Change, Uncertainty, Highs & Lows Mark Third Quarter

The third quarter and the month of October saw a lot of ups and downs in both stock and bond markets as well as currency values.  We also saw many long standing leaders/parties fall from power as voters continue the worldwide trend of replacing the establishment with new parties and nationalistic/populist leaders who reject the political status-quo and put their nation’s interests first, ahead of the world community.  We saw leadership change in Australia, Brazil, Italy and Mexico; we also saw what looks like a prelude to the exit of long time German Chancellor Angela Merkle and Prime Minister Theresa May.

IMF Managing Director Christine Lagarde, said in a speech last week that “the global economic weather is beginning to change.”  Saudi Arabia and Russia are expected to experience stronger growth.  The eurozone economy is expected to grow 2% this year, down from a 2.2%.  Argentina’s economy is expected to contract sharply this year and next.  The economy of Turkey is seen expanding just 0.4% next year, down from 7.4% last year.

The Australian Broadcasting Network quoted the IMF as saying: The world remains vulnerable to another financial meltdown as a result of “side effects” from extraordinary measures to prevent a repeat of the Great Depression.  In its latest World Economic Outlook, the IMF singled out ultra-low interest rates and surging debt levels as potential triggers for another meltdown, saying: “large challenges loom for the global economy … The extended period of ultralow interest rates in advanced economies has contributed to the build-up of financial vulnerabilities.”

IMF Lowers Global Growth Forecasts for 2018 and 2019 (10.8.18) WSJ

https://www.wsj.com/articles/imf-lowers-global-growth-forecasts-for-2018-and-2019-1539048878

World Vulnerable To Another Financial Meltdown, IMF Warns (10.4.18) (Australian Broadcasting Corporation)

https://www.abc.net.au/news/2018-10-04/world-vulnerable-to-another-financial-meltdown-warns-imf/10337490?pfmredir=sm

 

World Markets

The US economy has continued its strong growth, generating a 3.5% growth rate for the third quarter.   The WSJ reported that, for the first time since 2008, the U.S. is once again the world’s most competitive economy.  The month of October has been a rollercoaster ride for US markets, hundreds of points up and down, at one point wiping out all the gains for 2018.  It regained some of the loss, but will definitely finish down for the first month of the fourth quarter.  The S&P 500, the Dow and Nasdaq markets appear to be headed for correction territory, falling 10% from their recent highs.

According to the WSJ, “Overseas investors, traders and central bankers are buying fewer Treasurys, a potential turning point for a $15 trillion market at the center of global finance and economics.  Foreign buyers now hold 41% of outstanding Treasury debt, their lowest share in 15 years, down from 50% as recently as 2013, according to U.S. Treasury data.  The dollar’s share of global foreign-exchange reserves fell to 62.5% in the second quarter, its lowest level in five years, data from the International Monetary Fund showed. Goldman Sachs estimates that Russia’s central bank alone may have sold as much as $85 billion in dollar-denominated assets, a move that may have been prompted by concerns over U.S. sanctions.”

In another article the WSJ reported, “The eurozone economy slowed sharply this summer, posting the weakest quarter in five years, as the region begins to suffer from a slowdown in China and turmoil in Italy takes a toll.  While the eurozone economy kept pace with the U.S. in 2016 and 2017, it has fallen behind it this year and the divergence between the two is growing more stark.  There seems little prospect of an imminent escape from the country’s long period of low growth.”

Italy’s credit rating was lowered by Moody’s, from Baa2 to Baa3, citing a “material weakening in Italy’s fiscal strength” after the government targeted higher budget deficits and stalled economic and fiscal reforms.  In contrast to the EU, the UK economy continues to experience an overall better economy with a stronger currency and higher growth rates.  This makes it difficult to claim that being a part of the EU is economically beneficial or that nations like the UK are suffering from exiting.   The EU is doing its best to propagandize, but the writing is on the wall and they fear that Italy, Poland, Hungry, the Czech Republic and other nations may soon exit as well.

The WSJ reported, “Beijing is trying to kick its habit of using big-ticket infrastructure spending to fuel the economy, a turning point from a growth model that has left many Chinese cities adorned with empty high-rises and underused highways.  China bolstered economic growth for decades by pouring trillions of dollars into roads, factories, railroads and more, and doubled down to protect the economy from the global financial crisis of the last decade.  Now the torrent has subsided as debt soared and needless projects blossomed.”

Turkey has created its own problems politically as well financially; it seems that Erdogan irritates his friends as much as he does his enemies.  He arrogantly took on Trump for a foolish reason and was trumped by sanctions, causing the Turkish economy to falter and sending its financial markets and currency into free fall.  Turkey has overtaken Argentina as the world’s worst nation for sovereign debt investors.  Bloomberg reported, “Turkey’s economic outlook has deteriorated, so much that bankers and traders are starting to talk about the need for an International Monetary Fund rescue.  The yield on 10-year bonds has surged to an all-time high, above 20 percent.”

Trade tariffs and the threat of trade tariffs are being used very effectively by President Trump to bring China, the EU and other nations to the table to talk and renegotiate trade agreements.  The reason this is so effective is simple math; 15% of the US GDP comes from exports and 85% is derived from domestic purchases, while in a majority of other nations exports represent 80% – 90% of the GDP with domestic purchases representing only 10% – 20%.  Thus, in a trade war the U.S. can affect 80% – 90% of most other nations ‘economies, while other nations can only affect about 15% of the US economy.

Eurozone Growth Stutters as U.S. Economy Powers Ahead (10.30.18) WSJ

https://www.wsj.com/articles/eurozone-economic-growth-falls-further-behind-u-s-1540894480?mod=hp_major_pos11

Investors Flee Tech Stocks, Dragging Down U.S. Indexes (10.29.18) WSJ

https://www.wsj.com/articles/europe-stocks-rise-as-s-p-500-nears-correction-territory-1540803458

GDP Grows 3.5% on Consumer Vigor but Investment Slows (10.26.18) WSJ

https://www.wsj.com/articles/u-s-economy-grew-at-3-5-rate-in-third-quarter-1540557378

Dow, S&P 500 Erase 2018 Gains & Nasdaq Drops 4.4% (10.24.18) WSJ

https://www.wsj.com/articles/european-stocks-rise-after-volatile-day-on-wall-street-1540367863

Foreign Buying of U.S. Treasurys Softens, Unsettling Financial Markets (10.23.18) WSJ

https://www.wsj.com/articles/foreign-buying-of-u-s-treasurys-softens-unsettling-financial-markets-1540303515

Stocks Wild Swings Rattle Investors (10.22.18) WSJ

https://www.wsj.com/articles/global-stocks-drop-on-political-tensions-worries-over-chinese-growth-1540281268

China Finds Big-Ticket Spending Is a Road to Nowhere (10.20.18) WSJ

https://www.wsj.com/articles/china-finds-big-ticket-spending-is-a-road-to-nowhere-1540036800

U.S. & EU Trade Teams Seek Fast Results and Big Savings (10. 20.18) WSJ 2

https://www.wsj.com/articles/u-s-eu-trade-teams-seek-fast-results-and-big-savings-1540123200

Ross Says Progress of Trade Talks With EU Is Unsatisfactory (10.18.18) WJS

https://www.wsj.com/articles/ross-says-progress-of-trade-talks-with-eu-is-unsatisfactory-1539792204

Italian Credit Downgrade Likely to Add to Pressure on Europe’s Markets (10.19.18) WSJ https://www.wsj.com/articles/contagion-creeps-back-into-europes-bond-markets-1539947331

In First for Europe, Brussels Rejects Italy’s Budget (10.23.18) WSJ

https://www.wsj.com/articles/in-first-for-europe-brussels-rejects-italys-budget-1540303443

U.S. Is World’s Most Competitive Economy Again (10.17.18) WSJ

https://www.wsj.com/articles/u-s-is-worlds-most-competitive-economy-for-first-time-in-a-decade-1539727213

China Growth Slows to Weakest Pace Since the Financial Crisis (10.19.18) WSJ

https://www.wsj.com/articles/china-growth-slows-to-6-5-finance-officials-try-to-soothe-worried-investors-1539917129

