Human beings were not meant to travel across so many time zones so quickly, I discovered this week after being lost in a haze of jet lag. The reading list is on the short side this week, partially because of the jet lag and partially because, frankly, the news is getting downright depressing. It’s taken me some time to find stories not related to automotive terror attacks, Nazi sympathizers (in 2017?!), or Confederate War statues.
Here is a curated list of important stories outside the main headlines that caught our attention this week.
Trump’s Trade Pullout Roils Rural America (Politico). Three days after entering office, President Trump pulled out of the Trans-Pacific Partnership, as he had promised to do on the campaign trail. Unfortunately, there was a lot at stake for US agricultural interests in the TPP, and the effects of pulling out of the agreement are just now being felt in America’s agricultural heartland. The Trump administration won a concession on beef exports to China (which was not part of the TPP), but the value of this concession apparently is dwarfed by the hit to farmers and ranchers caused by the TPP pull-out. President Trump has promised to do a flurry of bilateral deals that will be so much better than the TPP, but there has been little progress made, and it looks as though nations of the Pacific Basin are realigning trade relationships to bypass the US. This is not a good sign for US prosperity in the future, in our opinion.
Trump’s Stalled Trade Agenda Leaves Industries in the Lurch (NY Times). This story, similar to the one above, looks not at what President Trump has done regarding trade (i.e., pulling out of the TPP), but rather what he has failed to do regarding trade. International trade is complex, it turns out, so the campaign promises to label China a currency manipulator, slap tariffs on dumped Chinese steel, slap tariffs on dumped Canadian lumber, and roll-back unfair NAFTA provisions, have all had to be put on hold. Entire industries await action, unsure of what the rules of the game will be (a point to which I alluded in my column in Forbes this week). One problem that is predictably coming up throughout all of this is that one industry’s unfair commodity dumping is another industry’s cost advantage. Steel makers don’t like cheap foreign steel because it reduces their pricing power, but heavy equipment makers do because it increases their margin. Similarly, lumber producers don’t like cheap Canadian lumber, but home builders think it’s great. If President Trump follows through with his bluster, he will necessarily hurt one industry to help another. He does not seem to mind upsetting people he does not respect, but upsetting titans of business is probably not his favorite pastime.
Trump Abandons Plan for Council on Infrastructure (Bloomberg). President Trump established a Council for Infrastructure on July 19 via an executive order. The council at least lasted longer than the tenure of Anthony Scaramucci as White House Communications director, but was disbanded on August 17th, less than a month after establishment. This move came after two other business councils were disbanded (Financial Times reporting) after the majority of CEOs on the councils announced that they would leave. None of this turmoil speaks well for the current administration’s ability to push forward an ambitious industrial plans or its promised $1 trillion infrastructure plan. As we discussed in our November 2016 report on Trump-era investing (available to non-members of Framework Investing by contacting me), we believe that the President’s executive efficacy is bound to be low due to his nature and the events of this week are yet another indication our assessment was correct.
Mental bias leaves us unprepared for disaster (Financial Times). Not a news story, but a nice, brief article about mental biases and heuristics that leaves humans at a loss when predictably bad things happen. Hurricane Ivan missed New Orleans in 2004 and the city had a whole year to prepare before Katrina struck in 2005. All the issues that turned out to be problems in 2005 (insufficiency of the levies, inability to evacuate in an emergency, and poor conditions of the Superdome) were identified in 2004. No action was taken and 1,500 people ended up losing their lives as a result. Interesting anecdotes about behavioral biases in emergency planning and finance that will seem familiar to anyone who has gone through the Framework 101 course on behavioral biases and structural factors in investing.
Fed’s Fischer attacks moves to unwind regulations (Financial Times). Following on from the previous story, Vice-Chairman of the Federal Reserve’s Board of Governors, Stanley Fischer, criticized legislative attempts to unwind regulations enforcing financial stability in the wake of the 2008-2009 financial crisis. Clearly, there are powerful interests, especially in the banking industry, that want to see a lighter regulatory touch. However, our last attempt at a lighter regulatory touch in the financial sector – one that started with the repeal of Glass-Stegal in the Clinton administration – didn’t end very well. The implementation of the Volker Rule has changed the face of Wall Street, but this Wall Street veteran doesn’t think the changes were entirely bad. It has gotten harder to make highly levered bets backed by client deposits, but that seems like a pretty sensible step for those of us who understand the danger of leverage well.
