Maps

A lot of kids these days don't care much for geography. Okay now that's a personal choice, if you'd rather do AI or data science or machine learning (--> Ed: these three are basically the same thing), that's totally up to you. But studying maps is often the best way to understand nuances, especially about places that we may not be familiar with.  I'll give several examples below:

1. The Korean conflict

I've actually written about North Korea at some length. But the most salient point is easily shown on the map: the Seoul-Incheon megapolis of 12+ million is within 40 miles of the North Korean border. This means: South Koreans don't really give a rats about Kim Jong Un's nuclear program -- well, they do, I guess, a little bit -- but ICBMs and strategic warheads  are mostly Japan's and America's concerns.

In the event of a war, North Korea can just mobilize its artillery guns to the DMZ, and wreak havoc to its southern nemesis.

We're talking perhaps tens of thousands of casualties within the first three hours.

North and South Korea

2. The Cuban Missile Crisis

This is a similar theme, which I've also covered previously, about missile ranges.  Maps clearly show Cuba is located within 25 miles off the coast of Florida.  When Brezhnev installed missiles in Cuba, Reagan knew that even a short-range one could easily hit central Miami.  A Soviet nuke, on the other hand, can pulverize many other vulnerable East coast cities, including Washington D.C.

Cuba

3. Iran

Even if you don't know any history before the 1990s.  Even if you don't know your Shia vs Sunnis. Even if you think Shah Reza Pahlevi is a Bollywood actor. Even if you don't understand the big deal about economic sanctions.

Just look at where Iran is on the map. On the west, it borders Iraq. On the east, it borders Afghanistan. So Iran is surrounded by two countries that were invaded by George W. Bush under the misguided premise of the War on Terror, creating instability that lasts until this day.

Does that explain why "death to America" chants are so popular in Tehran?

Iran

4. Haiti

Haiti and the Dominican Republic (DR) share the Hispaniola island in the Caribbean, but they might as well be on separate planets. Historically, the earlier was a French colony, and the latter Spanish, which partly explains their vastly different fates.  The DR also had "better" dictators, post-independence, than Haiti -- if that's even a thing. How different, you ask? Just look at the satellite image.

The Haitian (left) side looks like desolate hills where nothing grows, while the DR side looks lush green and fertile. Agriculture is and has always been a large part of the island's economy, but one side took a more sustainable approach. You can even see the contrast as you trek the border. No wonder there's so much disparity: in terms of GDP per capita, Haiti's is $1,800 while the DR is $17,000 -- almost ten times higher.

Adding insult to injury, Haiti is also prone to natural disasters; the 2010 earthquake destroyed large parts of the capital Port-au-Prince, and 2016 Hurricane Matthew also took numerous lives.

Two worlds, separated at birth

Is it solely the blame of European colonizers? Of course not, but when you're down and out, incapable of working towards a fix, could you blame poverty-stricken Haitians for pointing fingers at their past colonial masters?

The border between Haitian - Dominican Republic

Further reading, from Vox.com:

• Maps TOC
• 40 maps that explain the Middle East
• 40 maps that explain World War I
• Maps that explain the global refugee crisis
• 33 maps that explain terrorism

What is an Inverted Yield Curve?

The yield curve inverted in 1989, in 2000 and in 2006.

Recessions occurred in 1990, 2001 and 2008 https://t.co/KeuvkAXFU8 pic.twitter.com/WrZ33XUcG5

— Bloomberg Opinion (@bopinion) January 4, 2019

In the past 60 years An inverted yield curve was a perfect indicator of US recessionshttps://t.co/ZPT8qwA1re

— François Bégin (@fpbegin) January 10, 2019

If you ever read Bloomberg, WSJ, or put on Bloomberg TV or CNN Finance (big fan of Julia Chatterley here), you've probably heard about the dreaded Inverted Yield Curve.  It's supposed to be this super-scary finance thing that shows the world is coming to an end.

So what is it, and why does it really show?

What is a Yield Curve?

The yield curve compares the returns ("yields") on bonds by the same issuer over different maturity periods.  99% of the time, people talk about the yield curve of the United States Treasury (UST) notes, because banks and governments use UST as the safe haven and universal store of value.

UST yields typically move depending on investors' confidence.  When the economy is doing well, investors take money out of USTs and into riskier, more profitable assets.  Prices of USTs go down, or their yields go up.  Conversely, when the economy is shaky, investors are cautious and would rather keep money in risk-free USTs, driving prices up and yields down.

(Normal) Yield Curve, per May 2018

The normal shape of the yield curve is positive, an increasing (hyperbolic) curve.  This implies that  for the same issuer (e.g. US government), investors still demand a premium to put money in long-term (e.g. 10-year vs 2-year) bonds.