Investor Shift Triggers Stocks’ Wild Ride (10.12.18) WSJ

https://www.wsj.com/articles/investor-shift-triggers-stock-markets-wild-ride-1539384364

U.K. Economy Rebounded in Summer (10.10.18) WSJ
https://www.wsj.com/articles/u-k-economy-picked-up-in-the-summer-1539162020

Worst Hit in Global Markets Rout Tech and China (10.10.18) WSJ

https://www.wsj.com/articles/worst-hit-in-global-markets-rout-tech-and-china-1539258678

Big Lenders Make Push to Liquidate Sears (10.10.18) WSJ

https://www.wsj.com/articles/big-lenders-make-push-to-liquidate-sears-1539257424

Why Can’t Turkey Stop Its Economic Nose-Dive (8.8.18)

https://www.bloomberg.com/news/articles/2018-08-08/why-can-t-turkey-stop-its-economic-nose-dive-quicktake

 

Central Banks

The US, Australia and the UK have raised their benchmark interest rates. Japan and the EU have discussed it quietly, but continue to print more currency and their interest rates continue to be negative.  Canada is likely to raise interest rates while Mexico holds tight.  At the last meeting of the Federal Reserve, they determined the US economy to be strong, raised interest rates and stated that they are planning on continuing to raise them.

Fed Minutes Point to Continued, Gradual Interest-Rate Increases (10.17.18) WSJ

https://www.wsj.com/articles/fed-minutes-point-to-continued-gradual-interest-rate-increases-1539799489

Bank of Canada Likely to Raise Rates, Even if Nafta Talks Collapse (9.6.18) WSJ

https://www.wsj.com/articles/bank-of-canada-may-raise-rates-despite-nafta-breakdown-1536264597

Bank of Mexico Leaves Interest Rates Unchanged (8.2.18) WSJ

https://www.wsj.com/articles/bank-of-mexico-leaves-interest-rates-unchanged-1533236118

Carney Hikes Rate in What May Be Final Pre-Brexit Push (8.2.18)

https://www.bloomberg.com/news/articles/2018-08-02/boe-raises-interest-rate-to-0-75-in-surprise-unanimous-vote

 

Debt

As most global stock markets and national GDP are going up, so are most of their debt levels.  At some point in the future, rising national debt levels will collide with stock markets & GDP, because you cannot continue to fuel growth with debt; businesses can’t do it and neither can governments.  According to CNBC, “Unreported Chinese local government debt may amount to trillions of U.S. dollars, meaning the country’s debt-to-GDP ratio has hit “alarming” levels; S&P Global Ratings said in a report released TuesdayThe actual level of off-balance sheet debt could be several times more than what is publicly disclosed and range as high as 30 trillion yuan to 40 trillion yuan.”  Pakistan, the flagship country for China’s global infrastructure building initiative, asked for a bailout from the International Monetary Fund, amid growing concerns that Beijing’s program is pushing recipient countries into financial crisis. Ballooning trade deficit and fast-depleting foreign exchange reserves left the Pakistani government no other choice.

Germany held up the final $57.1 billion bailout disbursement for Greece and did not sign off on the deal.  “The International Monetary Fund agreed to boost its bailout package signed with Argentina in June, providing additional financial support and accelerating the disbursement of funds.  The expanded program will aim to reduce the country’s double-digit inflation by replacing inflation targets with monetary base goals to contain the money supply, the IMF said.  Argentina’s debt ratio will reach 84% of gross domestic product by the end of the year, compared with 57% a year earlier, consultancy Oxford Economics said this week. “Argentina’s debt-to-GDP ratio is rising at an unsustainable pace,” the firm said.”(WSJ).   The US Court of Federal Claims has ruled that hedge fund creditors of Puerto Rico’s debt can sue the United States government for losses incurred by investors.

Simon Black wrote:

Right now many pension funds around the world simply don’t have enough assets to cover the retirement obligations they owe to millions of workers.  In the US alone, federal, state, and local governments, pensions are about $7 trillion short of the funding they need to pay out all the benefits they’ve promised.  (** And that doesn’t include another $49 trillion in unfunded Social Security obligations…).  In 2015, the total worldwide gap in pension funding was $70 trillion according to the World Economic Forum. That is larger than the twenty largest economies in the world combined.  And it’s only gotten worse since then…  The WEC said that the worldwide pension shortfall is on track to reach $400 trillion by 2050.  In a world full of reckless and extreme monetary policy, Japan no doubt takes the cake. The country has total debt of more than ONE QUADRILLION YEN (around $10 trillion) pushing its debt-to-GDP ratio to a whopping 224% – that puts it ahead of financial basket case Greece, whose debt-to-GDP is around 180%.  Japan spent 24.1% of its total revenue (appx. 23.5 trillion yen) last year servicing its debt – both paying down principal and interest. And that percentage has no doubt moved even higher this year.  And, keep in mind, this isn’t some banana republic. It’s the world’s third-largest economy.  In another Simon Black post: As of June, U.S. non-financial firms are sitting on a record $6.3 trillion in debt.  AT&T alone has an astounding $180 billion of debt, making it the most indebted non-government controlled and non-financial firm in history… and more indebted than many governments around the world. And the quality of corporate debt is getting worse and worse.”

The U.S. Treasury Department estimates it will issue more than $1 trillion in debt this year as higher government spending and sluggish tax revenues push the deficit higher. The Treasury said Monday it expects net marketable debt to total $425 billion in the fourth quarter, which would bring total debt issuance in 2018 to $1.338 trillion, compared with $546 billion in 2017. That would be the highest annual debt issuance since $1.586 trillion in 2010, when the U.S. economy was still crawling out of a recession.  The higher debt issuance comes as the Federal Reserve has been raising short-term interest rates following an extended period of near-zero rates in the years since the financial crisis. Fed officials lifted their benchmark federal-funds rate to a range between 2% and 2.25%.  Annual home-price gains fell below 6% for the first time in a year in August, another sign that the slowdown in the housing market is becoming widespread and is likely to persist in the months to come.

Home Prices Continue to Lose Momentum (10.30.18) WSJ https://www.wsj.com/articles/home-prices-continue-to-lose-momentum-1540904603?mod=hp_lead_pos4

Treasury Expects to Issue Over $1 Trillion in Debt in 2018 (10.29.18) WSJ

https://www.wsj.com/articles/treasury-estimates-annual-net-marketable-debt-to-total-1-338-trillion-in-2018-1540839709

$6 Trillion of Local Government Debt may be Lurking Under the Surface in China (10.16.18) CNBC  https://www.cnbc.com/2018/10/16/china-hidden-local-government-debt-could-be-6-trillion-sp.html

U.S. Deficit Rose 17% in Fiscal 2018 (10.15.18) WSJ  https://www.wsj.com/articles/u-s-government-debt-rises-17-in-fiscal-2018-1539626598

Sears, a Onetime Retail Giant, Now Banks on Bankruptcy (10.15.18) WSJ https://www.wsj.com/articles/sears-files-for-chapter-11-bankruptcy-1539579819

The Pension Crisis is Bigger Than the World’s 20 Largest Economies and only Getting Worse (9.7.18)  SMC | https://www.sovereignman.com/trends/this-financial-crisis-is-bigger-than-the-worlds-20-largest-economies-24103/?utm_medium=email&utm_source=sm_notes&utm_campaign=notes&utm_content=201897_pension_crisis

Why Japan May Spark The Next Crisis (8.1.18) SMC https://www.sovereignman.com/trends/why-japan-may-spark-the-next-crisis-24023/?utm_medium=email&utm_source=sm_notes&utm_campaign=notes&utm_content=201881_japan_eco

The Pension Crisis is Bigger Than the World’s 20 Largest Economies and only Getting Worse (9.7.18)  SMC | https://www.sovereignman.com/trends/this-financial-crisis-is-bigger-than-the-worlds-20-largest-economies-24103/?utm_medium=email&utm_source=sm_notes&utm_campaign=notes&utm_content=201897_pension_crisis

