The month began on January 1st with the college football playoffs. Oregon beat Florida State and Ohio State defeated Alabama. The ‘Buckeyes’ then won the national championship twelve days later. The month ended on the eve of the Super Bowl, which pitted the New England Patriots – they of ‘deflategate’ fame – against the Seattle Seahawks. (New England won.) While fans get excited and Super Bowl parties are the rage, the event serves also as a reminder of the need for tax reform. Despite the hundreds of millions of dollars professional football garners, under the U.S. tax code the NFL is a 501(c) 6 organization, a tax-exempt enterprise.
But much more than football was packed into those thirty-one days. The President gave his State of the Union message, an upbeat message that seemed to have little relationship with the world as it is. Apart from multiple veto threats, it was, as Daniel Henninger wrote in the Wall Street Journal, a Peter Pan message – the world will be just fine “if only we think lovely thoughts.” Reality is quite different. Despite the President bragging he had concluded the wars in Iraq and Afghanistan, Islamic terrorism persists. ISIS is undaunted in Iraq and Syria, continuing to behead prisoners. Four Parisians, trained by al Qaeda in Yemen, killed twelve staff members of the satirical magazine Charlie Hebdo and four others at a kosher market. The Islamic group Boko Haram killed 2,000 people in Bara, Nigeria. Yemen, an alleged ally in the fight against al Qaeda, imploded with President Hadi and his cabinet resigning their posts, as Houthi rebels, another Islamic extremist organization, took over the capital city of Sana’a. Two Israeli soldiers were killed by Hezbollah, an Islamic group operating on the Lebanon border. Yet the Administration in Washington continues to have a hard time using the qualifier “Islamist” when talking about Islamic terrorism.
At home, the state of the economy belies Mr. Obama’s blithe observations. After GDP growth spurted 5% in the third quarter, preliminary fourth numbers suggest that was a one-time event, as the Commerce Department reported that GDP grew 2.6% in the fourth quarter, and 2.4% for the year. That means that all six years of Mr. Obama’s Presidency have shown sub-standard growth (below 3%), despite the recession having ended four months after he took office. The economy remains anemic. While employment is picking up, the labor force participation rate remains at levels last seen in the 1970s. Income and wealth gaps have widened under Mr. Obama’s management of the economy.
Elsewhere overseas, ECB President Mario Draghi opted for quantitative easing as a means of extricating Europe’s economy from its uneven, but stultifying results. Ignoring the positive benefits of deflation caused by productivity improvements, he is anxious, as are all Western governments, to inject some inflation, which is not surprising, as state obligations – pension, healthcare and operational debt – continue to build. Inflation (and the cheapening of currencies) is a boon to debtors, while it is a bane to creditors. Since the former are in charge of government policies, it is unsurprising that deflation is spoken of as the greater evil. Greece, stuck with debt they cannot repay and with an ethic that is inimical to work, opted for a far-leftist approach with the election of Alexis Tsipras as Prime Minister. The former government was happy to put off the inevitable, preferring to live in the la-la land of never having to take responsibility for the mess they created. Following the election, investors in Athens voted with their feet – with equity markets down about 20% during the next two days, and with yields on treasuries rising, suggesting there is no safe haven in that “cradle of democracy.” While I suspect the election results will only worsen an already difficult situation, I can’t blame the voters for trying something new. Europe’s final chapter is yet to be written. When it is, the reading will not be pretty. That pessimism is a fact of life throughout Europe can be seen in birthrates that fall below the replacement rate – at least on the part of non-Muslims. Cronyism and corruption combined with elitism and pettifoggery are unlikely to be routed quietly. As we in the United States are seeing in Albany, the tentacles of corruption run deep and hold fast. In the land of the blind, the old saying goes, the one-eyed man is king. The problem with too many Western governments is that there is a want of even one-eyed men.
January 27th marked the 70th anniversary of the liberation of the Auschwitz-Birkenau death camp in Poland. An estimated one million people were killed in that one concentration camp. Three hundred survivors returned to remember man’s inhumanity to man. (Unfortunately, as the camp was liberated by the Soviets, many of the camp’s survivors went from one gulag to another.) While it must have been emotionally difficult for survivors to return to a scene of such atrocities, the rest of us should never forget what so-called civilized people can do to one another. It is not enough to claim that certain behavior has no place in the 21st Century. (That same argument was used in the first decade of the 20th Century.) The horrors that happened in Germany and Poland happened also in Russia and China. They are happening today in much of the Middle East and Africa. A nation that produced Goethe also produced Hitler. One that produced Tolstoi also produced Stalin. A nation that revered Confucius allowed for Mao Tse Tung. Now we have a culture that gave birth to modern mathematics terrorizing their own, as well as Jews and Christians. The lesson of Auschwitz and other death camps is that man is capable of extreme acts of cruelty. Political leaders in the U.S. must realize that there is no country – and no union of nations – that can keep barbarianism at bay, other than the United States. It requires an unabashed adherence to the principles of democracy, and a strong defense system to backstop our word. Like it or not, it is our fate and our obligation to be the guardian of peace.
