The summer solstice came and went with record high temperatures in the desert southwest, but blissfully pleasant weather in the Midwest, where I call home. The temperature of the market seems to be on the warm side too, with the exception of Kroger (watch our 5-Minute Valuation of Kroger video), whose stock price got a lot cooler this week after a surprising downward revision to full-year earnings and the news that Amazon will buy Whole Foods Market.

Here is a curated list of important stories outside the main headlines that caught our attention this week.

US steps up pressure on Gulf Arab rulers over Qatar (Financial Times). The Gulf Cooperation Council – a regional group of Middle East Arab nations – voted to censure one of its members, Qatar, for, among other things, not doing enough to fight terrorism. Just as an editorial aside, the idea that Saudi Arabia – a leading supporter and exporter of terrorism through paramilitary funding programs and the establishment of Salafist madrasas the world over – would censure another country for supporting terror is frankly ridiculous. A few of the sticking points that probably pushed the GCC to censure Qatar was that it has some ties to Iran – avowed enemy of Saudi Arabia – and that its state-run television station, Al Jazeera, is generally progressive and often takes a critical look at the region’s sclerotic hereditary leaders. The fallout of the disagreement has made its way to North America. President Trump has been outspoken in his support of the Saudi embargo of Qatar and critical of the Qatari “supporters of terrorism,” perhaps without understanding that Qatar is home to the largest US military concentrations in the Middle East. Secretary of State Tillerson and Secretary of Defense Mattis have been openly supportive of the Qatari position, and this article describes present State Department attempts to put pressure on the Saudis and the United Arab Emirates to ease off of Qatar.

What is Donald Trump doing about steel imports? (Financial Times). The Trump Rally has been predicated on the theory that a reduction in taxes and regulatory burden would allow companies to generate additional profits. Since November of last year, I have been saying that President Trump’s personal characteristics limit his executive efficacy and cause reasonable reason that his legislative agenda will be successful (there is also some evidence that President Trump’s “two-for-one rule” – by which two regulations must be rescinded for each new regulation established – is actually causing problems for some industries).  That is okay – the nation can live without tax cuts and ill-designed regulatory reductions. However, a real threat would be if President Trump’s nationalist rhetoric and actions actually prompted the start of a trade war – a trade war that would potentially boost inflation due to scarcity and unemployment due to foreign reprisals.

This article in the Financial Times suggests that a trade war is precisely what we find ourselves facing as it relates to steel imports. President Trump is looking to revive a WTO rule that was designed for nations engaged in a war to block import of strategically sensitive products. Trump looks as though he will appeal to this rule to throw up protectionist barriers for steel. Do you happen to know from what country the US imports the most steel? I’ll give you a hint: the country’s name starts with the letter “C.” If you guessed “Canada,” you’re exactly right! The top five sources are: Canada, Brazil, Mexico, South Korea, and Turkey – all nominally US trade and diplomatic allies. #MAGA…

The Young and Brash Saudi Crown Prince (NY Times). The Middle East is facing an enormous, uncertain, and dangerous transitional period. The power and importance of OPEC has fallen, thanks to US shale, the region is shaky politically, and there is a very active cold war between the erstwhile Persian Empire (Iran), the erstwhile Ottoman Empire (Turkey), and the Arab states. Saudi Arabia has been a pillar of stability for decades thanks to its one-family control of all the vast mineral wealth of the kingdom and its close relationship with the Ulema religious leaders. The transition of power from one generation to another is always fraught with political intrigue. The present King, Salman, is the last of the Sudeiri Seven (seven sons of the founder of Saudi Arabia, King Abdulaziz ibn Saud and one of his favorite wives) to be able to rule, and the transition to the next generation of rulers has been the subject of great speculation since the 2000s, at least. This week, King Salman announced that he was switching his designation of heir apparent from his 57-year old nephew, Mohammed bin Nayef, to his favorite son, 31-year old Mohammed – who is known in the Kingdom by the nickname “Minister of Everything.”

Muhammed bin Salman is young, smart, and headstrong. He is behind the move to sell a portion of the family’s $1 trillion home business, Saudi Aramco, and talks about increasing the ability of women to move more freely in the Kingdom. He has also been on the point of the spear of the Arab-Persian Cold war being fought – with the result of unimaginable human suffering – in Syria, Iraq, and Yemen, and is reportedly one of the principal actors in pushing through the blockade of Qatar.

While it is not usually good form to quote Adolf Hitler, I’ll risk it in this circumstance. Hitler reportedly said that war was like walking into a dark room; you might walk into the room and be fine, but also might stub your toe on something, and there is no way to know which it would be. In 1991, the US walked into a dark room in Iraq. The chain of reactions that resulted ended up in an enormous toe-stubbing the sort of which no one considered when we were going in. As the US pulled out of Iraq, Iran was finally able to win the Iran-Iraq War, the defeated Baathist Iraqi military joined forces with Salafists to transform itself into ISIS, and all through the Middle East and the Maghreb, the populace rose up against oppressive, sclerotic royal regimes. Saudi Arabia’s position is, from my point of view, extremely precarious, and a 31-year old hothead as King-in-Waiting may have some very serious historical repercussions.

The promise and pitfalls of privatising public assets (The Economist). On Wednesday, House Republicans unveiled a bill designed to privatize the nation’s air control system. This article looks at the move to privatization in the US and concludes that the crucial success factors to a privatization program are 1) the accurate valuation of the public assets to be sold and 2) the structuring of the sales agreement. This will sound very familiar to Framework Investing members, since these are the two things we routinely talk about as being the crucial success factors to investing in general.

The article brings up the privatization of a stretch of Interstate-90 in Indiana, which was such a good sale that they private buyer ended up going bankrupt and contrasts it with the privatization of the Chicago parking meter system, which is such a poor sale that whoever negotiated it should be sitting in jail right now (in my opinion as a frequent user of Chicago public parking).

In a larger sense, there is a problem with privatization in that only certain types of assets are attractive to private investors. Everyone wants to own a toll road; no one wants to own a sewer system. It can also create perverse incentives as anyone who has looked at the privatization of prisons will quickly tell you. If you care for a longer, more detailed and more critical look at public-private partnerships, I found this paper, published by a university in the UK, to be helpful.

Home Capital Short-Seller Nailed It, Got Stung by Buffett (Bloomberg). The Canadian real estate market is nuts. Wealthy Chinese bureaucrats and entrepreneurs have used Canada’s lax real estate purchase regulations as a way to get money out of China and give them an overseas base in case the Chinese miracle…becomes less miraculous. Marc Cohodes, a former hedge fund manager and famous short seller who now makes his living running a chicken farm (his Twitter handle is @AlderLaneeggs, the name of his farm) discovered a sub-prime Canadian mortgage lender named Home Capital Group HGC.TO that he thought was engaged in the same sort of fraud and underhanded dealings that had been popular in the US mortgage market in the run-up to the Financial Crisis. He started shorting the stock in the low $50 per share range and rode it all the way down to a single digit price recently.

However, not everything goes as planned. A series of asset sales and emergency loans boosted Home Capital into the teens. Wednesday evening, the announcement crossed the wires that the US lender of last resort – Warren Buffett – had floated a lifeline to Home Capital. The deal is one that only Buffett could get – a loan carrying a 9%+ interest rate plus a very large equity stake sold at a big discount (diluting out other shareholders). The stock price soared by more than 25% to nearly $20 per share on the news. Cohodes says that he is right about the firm and that he believes because of the way Buffett structured the deal that the Oracle can make money on the long side while Cohodes himself will deliver his borrowed shares for repayment by sweeping them up off the exchange floor.