My Review of John Valliant's "Fire Weather"

 The Fire Beast of Fort MacMurray

 

Journalist John Valliant tells the horror story of the great fire that engulfed Fort MacMurray in May 2016. It was truly a beast that acted like a conquering army as it burned most of this city of 90,000 to the ground. Fort MacMurray is the home of the Canadian oil sands industry where oil is mined in the form of bitumen that requires huge energy inputs to process it. Hence it requires oil prices in excess of $60/barrel to be profitable. Although high in cost, it does not require any exploration costs, because the location of the deposit is known.

 

Valliant has really written three books in one. The first comes from eyewitness accounts of how the fire enveloped the city as brave firefighters and citizens fought a near hopeless battle. Remarkably the city was evacuated with minimum casualties. Here we see heroism in action.

 

The second is a history of climate science going back to the 1700’s. He particularly pays attention to boreal forests, like the one that surrounds Fort MacMurray, that have become exceptionally stressed in a hotter world. In May 2016, the temperatures rose to above 80 degrees and the humidity dropped to a desert-like 12 percent. In that environment any small spark could and did ignite a conflagration. Thus, in a hotter world the boreal forests of Canada, America and Russia are all set up for great fires in the future. Indeed, the release of the stored carbon resulting from the fire has the potential to undo much of the progress being made in decarbonizing society. This clearly is not a hopeful conclusion.

 

The third book is a screed attacking the oil companies and the “petroscene” age they brought about. He recounts the oil industry’s early research into climate change and then their campaign of denial. I think he overdoes it. Valliant also seems to look with disdain at the vehicle heavy lifestyle of the oil workers. With incomes of around $200,000 a year, the workers had the wherewithal to multiple cars and trucks and all-terrain vehicles, not a bad lifestyle for the Canadian working class.

 

Nevertheless, the main message of the book is that we will be living with great forest fires in the future and more fires in the wildland urban interface neighborhoods which are prevalent in the American west.

The Fed's "Coup de Whisky" to the Stock Market

 Last week’s 50 basis point cut in the federal funds rate to 4.875% served up a “coup de whisky” to the stock market. Those words were spoken in July 1927 by Benjamin Strong, President of the New York Fed to Charles Rist, the Deputy Director of the Bank of France at secret central bank meeting on Long Island.* Much like today the U.S. economy was humming along, but Britain was rapidly losing gold. To take the pressure off the British Pound, Strong and several other regional banks cut the discount rate from 4% to 3.5%.

 

In response an already strong stock market was off to the races and would double over the next two years. That move put the roar in the roaring twenties. Although today’s circumstances are far different, but not so different; the economy is at roughly full employment, real GDP has likely grown at a 3% clip over the past six months, and inflation remains moderately above the Fed’s 2% target. Nevertheless, just like 1927 stocks roared in response to new highs.

 

The Fed’s move and it signals of further cuts of 100-150 basis points over the next nine months, is a bright green light for the stock market as investors now believe that the risk of recession is off the table and faster growth will ratify the very optimistic profits estimates for next year. I don’t think that we will repeat the late 1920’s blow-off but further new highs in stock prices appear likely.

 

Interestingly the yield on longer maturities increased. Why? On the margin the 50bp cut will increase both growth and inflation. The lower short-term interest rates will support corporate borrowing and auto finance. Housing, on the other hand, won’t be helped all that much because mortgage rates responding to higher long rates actually increased. That will force house buyers into variable rate paper.

 

The real risk in the Fed’s move is that inflation will not be as quiescent as it now believes. Simply put, the rate-cutting cycle that the market is banking on might be cut short.

* For a full discussion of this event see Ahamed, Liaquat, "The Lords of Finance" (New York: The Penguin Press, 2009) pp. 290-304

My Review of William Inboden's "The Peacemaker: Ronald Reagan, the Cold War......"