Potential Republican candidates for President in 2016 debuted in hordes. The field includes those who are well qualified, along with the usual groupings of oddballs. Unfortunately, it is the latter that seem to garner much of the press, and none more so than the goofiest of the goofy – Donald Trump. If what he said or did provided humor, he would be tolerable as a welcome interlude on cold winter nights, but he seems to be only one step removed from GloZel, the bath-tub sitting, cheerio-eating and YouTube star, friend of Michelle Obama. She is a repulsive character with no redeeming characteristics, but unfortunately typifies our time. Mitt Romney opted out of the parade, but there remain at least twenty hopefuls. While some of those who remain are people I wish would disappear, on balance the field is strong. In youth, vigor and ideas they outshine the three oldies who represent the future of the Democrat Party – Hillary Clinton, Joe Biden and Elizabeth Warren. With a combined age of 204, they could be the biological parent of several of the Republican contenders. How far we have come from a time when youth and vigor were synonymous with Democrats!
Equities in France, Germany and the UK rose during January, while major indices in the U.S. went lower. Lower oil prices and a higher Dollar, while helping consumers, have taken their toll on corporate earnings. Expectations are that earnings growth for the S&P 500 in the 4th quarter of 2014 will be unchanged from a year earlier. Volatility returned to U.S. equity markets, with January having five days during which the Dow Jones Averages moved up or down more than 1.5% – the most days since November, 2011. U.S. Treasuries, defying gravity, rose, sending the yield on the Ten-year to its lowest level in two years. Gold, after declining for two years, rose 8% during the month. The U.S. Dollar continued its march upward, rising another 5 percent.
There was, of course, much else that happened. California Senator, Barbara Boxer decided to call it quits. There are other Californian politicians that I wish would follow suit. In an unfortunate case of poor timing, just five days after the attack in Paris and a couple of weeks before the revolution in Yemen, the President released five more GITMO detainees to Yemen. In Washington school-boyish behavior became the norm. England’s Prime Minister David Cameron, during a visit to the White House, took time out from meeting with Mr. Obama to lobby members of Congress against increasing sanctions against Iran – a breach of long-standing etiquette. House Speaker John Boehner then invited Israeli Prime Minister Benjamin Netanyahu to speak before a joint session of Congress. While he had every right to do so, protocol suggests he notify the White House first. He did not. In retaliation, Mr. Obama’s team dispatched operatives to Israel to campaign for Mr. Netanyahu’s opponent in the up-coming election.
Duke University, which won’t allow a crèche at Christmas, announced that the weekly Muslim call to prayer will be from the campus chapel, countermanding their initial ruling that the call should come from the Duke University Chapel bell tower. In a questionable sartorial display, Mayor DeBlasio’s wife Chirlane McCray wore blue jeans to the funeral of a police officer killed in the line of duty. The enmity that Mayor DeBlasio had created with the police dissipated by the end of the month, but my guess those feelings of resentment are only in hibernation. We’ll see. He appears to be a man more of instinctual reaction than reason. The success of American Sniper at the box office has upset those like Michael Moore and Bill Maher who, because blinders of political correctness deny them the ability to see more than one side to a story, are unable to understand the patriotism that drives those like Chris Kyle.
Death claimed former New York Governor Mario Cuomo on January 1st, moments after his son Andrew took the oath of office for his second term in the same position. Former Republican Senator from Massachusetts Edward Brooke died at the age of 95 on January 3rd. He had been the first African-American to serve in that capacity since Reconstruction. King Abdullah of Saudi Arabia, one of about 40 sons of Ibn Saud, died on January 22nd. His death was not unexpected; so was replaced immediately by his half-brother Salman. Ernie Banks, former Chicago Cubs baseball player, and the “greatest power-hitting shortstop of the 20th Century” (according to the New York Times), died at the age of 83.
The month ended on a cold note, with the temperature in Old Lyme registering seven degrees when I got up on Saturday. As the sun rose, the glistening white marshes and the wind coming off the river gave promise that winter will be with us awhile – at least for another couple of months.
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