State of the Union
2018 Year In Review & 2019 Outlook
In case you missed the 2019 State of the Union Address, here is a summary of what was said, how it was said, and what wasn't said. My commentary is stylized in italics with right justification.
U.S. Constitution, Article 2, Section III
He shall from time to time give to the Congress Information of the State of the Union, and recommend to their Consideration such Measures as he shall judge necessary and expedient
The State of the Union Address, February 5, 2019
The Quarterly Update series was created to demystify Economics and Investing: First published on March 30, 2017 and last updated: February 7, 2019
"Madam Speaker, Mr. Vice President, members of Congress, the First Lady of the United States — and my fellow Americans. We meet tonight at a moment of unlimited potential. As we begin a new Congress, I stand here ready to work with you to achieve historic breakthroughs for all Americans. Millions of our fellow citizens are watching us now gathered in this great chamber hoping that we will govern not as two parties but as one nation." — President Trump
On December 22, 2018 — while in the throes of Trade War with China, the second largest economy in the world — the President refused to sign spending authorization without also securing funding for the Border Wall. This effectively shutdown the federal government for a record 35 days. On January 25th, the President signed a stop-gap funding bill to give the Democrats three weeks to come up with the five billion needed for a proper physical barrier.
(I hope he's NOT thinking about Valentine's Day Massacre 2019)
For a moment, I nearly forgot that it was the President himself who created the showdown over The Border Wall
This Week In Stocks, Episode VIII. Government Shutdown
"Let's Make Amends"
The President opened his 2019 State of the Union Address with conciliatory tones and tried to find common ground with the Democrats by appealing our most shared patriotic values. The President's call for bipartisanship noted common ground in these areas: (1) Defending American jobs with fair trade (2) Rebuilding our nation's infrastructure (3) Reducing the cost of health care and drugs (4) Reforming the immigration system and (5) Enacting foreign policy that puts America first.
"There is a new opportunity in American politics, if only we have the courage together to seize it . . . Victory is not winning for a political party. Victory is winning for our country." — President Trump
I don't always agree with Van Jones, but I respect him greatly for his ability, on the spot, to express how political actions impact his personal feelings. Mr. President, we all want to be part of an American winning team. But *how you communicate — not just what you say, but what you don't say — makes all of the difference in the world.
CNN contributor Van Jones after the State of the Union
Forty years ago, my parents immigrated from South Korea to settle in Wapakoneta, a small Ohio town and proud birthplace of Neil Armstrong, the first human to set foot on the moon. Later in my childhood, we moved to the birthplace of aviation, Dayton, Ohio, home of Wilbur and Orville Wright. I love this country and all my life, I have been impressed by America's capacity for greatness.
Proud to Be An American
In 1984, Lee Greenwood released his signature song "God Bless the U.S.A. — I'm Proud to be an American" which stirs patriotic expressions even today. But as a Korean-American kid, I was sometimes picked on, made fun of and racially discriminated against. I needed somebody to stand up for me, and welcome me into our shared American identity, and seed the confidence to stand the way I do now. Mr. President, you could positively shock and awe the American voter by showing your softer side and sharing it liberally.
"We must choose between greatness or gridlock, results or resistance, vision or vengeance, incredible progress or pointless destruction. Tonight, I ask you to choose greatness." — President Trump
U.S. Economy is Crushing It
"If there is going to be peace and legislation, there cannot be war and investigation. It just doesn’t work that way!"
There is a chance that the Economy could play this card?
In the political arena, the polls register job disapproval ratings of 55% to 60%, but the economic data shows strength unseen in over a decade. To stimulate the economy, the Administration enacted tax reform and regulatory reform, classic supply side moves which boosted business confidence and job creation. During the President's first two years in office, real economic growth has accelerated to three percent, defying skeptics, many of whom resigned to believing that the lackluster growth of The New Normal had become a structural feature of developed economies.
Fifty Years of U.S. Real GDP growth (1967—2017)
Since the Election of 2016, the U.S. Economy has continued to improve each quarter, with Real GDP growth hitting 3.0% in the third quarter of 2018. Three percent real GDP growth is a credit to the Trump economic team.
Economic growth by decade (average) in 1970s 3 percent — 1980s 3 percent (averaged 4.4% from 1983 to 1989) — 1990s 3 percent — 2000s 2 percent — 2010s 2 percent
Ten Years of U.S. Real GDP growth (2008—2018)
Mohamed El-Erian thought the bursting of the Housing Bubble and resulting Financial Crisis created a systemic shock so great, that the United States and other developed economies were doomed to suffer a New Normal of lackluster economic growth for years to come. The Great Recession ended in June 2009, but the economic recovery was stubbornly sluggish, as real growth averaged only 2.1% from 2010 to 2014. In 2018, U.S. real GDP growth achieved 3 percent.
