Saturday, the 22nd of December

Talking points

Warnings against marches have been largely ignored. PHOTO: AFP
  1. Malaysian prosecutors formally charged Goldman Sachs over 1MDB
  2. Facebook was rocked by yet another data privacy scandal
  3. Pfizer and GlaxoSmithKline announced a mega-merger
  4. Uber lost a landmark UK case ruling that its drivers are employees
  5. Tensions soared in Kashmir over several killings by police forces
  6. A ceasefire in Yemen offered respite to the besieged port of Hodeidah
  7. Hungarians took to the streets in a rare anti-Orban march
  8. The EU investigated security breaches of internal diplomatic cables
  9. A chinese pet-cloning facility reproduced its first dog
  10. Manchester United lost its fourth manager in five years

Deep Dive

The maw of the bear market. PHOTO: Bryan R Smith / AFP
The American economy is ending the year on a sour note. The dizzying heights of the mid-year boom - raised on the backs of tax breaks and rampaging tech stocks - seem a lifetime ago. This week indexes slumped to a low on news of the Fed rate hike and the spectre of a government shutdown. 
 

Interesting rates

The Chair of the United States Federal Reserve, the steward of America's monetary policy, is Jerome Powell - a Trump appointee who replaced Janet Yellen in February. This week Powell confirmed that the Fed would raise interest rates a quarter-percentage point to 2.25-2.50%. The rise in borrowing costs will cascade through the economy, first to commercial banks and then to customers. This means every line of retail credit, from mortgages to credit cards, just got more expensive.

Job growth remains strong, as does the market as a whole. But the Fed also said that rate rises in 2019 will slow: an explicit sign that it believes America’s extraordinary streak of economic growth may be coming to an end. Central banks worldwide are gradually reversing the monetary policies (primarily rock-bottom interest rates) that were instituted to boost lending during the Global Financial Crisis. And though there may be fewer rises in 2019, lending is expected to continue to tighten.

The Fed’s actions have not escaped Donald Trump's attention. As political turmoil roils the White House, the booming economy has become even more important to the administration. Powell's decision - perceived by some as a throttle on growth - has drawn the ire of the president and his supporters. But as one droll commentator put it, “the president can have his stock market or his tariffs, not both”. Adding to the growing uncertainty is the possibility that the US government may be headed towards another damaging shutdown: Trump is yet to budge from his demands for increased funding for a border wall. Keep an eye out for developments over the weekend.
 

No Christmas miracles 

As expected the market reacted poorly to the rate rise. All major indexes sagged lower. But pressure on borrowing costs is only part of the picture. December has been a shocker for Wall Street; the Dow Jones Industrial Average is down 10% - the single worst month since the GFC.

The tech-heavy Nasdaq sank into bear territory as investors sold Apple and Amazon shares in large volumes. Both companies have shed more than $200 Billion from their trillion-dollar valuations earlier in the year. Apple is facing a softer sales outlook for 2019 and has just lost a critical microchip lawsuit against Qualcomm in Germany, forcing the Californian giant to take some handsets off the market there. Amazon is facing its own set of challenges, most notably in Europe, where regulatory hurdles are emerging at a rate of knots. 

The S&P 500 is down 16% from its 2018 high, well into correction territory. The closed-loop of market pessimism is producing increasingly dire predictions for 2019. How low can they go?
 

A reminder

While the stock market in the US is entering a volatile phase, it must be noted that there are other parts of the world where the relationship between market prices and national stability is even more of a worry. Sudan is in the grips of violent protests over skyrocketing fuel and bread prices. The weakening international oil price has left the Sudanese government with no good options: taxes on staples have risen to unfeasible heights. At least eight people have been killed in nationwide protests. Spare a thought for all the countries without diversified markets and trillions in capital. 

Worldlywise

US troops on patrol with Kurdish fighters. PHOTO: Delil Souleiman / AFP

Mission Accomplished, redux

Donald Trump's patience for slow-moving counter-insurgency operations has worn thin in recent months. He had campaigned against America's foreign incursions back in 2016 and yet operations have dragged on ever since. On Wednesday he issued marching orders to American forces in Syria, much to the dismay of his generals. Within a day Defense Secretary James Mattis announced his resignation, leaving the Pentagon without a sympathetic ear in Trump's inner circle. 

The Syrian war has been a labyrinthine mess from (almost) day one. Depending on who you ask the big winner is either Russian President Vladimir Putin, Iranian Ayatollah Ali Khamenei, Syrian President Bashar al-Assad, Turkish President Recep Tayyip Erdoğan or Trump himself. Yet many of these suggestions are mutually exclusive. Even at this late hour there are few simple answers.

