Trumpism: Did Swift-boating McCain Go Too Far? Or Will the Rest of the GOP Have to Start a Third Party?

There is a lot many do not know about Donald Trump. They know he is rich, of course, but they probably don’t know he is one of the oldest candidates. If elected, he would be 70 ½ years old at the time of his inauguration—the age when we have to take mandatory withdrawals from our IRAs and 401k’s because we are getting … older. He is two years senior to Hillary Clinton, who is currently 67. More on this subject below.

Way more important, Trump is tapping into a strain of American public opinion regarding immigration and the legitimacy of the Obama Presidency to capture now close to 20 percent support for the Republican nomination for that office. That percentage does not sound like a very compelling number, but with now 18 candidates in the GOP field, it could become a very big number, especially when the contest shifts to the later primaries where winner-takes-all rules could award someone with 20 percent of the vote the entirety of a state’s convention delegates! It all depends on whether a large number of candidates remain in the race for a long period of time.

This journal (the Huffington Post, Ed.) has chosen to cover the Trump campaign as entertainment rather than as a political event. That being said, recent polling—even away from the usual political pollsters’ work—demonstrates that The Donald is very forcefully representing a fairly consistent set of political views among the GOP base of Tea Party and evangelical Christian voters.

For example, polling by the Public Religion Research Institute, a non-profit, politically unaffiliated organization in Washington, D.C., shows that:

  • Sixty-nine percent of white evangelicals oppose same-sex marriage.
  • Tea Party members overwhelmingly believe (56 percent vs. 24 percent) in the free market as the solution to climate change (if they even believe in climate change as a reality.)
  • Seventy-seven percent of white evangelicals are more likely to attribute severe natural disasters to biblical end times; only 23 percent of Tea Party members can be classed as climate change “believers”—in common with the same percentage as Republicans generally.
  • Most importantly for Trump, 37 percent of Tea Party members favor a policy that would identify and deport all immigrants in the US illegally—the highest percentage among any political subgroup in America.
  • Similarly, 58 percent of Tea Party identifiers oppose raising taxes on Americans earning more than $250,000 per year.

The notion that Donald Trump is out of step with the mainstream of Republican opinion on the issues he seems to care most about is patently absurd. He instead seems to be coming on strong in the polls precisely because he is doing the best job of identifying with the GOP’s basest values. Underneath the verbal assaults, however, Trump also seems to be benefitting from an unstated assumption: namely that, because he is a reported multi-billionaire, he has unique ability to actually get done what he threatens to do (like charge Mexico for each illegal immigrant; get China to change its currency policy; persuade European nations, Russia and China to support new sanctions on Iran, etc.).

None of these campaign assurances have any reliable basis in either fact or articulated strategy. But The Donald has not been forced to debate any of these issues. He also gets a lot of “silent majority” type of support for his show-business reputation for firing people. Many in the GOP base have been angered by politicians letting those who fail in their managerial duties “resign” (e.g., Kathleen Sibelius, the head of the VA, etc.) rather than be discharged.

Trump is a master at intimidating interviewers: he came to public prominence outside of his real estate-development world as a frequent guest of New York radio race-baiter Don Imus (famously kicked off the air for his derogatory and defamatory comments likening the Rutgers University women’s basketball team to a collection of whores). By way of contrast, Trump enjoyed a worshipful presence on the Imus radio program (Imus first designated him as “The Donald”), which often parodied the relationship between Trump and the black heavyweight Mike Tyson (who was portrayed as a virtual Trump field hand).

Trump is attempting to literally personify the “angry white males” who are at the heart of the modern Republican Party base. Whether there are enough of those sorts of folks to deliver the presidency to Mr. Trump is certainly an open question, especially among Republican leaders such as Senator Lindsey Graham. But there clearly are enough to deliver him the GOP nomination in an ultra-crowded field.

This past weekend, it appeared that Trump had made his first major mistake in attacking the war-hero status of Senator John McCain, the Republican nominee for the presidency in 2008 and still a United States Senator from Arizona, because he had allowed himself to be captured.

One by one, most of Trump’s rivals—as the immediate Twitterverse showed—stepped up to distance themselves from Trump’s remarks. They recognized that a goodly number of the Tea Party, evangelical and “angry white male” base of the GOP actually are veterans themselves and have a rather high regard for soldiers who survived captivity in the way Senator McCain did. They also called attention to the fact that Trump never put himself in harm’s way of capture through military service: he grew up in a time when the draft lottery prevailed, and he was medically deferred. That’s why his age actually may matter in the campaign. (Trump graduated from the Wharton School at Penn in 1968.)

But not all of the other 17 candidates joined in bashing the Trump piñata, especially those who would hope to benefit by inheriting the support of the base that Trump has heretofore captured. Senator Cruz, Ben Carson and Rick Santorum seemed happy to praise McCain’s heroism, but eschewed any direct criticism of The Donald. This situation is exactly Trump’s advantage—the author of The Art of the Deal certainly knows how to divide and conquer.

The best evidence of whether Trump has talked himself out of his leading position for the nomination will not only be the immediate polls following the weekend events, but also the reactions of right-wing talk radio commentators: angry white males like Rush Limbaugh, who has lately fallen in sort of puppy love with Trump and his anti-immigrant rhetoric.

Most likely, Limbaugh will attack the press rather than The Donald. But the weekend events demonstrate, nonetheless, that the most likely source of any “Stop Trump” movement will be Trump himself—he has already scored his first own goal in Iowa!

(Note: The author is a board member of the Public Religion Research Institute cited in this blog.)

The Euro at a Tsipping Point: Greece Gets a Yellow Card, Not Yet a Red, As Merkel’s Bluff Gets Called

As expressed (and predicted) in this blog several months ago, if I owe you 240 euros, it’s my problem, but if I owe you 240 billion euros, it’s certainly your problem, too. Germany’s Chancellor, Angela Merkel, certainly doesn’t want to admit this, but it turns out that she made the Greeks an offer they could refuse, and now she has to face a choice that she thought she could avoid.

