the taking, and five years ago they could have emerged as a leading player.  At this point, they are absolutely nowhere.  They missed it.

The belief here is that the Costco deal was not successfully renegotiated because Costco, one of the best managed companies today as perceived here and by many influential investors, realized that American Express had under invested in technology and management talent, lacked vision, and was falling behind.  Costco may not have wanted American Express as a partner, especially in an exclusive agreement.  Here the belief at this point is that is almost certainly the case.

Monday, June 29, 2015

"Still Alice", the film

Finally the film "Still Alice" was seen here.  It was not necessarily the right movie for everyone in this household to view.  Late last night was my chance.

This film, as most likely know, is about a successful 50 year old Columbia University linguistics professor, Alice, who is struck by early onset Alzheimer's disease.  Julianne Moore won best actress at the Oscar's for her portrayal of the afflicted woman.  Alec Baldwin, who seems to be in just about every other film seen here in the last year, played her husband.  The movie, as expected, starts out with this diagnosis as a complete surprise, then moves to well managed despair, and then progresses to the inevitable terrible deficits that those who have this disease experience.

Familiar here with both elderly relatives who have been through this experience with dementia as well as a variation of the younger version, there were interesting things learned.  At least according to the "film doctor", the younger a person is when they get the disease the faster it accelerates, however counter intuitive that may seem.  In addition, the smarter and more professionally trained one is, the acceleration can be more advanced.  This may or may not be a physical condition, or rather is the fact that those with more youthful vigor or more trained and practiced professional discipline, they are not recognized as having the disease and being diagnosed until it has already progressed in much more than a minor way.

The film gave a good picture of this incurable syndrome, the fact that there are good days and bad days, unpredictable and often not possible for outsiders to recognize at all in the early and even mid stages.  There are plateaus that get accustomed to for periods of time, and permanent declines that can come unexpectedly.  There is emphatically only one ultimate direction with this disease as the film and any doctor makes clear.

One meaningful exchange in the film is when the husband, Baldwin's character, gets a chance for a significant and long awaited promotion which would require a move to Rochester, New York.  He is enthusiastic.  Alice cannot relate to how that is possible.  How could she leave the things that she can still relate to and start over?

Also part of the slow discovery of what the ramifications of the disease are is that some dementia types are genetically inherited, and Alice's three twenty something children were all DNA tested and one learned that she had the genetic defect.  That's certainly more for people in this situation to think about.  A cure is surely needed, to say the obvious.

In a speech that she struggled to make to an Alzheimer's group, using a yellow highlighter to mark her blunt speech as she highlighted each word in order to avoid repetition, Alice described herself as "not suffering, but struggling".

A notable aspect of this film was that the family, while all significantly emotionally affected by Alice's condition, was a completely functional and relatively wealthy one.  The two parents had highly successful careers, the three adult children were well adjusted and healthy, and their lives were full.  The first takeaway from this is that the disease can affect anyone,no matter how healthy, how emotionally well supported, or how successful.  Then the thought arrives that this was an almost perfect family, and how much greater is the toll on a family with any other significant issues, less wealth, less of an extended family, and less social cohesion.

This is a valuable film about a clearly difficult subject, a subject that is far more widespread in both its direct and tangential impact than may be generally recognized, even now.

Sunday, June 28, 2015

"Game of Mirrors", another entertainment from Andrea Camilleri

In April, this latest translation of a mystery novel by Andrea Camilleri was published here in the states.  His Montalbano detective series set in Sicily now has a total of 17 books, and most that have been translated have been read here, maybe 10 or 12.  They are what they are as far as detective plots go, but with uncharacteristic humor and self reflection by Montalbano, the protagonist and colorful detective with a hearty appetite.

Having not read a new one in maybe two years this was a wonderful diversion.  Camilleri's wry, subtle, and at times sardonic humor is on full display in the opening section of the book, more so and more entertaining than memory recalls.  That contrasts with the closing two chapters of the book in which the violent crimes being investigated are more gruesome than remembered as the norm.

Often Camilleri's books have an underlying social cause, but this one has none.  What looks like a local crime of passion turns out to be a crime war between Sicily's two major crime families, and as always Camilleri does not hide their titles.  Everyone in Italy already knows them.

