The COVID-19 disease, which seems likely to be with us for a long time, has done its part to define history. But it has not suspended history. Though there is much we still don’t know about the disease, we do know that all nations have been affected by it. The death toll is significant but does not threaten to annihilate populations as other diseases have. It has, however, inflicted damage on economies that will take years to repair. Either science will defeat it or the world will adjust to living with it. But that branch in the logic will not come for a while.
Since nations continue to exist, the distrust between them remains – in many cases, it has intensified. As things evolve, the relationships between nations will return to their traditional role. As there is little more to be said for now about the virus that has not been said already, we need to return to the consideration of geopolitics, which like diseases can cause massive casualties. Were this the bubonic plague, we would be returning to the relationship between Rome and Florence. Today we will return to the relationship between the U.S. and China.
When we last visited these two nations, the United States had placed tariffs on some Chinese exports to the U.S., hurting and angering China and leaving it no effective counter. The Chinese built their economy the same way the United States had between 1890 and 1929: by exporting cheap manufactured goods and agricultural products. The international system needs cheap products, and the exporter must export to increase domestic prosperity and create a self-sustaining society. The advantage of an exporter is it makes money. The disadvantage is it depends on the willingness and ability of its customers to buy. So when, for example, the post-World War I depressions took hold of Europe, Europe’s ability to buy U.S. products became a major cause of the Great Depression.
China suffered a blow in 2008, when the global recession following the subprime loan crisis cut into China’s exports dramatically. More recently, tariffs imposed by the U.S. threatened to create a massive imbalance in the Chinese economy. Chinese industry vastly outgrew domestic Chinese demand, producing more than Chinese consumers could buy. The U.S. move was designed to destabilize China, which had been emerging as a major power suffering a major vulnerability. The U.S. took advantage of it.
At roughly the same time, it was revealed that the Chinese were operating concentration camps of sorts for Uighurs, Turkic Muslim minority populations in far western Xinjiang province, as demonstrations and riots broke out in Hong Kong. Try as it might, China’s excellent propaganda had a harder time convincing the world that it was passing the U.S. as a great power. China’s gross domestic product was about $14 trillion and the United States’ was just under $22 trillion, and China has many more people. The U.S. military is able to operate globally. The Chinese are trying to find a lever in the South China Sea. Propaganda aside, China was to the U.S. what the U.S. was to Britain in 1900. Looked at from that point of view, the U.S. could be ambitious but had to be cautious. Britain could be contemptuous at its own risk.
China is not in any way the equal of the U.S., either economically or militarily. Propaganda is not trivial but it can not be decisive. Or more precisely, it could not be decisive yet. Britain in 1900 was celebrating its very real glory. By the 1920s, it was defaulting on its vast debt to the United States, in the midst of economic agony, struggling to hold its position in Europe, fearing reasonably that its empire was in danger.
There are of course many differences between the three countries, but the core dynamic had similarities. One of these similarities is that British investment in the United States was a centerpiece of both nations’ economic strategies. British capital was critical to U.S. industrialization and to ranches in the West. Similarly, U.S. investment in China was critical to China’s industrial development, as was the import of Chinese goods. The United States and China were linked economically as were the U.S. and Britain. And we should remember that when Britain fought in World War II to save its empire, it was the United States that compelled the British to follow a military strategy that made its loss of empire inevitable. Winston Churchill accused Franklin Roosevelt of trying to destroy the British Empire. Roosevelt was shocked and offended by the charge.
China remains inferior to the U.S. in all measures, but it has risen to the point where the U.S. can no longer accept China’s military ambitions nor finance the Chinese economy. China wants badly to resume the economic relationship it had with the United States, while having the U.S. accept its need to dominate first the South and East China seas and then the Pacific, while also projecting economic power and later military power globally. The United States is dominant in North America. It fought for control of the Pacific and the Atlantic in World War II. From China’s point of view, the geography of the Western Pacific and the ability of the U.S. to blockade China is an existential threat.
China has little appetite for risk. Starting a war carries with it the chance of losing. Nor can China trust the U.S. So it is laying the groundwork for an opportunity or an aggressive decision by the United States. Facing historically hostile enemies like Japan and South Korea and, more recently, Taiwan and Indonesia, the Chinese lack a meaningful alliance structure. North Korea is a useful but dangerous tool with which to goad the United States. Other than that, it has a strategy of making random investments around the world to demonstrate its growing power. As propaganda, it works. The use of investments in, say, Serbia is less clear strategically.
