viernes, junio 23, 2017




Who governs Peru?

The president must face down the fujimorista congress










The Eurozone Must Reform or Die

Kenneth Rogoff 

OXFORD – With the election of a reform-minded centrist president in France and the re-election of German Chancellor Angela Merkel seeming ever more likely, is there hope for the stalled single-currency project in Europe? Perhaps, but another decade of slow growth, punctuated by periodic debt-related convulsions, still looks more likely. With a determined move toward fiscal and banking union, things could be much better. But, in the absence of policies to strengthen stability and sustainability, the chances of an eventual collapse are much greater.
True, in the near term, there is much reason for optimism. Over the past year, the eurozone has been enjoying a solid cyclical recovery, outperforming expectations more than any other major advanced economy. And make no mistake: the election of Emmanuel Macron is a landmark event, raising hopes that France will re-energize its economy sufficiently to become a full and equal partner to Germany in eurozone governance. Macron and his economic team are full of promising ideas, and he will have a huge majority in the National Assembly to implement them (though it will help if the Germans give him leeway on budget deficits in exchange for reform). In Spain, too, economic reform is translating into stronger long-term growth.
But all is not well. Greece is still barely growing, after experiencing one of the worst recessions in history, although those who blame this on German austerity clearly have not looked at the numbers: with encouragement from left-leaning US economists, Greece mismanaged perhaps the softest bailout package in modern history. Italy has done far better than Greece, but that is a backhanded compliment; real income is actually lower than a decade ago (albeit it is hard to know for sure, given the country’s vast underground economy). For southern Europe as a whole, the single currency has proved to be a golden cage, forcing greater fiscal and monetary rectitude but removing the exchange rate as a critical cushion against unexpected shocks.
Indeed, part of the reason the United Kingdom’s economy has held up well (so far) since last year’s Brexit referendum is that the pound fell sharply, boosting competitiveness. The UK, of course, famously (and wisely) opted out of the single currency even as it is now moving (not so wisely) to withdraw from the European Union and the single market entirely.
It is now fairly obvious that the euro was not necessary to the success of the EU, and instead has proved a massive impediment, as many economists on this side of the Atlantic had predicted.
Eurocrats have long likened European integration to riding a bicycle: one must keep moving forward or fall down. If so, the premature adoption of the single currency is best thought of as a detour through thick, wet cement.
Ironically, by far the main reason why euro adoption was originally so popular in Southern Europe was that back in the 1980s and 1990s, ordinary people longed for the price stability Germans enjoyed with their Deutsche Mark. But, while the euro has been accompanied by a dramatic eurozone wide fall in inflation, most other countries have managed to bring down inflation without it.
Far more important to the achievement of price stability has been the advent of the modern independent central bank, a device that has helped dramatically reduce inflation levels worldwide.
Yes, a few places, such as Venezuela, still have triple-digit price growth, but they are now rarities. It is very likely that if, instead of joining the euro, Italy and Spain had simply granted their central banks more autonomy, they, too, would have low inflation today. Greece is admittedly a less obvious case; but, considering that many poor African countries have been able to keep inflation well within single digits, one can presume that Greece would have managed as well. Indeed, if Southern European countries had kept their own currencies, they might never have dug as big a debt hole, and would have had the option of partial default through inflation.
The question now is how to maneuver the EU out of the wet cement. Although many European politicians are loath to admit it, the status quo is probably not sustainable; eventually, there must be either significantly greater fiscal integration or a chaotic break-up. It is astonishingly naive to think the euro will not face further real-life stress tests over the next 5-10 years, if not sooner.
If the status quo is ultimately unsustainable, why are markets so supremely calm, with ten-year Italian government bonds yielding less than two percentage points more than Germany’s?
Perhaps the small spread reflects investors’ belief that outright bailouts are eventually coming, however much German politicians protest to the contrary. European Central Bank purchases of periphery countries’ debt already constitute an implicit subsidy, and discussion of Eurobonds is heating up with Macron’s victory.
Or perhaps investors are gambling that the South has walked too far into the cement to get out.
Germany will just keep squeezing their budgets in order to ensure that its banks are repaid.
Either way, eurozone leaders would be better off taking action now, rather than waiting for the single currency’s next moment of truth. How long today’s optimism lasts is for Macron and Merkel to decide.


