Tuesday, March 21, 2017

My Amazon Review of Noah Isenberg's " We'll Always Have Casablanca: The Life Legend and Afterlife of Hollywood's Most Beloved Movie"

The Best Book about the Best Movie Ever

I have to admit at the outset that I am a sucker for Casablanca. It has always been my favorite movie and one of the defining moments when I was dating my wife was the time we watched it on a small black and white TV while she was suffering from a very bad cold. Reading Isenberg’s book brought back memories of that moment and all of the quotes from the movie that I still know by heart.

Isenberg begins at the beginning with the never produced Broadway play, “Everybody Comes to Rick’s” which is picked up by Warner Brothers for the then astounding sum of $20,000. In the Warner factory the Epstein twins, Howard Koch and others turn it into the movie we now know. Director Richard Curtiz as is most of the cast are emigres from Nazi-occupied Europe.  The movie stars Humphrey Bogart as Rick, Ingrid Bergman as Ilsa Lund, who never looked more beautiful, and Paul Henreid as Victor Laszlo.

Casablanca opened to rave notices in late 1942 and Warner Brothers was helped by General Eisenhower landing troops in North Africa a few weeks later and then with Roosevelt holding a summit meeting with Churchill in early 1943 in Casablanca. Jack Warner never had better advance men. It would go on to win the academy award for best picture of that year.

But this book is more than about the history of making Casablanca, it is about what made so popular to this day. For example, why did a movie about World War II become so popular with the anti-Vietnam War college generation of the late 1960s. As Isenberg tells us, it is about the universal themes of love, glory and making the right moral choices in a very difficult environment. Further Rick Blaine is the typical American hero, a loner who rises to the challenge with just the right amount of comic relief.

Isenberg also tells us that Casablanca had to end with Ilsa ending up with Victor. Simply put the Production Code at the time would not have allowed a married woman to run off with another man and the Code forgives Ilsa’s adultery in Paris because she thought Victor was dead and allows it in Casablanca in the service of the war effort. Also of note is Casablanca’s treatment of the African American piano player Sam (“As Time Goes Bye”), played by Dooley Wilson. The black-owned Amsterdam News wrote, “…no picture has given as much sympathetic treatment and prominence to a Negro character…”

To sum up to any lover of Casablanca, Isenberg’s book is a must read!  

The full Amazon URL appears at:

Thursday, March 16, 2017

My Amazon Review of David Downing's "Lenin's Roller Coaster"

Romance and Revolution in Lenin’s Russia

In his third novel about the improbable romance of socialist-feminist journalist Caitlin Henry and MI-6 agent Jack McColl set during World War I, author David Downing finally finds his voice reminiscent of his Station series about prewar and World War II Berlin. Here the setting is primarily in the Russia of 1917-19.  Aside from Moscow and Saint Petersburg we see our protagonists in Siberia, southern Russia and Ukraine where we witness the impact of the revolution in vast distances of the Russian Empire.  And in one chapter when Caitlin is back in the U.S. we get a real sense of the persecution of America’s anti-war left as war fever envelops the country.

Several real historical figures make their appearance, most notably Alexandra Kollontai the leading feminist of the Russian Revolution who would found the Women’s Department in 1919. She and Caitlin are soulmates. In Moscow McColl runs into Sidney Riley, the Ace of Spies while plotting to overthrow Lenin’s regime.  How McColl ends up in Moscow is an adventure in of itself. Through the eyes of both Henry and McColl we see the growing role of the Cheka (secret police) in the day-to-day lives of urban Russia; a portent of things to come.

Given their ideological differences and their long periods of geographical separation caused by the war, it remains to be seen whether or not their romance will survive. We await Downing’s next book, if there is one, to see if they make a go of it. 

The full Amazon URL appears at:

Monday, March 13, 2017

My Amazon Review of Dennis Ross' "Doomed to Succeed: The U.S. Israeli Relationship from Truman to Obama"

Myth Buster

Diplomat and former national Security Council member Dennis Ross has busted three important myths that have been guiding U.S. –Israeli policy since 1948. They are:
1   1)  Distance from Israel engenders Arab cooperation towards the U.S.  Ross convincingly notes that Arab states follow their own national interest irrespective of U.S. relations with Israel.

2   2)    U.S. cooperation with Israel will lose Arab support.  Fails for the same reason as above. And it doesn’t explain the growing Israeli-Saudi rapprochement.

3   3)    Solving the Israeli-Palestinian issue will lead to a transformation of the Middle East.  This myth obviously fails because settling that issue has nothing to do with the ongoing Sunni-Shia split.