We are, of course, assuming that Merkel is functioning as the CEO of the eurozone. The Germans still get the Dutch to do their dirty work for them (Greek vote result “regrettable”); likewise, the “leadership” of the EU’s finance ministers council never acts without Merkel’s implicit OK; and similarly, the European Commission’s President Juncker seemed to function as Merkel’s hand puppet when it came to the Greek vote.

Not quite so for the IMF, led by Frenchwoman Christine Legarde. She was willing to let the IMF advance a case for at least an acknowledgement of the need for a Greek debt restructuring as part of any agreed bailout “package”–something that remains anathema to Merkel and her “orthodox” set of bankers and politicians, who apparently are still trying to prove, by way of their Greek petri dish, that Hoover, not Roosevelt, had the right solutions to a depression.

Although Legarde’s IMF gets the largest share of its funds from the United States, the tradition of European hegemony when it comes to IMF policy decisions apparently is too strong, for even U.S. Treasury Secretary Jack Lew’s exhortations to “all” partiesfinally to play “Let’s make a deal” fell on deaf ears in Legarde’s office. The IMF was determined to blow off a Greek settlement offer that was only a billion off the IMF’s own target (or less than 1 percent of Greece’s total debt), and also rejected a GDP target of .74 percent in 2016 that was only one quarter of 1 percent off the IMF’s GDP target.

Based on such apparently minor discrepancies, at least as compared with a 240 billion debt to eurozone countries, a worldwide financial markets crisis has apparently been triggered, at least according to the Monday market openings around the world. (Thanks for nothing, Christine! Next time, be more careful playing bluff poker with a guy who obviously has nothing to lose!)

It remains to be seen whether this relatively minor difference in the greater scheme of things was the reason for Greek Prime Minister Alexis Tsipras to play his referendum wild card–one that should have been but somehow wasn’t anticipated by anyone on the EU negotiating team from the start, given that another bunch of Greeks had played the same card back in 2011 in the context of an earlier proposed bailout dealwith strings attached regarding Greek austerity measures.

Now the EU folks are having their bluff called, in terms of their insistence that a “No” vote on the bailout referendum (however poorly phrased) would mean the Greeks would be viewed as having rejected their continuing membership in the eurozone. If that is indeed the case, then why all the meetings about what the EU should do now? Logically, there should be nothing for them to do since the Greeks crossed Merkel’s implicit “red line” (has she learned nothing from Obama?) Certainly there’s nothing to negotiate, is there, with a party who has left the euro?

One German official–Merkel’s deputy–said right after the vote results that any negotiations were hard to even “imagine,” but that sounds like German for “just a wee bit of wiggle room” about that red line, doesn’t it? Not quite the quick draw of the red card for an egregious foul right in the face of goalkeeper Chancellor Merkel.

But now Merkel has communed with her junior partner Monsieur Hollande in Paris at dinner on Monday night to assess what the Eurogroup’s response should be to whatever the Greeks do on Monday–it’s their move, the Germans say. But haven’t they, in Merkel’s own words, already made their move–out? What is there to assess (unless she means “re-assess”?) And then there is a EU leadership emergency summit called by Merkel’s colleague President Tusk of Poland just on Tuesday. Again, what is there to discuss if Greece is already out the door? Of course, there is that inconvenient little reality that your own Eurogroup rules provide that the euro is really the Hotel California of currencies–you can check out, but you can never leave!

So let me get this straight: the Greeks’ overwhelming rejection of the Troika’s bailout terms (61 percent to 39 percent, a landslide in any election math) means that the Greeks have pulled off the impossible: they have effectively abandoned the euro currency, even though by its own terms they can’t.

Here is how the classic business partnership solves that conundrum: if one partner decides to call it a day, the entire partnership is dissolved ipso facto. There is no remaining partnership, so its rules about membership are now irrelevant–no yellow card or red card for the bad guy, just … nothing. The remaining partners have to decide anew whether to re-form the group without the quitter. Merkel, for quite obvious reasons, doesn’t want to go there–not with Spain, and Portugal, and Italy, etc. So that elegant solution is not available to her.

The first hint of how effectively Tsipras has called what will henceforth be known as Merkel’s Bluff (not quite “Angela’s Ashes” –not yet anyway: sorry, Frank McCourt) will be whether the European Central Bank early this week continues to offer life-supporting euro-credits to the Greek Central Bank to prop up the country’s remaining banking institutions, which are running out of euros to stuff into ATMs and to pay pensioners.

If the ECB says “no mas” euros, then Greece really is out of the currency group, de facto if not de jure, simply and precisely because it just doesn’t have enough euros to function economically, and its Central Bank will have to issue scrip IOUs in the interim until it receives local authorization to print and distribute drachmas, which will not be paired on anything close to a 1:11 basis with any euro-based obligations. Greek citizens, of course, will thus get the mother of all “haircuts” on their own euro “holdings,” to the extent they remain in their mattresses–largely as stuffing.

But the next big haircut will come to Germany and the other eurozone countries that have guaranteed the ECB’s 89-billion-euro advances to the Greek banks, not to mention their holdings (and the IMF’s) of a total of 240 billion euros in Greek debt obligations. The euro leaders apparently want to save face by insisting Greece has to make the first move–and it has with the resignation of the finance minister who helped deliver the “No” vote but who offended the EU negotiators by calling them terrorists. So Merkel’s bluff has been called yet again with this conciliatory move by the Greek government.

What it comes down to at the end of the day (probably later this week) is this: is over 300 billion euros the price Merkel and the other eurozone countries are willing to pay to back up their bluff and refuse to sit down with Tsipras, or will they all start whistling a little Kenny Rogers, something like “Know when to hold’em, know when to fold’em?”

Recovering From Suicide In Palo Alto: A Work In Progress

In its June 2015 edition, San Francisco Magazine published a lengthy article entitled: “Why Are Palo Alto’s Kids Killing Themselves?’  It was quickly re-published in SFGate, and also nationally in Real Clear Politics and The Daily Beast.

As provocatively as the headline promises, the article dives deeply into student, parental and administrative reactions, inactions and false starts in response to the initial 2009 and more recent suicide clusters in 2014-15.  Most involved students stepping in the path of commuter trains near grade crossings on main routes to the city’s high schools. Noting that suicide “ideation isn’t rare among high-risk students,” the author says what is unusual for Palo Alto “is the rate – four or five times the national average” at which Palo Alto students have succeeded in committing suicide.