Getting the most out of business taxes

Changing rates does not make a lot of difference

ONE of the hottest debates in economic policy at the moment is how to ensure companies are paying the optimal amount of tax. On the right, politicians think that a lower corporate-tax rate will lead to more business investment and thus faster economic growth. Hence the initial stockmarket enthusiasm after President Donald Trump was elected on a platform that included cuts in business taxes. On the left, the belief is that business is not paying its “fair share” of tax and that it can be further squeezed to pay for spending commitments. Hence the promise of the Labour Party in Britain’s recent election campaign to push the corporate-tax rate up to 26% (from 19%).

How do these theories translate into practice? To find out the effect on business investment, The Economist took the corporate-tax rates in OECD countries and divided them into quartiles from highest (1st) to lowest. Then we calculated the five-year average in each quartile for gross fixed capital formation as a share of GDP.
As the top chart shows, the relationship is not very strong. The countries with the highest tax rates generate less investment than those with the lowest, but there is not much difference. That is probably because the decision to invest in a country depends on a lot more than tax. The underlying growth rate of the economy and the regulatory climate also play a big part.

Independent of their tax rates, for example, South Korean and Turkish companies are investing a lot. Perhaps they are catching up with mature economies, perhaps they are over-investing.

What about the tax take? The picture is complicated here, too. Lower tax rates may just work by pinching revenues from other countries. For example, Ireland, with a 12.5% rate, earns a higher proportion of GDP in revenues than France, at 34.4%. And the headline tax rate may not be decisive.

Countries with high rates (like America) tend to offset them with allowances and deductions that bring down the effective rate that companies pay.

The idea of using tax levels to boost revenues does not get much support, either. Most countries sit within the 2-3%-of-GDP range (see bottom chart). The countries with the lowest corporate-tax rates receive a bit less in taxes. But the difference between the top and bottom quartiles is only 0.9% of GDP. Grabbing this extra chunk might be useful revenue, but when public spending is 40% of GDP or so, other sources of funding are a lot more important.

The countries with the highest tax takes (over 4% of GDP) tend to be those, like Australia and Norway, with plenty of natural resources. They can take advantage of captive businesses. But that is not an option for most developed nations, especially given the potential for tax competition. OECD countries are trying to co-operate to stop companies from gaming the international tax system. But it is a tricky task; one man’s tax avoidance is another man’s legitimate business planning.

Two other things are worth remembering. The first is that companies are merely legal entities.

To the extent they pay more taxes, they must get the money to do so from elsewhere. Politicians on the left think the money comes from shareholders. But it is not as simple as that (and even if it were, those shareholders may represent the pension funds of citizens). For instance, a large company might not want to reduce the profits it pays out to shareholders for fear of becoming a takeover target. So it could move some of its operations to a lower-tax regime. Or it could recoup the loss by charging consumers more, or by paying workers less.

Second, countries do not just want to attract businesses for the taxes they pay but for the workers they employ and for the extra revenues they create for local suppliers. The effective tax take firms generate (on wages, sales and property taxes) is much higher than the tax on profits alone. So there are dangers in driving business away, something Britain needs to contemplate after the Brexit vote.

Some argue that the profits tax should be abolished. Governments should look through the corporate structure and tax shareholders directly. The problem is that many shareholders, such as pension funds and charities, are tax-exempt, and others are based in low-tax regimes.

That would also create incentives for individuals to incorporate to cut their tax bills. So such a move should await much more sweeping tax reform. In the meantime, governments will have to make do with what they currently get. There is no magic trick for collecting a lot more.

Wall Street's Best Minds

Are Bonds Signaling a Peak in Stock Market?

The risks of a stock-crippling recession are rising but the odds of one are still just modest.

By Jeffrey Kleintop             

Here are the key points of this article.

• “Dr. Yield Curve” has accurately forecasted recessions and marked the start of bear markets in the past, making the yield curve significant for stock market investors.

• In the U.K., the heightened potential for a recession and bear market reflected in the yield curve is a risk investors in U.K. stocks should consider.

• Outside of the U.K., bond yields and stock prices are generally in agreement that the odds of a global recession are fairly modest.

Historically, when short-term interest rates rise above long term rates, bull markets for stocks have ended and bear markets have begun. In recent months, the difference between short-term and long-term interest rates, called the spread, has narrowed in many countries across the globe. When the spread between these rates turns negative, it is referred to as “inverting the yield curve.”
For instance, stock markets in the U.S. and around the world peaked in 2000 and 2007 when the spread between three-month and 10-year U.S. Treasury yields inverted by about 50 basis points (three-month Treasury yields were about one-half of one percentage point above the yield on the 10-year Treasury note).

