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Noteworthy 2020
CreditPulse recaps the extraordinary year of 2020 with our year-end montage of insightful comments from noteworthy people around the world. "There are no ethical boundaries to Beijing's pursuit of power."
"I'm hear to clear my name and to pronounce clearly and emphatically something that was interpreted as heresy in the Japanese judicial system: These allegations are untrue and I should have never been arrested," proclaimed auto executive Carlos Ghosn (pictured second from the left, middle row) at a press conference on January 8th in Beirut, Lebanon shortly after escaping from house arrest in Japan.
Each year, throughout the year, CreditPulse devotes front page coverage to noteworthy comments on various topics from individuals around the world with special insight into the fundamentals and dynamics of economic freedom, international relations and the rule of law. These highly relevent comments, derived from media sources around the world, enhance the qualitative aspect of risk analysis and provide added perspective on global risk and global markets.
Mr. Ghosn's comments were particularly noteworthy as it is not every year that a well-known global executive arranges a press conference to tell a story of arrest, detention and escape from a country in which he formerly served as a top executive. Basically, Mr. Ghosn, formerly CEO of Nissan Motor Company and Renault SA, claimed he was the victim of a conspiracy involving Nissan and elements of the Japanese government to make him the scapegoat for the auto company's ailing fortunes. However, when asked by a BBC reporter how high up the conspiracy went, Mr. Ghosn replied "I don't think the top level was involved."
"I was an easy target, why, because I was with Renault, I was a foreigner so it was very easy to say this guy has exceeded the limits, he has hidden compensation he didn't receive," said Mr. Ghosn in a lengthy and at times rambling opening statement. The whole affair placed new scrutiny on the fairness of the Japanese judicial system. "A lot of people are going to say he escaped because he's guilty, but I'm telling you, I didn't escape because I'm guilty, I escaped because I had zero chance of a fair trial."
Stakeholder Capitalism
The controversial and growing movement by some in big business to redefine the role of the corporation away from shareholder value and more toward social responsibility took on added significance in 2020 when Larry Fink, the CEO of BlackRock, the world's largest asset management firm, sent an open letter explaining that his company would only invest in businesses abiding by 
the rules of a Sustainability Accounting Standards Board regarding climate change, labor standards and other issues. Fink's actions are the latest in an ongoing attempt by some in the investment community to further politicize capital.
But, not everyone agrees with the idea of putting society's interests on a par with shareholders. "Stakeholder capitalism runs contrary to the demands of U.S. corporate law, which holds that directors and executives have a duty to one master: shareholders," wrote Vivek Ramaswamy, founder and CEO of Roivant Sciences in an opinion editorial published in February in the Wall Street Journal. "My main problem with stakeholder capitalism is that it strengthens the link between democracy and capitalism at a time when we should instead disentangle one from the other," according to Mr. Ramaswamy.
George Melloan (left photo), the long-time deputy editor of the WSJ editoral page, weighed in the same month with a reminder of why capital must remain unrestricted by politics. "A modern economy can't exist without the accumulation of capital to build factories and infrastructure," Mr. Melloan wrote. "Private, competitive capitalism safeguards the rights of individuals to strive for a better life through hard work and saving for investment." Mr. Melloan passed away in September at the age of 92.
The China Pandemic
On January 28th, news that a viral outbreak in China had infected more than 2,700 of its citizens and was spreading to other countries rattled global markets sending the Dow Jones Industrial Average down 454 points and the yield on 10-year U.S. treasuries to 1.605% it's lowest level since October. Three days later, the World Health Organization declared the coronavirus outbreak a public-health emergency, but stopped short of calling it a pandemic.
China has yet to disclose details surrounding the origins of the severe acute respiratory syndrome (SARS)-type coronavirus given the name Covid-19 by the WHO to spare Beijing the embarassment of having the name tied to a previous SARS virus that broke out in China in 2002. What is known, however, is that the virus broke out in the city of Wuhan sometime in December, possibly as early as November.
Wuhan doctor Li Wenliang warned his colleagues in late December about a possible outbreak that resembled SARS, but was reprimanded by local police, according to Italian journalist Alessandra Bocchi (left photo), a writer in Rome who followed the story closely, writing in an op-ed that appeared in the March 21st edition of the Wall Street Journal. "News of the virus started circulating on nongovernmental social media accounts in the first half of January, and they were shut down," Ms. Bocchi wrote.