Judge Rules that Bankrupt Puerto Rico’s bondholders can sue the United States (7.16.18) WSJ https://www.theblaze.com/news/2018/07/16/judge-rules-that-bankrupt-puerto-ricos-bondholders-can-sue-the-united-states?utm_source=Sailthru&utm_medium=email&utm_campaign=Daily-Newsletter__PM-Final%202018-07-16&utm_term=TheBlaze%20Daily%20PM%20-%20last%20270%20days

IMF Expands Aid Package for Argentina (9.26.18) WSJ https://www.wsj.com/articles/imf-expands-aid-package-for-argentina-1537997055

Pakistan Requests IMF Bailout Talks (10.8.18) WSJ  https://www.wsj.com/articles/pakistan-to-hold-bailout-talks-with-imf-1539018792

One of the Greatest Follies from the Last Crisis is Back (10.2.18) SMC https://www.sovereignman.com/trends/one-of-the-greatest-follies-from-the-last-crisis-is-back-24180/?utm_medium=email&utm_source=sm_notes&utm_campaign=notes&utm_content=2018102_hudson

Germany Delays Greece’s Final Bailout Payment (7.12.18) WSJ  https://www.wsj.com/articles/germany-delays-greeces-final-bailout-payment-1531431927

 

Political Unrest

Political unrest is increasing along with most global markets and national GDPs, nationalism continues to defeat Globalism, and independent non-establishment candidates continue to defeat establishment candidates.  Financial weapons like trade sanctions and tariffs are being used to pressure, force and even defeat world leaders and governmental regimes.  According to the WSJ “The Pakistani request for an IMF loan could further test already-strained U.S.-China relations.  In July, U.S. Secretary of State Mike Pompeo warned that the U.S. didn’t want to see any IMF lending to Pakistan “go to bail out Chinese bondholders or—or China itself.”  South Africa is scrambling to shore up investor confidence as Africa’s most-developed economy has plunged into recession, its rand currency has slid and pressure is mounting from a dissident faction within his ruling party.  President Trump, South African banks and white farming groups have all attacked an ANC proposal to start expropriating land without compensation—despite Mr. Ramaphosa’s assurances that this would be done without hurting the economy or agricultural production.”

Disunity continues in the European Union as Immigration, European courts, over regulation, banking problems, low growth and tight budgets continue to fracture European unity, causing many countries to challenge basic EU fundamentals.  The utopian idealistic view of a united Europe with no borders and overlapping economies are no match for financial reality.  EU nations are frustrated that they can’t do what they believe is best for their nation and its citizens.  In one election after another nationalist/populist candidates are defeating their globalist/establishment counter parts.  German Chancellor Angela Merkle, who, less than a year ago, was one of the world’s most powerful leaders, recently resigned as head of her party, and said she would not run again after her current term is over.  British Prime Minister Theresa May likely will not last much longer, and a number of her cabinet ministers have already resigned.  May’s former Foreign Minister, Boris Johnson (who was the main leader of Brexit), will likely become Prime Minister and lead the UK through a hard Brexit at the end of March of 2019.

Anti-establishment nationalistic leaders are growing in popularity in Poland, Hungry, the Czech Republic and Italy.  Italy defied the EU by passing a budget that did not follow EU guidelines and have thus far refused to change it.   Nationalist leaders are also replacing their globalist counter parts in Brazil and Australia.  People all over the world are pushing back against government and multi-national corporations and technology companies.  They are tired of being controlled and manipulated by these entities and told what to do, by what they perceive to be the ruling elites, who do not have their best interests at heart.

The biggest tech companies have tremendous power over the hearts and minds of people—as much as many of the governments in countries where they operate. All over the world, citizens, bureaucrats and politicians are now pushing back against that power.  Most often, the backlash is directed at America’s tech giants, such as Alphabet Inc.’s Google, Facebook Inc. and Amazon.com Inc., and how their ubiquity affects individuals and businesses. But resistance to Big Tech also includes China curbing the power of its own technology companies, and India rejecting foreign monopolists in favor of homegrown players.    The worst-case scenario in China, says Paul Triolo, a technology analyst at the Eurasia Group think tank, is if Beijing were to nationalize some of its tech giants.” (WSJ)

As August came to a close Reuters reported, that China completed its own SWIFT alternative.  The new system was created to combat how the U.S. has used the Belgium-based SWIFT system (the world’s biggest electronic payments system) as a financial weapon to target Russia, when Russia does things the U.S. doesn’t like.  This is how the U.S. sanctions other nations who do things they don’t like, because if those nations can’t wire money in or out, their economies would be destroyed.  If China and Russia implement this, it would represent a major step in nations being able to defend their economies from Washington’s ability to sanction and control international financial transactions.  Russia and China are not the only ones looking at electronic transaction payment alternatives.  Germany urged the EU to come up with their own system, to loosen the ability of the US to apply pressure in this manner.  I think we are going to see more and more countries coming up with their own SWIFT alternatives. The world of financial transaction has radically changed in the last ten years with an additional World Bank (AIIB), crypto-currencies and alternative SWIFT systems; the next world financial crisis will not play out the same as the last one.

How the Desire for Change Might Not Be Just an American Experience (10.30.18) WSJ

https://www.wsj.com/video/how-the-desire-for-change-might-not-be-just-an-american-experience/28E9F8B0-A633-43A3-AB47-9A8B73871D7E.html

Anti-Establishment Candidate Wins Brazil’s Presidential Race (10.29.18) WSJ

https://www.wsj.com/articles/brazilians-head-to-polls-in-divisive-presidential-election-1540724400

The Global Tech Backlash Is Just Beginning (10.28.18) WSJ https://www.wsj.com/articles/the-global-tech-backlash-is-just-beginning-1540476151

Italy Vows to Stick to Budget That Breaches EU Rules (10.22.18) WSJ

https://www.wsj.com/articles/italy-vows-to-stick-to-budget-that-breaches-eu-rules-1540207398

Foreign Buying of U.S. Treasurys Softens, Unsettling Financial Markets (10.23.18) WSJ

https://www.wsj.com/articles/foreign-buying-of-u-s-treasurys-softens-unsettling-financial-markets-1540303515

Yemen Could be Worst Famine in 100 Years (10.15.18) BBC

https://www.bbc.com/news/av/world-middle-east-45857729/yemen-could-be-worst-famine-in-100-years

Merkel, Already Wobbling, Faces Fresh Blow in Historical Stronghold (10.12.18) WSJ  

https://www.wsj.com/articles/german-voters-set-to-punish-merkels-conservative-bloc-1539336600

Brazil Voters Buck Status Quo With Rise of Right-Wing Firebrand (10.11.18) WSJ

https://www.wsj.com/articles/brazil-voters-buck-status-quo-with-rise-of-right-wing-firebrand-1539034621

Pakistan Requests IMF Bailout Talks (10.8.18) WSJ https://www.wsj.com/articles/pakistan-to-hold-bailout-talks-with-imf-1539018792

Economic Problems Exacerbate Challenges for South Africa’s Leader (9.26.18) WSJ

https://www.wsj.com/articles/economic-problems-exacerbate-challenges-for-south-africas-leader-1537975408

Germany Urges EU Payment System without U.S. to Save Iran Deal (8.21.18) Reuters

https://www.reuters.com/article/us-iran-nuclear-germany/germany-urges-eu-payment-system-without-u-s-to-save-iran-deal-idUSKCN1L61KW

 

Brief Commentary on Mid-Tem US Election Results:

Just a quick comment, I am in Israel at the ICCC Conference which just ended Wednesday.  The loss of the House of Representatives means that the Trump and the Republicans will push through a lot of Legislation in the next month and a half.  After that little or no legislation will get passed after Dec 31st and Trump will rule by executive order. Unfortunately, the Democrats are going to start multiple baseless Congressional investigations against Trump.  This will make things even more contentious and create even a greater media circus than we have seen the last two years.

