Foggy Bottom and TIFs
When we lived in Washington, your editor was the senior economic advisor to the Minority (Republican) leader of the Senate Foreign Relations Committee, my only foray into the striped pants world, at a time when Richard Nixon was the president and took major steps to change US relations with the rest of the world, starting with China. My boss, Sen. Clifford P. Case, a liberal Republican, despised the POTUS but supported many of these moves as well as the messy extraction of our troops from Vietnam and environs.
There's a reason why the center of US diplomacy is called “Foggy Bottom”, the nickname for the Dept of State. Diplomacy is not a matter of one winner offseting a loser. It is more a matter of hidden influences balancing out to craft national policy and avoid bad outcomes like war, boycotts, and bans, or relationships breaking down. Tearing up treaties, threatening to exit alliances, is not diplomatic, and is dangerous.
Business negotiations are a lot less fraught than diplomatic ones because the companies have an easy way to figure out their interest, aka the bottom line. There is no clear bottom line in statesmanship and in fact taking a long view often imposes costs. Think of the Marshall Plan. Consider Michael Gorbachev's thesis that the western countries gloated about their victory and failed to do enough to help the former Soviet Union get back on its feet. Ponder how the great powers in 1914 stumbled into a dreadful war which wiped out most of their leaders.
To look at hidden influences to come, consider the future president's view of daily briefings from the intelligence service: “You know, I'm like a smart person. I don't have to be told the same thing in the same workds every single day for the next eight years. Could be 8 years. I don't need that. But I do say 'if something should change, let us know.'”
Mr Trump comes to the White House with less familiarity with government operations than any president since Herbert Hoover, and he is naming a cabinet full of similar folks. About the only single thing that unites these nominees is that they are often opponents of the way things were done until now by the agencies they will command.
In diplomacy, there is a particularly hole which worries me greatly. The future head of the DoS, Rex Tillerson is a known buddy of Vladimir Putin who the CIA says worked to influence the outcome of the November election in favor of Trump. This is a credible suspicion given the hacking of the Democratic National Committee and Hillary Clinton's emails by persons unknown who had the time and electronic means to do this.
An ex-KGB officer running the Kremlin is a credible suspect. Russia provides financial support to the extreme rightist Marine LePen in France and is said to be helping the Alternatif fuer Deutschland extremists opposition ot the re-election of Chancellor Angela Merkel in Germany. Both countries have imposed economic sanctions against Russia for the invasion of Ukraine and seizure of Yalta as did the US.
Sen. Harry Reid, the Minority (Democrat) leader, called in late October, well before the election, that “explosive information” linking Mr Trump with the Russian government should be made public. Exactly what Reid was privy to I do not know, but his position gave him access to some of the briefings Mr Trump says he doesn't need.
At the peak of the Cold War in 1962 a movie called “The Manchurian Candidate” told how a brainwashed scion of a US political family ran for the presidency on behalf of the Communists running China and the Soviet Union. It was Vanity Fair, not exactly a major media group, which called Donald Trump the Manchurian Candidate before the election. Naming Tillerson to head the State Department and refusing to read CIA daily briefings makes me fear they were right.
The inventor of TIFs traded index funds—but not of exchange-traded versions of index funds—Jack Bogle of Vanguard, wrote a scathing condemnation of ETFs in today's Financial Times. Bogle cites among other defects of the ETF variant the hefty daily trading volume which he likens to speculation. He notes that investors in Vanguard TIFs with the identical mandate to ETFs wind up with more money and fewer losses. Even the basis charges are higher for ETFs than Vanguard funds of the same catergory. He also reveals that the big users of ETFs are not retail investors but institutions, and that rather than following the overall market, ETFs are increasingly focused on strategic beta (2x the level at TIFs) or speculative strategies (6x TIFs) which account for 31% and 25% of the total assets of ETFs, well over half.
More for paid subscribers follows from China, Britain, Finland, Denmark, Israel, Canada, Brazil, Colombia, the Dutch Antilles, Panama,and India today.
*My note about fat fingers having caused the huge drop in the Chinese currency overnight Dec. 6-7 was finally posted on the talkmarkets.com site which published a note claiming that China was defying future president Trump by devaluing the renminbi. This is the kind of information which amateur diplomats might act on, leading to major upheaval in the world.