What is clear is the price Washington and its allies will pay for the withdrawal. The first is the progress against ISIS: although the terror group has lost its territory it still commands 14,500 fighters. The second is the band of Kurdish and Arab fighters who for years have been the bulwark against ISIS. For them this is a betrayal of titanic proportions, one matched only by George HW Bush's decision to sacrifice Iraqi Kurds to Saddam Hussein's tanks in 1991. Their fate will now be decided by a pair of autocrats in Damascus and Ankara.

The Syria retreat was also followed by news of another (and potentially much larger) drawdown in Afghanistan. Peace talks between American and Taliban representatives are underway in the United Arab Emirates at this very moment. This is unequivocally a good thing.
Justice delayed, but not denied. PHOTO: Sanchit Khanna / Hindustan Times

The long shadow of 1984

Sajjan Kumar's dark past has dogged him his entire professional career. Now, aged 73, it has finally caught up with him. On Monday the long-serving Indian parliamentarian was jailed for life over his involvement in the 1984 anti-Sikh riots. India’s Supreme Court found that Kumar had incited crowds to murderous violence.  

In June of that year India’s then-Prime Minister Indira Gandhi had sanctioned a brutal military action (Operation Blue Star) against Sikh separatists. That action led to a burst of communal violence that shocked the world. Five months later Indira Gandhi was assassinated by her Sikh bodyguards. Following the assassination millions of Indians took to the streets to exact revenge on their Sikh compatriots. A frenzied week of violence left thousands of Sikhs dead (possibly as many as 15,000), most beaten to death by roaming mobs. Kumar was convicted for his role in leading this violence.

There are lessons to be learned from that period of strife, and from Kumar's conviction. And they must be learned, because sectarian divisions across India are widening from Kashmir to Nagaland and the long-running dispute over the Ayodhya Temple threatens to spill over. 

The Best of Times

My Neighbour Totoro. PHOTO: c/o Studio Ghibli

My Neighbour Zhōngguó

Hayao Miyazaki is an auteur, his works known in every corner of the globe. Except, that is, across the East China Sea. Due to less-than-ideal relations between China and Japan, Chinese audiences are bereft of Studio Ghibli's enchanting films (bar a lucky few bootleggers). Now, for the first time, Studio Ghibli films have come to China's cinemas. 'My Neighbour Totoro' - the first of five planned releases - opened this week to huge crowds. If this doesn't smoothe over a few centuries of strained relations, nothing will. 
 

Doctor's best friend

Conventional wisdom holds that farm kids are hardier than their suburban counterparts. Well, chalk one up for conventional wisdom. This Swedish study has found that children who grow up in households with multiple animals are significantly less likely to develop asthma, eczema and hay fever. In good news for child-saddled animal lovers: the more the better. Kids aged 7-9 who live in a household with four or more animals are half as likely to be afflicted with allergies than those without pets. Get down to your local animal rescue shelter and load up the car.

The Worst of Times

The emerging science of tipping points. PHOTO: Mario Tama

The domino effect

The notion of a 'tipping point' is simple enough to grasp when dealing with dominoes, or someone leaning back on their chair. But ecosystem-wide failures are an order of magnitude beyond the faculty of most people, which is perhaps why they are so often underestimated. A new study has found that nearly half of all possible environmental collapses are interrelated. This means that the effects of one would exacerbate the effects of another, and vice versa, sending out ripples of damage across the Earth’s ecosystems.
 

The glitches of Gatwick

If you are expecting to fly out of London's second-largest airport anytime soon, don't. Runways have been closed for almost three consecutive days due to small drones entering the restricted airspace. At time of writing over 600 flights had been cancelled, leaving 120,000 passengers stranded at the height of the holiday season. Needless to say, a metal object entering a passenger jet turbofan at low speeds would have catastrophic consequences. The drone’s operators have bedevilled police, and now the army. 

Weekend Reading

Quote of the week

"You can watch 'Bambi' and think about your own child when you do that"

- Lawrence County Prosecutor Don Trotter fires a parting shot at a prolific deer poacher who was sentenced to one year in jail, and mandatory viewings of the famed Disney film about endangered ruminants.
 

Headlines of the week

Russian coal-mining town 'paints snow white to hide evidence of pollution - The Independent


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Tom Wharton
@trwinwriting

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