The challenge facing the West

Here is an excerpt from my recent post on Trump’s Trade War:

Why has it taken this long to respond?

The last incumbent in the White House refused to confront the rising menace. A risk-averse culture led to micro-management and Obama’s mantra of “Don’t do stupid sh*t” frequently translated into “Don’t do anything”.

On Obama’s watch the US abdicated its global leadership, leaving the door open for charlatans like Vladimir Putin and Xi Jinping to step into the void. His legacy is a series of brewing crises that risk a major global confrontation in the next few decades. Taiwan and the South China Sea, India and Pakistan, North Korea, Iran and Saudi Arabia, Yemen, Syria, Ukraine, the Balkans, and the Baltic States. All of these hotspots have the potential to spark a major conflict. It needs just a single miscalculation from an emboldened aggressor accustomed to being able to bully their neighbors into acquiescence.

All this seems eerily familiar. As Winston Churchill long ago warned: “An appeaser is one who feeds a crocodile, hoping it will eat him last.”

Bold leadership is required in the West. Unfortunately Trump is not up to the task.

Donald Trump

His style is too divisive to ever unite the country or Western allies against the common threat.

I later revised my description of Xi and Putin from charlatans to scoundrels after receiving this note from Alan Hartley:

Colin, you refer to “leaving the door open for charlatans like Vladimir Putin and Xi Jinping to step into the void”

Macquarie Ed.5 :”charlatan – someone who pretends to more knowledge or skill than they possess”

The reference to “charlatan” reflects an ill-informed Western view of world leadership. Rather, I suggest both men possess far more knowledge and skill than blinkered Western eyes have been able to discern.

Beware under-estimating leadership that has driven the rise of China and growing power of Russia. The tactics may not please Western pedantics, but those same people cannot be too at ease either with Donald Trump’s dragon diet approach – eats roots shoots and leaves.

I agree that we should not underestimate the threat that the two pose to Western democracy. Both have proved adept at exploiting weaknesses in our system. Their absence of principles and lack of respect for the rights of others make them a serious threat. The situation is exacerbated by weak leadership in the West.

Vladimir Putin

Putin in particular is highly skilled at exploiting weakness and creating chaos to keep his opponents off-balance. Like Erwin Rommel’s campaign in North Africa, a smaller opponent can outmaneuver larger, more ponderous forces through confusing and erratic behavior. But they are unlikely to prevail in the long-term over a patient, methodical opponent who slowly but relentlessly restricts their ability to maneuver, like Montgomery did at El Alamein1.

Xi Jinping

For that reason, Xi Jinping is a far more formidable opponent. The Chinese approach is more like Montgomery or Sun Tzu: slow, patient and methodical. While the US are masters at shock and awe, I question if they have the patience to play the long game. This is a struggle between two competing ideologies that may take generations to resolve.


  1. Hat tip to Tim Harford: Chaos has its limits even in Donald Trump’s White House

Henry Kissinger Looks Back on the Cold War

Henry Kissinger, former U.S. Secretary of State joins CFR President Richard Haass to discuss the Cold War. Kissinger reflects on the events, personalities, and thinking that characterized the United States and Soviet Union’s leadership.

The US wants to spread democratic values. It can start by cleaning up its act at home.

From Christian Caryl:

Larry Diamond, one of America’s leading scholars on global democracy, brought it up in a rousing speech at a recent conference here in Washington. He noted, with admirable frankness, that “we can’t be credible and effective in promoting democracy abroad if we don’t reform and improve its functioning at home.” He used to make this point, he said, as one of his last pieces of advice to Americans who aim to offer assistance to would-be democrats abroad. Now, he said, “it needs to be the first.” He quoted the old Greek proverb: “Physician, heal thyself.”

He’s not the only one. Just about everyone you meet in the “democracy bureaucracy” these days says the same. There’s a general awareness that democracy is experiencing dark times around the world, and that the attraction of Western models is waning fueled also by Europe’s continuing financial woes and political inertia….

REad more at The Beacon Dims.

Poland Prepares for Russian Invasion | The XX Committee

A top Polish MoD official, a man of “sober and strongly pro-American views” opines about Barack Obama and his national security staff:

“…You have no idea how many promises we’ve been given, even by the President himself, but there’s never any follow-up, it’s all talk. He thinks he’s on Oprah.” When I asked if he thought America would come to Poland’s aid in a crisis, he said laconically, “I’d flip a coin.”

Read more at Poland Prepares for Russian Invasion | The XX Committee.

US job growth rebounds

  • US job growth rebounds, halting the correction
  • Gold and crude oil are falling
  • European stocks remain bearish
  • Asian stocks are bearish
  • US stocks continue to indicate a bull market

We are at the September quarter-end and stock weakness is likely to continue into October.

From the Wall Street Journal:

U.S. job growth rebounded in September and the jobless rate fell below 6% for the first time since mid-2008, suggesting the labor market is improving faster than previously thought. Nonfarm payrolls grew a seasonally adjusted 248,000 last month, the fastest pace since June, the Labor Department said Friday.

The S&P 500 broke downwards from its broadening wedge formation this week, warning of a correction to 1900. But Thursday’s long tail and Friday’s rally indicate buying support below 1950. Another test of 2000 is likely. Respect of resistance would warn of further weakness in October, while breakout would suggest a fresh advance; follow-through above 2020 would confirm.

S&P 500

* Target calculation: 2000 + ( 2000 – 1900 ) = 2100

CBOE Volatility Index (VIX) remains below 20, typical of a bull market.

S&P 500 VIX

Dow Jones Euro Stoxx 50 found support at 3100, but this is unlikely to hold. Expect another test of primary support at 3000. Breach would signal a down-trend. Fall of 13-week Twiggs Money Flow below zero would strengthen the bear signal.

Dow Jones Euro Stoxx 50

* Target calculation: 3000 – ( 3300 – 3000 ) = 2700

Dow Jones Asia Index is headed for a test of 2800 on the weekly chart despite continued bullishness on the Shanghai Composite, reflecting strength in the US Dollar. Penetration of the rising trendline would strengthen the bear signal. Reversal of 13-week Twiggs Momentum below zero also signals a primary down-trend.

Dow Jones Asia Index

The ASX 200 found support at 5250. Recovery above 5350 and the descending trendline would suggest that the correction is over. But respect of resistance remains as likely and breach of 5250 would warn of a test of 5000/5050. Recovery of 21-day Twiggs Money Flow above zero would indicate short-term buying pressure.

ASX 200

* Target calculation: 5650 + ( 5650 – 5350 ) = 5950

Is America the greatest country in the world?

Beginning scene of the new HBO series The Newsroom answers the question: “Why is America the greatest country in the world?”

An honest three and a half minutes of television…. [strong language]

Hat tip Barry Ritholz/Doug Kass