Recently I boarded a 787 Dreamliner to fly home for Christmas.
Actually, I flew north first, to Warsaw, on a regular city-hopping jet. I couldn’t resist a nice lunch in my favorite restaurant, which is located just across the Royal Palace, on the greatest boulevard in the city (it is called Krakowskie Przedmiescie, and you have to be Polish to say it properly). I met there with a pilot I know, he was getting ready to fly to Los Angeles that afternoon. He calls LAX the best airport in the world for landing and taking off, and I am sure he likes hanging out in the warm climate too. “The ‘Dreams’ are great, you know”, he said, “they go to a higher altitude than the rest of them, less traffic.” “So?” “You get a better route, it’s like having your own highway.” “Can you walk my dog before you go to the airport?” he asked before getting into a taxi. “Like, to where?” “Don’t worry, the dog knows what to do.” So I was sitting on a bench in the Park Szczesliwicki (good one, no?) checking news and the dog was chasing birds from the bushes. What caught my eye was that the central bank of Sweden, the Riksbank, has thrown in the towel on negative interest rates, and has become the first central bank in history to do so. One of the motives for raising it, is household indebtedness which is among the highest in the world – exceeding 190% of disposable income — in part due to the low and negative interest rate environment that caused Swedes to borrow with reckless abandon. This comes at a time when the European Central Bank is undertaking a “policy review,” as it is facing a wall of resistance against negative interest rates from the finance ministers of Eurozone member states because of the damage they do to the banking system and pension funds. The ECB’s policy review will likely produce a NIRP-exit strategy, and the re-pricing in the bond market will be significant (interest rates move opposite to bond prices). The ECB will have to find a creative way to wag the dog and divert market’s attention to something new and shiny. In a piece of news that hints at a reason of the liquidity shortage, Wall Street Journal wrote that billions of dollars in cash are vanishing from circulation. “Banks are issuing more notes than ever and yet they seem to be disappearing off the face of the earth. Central banks don’t know where they have gone, or why. The puzzle is especially perplexing since societies and companies are going cashless, given the boom in payments by cards and cellphone apps. A Federal Reserve report from 2016 says that 75% of all $100 notes ever printed have left the US. At the same time, gold hoarding has declined in many regions because dealers have to report who the buyers are, which defeats the purpose of hoarding to begin with. And the US of A doesn’t even want the dollar to be the reserve currency of the world - they want to manage the economy based on domestic considerations. They also want a weaker dollar, but managing it down is a tricky proposition, since it negatively impacts foreign investments in the US, which is not very well understood. The international trade numbers are not reliable, because they’re not filtered through currency movements. If a currency moves 20% over two years, they’re yelling at each other – “you have a surplus! we have a deficit!”. Meanwhile it’s all in the currency fluctuations. Enough of that and time to give the sparrows a break. I got the dog back on the leash, walked him home and took the long flight west on the ‘Dream’, flying high.
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House Speaker Nancy Pelosi declined to say late Wednesday, after the impeachment vote, when she would send the articles to the Republican-led Senate. Until the articles are submitted, the Senate cannot hold the trial that is nearly certain to acquit the Republican president.
There are certainly more forces at play against president Trump than just the two stated in the proceedings, and they are international in nature. He is presiding over a major shift in American foreign policy, long overdue since the end of the Cold War, extracting his country from providing global security for free and from opening US markets to all. He is widely criticized for introducing trade tariffs, but when he offered EU to lift them all if Europe does the same to the US, France right away said “no”. He is abandoning NATO, into which US was the only country paying their share, which prompted president Macron to call for European Army Forces. It was likely a PR move, as this man has a lot of internal affairs on his hands right now. But the biggest political risk is in China. Not for the US, but for the country itself. There isn’t going to be a meaningful trade deal with the United States because agreeing to the Americans’ demands would be the end of the Communist Party and the end of united China. At the same time, if the world’s largest consumer market, and the physical guarantor of Chinese supply chains walks away, the Chinese are out of options. And president Trump doesn’t seem to be disturbed with the high stakes, just pushes forward. In the words of geopolitical strategist Peter Zeihan: “China’s crash will be much like its rise. Big, bold, brash, loud, all-consuming, and, in hindsight, completely inevitable.” Moving on to Europe - a fundamental principle of liberal democracy is national self-determination. If you don’t have that, no other right is meaningful. The EU has a very different view, that national identity is something that is a problem. If you have too strong of a national identity that you’re excluding others, its an issue that became a real showdown. Countries like Poland or Hungary, and several others, will not give up and will protect their identity. They don’t want the Euro currency, they have their own rules on immigration, and the EU institutions are increasingly helpless in influencing them. There are nationalist movements appearing all over the continent, and the crushing Conservatives victory in Britain, and coming Brexit, will only support this process (it will also put back in spotlight Scottish independence). With Brexit, Britain will be pushed closer the United States, and the two countries have a lot in common. Take this – Great Britain scores the highest in Europe when it comes to entrepreneurship. In most other EU countries people just want to work for big corporations. The EU leading, unelected, Troika (European Commission, European Central Bank and IMF) doesn’t seem to know how to handle the situation which is unfolding. As Mike Tyson said, everybody has a plan until they’re hit hard. They display the attitude – “aside from how it looks, it’s all cool.” It’s like the commercial for duct tape – “we can fix it!” Could be a bit of a go. A crisis in liquidity is unfolding, meaning that the banks just don’t trust each other. The Federal Reserve is buying $60 billion in Treasuries every month in the effort to pump cash into the system, but the banks hoard the cash and don’t lend.