China therefore has three core strategic problems. Challenging the U.S. for command of the sea is a dangerous game. While countries such as Russia might fear the U.S. as much as China does, geography prevents cooperation, so China lacks a meaningful alliance structure. Finally, China’s main adversary, the U.S., is also indispensable for the Chinese economy.
China’s solution to this dilemma, bravado aside, is twofold. The first is to hope that the U.S. gets involved in a war like World War I, as Britain did. The other is to confront the U.S. in another domain: space. Success in the latter might create an opportunity for the former. Thus for China, space and missiles provide a military option but don’t solve the economic problem.
The U.S. is obviously aware of the military challenge. It has announced a massive withdrawal of forces from the Middle East to devote more time and attention to Russia and China. Patriot missiles have been removed from Saudi Arabia and bases in Iraq have closed. At the same time, the U.S. has withdrawn B-52s from Guam, indicating it is focusing on a space-based missile option against China. But in the end, both nations are in deterrence mode. Neither can afford losing a war against the other.
The major U.S. weapon against China is economic. Here the virus opens opportunities. The U.S. is dependent on China for vast amounts of products, a supply chain that gave the U.S. the benefit of low-cost manufacturing, and the Chinese an industrial base. The Chinese move is to expel and block the U.S. supply chain, but Beijing can’t do it while also maintaining social stability. And the U.S. has options to replace the Chinese supply chain.
The solution on both sides is to hurl insults. The Americans hint that the Chinese are responsible for the coronavirus. The Chinese have a global effort to show that the virus has crippled the United States permanently and that China is now the leading power. Propaganda wars may be fun to watch, and hurling insults should perhaps be an Olympic sport, but power is not a matter of perception, at least not when bombs start landing and bankruptcies mount. The U.S. will continue to hurl insults while undermining the Chinese by shifting the supply chain. China will continue seeking a military advantage.
China and the U.S. have been hammered by the virus. The hopes, imperatives and constraints of both countries relative to each other have been bent but not broken by the epidemic. As it was before so it will be in the future.
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I had the distinct pleasure of being on a conference call last night with Gen. Petraeus. He was speaking about his thoughts regarding the Coronavirus.
I did not learn any new information. I basically already knew virtually everything he revealed but what I truly found fascinating was the language he used in linking and connecting the information. He is a consultant to KKR and I certainly understand why. The man is brilliant and I would love to see a Haley/Petraeus ticket in the near future.
If there was one thing I found truly interesting, in response to a question, is he ticked off the names of world leaders and American governors, mayors and government officials he felt who had responded to the pandemic in an exceptional manner and Trump's name was not mentioned.
I remember Sam Nunn once telling me he was leaving the Senate to start earning a living because of the expense of putting kids through college and I said to myself were I running a company his insights and experience would be invaluable. Interesting enough he sat on the board of some great companies. However, some had disastrous results while her served. The most notable being G.E.
I also believe Sam left The Senate because it was no longer enjoyable and because he ran the risk of losing his seat because of his opposition to Bush 41's war to retake Kuwait.
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I am now getting ready to watch the PBS two hour program about Justice Thomas, another one of my heroes.
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Finally, another Ross Rant:
Hopefully we will start to see unemployment begin to decline or flatten next week or week after next as states open and people get back to living life. The auto plants reopened, and that is a huge boost to getting back to work when you consider all of the small suppliers will be back as well. By July we should see large declines in unemployment. Shops in many places are open now, and life is returning, and that means jobs coming back. Experts now say the original disease model on which everyone depended, which was created at a university in the UK, was total garbage. So the US and the world depended on a totally flawed model to make shut down decisions. It is now clear that none of the numbers we are told are accurate. CO just reduced Covid deaths by 20% to eliminate the deaths due to other causes that were attributed to Corona. This has been a major issue across the country, where docs complained they were told to mark down Corona even if it was a heart attack, if the patient also happened to test positive for virus. So nobody knows what the death rate really is, but likely it is materially lower, maybe by a lot, than we know. Or maybe people died at home, and were not counted. We do not know the denominator, but it seems from testing so far that only 10%-12% of the total population was infected, and only a lot less than 1% of the infected died, and that was before they figured out how to treat it. It seems that ventilators may have actually killed some people instead of saving them. The more they test, the more cases get reported, even if the person is not sick enough to go to the hospital, or to have any treatment. So a rise in case counts is not necessarily an indication of anything other than more testing being done. So what is very clear is nobody really knows any of the data clearly enough to make any good decisions. It may be months before it is even partly clear, and it will never be absolutely clear. Maybe if they had clean and good data from day one, we could have had the Swedish model, or the German model, and far less damage to the economy. We may never really know, as it has now become so politicized with blue states still being shut down, while red states are much more open.
