Thoughts from the Frontline

This week’s letter is going to be a little bit different in that, due to the pressures of time, the worst jet lag I’ve ever experienced, and working on my speech for next week’s conference, I really have not been able to do the proper research for a letter. So what I will do is send you a slightly expanded version of a letter that I have already sent to those who will be attending next week’s Strategic Investment Conference in Dallas. It covers the agenda in detail and will give you an idea of how I go about putting a conference together and what I’m trying to learn from the speakers. If this is of no interest to you, just skip it and go to the end where I will share some brief impressions from my time in Abu Dhabi.

“Where justice is denied, where poverty is enforced, where ignorance prevails, and where any one class is made to feel that society is an organized conspiracy to oppress, rob and degrade them, neither persons nor property will be safe.” – Frederick Douglass “I am for doing good to the poor, but I differ in opinion about the means. I think the best way of doing good to the poor is not making them easy in poverty, but leading or driving them out of it.” – Benjamin Franklin

The prevailing market lore is that one should sell in May and go away, returning in October. And over the last 65 years, that axiom has on average held true. Unfortunately, we can’t live on averages in the short term, and so we have to decide what to do today. Thus – just like the Fed – we are data-dependent.

Last week we looked at the world’s demographic destiny for the coming decades. I imagine most readers perused the information and said, “Yes, we already know the world’s population is getting older. Everybody keeps saying demographics are important, but I’d like to know how slowly changing demographics actually affect the economy here and now.

“The afternoon knows what the morning never suspected.”  – Robert Frost “It's paradoxical that the idea of living a long life appeals to everyone, but the idea of getting old doesn't appeal to anyone.”  – Andy Rooney “Deng Xiaoping made a calculation. He bet on demographics. What he knew was that China had this enormous population of young, underemployed people, people who he could move from the farms to the coast and put them to work in factories, and that would be the lifeblood of China's economy.” – Evan Osnos (My comment on that quote: He launched this policy after he went to Singapore in 1978 and saw what Lee Kuan Yew had done and then went back home to duplicate that effort, albeit in a manner that would work within the Chinese system. But he did ride the tidal crest of demographics.)

I woke up this morning with the sundown shining in I found my mind in a brown paper bag but then I tripped on a cloud and fell-a eight miles high I tore my mind on a jagged sky  I just dropped in to see what condition my condition was in Yeah, yeah, oh-yeah, what condition my condition was in – Made famous by Kenny Rogers and the First Edition, 1968

When the next president of the United States walks into the Oval Office on Saturday, January 22, after the heady experience of Inauguration Day followed by numerous balls, he or she will be confronted with significant economic challenges. This is the fifth and I hope final installment in a series of letters I’ve written to the next president on those challenges. The first three letters in the series dealt mostly with the realities of the economic landscape beyond the the United States. The situations that most of our significant trade partners face dictate that the next US president will have much less room to operate than the candidates have suggested that they’d like to have.

For the past three weeks I’ve been discussing the economic realities the new president will face when he or she takes office next January, using the device of an “open letter to the next president.” Mostly, we’ve been dealing with the economic realities that other countries face and with how difficult the global economic climate is going to be during the next president’s first four years. I briefly outlined last week the stark reality of what will happen to the deficit and national debt in the next four years, and I offered a chart of what would happen if (as I think likely) we have a recession within four years. The deficit would immediately blow out to $1 trillion. That figure is before any stimulus and in all likelihood does not include the significant amounts that will have to be spent on unemployment reserves, etc.

“The liberating army we need in the Americas today is one of leaders who come together in peace, in the spirit of cooperation.” – Oscar Arias “There are two Americas – separate, unequal, and no longer even acknowledging each other except on the barest cultural terms.” – David Simon

“Europe was created by history. America was created by philosophy.” – Margaret Thatcher “Nobody in Europe will be abandoned. Nobody in Europe will be excluded. Europe only succeeds if we work together.” – Angela Merkel

“When America closes its doors, so does everybody else.” – Jon Huntsman, Jr. “Globalization and free trade do spur economic growth, and they lead to lower prices on many goods.” – Robert Reich

“Growth is never by mere chance. It is the result of forces working together.” – James Cash Penney