by Bill O’Grady

As the political nominating season in the U.S. wears on, presidential candidates have been making statements about foreign policy that would signal a significant change in direction.  What has been striking about these comments is a seeming ignorance about why current policies are in place and what could occur if these policies are radically changed.

We believe these calls for change are the result of “intergenerational forgetfulness.”  When policymakers implement an initial policy regime, they tell their successors why such policies were deployed and guide their “children” to stay on course.  The next generation becomes less aware of the benefits of that policy but is acutely cognizant of the costs.  Eventually, younger policymakers reverse the policy, only to discover later why the original policy was made in the first place.

A complementary concept that goes along with intergenerational forgetfulness is policy dilemma.  Virtually all policies are dilemmas.  In logic, a dilemma contains two choices, neither of which is ideal.  In other words, both policy choices carry significant costs and whichever one is chosen will create costs for some part of the electorate.

Unfortunately, all policies are “sold” to the public on the positive merits alone.  As the costs of the policy become increasingly obvious, the political support for such policies erodes over time.  At some point, the costs of the current policy will lead to a new (and in many cases, opposite) policy direction and the cycle repeats itself.

In this report, we will examine the foreign policy predicament leaders faced at the end of WWII, their solution to these issues and the increasing disenchantment with current policy as an example of intergenerational forgetfulness.  As always, we will conclude with market ramifications.

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by Bill O’Grady

We are currently experiencing one of the most contentious primary election seasons in at least 35 years.  Candidates have made numerous incendiary statements about foreign policy that offer insights into their thinking.  However, without a paradigm, it can be difficult for investors to determine what foreign policy decisions a candidate is likely to make.  By using these archetypes of American foreign policy, one can more easily anticipate how a candidate today might act if they were to occupy the Oval Office.  For this reason, I decided that our readers would benefit from a “refresh” of this study.

In 2012, we published a report titled “The Archetypes of American Foreign Policy.”  In that article, I borrowed heavily from Walter Russell Mead in his 2002 book, Special Providence.[1]  Mead took a unique approach in describing policy positions, using historical figures instead of abstract models.  Other policy analysts have used terms like “realists” or “idealists.”  Unfortunately, these broad generalizations fail to fully express the subtleties of American foreign policy.

Mead named four archetypes: Hamiltonian, Wilsonian, Jeffersonian and Jacksonian.  Each one of these archetypes has specific characteristics that describe the viewpoints and behavior of a policymaker of that certain type.  Mead does admit that other archetypes have existed throughout American history.  For example, the Davisonian was an archetype named after the President of the Confederate States of America.  Its goal was the preservation and expansion of slavery, and Davisonian foreign policy would be designed to support that institution.  Of course, this archetype ceased to exist after the South lost the Civil War.

By using a real historical figure as a representative of that archetype, it helps the reader to envision the position of that particular “school.”  As with all archetypes, these are considered model specimens for that particular type.  In real life, even these historical figures probably don’t fully capture the image that Mead projects for each type.  Actual policymakers tend to be a mix of these four types; rarely will a policymaker be of pure form.  However, the archetypes do offer a construct for an analyst to examine and predict the foreign policy behavior of elected officials.

In this report, we will briefly describe and discuss the four archetypes of American foreign policy.[2]  With presidential elections less than eight months away, I hope that this discussion will assist readers in examining the candidates and their potential foreign policy positions, using these archetypes as a guide.  This report will conclude with my characterization of the current leading candidates.

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[1] Mead, W. R. (2002). Special Providence: American Foreign Policy and How it Changed the World. New York, NY: Routledge.

[2] However, readers are urged to read Mead’s aforementioned book so as to better understand his position on the four major types of foreign policy.  My short report does not fully do justice to a 340-page book.

by Bill O’Grady

On March 14^th, Russian President Vladimir Putin surprised the world with an announcement of the withdrawal of Russian troops from Syria. The move was unexpected and has raised questions as to whether Russia will really pull its forces out of Syria, and if so, why? In this report, we will examine Russia’s initial decision to place forces in Syria and discuss if Putin really means to remove his troops from the country. We will examine what might have prompted the decision to announce the withdrawal and, as always, discuss the market implications of the decision.

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by Bill O’Grady

On December 2, 2015, Syed Rizwan Farook and his wife, Tashfeen Malik, attacked a San Bernardino county facility, killing 14 people and seriously injuring 22 others.  The couple was subsequently killed by local law enforcement in a shootout several blocks from the facility.  The Federal Bureau of Investigation (FBI) opened an investigation into the attack.  As part of this work, an Apple (AAPL, 101.20, -0.67) iPhone was discovered that was used by Farook but owned by the county.  The FBI wanted to look at the information on his phone, but the encryption built into the device prevented authorities from accessing the data.  The government has sued Apple to force the company to circumvent its security; thus far, the company has refused.

In this report, we will discuss the attack and the perpetrators, including the gathering of evidence which included the phone in question.  We will explain in non-technical terms how Apple software protects the data on the iPhone.  We will compare and contrast the legal positions taken by the company and the government and frame the controversy using the U.S. Constitution, examining the tensions between the Bill of Rights and the problems presented by wartime.  As always, we will conclude with market ramifications.

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by Bill O’Grady

On February 26, Iran held two elections, one for parliament and the other for the Council of Experts.  The former is Iran’s legislative body, and the latter is the part of government that monitors the Supreme Leader and selects his replacement if he dies, becomes incapacitated or is removed.  Since the 1979 revolution, Iran has not held these two elections simultaneously.  The results favored moderate candidates and rejected the most hardline factions.

In this report, we will discuss the structure of the Iranian government, examine the results of the elections and analyze their impact.  As always, we will conclude with market ramifications.

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by Kaisa Stucke, CFA

The U.K. joined the European Common Market, what is now known as the EU, in 1973.  In 1992, the Maastricht Treaty formally created the EU.  However, as part of the treaty, the U.K. negotiated that it would be exempt from adopting the euro and joining the Eurozone.  Despite the EU’s founding premise that members should seek an ever closer union, both politically and monetarily, the U.K. is questioning the net benefits of its membership altogether.

The British public’s perception of the benefits of the U.K.’s EU membership has always been mixed.  Following a recent increase in public opinion asking to separate from the EU, U.K. Prime Minister David Cameron set a referendum on membership for June 23.  Cameron supports remaining in the EU, especially after he was able to negotiate a deal with the EU regarding some hotly contested issues for the country.  However, several other highly visible members of Cameron’s Conservative Party have stepped out in support of leaving the EU.  Political discussions have recently become quite heated and will likely remain so until the June referendum.  Additionally, political uncertainty will likely weigh on financial markets, increasing volatility as we move closer to the referendum date.

In this week’s report, we will take a look at the main factors leading to the call for Brexit and their impact on the economy and the markets.  As always, we will conclude with market ramifications.

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