There are no new technologies out there, like it was with the Internet or mass production of cars from the years gone by, nothing big at the horizon worth investing serious money into. The Bank of International Settlements in Basel recently put out a report about it, and they’re supposed to be some sort of authority, even called the “central bank of central banks”. For the last few years I am trying hard to understand why, and I am failing every time I try. The report is a joke, so don’t bother reading it, but here is my understanding of the issue – it’s all about access to cash to settle overnight obligations, or not (read: being broke). When you go about your business every day you make payments, buying gas, groceries and other things. Now, the gas station you paying at doesn’t necessary have the account with the same bank you do. When you make your payment and the little terminal flashes “approved” it is everything but. Nothing is approved at this point – your bank is on the hook to settle overnight with the bank of the vendor. It is not about your account balance, it is about settling between banks, which they may, or they may not be able to do, depending on how much cash they have on hand. They will put up commercial paper at a discount for cash to be able to pay up, and this discount is the repo rate. We’re talking about $1 trillion money moving overnight, to put it into perspective (and the repo rate spiked at the end of September from about 2 to 10%). The US banks will not lend to European banks, because they don’t trust them. “Who is holding all the worthless paper?” is the question. Just look at the percentage of non-performing loans in Europe (NPL) and realize that someone has trillions of the junk paper that backs it up on the books. Welcome to the definition of “banks don’t trust each other”. Just when you thought that it’s safe to go outside, huh? The institutions can put up Treasury bonds as a collateral to get cash and take positions in the markets, which was illegal until 1971 (end of the gold standard). What we have now is that you can post debt to guarantee new debt. It’s like using your car, which has a loan on it, to borrow money for a new boat. Once you have the loan for the boat approved, you use is as a collateral to buy a new Harley Davidson. I am amazed just watching it, looking for a punch line that will punch hard unless there is a divine intervention. But the divine intervention record is bad. Not existing, actually. What if the worst is true, that there is no God and you’re only going once around and that’s it? Enjoy every moment of it, that’s all. The image of Him cures the illusions that make you sick – I think it may be the central point of any faith, actually. “You’re a fine looking old man,” I said to myself in the mirror this morning. “And what’s more, you have the correct attitude – you don’t care if it ends or if it goes on. And as for the violin music, there will be plenty of it in paradise.” * I am convinced that guys with that attitude live the longest. In the Biblical Garden of Eden, in the paradise, the snake shows up, a most unexplainable thing. And then he changes the reality forever, ruining the undisturbed life, demanding effort and causing pain. The way I read it is that God had the choice to make us safe, or to make us strong. He went with strong. * Lyrics by Leonard Cohen Which I interpret as “be careful about the things you say.”
I’ve never seen anyone get away with anything, in the sense that every thing you do and know it to be wrong will come back and haunt you. It’s a sobering thought. Let’s take one example that is annoying like a loud radio in the apartment upstairs. Greta Thunberg is being coached by Greenpeace’s Jennifer Morgan who attended Davos along with Al Gore. Greenpeace is funding. For me Greta is a confused child, who belongs in school. She flew to the Canadian province of Alberta just before the elections trying to convince people who work in the oil fields to quit their jobs. The Khmer Rouge leader, Pol Pot, embraced the same ideals we are listening to in the rising trend of socialism and climate change. Pot came to admire the tribes in Cambodia’s rural northeast. He saw these people were self-sufficient and lived on the goods they produced. In trying to force society back to a rural commune, there was a mass starvation that become known as the Killing Fields. In our times there is some humor in these shenanigans – a climate conference started in Madrid (COP25), so Greta sailed to the port of Alcantara to save energy. The captain of the yacht Nikki Henderson was in Great Britain at the time and had to buy a plane ticket to join with them and command the eco-yacht on the way south. Woody Allen said that you need a delusion to make your life work and it looks like the climate change crowd has found one. I don’t understand it and I don’t like things that I don’t understand. In analyzing any input from the outside world, the brain has two hemispheres to handle it – the right hemisphere is on the look out for predators, the left is on the lookout for prey. You may put a nicer definition on it, but you get the idea. It’s the same with hands, the left performs exploratory motions, and right is grasping and evaluating. In essence the right hemisphere acts like a highly efficient bureaucrat handling the input from the left. One works on facts, the other on emotions. There is a big resistance to that attitude, we see it in all sorts of public forms; we don’t trust people ability to think through things. The mania around artificial intelligence (AI) stands for the proposition that humans aren’t supposed to think too much. We want machines to be thinking in the world where humans have little intellectual agency. We don’t trust rationality, we maybe believe in the wisdom of crowds and in some form of mechanistic process, but we don’t believe in the mind. That is the raison d’existence of the AI, but it will add nothing, because well-lived life requires making choices and choosing sides, we just need to be brave enough to do so. And use the right side of the brain to make decisions. I will slow down now. It’s raining hard and it’s dark outside, I opened the windows because I like the sound of the rain - it fills up the space and brings me closer to the elements. And then I heard that somebody out there was playing Paganini Caprice on a violin. The music is remarkable to me because it's built like a conversation - it starts low, then goes up, pauses for a bit for a heated exchange, then it all goes down in flames, and finally it reflects on things and goes back to where it started. And you don't need one word to understand it! |
AuthorTom Kubiak is the author of The Traveler Archives
February 2021
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