U.S. Labor Market — All Time Record
U.S. Employees on Nonfarm Payrolls — This monthly economic series has been tracked by the Bureau of Labor Statistics since 1939.
Manufacturing Jobs Coming Back
Millions of Americans lost good manufacturing jobs after NAFTA. From 1992 to 2016, three different administrations, Bill Clinton, George W. Bush and Barack Obama, continued the economic and trade policies which came at the expense of the middle class. Either, the experts were wrong, or they deliberately sacrificed the American jobs in the name of globalization. The middle class experience with globalization exposed populist political vulnerability for both Democrats and Republicans.
Fewer Folks on Food Stamps
Americans qualifying for SNAP have household income levels at or below the federal poverty level guidelines. At the peak, 15% of our population, or 47 million Americans, relied on food stamps to help make ends meet.
People Are Said to Vote with their Pocketbook
Lowest unemployment rate in history for the American worker has resulted in record setting job market stats for all identity groups including African-Americans, Hispanic-Americans, Asian-Americans and Americans with Disabilities. Will the economy register political gains in 2020?
Lowest unemployment rate since 1953
Economic Hopelessness Down
Jobs provide self-realization for some; but for most, having a job means a paycheck for the most basic needs: food, clothing, shelter and entertainment. If you don't have a job, you don't have the means to provide for yourself or your family. It does not take long for hopelessness to set in and kill confidence. After the Financial Crisis, the number of unemployed Americans more than doubled from 7.2 million to 15 million.
United States Energy
The United States is the number one producer of oil and natural gas in the world, and the for first time in sixty years, the U.S. is a net exporter of energy.
In 2018, the United States surpassed Saudi Arabia in global oil production
United States leadership in Energy is critical, because it allows us to better control the risk of runaway commodity price inflation as was experienced during the 1970s. Rampant inflation destroyed many economies around the world by undermining confidence.
We live in a global hydrocarbon economy and the cost of energy has ranged from 3 to 9% of global GDP.
The ability to control inflation at home is critical to maintain global confidence in the U.S. dollar which underpins the global financial system.
"Let's Make Amends, Continued"
"If there is going to be peace and legislation, there cannot be war and investigation."
"Our country is vibrant and our economy is thriving like never before. On Friday, it was announced that we added another 304,000 jobs last month alone — almost double the number expected. An economic miracle is taking place in the United States — and the only thing that can stop it are foolish wars, politics or ridiculous partisan investigations. If there is going to be peace and legislation, there cannot be war and investigation. It just doesn’t work that way!"— President Trump
"Ridiculous Partisan Investigations"
The economic update was clearly going to be the strongest part of the State of the Union Address. The President then made me laugh by suggesting that even better economic times were ahead, if only Congress would drop the distraction of the Russian investigation for the sake of bipartisanship. Always looking to make a deal.
Mexico & The Wall
The President defined "The Wall" as a proper physical barrier that is smart, strategic, see—through steel barrier, "not just a concrete wall," to be deployed in areas identified by border agents as having the greatest need to prevent illegal border crossings. He also stated that most members of Congress have voted for similar border protection measures in the past.
During the State of the Union Address, the President announced that 3,750 troops would be deployed to the southern border to prevent a caravan of Central American refugees from illegally entering the country, in areas with little border protection.
Published December 7, 2018. I am bullish on the future of U.S. — Mexico relations in this Global Wave of Regionalism. Mexico is an abundant land, richly endowed with natural resources and blessed young human capital. Those with business know-how can create valuable companies, over time, with continuous investment in the people of Mexico. Go south young man!
"Legal immigration enriches our lives in countless ways. I want people to come into the United States in the largest numbers ever, but they have to come in legally." — President Trump
"And don't forget the Dreamers." Day 32 of the Government Shutdown, and I was angry — angry enough to take to the iPhone to make and post this video on the foolishness of introducing economic uncertainty and hardship while we are in the middle of a Trade War with China, the second largest economy in the world. WTF?
This Week in Stocks, Episode VIII: Government Shutdown
Illegal Immigration & the Class Divide
The President is failing in his approach to illegal immigration and tying it to class politics is a clumsy connection. Communication is what you say, how you say it, and what you don't say. In practice, the President can conjure up many reasons to oppose illegal immigration, but the President's rhetoric, occasional vindictive and regular omissions of rebuke all communicate a tone that is less than inclusive to many, many Americans. The President needs to understand that, while we may agree with many of his economic, trade and industrial policies, he needs to earn back our trust regarding truthfulness.