Some very illuminating numbers. Nobody has accurate numbers, but a recent study suggests 50% +- of all virus deaths are in nursing homes. AARP thinks it is 25% or more. Let’s say 40%. Another 22,478 are the NYC metro area. So if there are total US deaths as of May 17 of 89,120 and 40% are nursing homes, that leaves other at 53,472 less 22,478 in NYC metro area leaves only 30,994 for the entire rest of the country for the average individual. That is 30,000 out of 320 million. Even if we say nursing homes are 30%, not 40%, that only adds 8,900 deaths to the total other average people or 40,000, and of those, most had other pre-existing conditions, or were very old. So for the average healthy person, the chance of dying from the virus is near nil. Since we know that blacks are more prone to die from it due to diabetes or high blood pressure, the death probability for healthy whites under 65 is almost none. Let’s assume blacks were 20% of the deaths, so that leaves around32,000 deaths for whites, and of those, most were otherwise impacted by diabetes or some other issues. That is a likely death rate of only .01% for healthy whites under 65. For this we wrecked the economy. You never get that perspective and proportionality from the press, nor from blue state governors, and never from a politician, the press, or Fauci. It would not be politically correct since they would get criticized if they said this. I think many people are now figuring that out. The claimed fear of overwhelming hospitals is ridiculous since that never happened in April at the height of the problem, even in NYC. If people, and companies, and stores follow protocols, there should be very little problem with the virus. Fauci is a scientist and does not have a total perspective, nor any understanding of economics by his own admission. With Remdivisver and other new treatments, the chance of dying, or even being badly ill is even less now. A vaccine is not going to make that major of a difference since many will not take it, and it will not be available for 9 months in large quantity at best.
The Dems and press demand the doctors control the economic open close decisions, and they say Trump is wrong to make comments about opening.. That is ridiculous. The doc from Hopkins, who is frequently quoted, is also a scientist, and clearly is all about a medial analysis, and not at all about economics The doctors and scientists are devoted to save lives and cure disease, not to making the economy strong. They know as much about the economy as Trump knows about how to research a molecule of DNA. Their input is very important, but they have no perspective on the bigger picture, and the economy and national security. It is why we have a president and his cabinet, and not a medical scientist running the country. That is where all this went wrong. Trump, in essence, turned control of the economy over to Fauci and Brix. He had no choice politically in an election year, but it was a mistake. Had we locked down nursing homes immediately, and told everyone with a material health issue to shelter, and if Cuomo had not acted wrong about putting recovering Covid patients into nursing homes when they came out of the hospital, the picture would have been different. Had they said spacing and masks in factories and retail were required, they could have stayed open as did Home Depot and super markets and other stores like the fishing equipment store here in Sarasota. That is what they did in Germany and it worked well. Restaurants in warmer areas could have stayed open if outdoor areas were available with spacing. We never shut tennis at my club and nobody got sick from playing, They got sick because they attended a party with a guy from Sweden who was infected, but nobody knew. There has been zero new cases on Longboat in 7 weeks, and everyone goes to the one supermarket on the island, and the one CVS. If they can have large numbers of people in Publix who are mostly old, and nothing happened, why not other stores. In the Hamptons they only allow 20 people at one time into the 50,000 sq ft supermarket in my area. That is stupid. Fauci may be a wonderful scientist, but we did not elect him president.
Generally the optimism is now much better as things open, and as people received their $1200, plus 50% of the unemployed now earn more doing nothing than working, thanks to the extra $600. And the new Pelosi bill wants to continue this absurdity. It is why apartment rents are getting paid with on average only around 4%-5% defaults in April. Clearly the attempt by the bartender from the Bronx and her radical buddies were not able to convince most people to not pay rent. Companies renting houses had very little defaults. If what I have witnessed here in the Sarasota area is indicative, shopping centers were full again, and places like Home Depot and sports stores were busy. And this area has far more old people than the average city, so I get the sense most people are ready to resume life, even if in a mask. Brick and mortar retail is in real trouble now. Over 22% of sales have moved to online, and in 5 years some analysts think it could be 35%. Over 20%, and malls are in deep financial trouble. JC Penny, Neiman, J Crew are in BK, and others will follow soon. Macy is closing dozens of stores. These are all anchors for malls. In April, malls only collected 25% of rents, and that was the better malls. By mid-2021 we will see more dying or dead malls, and only some stores like Home Depot and Loews, Apple and similar will be doing well. Those two home renovation stores had nil impact from the shutdown. I think many people are realizing that if they are careful, they have little chance of getting sick, and almost none of dying, so by September they will be ready to roll as the fear goes away. Instead of a daily stream of how many died and how you need to be scared, the press will be reporting on Durham indictments and the election. Unemployment, not including hotels and travel, and retail, will be getting close to back to normal. Hotels account for millions of jobs, so that will hold back the recovery numbers. The auto industry is picking up, and expects to be back in full action in June. Construction is back. Boeing will be back. All of those account for a lot of jobs when you include suppliers and ancillary businesses.