The author criticizes what she terms “an unofficial gag order” in the community due to fear of contagion by mere mention of the word “suicide.” She now finds somewhat more candor about increasing rates of depression among Palo Alto teens, as well as extended wait times for mental health services for them, noting  that students are more willing to reflect on a high school atmosphere they find  “unhealthily competitive” – “The kids paint a picture of a sort of academic coliseum, where students look down their noses at peers in a lower math ‘lane,’ guard their grade point averages like state secrets, brag about 2 a.m. cramming sessions and consider a B a disaster.”

Yet other students point to the “ideals of the community” as a prime source of angst about “never doing enough.”

The article concludes with students warning against “aiming arrows at false targets” as well as the “shady assumptions” that lie beneath the surface problems.

The unanswered question: what exactly are those “shady assumptions” in the cultural “ideals” of Palo Alto and Silicon Valley?

Silicon Valley’s tech, biotech and social media entrepreneurs have succeeded in becoming the new “Masters of the Universe” as in The Bonfire of the Vanities. Palo Alto (despite its mere 66,000 population and suburban landscape) may be likewise shaping itself into a new version of Manhattan. According to census data for both locales, Palo Alto is about the same in terms of square miles (23), and it has substantially higher median household income ($121K vs. $58K).

Palo Alto has its own Wall Street Journal outpost and New York Stock Exchange sales office,  and a prime 11 AM spot on CNBC’s market-day “Squawk Alley” program. Its downtown Apple store makes the news whenever CEO Tim Cook appears there to sell the first edition of the company’s newest device.

Palo Alto’s wealth culture was largely unscathed by the housing and financial meltdown that triggered the Great Recession of 2008-09. Lately, it’s nannies, pre-schools and tutoring firms that are “partying like it’s 1999.”Traffic is back to boom-time levels, as are real estate prices: up 21% over the past 12 months through April to a median $2.36 million.

These charmed circumstances, however, offer the same temptation that captured the imaginations of Manhattan’s 1980s bond traders: being really smart about one very big matter (as validated by the income scoreboard) can lead you to think you are right about everything that matters.

To its credit after the Great Recession, Silicon Valley got busy hiring while the rest of country was still firing. Its inventions are turning the publishing, music, telephone, news, automotive, data collection, retail, grocery, media, real estate, retailing, travel, taxi, hotel and health care businesses on their heads. The Valley is taking the California drought in stride with Astroturf lawns and “natural” landscaping. It seems no problem goes unsolved in the Valley.

And yet…there are the suicides, and in their aftermath, a challenge to think anew about Palo Alto’s “success culture” and  what really will constitute “success” for its children. After all, while the data does not reveal an abnormal amount of suicidal thoughts among Palo Alto youth, what does distinguish Palo Alto according to the San Francisco Magazine article is the alarming suicide success rate.

At its core, the Silicon Valley success culture reveals a fundamental contradiction. The Valley first convinced itself, and then told the rest of us, that the failure of a new product, service or VC investment was merely a step toward ultimate success (and a virtual guarantee of a new jobs for the failure’s authors). This can be a wonderfully inspiring, optimistic perspective. The Valley’s “failure is good” mantra, however, seems to be applied just to adults, and not to their children, especially not high school students prepping to be “credentialed” for life by college admission e-mail.  The Valley seems also to have invented a new category of youth: “trophy kids.”  F’s in business and finance are fine and dandy, but “we don’t do B’s.”

Even so, the kids aren’t cooperating lately; they don’t really want to think of themselves as human smartphones. High schools are not “clean rooms” for producing perfect “chips” off the old block. “Imperfect” has no safe place at Intel, but it is a daily occurrence in any high school. It’s so refreshing to see how Gunn High School students today are taking to Tumblr to celebrate themselves as they are.

But what about those vulnerable children who are still confronted at the core of their day with a literally impossible standard of perfection, seemingly hard-wired into their community’s culture? Who wants to be discarded or burnt-out (the fate of all imperfect chips)? Fear Of Missing Out can take hold in terms of social media driven by put-downs and put-ons; of social status driven by grade comps; of parental responses likewise calibrated; of college admissions office largesse driven by checked boxes and coded ratings on double-secret templates.

Why colleges don’t make their admission standards more transparent is beyond reckoning, except to enable the reprehensible “selectivity” game. Collectively, they are willfully fostering undue stress with children as pawns, and should be ashamed of themselves. Annual disclosure of college admissions scoring templates and algorithms (which would not preclude exceptions) should be a requirement of law for Federal aid flow to any college. Establishing such a system would not be “too hard” for the colleges with Silicon Valley’s help, given its leadership and expertise in big data analytics – some Stanford students are doing it already!

The “Real High Schoolers of Palo Alto” have been interviewed, surveyed, photographed, analyzed and categorized to the nth power, but not necessarily heard enough, supported enough and loved enough by their community.  If more adults followed the kids’ example, they could yet put the persistent optimism that is also part of the Valley’s culture to work on what has become its children’s most pressing problem.

Silicon Valley prides itself on recognizing unmet needs and satisfying them, even before we even realize them ourselves. But, like Tiger Woods the Elder, the Valley is not used to playing from behind, and not very good at it. At such a point of painful self-awareness, however, the Valley recipe has always been to go back to fundamentals, ask hard questions and question old assumptions. And many Palo Alto leaders – educators, students, parents, physicians, counselors, citizens – are beginning to do just that.

Consider the recent report and recommendations of the new Creative Schedule Committee of Gunn High School, designed to optimize both student well-being and student learning – a new balance in the vocabulary of Palo Alto  in terms of the mission of its public high schools. As stated in an editorial in the Palo Alto Weekly:               

“Few would have predicted…that a diverse group of Gunn High School teachers, students, parents and administrators would have been able to come to a consensus recommendation on a new school bell schedule….But…the ‘Creative Schedule Committee’ met its deadline and unanimously recommended a new ‘modified block’ schedule that will result in Gunn students having fewer and longer class periods each day….to improve the quality of class time, allow time for more individual attention and group learning, and eliminate the grind of daily homework assignments and due dates in every class.”

