International Affairs

Jeff Rubin, chief economist at CIBC gave a great talk on what caused the recession, why the oil price is going up, and the future of globalization.

Twubs is a great website for tracking a specific Twitter hashtag. For instance, you can follow the post-election chaos in Iran in real time. The window below shows the current activity surrounding the election in Iran. It was getting over 1000 messages per minute on June 16, 2009.

So Bush speaks of the “wonder-working power of volunteerism” and the Left has a conniption but Obama quotes straight out of the Koran  and no one so much as murmurs. People are never threatened by those who don’t believe what they say.

US consumers need to break their bondage to bling. On the other hand, there is talk of public debt in the US rising from 40% of GDP to 80% and even higher over the next ten years. For perspective on where this would fall on the spectrum of public debt, take a look at the CIA factbook figures on public indebtedness by country.

Bear in mind, that government spending as a percentage of GDP is about 25%.  That means that the public debt will be rising from 160% of public spending to 320% of public spending. That’s some pretty hefty leverage from a government in an age when most “American people” have concluded that leveraging oneself to the hilt is no longer a core component of the American dream.

This graph of the Iraqi stock market index says it all:

2004 - Feb 2009

Small, incremental change is hard to detect but accumulates over time:

From a distance, it looks like an apparition: a huge multi-colored hot-air balloon floating in the Baghdad sky, bearing a large poster of Jesus Christ. Below it, an Iraqi flag. Welcome to the first-ever public Christmas celebration in Baghdad.

[…]

Many of the people attending the Christmas celebration appear to be Muslims, with women wearing head scarves. Suad Mahmoud, holding her 16-month-old daughter, Sara, tells me she is indeed Muslim, but she’s very happy to be here. “My mother’s birthday also is this month, so we celebrate all occasions,” she says, “especially in this lovely month of Christmas and New Year.”

No one seems to talk about the Iraq war any more. I suppose positions harden over time and discussion becomes increasingly futile. I’ve always thought, though, that most debate in the aftermath draws a comparison between the Iraq of today and the Iraq of 2002. Maybe because it’s difficult to imagine an alternative course of history. 

I read a book this weekend called ‘A Long Way Gone: Memoirs of a Boy Soldier’ . I highly recommend it although it is a harrowing read and I felt drained by the end. It’s the story of a 12-year old boy who gets swept up in the brutal bush war in Sierra Leone in the 1990’s.

In one sense, it’s about the debate we never have: the cost of inaction and the other path that history could take.

I have to question the need for the wide variety of international country index funds. The AssetCorrelation website has an excellet correlation matrix which covers exchange-traded index funds from various countries around the world.

Take a careful look at the matrix for the various countries. Other than Brazil and Israel (with correlations of 0.73 and 0.35 respectively versus the S&P 500) the rest of the countries’ index funds are all tracking the S&P 500 with >0.90x correlation coefficients.

It might be that the time period is only 90 trading days (about 4 months) and this represents a time in the market which has seen a greater herd mentality than usual. Or it might be that global inflation fears do justify a simultaneous downward revision in global equity asset prices. Either way, lately it has been hard to see the benefits of international equity exposure. Even emerging markets like Turkey, Mexico and Chile have been strongly correlated recently. Inflation really is the great leveller.

The Wall Street Journal had an article a few days ago about the unreliability of some of the numbers behind global warming. The article goes on to say:

The fear of a sudden loss of ice from Greenland also makes a lot of news. A year ago, radio and television were ablaze with the discovery of “Warming Island,” a piece of land thought to be part of Greenland. But when the ice receded in the last few years, it turned out that there was open water. Hence Warming Island, which some said hadn’t been uncovered for thousands of years. CNN, ABC and the BBC made field trips to the island.

But every climatologist must know that Greenland’s last decade was no warmer than several decades in the early and mid-20th century. In fact, the period from 1970-1995 was the coldest one since the late 19th century, meaning that Greenland’s ice anomalously expanded right about the time climate change scientists decided to look at it.

Warming Island has a very distinctive shape, and it lies off of Carlsbad Fjord, in eastern Greenland. My colleague Chip Knappenberger found an inconvenient book, “Arctic Riviera,” published in 1957 (near the end of the previous warm period) by aerial photographer Ernst Hofer. Hofer did reconnaissance for expeditions and was surprised by how pleasant the summers had become. There’s a map in his book: It shows Warming Island.

The mechanism for the Greenland disaster is that summer warming creates rivers, called moulins, that descend into the ice cap, lubricating a rapid collapse and raising sea levels by 20 feet in the next 90 years. In Al Gore’s book, “An Inconvenient Truth,” there’s a wonderful picture of a moulin on page 193, with the text stating “These photographs from Greenland illustrate some of the dramatic changes now happening on the ice there.”

Really? There’s a photograph in the journal “Arctic,” published in 1953 by R.H. Katz, captioned “River disappearing in 40-foot deep gorge,” on Greenland’s Adolf Hoels Glacier. It’s all there in the open literature, but apparently that’s too inconvenient to bring up. Greenland didn’t shed its ice then. There was no acceleration of the rise in sea level.

Finally, no one seems to want to discuss that for millennia after the end of the last ice age, the Eurasian arctic was several degrees warmer in summer (when ice melts) than it is now. We know this because trees are buried in areas that are now too cold to support them. Back then, the forest extended all the way to the Arctic Ocean, which is now completely surrounded by tundra. If it was warmer for such a long period, why didn’t Greenland shed its ice?

This prompts the ultimate question: Why is the news on global warming always bad? Perhaps because there’s little incentive to look at things the other way. If you do, you’re liable to be pilloried by your colleagues. If global warming isn’t such a threat, who needs all that funding? Who needs the army of policy wonks crawling around the world with bold plans to stop climate change?

It seems to me that we should have thought about this before we starting using our corn to power our cars. Because that’s the kind of stupidy that leads to food riots around the world.

William Kristol had a great quote in his editorial in the NY Times yesterday:

 The American conservative movement has been remarkably successful. We shouldnt take that success for granted. Its not easy being a conservative movement in a modern liberal democracy. Its not easy to rally a comfortable and commercial people to assume the responsibilities of a great power. Its not easy to defend excellence in an egalitarian age. Its not easy to encourage self-reliance in the era of the welfare state. Its not easy to make the case for the traditional virtues in the face of the seductions of liberation, or to speak of duties in a world of rights and of honor in a nation pursuing pleasure.

That’s the kind of soaring rhetoric that would be good to hear from some of the Republican candidates.