April rent payment tells you who is in real trouble and who is not. Collections: Apartments 95.8%, Industrial 91.7%, office 92%, shopping centers-not malls 58.7%, malls 25%. Tanger outlet malls had only 12% collection. These are numbers for REIT owners, so they are skewed to the better assets, but are very indicative. Hotels are running at around 25% or less Revpar-the key number. May might not be as good collections, but the rough numbers are likely not too far off.
Oil is back to around $32 WTI, and that is very good news for oil producers and jobs. It is hard to understand the oil markets these days going from negative $30 to positive in 30 days, but we just need to hope it stays around this price or a little higher to save the small producers and a lot of the high paying jobs in the oil patch. It means high gas prices and energy prices, but they will still be very low by comparison to the past several years. Good for consumers and big energy users.
Including what came before from QE, The Fed now has almost $7 trillion out, or available to go out in various programs. That number is astonishing, and Powell said they can do even more if needed. They have flooded the economy and capital markets with cash and liquidity. They are doing the work for Congress since they put out cash with none of the left wing nonsense. PPP is now out to millions of small companies and is being adjusted to be more usable by companies with few employees and who need more than 8 weeks. Most people have gotten their $1200+ and are getting unemployment, or soon will. The vast majority of workers know they will be going back soon, so they are not in as much crisis mode in many cases as in a normal recession. The press and politicians have over stated this whole thing for their own agenda, and to sound caring, but a lot of workers are saying no to going back to work quickly as they prefer to collect their $600 excess unemployment. You don’t ever see an interview with one of those people because it does not fit the script and agenda of the press. This should bode well for a decent return of consumer spending. This crisis has exposed how states have wasted money, and not updated their computer systems for 35 or 40 years. That seems hard to believe, but is apparently true. Maybe they will all go to Amazon or Microsoft cloud, and fix the issues with unemployment checks. It is clear the Pelosi $3 trillion, 1800 page bill is just an election year statement of Dem policy positions, and not a serious effort to solve economic issues. The game is to try to make Republicans look like they do not care about workers. When cannabis is mentioned almost twice as often as jobs, and money is to go to illegal aliens when unemployment is at record highs, you know where their heads are at. That bill will come back to bite them in November. Pelosi may have made a huge error by putting it out and pandering to her left wing base instead of mainstream America. Once again, the Dems are more interested to play stupid political games than to help the citizens.
The stock market is still ahead of itself based on a reasonable forecast of earnings for S&P companies. Today’s huge rally based on a possible vaccination this year is unwarranted. However, any forecast is still a dart board so we don’t really know. One item about progress on a possible vaccine and the market takes off. That is not fundamental investing. That is algorithms over reacting. We don’t know if there will be a return of the virus in the fall or not. I don’t believe Trump will order another shut down just before the election no matter what happens. It is quite possible there will be no big flare up, and where there may be some spike, it will be quickly detected and contained. Now we have testing all across the country which they say was the big problem in March, and we have effective treatments, and the whole healthcare system is on high alert. It is totally different than in March. There never was a shortage of beds in most of the country, and even in NYC, they never really used the ship nor Javits Center, so that whole panic about beds was way overblown by Cuomo and the press. Meantime smaller hospitals in other parts of the country are going broke due to the shut down in other procedures. Now we will be faced with dealing with a rise in other kinds of illness because people were not able to see their doctor or to have elective procedures. There will be far more addiction cases and mental health issues. Those will be the real problem, not the virus. The absurdity is now there is more than adequate testing available, and the issue is few people are getting tested, so in places like LA the test capacity is far above the demand. Most people don’t want to get tested since they have no issues. Even if you get tested on Monday you could be infected on Tuesday. So they need to develop a protocol for companies and big buildings to test employees periodically, or with new technology that can measure temperatures as they pass into the door.