“…[S]tudents will end up attending three sessions per week for each of their classes, will have longer breaks between classes, and have a tutorial period on Tuesday mornings for meeting with teachers or counselors or attending grade-specific social-emotional learning programs. Teachers will have increased time for planning and collaboration.”

“The work of this committee should serve as a school district model for effective stakeholder engagement….Let this accomplishment be a lesson that it need not take years to accomplish important reforms, just clear goals, good leadership and a process that is inclusive but efficient.”

There remains much more to be accomplished, however, for Palo Alto to be a more sustaining community for all its high school students. For example, there is a critical lack of in-patient facilities for teens suffering acute mental and emotional distress, cited in both the San Francisco Magazine article and a very recent comprehensive study in the Palo Alto Weekly.

The Schedule Committee’s model shows how Palo Alto can put to use the best part of the Silicon Valley culture: a “can-do” attitude, especially about “unmet needs.” The needs of vulnerable Palo Alto teenagers are not unknown, they are crystal clear and they remain unfulfilled despite the type of known data that usually drives Silicon Valley thinking and action.

Three reasons are commonly cited to explain the absence of psych beds for teens in Santa Clara County – the home of Palo Alto and the heart of Silicon Valley;

1) Not enough beds to accommodate adults needing care;

  • Children’s needs peak during school terms, so beds go unused, resulting in income loss hospitals can’t afford;
  • Such specialized facilities (and staff) can’t be re-purposed to other critical functions.

These points are analytically valid, but they prove too much: if all are indeed true, then logically there should be no such facilities for children anywhere. Yet there are, even in neighboring California counties. Why does the unmet need for youth psychiatric care wind up in the “too hard” basket in the heart of Silicon Valley of all places?

It is time for the business, philanthropic and medical community leaders of Palo Alto to seize the opportunity to form and fund their own “creative” task force to find the way to bring critically needed close-by psychiatric care for Palo Alto’s most vulnerable students. What an opportunity that would be to create a new and positive example of “success” for Palo Alto’s teens! Remember:  it turned out that creating a new academic schedule for high school that everybody could agree with wasn’t really “too hard” after all.

Likewise, it should not be “too hard” any longer for America’s institutions of higher learning to own-up to the role they play in fostering unnecessary anxiety among high school students, abandon their selectivity game, and address the unmet need for far more transparency about their admissions standards. That step alone could make a major difference in the psyches of high school students, not only in Palo Alto but across the entire country.

The author is a Gunn High School parent and member of its Creative Schedule Committee.

Recently published in Huffington Post.


Terry Connelly is an economic expert and dean emeritus of the Ageno School of Business at Golden Gate University in San Francisco. Terry holds a law degree from NYU School of Law and his professional history includes positions with Ernst & Young Australia, the Queensland University of Technology Graduate School of Business, New York law firm Cravath, Swaine & Moore, global chief of staff at Salomon Brothers investment banking firm and global head of investment banking at Cowen & Company. In conjunction with Golden Gate University President Dan Angel, Terry co-authored Riptide: The New Normal In Higher Education.







What Is About To Crash – The Markets, The Economy? Neither, Even If Greenspan (Who?) Says So!

It’s late spring, and the Chicken Littles are back. They don’t fly but they do cluck.  Ever since the US economy again showed barely any growth for the first quarter of the year, and even before, there was no end to the nay-saying commentators that jumped to cable TV attention by declaring that finally, after five straight springs of false predictions of trading or commercial collapse due to this or that – this was going to be the year that everything finally falls apart, like the Titanic after it came upon the iceberg!

Indeed, the metaphor of “chickens coming home to roost” – mostly in terms of the US Federal Reserve’s “highly accommodative” monetary policy – was a common theme. Ignoring the strong economic growth in the second and third quarters of 2014 (4.6% and 5%), the strongest back-to- back quarters since 2003 with a respectable 2.2% in the fourth quarter,  the Wall Street Journal and a commentator for The Hill proclaimed it was time for the Fed to acknowledge that its policy of low interest rates  had not worked to stimulate the economy, even though it had repressed inflation to below the 2% target. To its critics, the Fed has failed to promote economic growth, even though three million net new jobs have been produced in the last 12 months, because productivity measures remain slack and wage growth remains subdued.

The critics then go on to predict a train wreck in both the financial markets and the real economy when everyone realizes that the Fed policy has only harmed savers dependent of fixed income securities who have seen their coupons cut to historic lows reflecting the Fed policy of “suppression” of “safe” returns, designed to force investors into riskier assets (translation: “equity securities”).

Doomsayers saw bubbles everywhere: bubbles in the US bond market and even more so abroad as the European Central Bank (ECB) at long last adopted the Fed policy of government securities purchases (“Quantitative Easing” or QE) which has pushed German “bund” yields down toward zero. Renowned bond investor Bill Gross called the German bond market the “short of a lifetime,” meaning that the extreme increase in the price of bunds on trading markets (which depresses  yields) did not reflect the real economy in Europe and would eventually reverse with a bang heard round the world.  But it hasn’t happened because of the ECB’s QE!

Gross’s  words had some immediate effects in the US bond market at the end of April and into May as good US job creation numbers for April reversed the slide below 100,000 for the prior month and suggested to some that the Fed might actually begin increasing the base interest rate above .25% as early as June. Prices on the ten year Treasury note dropped enough to raise yields as high as 2.27% on May 11 – up a third of a full percentage point just since late April, an extremely quick increase. Meanwhile, some surprisingly strong data on the German economy and in some other EU countries triggered a U-turn in the rise of the US dollar value vs. the Euro which in turn brought the quick rise in US Treasury yields to a pause.

In fact, it is equally likely that the increase in bond yields could also reflect the return of the “bond vigilantes:” i.e., those  bond and derivatives traders, hedge fund players and institutional investors – all long-frustrated with the Fed policy for reasons having to do with their own incomes. The vigilantes – as they did in the “taper tantrum” of summer 2013 – take market positions, often in the futures markets which require a lesser risk commitment, designed to force bond prices down and yields up in order to literally force the Fed to raise short term rates sooner than its own judgment would indicate in order to keep up with the Treasury market’s rapid run up in yields.