On Political Grounds: "Wealthy politicians push for open borders while living their lives behind walls and gates and guards."
On Economic Grounds: Illegal immigrants overwhelm public services with overburdened schools and overwhelmed hospitals and they deplete the social safety net
On Humanitarian Grounds: Tolerance for illegal immigration is not compassionate. It is actually very cruel. One in three women are sexually assaulted during the migration. Thousands of young girls are sold into prostitution and other forms of modern slavery.
On Public Safety: Thousands of people die each year from illegal drugs, including meth, cocaine and fentanyl, crossing through the Southern border
On Public Safety: Every year, Americans die from criminal acts committed by illegal aliens
On Public Safety: MS-13 operates in 20 American states and gang members routinely cross the Southern border.
Womyn
Women. There are more women than men. This empirical fact poses numerical and electoral problems for the President, whose misogynistic provocations have greatly irritated many women. The President extended an olive branch to Women and Women Democrats in the 116th Congress by calling out the 100th anniversary of 19th Amendment, which gave women the right to vote. — (We didn't kill Bill in 1996)
There are more women serving in the 116th Congress than in any previous congressional session. Of the 435 Representatives in the House, 102 are women (23%). In the Senate, 25 of the 100 senators are women (25%).
"All Americans can be proud that we have more women in the workforce than ever before . . . Don’t sit yet, you’re going to like this . . . And exactly one century after Congress passed the constitutional amendment giving women the right to vote, we also have more women serving in Congress than at any time before. That’s great. Really great. And congratulations." — President Trump
President Trump honors one hundred years of women's suffrage. Even Speaker of the House Nancy Pelosi and the White Coats can enthusiastically cheer for this call out.
Trade Policy
China and the Trade War
The President rightfully points out that his administration was the first to challenge China for its trade policies. Regarding goals, I believe that the Administration seeks fundamental reform: China must stop stealing technology and end forced technology transfers and China must open up its vast consumer and technology markets to U.S.—based companies.
While the strategic goal is open market access to China, the President continues to frame success in the language of trade deficit and protection of American jobs. Finally, regarding the tariffs, I wish that the President did not mislead regarding the source of tariff revenues to the Treasury. The tariffs placed on Chinese goods are paid by American consumers, not Chinese companies.
Published March 30, 2018. Special Trade War Update | Act I. United States Domestic Political Economy. The Trump Administration opened the Trade War with China by placing Section 232 Tariffs on Steel and Aluminum.
Published April 18, 2018. Special Trade War Update | Act II. China, Retaliation and Return to Tian Xia. China was the world's original superpower, China boasted unrivaled economic power and cultural influence, for most of recorded history. However, China's dominance was disrupted by superior Western military technology during the Opium Wars of the 19th century. What does China want? — Respect and a return to global leadership.
Special Trade War Update II. What China Wants
Mexico, NAFTA & USMCA
I agree with the President's assessment of NAFTA as a complete trade blunder. In 1992, Americans had little knowledge or opinion on NAFTA. While a vast majority Americans agreed that trade deals could threaten jobs, 40% said that they did not have a strong opinion on the NAFTA issue. During his presidential campaign Ross Perot used graphics — simple, well designed charts to explain his points on national television. President George H. W. Bush, a Republican seeking reelection, supported trade liberalization and signed NAFTA in December 1992 during his lame duck session. Then it was the new President Bill Clinton, a Democrat, who pushed NAFTA ratification through a skeptical Democratic-controlled House of Representatives and Senate, with the overwhelming support of the Republican minority.
In the 20 year period leading up to NAFTA, the Mexican peso had collapsed by 99.6% against the U.S. dollar!
Again, the President rightfully points out that his administration was the first to attempt to renegotiate ("the catastrophe known as") NAFTA. Over time, more Americans will learn about the history of America's trade liberalization and globalization policies, and the betrayal of the working class.
"I expect more More cars stamped with the four words "Made In The U.S.A."— President Trump
On CNN, you could see Secretary of Commerce Wilbur Ross mouth these words in sync with the President.
My parents owned and operated the Golden Phoenix, a Chinese restaurant located across an automobile factory for General Motors located in Moraine, Ohio, a suburb of Dayton, Ohio, my hometown. The Moraine Assembly used to make Chevy S-10 pickup trucks, and growing up, I would see thousands of shiny trucks in the parking lot awaiting shipment. Moraine Assembly was closed in 2008. Maquiladoras (shown in blue text above) are auto assembly factories owned by a foreign company to manufacture cars for export.