The Flynn case reveals who is really concerned about rights of accused and abuse of power. See above attachment. It is not Dems or the press. Everyone should be outraged and should be shocked by the actions of the judge. He should be disbarred and removed from the bench. There is an opinion fairly recently by RBG right on point which says he cannot do what he is doing, but he is ignoring all of that to pursue his own political agenda. The press should be screaming, but many are not because it is a Trump person. This is just the start of the attacks on Barr by the press and Dems. Nunes is gathering more material to possibly charge some of the Mueller lawyers. That will be a real battle with the press. Then there is Schiff who should be kicked out to Congress for what he did. His blatant lies and abuse of power should be heavily punished as it was with joe McCarthy. Same story, different day, but much worse as Schiff tried to impeach the president and disrupt the nation, where McCarthy just ruined a few people’s lives. What is truly amazing to me is some very high level academics and business people are ignoring what happened to Flynn and just say well he plead guilty so he is guilty and should be sentenced. They ignore the abuse of power and lies by prosecutors, and abuse by Wasserman. If he had worked for Obama they would be protesting in the streets.
If you think Joe is not a liar and fraud, listen to the attached video from a few decades ago. Then consider his denial of even knowing Tara, and his claim of lack of knowledge about Flynn in spite of his unmasking just five days before his term ended, and his being in the oval office for the infamous Yates meeting.. The Dems and press screamed for years that the Republicans were backed by big money and so were bad. Bloomberg is throwing $2 billion at the election, but do you hear anyone in the press screaming. If that is not abuse of the election, what is. You can also be sure there will be vote harvesting by the Dems in CA and elsewhere since it worked so well in 2018. That is why the big push for mail in voting by Pelosi. That is why they do not want voter ID. They are corrupting the election process.
It is just the start of really bad relations with China. Trump along with Australia is the only one who is going after China for what they did, and are continuing to do. They want to patent whatever we are doing on vaccine and treatments and keep US drug companies form cashing in on their own research. China is a massive existential threat to the world, and us in particular. Obama Biden let them get to this point, and the whole globalism policies of the past 30 years has allowed this to happen. Biden has already made it clear he will go back to that policy. China we now know will do anything to win, and the EU is letting it get away with it so they can sell more cars and machines. They learned nothing at all from WWII. The EU makes a statement or two, and then goes right back to just trading with China and ignoring the way they were brought the pandemic. China is buying off the whole world, except they can’t buy Trump and Pompeo. It is likely the competition between the US and China will ramp up materially over the next few years, and if Biden is president we lose big. This election is crucial in this battle for the future of the world order.
There are an increasing number of anecdotal stories about how companies are planning to not renew leases on office space. As the technology improves and allows much better instant collaboration within a group without physically being together, and as more young people enter the workforce being used to communication electronically instead of in person conversations, there will be much less demand for expensive offices. There will be satellite offices and small central offices in NYC or other cities, but big campuses like Apple has will be found to be a vast waste of cash. The key will be to find the balance between most of the week work at home, and one or two days in some sort of office setting to do team building, and face to face relationship building, and culture creation. It will evolve, but big expensive offices are going to lose a lot of tenants. Many companies had enough time during the shutdown to perfect virtual working, and to realize how much commuting and travel time, and cash is saved by remote work, and only small offices in satellite cities in certain industries. We do our bi-weekly team meetings for my Bayonne project on Zoom, and it works great. You probably do not want to own a major urban office building anymore.
Having homes in Longboat and the Hamptons, I am able to ask numerous people in Hamptons what it is like by comparison. In Longboat things are almost normal. In the Hamptons they remain bad. In the Hamptons, tennis just opening, but very restricted. Food a hassle. Place is mobbed like August or worse, with anyone who owned or could rent a house is there, but can’t do anything or go anywhere, and no restaurants open. I am staying in Longboat at least until mid-June or longer despite my real home being the Hamptons. I have no idea when I may get back to my apartment in Manhattan since getting around is a big problem because riding the subway, which is my preferred mode, is not a safe idea yet. I am very lucky. I have choices and no pressure to be anywhere. I found good dentists and docs here so that is not a hassle, and dental work is about 20%-40% less cost.
One thing I note from the way liberals respond when confronted by truth about collusion or Flynn. They change the topic, and try to say Flynn plead that he lied and that is all there is to say, and Trump lies so what if Joe lies, or they still believe Schiff and collusion. And that is from very smart people in positions of power on campus or in business. I guess if you really hate Trump, reality is irrelevant. It is pretty scary that very smart leaders actually ignore the truth and the corruption of the press.
I watched the 60 minutes interview with Powell. The way the interviewer posed the questions was clearly very biased, and leading—i.e. Is this the second depression. Powell had the sense to respond fairly well to most of it, but due to the way the question was asked his responses in some cases could be misrepresented by the media to seem different.
Correction There are approximately 500,000 Chinese in the Vancouver area not 3 million. I misread an email from someone who provided the information. The number of deaths however is correct and the point remains the same, they somehow got it right..
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