Even the main target of the vigilantes in the past, former Fed Chair Alan  Greenspan,  weighed in with his own prediction of doom and gloom by predicting that the markets would experience the equivalent of another taper tantrum once the Fed increases rates, as happened in 2013 when Chair Ben Bernanke indicated in May that the Fed would begin later that year to reduce and eventually bring to an end its extraordinary program  of quantitative easing due to the improving economy. Treasury yields spiked to the 3% level and stocks quickly corrected over 10% as investors bought in to the fear threat that the Fed was acting precipitously.  The same voices now calling for a 40% market crash or at least a very painful “correction” as the Fed contemplates beginning to increase interest rates later this year (Marc Faber and Dennis Gartman, for example) are at it again with virtually the same scripts, and for a while produced  the same results earlier this May.

CNBC of course chipped in with its usual “train wreck envy,” giving folks like Faber who have been wrong five years running a free platform to talk up his book; same for Gartman and others. And it worked for a while. The ten-year treasury note yield hit a high for the year; stock markets dropped below 18,000 on the Dow, 2100 on the  S&P and 5000 on the NASDAQ and the “correction” prediction proliferated on the CNBC website  and most every hour of live broadcast.

But investors finally woke up in the middle of this week to the fact that the drop in oil prices to fall as low as $10 a barrel  predicted by Gartman just over six months ago that would continue to impede US GDP had in fact turned into an almost 50% increase from the 2015 low in the mid-$40s to over $60! That winter weather that cut into energy sector construction and production, along with the West Coast port strike that hurt multiple sectors including retail in Q1, were well and truly over. Also, that the rise in the US dollar, which held back earnings and revenues for US multinationals and technology companies with huge overseas businesses, had come to an end as the EU had bounced off its technical bottom. The Dow rose by 192 points even on a day where retail sales (as traditionally measured with heavy focus on department stores rather than the new mobility of sales of goods) showed virtually no growth month over month.

This time around, the market manipulations of the past five springs seems to have fallen on more skeptical ears. “Fool me five times, it’s my fault” seems to be the order of the day in the markets. And the continued decline in weekly average jobless claims – a 15 year low – as of May 14, also showed that the economy might just do this year what it did last year and push GDP levels approaching 3% for the rest of the year. The Chicken Littles are taking cover for the moment!


Recently published on Huffington Post.

Terry Connelly is an economic expert and dean emeritus of the Ageno School of Business at Golden Gate University in San Francisco. Terry holds a law degree from NYU School of Law and his professional history includes positions with Ernst & Young Australia, the Queensland University of Technology Graduate School of Business, New York law firm Cravath, Swaine & Moore, global chief of staff at Salomon Brothers investment banking firm and global head of investment banking at Cowen & Company. In conjunction with Golden Gate University President Dan Angel, Terry co-authored Riptide: The New Normal In Higher Education.

“Whatever, Janet” Indeed – Fed’s Yellen Outfoxes the Bond Bullies, Finesses Rate Policy, Buoys Investors

U.S. financial markets have been highly volatile but with little to show for investors, as opposed to traders, who make their best livings from pointless volatility, for all the swaying back and forth since the start of 2015.

We all know the basic economic facts: U.S. Gross Domestic Product was down into the low 2% range for the 4th quarter of 2014 as compared with the robust 5% gain in the 3rd quarter; the U.S. dollar’s recent, almost parabolic 17% gain against the Euro was causing major American multinational corporations, dependent on foreign sales, to lower their projections for 2015 revenue and earnings. This, in turn, led to reduced expectations for 1st quarter 2015 GDP: oil was falling with the dollar’s rise (it’s priced in dollars) and the positive aspect for U.S. consumers of lower gas prices seemed to be muted by their enhanced saving rates and cautious post-Christmas spending. Retail sales into the New Year were weaker than expected (probably also affected to some degree by the bad February weather); so were housing starts and sales (probably for the same reason).  Meanwhile, the European Central Bank was initiating its own quantitative easing program to stimulate the flaccid European economy and reverse a trend toward actual deflation, while the U.S. Federal Reserve seemed to be on an opposite course of action – raising interest rates – by middle of the year, as job growth continued at a fast, 295,000 net positive growth trajectory, even in cold, snowy February.

These frustrating and somewhat conflicting facts led many investors to sell first and ask questions later as markets reacted with 1% or more multiple daily loses, interspersed with occasional equivalent one-day (but never two-day) gains if there was any hint of bad economic news to push against the perceived headlong direction of the Fed to raise rates no matter what the dollar’s fall or oil’s fall or the Euro’s fall was doing to both U.S. and overseas economic growth prospects. The financial markets were positioned so that any economic “good news” (like the February jobs data and lower unemployment rate) was perceived as “bad news” for stocks and bonds because it would lead the Fed to raise rates prematurely.

Where did the notion that the Fed would supposedly raise rates during a “soft patch” in the economy come from? The focus began in earnest after the Fed’s January 28 meeting when the Fed refused to remove the word “patient” from its statement describing its stance regarding the process of beginning to lift its benchmark interest rates for the first time since 2008.  That word “patient” was understood by the markets, based on previous statements by Fed Chair Janet Yellen, to mean that no increase would be initiated at its next two meetings: i.e., not in March or April.  But inferentially, that language also opened the door to a rate hike at its mid-June meeting, which many in the markets felt would be too soon based on the softening GDP and retail data despite continued job strength (albeit without the wage growth the Fed said it was looking for).

Investor fears were increased when commentators first read the January statement to suggest a rate hike in June, while major investment banking firms like Goldman Sachs and Morgan Stanley cautioned against any rate rise before the autumn or even at all until 2016 because of weakening world economic conditions and major deflationary trends offsetting the positive effect of more hiring in the U.S. Meanwhile, as noted in a prior blog (http://www.huffingtonpost.com/terry-connelly/maybe-the-federal-reserve_b_6648240.html) CNBC’s Rick Santelli and his guests were continuing to attempt to bully Chair Yellen and other Fed members into raising interest rates immediately in order to satisfy the economic notions of options and futures traders in Chicago frustrated by the “artificial” pricing of risk they saw as a result of the Fed’s stimulus policies (not to mention the reduction in their trading income).  The situation was not clarified for investors when a non-voting Fed Regional Bank President, James Bullard of St. Louis, seemed to agree with Santelli to some extent when he urged the Fed to remove the “patient” language (and thus its effective two-meeting hold on rate increases) in its March statement to pave the way for a rate increase move in June (with the added support of some voting members like President Williams of the San Francisco Fed).