NAFTA Scorecard, 1994 to 2017
NAFTA was a huge win for Mexico and the Mexican Economy
Mexico Real GDP (Annual % Growth) from 1996 to 2017 = +2.8%
U.S. Real GDP (Annual % Growth) from 1996 to 2017 = +2.4%
NAFTA was supposed to benefit the America economy, but instead we see that the Mexican economy rode the American engine. In addition to losing jobs to Mexico, in 2001, America sponsored China's entry into the World Trade Organization, which then created strong financial incentives for companies to outsource additional manufacturing and jobs to China.
Chart 1. (1970 to 1994) shows the rampant inflation which destroyed the value of Mexico's currency, the peso, which in turn destroyed the Mexican economy, which entered the Lost Decade of the 1980s. Chart 2. (1994 to 2018) is proof that neither political party cared about the average American worker.
Why Americans Lost Confidence in their Political Leaders
NAFTA exposed the incompetence and the ineptitude of our political leaders. Both the Democrats and the Republicans failed to create any safeguards against the risk of tying our economy to Mexico. And more than 25 years of inaction exposed their indifference.
Chart 3. 1970 to 2018 — In a period of less than 20 years, the Mexican peso collapsed by 99.6% against the U.S. dollar. During the go-go days of the Mexican Miracle, one Mexican peso cost 80 U.S. dollars. NAFTA came into force in 1994, and within the first year of the free trade agreement, the Peso collapsed due to the market's loss of confidence. The cost of currency is directly correlated to the cost of labor. Incredibly,By the eve of NAFTA, the peso had fallen to $0.33 per dollar.
Industrial Policy
Fairness in Health Care
"Global freeloading must end, finally." For at least twenty years, America's senior citizens have subsidized prescription drug prices around the world. The President is correct to point out that we pay the most money for the exact same drugs, produced in the exact same location with the exact same specifications.
Compassion in Health Care
Protecting patients with pre-existing conditions
Eradication of HIV and AIDS in the U.S.
Funding research to fight Childhood Cancer ($500 million for 10 years)cancer.
Foreign Policy
U.S. Military Strength
Early in the State of the Union Address, the President boasted about the strength of America's economy and technology leadership. Near the end of the Address, the President reinforced our commitment to defense spending, which is set to exceed $700 billion this year.
Rehabilitating NATO
After World War II, the United States and its key European allies formed the North Atlantic Treaty Organization to provide for the collective defense against the Soviet Union. On September 5, 2014 at the NATO Summit in Wales, NATO member countries pledged to meet the alliance's agreed-upon standard of spending 2 percent of GDP on defense spending by 2024.
May 25, 2017 at NATO's new headquarters in Brussels, which cost $1.2 billion. Initially, allies mocked U.S. requests to live up to their military spending commitments.
Carnegie Europe: "The Politics of 2 Percent - NATO and the Security Vacuum in Europe"
Remember that in February 2014, Russian military forces invaded Crimea, overthrew the government and ultimately annexed the territory. Even after this, Euro apologists rationalized the feasibility and resisted meeting the the commitment of 2% spending on defense.
Russia
The President announced that the United States is withdrawing from Intermediate-Range Nuclear Forces Treaty, or INF Treaty, due to repeated violations of the treaty terms by Russia. Even the New York Times, in its annotated transcript of the State of the Union, Nicholas Fandos, Congressional Correspondent noted: "This is a rare point on which Mr. Trump and many national security experts agree."
No direct mention of Russia's interference in U.S. Elections
North Korea
The President announced that he will be meeting with Kim Jong—Eun on February 27th and 28th, 2019 in Vietnam. The President highlighted his personal relationship with the North Korean leader, and noted that hostilities, including missile testing, have diminished greatly since the "dotard" Tweet wars. The President argues an interesting counterfactual that the United States would be engaged in a hot war with North Korea had Hillary Clinton won the election.
Venezuela
Venezuela is a textbook example of a resource-rich nation undermined by gross political mismanagement. Venezuela controls the largest oil reserves in the world, yet the country is mired in a humanitarian crisis under Nicolás Maduro. The United States recently joined many members of the international community which recognize Juan Guaido as the new interim president of Venezuela.
The Middle East
"Great Nations do not fight Endless Wars." Since 2001, America has been fighting two wars (Iraq and Afghanistan) with over 7,000 dead, 52,000 wounded and over $7 trillion dollars fighting wars in the Middle East.
Israel
The United States recognized Jerusalem as the true capital of the state of Israel.
ISIS
When the President took office, ISIS controlled nearly 20,000 square miles of territory in Iraq and Syria. Now that ISIS has been nearly eradicated, it is time to bring our troops home after 19 years of war in the Middle East.