Two Montalbano themes are consistent with all other books, and those are the detective's love of food and large leisurely meals, and his constant ruminating about the affects of his 60'ish aging on his capabilities and his pace of life.  Those two themes entertain and continue to develop this multi-book character.

For those who might be new to this series, it is not possible to know their reaction.  Take a chance and buy the paperback for a plane ride.  To those who have followed Montalbano for a decade or more, the book is a treat that gives a couple of days of relaxation that cannot be duplicated by any television or film, at least that's the firm opinion here.

Friday, June 26, 2015

The dilemma with Greece and its debt

An interesting and annoying aspect of the negotiations between the current Greek government and the European Union is that Greek Prime Minister Tsipras and Finance Minister Varpoutakis seem to be enjoying all of this immensely.  Photos of the two and their comments are indicative of leaders enjoying their role and not giving the appearance of being as serious as the situation requires.  Of course, the German leaders are the complete opposite in their composure as to a large extent so are the French and the Brits.

As mentioned here previously, the Greek "ace in the hole" is that any break in the EU sets the stage for further breaks in the future when the inevitable crisis eventually happens, in the near term or in the distant future, in Spain, Italy, Portugal, Ireland, or elsewhere.  While Greece represents only 2% if the EU economy and exports almost nothing, this situation magnifies its clout considerably.  On the other hand, with most commercial and consumer debts denominated in Euros now(with the exception of some tourist credit card debt), a default and a return to what would likely be a seriously devalued drachma could be catastrophic to many individuals and companies, setting off simply another round of defaults in microcosm, a huge, widespread, costly, tedious, and economically destructive process in all likelihood.

This could lead to the ouster of Greece's currently upbeat leaders with their pride in gamesmanship. It could lead to much worse if the citizens break apart into volatile and highly partisan groups.

One could only hope that the posture of the Greek leaders is just that and behind the scenes they are completely serious.  On another note, why repatriation of the shipping oligarchs massive off shore wealth or criminal charges against them for tax evasion is never spoken about by either side is a mystery here.  They are no different from the rapacious Russian oligarchs despite their outward graceful manners and always wonderful hospitality.  This has been the behavior of wealthy Greeks forever it seems.

While virtually no one knows the details of the various offers that have been made,(could remind one of the Dodd Frank bill here, which beyond its consumer protection aspects, is a disaster for U.S. international trade influence, U.S. expatriates, and most importantly for global fixed income market liquidity),  it is clear that Greece is unwilling to enforce its tax rules against the wealthy and even the upper middle class, unwilling to adjust the pensions of state and municipal workers that receive up to 97% of their working pay in perpetuity after retirement, and therefore to leave all of the burden of any compromise to be carried by the already stressed small business private sector and individuals. Those groups, of course, are the voters that will oppose any compromise, not by accident but by what one could call political chicanery by the young manipulative and just a bit too obviously clever inexperienced leaders.

Unless global so called "vulture investors" or independent country bailouts(think Russia) come into the picture in the next few days in massive size this could be a disaster.  May some sanity prevail. What a beautiful country Greece is, one that is populated by many extraordinarily gracious ordinary citizens.

Postscript:  It was reported in the NYT that over the weekend their were long lines at the ATM's in the Greek Parliament building, with elected officials making withdrawals.

Tuesday, June 16, 2015

Trying out a book by Nicholas Sparks

Nicholas Sparks is a best selling author and storyteller who lives in New Bern, North Carolina and notably built a world class track and field there for the local high school.  Having wondered what was driving his success, over the last three days "The Longest Ride", his most recent book, was read here.  If this book is any indication, it seems that Sparks is the John Grisham of convoluted but idyllic romance stories with preposterously happy endings.

Here part of the attraction was the various North Carolina settings, all familiar.  Wake Forest University, the Outer Banks, Asheville, Greensboro, Black Mountain, and the area near Charlotte all play a role.  It's always interesting here to read about or see in film familiar places.  I don't exactly know why, but one could guess because it's both validating and comfortable.  Reading this book, I certainly am glad that my younger daughter did not choose to go to Wake Forest, which we visited some years ago and seemed attractive to me.  If the description of the fraternity/sorority culture there is accurate, which has the feel of being true, my daughter was absolutely right in her decision.  For her, it would not have been a fit.

