It's In The Numbers

My 8th grade science teacher talked incessantly about the Chinese. It was all a numbers game in his mind.

 "They have about 4 times our population.  That means that the odds are that they are going to have 4 times our number of geniuses, top scientists, skilled athletes and talented artists.  It is tough to fight the numbers over the long term if you want to stay on top", he explained.

That was over 50 years ago. Mr. Russell might have been on to something long before anyone else was thinking about it. He was also making that point when the Chinese had just 500 million more people than the United States. Today that number is 1 billion.

Of course, this was also before I came across this famous quote that Napoleon Bonaparte had said about China two centuries before Mr. Russell raised the issue in my formative mind.

"China is a sleeping lion. Let her sleep, for when she wakes she will shake the world."

As a military strategist and avid reader of history, Napoleon also knew that it was hard to fight numbers and, as I have pointed out before in these pages, most people in the United States have no appreciation of how large the populations are in Asia.

This is a graph of the population of the world by longitude and latitude. You don't realize the difference in population between Asia and the Western Hemisphere until you see it visually.

The Western Hemisphere looks like a couple of blips on a radar screen compared to the massive number of human beings in Asia.

Those numbers are starting to make a big difference in the world economy.

For example, look at these 2018-19 world economy growth contribution estimates by Bloomberg.

Source: Bloomberg

When you consider China and India together, they now account for 40% of global economic growth. That is more than three times the contribution of the United States.

Half of all economic growth today is coming from this region when you add in other Asian countries like Indonesia, Japan, South Korea, the Phillipines and Thailand. The United States, Canada and Mexico only represent 15% of the total. Germany, U.K. France, Spain and Italy are 7% combined.

It is truly a new world.

All of this has not been not lost on U.S. companies as they have long looked at the large population base of potential customers in China as a pathway to future growth prospects.To do business in China, the Chinese government forced many U.S. companies to commit to manufacturing sites there in addition to requiring them to provide their most valuable intellectual properties in order to have an entry into the Chinese market.

Those manufacturing facilities provided jobs for the Chinese and a good portion of the products manufactured in China came streaming back into the United States. Manufacturing job losses in the United States followed. In effect, the United States gave free entry to the Chinese to tap into what was then the most attractive consumer market in the world without getting anything in return. At the same time, the Chinese supplemented the American intellectual property they got legally with much more gained illegally. The Chinese made sure they got plenty in return for the little access they provided to their market. We have now reached the point where it will not be long before China is the leading consumer market in the world.

If you doubt that compare the sales on Cyber Monday in the United States with the equivalent cyber sale day in China which is referred to as Singles' Day (November 11---11.11--get it?)

Singles' Day is considered to be a type of anti-Valentines Day in China. It first become popular due to the tremendous imbalance between men and women in the country due to its one child policy. There are an estimated 35 million more men than women in China today under the age of 30. The idea is to "gift to yourself" on Singles' Day. It is hard for almost anybody to not "buy"into that idea.

Cyber Monday in the United States produced an estimated $7.9 billion in online sales. That is an increase of 19% from last year. Black Friday sales (store and online) were an estimated $23 billion, which is up 9% from last year. These are both incredible sales gains owing to our strong economy.

However, Singles' Day in China produced $31 billion in online sales on that one day. That was a 27% increase from a year ago and equalled the combined sales in the United States of Black Friday and Cyber Monday.

As China's economic power has grown over the years with its one-sided trade views. Republicans and Democrats alike did nothing about the inequity. Our elected representatives literally gave away substantial portions of our domestic economy by thinking short-term rather than long-term. They had the leverage of having the most attractive market in the world and yet they gave it away and did not get anything in return.

China grew and got richer with each passing year. At the same time, the United States saw millions of high paying middle class manufacturing jobs lost. This change also caused a further worsening of the social and economic divide between the college-educated service class and the high school educated worker class.

When Mr. Russell was talking about China and its numbers, the U.S. economy was 13 times larger than China. In 1998, when China really began committing to a market economy, the United States was 9 times larger. Today that margin has narrowed such that U.S. GDP is only about a third larger than China---$19T vs. $12T.