2018 Mid-Year Economic Update

At mid-year global financial markets are doing well in most places, but presidents, prime ministers, parliaments and governments are changing at break neck pace.  In the last two months:

  • Turkey’s constitution was changed & Erdogan was given dictatorial powers
  • Trump became the first US president to meet with N. Korea, reportedly striking a deal for NK to de-nuclearize, but there are reports they are still building nuclear facilities
  • North and South Korea have begun the process of ending the technical state of war between them as well as eliminating the Demilitarized Zone
  • Putin won reelection by more than 80% about the same as his approval ratings
  • Iraq elections were so close and so corrupt, they are doing a 12M vote re-count by hand
  • Venezuela is experiencing rioting, mass poverty and economic freefall as Maduro was reelected in what is being hailed as a corrupt contest
  • Brexit negotiations are going no where
  • Immigration is driving the EU apart
  • Trade Wars and Tariffs are being fired back & forth
  • Hungarian Prime Minister Viktor Orban decisively won a fourth term
  • Iran is being ostracized and sanctioned by the US and its citizens are protesting
  • Spain’s prime minister Rajoy has lost his majority and prime ministership and the Catalonians have voted separatist leaders back in
  • Like Italy, Mexican’s elected a brand new year old party to run Mexico

 

Political Unrest

Venezuelan President Nicolás Maduro’s re-election has almost universally been condemned, with the US calling it a “sham” and Canada, Brazil, Chile, and Panama declaring they will not recognize Venezuela’s government.  Venezuela’s annual inflation rate is the highest in the world, according to a BBC report, “Venezuela’s Central Bank has not published inflation figures since 2015 but economist Steve Hanke from Johns Hopkins University calculated it rose to almost 18,000% in April.” Nearly 2 Million people have fled the country since 1999 and Venezuelan’s are the top seekers of US asylum.   Another establishment government bites the dust in Mexico, as Andrés Manuel López Obrador and the National Regeneration Movement takes over the reins, ending ninety years of rule by one of three parties.

In Russia-China-US relations – the WSJ reported: “Russia and China have signed a raft of deals and pledged tighter coordination on security and foreign policy, underscoring how disputes with the U.S. are drawing the neighbors closer.”  This is not a good sign as the goal of super power foreign policy has always been to ally with China against Russia or allied with Russia against China, but we’ve never seen Russian and China allied against the US.  Trump has clearly chosen Russia to buddy up with and is actively ostracizing China on multiple fronts.  China is doing its best to look like they can be trusted, however few world leaders trust China, which is why President Trump has called their bluff, which they are not used to have happen.  According to the WSJ, “The Defense Department’s inspector general is investigating a major security breach after Chinese hackers allegedly stole large amounts of sensitive data from a Navy contractor, according to military officials.  Adm. Davidson said: “I believe they are stealing technology in just about every domain, and trying to use it to their advantage.”

Mexico Vote Snubs the Political Establishment (7.2.18) WSJ

https://www.wsj.com/articles/mexico-vote-snubs-the-political-establishment-1530560502

North Korea Expands Key Missile-Manufacturing Plant (7.1.18) WSJ

https://www.wsj.com/articles/north-korea-expands-key-missile-manufacturing-plant-1530486907?mod=searchresults&page=1&pos=1

Iraq Will Proceed With Extraordinary Recount of 12 Million Ballots (6.21.18) WSJ

https://www.wsj.com/articles/iraq-will-proceed-with-extraordinary-recount-of-12-million-ballots-1529592962

Russia and China Show Off Ties With Putin Visit (6.8.18) WSJ

https://www.wsj.com/articles/russia-and-china-show-off-ties-with-putin-visit-1528467295

Spain’s Rajoy Ousted by Lawmakers (6.1.18) WSJ

https://www.wsj.com/articles/lawmakers-oust-spanish-leader-who-enacted-painful-economic-reforms-1527845793

Chinese Hackers Stole Secret U.S. Submarine-Warfare Data, Military Says (6.8.18) WSJ

https://www.wsj.com/articles/chinese-hackers-stole-large-amounts-of-secret-u-s-submarine-warfare-data-military-says-1528500859

After Venezuela Strongman’s Victory, Isolated Nation Faces Growing Chaos (5.21.18) WSJ

https://www.wsj.com/articles/after-venezuela-strongmans-victory-isolated-nation-faces-growing-chaos-1526935047

Catalonia’s Assembly Elects New Hard-Line Separatist Leader (5.14.18) WSJ

https://www.wsj.com/articles/catalonias-assembly-elects-new-hard-line-separatist-leader-1526302712

North Korea & South Korea to Pursue Peace Deal, Denuclearization (4.27.18) WSJ |

https://www.wsj.com/articles/kim-jong-un-and-south-korean-leader-to-pursue-peace-deal-denuclearization-1524822022

 

Nationalism v Globalism

The battle of Nationalism v Globalism is raging almost everywhere, especially in western nations.  Nationalists want to keep their cultural and historical identity and retain control of their national sovereignty to determine their own destiny.  Globalists believes these differences are divisive and that it’s not fair that one nation should have an advantage over another.  Globalists want to eliminate national identities, cultures and sovereignty and replace them with a one world economy and government that distributes individual wealth and world resources equally.  Globalists believe large bureaucratic structures like the UN and the European Union run by unelected bureaucrats, would do a better job than elected officials and individual sovereign nations.

Now that Special Counsel Robert Mueller’s 18 month investigation into Trump/Russian collusion has failed to turn up any evidence or indictments, Trump & Putin are scheduled to meet in their first formal summit in mid-July.  Trump plans to visit the UK, then attend a NATO meeting in Brussels, after which he and Putin will meet in Finland.  Trump and Putin are unarguably the most effective and forceful global leaders in the world and should they decide to work together to achieve a mutually advantageous set of goals, the combined governments of the world couldn’t do anything to stop them.  This is why the deep state and the rest of the world leaders have done everything in their power to keep them apart.  China has to walk a fine line, wanting to remain Russia’s friend, and not wanting Trump & Putin to make any joint agreements that make things any more difficult for them than Trump already has.  No doubt NATO nation leaders (primarily EU nations) will pressure Trump not to make any deals, but Trump has proved fairly impervious to pressure, in fact he seems to enjoy it.  No doubt this why Trump is visiting the UK to cut some deals with Prime Minister May, who isn’t getting anywhere with Brussels either, as he positions himself for the NATO meetings.

Trump to Meet Russia’s Putin in Finland on July 16 (6.28.18) WSJ

https://www.wsj.com/articles/trump-to-meet-russias-putin-in-finland-on-july-16-1530187901

 

EU Continues to Fracture

Immigration is dismantling the EU and almost brought down German Chancellor Merkle’s government a mere three months after it was finally formed.  Before the meeting of EU leaders on Immigration the WSJ reported, “Ms. Merkel is under fire from her conservative allies in Bavaria, who are part of her government and control the Interior Ministry in Berlin. They have given the chancellor until this weekend to strike an unlikely European deal that puts a lid on immigration or closes the border to certain immigrants. Failure could bring about a collapse of her fragile coalition.”  An agreement was reached on the matter, the final Friday in June, which wasn’t what Merkel wanted, but it was enough to keep her chancellorship, at the moment.

The WSJ reported: “Italian Interior Minister Matteo Salvini is blocking migrant-laden boats from landing in Italy, challenging European Union rules on asylum.  “Italy has stopped bowing its head and obeying,” Mr. Salvini said this month after blocking a ship bearing asylum seekers from landing.  Mr. Salvini and his League are the real power behind the new government in Rome, overshadowing their more moderate partners, the 5 Star Movement.  The League’s popularity continues to grow, reaching around 28% in the latest opinion polls, compared with 17% in March elections, their campaign slogan, “Italians First” kinda sounds familiar.  The rift in Ms. Merkel’s government over the issue is so deep as Berlin is rife with speculation the chancellor could fall.”

Hungarian Prime Minister Viktor Orban won a fourth term decisively, with his anti-EU, immigration and strong nationalistic platform.  Brexit negotiations continue to produce nothing but discord.  The UK and the EU are going through the motions, but there is little hope on either side of an agreement being reached.  Bloomberg reported: U.K. Prime Minister Theresa May accused the European Union of putting the safety of its 500 million citizens at risk by blocking a broad Brexit deal on security, as the atmosphere surrounding negotiations soured.  During a working dinner at the EU summit in Brussels on Thursday, May told her fellow leaders that Britain wants to play a major role in European security after it leaves the bloc. “Our ability to do so is being put at risk,” she said.