Descriptions of the Outer Banks cause some nostalgia as we have not been there in almost 20 years, but had some great times there with family and before family.  The Asheville area was near my summer tennis teaching camp during college and Greensboro was forty miles from our Virginia home and where my mother spent her one year of college, unfortunately only one year could be provided for.  There was a younger brother whose college she needed to support.

As to Spark's writing, it is fluid and almost conversational.  There are cliched lines and the book is certainly not what one could call literature.  It is a not an especially demanding form of entertainment.  From time to time there are passages that one can relate to personally and identify with, at least here, and I have to admit that those "passages", when infrequently happened upon, caught my attention as something close to special.  Each to his own, and those brief sequences of literate relief were not common in this novel.

Interestingly, ten of Sparks novels have been made into films, and in all cases their worldwide gross proceeds easily exceeds their budgets, usually by multiples.  I have never heard of any of them.

The book was interesting and the understanding of what drives Spark's success was as well.  That said, I have no interest reading another one of his numerous books.  It's not impossible that sometime in the future one of his books could become a fallback, definitely not anywhere near term.

Sunday, June 14, 2015

Ominous headlines

On the front page of the New York Times today and Friday, there were headlines in the top right column that were attention getting, and not in a reassuring way.  On Friday, that headline was "Obama Looks at Adding Bases and Troops in Iraq" and today, Sunday, it is "U.S. Poised to Put Heavy Weaponry in East Europe".  This is unlikely to have been how President Obama had envisioned his last two years in office.  Both decisions are proposals at this point, essentially purposefully planted trial balloons, and have not been formally adopted by the White House.

It is easy to be skeptical about the addition of U.S. troops and bases in Iraq.  It is obvious that most Iraqi "fighters" are only nominally committed to any actual warfare for a cause.  Their primary reason for being in the military in the first place was to draw a reliable salary for themselves and their families, something still hard to find in many parts of Iraq.  The Iraqi central government opposes almost any diversion of money and weapons to Sunni tribes or the Kurds, the two real fighting groups in the country, and Obama somehow naively seems to accept that.  One could reasonably think that this action is exactly what ISIS wants, a greater opportunity to draw more U.S. personnel onto their battlefield, to be caught up in a fight with their fighters who to some extent seem to have no fear of death.  It also seems that John McCain, Lindsey Graham, and other U.S. politicians see this as a way to draw the U.S. further into the fight if the greater levels of U.S. "advisers" are threatened.

One could rationally think that staying away from this trap would be wise.  Just let things evolve, and the Shiite militias and the Iranians will confront ISIS in an organized and relentless way.  The U.S. would of course be admitting that their Iraq goals were a complete failure, but why double down on failure.

The Pentagon's proposal to put heavy weapons, major transport, and armed vehicles in various Eastern European NATO member states may well be what Putin wants the U.S. to do and at the same time it is what we need to do to reassure those countries that, for good reason, feel threatened by Russia. Russia would find it hard to lose at this ploy.  They can agitate border populations that may have Russian ties and internal populations of these countries that have some allegiance to Russia. They are there because during the long Soviet occupation many native Russians were repopulated to Eastern Europe to have political and commercial positions of consequence.  Many are still there. With some Russian agitation, the path could lead to negotiation, and any compromise with Russia at all would be a loss for NATO's eastern European countries.  If the U.S. were actually drawn into a conflict to use or advise on use of the weapons, it would not be worth military conflict with Russia and Putin would probably push it to the brink at least with his language.  That said, we cannot always back down from Putin.  He must be confronted, and sanctions would need to become overwhelmingly stringent.  Russian oligarchs would need to be kicked out of London, their assets frozen in London, Geneva, and Zurich, and be made a pariah in the rest of the world.  The outcome would be unclear.

The world political situation is certainly becoming less stable.  Clue.

Saturday, June 13, 2015

This evening

It's been a warm day here, and it's time to go into the kitchen and fix an early dinner so K can go for a walk later after it cools down.  Tilapia and some Whole Foods baby back ribs will be for dinner, as well as some leftover snow peas leaves mixed with spinach, brown rice, and salad.  It's all easy and not too much work to fix.

Tonight HBO has "Get On Up" on, a 2014 biographical drama about James Brown that starts at 7:30pm. It's apparently well done, and will be a good feet up on the footstool rest for a while. Reading comes later as K retires early while my time is spent quietly.  If I had some great idea for something to write it would be here, but instead readers get our evening plans which are fine but not especially entertaining or informative.  Maybe a better idea will come later.  Otherwise, out to the kitchen.