Ross presents us with a clear-eyed view of U.S. –Israeli relations since 1948 as he thoughtfully reviews the policies of all of the presidents from Truman to Obama. Ross had a ringside seat in the formation of policy from Carter to Obama and he worked for all of the presidents since Carter with the exception of George W. Bush in various Pentagon, State and National Security Council capacities where he was for the most part up to his eyeballs in U.S. – Israeli relations. Of special note for me was that he worked for the legendary Andrew Marshall in the Pentagon’s Office of Net Assessment and he was Director of Policy Planning in the State Department. He is especially good when he was “inside the room” where the decisions were actually made.

He characterizes the various administrations as having policies of either cooperation or competition with Israel and those policies typically alternated. For example Truman was cooperative while Eisenhower was competitive; both Kennedy and Johnson were cooperative while Nixon initially was competitive. However when Nixon saw the potential of Soviet arms winning the 1973 war, he tilted dramatically in favor of Israel. Thus objectively he was cooperative. On the other hand, in Ross’ view, Carter was outright hostile to Israel. Ross theorizes that Carter felt so guilty about not fully supporting the civil rights revolution in his home state of Georgia; he tilted U.S. policy towards the Palestinians.  In contrast Reagan had a deep affinity towards Israel establishing a strategic cooperation arrangement. However that did not stop him in pushing through the AWACS deal over Israeli opposition and in censuring Israel for its invasion of Lebanon.

Although President George H.W. Bush moved the relationship back towards a more competitive one and was extremely unpopular with American Jewry, he continued the strategic cooperation agreement and worked a diplomatic miracle in keeping Israel out of the Iraq War all the while Israel was under rocket attack. Ross has extraordinarily kind words for the first President Bush.

President Clinton also had a deep affinity for Israel and thought of Israeli President Rabin as the father he didn’t have. He was crushed when Rabin was assassinated. He also learned not to trust the Palestinians after a series of Camp David meetings.

President George W. Bush continued the cooperative relationship with Israel while President Obama continued the high degree of cooperation on the military side; he was far from cooperative on the diplomatic side. On his first trip to the Middle East for his Cairo speech, he intentionally avoided going to Israel. Ross’ book ends before the U.S. abstention on the Security Council resolution condemning Israel for its settlement policy.

Two thoughts come through loud and clear from Ross’ important book. First the Israeli’s live up to their biblical forebears by being a “stiff-necked people.” It is hard to make a deal giving up tangible land for an intangible peace. In contrast the Palestinians come across a duplicitous. They say the right words, but when it comes down to it, they won’t make a deal. For them it remains “from the river to the sea.” They just can’t accept Israel as a Jewish State.

Ross has written an important book that should be read by all serious students of the Middle East. I highly recommend it.

The full amazon URL appears at:

Friday, March 10, 2017

"Extreme Makeover: Second Pass at Trumponomics," UCLA Anderson Forecast, March 2017

Despite all of the chaos coming out of the early days of the new Trump Administration stocks continued to rally on the prospects for “pro-growth” tax cuts, regulatory reform and infrastructure spending. (See Figure 1) However, the rally in bond yields and the dollar stalled as those markets began to exhibit a higher degree of skepticism about President Trump’s still vague proposals and the ability of the Congress to expeditiously pass them. (See Figures 2 and 3) As a result we have pushed back the effective date of the tax cuts to the first quarter of 2018 compared to the third quarter of 2017 that we previously forecast.[i]

Figure 1. S&P 500, Feb. 25, 2016 – Feb. 24, 2017, Daily Data

Source: Standard and Poor’s via Bigcharts.com

Figure 2. 10-Year U.S. Treasury Bond Yield, Feb. 25 2016 – Feb. 24, 2017, Daily Data
Source: Bigcharts.com

Figure 3. Dollar Index, Feb 25, 2016 – Feb. 24, 2017, Daily Data

Source: Bigcharts.com

Similar to last quarter we are still penciling in about $500 billion/year in personal and business tax reductions, a repatriation holiday for accumulated foreign earnings, increased defense and infrastructure spending, Medicaid cuts, relaxed regulations, modest changes to trade and immigration policies, and reductions in food and aircraft exports as several trading partners react to the policy changes. It remains to be seen to what extent the Affordable Care Act will be amended and its impact on the giant healthcare sector. Further because of the controversy that it has engendered we do not believe that Congress will pass a border adjustment import tax combined with exempting export sales from corporate taxation.

We have, however, become more concerned about the administration’s tone with respect to trade and immigration policies. The changes could be far more drastic than what we are now anticipating thereby increasing the risk level to our forecast. The roll-out of the administration’s partial travel ban and the scandal surrounding the firing of the national security advisor certainly were not a confidence building measures.