Only one man really stood up and questioned the wisdom and fairness of it all. That man was Donald J. Trump.

Like my 8th grade Science teacher and Napoleon, Donald Trump understands the numbers.

He understands where those numbers take us if the United States does not stand up and insist on a fair and level playing field in trade going forward.

The numbers advantage will eventually overwhelm us such that there will never be the hope of a competitive playing field. We will have lost the war without firing a shot.

This week's G-20 summit in Argentina and the expected meetings on trade between President Trump and Chinese President Xi will be interesting to watch.

Trump and XI
Credit: CNBC

A large number of new tariffs on Chinese goods into the United States are scheduled to take effect on January 1. This is probably the best time to strike a trade deal with the Chinese if a deal can be had. However, as I have written before, the Chinese have had it so good for so long on trade it is not easy for them to give back what they took so easily from us in the first place.

Interestingly, a recent report from Bloomberg cites a economic policy research brief from a group of European economists that shows, contrary to what has been generally been reported in the media, that most of Trump's 25% tariffs on Chinese goods will be borne by Chinese producers not by American consumers.

U.S. companies and consumers will only pay 4.5 percent more after the nation imposed 25 percent tariffs on $250 billion of Chinese goods, and the other 20.5 percent toll will fall on Chinese producers, according to authors Benedikt Zoller-Rydzek and Gabriel Felbermayr.

The report goes on to state that after considering the revenue benefits of the tariffs to the U.S. Treasury and other impacts the tariffs on China will actually result in a net welfare gain to the United States of $18.4 billion in total.

China may have a lot of numbers in its favor.

However, Trump's tough talk on trade seems to have put a few numbers in play that favor us for a change.

Let's hope he can use these to our advantage and to the long-term benefit of both countries with a trade deal that is fair to everyone concerned.

The Risks In Living

I recently came across a report that two unconnected researchers believe that they have discovered the genetic mechanisms that control aging.

That discovery could lead to the promise that everyone has the possibility that they could live at peak adult health for years.

Does this mean that immortality for all of us is not far behind?

It is nice to think that old age and its related diseases could be eliminated giving us immortality but the reality is that there are many other ways that humans meet their demise other than by the ravages of time. You may trip over a curb and hit your head. You might be mugged walking down the street. An insect could bite you and infect you with a deadly virus. Food poisoning alone kills 5,000 people a year in the United States. Over 300 people die each last year by falling or drowning in their bath tub.

The odds are that the longer you live the greater chance that something other than old age or a related disease will befall you.

According to actuaries, the projected human life span without age related deaths would be in the range of 600-700 years.

I find this interesting because in the Bible a number of men are described as living to this age or even longer.

The Book of Genesis states that Adam lived to be 930 years old. The third son of Adam and Eve, Seth, lived for 912 years. Noah lived to be 950 years old after building the ark. The oldest living man cited in the Bible was Methuselah who passed away after 969 years.

Many of those things that might interfere with immortality are things that we do to live the life we want to live. After all, I don't know many people who want to spend their life ensconced in a hermetically-sealed room safe from any perceived risks.

What are the risks you take when you partake in various sports and activities?

I came across this interesting article by Teton Gravity Research that included infographics on the risk of dying ranked by various sports and activities.

What is the most dangerous activity you can do in terms of risk of life?

It turns out to be to mountain climbing above 6000 meters in the Himalayas. There is a greater than one chance in 10 that you will not return home alive.

If you want to include climbing Mount Everest on your bucket list you might want to save that one for last.

If you don't want to travel to Nepal you can take on a lot of risk by base jumping off a nearby skyscraper. You are 6 times more likely to survive that than a climb in the Himalayas. For further information on the risks in base jumping read this.

The odds are considerably better when you jump off a cliff with a hang glider than with a parachute off of a building. However, 1 in 560 odds are still not great if you want to live to be 650 years old (or 65).

I was surprised at how safe bungee jumping is compared to other activities. I guess the bungee cord does not fail very often.

In fact, it is five times safer than skydiving.

Bicycling is actually not that much safer than skydiving.

For exercise, it is much safer to go running or jogging.

