Saturday, March 31, 2018

Trump Makes Mexico Great Again

     As we market and finance nerds like to do, I was scanning currency trading charts a few days ago and noted a move in the Mexican Peso to the upside that should be of interest to all
Strong Peso?
Muy Bueno Para South Dakota
(from NY Times)
South Dakotans. 
Why should we care?  Well, mainly because our neighbors to the south continue to represent a major market for South Dakota's agricultural production.  A strong currency is the surest sign of a stable economy with decent prospects for growth.  Investment banking giant Goldman Sachs agrees,
noting that the Peso "is one of year's best performing currencies" and "likely has more room to rise."  Why?  Because it's all about the North American Free Trade Agreement (NAFTA).
     Considering everything--"everything" being the nonstop vitriol that President Trump has thrown at NAFTA since before he was elected--Mexico's resilience has been remarkable.  I believe it bodes well for South Dakota's prospects in terms of maintaining a profitable relationship with our customers south of the border.  Mexico is the 2nd biggest buyer of South Dakota's exports, mainly consisting of meat and farm goods, to the tune of nearly $400 million a year.  Trump's main vehicle for punishing Mexico because of his misunderstanding of our trade balance with that country has been NAFTA, which came into being in 1993.  He has repeatedly threatened to drastically renegotiate the deal or walk away from it altogether.  Currency traders, by buying Pesos as a vote of confidence in Mexico, think this is more talk than action.
     The NAFTA treaty is in a renegotiating phase right now, and it shouldn't come as much of a surprise if the final agreement has some politically face-saving cosmetic rearrangements that the Trump administration will tout as one of its "wins." And the occasional politically-driven outburst against it can be expected.  But a drastic overhaul or total dissolution altogether?  Not very likely.  President Trump himself just begged off his hardline stance, telling CNN Money a month ago "I'm leaving it a little flexible . . . there's no rush."  Read another way, I think the President means that he's come to realize what a great deal NAFTA has been to big segments of the American economy and that making a hasty decision about it would be headstrong and fruitless.  South Dakota ag producers should certainly breath sighs of relief if the status quo with Mexico remains relatively untouched.  Considering that Trump's "no rush" declaration is based on a negotiating timetable adjusted to suit this summer's Mexican presidential election, American farmers can take any real NAFTA readjustments to be on hold, probably through the current crop year.
     As we come into our own congressional elections in November, the White House also knows that a radical change in NAFTA will anger some important constituencies.  CNN Money notes that "millions of jobs in red states like Texas and Arizona depend on free trade."  The Farm Bureau says that nearly 9% of South Dakota's jobs (about 40 thousand) are NAFTA-dependent.
     Given all this, it's no surprise that prospects for Mexico's economy and currency are good this year.  Better yet, South Dakota stands to benefit as the Trump administration sets rhetoric aside and focuses on reality.

Monday, March 26, 2018

Cutting Class Is Cutting Class

     Easy as it is to admire the aims of last week's high school student walkout in Rapid City (SD), I can't get myself to endorse an interruption of classroom time as part of the process.  By okaying
I'm With Ya
But What About Trig?
the action, I think our school administrators dropped the ball on this one.  Having spent my undergraduate years at UCLA during the late '60s, I'm no stranger to student demonstrations and their effectiveness when coordinated with similar actions across the country.  And chances are that the national and local school walkouts last week probably did a lot to raise the country's consciousness of how passionately many of these young people feel about curbing firearm violence.  But to make that point by disrupting the educational mission of our schools?  Nope.  Not the right way to go about it.
     First off, classroom-interrupting demonstrations might get the public's attention for the short-term, but they're no substitute for the tougher and more time-consuming commitment required to effect real change. Taking time away from classroom studies to make a public point is actually a pretty easy way to show your sympathy for a cause.  Taking time away from your activities outside the classroom to get something done in our communities is far more challenging and far likelier to yield material results.  For example, last weekend's national demonstrations consumed time and resources from every participant and probably were much more effective as a way of showing the levels of commitment that it takes to stem gun violence in America.  I'd challenge the participants in the school walkout to take some weekend or after-school time to get their points across, both by demonstrating and actually getting involved in the grunt work of our political process, which they'll ultimately learn is the way things get done in this country.
     Thoroughly considered as the decision was to allow the walkout, the final approval by school authorities was misguided.  The American Civil Liberties Union concurs.  ACLU staff attorney Esha Bhandari says schools are within their rights to intervene and even punish students if "the demonstration is going to be disruptive to the learning and educational mission of the school."  Administrators failed to honor their "contract" with taxpayers that require them to dedicate classroom time to teaching, which is what public funds support. Political- and social-reform activities cutting into that time is a drastic diversion from the mission of our schools.  More troubling, the precedent set by permitting this walkout could be a tough one to ignore should students demand replays in pursuit of other causes, worthy as they may be.
     And, of course, that's the crux of the matter.  "Worthiness" is in the eye of the beholder.  With respect to the walkout, there is no doubt that a sizable contingent of taxpayers believe that the demonstrators were way off base, seeing it as a call for more gun control.  Former Pennsylvania U.S. Senator Rick Santorum probably represented that view last weekend when he said students should "find their own way to prevent violence in schools."  I think Santorum missed the point of the event, but he brought out the walkout's political aftereffects.  School administrators should have seen this coming and allowed for student participation in an on-campus activity that would have ultimately been a learning experience without taking away from classroom time.