Trillion Dollar Annual Deficits Ahead

The impact of a large tax cut on an economy at or very close to full employment will be to explode the federal deficit. We expect the federal deficit to exceed a trillion dollars in 2019 which would amount to about 5% of GDP. (See Figure 4) Simply put there is not enough slack in the economy to enable the 4% economic growth the administration is calling for and it will likely lead to more inflation.

Figure 4. Federal Deficit, FY 2007 – FY2019F
Sources: Office of Management and Budget and UCLA Anderson Forecast

The Fed will become More Aggressive

As of April there will be three vacancies on the seven member Federal Reserve Board which will likely be filled by more hawkish and less economics oriented members.  The era of the very easy Bernanke-Yellen Fed is over and that will be confirmed when Chair Yellen’s term expires in January 2018. Moreover with inflation rising we expect that even under Chair Yellen the Fed will become more active in raising the Fed Funds rate and we believe that the Federal Open Market Committee will increase the fed funds rate by 25 basis points in March. By yearend the funds rate is expected to approach 2% and reach 3% by the end of 2018. (See Figure 5) Similarly the yield on 10-year U.S. Treasury bonds is forecast to increase to 3% by year end and exceed 4% by yearend 2018.

Figure 5. Federal Funds vs. 10-Year U.S. Treasury Bonds, 2007Q1 – 2019Q4F
Sources: Federal Reserve Board and UCLA Anderson Forecast

2018 GDP Growth Spike that Fades

With $500 billion in tax cuts arriving in the first quarter of 2018 we expect a short term growth spike that will soon fade as the economy bumps against its full employment ceiling. Our forecast calls for real GDP growth of 2.4%, 3.0% and 2.2% annual growth in 2017, 2018 and 2019, respectively. (See Figure 6) And note that real growth really trails off on a quarterly basis in 2019 as higher interest rates weigh on the economy. As we noted last quarter, in order for growth to be sustained at 3%, the economy requires a “productivity miracle.” The administration believes that its tax and regulatory reforms will enable a sustainable growth pick up. We, on the other hand, remain skeptical, but, of course, we can’t rule it out.

See Figure 6. Real GDP Growth, 2007Q1 – 2019Q4F
Sources: U.S. Department of Commerce and UCLA Anderson Forecast
In this environment, the labor market will remain robust with job growth coming in on the order of 170,000 a month in 2017 and 2018, before trailing off to about 110,000 a month in 2019. The recent increase in the labor force participation rate has made us more optimistic about job growth over the near term. (See Figure 7) In tandem with the job gains the unemployment rate now looks like it will bottom out at 4.1% in late 2018, before gradually rising. (See Figure 8) Of course if the administration embarks on a large scale deportation program for unauthorized immigrants employment growth will be far slower than what we are now forecasting. Moreover should the administration restrict the issuance of H1-B visas for highly skilled immigrants there would be negative consequences for high technology industries.

Figure 7. Payroll Employment, 2007Q1 -2019Q4
Sources: Bureau of Labor Statistics and UCLA Anderson Forecast

Figure 8. Unemployment Rate, 2007Q1 – 2019Q4F
Sources: Bureau of Labor Statistics and UCLA Anderson Forecast
Inflation on the Rise

Both headline and core inflation rates as measured by the consumer price index are already increasing at a 2%+ clip. It will not take much for inflation to ramp up to between 2.5% - 3%. (See Figure 9) Oil prices continue to rebound and the very tight labor market will bring with it rising wages. (See Figure 10) Although we were too early in our prior forecasts in predicting accelerating wage inflation, we now believe that the table has been set for sustained 4% annual increases in compensation. (See Figure 11) We believe that the unusually slow 0.1% increase in average hourly earnings reported for January was a fluke and it was inconsistent with other labor market data.

Figure 9. Consumer Price Index, Headline vs. Core, 2007Q1 – 2019Q4
Sources: Bureau of Labor Statistics and UCLA Anderson Forecast

Figure 10.Compensation/Hour, 2007Q1 – 2019Q4
Sources: U.S. Bureau of Labor Statistics and UCLA Anderson Forecast
 Consumer Strong, but Housing Stalls

The growth in consumer spending has been strong since 2014 and automobile sales have been running at a record rate. (See Figure 11) Now throw in a large tax cut and real consumer spending will ramp up from a forecast 2.8% increase this year to 3.6% in 2018. In this tax cut fueled environment the saving rate will exceed 7%. (See Figure 12)However, housing starts will plateau out in the 1.2 – 1.3 million unit range. (See Figure 13) Simply put the rise in interest rates will offset the positive factors of higher employment and wages. By 2019 the rate on the 30 year fixed rate mortgage is forecast to exceed 6%, up from the current 4.25% and the recent low of 3.5%. Moreover, because there are numerous signs that high income multi-family housing is becoming over-supplied, that once white hot sector of the economy will soon cool.