Fyi, James Brown and the Famous Flames was the first great concert ever experienced here, 1965 in Greensboro, North Carolina.  

Postscript" --- "Get On Up" was only an adequate film.  It was too convoluted and at times simply tiring.  About 2/3 was watched here, and even that had times when checking e-mail or web sites took priority.

Thursday, June 11, 2015

"The Theft of Memory", a book by Jonathan Kozol

Jonathan Kozol is well known for his award winning books about inner city children and their education or lack of education, particularly children from disadvantaged backgrounds or circumstances.  This latest book, subtitled "Losing My Father, One Day at a Time" takes on a highly personal topic that is a change from his prior writing.   It is the story of his accomplished, even famous in his field, father as he was hit by Alzheimer's disease in his later years.  It was fascinating reading as so much was familiar.

There are no exact parallels here, but tangential parallels from the past and currently are plentiful. The challenges of finding good care and good doctors to deal with geriatric issues is one major issue that many people face, and Kozol certainly found that to be the case in working with his father.  In that process he eventually and fortunately found some devoted near saints, who helped him, his mother, and his father get through their challenges.  He was fortunate, and we know others who have eventually ended up with such people, including my father in his last two years.

The bond that can develop and even may be enhanced in this type of situation is also explored. Working through the effort to talk and communicate with someone who has dementia can be an effort in great patience that is appreciated by both parties at times, frustrating at other times.  Talking about "lost memories" creates a bond that may not have existed prior to the disease.  Kozol does not try to make caring for a person with dementia look easy.  He is simply looking for the bright spots that may be found, and that he found gratifying in the midst of a difficult situation.

Much of the book focuses on the accomplishments of his father who was "an unusually intuitive clinician with a special gift for diagnosing interwoven elements of neurological and psychiatric illnesses in highly complicated and creative people."  Among Dr. Henry Kozol's patients was Eugene O'Neill who moved to Boston in the last years of his life, moving just across the street from Dr. Kozol so he could see him every day.  Among less accomplished people, Dr. Kozol evaluated high profile criminal defendants, among them Patricia Hearst and Albert DeSalvo, aka the Boston Strangler.

"The Theft of Memory" has many aspects that could appeal to people in various circumstances, all surrounding elder care in general and dementia more specifically.  A decline into dementia can be slow and gradual or it can be abrupt and startling for family and caregivers.  Dr. Kozol's own insights into his decline, shared with his son, are revealing.  This book is recommended for those have reason to be interested or for those who like a human interest story about a strong family and ultimately their strong caretakers.

Wednesday, June 10, 2015


Watching a few early minutes of the three games so far in the NBA finals plus the final 10 minutes or so of each, the performance of LeBron James, in its intensity and determination, could hardly be stronger.  With a beautiful touch on some shots, sheer athleticism, and brute force, he has take control of the games and a team.  He is the unequivocal leader and motivator of the Cleveland Cavaliers, and the coach, whose name is not known here, does not get in his way.

Beyond this display so far of basketball dominance as he supports a team whose other two major stars are both injured, is a seemingly much more mature LeBron compared to prior years.  In the on court interview after Game 2 which Cleveland won, he did not mention in even any implied way the times in the fourth quarter and overtime when he was clearly fouled and it was not called.  He was only positive.  His current new television commercial for some new luxury Kia has him dressed immaculately in casual wear and when a bystander says something like "New car?" he responds " Yes sir."  The anger and the swagger of old seem to be purposefully part of the past.

This is an unusually enticing pro basketball series, not one that can be watched for two and a half hours at a time here, but one that can be checked in on with great interest.  The outcome is unclear.

Tuesday, June 09, 2015

Market slide continues, gently but consistent, who cares

The U.S. equity market has been tiring of late, tiring itself out and tiring for this equity holder.  On May 31 the market was referred to here as "boring".  On June 4 it was cited as "slowly leaking". This slow leak has the potential to turn into something meaningful if it continues.

