American's Against Syrian Attack

Published: Fri, 09/06/13

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In This Issue:
Americans Against Syrian Attack By Richard C. Young
Boehner Backs Obama By Richard C. Young
When Genius Failed By E.J. Smith
An Isolationist Message? By Richard C. Young
Record Low Rates By E.J. Smith

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Americans Against Syrian Attack

Writing in The Wall Street Journal, Peggy Noonan clarifies the broad and powerful disdain the American people have for the Obama Syrian attack plan. It is clear that over seven in ten Americans say no.

The American people do not support military action. A Reuters-Ipsos poll had support for military action at 20%, Pew at 29%. Members of Congress have been struck, in some cases shocked, by the depth of opposition from their constituents. A great nation cannot go to war—and that’s what a strike on Syria, a sovereign nation, is, an act of war—without some rough unity as to the rightness of the decision. Widespread public opposition is in itself reason not to go forward.

Can the president change minds? Yes, and he’ll try. But it hasn’t worked so far. This thing has jelled earlier than anyone thought. More on that further down.

What are the American people thinking? Probably some variation of: Wrong time, wrong place, wrong plan, wrong man.

Twelve years of war. A sense that we’re snakebit in the Mideast. Iraq and Afghanistan didn’t go well, Libya is lawless. In Egypt we threw over a friend of 30 years to embrace the future. The future held the Muslim Brotherhood, unrest and a military coup. Americans have grown more hard-eyed—more bottom-line and realistic, less romantic about foreign endeavors, and more concerned about an America whose culture and infrastructure seem to be crumbling around them.

The administration has no discernible strategy. A small, limited strike will look merely symbolic, a face-saving measure. A strong, broad strike opens the possibility of civil war, and a victory for those as bad as or worse than Assad. And time has already passed. Assad has had a chance to plan his response, and do us the kind of damage to which we would have to respond.

Boehner Backs Obama

No American or member of the House should for a minute care. President Obama and Speaker Boehner have not answered the hard questions that Americans need, nor will either in the future. The House Speaker and the President have apparently agreed that a Shia/Sunni conflict, centuries old, is America’s business. Well, it is not. Speaker Boehner states that the use of these weapons (chemical) has to be responded to and that only the United States has the ability to stop Assad and to warn others around the world that this type of behavior is not going to be tolerated. Well no, Speaker Boehner, Sunni Turkey is in fact an Assad neighbor and has had Assad in its crosshairs for years. Turkey has the ability to cause Assad a world of misery. Saudi Arabia, Lebanon, and Egypt, all Sunni, have a horse in the race as well. House members—Republicans and Democrats—should not allow themselves to be influenced by either Speaker Boehner or President Obama, neither of whom has apparently ever read the Weinberger/Powell Doctrine or benefited from its wisdom.

I would pick up a phone at the House and invite Cato Institute’s Chris Preble over for a talk. Mr. Preble actually has done his foreign policy homework and will present all the evidence that is required to convince House members to stand clear on the lunacy of an American intervention in a Shia/Sunni civil war.

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When Genius Failed

About a third of all hedge funds use a “relative value” arbitrage strategy. The key ingredient being leverage, which is used to suck-up nickels from around the world like a new Dyson DC47 vac. The strategy may look good on paper, but turns ugly when real life gets in the way. As an 80-year old ban on advertising by hedge funds is set to be lifted you’d be wise to prepare for the hard charging sales pitch about to come your way. Let’s not forget what happened to the smart guys at Long Term Capital Management When Genius Failed.

“Relative value” arbitrage strategies account for about 27% of industry assets, according to HFR. Managers of relative-value funds will simultaneously buy markets or investments expected to appreciate, while selling related securities expected to depreciate, seeking to profit from their relative value. That allows the funds to generate returns with little correlation to markets. Such strategies can be executed with convertible bonds, preferred securities, options, warrants and other instruments.

