Friday, June 29, 2018

Donald Trump's 2017 Financial Disclosure - The Debts

Donald Trump loves nothing more than to tout his wealth as shown here:


That, along with his recent insistence that he is "one of the elites" just like the Democrats because he has a "much better apartment than they do" gave me a good reason to post another look at Donald Trump's 2017 Financial Disclosure.

While most of the media focussed on Donald Trump's net worth, it is also interesting to look at Donald Trump's liabilities.  As is typical of these declarations, one cannot figure out the exact amounts given that the liability amounts provided to the public are given as ranges.  That said, we at least have an idea of the minimum amount of his liabilities which, as you will see in this posting, are rather substantial.

Here is the title page of the Disclosure:


Here is a table showing the details of all Trump mortgages and loans:


For your information, 1094 South Ocean Boulevard is the address for a property located adjacent to Mar-a-Lago; the South Ocean Boulevard house is owned by DT Venture 1 LLC and 124 Woodbridge Road (not "Drive" as reported on the Disclosure) is the adjacent property owned by DTW Venture LLC, both located in Palm Beach, Florida.   In case you were interested, Donald Trump purchased the properties decades ago; he picked up the 118 room estate at Mar-a-Lago in 1985 for more than $12 million and purchased the 1094 South Ocean Boulevard property for $1.6 million in 1993 and the property at  124 Woodbridge Road for more than $700,000.  According to the South Florida Real Estate News, in 2017, the home on South Ocean Boulevard was appraised at $8.43 million and the house on Woodbridge Road was appraised at $2.3 million with the two homes and a vacant parcel of land generating $184,620 in property taxes on top of the $463,941 generated by Mar-a-Lago.  Mortgages on the South Ocean Boulevard and Woodbridge Drive properties were paid in full during 2017.

Unfortunately, as I noted above, given that his liabilities (and assets for that matter) are given in ranges, we are unable to ascertain the actual maximum amount of his liabilities.  It is important to note that five of his mortgages are in excess of $50 million with no maximum amounts given, however, at a minimum, his total liabilities exceed $311 million.

...and, stuck at the bottom of page 45 of 46, we find this interesting note regarding one of Donald Trump's liabilities that existed during 2017:


Given the ongoing coverage of the Stormy Daniels' affair, this is a particularly interesting liability and, as you may have noted on the title page, the U.S. Office of Government Ethics (OGE) concluded that the payment made to Mr. Cohen is required to be reported as a "reportable liability" no matter what the note on page 45 may say.

Thursday, June 28, 2018

The Downside of Raising Interest Rates

With the Federal Reserve signalling a continuation of their monetary normalization plans, a recent speech by James Bullard, President and CEO of the Federal Reserve Bank of St. Louis shows us that even the Fed's main players are advising caution.  Let's look at some of the details.

Mr. Bullard begins by noting that the Federal Reserve's balance sheet has actually been shrinking as a percentage of GDP, unlike its peer group:


Also, unlike its two most influential peers, the Fed has been boosting its key interest rate as the American economy appears to be strong:


Given that the Bank of Japan and the European Central Bank are showing no signs of raising their key interest rates, Mr. Bullard asks how far the Fed can increase interest rates without causing significant problems.

Here are three factors that should cause the Fed's banksters to ponder the wisdom of further rate increases:

1.) United States market-based inflation expectations remain "somewhat low":

The market's expectations of inflation remain below the Fed's 2 percent target, clearly showing that the Fed cannot use inflation as a reason to further raise interest rates.  As shown in this diagram, the financial markets do not believe that the Fed will hit the Personal Consumption Expenditure (PCE)-based 2 percent inflation target even looking as far out as five years in the future:


At least some of the recent increases in inflationary expectations can be attributed to oil price gains, however, Mr. Bullard observes that this factor will have only a temporary effect on inflation.