Canoeing is 5 times riskier than playing football or 3 times that of scuba diving. It is also 10 times riskier than skydiving (see above). That surprised me.

These two sport activities did not surprise me. Motorbike racing and boxing.

What activities provide the best odds of surviving and can also be done in the comfort of a hermetically-sealed room?

Here's wishing everyone a long and full life!

Black Friday Christmas List

Black Friday is here and it is time to think about the perfect gift for everyone on your list.

Here are a few ideas that might help you with your Christmas shopping this year.

Monopoly for Millennials

Hasbro has introduced a new version of the classic board game for Millennials.

Instead of playing the game to see how much real estate you can control the Millennial version is focused on collecting "experiences".  "Forget real estate, you can't afford it anyway" reads the cover of the game.

Experience points are earned by visiting such things as a music festival, a farmers’ market, a vegetarian bistro, a bike share and your friend’s couch.

On the game cover Mr. Monopoly is sporting Millennial-appropriate plastic shades, earphones and a participation medal while holding a latte in one hand a snapping a selfie with the other.

One chance card reads, "You hear of something that offends you. Go and complain on social media. Collect 50 retweets.”

It appears that some Millennials have done just that. They are not happy with the light-hearted take on their generation.

Someone must like it. The game was being sold exclusively at WalMart but is reportedly sold out. The $20 game has been selling on eBay and other sites for upwards of $60.


MAGA Build The Wall Blocks

Another idea is the MAGA Build The Wall  building blocks that is being sold by Keep and Bear and conservative apparel and gifts website.

"The set includes 100 building-block pieces and a Trump figurine wearing a Make America Great Again hard hat. The pieces snap together, allowing kids -- or their parents -- to build a section of a miniature border wall" according to CNN.

I particularly like the Trump figurine who looks to be totally in-charge and completely dedicated to finish the project on-time and under budget.

It is not a bad representation. However, his red tie is way too short and blue suit is way too light.

The blocks are recommended for children age 5+. However, my grandchildren knew who President Trump was at ages 3 and 4.


Coffee Mugs- Pro-Trump and Anti-Trump

You can cover all your giving with the simple choice of a coffee mug. Both anti-Trump and pro-Trump mugs are available on Amazon. That should cover about everyone. There are not many left in middle.

I don't know if it means anything but the anti-Trump mug only sells for $9.95 while the pro-Trump mug costs $17.95.

Shop till you drop...or...until your fingers fail you.

Bubbles and Beliefs

The last decade has seen unprecedented monetary and debt expansion in the United States and around the world.

The monetary base in the United States increased 5-fold in just over five years after the 2008 financial meltdown.

Very little of that monetary expansion has been pulled back in the subsequent five years.

Both private and public debt increases have also accompanied that monetary expansion in the United States. $70 trillion in various debt instruments (public and private) are outstanding which is about 1/3 higher than it was a decade ago.

The same is true globally. There is now over $237 trillion of debt in the world. Total global debt has increased 42% in the last decade.

What happened as all of this monetary and debt expansion occurred especially considering the abnormally low interest rates that were in place for much of the decade?

The money flowed into assets. Stock prices. Housing prices. Commercial real estate. Tech start-ups.

In fact, interest rates were so low that savers and investors were penalized in the extreme by staying in cash. The low interest rates made it so unattractive to hold cash that many savers finally gave up and took a flyer on the stock market, bought a new house or invested in a tech start-up. There was no yield in cash or in many credit instruments. It was much better to buy an asset.

Of course, as more demand is created the price of each asset increases.

What did those low interest rates and the increased monetary base do for American households?

It made a lot them much wealthier.

In fact, the increase in aggregate household wealth has been staggering.

Household net worth increased by $45 trillion over the last 10 years and $60 trillion since 2000.

However, as this chart shows, U.S. gross domestic product, only increased about $4 trillion in the last decade and $9 trillion since 2000.

Another way to look at this is that in the last decade our aggregate household wealth increased at 10 times the rate that we actually increased our GDP over the same period.

This is unsustainable and it appears we may be in the early stages of the bubble bursting or (hopefully) the air slowly being let out of the balloon.