 

European Leaders Reach Migration Deal, Giving Merkel Respite at Home (6.29.18) WSJ https://www.wsj.com/articles/migrant-issue-could-be-make-or-break-for-eu-merkel-warns-1530197239

May Hits EU With Terror Warning as Brexit Mood Gets Bitter (6.28.18)

https://www.bloomberg.com/news/articles/2018-06-28/may-hits-eu-with-terror-warning-as-brexit-mood-gets-bitter

EU Worries Worst Is Yet to Come in U.K.’s Brexit Soap Opera (6.20.18)

https://www.bloomberg.com/news/articles/2018-06-20/eu-worries-u-k-soap-opera-over-brexit-still-has-worse-to-come

Italy’s Salvini Puts Roadblocks in Migrants’ Way While Reaching Out to Fellow European Populists (6.25.18) WSJ https://www.wsj.com/articles/italys-salvini-puts-roadblocks-in-migrants-way-while-reaching-out-to-fellow-european-populists-1530091800

Immigration Backlash Erodes Merkel’s Power in Conservative Stronghold (6.26.18) https://www.wsj.com/articles/immigration-backlash-erodes-merkels-power-in-conservative-stronghold-1530029266

The Good Times for Illegals Is Over, Get Ready to Pack Your Bags Italy’s New Interior Minister Promises Mass Deportations (6.4.18) https://www.zerohedge.com/news/2018-06-03/good-times-illegals-over-get-ready-pack-your-bags-italys-new-interior-minister

Macron Appeals for EU Unity in Face of Nationalism (4.17.18) WSJ

https://www.wsj.com/articles/macron-appeals-for-eu-unity-in-face-of-nationalism-1523979040

Hungary’s Orban Wins Fourth Term as PM (4.8.18) WSJ

https://www.wsj.com/articles/hungary-votes-in-election-with-orban-set-to-secure-a-fourth-term-1523162923

 

Central Banks

The Federal Reserve raised interest rates a quarter point in their mid-June meeting and indicated they would raise them two additional times this year.  The following day the European Central Bank said they were going to keep their interest rates at the current -.04, but they planned to begin to wind down their bond buying and euro printing.  The number of US mortgage refinances dropped to the lowest level in 18 years in May, as the Federal Reserve hiked interest rates and made it clear they plan to continue to raise rates.  Bloomberg reported: “China’s central bank will cut the amount of cash some lenders must hold as reserves, unlocking about 700 billion yuan ($108 billion) of liquidity, as it seeks to control leverage and support smaller companies.  The required reserve ratio for some banks will drop by 0.5 percentage point, effective July 5, the People’s Bank of China said on its website. That’s the day before the U.S. and China are scheduled to impose tariffs on each other.”

The Argentine peso has fallen to historic lows despite the change in its central bank chairman which the global market views as favorable.  Argentine 100 year government bond rates rose to 9% which begs the question why would anybody buy 100 year bond from a country which has defaulted three times in the last 70 years.  Central bankers want to regulate crypto-currency, but can’t agree on how to do it.  They are beginning to research and prepare for the future in which digital currencies will challenge their supremacy and their ability to control the liquidity and transactional activities within their borders.

 

China to Unleash $108 Billion in Reserve Cut for Some Banks (6.24.18)

https://www.bloomberg.com/news/articles/2018-06-24/china-s-central-bank-cuts-reserve-ratio-for-some-banks

ECB to End Bond-Buying Program in December as Crisis-Era Policies Wind Down (6.14.18) WSJ

https://www.wsj.com/articles/ecb-to-end-bond-buys-as-crisis-policies-wind-down-1528977227

Fed Raises Interest Rates, Sets Stage for Two More Increases in 2018 (6.13.18) WSJ

https://www.wsj.com/articles/fed-raises-rates-and-signals-faster-pace-in-coming-years-1528912910

Argentine Peso Resumes Plunge After Central Bank Shakeup (6.15.18)

https://www.bloomberg.com/news/articles/2018-06-15/dramatic-rebound-for-argentine-peso-as-caputo-takes-over-bank

Weekly Mortgage Refinances Drop to an 18-Year Low as Rates Jump (5.23.18) CNBC https://www.cnbc.com/2018/05/23/weekly-mortgage-refinances-drop-to-an-18-year-low-as-rates-jump.html

Central Bankers Can’t Agree on Cryptocurrencies (4.26.18)

https://www.bloomberg.com/view/articles/2018-04-26/central-bankers-can-t-agree-on-cryptocurrencies

 

Crypto Currency

Bitcoin is currently being investigated for price manipulation, as Bitcoin values have dropped 70% from their December highs.  According to the WSJ, “Government investigators have demanded that several bitcoin exchanges hand over comprehensive trading data to assist a probe into whether manipulation is distorting prices in markets linked to the cryptocurrency.  The investigation followed the launch of bitcoin futures on CME Group Inc.’s CME -0.45% exchange six months ago. CME’s bitcoin futures derive their final value from prices at four bitcoin exchanges: Bitstamp, Coinbase, itBit and Kraken. Manipulative trading in those markets could skew the price of bitcoin futures that the government directly regulates.”

Bitcoin Bloodbath Nears Dot-Com Levels as Many Tokens Go to Zero (6.28.18) https://www.bloomberg.com/news/articles/2018-06-29/bitcoin-falls-below-5-900-to-wrap-up-a-gloomy-2018-first-half

Bitcoin Extends Its Collapse (6.13.18)

https://www.bloomberg.com/news/articles/2018-06-13/no-let-up-for-bitcoin-as-biggest-cryptocurrency-extends-decline

U.S. Regulator Demands Trading Data From Bitcoin Exchanges (6.8.18) WSJ

https://www.wsj.com/articles/u-s-regulators-demand-trading-data-from-bitcoin-exchanges-in-manipulation-probe-1528492835

The Real Opportunities in Cryptocurrency Aren’t Cryptocurrencies (6.11.18) SMC https://www.sovereignman.com/trends/the-real-opportunities-in-cryptocurrency-arent-cryptocurrencies-23753/?utm_medium=email&utm_source=sm_notes&utm_campaign=notes&utm_content=2018611_dlt

 

DEBT

The International Monetary Fund (IMF) has provided a credit line of $50B to Argentina.  Bloomberg reported it was the largest loan the IMF has ever issued.  Again, is it wise to issue a nation whose currency has fallen 32% and that has defaulted three times in the last 70 years, the largest loan ever?  Eurozone nations agreed on the final elements of a plan to get Greece out of its eight-year bailout program and make its debt more manageable.  The ministers needed to complete a deal between Greece and its creditors that would allow it to safely emerge from its third bailout program on Aug. 20 and face the international bond markets again.

Chinese local government debt is over 16.6 trillion yuan up almost 1% from the beginning of the year.  In an attempt to curtail the debt Beijing is letting local governments sell bonds, but are not allowing them to guarantee the debt.  Reuters reported, “A firm controlled by a city government in China’s Inner Mongolia region has failed to make interest and principal payments on nearly 4 billion yuan ($629 million) in off-balance sheet loans, two sources with direct knowledge of the matter said.  The rare loan default highlights growing funding strains on Chinese local governments as Beijing cracks down on riskier types of financing and rising debt, which some outside agencies have warned could lead to a banking crisis.”  

Simon Black summarizes the dire condition of the US debt: “The Medicare and Social Security Trust Fund issued their June 2018 Annual Report stating, the Medicare fund will be fully depleted in 2026 and the Social Security fund will be depleted in 2034.  The 2018 Annual US Treasury report shows the US is already insolvent by over $20T and by 2020 annual budgets will be over $1T annually.”  He gives an analysis of insolvent world pension funds which are going to fail and little is being done to fix this inevitable crisis.  China reduced its US Treasury holdings by $5.8B in April, and Russia and other nations are selling their US Treasury holdings as well.