 Reagan v. Evil Empire

 

On March 8, 1983, President Ronald Reagan spoke before an evangelical conference where he called out the Soviet Union as “the focus of evil in the modern world.” This became known as his evil empire speech. Although he was roundly criticized for his choice of words, Reagan was dead right. University of Texas professor and former national security aide to George W. Bush, William Imboden rightly focuses on the ideological content of Reagan’s foreign policy which became known as the Reagan Doctrine in his deeply researched history.

Although known as a super-hawk during his career, Reagan’s goal was to seek peace through a negotiated surrender of the Soviet Union. In this task he succeeded and along the way he liberated Eastern Europe and started the process of reducing the huge stocks of nuclear weapon controlled by the U.S. and the Soviet Union.

Reagan’s policy was that of peace through strength. He orchestrated a huge arms build-up and started the Strategic Defense Initiative (Star Wars) which scared the living daylights out of the Soviet Union. Listening more to Andrew Marshall Office of Net Assessment in the bowels of the Pentagon than the CIA, he understood that the Soviet economy was far weaker than previously thought. (Shulmaven: My Amazon Review of Andrew Krepinevich's and Barry Watts' "The Last Warrior: Andrew Marshall and the Shaping of Modern American Defense Strategy") Simply put, the Soviets couldn’t keep up.

Inboden covers the shaky start of the administration where both his national security advisor and Secretary of State were fired. While looking to meet with the Soviets, three of their leaders died on him, Brezhnev, Andropov and Chernenko. But once Gorbachev came into power the way was open for both of them to achieve Reagan’s longstanding goal of reducing nuclear weapons. Reagan was aided by having A-players in his administration. These would include William Clark, George Schultz, James Baker, Jeanne Kirkpatrick, Paul Nitze, Colin Powell, and George H.W. Bush. It is sad that today A-players in today’s Washington, D.C. are few and far between.

Reagan really did care about human rights. He consistently supported the rights of Jews in the Soviet Union to emigrate. He worked hard to end the dictatorships in Chile, Taiwan, the Philippines, and Korea. He learned the lesson from Iran and Nicaragua, that right wing dictatorships despite being allied to the U.S., were brittle. Hence, he supported the transition to democracy among many of our allies.

Throughout his administration Reagan had the support of Margaret Thatcher, Helmut Kohl and especially of Yasuhiro Nakasone of Japan. He viewed Japan as our most strategic ally. He also received advice from Richard Nixon, mostly good, some bad; and Russia expert Suzanne Massie who came up with the “trust but verify” policy.

Inboden does not sugar coat the Iran/Contra scandal that nearly brought down his administration. How these presumably smart people got sucked into doing an arms for hostages deal with Iran and then using some of the proceeds to illegally fund the Nicaraguan Contras. You couldn’t make up the comedy of errors involved in this fiasco.

 

Inboden’s history of Reagan’s foreign policy sheds new light on this one of our most consequential presidents. It is well worth the read.

My Thoughts on the Harris -Trump Debate

 No Knockout, but a Clear Win for Harris

 

Although Vice President Kamala Harris did not “float like a butterfly, sting like a bee” in the words of Muhammad Ali, she clearly won last night’s debate. She came off as a cool and accomplished leader who many would see as presidential. In contrast Trump came off hot as the angry old man that he is. It is OK to show flashes of anger on television, but it is very hard to sustain anger for a full ninety minutes.

 

Harris was consistently forward looking, while Trump was looking back to the past. In a way Harris came off more as a challenger than Trump did. It was quite a trick for the sitting vice president to come off as the change candidate. On substance she was at her best in discussing abortion and weakest when talking about her changed positions. Here the ABC moderators failed in not following up on her radically changing views. They also failed in not focusing on the foreign policy and military challenges facing our country. It was Trump’s failure in not taking this fight to Harris. In a real sense, just like Biden two months ago, Trump lost the debate more than Harris won it.

 

Finally, to put a cherry on top of the cake, Taylor Swift endorsed Harris as soon as the debate ended.