Even Chair Yellen, who never gets ahead of herself or her Committee colleagues in Congressional testimony, conceded to Senators that the word “patient” could be dropped in March (but that such a move would not automatically mean a June rate increase).  Markets were left to speculate and consensus quickly drove to a certain expectation of an end to “patience” and a move toward a summer rate hike despite the soft data – with many viewing this as a mistake as evidenced by eight days of triple digit moves in the Dow before the Fed’s March 18 meeting.  Just before the meeting, such diverse market participants as Christiane LeGarde, head of the International Monetary Fund, and Ray Dallio, a major hedge fund player, both warned against the Fed repeating its 1937 mistake of raising rates too quickly as a recovery was just taking hold, and the dire consequences of such an error for the rest of the world as well as the U.S..

Fed “whisperer” (or, more precisely, “whisperee” ) Jon Hilsenrath of the Wall Street Journal summarized the contours of the “box” the Fed found itself in with respect to market expectations; the Fed wants “wiggle room” to act on the basis of incoming data, not tied to a fixed schedule, and doesn’t want to either surprise the markets or necessarily telegraph its timing by continued “forward guidance” like a two-meeting window.

Market commentators got busy in the days before the March meeting predicting an investor “panic” if the “patient” word were to be eliminated (much like the “taper tantrum” of late spring and summer 2013), to the delight of short-seller hedge funds. Scared investors followed suit with several triple-digit down days.

But Janet Yellen outfoxed them all. She engineered a unanimous Fed statement that both eliminated the “patient” language and also stressed that the Fed was indeed mindful of the softer economic data and would wait to see if inflation data actually made a higher turn and labor market slack actually tightened along with job growth before raising rates! The markets didn’t panic; the Dow jumped nearly 400 points from bottom to top. She also held master class press conference to follow up where she summarized the whole new scenario in a very investor-friendly phrase: “just because we have removed the word “patient” from the statement doesn’t mean we’re going to be impatient.” The Chair knows how to turn a phrase to advantage – and the market held its gains into the close.

Unfortunately, there is no hyperlink as yet to Rick Santelli’s hyperbolic post-Fed meeting, anti-Yellen rant on CNBC (which was typically busy promoting him for Fed Chair earlier in the day). But watch for it on your favorite website. It was a doozy.

Recently published on Huffington Post.


Terry Connelly is an economic expert and dean emeritus of the Ageno School of Business at Golden Gate University in San Francisco. Terry holds a law degree from NYU School of Law and his professional history includes positions with Ernst & Young Australia, the Queensland University of Technology Graduate School of Business, New York law firm Cravath, Swaine & Moore, global chief of staff at Salomon Brothers investment banking firm and global head of investment banking at Cowen & Company. In conjunction with Golden Gate University President Dan Angel, Terry co-authored Riptide: The New Normal In Higher Education.

First Impressions of the 2016 Field

HILLARY CLINTON: She is now famously known as the inventor of ‘ME-Mail” – maybe better than Snapchat for ultimate privacy and “control,” because you have your own server and thus can “wipe the slate clean” before the hackers or Congressional committees or Republican National Committees can get in to your trash bin. But has the ensuing controversy – about whether the public or the press at least can ever know whether she has truly released or handed over everything or just “everything that is relevant” (it depends on what the word “is” means, yet again) – moved her candidacy or election from the “inevitable” category to, say, somewhat more “evitable?” The more immediate question is which reporter and network will land the “inevitable” first interview on this subject (enough of the self-serving tweets, already)? What a way for Katie Couric to come back to NBC; Brian Williams probably wouldn’t be the best “contextually.”

JOE BIDEN: He’s Bide’n his time (“’cause that’s the kind of guy I am”) but look for an appearance in the Des Moines area shortly. He’s back from the “Guatemala Getaway” that took him “out of the picture” – literally – at the Bibi Netanyahu showcase at the Capital.  He should be in no hurry because all the negative focus now is on Mrs. Clinton, which is what he should like. Thus far it appears (i) he had nothing whatsoever to do with Benghazi; (ii) might have used the exactly right dirty participle to describe the Affordable Care Act; (iii) figured out that Iraq was three real countries (at best) before anyone else here did; and (iv) got wind of the change early on gay marriage among senior politicians – just like Gavin Newsom did years ago among junior politicians (watch him if he gets to be Governor of California someday).

MARTIN O’MALLEY:  The highly progressive Maryland governor gets a standing ovation in South Carolina? Wow. But then again, there are more than a few Irish roots in the Low Country.  Perhaps Democrats are just anxious to have at least a real scrimmage in the Presidential primaries next year if only to get Mrs. Clinton or whoever ready for the regular season; every sport does it, especially blood sports like politics. Question: will O’Malley be the Eugene McCarthy of 2016? Remember, McCarthy only got 42% of the vote – not a majority – against sitting President Lyndon Johnson in 1968, but it was enough to push Johnson out of the race after Senator Robert Kennedy announced he was “reassessing” his position and ultimately declared his candidacy. If either McCarthy,  or Vermont’s Independent Socialist BERNIE SANDERS (of Brooklyn originally), or Virginia’s ex-Senator and novelist JIM WEBB plays through to Iowa and holds Mrs. Clinton’s victory margin to a bare minimum, could we witness a scenario similar to 1968?