2.) The current U.S. policy rate is neutral:

The U.S. trend short-term safe real interest rate or r-star has changed over the decades, driven by productivity growth, labour force growth and the global demand for safe assets (i.e. U.S. Treasuries) since the 1980s. All of these factors are pushing the real interest rates to well into negative territory, particularly since the Great Recession as shown on this graphic:


As you can see, the green square and red triangle on the right side of the graphic show that the current Fed interest rates are well above the real short-term safe interest rate trend, suggesting that the Fed should be cautious in raising rates further.  As well, the negative real yield experience in the United States is shared by both Germany and Japan, showing that low safe real interest rates are a global phenomenon.

3.) The U.S. yield curve is relatively flat:

Economists know only too well that, when yield curves invert (i.e. short-term interest rates are higher than long-term interest rates), an economic contraction is in the offing.  Here is some historical data showing how the spread between one- and ten-year Treasuries can be used to predict U.S. recessions:  


Since 2014, the U.S. nominal yield curve has been flattening as shown here:


Over the past year, the spread between one- and ten-year rates has fallen from 0.94 percentage points to 0.55 percentage points and the spread between ten- and thirty-year rates has fallen from 0.56 percentage points to 0.15 percentage points.  This is due to rising short-term rates and stable long-term rates; in other words, the Fed has been completely unsuccessful at pushing longer term rates higher no matter what they have raised short-term rates.

Here is a slide from his presentation noting the potential impact of this trend should it continue:


Here is the conclusion from his presentation:

"Inflation expectations in the U.S. remain somewhat low, suggesting that further normalization may not be necessary to keep inflation near target.  The current level of the U.S. policy rate appears to be neutral, meaning it is putting neither upward nor downward pressure on inflation.  The U.S. nominal yield curve could invert later this year or in 2019, which would be a bearish signal for U.S. macroeconomic prospects."

Investors beware.  Too much monetary meddling can prove to be disastrous; there's always a downside to the economy and, as we know, central bankers rarely predict economic contractions.

Wednesday, June 27, 2018

Two-Way Foreign Direct Investing - China and the United States

With the Trump Administration making repeated moves in its trade agenda, China has appeared as one of the key targets in Washington's attempts to regain some semblance of trade balance.  A study by the National Committee on U.S. - China Relations and the Rhodium Group looks at a little-discussed aspect of trade between China and the United States, that of foreign direct investment (FDI) in each other's economies.

Let's open by quoting from the introduction to the report, outlining why two-way investment flow is so important:

"A clear-eyed analysis shows that both the United States and China have an economic interest in maintaining strong investment ties. Both have communities that have experienced tremendous job creation and economic growth as a direct result of two-way FDI flows."

By declaring China as a rival in both trade and militarily, the United States strategy has become strongly confrontational, similar to how trade and investment with Japan were viewed in the 1980s.

Let's start by looking at United States' direct foreign investments in China.  From the end of the Second World War until 1979, China was generally closed to U.S. investment.  This began to change modestly in the 1980s and accelerated in the early 1990s as China undertook measures to reform its economy, allowing increased investments by American companies.    After China acceded to the World Trade Organization in 2001, annual American investments in China grew markedly as you can see on this graphic which shows the annual value of American FDI transactions in China:


By the end of 2017, the total cumulative value of U.S. foreign direct investments in China surpassed $256 billion, hitting $14 billion in 2017.  As well, U.S. firms tend to prefer to invest in greenfield projects, those projects which are built from the ground up rather than acquisition of existing facilities (brownfield).  By the end of 2017, almost 1,400 U.S. companies had invested in China with 400 firms investing more than $50 million each, 300 firms investing more than $100 million and 65 companies investing in excess of $1 billion.