As Hurricane Katrina bore down on the U.S. in the summer of 2005, for example, some hedge-fund managers owned short-term contracts on oil and gas, a bet that prices would rise soon. But they also took bearish positions on longer-dated contracts, a bet that the prices would fall in coming months.

Relative-value arbitrage funds may employ lots of leverage, which can result in big gains or losses. Long-Term Capital Portfolio LP, which famously collapsed in 1998, was a relative-value fund.

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An Isolationist Message?

Bret Stephens, writing in the Wall Street Journal , labels Senator Paul an isolationist: “The junior senator from Kentucky may not know it yet, but intellectually speaking, he’s already yesterday’s man. Republicans follow him at their peril.” Peril? Isolationist? I don’t think so on either count. Syria is a Sunni country run by a Shia. Sunni and Shia have been warring for centuries. Iran and Iraq are Shia bastions. Turkey, Lebanon, Saudi Arabia and Egypt are in the Sunni column. Still with me here? Meanwhile, Israel is an outlier who would do well to mind its own business and stick to defending its borders where threatened.

Contrary to the message Mr. Stephens puts forth, Senator Paul is correct when he states that the war in Syria has no clear national security connection to the U.S. Moreover, Senator Paul is also correct in believing that victory by either side will not necessarily bring into power people friendly to the United States. The Obama administration has weighed neither the costs nor the consequences of intervention because a clear and achievable mission, and therefore a well-defined end state, has not been adequately defined. How did Korea, Vietnam, Iraq, Afghanistan and Libya work out for the U.S.? All were botched with a blind man and a stick approach from start to finish. Well-defined end state? Come on!

The Obama administration does not have strong public support, nor will it. Hasn’t America awakened to the fraud of a defense posture that has little to with defense and everything to do with offense that regularly is none of our affair? Do Americans really wish to allow a president with zero background or common sense when it comes to national security to call the shots here? Give your world globe a spin. All that blue stuff you see on both sides of America is very deep water, and thousands of miles of it. Consider this when you ponder what threat a minor leaguer like Assad might ever pose to the U.S. If Assad or, for that matter, the rebels are involved with the nerve gas sarin, such use must be terminated. But it is the task of the Muslim world to deal with a sarin issue, not a U.S. world police task.

Isn’t it interesting, when any sensible public figure or analyst has the audacity to employ some historical perspective to foreign policy issues, the neocon front rolls out isolationist wording. Congress needs to explain to Americans why botched efforts in Korea, Vietnam, Iraq, Afghanistan and Libya bode well for the U.S. in entering into a centuries-old Shia/Sunni civil conflict. Finally, the five points of the Weinberger/Powell Doctrine need to be answered in convincing fashion. The odds of that happening? Not very good, not very good at all.

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Record Low Rates

“In my 30-year career, I’ve never seen nonconforming loans priced below conforming loans,” said Brad Blackwell, executive vice president of Wells Fargo Home Mortgage.

Welcome to Bernanke’s world where the well-heeled can get a Jumbo mortgage rate lower than a conforming one. This puts a hurt on the one group, first time buyers, that Bernanke and the President have been trying to help. First time buyers should have dump trucks of cash at the ready. Instead we have another government policy with unintended consequences. Today’s American dream should still be a house but instead it’s a brand new car!

Why did we bailout GM?

Conforming loans have become more expensive because federal officials, in a bid to reduce the outsize footprint of Fannie and Freddie, have raised the fees those companies charge to lenders, which translates into higher mortgage rates.

Meanwhile, interest-rate volatility has driven up yields on mortgage bonds issued by Fannie and Freddie as investors brace for a slowdown in the Federal Reserve’s bond-buying program, which has included those mortgage bonds. That has boosted rates on conforming loans.

Jumbo mortgages, meanwhile, are increasingly kept on banks’ balance sheets, which means prices aren’t usually set by bond markets. “Banks have more deposits than loans today, so the desire to put that money to work, as well as the fact that it’s at a very low cost, allows us to make [jumbo] loans at a very good interest rate,” said Mr. Blackwell.