Friday, March 16, 2018

Can A Pro-Life Democrat Win In South Dakota? Billie Sutton Wants To Know

     Can a "pro-life" Democrat succeed in South Dakota politics?  We'll find out in November.  Much as the Republican stranglehold on South Dakota state politics has resulted in a state with the calcified political and economic environment that I've often discussed and documented here, the Democratic Party's self-contradictory plan to upend the status quo seems more like a dream than a hope.  Why self-contradictory?  Because the party's "white knight" is Senator Billie Sutton, who will be the Democratic nominee for Governor in the coming election.  Sutton has a great biography and plenty of experience, but his "pro-life" voting record while in the legislature stands in defiance of one of the Democratic Party's articles of faith, that women should have the right to abortions.  The Party's 2016 platform states that "we believe unequivocally that every woman should have access to quality reproductive healthcare services including access to safe and legal abortions."
Howdy, Ma'am
Now About That Uterus Of Yours

     Sutton has shown over the years that he rejects that tenet of his party's core beliefs.  In 2013, he voted for a House resolution urging the United States Supreme Court to revisit Roe v. Wade and "overturn its decision."  In 2016 he voted for an "informed consent" law requiring abortion providers to give patients information that South Dakota's chapter of the pro-choice organization NARAL calls "biased counseling."  Cory Heidelberger's Aberdeen-based blog Dakota Free Press has created a table of Sutton's votes that gives the nominee an 80% pro-life voting record during the period 2011-2017.  South Dakota Right To Life was so impressed by Sutton's consistency that in 2016 they rated him 100 and gave him an "A" for his work in support of its agenda.
     Counter-intuitively, these numbers must sit pretty well with South Dakota's establishment Democrats.  Indeed, state party Chairwoman Ann Tornberg has advertised herself as pro-life, though  I've never known her to make reproductive rights an issue in dealing with party business.  Obviously, within party ranks it isn't a make-or-break issue.  There's probably even some sub-surface hope that on the basis of Sutton's pro-life agenda a fair number of Republicans seeking some political reform might feel comfortable voting for him.  That could well materialize, but I think it will come at some significant cost to Democrats in November because most social issues-driven younger voters will be turned off by Sutton's anti-choice agenda.  I haven't found South Dakota-specific numbers, but on a national scale, Pew Research has found that young adults (18-39), by a 2-to-1 margin believe abortion should be legal in all or most cases. The next older group (30-49) agrees by a margin of about 3-to-2.
     If these results are close to how South Dakota's younger voters feel, Sutton probably has a problem. Question is, will this attitude be expressed with enough intensity to make a difference at the polls?  Maybe, maybe not.  My experience tells me that among a fair number of passionately committed young voters, it will be.  I doubt that a large contingent of Dems would reject him outright, but believe that many will respond to him with a collective "meh."  Given the party registration gap between Democrats and Republicans (30% vs. 46%), on the enthusiasm front Sutton needs more, much more.

Monday, March 12, 2018

How Long Can South Dakota Endure Self-Flagellation? Expand Medicaid Already.

     South Dakota's persistent refusal to expand Medicaid is the political equivalent of self-flagellation.  How many "red" states have to successfully take advantage of this good deal before our political class realizes that we're getting left behind on this?  The program itself provides eligibility for Medicaid to state residents who earn too much money to qualify for medicaid under current guidelines but not enough to pay for conventional health insurance. estimates that about 60,000 South Dakotans would qualify under the program, which would be funded by the federal government to the tune of 90%.   That represents some big money, amounting to a bit over $2 billion dollars that our state will leave on the table over the next decade if we continue to reject this great deal.
Works For Montana
Why Not South Dakota?