[Editor’s Note: The three-month Treasury yield is still more than a percentage point below the 10-year yield, though the spread has narrowed in recent weeks, thanks to a drop in the yield on the longer-term bond.]

Why does an inverted yield curve signal a major peak for the stock market? Every recession in the United States—and accompanying global economic recession over the past 50 years—was preceded by an inverted yield curve.


Examining yield curves from around the world, the prognosis on the likelihood of a global recession and bear market is favorable. Like a test showing a patient’s cholesterol is elevated but not yet in the danger zone, yield curves need to be monitored.

While the risk may be rising, the yield curves indicate that the risk of recession is currently modest—except for the United Kingdom—based on historical evidence, but history doesn’t guarantee future performance.

Last week’s loss by the Conservative party of its majority in the U.K. parliament is unlikely to make Brexit negotiations any easier. Yields may be reflecting the heightened challenges facing the U.K. In fact, the U.K. faces the highest probability of a recession in the coming year of any major country based on the slope of its yield curve and the history of U.K. recessions since 1970.
The spread between short and long-term yields in the U.K. has just slipped into the top of the 0-1% range where the historical probability of a recession in the next 12 months has been 62%, as you can see in the table below of yield spreads and recession probabilities.
Europe’s recession outlook per the yield curve post-U.K. vote

The impact of Brexit is likely to be primarily isolated to the U.K., with minor influences on global stocks. Brexit is likely to have a gradual impact on the U.K. economy due to the long and protracted nature of the negotiating process. The heightened potential for a recession and bear market reflected in the yield curve is a risk investors in U.K. stocks should consider.

Does the flattening yield curve in the bond market run contrary to the rising prices in the stock market? Are there differing diagnoses between bond and stock market investors on the prospects for the global economy? Not in our view. Slipping inflation expectations have been the main reason for the flatter yield curve and lower inflation has not always been a bad thing for stocks.


We can best see the close agreement between the bond and stock market when we look at high yield credit spreads and the stock market volatility. Both are at cycle lows, indicating little risk of a recession priced in the stock or bond market.

At first glance, a slumping yield curve paired with a rising stock market may seem at odds, but it’s clear to us that the message in the stock and bond market is the same: low risk of bear market and recession in the year ahead. However, stock pullbacks are common during bull markets and investors should maintain their long-term asset allocation to help insulate from short-term fluctuations.
Kleintop is chief global investment strategist with Charles Schwab & Co.

The Deception Of Obvious Facts



- Volatility selling, leverage, and why the recent past doesn't predict the future.

- Friday's Facebook, Amazon, Apple, Microsoft, and Google sell-off is a preview of the future.

- If you think investment grade and high yield bonds balance your portfolio, think again.
Miller's Market Musings

Clear. Focused. Timely.

First, apologies for skipping an edition of the Musings. Life has been hectic, with traveling to visit company management teams. And really, there wasn't a lot to say - markets have been calm and quiet lately. If you don't have anything important to say…you know the rest.
"There is nothing more deceptive than an obvious fact." - Arthur Conan Doyle, The Boscombe Valley Mystery
There are some obvious facts about the U.S. stock market that are fairly deceptive. Maybe the most deceptive of them is that recent low volatility does not portend future low volatility - in other words, if the recent past has been calm, the near future may not also be calm. And yet, that is precisely what multiple market indicators of future volatility are pricing in. What is deceptive about this market is that while the overall S&P 500 continues to move in a very narrow, low-vol range, the underlying sectors are swirling around fairly rapidly. This is leading funds and strategies that aspire to control the volatility of their own returns to become overly comfortable with the market. If these strategies were small relative to the size of the stock market, it really wouldn't matter. But according to the Wall Street Journal, "volatility control" funds that use the VIX to decide whether or not to buy stocks now have $200 billion in assets.

That is in addition to the trend following strategies being used by pension funds and risk-parity funds that increase their leverage during periods of expected low volatility.