Afghanistan
The United States is negotiating with local Afghan groups, including the Taliban, for peace.
Killing Those Who Kill Americans
In January 2019, American special forces killed one of the leaders of the attack on the USS Cole in October 2000, which killed 17 sailors.
U.S. Withdrawal from Iran Nuclear Deal
The President is determined never to allow the Iranian regime nuclear weapons. Last fall, the U.S. placed heavy sanctions against Iran. "We will not avert our eyes to a regime that chants "Death To America" and threatens genocide of the Jewish people."
Anti-Semitism
Charlottesville, August 2017 — Remember when the President failed to rebuke some very fine folks acting as white supremacists in a Unite the Right rally? One year later, an anti-semite murdered 11 Jewish-Americans at the Tree of Life Synagogue in Pittsburgh, October 2018. The President honored an 81-year old survivor of this massacre, who had also previously survived a Nazi concentration camp during the Holocaust.
America's Unipolar Moment
Sustaining America's Global Domination through Confidence
Interesting that the President did NOT mention the Fed during the State of the Union Address . . .
Published December 31, 2018. The Fed is a remarkable institution with over 100 years of history, established by Act of Congress in 1913 to create a more safe and stable American monetary and financial system — the Fed’s credibility has underwritten global confidence in the United States dollar — the world’s reserve currency since 1973. On December 18, 2018, the Federal Reserve, in its first year under the leadership of Chair Powell, reaffirmed its commitment to serving the American people, outside of political pressure.
bit.ly/QuarterlyUpdateMainStreet
"I am asking you to choose greatness." — President Trump
(In other words, please stop the investigation)
(The Beginning and The End)
9:15 PM "But we must reject the politics of revenge, resistance and retribution and embrace the boundless potential of cooperation, compromise, and the common good" Receives the "Clap Back." 9:48 PM "And exactly one century after Congress passed the constitutional amendment giving women the right to vote, we also have more women serving in Congress than at any time before. That’s great. Really great. And congratulations" Receives standing ovation from the White Coats.
An Open Letter to the President
CNN's live broadcast State of the Union only barely caught the Nancy Pelosi clap back because the camera cut out to the White Coats in the Democratic side of the aisle.
When the Clap Back went viral, CNN made this piece
Dear Mr. President,
After reflection, I wanted to respond directly to your State of the Union Address.
First, congratulations on the economy and achieving 3 percent real GDP growth. Many of your doubters thought 3 percent unattainable, apologetic, not kinetic, about the lackluster economy. Your Administration moved quickly to cut red tape and cut corporate income taxes, classic supply side policies, which boosted CEO confidence and business hiring, and it's working.
Three percent achieved
More Americans are working than ever before, and we have far fewer Americans who are unemployed.
In fact, for several quarters, there are more Job Openings than there are Unemployed Americans. So instead of people looking for jobs — jobs are looking for people! Now that inspires confidence, and consumer confidence is what fuels our economy.
In recent months, consumer confidence has retreated from the post-election high. Regarding pain. I believe that most Americans understand that the Trade War will hurt some of us. But while we are prepared to sacrifice in the economic war with the Chinese — in pursuit of major strategic concessions, the government shutdown feels like friendly fire, as it exposes Americans in public service to unnecessary economic hardships, while further depressing our confidence.
Confidence frees spending which fuels the economy
Good luck with your trade negotiations with Chinese. Offers of new liquefied natural gas supply contracts and increased soybean purchases seem tantalizing, but please hold out for the big prize — China's normalized participation in the global economic order, which is led by US, the United States. This must include protection of our intellectual property and access to China's consumer and technology markets.
"Baits"
Finally, I wanted to introduce an idea which could come in handy . . . I wrote Helicopter Hope in November 2016. It was a different economy then, but the student loan burden of two years ago still weighs now. In recent years, the Federal Reserve doubled down on Quantitative Easing, under the theory that asset price inflation would stimulate the real economy.
If the Fed really wanted to use its balance sheet to stimulate the real economy, the Fed should forget asset purchases. That didn't work.
If we need to stimulate the economy, go to the heart of the issue holding back most financially beleaguered Americans — forgive, retire or refinance consumer debt. It's a crazy idea that probably works, because once freed from debt, a person is freed, and optimism is what creates inflationary forces.
Published November 2, 2016. By the end of 2016, the stock market had returned to all-time highs, but the economy remained sluggish. When the Fed admitted that it was considering buying stocks directly, I took to the pen. I argued that QE was not working and offered a suggestion. The Fed should use its balance to refinance, or retire, student loan debt.
Respectfully,
Minyoung Sohn
Naturalized Citizen of the United States since 1981