     Our mostly reddish state neighbor Montana expanded Medicaid in 2016, and economists there are calling it an unqualified success.  Cory Heidelberger's excellent Aberdeen-based blog Dakota Free Press calls my attention to it. Montana analysts conclude that the hundreds of millions of federal dollars that have been sent to the state have, according to University of Montana economists, "added thousands of jobs . . . and significantly boosted the state's economy."  The UM economists further note that the economic boost has been strong enough to "pay for Montana's share of the jointly funded health program."  Putting numbers on it, the university's Bureau of Business and Economic Research says that Medicaid expansion has resulted in "the creation of 5,000 jobs and $280 million in personal income each year."
     How long do we have to wait for South Dakota to seize this opportunity?  I've heard some arguments that we can't depend on the federal government to keep up its part of the bargain, but that contingency can be addressed.  Arizona's ultra-conservative Governor Jan Brewer signed on to expansion in 2013, but with a "circuit breaker" caveat calling for an automatic halt to the program if federal reimbursements decrease.  Virginia, Florida, New Mexico and Ohio have the same option in their programs.
     I've also heard objections to giving benefits to those who won't work for them.  Mike Pence addressed that issue when he was governor of Indiana, requiring beneficiaries to pay premiums into health savings accounts (those delinquent by six months are kicked out) and make co-pays for inappropriate emergency room visits. That skin-in-the-game approach certainly dovetails with the work ethic that is the pride of many South Dakotans. Governor Daugaard himself noted in a RCJ column last June that  "South Dakotans understand the value of work because working hard has been instilled in us by our ancestors."
     Another core element of South Dakota values that we need to incorporate is common sense.  Senator Mike Rounds repeatedly touted "South Dakota Common Sense" as an attribute that he wanted to take to Washington during his Senate campaign in 2012.  So now we should ask, isn't it plain common sense to see the benefits of a deal where South Dakota gets nearly ten times the return on its money, especially when there is a built-in cancellation clause if the feds don't live up to their end of the bargain?  Tens of thousands of hard-working South Dakotans stand to benefit while the overall economy gains something as a result.  It's time to move ahead with this.

Saturday, March 3, 2018

Farmers Are Waiting For The Tariff Repercussions To Take Hold

     After a couple of months of decent rallies in commodity prices, South Dakota's farmers had reason to be optimistic about this year's crops.  Then came President Trump's tariff announcements last week, and suddenly everybody sobered up.  More on that later, but first off, the improvement in crop prices hasn't been about supply/demand fundamentals, which haven't changed much in recent months.  Instead, producers can thank the stunning volatility in the stock market for their good fortune. Analysts are generally saying that institutional investors are pulling substantial cash out of stocks and moving it into commodities.  This is a "lock in your profits" trade, as the big gains since the election of President Donald Trump have given investors plenty of reason to take profits out of historically over-valued equities and put them into real-world products, particularly wheat, corn and soybeans.  This is, after all, the stuff of life.  Even that proto-anticapitalist Vladimir Lenin once said that "grain is the currency of currencies" as he made sure that one of the Red Army's first priorities during the Russian revolution was to steal stockpiles of grain.
Say Goodbye?

    Running for a safe haven during volatile times is a long-standing trading strategy. Given the quirky nature of policies that are coming out of a White House defined by volatility and chaos, it's no surprise to see the gambit coming into play of late. But much as they love the nice upside bounce in prices, farmers saw their markets react with serious concern at the end of last week when Trump's sudden announcement on steel and aluminum tariffs made the news.  Wheat prices in particular got clobbered.  The reason?  Nobody knows how the rest of the world will react.  If Trump's tariffs do indeed get set into motion next week, it's likely that our trading partners will respond with retaliatory tariffs of their own.  Trump seems to welcome that scenario by saying "trade wars are good and easy to win."  Meantime, our farmers, who depend heavily on foreign markets, are out in their fields wondering if retaliatory tariffs will apply to them.  This whole thing is a cloud hanging over the American farm industry.
     With good reason, the Belle Fourche (SD)-based Tri-State Livestock News writes that farm leaders reacted to the tariff news with "fear and horror." TSLN reports that the American Soybean Association and U.S. Wheat Associates jointly stated that "we have repeatedly warned that the risks of retaliation . . . set by such a policy have serious potential consequences for agriculture."    Wheat prices are particularly sensitive to intense foreign competition and stand to take a shellacking if there's a retaliation from our foreign customers. That explains the huge drop in wheat prices the day after Trump's tariff announcement.
     Most surprising to me is that ag producers are themselves surprised by this turn of events, considering that Donald Trump campaigned consistently on his pledge to put the United States into protectionist mode when it came to foreign trade.  Trump's well known support in the farm belt (he carried South Dakota with 62% of the vote) suggests that voters either weren't listening or simply didn't believe he'd actually pull a stunt like this.  As farmers go out into their fields engaged in their Spring planting activities the next few weeks, they'll be wondering if a world that up to now has been eager to buy their production will soon be saying "no, thanks."