Much of the attention has been on the transports, historically seen as a precursor of broader market declines.  Most of the major airlines have dropped by almost 20% in the last two months.  There is only one airline owned here, as sometime in the 1990's a belief was formed here that just breaking even in an airline stock was a victory.  That, of course, could not be true for those who know how to trade that industry's ups and downs but there never seemed to be a skill for that industry here.  To emphasize that point, no airline stocks were owned here until two months ago when I fell for American Airlines. Trading at a 6x forward earnings, well below its peers, recommended by some respected securities analysts, owned by some competent mutual fund complexes, especially what looks like an all-in by pm's T. Rowe Price, it looked compelling.  On top of that,  flights in the industry were flying near capacity, there are no brutal price wars underway, and businesses have loosened up on allowing business and first class flights for their executives.  Sounds bulletproof, right.  The stock started dropping days after it was purchased.  Yesterday more was purchased at the now 20% discount, and that means now that it is possibly at least a medium term hold.  That was not exactly what was intended at the outset.

Major holdings in transport here are rail support companies.  Those have done well in the last six years but have been sliding of late, eating slightly into sizeable capital gains.  Today the two major names in this category owned here both dropped by more that 3% each.

The more modest declines in the market are widespread, including technology broadly.  Berkshire Hathaway is participating in the decline with its huge insurance holdings apparently not offsetting its rail and oil related investments.  Pundits are now mumbling about a "summer swoon" and the topic of the moment on CNBC seems to be whether or even when a 10% market decline is in the works.  The only thing that is known here is that when CNBC latches onto a theme, usually negative, it is wrong more often than not.  Still, there is no comfort in that at the moment as this market needs some positive news  to give it a boost.  I wait patiently, and if the market does require some give back there have been adequate rewards along the way and it can be accepted if not enjoyed.  If it snaps back, the pattern of recent years continues.

Monday, June 08, 2015

Intimidating police vehicles

Driving around our local area today we saw two new police vehicles that caught our attention.  They were mid-sized sport utility vehicles which is not unusual these days.  What was unusual was that all of the side windows were blacked out.  That's in blacked out like those 3 Series BMW's that are ubiquitous in some neighborhoods that have gang activity, like the Fujian east side of Manhattan's Chinatown.

Why would the police in this quiet area have blacked out windows.  In the 29 years that we have lived there have been, to my knowledge, no serious injuries to police and no police killings.  The police are paid extremely well and have significant pensions after 20 years on the force.  Why would someone in the department for this county decide to have this unfriendly look on their vehicles. Almost all of the officers in this area wear shades almost all of the time, but isn't that enough.

This seems totally inappropriate.

Does Roubini finally make sense?

Today a friend forwarded a May 31 article by Nouriel Robini entitled "The Liquidity Time Bomb". Before this post begins in earnest, making some positive comments, it should be noted that the article ends with the sentence "market illiquidity WILL eventually trigger a bust and collapse".  Classic Roubini, as he does not say COULD or MAY.  Also during the article he gives a mere one example of a liquidity meltdown in equities, the brief flash crash in 2010, and two examples, one in 2014 and one in 2013, of precipitous short term increases in interest rates in discreet markets.

He does give four valid reasons for concerns about market liquidity.  First, the increased prevalence of automated high frequency trading.  Second, the heightened popularity of open ended bond mutual funds funded by illiquid, in the very short term at least, medium term or at times longer term bonds. Third, the large number of esoteric or specialized bonds that only trade in over the counter markets that are not immediately liquid by nature. Then fourth, the loss of commercial banks as a deep pocketed market makers due to short sighted Dodd Frank rules that have capital charges that are far too high for banks to continue in that important market stabilizing role.  Market making in treasuries had nothing to do with the 2008-2009 great recession.

Roubini's thesis is that the almost, at best, zero short term interest rate policies that have handcuffed the fixed income markets and have led to increased macro liquidity but risk severe market illiquidity.

This is all something to think about, maybe to worry about.  Roubini's thoughts do not include the ability of central banks, governments, and major investment pools to have ways to counter a panic if one occurs and they do not include any suggestion of what to do with money that needs to be invested.  His warning is far more focused on the bond market, but as we all have learned no market exists in isolation.

I would classify these Roubini comments as interesting reading, but not words to live by, since that would be, practically speaking, almost impossible.

Sunday, June 07, 2015

More headwinds on the horizon at American Express

After the news of the break with Costco, one could have thought that the bad news was all out.  Now something is going on at Amex that could be worse.

