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Cyreenik Says

May 2018 issues

It's Panic and Blunder Time: The Italian Government Crisis

A Panic and Blunder situation starts with some preexisting stress, to which is added a novel, scary and surprising incident that seems to call for fast action. The action taken will be a blunder -- when viewed by cool-heads at the time and by many people when viewed as a historic event. My favorite example is looking at the US response to the 911 incident.

Now we have another Panic and Blunder situation brewing in Italy. The underlying stress was some economic stagnation plus an election in March that produced a very surprising result: lots of support for populist and euroskeptic parties.

The novel, scary and surprising incident is that this month these elected parties can't put together a functioning government. Their choice for prime minister was outright rejected by the president. He is also calling for new elections.

Italy and the world's business markets are now trying to figure out how to respond to this scary and novel situation. The Dow dropped 400 points and bond markets responded with a large decline in yields.

Now... we get to see what the blunder response will be.

This 28 May 18 Economist article, Italy’s new government collapses before even getting started, talks about the government crisis, and this 29 May 18 WSJ article, Italy Sparks Global Fear of Fresh Euro Crisis by Jon Sindrew and Mike Bird, talks about the stock and bond market responses.

Little surprise here: Trump cancels summit with Kim Jong Un

The Kims of North Korea have a long-standing pattern of every decade or two acting like they want to talk about peace, then betraying those good intentions. This latest "Lets have a summit" episode is fitting right in with this pattern.

The good news is that this time the American negotiators, Trump in particular, backed out quickly when it became clear the pattern was going to be followed yet again. Now we get to see what comes next, if anything.

Again, this pattern will change when the behind-the-scenes backers of the Kims see less benefit in keeping their version of Korea "pure" and more benefit in letting their Korea become a conventional part of the global community, which will produce increased trade, increased material prosperity and increased ability to influence world events in cultural and commercially-oriented ways. When this will happen is currently way up in the air, no signs visible externally of it being promoted inside North Korea yet.

Update: This 26 May 2nd meeting between Kim and Moon doesn't fit the pattern. This is a surprise, hopefully it is the start of a series of surprises that breaks the pattern in a pleasant way.

This 24 May 18 The Economist article, Donald Trump cancels his meeting with Kim Jong Un, talks about the cancellation.

From the article, "For context, it is worth noting that Mr Trump’s decision in March to meet with Mr Kim seemed ill-considered but, on balance, probably justifiable. His decision to cancel the meeting, after recent indications that the North Koreans were making a fool of him, had come to seem almost inevitable."

Trump's Iran choice isn't helping Iran move on

Iran had a big social revolution back in 1978. It overthrew a centuries old monarchy. Sadly, as with the Russian Revolution in 1917 and the Chinese Revolution in 1949, the stable replacement was extreme, not moderate, and Iran has been in social turmoil ever since. The turmoil is both internal and in relations with its neighbors.

Someday, again as with Russia and China, the turmoil will be replaced with a more moderate governing style. Two big questions are "when" and "can outsiders do anything to hasten the process?" (This presumes a moderate governing style is better for both Iran and the world around it.)

The Obama choice to subsidize nuclear abstinence in 2015 likely helped. I don't know the details, so this is a guess based on what has happened since the agreement was signed. The benefit was encouraging the Iranians move on -- to let them embrace other issues, such as making the economy work better and making everyone more prosperous.

Trump's current choice is letting the hardliners play the "Blame Them" card to explain their troubles. This isn't good. It promotes keeping Iranian social attention on the "nuclear pride" and "the world is against us" issues.

That said... we shall see. Over many years, starting long before he was president, Trump has proved to be a good negotiator. If this latest announcement is a tactic, and it works well, improvement in the Iranian issue may still be coming.

We shall see... we shall see.

This 9 May 18 WSJ article, U.S. Pullout From Nuclear Deal Energizes Iranian Foes of Foreign Influence by Asa Fitch in Dubai and Aresu Eqbali in Tehran, talks about the biggest downside to Trump's choice: the Iranian hardliners are getting their day in the sun.

From the article, "Mr. Trump’s decision opens a new chapter in Iran’s decades-old feud between defiant nationalists who value self-reliance and relative moderates who favor a more broad-minded approach. The hard-line camp advocates for a return to an antagonistic posture toward foreign influence and investment."

This 8 May 18 Economist article, Donald Trump’s huge Iran gamble, also describes Trump as supposing he can make a better deal.

From the article, "He acted on a hunch that Iran’s leaders—if only they are subjected to unprecedented economic pain—will break and abandon all manner of hostile activities, from nuclear weapons development to support for terrorism and involvement in the bloodiest proxy wars of the Middle East.

Mr Trump, the consummate pitch-man, sold the move as a dead cert. “This will make America much safer,” a stern and unusually terse president promised as he signed a memorandum re-imposing all sanctions lifted by his predecessor, Barack Obama, and giving foreign governments and firms up to six months to stop buying everything from Iranian oil to carpets or face tough secondary sanctions from his Treasury department."

More evidence that we are in a dream change: auto buying preferences

"Recessions are times of dream changing." is my usual slogan.

But this first quarter of 2018 seems to be a time of dream changing without the recession. The stock market's rhythm has changed a lot from 2017. Another example is customers' changing preference for car styles. They are switching to bigger. This 3 May 18 WSJ article, The Real Reason Ford Is Phasing Out Its Sedans Last month Ford announced it’s discontinuing its sedans and focusing on trucks, SUVs and crossovers. by Dan Neil, talks about how Ford is reacting to customers buying more trucks and less passenger cars.

From the article, "Ford noted the accelerating shift in consumer preference from cars (sedans, hatches, coupes) to beefy vehicles. And how. Sales of car-based models fell nearly 11% in 2017 (AutoData); while sales of pickups, SUVs, crossovers and vans rose 4.3%, to 10.9 million. That was about 60% of all light-vehicle sales."

Why this is happening is not clear, the article author is calling out fuel standards. For me that seems too picky an issue. I'll call out dream changing... but the root of the dream change is not yet clear.

What other dreams will be changing over the next few months will be interesting to observe and experience.

 

 

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