Over the last few weeks the stock market has been showing signs that the party is over after its 10-year bull market run. It is down over 10% from its highs earlier this year but about 40% of S&P 500 stocks are down at least 20% this year. Morgan Stanley sent a report to its clients yesterday that it believes we have entered a bear market in equities.

For a little perspective, this is chart showing the performance of the Dow Jones Industrial Average in the last 10 years through today.

It has been an amazing run. Each dollar invested ten years ago grew to over three dollars in the last decade.

2018 has been an different story. There have been a lot of ups and downs and volatility during the year. However, despite the recent losses, the DJIA is still only 1.5% below where it started the year. At the same time, it is off  9% from its highs at the beginning of October.

Some high profile individual stocks have fared much worse.

Apple is down 20% from its high this year.

Facebook is down 39%.

Netflix is down 37%.

Amazon is down 27%.

Alphabet (Google) is down 19%.

Crude oil has fallen almost 30% since the beginning of October.

Sales of new and existing homes have also fallen over the last few months. You can see what has been happening on the West Coast in particular in this graphic. Active listings up. Sales down. Change in the rate of appreciation is down.

We are just not seeing downward pressure in prices in stocks, oil and the housing market in the United States either.

In fact, Deutsche Bank annually tracks 70 different financial assets and commodity indexes around the world. It has been doing so since 1901.

At the end of October, 89% of all of these asset classes showed a loss for the year in dollar terms. That is the highest percentage of assets showing a loss in 118 years. That eclipses the 84% that showed a loss in 1920.

Compare that to last year when only 1% of those asset classes had a negative return for the year.

Have you ever heard "What goes up must come down"?

This is what Deutsche Bank said in its report accompanying this data.

This is what happens when the vast majority of global assets are expensive historically due to extreme monetary policy. When the tide goes out you’re more likely to get en masse negative months rather than rotation from day equities into bonds or visa-versa.

Are bigger losses ahead?

Time will tell.

However, bubbles can only expand so far. You only hope that they don't burst with a big bang. The chaos that follows can quickly become a financial and political crisis. At least that is what history teaches us.

However, bigger drops in asset prices often begin with asset prices acting like they have this year. They slip and slide, grinding away in an inexorable movement that trends downward. This gives people hope that we are only in a temporary lull before prices start moving up again.

That is my hope as well. However, looking at the free money and loose credit that has been made available over the last ten years tells me that it is more a question of "when" and "how bad" the day of reckoning will be than to think this is a temporary lull.

Be aware of the bubble that has been created.

And beware of the consequences to your wealth.

The last decade has been enormously beneficial to many American households. However, it has not resulted from a normal state of affairs. The monetary base manipulation, the expansion of credit and low interest rates have distorted normal market forces.

The worst thing you can do is believe that all the asset increases over the last decade we have seen are "real."

Thanksgiving might be a good time to consider the advice Nassim Taleb provided in his excellent book, "The Black Swan" back in 2007.

"Consider a turkey that is fed every day. Every single feeding will firm up the bird’s belief that it is the general rule of life to be fed every day by friendly members of the human race ‘looking out for its best interests,’ as a politician would say

On the afternoon of the Wednesday before Thanksgiving, something unexpected will happen to the turkey.

It will incur a revision of belief."

Credit: The Black Swan via Wikicommons

Happy Thanksgiving!

However, don't be a turkey.

Review your beliefs with all this information in mind. You don't want to have your beliefs revised for you with the same surprise as consumed that poor bird.

Cold Will Be A Real Crisis

The Democrats are once again going to be in control of the House of Representatives and that means that we are once again in a "climate crisis."

Democrat activists (including Congresswoman-elect Alexandra Ocasio-Cortez) had a "sit-in" in the office of Democrat leader Nancy Pelosi this week.  It looks more like a party than a "crisis" to me considering the looks on their faces.

Ocasio-Cortez states that we only have "10 years left to plan and implement a Green New Deal before cataclysmic climate disaster."

"Justice Democrats" stage sit-in on "Climate Crisis"

Pelosi, in turn, put out this statement of a Democrat proposal to spend "$1 trillion on infrastructure that will make our communities more resilient to the "climate crisis" and, for good measure, create 16 million new good-paying jobs as a result.