In the current case, Clinton would be the de facto “Restoration Incumbent” (the role Kennedy fit in ’68) but who would play the role of Kennedy this time around? It must be someone not yet in the race. Can you say Massachusetts’ Senator ELIZABETH WARREN (who could raise money quickly)? Or perhaps DEVAL PATRICK, also of Massachusetts? Or another Governor, ANDREW CUOMO of New York (whose father famously decided at the last minute not to run against Bill Clinton in 1992) or MARK WARNER or TIM KAINE (the sitting, swing state Virginia Senators)? How about KIRSTEN GILLIBRAND (Clinton’s successor in a New York Senate seat); or even good old JERRY BROWN, the once and current Governor of California who gave Bill Clinton his toughest fight in 1992? There’s more than enough psychological drama to play out on the Democratic side in 2016 if Hillary slips up at or before Iowa. And, of course, there’s always Vice President JOE BIDEN (see above) in the wings to play the Hubert Humphrey role from 1968 of the actual nominee once the Convention convenes. Stay tuned (and check your e-mails).

JEB BUSH: Gets early style points for taking on his critics about his support for comprehensive immigration reform, perhaps realizing he has already lost the Rush Limbaugh, Michael Savage, and Mark Levin talk radio primaries anyway. The Far right wing (that Obama is an Islamo-Fascist traitor and communist who should be disposed of like a rabid dog is just a mild everyday sample) is a very effective force among the Republican “base,” but it collectively failed to prevent the Mitt Romney nomination even in the Tea Party heyday of 2011-12. Bush is clearly trying to be “not-Romney” (i.e., by consistently being himself) while appealing to residual Romney voters among the many Republicans who believe Romney should have won and would have been better than Obama. Of course, a lot of these folks didn’t bother to vote: not quite “buyer’s remorse” in their case!

SCOTT WALKER: Has been “beamed up” by kicking the public employee unions while they’re down, but jumped the shark when he compared their protests to ISIS and sought to turn the University of Wisconsin into the DeVry Institute (with apologies to DeVry, which is pretty good at what it does). Walker may be peaking too soon (like an overripe Wisconsin cheese?).  He has set himself up as the current poll favorite and front-runner in Iowa, but is therefore as vulnerable as the failed student government candidate he once was: he quit the race and then quit school. Doesn’t sound like a quitter now, but he is a “flip-flopper” (a tried and true GOP blood-phrase), since he now has embraced the full-on anti-abortion “personhood amendment.”  And he at least has the transparency to straight-up endorse deportation of all illegal immigrants, unlike GOP rivals who are “against amnesty” but afraid to resultant utter the “D-word” outcome publicly.

BEN CARSON: The doctor in the house distinguished himself by diverting his own announcement of his exploratory committee with his discourse on the supposed “choice” roots of homosexuality – a diagnosis by the good doctor that amounted to a ridiculous cross between “Orange is the New Black” and “Fifty Shades of Gay.” He later issued a non-apology apology. He’ll need to memorize that phraseology for the primaries. Meanwhile, he’s moved up in the rankings, probably at the expense of TED CRUZ, who has the opportunity to embarrass himself daily in the Senate, and clearly is an unabashed opportunist who could probably come off as fairly smart, decent guy if he’d drop the Joe McCarthy-style hysterics. But he won’t.

BOBBY JINDAL: Has traded caffeine for bitters in his approach to issues: quickly endorsed the Rudy Giuliani-view of President Obama’s lack of love for America and Americans, trashed the Common Core he once supported, and ultimately failed to get much attention for his efforts; still in the back row.

CHRIS CHRISTIE:  Who? Went to Iowa and looked like he just left a long, state-imposed Ebola quarantine. Claimed to know a lot about farming because he is Governor of the “Garden State.” He should re-watch the movie by the same name – it’s not about corn. Maybe he was spooked by the Bridges of Madison County.

RICK PERRY: Do not underestimate this fellow. He does know farming. He has done his homework this time around and not just about a pair of new glasses. He will parlay his on-the-ground experience with immigration as well as his realism about the folks already here borne of multiple terms as Texas Governor into what will pass as a “centrist” position on immigration reform in the GOP.

MARCO RUBIO: Watch this man also. He is gaining respect for reaching for command on both domestic and foreign affairs.  Although he has been burned once on immigration reform, he won’t be burned twice. He has successfully changed the subject in terms of his own themes to incorporate the tax reform issues that will be central to the 2016 campaign. Has generation change appeal and could climb rapidly especially if Bush falters.  Jeb has not, as expected, choked off Rubio’s money supply, or his news-making oxygen.

CARLY FIORINA: Has defined herself as the un-Hillary, but there has not been a more obvious VEEP audition since Julia Louis-Dreyfus got the part! But then again, Julia is President now, if only on TV. Probably won’t be the same for Carly in the end, but she has likely made many new friends.

RAND PAUL and LINDSEY GRAHAM: The “odd couple” ticket: one never met a war opportunity he liked, the other just the opposite. Would make quite a compromise ticket. Holy Southern Strategy! Paul has a great chance in early primaries with a vast number of candidate because (i) his core 20-25% libertarian support is solid as a rock and that could be enough to win; and (ii) at least he has a foreign policy.

JOHN KASICH: Governor of the swing state next time around. But for the moment, he’s Just-in-Kasich.

More later.


Recently published on Huffington Post.

Terry Connelly is an economic expert and dean emeritus of the Ageno School of Business at Golden Gate University in San Francisco. Terry holds a law degree from NYU School of Law and his professional history includes positions with Ernst & Young Australia, the Queensland University of Technology Graduate School of Business, New York law firm Cravath, Swaine & Moore, global chief of staff at Salomon Brothers investment banking firm and global head of investment banking at Cowen & Company. In conjunction with Golden Gate University President Dan Angel, Terry co-authored Riptide: The New Normal In Higher Education

Obamacare Dominoes: If Federal Subsidies Fall At The Supreme Court, So Do The Individual And Employer Mandates — Game Over!

Everybody seems to be missing the real issue at stake in the decision by at least four Supreme Court Justices to hear an appeal of a Fourth Circuit Court of Appeals decision affirming the applicability of Federal insurance subsidies for qualified individuals who purchase “ObamaCare” insurance policies on Federal Exchanges set up for States whose governments chose not to establish one for their State.