IMF Board Approves Argentina’s $50 Billion Stand-By Arrangement (6.20.18) https://www.bloomberg.com/news/articles/2018-06-20/imf-board-approves-argentina-s-50-billion-stand-by-arrangement

The Latest Casualty in the Global Pension Catastrophe (6.22.18) SMC https://www.google.com/url?hl=en&q=https://www.sovereignman.com/trends/the-latest-casualty-in-the-global-pension-catastrophe-is-23795/?utm_medium%3Demail%26utm_source%3Dsm_notes%26utm_campaign%3Dnotes%26utm_content%3D2018622_pension_crisis&source=gmail&ust=1530015217065000&usg=AFQjCNFkUd2cUDyWzvpj1w_RX_LYkwaZAQ

China Local Govt Firm Fails to Repay $629 MLN Loans in Rare Default Sources (5.18.18) Reuters https://www.reuters.com/article/us-china-economy-debt-default/china-local-govt-firm-fails-to-repay-629-mln-loans-in-rare-default-sources-idUSKCN1IJ0DY?mod=djemDailyShot&mod=djemDailyShot

Eurozone Agrees on Final Details of Plan to End Greece’s Bailout (6.21.18) WSJ

https://www.wsj.com/articles/eurozone-agrees-on-final-details-of-plan-to-end-greeces-bailout-1529629327

China’s U.S. Treasuries Holdings Fell $5.8 Billion in April (6.15.18)

https://www.bloomberg.com/news/articles/2018-06-15/china-s-holdings-of-u-s-treasuries-fell-5-8-billion-in-april

Its Official Medicare Trust Fund Will Run Out Of Money in 8 Years (6.7.18) SMC https://www.sovereignman.com/trends/its-official-medicare-trust-fund-will-run-out-of-money-in-8-years-23750/?utm_medium=email&utm_source=sm_notes&utm_campaign=notes&utm_content=201867_medi_broke

 

The Middle East

The Middle East has been a powder keg of activity with continuing war in Syria, Turkey’s Erdogan achieving one man dictatorial rule and the US moving its embassy to Jerusalem.  The power brokering dream of Iran is currently crumbling, as their three recent bumbled attacks on Israel ended with strategic and humiliating retaliation by the Israelis, while at the same time, their citizens are protesting again and ignoring the threats of the ruling Mullahs.  No work, no food and no delivery on the promises of an Islamic paradise are taking their toll.  This coupled with Trump withdrawing from the sweetheart deal the Obama Administration gave them and imposing new more stringent economic sanctions, leave Iran with a dreary future outlook.  When the citizens of a nation no longer respond to governmental fears and threats, because their circumstances are more dire, regimes change.

Unlike the current Iranian leaders who have been difficult to deal with who broke the nuclear with Obama administration shortly after they made it, the new Saudi Arabian leader Crown Prince Mohammed bin Salman is looked at as reasonable, personable, a dynamic deal maker and has quickly consolidated power, raised oil production, started many new non-oil economic initiatives, declared Israel’s right to exist and most earth shattering, let Saudi women drive.

Bloomberg reported: The Kingdom ramps up oil production as prices rise and sanctions pressure Tehran.  The Trump administration’s effort to drive Iranian oil exports down to zero is boosting the fortunes of Tehran’s rival, Saudi Arabia, and putting the U.S. ally on a stronger footing for a showdown across the Persian Gulf.  Saudi Crown Prince Mohammed bin Salman’s government is planning to increase oil production to a record high of nearly 11 million barrels a day by next month to replace Iranian crude expected to be lost because of U.S. sanctions..

Trump’s Bid to Weaken Iran Is Strengthening the Saudi Economy (6.28.18) WSJ

https://www.wsj.com/articles/trumps-bid-to-weaken-iran-is-strengthening-the-saudi-economy-1530207076

New Protests in Tehran Pose Fresh Challenge to Iran’s Rulers (6.25.18) WSJ

https://www.wsj.com/articles/new-protests-in-tehran-pose-fresh-challenge-to-irans-rulers-1529963125

Erdogan Extends His Hold in Turkey in Pivotal Election Win (6.24.18) WSJ

https://www.wsj.com/articles/erdogan-wins-another-term-as-turkeys-president-1529869594

Erdogan Election Triumph Takes Turkey Into Era of One-Man Rule (6.24.18)

https://www.bloomberg.com/politics/articles/2018-06-24/erdogan-takes-early-lead-as-turkey-counts-presidential-votes

Saudi Arabian Arrest Wave Shows Crown Prince’s Bid to Control Change (6.5.18) WSJ https://www.wsj.com/articles/saudi-arabian-arrest-wave-shows-crown-princes-bid-to-control-change-1528191000

OPEC Resistance to Saudi Supply Plan Grows With Iraqi Defiance (6.11.18) https://www.bloomberg.com/news/articles/2018-06-11/opec-resistance-to-saudi-supply-plan-grows-with-iraqi-defiance

Saudis Start to Ramp Up Oil Output, Ahead of OPEC Meeting (6.818) WSJ

https://www.wsj.com/articles/saudis-start-to-ramp-up-oil-output-ahead-of-opec-meeting-1528490019

Iran Attack on Israel and Got Beaten Bad and Internationally Abandoned (5.10.18)

http://www.businessinsider.com/iran-attack-on-israel-defeated-internationally-abandoned-2018-5

Saudi Crown Prince Says Israelis Have the Right to Their Own Land (4.3.18) https://www.bloomberg.com/news/articles/2018-04-02/saudi-crown-prince-israelis-have-the-right-to-their-own-land

US Embassy Opens In Jerusalem Full Ceremony (5.14.18) Fox News https://www.youtube.com/watch?v=MISVkrFAiFk

April 2018 Update

The Dow Jones Index has been very volatile in the last two and half months fluctuating almost 3000 points.  The Dow began at 24,719 rose to 26,307 at the end of January and dropped into the 2300s to finish the first quarter with a loss.  As of April18, it had risen back up to 24,748.  US markets are not based on a firm foundation, which is why almost any event or even rumor of an event sends them radically higher or lower.   Treasury Secretary Mnuchin commented at the International Finance Conference in Davos Switzerland, that they weren’t concerned about the US Dollar losing value and the USD lost 5% against all the major currencies.  Morgan Stanley is predicting that market growth may soon be coming to an end.

US retail stores continue to struggle as they did throughout 2017, with many malls and retail shops closing across the nation.  Bloomberg reported that stores have announced the closing of 77 million square feet of shopping space so far this year.  The fall of the Toys R Us chain, with more than 700 U.S. stores, shows how much retail real estate has changed in just the last decade.  Morgan Stanley told Bloomberg that “Investors need to prepare for a downside as the end of the economic cycle is near and U.S. markets are priced for best-case scenarios.”

 

Morgan Stanley Warns Markets the Best Times May Be Near an End (4.17.18) https://www.bloomberg.com/news/articles/2018-04-17/morgan-stanley-warns-markets-the-best-times-may-be-near-an-end

U.S. Stocks End Worst Week in Years (3.24.18) WSJ

https://www.wsj.com/articles/stocks-slide-as-trump-kicks-off-trade-war-1521765378

The Retail Real Estate Glut Is Getting Worse (4.17.18)

https://www.bloomberg.com/news/articles/2018-04-17/as-toys-r-us-fails-the-retail-real-estate-glut-is-getting-worse

Mnuchin Said Trump Tariffs Will Benefit US Despite Retaliation Risk (3.7.18) NewsMax https://www.newsmax.com/finance/economy/mnuchin-trump-tariffs-retaliation/2018/03/07/id/847439/

 

World Markets

Despite economic sanctions and dire predictions, Russia is continuing their third year of growth.  Their economy, stock market and the average Russian citizen’s standard of living are continuing to rise.  Nations are ignoring the US sanctions as Russia’s $4B bond sold, and sold quickly.  Australia is experiencing its strongest earning season in 15 years and is projected to continue to perform well.  China and the US are in a tariff battle, and it is uncertain how these tariffs will affect world markets.  China stands to lose more in a trade war with the US, as 80% or more of Chinese GDP is based on foreign trade and only 20% is domestic, while approximately 80% of US GDP is domestic, with only about 20% based on foreign trade.