Figure 11. Real Consumption Spending, 2007 -2019F

Sources: U.S. Department of Commerce and UCLA Anderson Forecast

Figure 12. Saving Rate, 2007 -2019F
Sources: U.S. Department of Commerce and UCLA Anderson Forecast

Figure 13. Housing Starts, 2007Q1 -2019Q4F
Sources: U.S. Bureau of the Census and UCLA Anderson Forecast

Capital Spending Rebounds in the Face of Export Weakness

With the prospect of a general reduction in corporate income taxes and the likelihood of 100% expensing, equipment spending is forecast to rebound from 2.8% decline in 2016 to increases of 3.5% and 7.1% in 2017 and 2018, respectively. Equipment spending will also be buoyed by the recovery in oil and gas drilling being spurred on by the rebound in oil prices.

Figure 14. Real Equipment Spending, 2007 -2019
Sources: U.S. Department of Commerce and UCLA Anderson Forecast

On the other hand, despite all of the rhetoric coming out of the administration the strong dollar and the large tax cuts will ignite an import boom. After increasing by only 1.1% in 2016, imports will increase by 4.3% and 7.3% in 2017 and 2018, respectively. (See Figure 15) On the other hand export growth will be minimal as the high dollar and retaliation from the administration’s protectionist views by some of our trading partners will limit export growth especially in the aircraft and agricultural sectors. (See Figure 16)

Figure 15. Real Imports, 2007 -2019F
Sources: U.S. Department of Commerce and UCLA Anderson forecast
Figure 16. Real Exports, 2007 -2019F
Sources: U.S. Department of Commerce and UCLA Anderson Forecast

Moreover the administration’s outspoken hostility to NAFTA, especially with respect to Mexico risks a major disruption in economic activity. In 2015 the U.S. exported $236 billion to Mexico while importing $309 billion. Aside from disrupting supply chains, a significant reduction in U.S.-Mexico trade would have significant macroeconomic effects. (See Figure 17)

Figure 17. Schematic of NAFTA Trade
Source: Geopolitical Futures

Defense Spending on a Roll

As we have been discussing for several years the geopolitical threats coming from Russia, China, Iran and ISIS will force the U.S. to increase defense spending. After six years of real declines, defense purchases are forecast to increase by 1.2% in 2017 and then increase by 4.1% and 2.5% in 2018 and 2019, respectively. (See Figure 18) As we noted last quarter, this is one spending priority that is expected to receive broad support, especially with the increased hostility toward Russia coming from the Democratic Party. Further with the administration pressing NATO members to increase defense spending to 2% of GDP, domestic defense outlays will be augmented by increased international demand.

Figure 18. Real Defense Purchases, 2007 -2019F
Sources: U.S. Department of Commerce and UCLA Anderson Forecast


We continue to believe that the election of Donald Trump represents a major regime change with respect to economic policy. We expect significant reductions in personal and corporate income taxes along with a relaxing of regulation in the energy, environmental and financial arenas. However, because the economy is already operating at or close to full employment, the growth spurt caused by the policy changes will be short-lived but the deficits that it will create will be with us for a long time. Moreover the policy changes will elevate both inflation and interest rates that will have a negative effect on the housing sector.

Because of the Trump administration’s rocky start, we have become more concerned about the risks associated with their stated trade and immigration policies. For the time being we have not modeled in serious trade disturbances with our major trading partners and a reduction in the labor force caused by a significant change in deportation policies. Nevertheless those risks are rising.

[i]  See Shulman, David, “First Pass at Trumponomics: From a Reckless Monetary to a Reckless Fiscal Policy,” UCLA Anderson Forecast, December 2016.

Saturday, March 4, 2017

Did Sergey Kislyak Wear a Wire?

It seems that Russian Ambassador Sergey Kislyak met with quite a few officials in the Donald Trump campaign before and after the election. Who knows what was discussed but  the real question is whether or not Kislyak wore a wire. My guess is that he did and therefore the Russians have transcripts of exactly what was said. Given that Attorney General Sessions has already testified under oath and will soon do so again and the other Trumpista's will soon be facing subpoenas, there certainly is the potential  for blackmail.

Further although Kislyak is probably not an officer in the SVR (the Russian foreign security intelligence service) his "Rezidentura" (station chief) reports to him as well as Moscow Central and as is typical for most governments the ambassador and his/her security chief work hand in glove together. 

Thus President Trump has more to worry about than the alleged without evidence Obama wiretap; his friends in Russia could very well have a real hold on him and his administration.