Curse of the Inverted Yield Curve

That's in normal economic times. A few times in the past 50-years, the yield curve gets inverted, i.e. the spread between US10Y vs US2Y goes to zero or even negative.  This means, investors want to put money in long-term risk-free notes, because they're pessimistic on near-term investment opportunities and would rather not lose principal.  Conventional wisdom says this is a robust sign of a recession -- typically a severe one.  For instance, spreads went negative during the 1979 energy crisis, 1990s Iraq war, 2000 dotcom bubble crash, and 2007 global financial crisis.

Negative spreads in the past 50 years

On the flip side, there are some contrarians, like John Mauldin, who argue that inverted yield curve suggest investor overreactions, and that it either (i) is an indicator that's way too early, or (ii) presents opportunities for substantial gain.

What are other signs of recession?

Some other leading indicators are the VIX index (the "fear" index: it's actually just a futures contract for global market volatility).  Some countries also publish PMI (producers manufacturing index) and CCI (consumer confidence index), which are widely accepted leading indicators for the strength of their economies.  There are some unconventional measures as well, such as the skyscraper index (e.g. if a region builds way too many skyscrapers e.g. Dubai, then it's bound to hit a recession).

Hence, Yield Curve Inverted in December #VolQ pic.twitter.com/aGaOGH3WRF

— Volatility Quant (@VolatilityQ) January 9, 2019

So does that mean the world will end in 2019?

Yes, duh! Did you read anything I've wrote this far?

As you can see in the chart above, spreads hit negative in December. But even looking at the 50-year trend, cyclical recessions tend to happen every 8-10 years, and the last one hit in December 2007.  Since then, the Dow Jones Industrial Average has soared from 6,600 up to 25,000+ in 2018.  So recession is probably way past due.  

Perhaps it has something to do with, I don't know, US$14tn of quantitative easing (QE) by the Fed, ECB, and BoJ, and Zero Interest Rate Policy (ZIRP), flooding the world with liquidity?  Not to mention the 2018 Trump tax cuts, basically adding a US$2.3tn sugar high to an already overheated economy -- leaving behind some US$22tn of US public debt and a central bank with no good tool respond to slowdowns.  So the question is whether irrational exuberance can continue to overcome gravity, or if what goes up must eventually come down.

Dow Jones Industrial Average, 2008-19

In any case, as wise-ass John Maynard Keynes once said, the market can stay irrational longer than you can stay solvent.  If I could accurately predict the markets, I would make so much $$$ so I could be chillin' on a beach in Tora Bora with Gal Gadot, instead of sitting here blogging for my two followers (six if you include Russian bots).

Quantitative Easing, 2008-18

Further reading

Enjoy! (No, I haven't read the below)

3) An inverted Yield curve has historically preceded recessions by 0-18 months and is considered a more short term indicator. The current yield curve is on it's way to being inverted within the next 3-6 months if trends continue. pic.twitter.com/44wyDmnx5I

— Vince Jansen (@Vince_R_Jansen) January 9, 2019

POTUS spreads Russian propo

US President Trump starts off the new year with a (potentially years-long??) shut down government, and by spouting Russian (and even Soviet-era) propaganda.

So he doesn't know the Balkans from the Baltics, he doesn't know his own anti-ISIS special envoy, but he is strangely fluent with minute details on the implication of Montenegro's accession into NATO?  That Poland wants to invade Belarus?

Could he be an FSB asset?

Could he be the most wildly incompetent graduate (also least sexy) of the Sparrow school?

Let you be the judge.

Do walls work? Wheels?

The Great Wall is not just where Matt Damon fights an army of lizards.  It's what POTUS wants to build on the Southern border.

There's a fascinating new article by Pamela Crossley in FP on the history of border walls and their effectiveness, I highly recommend a read in its entirety.

"The security aspects of walls have always been problematic. Today they’re even weaker than in the Middle Ages, suggesting that the immaterial benefits of the wall are what really attract the president. Like that first emperor of China, Trump has used the prospect of the wall as a tool to demonstrate his coercive power and tighten his grip on income and expenditure, to the point that the government has been throttled into unconsciousness. Perhaps the president imagines himself on video, gesticulating benevolently while superimposed on a panorama of a glinting razor wire trammel studded with surveillance scaffolds, each proudly flying the Stars and Stripes, as an ecstatic chorus belts out the national anthem. 

The president might think of history for a moment. That first emperor of China, the one who conceived of the so-called Great Wall, had a very brief rule; the people rose up angrily against his fiscal and labor demands. The Yongle Emperor, the Ming leader most associated with aggrandizing the wall, had his outsized ambitions repudiated after his death. Public scorn of his budget-busting vanity projects was so thorough that he was denounced as a tool, and possibly an active agent, of the most imposing Ming hostiles—the Mongols. 

And the American public in their turn would do well to remember the one thing that walls have actually proven effective at: keeping people in. Medieval tyrants used them to keep the yeomen from deserting, every serious prison or internment facility has one of some kind, the Berlin Wall worked on most people, and Israel uses one to keep Palestinians in their place. Modern wall-building does not have to be physical: It can be economic, cultural, and psychological."

So that sounds better than POTUS' walls vs wheels monologue; although it could be his fancy-schmancy Wharton education talking.