Where are world are markets headed and what’s going to happen next is very difficult to determine, as circumstances are not playing out in accordance with fundamental indicators.  “You aren’t just imagining it: global markets are flashing conflicting signals as they struggle to price trade friction, an easing of global synchronized growth, and the excesses of an aging bull market.  Stocks are heading toward weekly gains, while the Treasury curve is the flattest in more than a decade — an indication of subdued long-term growth prospects and, to some, looming recession risks.  For those attempting to navigate the path of rate normalization and economic expansion, trading over the past month has only muddied the narrative.” -Bloomberg

 

The Global Trading Map Looks Really Confusing Right Now (4.13.18)

https://www.bloomberg.com/news/articles/2018-04-13/the-global-trading-map-looks-really-confusing-right-now

Russia’s Trade With the West Surges Even as Sanctions Mount (4.12.18) WSJ

https://www.wsj.com/articles/russias-trade-with-the-west-surges-even-as-sanctions-mount-1523534781

Russia’s $4 Billion Bond Sale Defies U.K. Spat as Bids Roll In (3.16.18)

https://www.bloomberg.com/news/articles/2018-03-16/russia-s-bond-sale-defies-u-k-spat-as-bids-reach-4-5-billion

Trump to Ramp Up Trade Restraints on China (3.22.18) WSJ

https://www.wsj.com/articles/trump-to-ramp-up-trade-restraints-on-china-1521593091

China Responds to Tariffs by Targeting These 128 U.S. Products (3.22.18) Daily Wire

https://www.dailywire.com/news/28576/breaking-china-responds-tariffs-targeting-these-ryan-saavedra

G-20 Offensive Against U.S. Trade Policy Fails to Sway Mnuchin (3.20.18)

https://www.bloomberg.com/politics/articles/2018-03-20/g-20-highlights-importance-of-trade-as-protectionism-looms

The Case for Trump’s Tariffs and America First Economics (3.8.18) NYT https://www.nytimes.com/2018/03/08/opinion/trump-tariffs-economics.html

https://www.bloomberg.com/news/articles/2018-02-26/u-k-consumer-services-grow-at-fastest-pace-in-a-year-cbi-says

Australian Earnings Season One of the Strongest in Years, Credit Suisse Says (2.19.18)

https://www.bloomberg.com/news/articles/2018-02-19/australian-earnings-not-as-shabby-as-first-seen-credit-suisse

 

Central Banking

The new Federal Reserve Chairman Jerome Powell, along with the last Chairman, made it very clear that the Fed intends to raise interest rates, but recent Fed comments are suggesting great caution and sensitivity as to how much and when.  Australia looks like they will refrain from raising interest rates for the moment.  China’s new Central Bank Chief Yi just initiated a 1 percentage point cut in the reserve requirement for most of its banks.  The European Central Bank and Bank of Japan are only thinking about raising interest rates and reducing bond purchases at this point, as most central banks are just sitting back, watching and waiting.

 

The World’s Finance Chiefs Are Fretting About Cryptocurrencies (3.20.18)

https://www.bloomberg.com/news/articles/2018-03-20/bitcoin-mania-puts-cryptos-in-sights-of-world-s-finance-chiefs

U.S. Budget Director Warns Interest Rates May Spike on Deficit (2.11.18)

https://www.bloomberg.com/news/articles/2018-02-11/u-s-budget-director-warns-interest-rates-may-spike-on-deficit

Stocks Drop, Treasuries Tumble on Powell Testimony (2.26.18)

https://www.bloomberg.com/news/articles/2018-02-26/asia-stocks-to-rise-as-u-s-gains-before-powell-markets-wrap

U.S. Yield Closes In on 3% (2.19.18) WSJ  https://www.wsj.com/articles/investor-sentiment-proves-robust-as-u-s-yield-closes-in-on-3-1519122601

 

Debt

Bloomberg reported that, “Global debt rose to a record $237 trillion in the fourth quarter of 2017, more than $70 trillion higher from a decade earlier, according to an analysis by the Institute of International Finance.” The White House has expressed it wants to roll back some of the spending in the recently passed budget, as it increases deficit spending. Some elected officials and the financial analysts are warning against the rising debt. The EU is concerned as its private sector debt is rising to some of the highest levels ever as well.

 

Global Debt Jumped to Record $237 Trillion Last Year (4.9.18)

https://www.bloomberg.com/news/articles/2018-04-10/global-debt-jumped-to-record-237-trillion-last-year

White House Aims to Roll Back Newly Passed Spending (4.9.18) WSJ

https://www.wsj.com/articles/white-house-aims-to-roll-back-spending-1523233549

CBO Raises Estimates for Budget Deficits (4.9.18) WSJ

https://www.wsj.com/articles/cbo-fiscal-stimulus-will-widen-budget-deficits-boost-growth-in-coming-years-1523297293

At Last, a Backlash against Federal Spending (4.7.18) WSJ

https://www.wsj.com/articles/at-last-a-backlash-against-federal-spending-1523048925?mod=nwsrl_review_outlook_u_s_&cx_refModule=nwsrl

Dollar Under Siege With U.S. Deficits Back on Wall Street’s Radar (2.14.18) https://www.bloomberg.com/news/articles/2018-02-14/from-earnings-to-inflation-fickle-stocks-can-t-pick-a-poison

 

Currency & Crypto-Currencies

Bitcoin slumped after the US Securities and Exchange Commission reiterated that many online trading platforms for digital assets should register with the agency as exchanges.  Bitcoin is down nearly 50 percent from its high of around $18,000 (December 2017), in part because regulators worldwide have clamped down on trading, mining and initial coin offerings.  CNBC reported, Bitcoin dropped below the key $10,000 level after the Securities and Exchange Commission said it will require digital asset exchanges to register with the agency.  In March, world finance chiefs met and discussed cryptos and expressed concern about the rapid growth and lack of regulation of these currencies.  The reason the finance chiefs were concerned and wouldn’t label cryptos as official currency is because, if it was, they would lose control of over the financial transactions of a growing sector of the world market place and would have no ability to manipulate it like they do sovereign nation currency.  Bloomberg articles have also sounded warnings: “cryptos could destabilize the market … and lack the key attributes of sovereign currency.”

 

$3 Million Bitcoin Heist Reported by India’s Coinsecure (4.13.18) WSJ

https://www.bloomberg.com/news/articles/2018-04-13/bitcoin-heist-of-3-million-reported-by-india-s-coinsecure-jfxqtgou

Cryptocurrency Trading Upended in Chile as Banks Close Accounts (4.13.18) WSJ

https://www.bloomberg.com/news/articles/2018-04-13/cryptocurrency-trading-upended-in-chile-as-banks-close-accounts

India Bans Bitcoin Wallets, Bank Funding All Cryptocurrency Services (4.5.18)

https://www.zerohedge.com/news/2018-04-05/india-bans-bitcoin-wallets-bank-funding-all-cryptocurrency-services?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+zerohedge%2Ffeed+%28zero+hedge+-+on+a+long+enough+timeline%2C+the+survival+rate+for+everyone+drops+to+zero%29

The World’s Finance Chiefs Are Fretting About Cryptocurrencies (3.20.18)

https://www.bloomberg.com/news/articles/2018-03-20/bitcoin-mania-puts-cryptos-in-sights-of-world-s-finance-chiefs

Ripple Develops Blockchain Payments App With 61 Japanese Banks (3.7.18) https://www.bloomberg.com/news/articles/2018-03-07/ripple-develops-blockchain-payments-app-with-61-japanese-banks?srnd=cryptocurriences

Bitcoin Dives After SEC Says Crypto Platforms Must Be Registered (3.7.18) https://www.bloomberg.com/news/articles/2018-03-07/bitcoin-dives-after-sec-says-crypto-platforms-must-be-registered

Bitcoin just tanked below $10K after SEC says crypto exchanges must register with agency (3.7.18) CNBC | https://www.cnbc.com/2018/03/07/bitcoin-just-tanked-below-10000-after-sec-says-crypto-exchanges-must-register-with-agency.html

Bitcoin drops after SEC demands platforms should be registered  2:56 PM ET Wed, 7 March 2018 | 00:41

 Chase, Bank of America, and Citigroup All Ban Cryptocurrency Purchases on Credit Cards (2.4.18) https://gizmodo.com/chase-bank-of-america-and-citigroup-all-ban-cryptocur-1822707798

 

Political Upheaval

Political upheaval has increased in the first four months of 2018 and will likely continue to increase in the near future.  Italy the 10th largest economy in the world held elections and no one won, not one party even got close to a majority and all the parties that did gain seats were either anti-EU or leaning anti EU.  Whether they can piece together a collation or call new elections remains to be seen, however, based on current circumstances, Italy will likely hold their own referendum on exiting the EU.