"'Is there any point to which you would wish to draw my attention?'
'The dog did nothing in the night-time.'
'That was the curious incident,' remarked Sherlock Holmes." - Arthur Conan Doyle, Silver Blaze
This crowding into the low-vol trade will only be problematic when volatility spikes and remains high for a significant period of time (i.e., more than a few days). When will that happen? I have no idea. The sell-off in the ever-evolving cohort of FANG/FAAMG (Facebook (NASDAQ:FB), Amazon (NASDAQ:AMZN), Netflix (NASDAQ:NFLX), and Google (NASDAQ:GOOG) (NASDAQ:GOOGL), or Facebook, Amazon, Apple (NASDAQ:AAPL), Microsoft (NASDAQ:MSFT), and Google, depending on who is using the acronym) on Friday was sharp and, relative to recent trading, deep. But a rally in financial and energy stocks, which have been the two worst performing sectors year to date in the SPX, offset the tech declines - keeping overall SPX vol low. So, the low-vol trade continues to work, until it doesn't.

Put another way, the dog did nothing in the night time, which is a curious thing.

The concern I have is that when the low-vol trade eventually doesn't work, it's going to blow up spectacularly, as, compared to past market downturns, there is a lot of money betting on stability. What that means is that, past a certain point, the selloff will accelerate, as put sellers either hedge or get margin calls. Some would argue that the recent surge in "passive" investing via index funds and ETFs will acerbate that eventual selloff, but I'm not so sure - we have had spectacular crashes in the past, well before Vanguard created an index fund. What may be different this time is the speed with which it occurs - think Black Monday, 1987, not the relatively more gradual declines of 2000.

So, why am I so sure that eventually we'll have a severe decline? Mainly because there aren't many cheap stocks anymore. Value investors (and I think of myself as one of those) prefer to invest when the math on an IRR basis is easy, and right now, that math is hard to make work.

At current prices, value investors are having a difficult time finding stocks that they feel confident in buying and holding. Many value mutual fund managers I talk to are just putting money to work because they have to, not because they want to. Growth has massively outperformed value recently, exacerbating the relative performance problem and driving the aforementioned FAAMG cohort to spectacular year-to-date returns. Unfortunately, what this means is that in a sell-off, value investors aren't going to be interested until stocks fall a large amount. When stocks are cheap, value investors are in there picking away at their favorites and are probably getting money flows to boot if they have recently had good performance (which they tend to do when stocks are cheap). But in the current market, stocks aren't cheap, value funds are bleeding cash, and the funds that invest using momentum factors and other trend following systems will all get sell signals at the same time - creating a self-reinforcing negative feedback loop. The market may well then become reflexive, where stocks going down makes them less attractive to the investors that have been getting money, while the investors that normally step in as prices go lower are already fully invested or don't have the firepower to stem a decline. The flow of funds out of active managers and into passive investments is one risk factor that will create this negative feedback loop (index funds don't hold cash, for example), while the amount of money in "vol control" and vol selling strategies is another. The combination could create some breathtakingly fast declines. Buckle up.

"How often have I said to you that when you have eliminated the impossible, whatever remains, however improbable, must be the truth?" - Arthur Conan Doyle, The Sign of Four

At this point, you can probably tell that I think it is impossible that volatility will remain near record lows forever. So, what is left that, while being improbable, must be the truth? Having spent a lot of time lately thinking about the current state of financial markets, I think the risk that most (but not all) market observers view as improbable is that Central Bankers around the world will lose control of their bond markets. Put another way, I think that most market participants are paying extremely high prices for credit of all types, from Sovereign bonds with negative yields to Investment Grade Corporates (IG) yielding 1% over equivalent sovereigns to High Yield (HY) bonds near (but not quite at) all-time tights, because they think that central banks are infallible. Long-time readers know I have been pointing at these markets as incredibly overvalued (I think the next "big short" will turn out to be European Sovereign bonds with negative yields and High Yield), but so far have been wrong, mainly because the bond market continues to believe, as a whole, that the central bank "put" will always be there. The market is pricing in the fact that it is extremely improbable that rates will ever rise meaningfully again. However, when thinking through the various likely future outcomes for financial markets, one scenario continues to strike me as the most likely: that financial markets swiftly, synchronously sell off - a flash crash across global markets that central bankers are unable to stop before bonds are off 15% and stocks are off more than 20%. When will this happen? Probably not until the ECB or Fed start to meaningfully unwind their $14 trillion in bond holdings. If they never do but continue to "buy buy buy," literally forever, then maybe the bond market will be able to avoid this scenario. But stocks are a different story. Something (and no, I don't know what it will be) will trigger a selloff that lasts more than a few days, and put sellers will have to hedge, and no one will be there to take the other side - and then we'll get a flash crash that morphs into something a little bigger and longer. If stocks have to sell down to levels that make them attractive again to value buyers to find a bid, that could be ugly - see the valuation charts below (thanks to for the next three charts).

