Bill Owens: Confounding And Confusing Events 7/1/19

Jul 1, 2019

Scientists are reporting additional sightings of a giant cephalopod or giant squid.  The first sighting of this creature occurred about seven years ago, and was followed shortly thereafter with another sighting, but then as scientists searched the deep, they were unable to replicate the sighting until a short while ago.  These creatures have roamed the seas since the time of the dinosaurs which means they represent millions of years of existence and possibly evolution.  Although this has very little impact on our day to day lives, the ability to potentially track these creatures, understand their habitat and their habits could be very helpful to our study of the earth, and likely to our evolution and may be informative about how they survived and how we might survive as our climate changes. 

As we know late last week President Trump pulled the plug, so to speak, on a strike at Iran in retaliation for downing a drone.  As the story has evolved over the weekend of June 22nd and 23rd, Mr. Trump indicates that he decided not to move forward literally within 30 minutes of the abort time.  The rational given is that Mr. Trump inquired on Thursday, as to whether or not – to proceed based upon how much collateral damage in terms of Iranian civilians would be incurred if the strike went forward.  He indicates 150 potential victims, and that he felt that cost was disproportionate.  It is very difficult to believe that the first time the casualty estimate was available and provided to the President was within hours before the strike. That requires a suspension of belief that I am not prepared to embrace.  As one commentator noted, I am happy that he came to the decision that he did because it was the right one, but his reasoning makes little sense. 

There is increasing news coverage about the impact of the contrast between long and short-term treasury rates.  This economic event is known as the inverted yield curve, meaning that short-term rates are higher than long-term rates. As of June 27th, 2019, 10-year interest rates are at 2.02%, while short-term treasury rates (one month, two months, and a year) are at 2% on average.  Historically, when interest rates become inverted or close, it has been a precursor to a recession.  Whether or not that concept still holds is of great interest to me given the twists and turns that have occurred in trade with Canada, Mexico and China in particular.  Stock market response to those interactions has been inconsistent and, in many respects, counterintuitive.  It is certainly worth continuing to watch how interest rates interact in the long and short-term, but whether or not they are a bellwether any longer is open to question.

Mr. Trump on Monday, June 24th, increased economic sanctions on Iran.  There is actually little room to maneuver here since there were already significant sanctions imposed on the Iranian economy.  The options for reining reigning in the Iranians seem limited, and is likely one of the reasons why Mr. Trump is struggling to find a pathway in dealing with this situation.  This is no doubt a nettlesome issue to work through with a limited chance of coming to a successful conclusion which to me would mean a resolution of the nuclear armament without an armed conflict.  One must always remember that there are limited military options to destroy Iran’s nuclear capacity, which is self-evident by the fact that the Israelis have not even tried except for several attempts to delay the process but not to disable it.

It appears that large companies like Carrefour, SA, Amazon and others are abandoning projects in China for a wide variety of reasons, including many of those that the Trump administration is trying to negotiate with China as part of the trade negotiations.  Another factor, however, is the competitiveness of existing and new Chinese businesses particularly in the arena of delivery services.  Certainly, the changes that the Trump administration is proposing in terms of access, the cessation of the need to deliver technology as part of transactions in China are certainly worthwhile goals.  The question now is, have the Chinese stalled this long enough that they believe they can continue to prosper without making these deals.  I would predict that some form of a deal will be made before the close of 2019 with China, but that its practical impact on US business will be negligible, and lead to the further cessation of American businesses attempting to enter the Chinese market.  This will not, however materially, reduce the manufacturing and exporting of products to the US by China. 

China has now barred on some specious basis, pork from Canada, claiming that there were illegal substances included in the grain fed to the pigs.  This, of course, looks more like retaliation for the Huawei situation and/or for Canada’s collaboration and support of the United States in the US/China trade war.

Robert Mueller has announced that he will testify before Congress in open session on July 17, 2019.  It is very important to note that he negotiated an open session which I suspect is to allow his testimony to be reported as opposed to a summary by Republicans and Democrats.  Mr. Mueller is obviously concerned with manipulation of his testimony and has chosen a path that protects him to the maximum extent possible, at least in that it insures there is the opportunity for the media to report what he actually said. 

A discovery of bones in 1858 has led to a number of revelations about the Neanderthals.  Most recently it has been disclosed that DNA from those bones is connects them with hominins that lived much later and in different geographic areas, as well as an indication that these ancient hominins interbred with a number of related species.  Our family tree just keeps getting more confused, does yours? 

The first Democratic debates occurred on Wednesday, July 26th and Thursday June 27th.  I just couldn’t warm-up to it and didn’t watch.  A statement made by Representative Delaney who comes from the investment world, indicated that in his conversations with hospitals, he has been told that Medicare for all, assuming the same rates are maintained, would put many hospitals out of business.  This should certainly ignite a debate about whether or not that is an accurate statement, which I suspect it is, and how that can be fixed.    We need to have professional non-partisan analysis done to determine costs and contrast that to the current costs, which neither party has actually undertaken as they have each utilized the calculated expense to their political advantage, and not disclosing to the public what the actual numbers are.  This may be the most important issue of the 2020 election. As I noted previously, Mr. Trump has promised a plan that covers more people, protects those with pre-existing conditions and will be less expensive than Obamacare.  These competing visions, if they materialize, should be a focal point of the 2020 elections.

Mr. Owens is a former member of Congress representing the New York 21st, a partner in Stafford Owens in Plattsburgh, NY and a Senior Advisor to Dentons to Washington, DC.

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