Italy was hit particularly hard as the result of Chinese tourists in the country with more deaths in the early days than China as people were dying in Italy faster than coffins could be delivered. By March 21st, some 4,032 Italians had died with 627 dying in one day. It was an American tourist coming back from Italy that brought the first case to Florida.
Throughout February, virus fears began to mount with the Dow falling more than 1,000 points on February 24 while gold prices climbed to a seven-year high. By March 11th, when the WHO finally declared a pandemic, global currency markets were in turmoil with the U.S. dollar climbing to 8.07% the week of March 20th and the rest of the world's currencies in free fall. By the end of March, 75% of the 124 currencies tracked by CreditPulse lost value against the dollar with South Africa's rand leading the way at -32%. The dollar, often a safe-haven in times of crisis, finished the quarter up 5.4%.
"No amount of foreign aid can make up for the Communist Party's botched early response that helped produce the pandemic now afflicting most of the world," wrote Ms. Bocchi who investigated the origins of the virus that struck her country so hard. "Even long after the initial outbreak, the Chinese declined to tell other nations about the severity of the threat or to prevent its spread outside China."
The China Threat
A consistent theme throughout the year, more so that any other topic outside of the pandemic, was the rising threat posed by China to rest of the world, particularly the United States, as a result of increased regional aggression, continued trade dominance, cyber espionage, intellectual property theft and an increasing disregard for the rules-based system established by the U.S. and its allies after World War II.
It started in March, in the early stages of the pandemic, when Andy Kessler, a former venture capitalist and hedge fund manager, predicted an end to China's dominance as the world's factory floor. "The end of China's dominance is certainly coming," Mr. Kessler wrote. "No one will ever again concentrate manufacturing in China alone."
Indeed, the suddeness and seriousness of the pandemic forced many in business and government to reassess their long-standing relations with China. "The Covid-19 pandemic has convinced many that the U.S. must fundamentally change its policy toward China," wrote Elbridge Colby (photo left), former deputy assistant secretary of defense, and A. Wess Mitchell, former assistant secretary of state for European and Eurasian affairs, in an op-ed in the WSJ in May.
"Western countries and U.S. partners in Asia have begun focusing on the need to reduce their dependence on supply chains running through China," wrote Messrs. Colby and Mitchell. "Even before the pandemic, many governments were beginning to scrutinize trade arrangements with China that had enabled Beijing to dictate the terms of access to its market in circumvention of established international trade rules."
In July, one of the strongest and most insightful comments on China and how it operates came from the recently departed U.S. national security advisor John Bolton. "Over the past four decades, China's persistent efforts to steal intellectual property and require forced transfers of foreign technology constitute the foundation for much of its economic success," wrote the long-time American diplomat. "Huawei, ZTE and other tech companies have been principal beneficiaries (see Atkinson quote above), and its unlikely China has ever been serious in its trade negotiations with the U.S. on these issues."
But, the most forceful and direct warning on China came from the man who has had a front seat on all U.S. intelligence for the past two years, John Ratcliffe, (pictured to the left), the departing director of national intelligence under President Donald Trump. "The intelligence is clear: Beijing intends to dominate the U.S. and the rest of the planet economically, militarily and technologically," wrote Mr. Ratcliffe in a December 4th WSJ op-ed. "Many of China's major public initiatives and prominent companies offer only a layer of camouflage to the activities of the Chinese Communist Party."
Like Mr. Bolton, Mr. Ratcliffe pulled no punches in exposing the systematic way in which China has suddently vaulted onto a near level playing field with the U.S. and Europe in technological advancement. "I call its [China's] approach of economic espionage 'rob, replicate and replace,'" wrote Mr. Ratcliffe. "China robs U.S. companies of their intellectual property, replicates the technology, and then replaces the U.S. firms in the marketplace."
The editorial went into astonishing detail of the lengths China is going to achieve its objectives. "U.S. intelligence shows that China has even conducted human testing on memebers of the People's Liberation Army in hope of developing soldiers with biologically enhanced capatilities," according to Mr. Ratcliffe. "There are no ethical boundaries to Beijing's pursuit of power."
Written by John Bassford, editor/senior credit analyst