I think I have seen this movie before.

Didn't the Democrats have another almost $1 trillion infrastructure spending program with Obama when they were last in control in the House? I think I also remember something about shovel-ready projects with jobs.

How many good-paying jobs did that result in?

At the same time, we have Democrats blaming the horrific California wildfires on climate change.

Of course, that now includes President Trump because he removed the United States from the Paris Accord on Climate Change.

For example, singer/songwriter Neil Young, who lost his home in the blaze, is blaming Trump for "defying science" and the climate change that he says has made California more vulnerable to fires.

Of course, left unsaid is that since Trump took office the United States is the only major country in the Paris Accord where carbon emissions actually fell.

In fact, CO2 emissions in the United States in 2017 were the lowest they have been per person in 67 years!

The United States, despite its population and industrialization, is a leader in having the cleanest air quality in the world.

Have you ever seen or heard these facts in the media?

You also hear very little in the media about the science of sun spots and their effect on our climate.

I doubt you have also heard about this recent report from NASA that warns that the lack of spots scientists are currently seeing on the sun could bring us record breaking cold in a matter of months.

The sun is entering one of the deepest Solar Minima of the Space Age,” wrote Dr Tony Phillips just six weeks ago, on 27 Sep 2018.

Sunspots have been absent for most of 2018 and Earth’s upper atmosphere is responding, says Phillips, editor of spaceweather.com.

Data from NASA’s TIMED satellite show that the thermosphere (the uppermost layer of air around our planet) is cooling and shrinking, literally decreasing the radius of the atmosphere.

To help track the latest developments, Martin Mlynczak of NASA’s Langley Research Center and his colleagues recently introduced the “Thermosphere Climate Index.” 

“Right now, it is very low indeed … 10 times smaller than we see during more active phases of the solar cycle,” says Mlynczak.

Do the three charts above qualify as SCIENCE?

I sincerely hope that colder temperatures are not in our future.

Given a choice between hot or cold, I will choose hot any day. It is not because I like the beach. I like to eat as does everyone else on this planet. It does not take much in colder weather to disrupt our growing seasons and the yields of crops.

When you consider past history on climate you also quickly realize that God dwarfs anything that man can do. For example, the year 1816 was considered "The Year Without a Summer" after Mount Tambora erupted and the ash seemed to veil the sky across large swaths of earth. Crops failed around the world and famine followed. Riots and political unrest were not far behind.  People tend to get really angry when they are hungry. How much did the average global temperature fall that year? - only about 1 degree!

That story has always made me much more concerned about global cooling than warming. A rise in temperatures is actually beneficial for food production. It can extend the growing season further north. More food can be produced. Cooler temperatures do the exact opposite.  Given a choice there is little doubt where I come down.

Do you think it might also be considered a crisis if ice sheets covered this much of the United States?

It happened before. Who is to say a version of this could not occur again? Even something reaching 1% of this would be devastating considering the population centers involved and the grain and corn that is grown in these areas today.

I can only pray that those happy go lucky "Justice Democrats" never find out what a real crisis is. Man-made global warming or climate change is not a crisis. If they are concerned about a crisis there are plenty of them looming ahead to deal with. The national debt. Public pension funding. Social security and Medicare funding. The Islamization of Europe. 1.5 billion Chinese vs. 325 million Americans. All of these involve basic MATH.

I also wonder who there will be to blame if it does get COLDER?



Postscript:

Just after I finished writing this post these were a few headlines at The Drudge Report.

Will we see more of these in the coming months? Let's hope not.

That Chill Map. November 15, 2018. 1000AM EST.

I also find it interesting that cataclysmic disaster is always 10 years away (or 4 years in the case of Obama in 2009).

Look at some similar statements as chronicled by Instapundit. I know these people are big on renewable energy. However, it seems that these statements about the impending crisis are also renewed each year to be another 10 years away. They have been doing the same thing for the last 30+ years.

This does not even include this famous statement by Al Gore that he made in 2007 when he accepted the Nobel Peace Prize.