Here is a listing of cumulative U.S. FDI transactions in China for the top ten industries (by investment totals) since 1990:

Information and Communications Technology - $41.3 billion

Chemicals, Metals and Basic Materials - $31.1 billion

Automotive and Transportation Equipment - $24.1 billion

Energy - $21.8 billion

Financial and Business Services - $21.5 billion

Machinery - $19.6 billion

Agriculture and Food - $19.5 billion

Real Estate and Hospitality - $18.2 billion

Health, Pharmaceuticals and Biotechnology - $15.6 billion

Consumer Products and Services - $14.8 billion

In 2017, the largest U.S. foreign direct investment in China was in Information and Communications technology where U.S. companies invested a total of $4.1 billion.

Now, let's look at China's direct foreign investments in the United States.  Chinese FDI in the United States was insignificant before 2005 when Lenovo purchased IBM's personal computer division for $1.75 billion, the first major modern investment by China in the United States.  In the first wave of purchases prior to 2010, China's government-owned or government-affliliated enterprises accounted for more than 80 percent of China's investments in the United States, a share which fell to 29 percent by 2016.  In 2010, Chinese investments in the United States began to grow rapidly reaching a record $46 billion in 2016 before falling back to $29 billion in 2017, a 35 percent year-over-year drop, as shown on this graphic:


By the end of 2017, the total cumulative value of Chinese foreign direct investments in China reached $140 billion, well below the $256 billion that the U.S. has invested in China.  One issue that is slowing Chinese investments in the U.S. is increased investment screenings by the Committee on Foreign Investment in the United States, largely as a retails of changing threat assessments.  As well, in contrast to American firms which prefer to invest in greenfield projects, Chinese firms prefer to invest in existing companies through acquisitions. 

Here is a listing of cumulative Chinese FDI transactions in the United States for the top ten industries (by investment totals) since 1990:

Real Estate and Hospitality - $40.90 billion

Information and Communications Technology - $16.7 billion

Transportation and Infrastructure - $16.6 billion

Energy - $13.8 billion

Entertainment, Media and Education - $9.5 billion

Financial and Business Services - $7.2 billion

Healthcare, Pharmaceuticals and Biotechnology - $6.3 billion

Electronics and Electrical Equipment - $5.2 billion

Automotive and Transportation Equipment - $4.5 billion

Chemicals, Metals and Basic Materials - $2.7 billion

In 2017, the largest Chinese foreign direct investment in the United States was in Real Estate and Hospitality where Chinese companies invested $11.0 billion, nearly one-third of China's total FDI in the U.S.  This is largely due to HNA's massive $6.5 billion investment in Hilton Hotels.

Let's summarize by looking at this graphic which shows the total foreign direct investments by both China and the United States in each other's economies since 1990:


U.S.-based companies total direct investment in China - $256 billion

China-based companies total direct investment in the U.S. - $140 billion

The nearly one-quarter of a trillion dollars worth of investment by American companies in China, primarily in new developments (i.e. greenfield projects), is one-quarter of a trillion dollars worth of investment that is not taking place in the United States.  While we will never know, it would be interesting to have an actual assessment of the number of jobs that an investment of that size would have created in the United States.  Instead of investing in "the homeland", Corporate America has chosen to create jobs in China where labor costs are far lower than in the United States.  Perhaps when it comes to America's trade and manufacturing problems, Washington really is barking up the wrong tree.

Monday, June 25, 2018

The United States and Russia - Propaganda is a Two-Way Street

Ask yourself the following question:

"When did I last read or hear anything from the mainstream media that portrays Russia and Russians in a positive light?"

With that in mind, let's look at an interesting government document from the United States.  Fortunately for us, on the Central Intelligence Agency website there is a treasure trove of old documents that have been released to the public in the library of declassified materials.  According to the CIA, they release millions of pages of documents every year and puts information that may be of interest to the public on their website.  One of these documents from 1970 was released in part on July 16, 2012 and is quite interesting given the current anti- everything that is Russian mantra that is Washington today.

Here is the cover page of the formerly secret document, a memorandum for the Secretary of State, Henry Kissinger dated January 16th, 1970:


Apparently, President Richard Nixon was concerned about the reports of anti-American propaganda in the Soviet Union's news media. He wanted American Ambassador to the Soviet Union, Jacob D. Beam, to remind Soviet officials of the United States government's "concern about this trend".