Yes, we are 99% above the Exponential Regression Trend Line. We've only been higher in 2000, and that was a different type of market.

Historically, drawdowns have been severe. We are in the calm before the storm.

"Safe" Investment Grade Bonds aren't Going to Save You This Time

Forward Returns for Stocks Will Most Likely Be Quite Low - Chart from Hussman Advisors

So, what's an investor to do? Cash should be your first option. Too many investors view cash as a cost - the lost return on assets you could have been holding that continued to go up. That "cost" always looks highest near the end of a bull market. However, it's a cost that investors should be willing to bear in order to have the ability to buy stocks at attractive prices. Look at the likely forward 12-year returns on the Hussman chart above. Do stocks returning 2% per year look like something you really can't afford to miss?

"The game is afoot." - Arthur Conan Doyle, Adventure of the Abbey Grange

If your fear of missing out on a blow-off stock rally is too great to allow you to sell, then the next best thing to do is take advantage of all the vol sellers out there to take the other side of the trade - be a vol buyer. This has been costly of late - all the smug owners of vol selling funds are looking pretty smart lately, while those who hedge have just been racking up expired premium.

But…that's when you want to buy hedges - when they are cheap, and before you clearly need them. This will allow you to stay long if you have to but protect your downside. I'm not doing the following trade (I'm not capping my gains by selling the lower strike), but the following chart from the FT is indicative of how cheap hedging has become. Take advantage of it.

Quite a few of you have signed up for the more in-depth Miller's Market Matrix, where I delve in-depth into markets and provide specific investment ideas. This week, it will be jam-packed with many more charts I couldn't fit in this letter. The next issue comes out this week. Don't miss it!

This week's Trading Rules:
  • Sometimes facts can be deceiving.
  • Beware of the dog that doesn't bark.
We ended our last letter with "The market is fully-valued and is priced for Trump to get what he wants. We're holding cash in case he and the market are disappointed. Now we're also fully hedged and short high yield bonds. Can markets continue to power higher? Of course. But with hedging costs still very low, valuations extremely stretched, credit weakening in China (and in the U.S. in auto loans), at the same time the market structure is particularly fragile, not hedging would be irresponsible. Do the right thing. Get some hedges on." I wouldn't change a Word.

A Coalition of the Less-Than-Willing

By George Friedman



The Wrong Approach
The essential flaw was the way the U.S. had defined the problem. From the beginning, the Americans had focused on the organizations that carried out terrorist attacks and had sought to kill their members and thus destroy the organizations. This was a misunderstanding of the challenge. The organizations represented the tip of an extremely large spear. If the tip of the spear broke, it would just be replaced. No matter how many radical Islamist organizations were destroyed, a replacement would appear, made up of new members prepared to carry on the struggle.

The problem was not the organizations but the strain of Islam that gave rise to them. This strain was embedded in Muslim communities in Afghanistan and the Middle East. The only way to defeat the jihadist movement was to enter Muslim society and root it out. But this wasn’t viable for the U.S. military, which didn’t know how to distinguish those who wanted to follow jihadism and those who didn’t. Leaving aside that American soldiers rarely spoke the languages required, they weren’t generally Muslims and had no understanding of the culture.

U.S. strategy for the past 16 years has consisted of doing what America knew how to do, not what needed to be done – and done by those who truly understand the culture. Only the governments in the region can identify and destroy the jihadist movement. Without them, all that U.S. military operations will achieve is creating a succession of Islamist radical organizations.

From the beginning of the American engagement, governments in the Middle East have been ambivalent at best about radical Islamists. On the one hand, they declare their hostility toward organizations like al-Qaida. On the other hand, fully understanding that the movement was far more substantial than any one group, they hesitate or refuse to act against it. Partly this was because even among the citizens who were not jihadists, the jihadists were seen as admirable, dangerous (to others, not to them), or simply part of their community. The willingness of average citizens to cooperate with the government was limited.