The ice cap is falling off a cliff. It could be completely gone in summer in as little as 7 years from now.
                                                     -Al Gore, Nobel Peace Prize Speech, December, 2007


In July 2018, the Arctic ice extent measured 3.3 million square miles. That is actually 259,000 square miles more than it measured 7 years ago although it is true that the ice extent is about 12.5% less than its 1981-2010 average. However, a loss of 12.5% is a lot less than 100% would you not agree?

Divergent Views, Divided Government

After every election political pundits come out of the woodwork trying to explain the results of the election.

The fact that the Democrats ended up winning the Arizona Senate seat has some arguing that President Trump's immigration views (building a wall, ending chain migration, establishing stricter asylum rules etc.) was somehow a key reason for this loss and the close results in Texas, Florida and Georgia.

Even some Republicans argued that Trump should have spent more time bragging about his economic accomplishments and less time on immigration.

However, exit polls of voters shows that immigration is still a very strong issue for Trump. It was even a stronger issue in the four states mentioned above.

This is from the CNN exit poll's national sample of almost 19.000 voters.

50% agree that Trump's immigration policies are about right or not tough enough compared to 46% who think they are too tough.

Bear in mind, this is not asking people about current law, this is asking people if they were in agreement with Trump's far stricter  views on immigration than we currently have.

As I have stated before, if you want to know the one issue that really put Trump on the road to The White House, it is this one.

Notice also that those that agree with Trump on this issue voted Republican 85% of the time. At the same time, of those who thought Trump was being too tough in his views on immigration, 90% voted Democrat.

It is even more interesting to look at this issue in those key swing states I mentioned above.

In Arizona, voters are with Trump on immigration 57%-36%.

In Florida, voters are with Trump on immigration 54%-41%.

In Georgia, voters are with Trump on immigration 60%-35%.

In Texas, voters are with Trump on immigration 52%-43%.

What is interesting in this data is that these are all key swing states that also have large immigrant populations. However, even considering this, immigration is still a very strong issue for Trump and the Republicans.

Here are some other key swing states looking to 2020.

In Ohio, voters are with Trump on immigration 58%-38%.

Even in Nevada, another state with a large population of immigrants, a solid majority supports Trump 51%-46% on immigration

You might ask how can the national numbers be only 4 points favorable towards Trump's views on immigration when looking at the individual states above.

You need to look no further than California for that answer. Only 38% of voters agree with Trump on immigration in that state.

What about the national economy as an issue?

Why didn't it matter more in those House races in particular?

It seems that if you are a Democrat the economy looks bleak merely because Trump is President. Likewise, the economy seems to looks good to most Republicans exactly because Trump is President.

17% of voters think that the national economy is excellent, 87% voted for the Republican.

30% of the voters view the national economy as "not so good" or "poor". They voted for the Democrats 84% of the time.

Those that thought the economy was "good" tilted slightly to the GOP.

What do I take from this?

Expect President Trump to not moderate his views on immigration leading up to 2020.

He is likely to push the Democrat Congress hard on this issue as he no doubt understands the polling and popularity of his policies---especially in the key swing states I mentioned above which will determine the electoral college votes in 2020. Trump clearly will want the Democrats to be shown to be on the far left on this issue defending open borders and the abolition of ICE.

One interesting fact to consider.

California Democrats will make up almost 1 out of every 5 members of the House of Representatives in the next Congress. They will have an inordinate influence on the Democrat caucus with those numbers.

In fact, the California delegation of Democrats alone is more than all of the House members combined from 34 other states.

http://mehlmancastagnetti.com/wp-content/uploads/Split-Decision-2018Midterms.pdf

153 of a projected 232 House Democrats (66%) will come exclusively from the East or West Coasts.

This all provides better context on why we will hear more and more Democrats complaining about how unfair the electoral college is and why it is even more unfair for Wyoming or Delaware to have as many Senators as California.

All of the above should give you a better perspective on why the Founders were so brilliant in designing the governmental system they did. They were deeply concerned about concentrations of power forming majorities that would run roughshod over minority views and rights.

It was never intended to be The Coastal States of America. Or The Large Cities of America. Let it never be forgotten that our Founders named the country The United STATES of America for a reason.

We can see the wisdom of that thinking even more with each passing day.