This case, King v. Burwell, involves not a Constitutional question per se but rather a challenge to an IRS interpretation that allows subsidies for insurance purchased on Federal Exchanges despite statutory language that could be read to limit their availability only to those who purchase insurance only on an Exchange which a State has chosen under the law to “establish” itself directly rather than leaving it to the Federal government to set one up for it. The plaintiffs in the case (King et al) are Virginia residents who argued that the IRS decision allowing subsidies provided via the Federal Exchange set up when Virginia’s government refused to establish an ObamaCare Exchange on its own deprived them of an exemption from the Affordable Care Act’s “individual mandate” to purchase health insurance. They claim that absent such subsidies all policies available to them on the Federal Exchange would cost more than the 8% of their income that serves as a trigger for such exemptions.

While the legitimacy of the IRS determination to allow such subsidies would seem to simply involve a Federal  statutory question concerning  the scope of administrative flexibility in interpreting the ACA’s grant of subsidies, the plaintiff’s argument in King v.  Burwell opens the door to a much broader impact on ObamaCare than just the matter of subsidies. It would be huge if the Supreme Court determines the Court was wrong in affirming the IRS interpretation.  Estimates indicate that, for the poor and lower middle class, upwards of seven million would lose over $ 36 billion in subsidies. These losses would affect residents of Texas and Florida (the biggest losers) and 32 other states subject to the King v. Burwell Supreme Court decision.  These states are mostly in the hands of Republican governors and legislatures that oppose ObamaCare in principle and the potential “work-around” would depend on those  governors and legislators agreeing to “establish” State Exchanges possibly “outsourcing” their operations to the existing Federal Exchange, using their states’ own money instead of the Federal funds provided under the ACA  because eligibility for those funds just happens to have run out on November 14, 2015! No word as yet on whether the Centers for Medicare and Medicaid would consider extending that deadline in view of the pending Supreme Court decision.

With no “work around,” moreover, the dominoes at the heart of the ACA would, as noted above, begin to fall. If no subsidies are available in a particular state (or in the 34 states subject to a King v. Burwell reversal), then the premiums on the policies now on offer in the Federal Exchanges serving those states would exceed 8% of their income and therefore they would automatically become exempt from the individual mandate to purchase any health insurance at all. This result would not just affect the poorest families. Young, healthy college graduates – many burdened by tens of thousands of dollars in student loan debt – would be free to opt out of buying any insurance on a Federal Exchange or otherwise, and the economics of the Federal Exchange would be severely adversely affected without a balance of relatively healthy individuals to weigh against the insurance claims of more mature families and sub-Medicare elderly. Premiums would go up, enrollments would go down with a ruptured individual mandate.

But that’s not the end of the effects of a Supreme Court decision to invalidate Federal subsidies obtained through the Federal Exchange in two-thirds of our states. The employer mandate under the ACA  requires employers of more than 50 full-time workers (currently defined as all those working at least 30 hours per week) to either provide a Federally-approved health insurance package or pay an increasingly onerous per-worker tax penalty. For a variety of reasons, some clearly operational, some probably political, the Obama Administration gave employers extra time to comply, but the mandate will now begin in 2015 for employers with over 100 full-time workers, and for those with between 50 and 100 in 2016. But if the Supreme Court reverses King v. Burwell by overturning the IRS rule with respect to Federal subsidies, which are in fact delivered by means of tax credits which is why an IRS rule is at issue, the employer mandate is just as fatally wounded as the individual mandate, and the biggest ObamaCare domino of all falls.

The ruling by a Federal Court panel majority in another case brought against the IRS rule on ObamaCare tax credit subsidies, Halbig v. Burwell, points directly to this conclusion. The majority ruled against the IRS subsidy interpretation (the decision has since been appealed to the entire D.C. circuit Court of Appeals), and along the way to this conclusion, laid out its objections to the IRS interpretation precisely focusing on the effect on both the individual and the employer mandate:

“[B]y making tax credits available in the…states with Federal Exchanges, the IRS Rule significantly increases the number of people who must purchase health insurance or face a penalty.”

The IRS Rule affects (sic) the employer mandate in a similar way. Like the individual mandate, the employer mandate uses the threat of penalties to induce large employers – defined as those with at least 50 employees, see 26 U>S>C> section 4980H9c) (2) (A) – to provide their full-time employees with health insurance.  Specifically, the ACA penalizes any large employer who fails to offer its full-time employees suitable coverage if one or more of those employees “enroll…in a qualified health plan with respect to which an applicable tax credit… is allowed or paid with respect to the employee.’ Id. Section 4980(a)(2); see also id. Section 4980h (b) (linking another penalty on employers to employees’ receipt of tax credits).”

Lest there be any mistaking the view of this judicial panel majority as to the impact of their ultimate decision precluding tax credit subsidies to purchasers on the Federal Exchange, the judges went on to rub it in quite precisely:

“Thus, even more than with the individual mandate, the employer mandate penalties hinge on the availability of tax credits. If credits were unavailable in states with Federal Exchanges, employers there would face no penalties for failing to offer coverage.”

If a majority of the Unites States Supreme Court were to agree with the Halbig v. Burwell majority, the last ObamaCare domino would seem to fall, more or less automatically.

And yet the media and even the most ardent supporters of ObamaCare seem to ignore this potential effect. Assuredly, the “large employers” and their lobbyists who are funding the Halbig and King cases have not. Not to mix too many metaphors, but it is most important to understand that both the King and the Halbig cases are twin Trojan Horses: ostensibly about killing ObamaCare subsidies, but really all about indirectly but effectively destroying the individual and employer mandate. In the concluding words of the majority in the Halbig case, its ruling against Federal Exchange subsidies “will likely have significant consequences both for the millions of individuals receiving tax credits through federal r exchanges and for health insurance markets more broadly.” (Halbig v. Burwell at p 41.)

All the more so if the Supreme Court agrees.


Recently published on Huffington Post.

By Terry Connelly, Dean Emeritus, Ageno School of Business, Golden Gate University

Terry Connelly is an economic expert and dean emeritus of the Ageno School of Business at Golden Gate University in San Francisco. Terry holds a law degree from NYU School of Law and his professional history includes positions with Ernst & Young Australia, the Queensland University of Technology Graduate School of Business, New York law firm Cravath, Swaine & Moore, global chief of staff at Salomon Brothers investment banking firm and global head of investment banking at Cowen & Company. In conjunction with Golden Gate University President Dan Angel, Terry co-authored Riptide: The New Normal In Higher Education