While the first page of the document is redacted in its entirety, the following three pages are a telegram from the Department of State's embassy in Moscow and is addressed to the Secretary of State in Washington as well as the American embassy in Munich.  On these three pages, the author outlines samples of Soviet press coverage on the United States that have made the United States look bad in the eyes of Soviet citizenry.

Here's a quote from the opening paragraph of the telegram:

"While occasional examples of positive Soviet media reporting about U.S. scene appear in print (Apollo program, Simohov piece Dec. 26 Pravda), these fleeting favourable glimpses continue to be outweighed by large volume of repetitive distortions which permeate Soviet press coverage of U.S. foreign and domestic developments.  Soviet reader (sic), if he believes his newspapers, can only conclude that U.S. is sick, degenerate society without hope of solving its social and economic problems.  On foreign scene, he is told U.S. is aggressive, rapacious power bent on dominating its allies and third world, while seeking to subvert and destroy "socialist camp"."

Here are some of the newspaper stories that were deemed unfavourable by the United States:

1.) Cosa Nostra makes $40 billion per year, has 200,000 members and is the largest business enterprise in the United States.

2.) The Pentagon proposes to modify Safeguard program, indicating an accelerated pace of deployment and higher spending for the anti-ballistic missile system.

3.) Distorted reporting of U.S. racial tensions, decrying police terror against the Black Panthers.

4.) U.S. repression of Indians centred on the occupation of Alcatraz which actually did take place over a 14 month period from November 20, 1969 to June 11, 1971 as you can see here:


5.) The United States is charged with steeling Nazi gold in 1945 and refusing to discuss its whereabouts.

6.) Vicious anti-U.S. cartoons aimed at American involvement in Southeast Asia as well as the use of a draft lottery.

7.) Full U.S. support for Israeli aggression as well as the growing U.S. - Israel military alliance.

8.) U.S. atrocities in Vietnam and the revival of the anti-war movement in the United States.  It is important to remember that the shooting of students took place on May 4, 1970, less than four months after the cover letter to this document was written.

Not only was Soviet newspaper coverage of the United States deemed unacceptable, here's what the telegram had to say about Soviet television coverage of America:


Note the closing line of the telegram:

"The time may nevertheless be at hand when it would be worth while to remind Soviet officials of our awareness of the present trend and its potential repercussions."

Let's close with a brief summary of the United States in the late 1960s.  During 1968, Martin Luther King and Robert Francis Kennedy were both assassinated, the United States had over 549,000 troops in Vietnam, the Democratic National Convention riots took place in Chicago and a shootout between the Black Panthers and the Oakland police took place.  In 1969, members of the Manson Family killed at least 6 people in Los Angeles, in Northern California, the Zodiac Killer was making his mark, the My Lai Massacre took place in Vietnam and increasingly violent anti-war demonstrations were a regular fixture on the nightly news.  At the very least, there certainly was a lot of fodder for what was appearing in the Soviet media about the United States of the late 1960s.

Looking back at the question that I posed at the beginning of this posting and the fact that the Nixon Administration took umbrage at the biased and unrealistic reportage taking place in the Soviet print and television coverage of what was happening in the United States during the later part of the 1960s, one can only draw the conclusion that the current Western media, particularly the media in the United States, has learned absolutely nothing over the past five decades.  We also have to conclude that we really are being propagandized to "soften" us up for a future military conflict with a Russia, a nation that, in the eyes of the mainstream media, appears to be unworthy of existing in its current form and with its current leader.  By consistently portraying Russia in a negative light, Washington will find it easier to persuade us that a war with Russia is a just and desirable thing.  Unfortunately, as we've learned in the past, propaganda is a two-way street and the battle for our minds and the minds of our so-called foes can easily be won by our respective leaders, largely because we all tend to forget that "the other guy" is a human being just like we are.