As a cardholder, I received my new chip enabled card last week after a delay, as my supposed original mailing did not arrive.  As I waited for my card to arrive Amex disabled my existing card, so I did not have an Amex card for a week, bad news for me and vendors who had direct debit through that card. One could certainly question that move by Amex, as it interrupted business continuity.  It gets worse. Amex changed the account number on my new chip enabled card.  It is no longer the number that merchants have on record.

This means that rejections could be taking place now as I scramble to go on accounts that have websites and change the account number, not always a completely intuitive process.  Then there are vendors like our usual car service, restaurants, and who knows what others that have the "former" account number on file and need to be reminded to change it.  This is a uniquely clever way for American Express to lose business.

It should be noted that a United Mileage Plus Awards program almost simultaneously sent me a new chip enabled Visa card to replace my existing one, but only when I called in to activate the new card. Additionally, there was no change in the account number.  One could wonder what Amex was thinking when they put this program in place.

As a shareholder here and in several managed accounts, even with this knowledge the dilemma is what to do.  There are significant taxable gains in the long held Amex positions.  Amex will remain a powerful company and has an adequate but not rich dividend and a strong balance sheet for a financial company.  It seems that staying put is the correct move, but for new buyers the right approach might be to wait until the impact of current actions are fully realized.

Saturday, June 06, 2015

Is the U.S. really making the same mistake in Iraq once again?

Yesterday it was announced that the U.S. is providing up to a $billion worth or more of additional weapons to the Iraqi government of Prime Minister al-Abadi.  In other words, Obama is giving the weapons to the Shiite central government, with nothing to the Kurds in the north or to any moderate Sunni tribal areas.  The Obama administration continues to believe in the unified state concept of Iraq when there is zero evidence to suggest that this view is accurate.

He is handing the weapons to an Iraqi army that has already lost billions of dollars of U.S. donated equipment to ISIS forces, as they do not fight with any efficiency, if at all.  The Kurds in the north are by far Iraq's most effective fighting force and as usual there is no mention of aid or equipment for them, and they desperately need more weapons, and more sophisticated weapons like Obama is giving the inept central government forces.  The Kurds would use these weapons effectively and, if recent history is any guide, there is no way that they would give up the weapons to ISIS and run. There is no mention either of providing weapons to moderate Sunni tribal areas.

It is completely incorrect to think that Sunni tribal areas generally support ISIS.  Most Sunnis in Iraq do not believe in the harsh supposed Islamic "justice" that ISIS promulgates and they do not support the creed of embracing horrific atrocities, promoting them on social media,  and ruling by fear.  What the Sunni areas are motivated by, unfortunately, is a complete distaste for the Shiite central government which has starved them of resources.  The U.S. cannot simply overlook the Sunnis in Iraq and think that al-Abadi will be inclusive.  The hard evidence is that he will not be.

That the U.S. administration seems to simply want to be blind to these facts is unfortunate.  Even if the Iraqi army can retake Ramadi with the support of significant U.S. air power, the city will be partially destroyed and the residents will be even more inclined to support ISIS, simply as a protection against the central government.

Thursday, June 04, 2015

Equity markets have a weak day

Broadly speaking the U.S. equity market was down today, with the Dow, S&P, and the Nasdaq all approaching 1% declines during the day.  Oil related stocks were particularly vulnerable as were airlines.  Volumes in small cap stocks were below normal for the most part.

The primary culprit for today's performance was extreme volatility in the bond market related to a tighter job market and fears of inflationary pressure.  We are so far from this being an important economic factor but the markets have been on pins and needles in 2015 just waiting for something that will indicate a potential rise in interest rates and any possibility of inflation.  Greece received attention as no resolution of that situation seems on the near term horizon.  Here it could be said "let them go" but the issue is precedent.  Breaking the relationship could foreshadow a similar decision in the inevitable next country crisis, and the next....

Tomorrow we await the jobs report which could be good, which could be bad if that makes the market fear a rate hike sooner rather than later.  It will happen eventually, so the attitude here is "let's get it over" and end the commitment to zero short term rates.  But that is not how many in the market see it, even the liberal Larry Summers who has a strong view that rates should not rise.  Looking at the longer end of the yield curve, the market can raise rates no matter what the Fed does or what U.S. policy goals are.

The air may be leaking slightly out of the market, but it is slow and can reinflate in a heartbeat with some more interesting positive news than we have been seeing in the last few weeks.  We never know.