So, too, was the governments’ willingness to risk destabilizing their societies in an attack on a deeply embedded segment of those societies. Sometimes the governments went through the motions. In some cases, segments of the government opposed or undermined any action. In others, parts of the government supported the jihadists, either to protect themselves from criticism or attack, or simply because they shared their point of view.

In short, the U.S strategy couldn’t work. If the jihadist movement drew from a social base that was part of the broader society, then attacks on the groups that arose from that base had little more than a temporary effect. The key had to be an attack by Middle Eastern nations on their own social structure. And it was the countries of the Middle East that had to compel their neighbors to take similarly aggressive action. This might not work, but without it there was no hope of the war succeeding.
A First Step
This is the context that I think the June 5 decision by a handful of Arab countries, led by Saudi Arabia and Egypt, to isolate Qatar must be viewed. Or, more precisely, the action against Qatar was part of an attempt at a strategic shift by Middle Eastern countries, forced by the United States. But the U.S. was asking for more than simply turning on Qatar.

What the U.S. has been asking for is the creation of a coalition in the Middle East. The purpose of this coalition is to make a united effort to eliminate the flow of money, fighters and other resources from each country to the Islamic State. This can’t possibly be achieved unless the governments of each country move to suppress the jihadist strand in their own countries and eliminate non-jihadist actors who, for various reasons, support them. If this were done, then the war, after these many years, might be winnable.
U.S. President Donald Trump (C) is welcomed by Saudi King Salman bin Abdulaziz al-Saud (3rd-R) upon arrival at King Khalid International Airport in Riyadh on May 20, 2017. MANDEL NGAN/AFP/Getty Images
Qatar was presented as a particularly egregious example, but the point was that there be a coalition – a group of Arab countries acting in concert against supporters of the Islamic State. It was far easier to begin by creating a coalition to stop a foreign country, but the goal was not to deal with Qatar. That was a first step. The goal for the countries in the coalition was to deal with the jihadists in their own countries.

That the U.S. would want this is understandable. It is more interesting to speculate about why a group of countries as fractious as those in the Arab world would come together on this, after so many years of being asked to act and so many years of (mostly) deflecting the request. I would offer this possible explanation. First, given the strategy the U.S. is following, this war will never succeed. Second, the Trump administration, having invested less in the war than Bush or Obama had, made it clear that unless the Arabs formed an anti-jihadist coalition, the U.S. was not prepared to continue waging the war. And third, the Arabs, contemplating their region and their own positions in the absence of the U.S., agreed to a collective effort against Qatar, and also to effective action against the threats embedded in their societies.

The Arabs don’t want to see the U.S. leave at this point. The forces that have been released in the Middle East are too great for them to contain on their own. In due course, IS and its supporters would destroy the existing order. The Arabs’ ideal position is that the U.S. wage an inconclusive war that contains IS while respecting their inability to fight within their own countries against jihadists and their supporters. That is rational.

What the U.S. seems to have done is recognize that it cannot wage this war indefinitely and cannot give the Arab states the luxury of avoiding risk. If the U.S. is going to remain at war, the Arabs have to assume some risk, or face the greater risk of a region without American force. Qatar is the focus on which the coalition will be built. From there, the U.S. expectation is that it will expand to a total commitment by the Arab world to deal with jihadists.

But there’s still a problem. The Americans want the Arabs to sign up for the war. The Arabs want the war to be against Qatar. From the Arab point of view, an attack on jihadists in their societies is, for most, an attack on society itself. Taking on another Middle Eastern government is one thing, but targeting their own societies is too risky. The United States may threaten to leave, but it probably won’t. The Arabs will be content to cross that bridge when they come to it.

The Americans see three choices. They can continue the war indefinitely. They can continue to fight alongside a full-blooded Arab coalition. Or they can leave. There is no good time to throw in the towel, but at some point reality has to be faced. The first choice, therefore, is the most unlikely; staying with no hope of winning is insane. The second choice is nearly as implausible; trusting the Arab world to take the kind of risk the U.S. has asked it to take is unlikely to happen. Therefore, the third choice is the most likely.

I would interpret the Qatar situation as an attempt by the U.S. to avoid the third option. If the Arab states took the risks, the war might be won, and the U.S. could remain and even increase its force. The U.S. has made its demand, and for the moment, the Arabs have complied. But this is only the down payment, and unless the Arabs decide the chaos of the United States leaving the Middle East will be greater than the chaos of concerted effort against jihadism, the likelihood of the gambit working remains small.