In China XI has become emperor for life and Turkey’s Erdogan changed the Turkish constitution giving himself dictatorial power, neither of the events are positive for the rest of the world.  Russia, Turkey and Iran have just entered into a treaty of mutual support which certainly will create more problems and complication in the Middle East.

The Syrian problem has so many players, agendas and nations involved it’s almost impossible to figure out what’s really happening, much less what happens next.  In retaliation for Assad allegedly releasing chemical weapons on its citizens, the US, UK and France bombed supposed chemical weapon production facilities and other military targets in Syria.  Russia & Syria claim to have shot down around 80% or more of these missiles.  Russia warned the US not to bomb Syria and China said they would side with Russia, if things were to escalate.  Questioning has arisen in regard to the chemical weapons claims as many are asking:  Why would Assad release chemical weapons knowing that it would turn the whole world against him, just after the US announced they were pulling out, which means he wins?  The only group that would benefit from such an action would be the rebels. Assad continues to deny the chemical weapons claims, and we’re left with a narrative fraught with unanswered questions.

 

Sense of Relief in Russia After Syria Strikes (4.16.18)

https://www.bloomberg.com/politics/videos/2018-04-16/un-rejects-russian-attempt-to-condemn-u-s-aggression-in-syria-video

History Repeating Itself Tucker Carlson Reacts to US Bombing Syria (4.15.18) Fox News https://www.youtube.com/watch?v=Ue_t_aG5tDk

Trump Orders Strikes on Syria Over Suspected Chemical Weapons Attack (4.13.18) NYT

https://www.nytimes.com/2018/04/13/world/middleeast/trump-strikes-syria-attack.html

Europe’s Boom Reawakens the Ghost of Crisis Past Debt (4.9.18) WSJ

https://www.wsj.com/articles/europes-boom-reawakens-the-ghost-of-crisis-past-debt-1523266203

China Installed Military Jamming Equipment on Spratly Islands, U.S. Says (4.9.17) WSJ https://www.wsj.com/articles/china-installed-military-jamming-equipment-on-spratly-islands-u-s-says-1523266320

Saudi Crown Prince Says Israelis Have the Right to Their Own Land (4.3.18) https://www.bloomberg.com/news/articles/2018-04-02/saudi-crown-prince-israelis-have-the-right-to-their-own-land

China Announces Military Alliance With Russia to Show Americans (4.3.18) Blaze

https://www.theblaze.com/news/2018/04/03/china-announces-military-alliance-with-russia-to-show-Americans?utm_source=Sailthru&utm_medium=email&utm_campaign=TheBlaze%20Daily%20AM%202018-04-04&utm_term=TheBlaze%20Daily%20AM%20-%20last%20270%20days

Putin Just Doesn’t Care About Western Anger (3.16.18)

https://www.bloomberg.com/news/articles/2018-03-16/the-west-rekindles-anger-at-putin-who-s-anything-but-humbled

Has the King of the East Now Taken His Throne China’s New Emperor for Life (3.6.18)  Newsweek | http://www.prophecynewswatch.com/article.cfm?recent_news_id=2059

Angela Merkel Pays a Steep Price to Stay in Power (2.15.18)

https://www.bloomberg.com/news/articles/2018-02-15/angela-merkel-pays-a-steep-price-to-stay-in-power

Merkel Begins Last-Ditch Effort to Form Coalition Government (1.7.18) WSJ

https://www.wsj.com/articles/merkel-begins-last-ditch-effort-to-form-coalition-government-1515338103

As Turkey Invades, Kurds See Betrayal Once Again (1.23.18) WSJ

https://www.wsj.com/articles/as-turkey-invades-kurds-see-betrayal-once-again-1516709168

Turkey’s President Dismisses U.S. Call for Restraint Along Syria Border (1.22.18)

https://www.wsj.com/articles/tillerson-u-k-s-johnson-reiterate-call-for-turkish-kurdish-restraint-1516635253

Behind Turkey’s Actions in Syria a Fear of Waning Influence (2.16.18) WSJ

https://www.wsj.com/articles/behind-turkeys-actions-in-syria-a-fear-of-waning-influence-1518810799

US-Turkey Ties at Crisis Point Over Syria, Top American Diplomat Says (2.16.18) WSJ https://www.wsj.com/articles/turkey-and-u-s-promise-to-work-together-over-tensions-but-offer-little-concrete-1518782228?tesla=y

 

 

The EU & the UK  

Much to the chagrin of the EU, the UK is doing well. Bloomberg reported:

“Britain’s services sectors, making up the biggest part of the economy, saw growth improve this month, helped by a rebound at restaurants, bars and other consumer industries.  Consumer services growth was the strongest in a year, while confidence also picked up.  The WSJ wrote, “For a country supposedly crawling out of the ruins of the Brexit vote, the U.K. has been having a strikingly good year so far. The number of people working stands at a record high, and income inequality is approaching a 30-year low, according to the Office for National Statistics. New orders for manufacturers are at their highest level in a generation, and employers in general are struggling to find enough staff to cope with demand. Even the (relatively new) national happiness index stands at a peak.”  Ultimately, I believe the UK will end up doing a hard Brexit, but will stretch out negotiations to the March deadline in 2019, because it will give them more time to prepare and cement new trade agreements with other nations.

 

The UK Is Doing Just Fine, Thanks (3.23.18) WSJ https://www.wsj.com/articles/the-u-k-is-doingjust-fine-thanks-1521819089

U.K. Consumer Services Grow at Fastest Pace in a Year, CBI Says (2.25.18) https://www.bloomberg.com/news/articles/2018-02-26/u-k-consumer-services-grow-at-fastest-pace-in-a-year-cbi-says

Brexit Rift Among Tories Revealed in Leavers WhatsApp Messages (3.10.18)

https://www.bloomberg.com/news/articles/2018-03-10/brexit-rift-among-tories-revealed-in-leavers-whatsapp-messages

 

Globalism v Nationalism & the EU v Itself

There is a war going on all over the globe and Brexit, Trump’s election, EU elections trade tariffs are glaring examples of it.  People are pushing back against globalism.  The British want to be British, the Italians want to be Italian, the Germans want to be German the Americans want to be American.  People don’t mind being a part of the world community, but they want to retain their history, culture and national identity.  President Macron of France is trying to combat nationalism, by calling for expanded ties, European integration and a stronger European Union. His pleas are falling on deaf ears as most EU elections are resulting in leaders who want to move in the opposite direction.  Even the powerful German Chancellor Angela Merkel took four months to form a very precarious coalition and functioning government.  The WSJ reported, “Voters around Europe have also indicated little support for his broader European ambitions.  Parties skeptical of the bloc have surged in recent years among voters worried about their economic security and fearful of immigration and rapid cultural changes.”   The most recent example of this was the decisive election of Hungarian Prime Minister Viktor Orban (a leading figure of the nationalist right) on an anti-immigration, euroskeptic platform.

Trade wars are another example of nationalism, as nations direct their focus on their own economies, markets, labor forces and sovereignty.  Being part of the world community and world commerce is important, but it’s more important to put your nation and its citizen welfare first in order to be a successful nation that provides for its citizens.  The NYTs wrote: “Economic nationalism differs from free-trade ideology in having three distinct goals rather than one. The first isn’t discussed very often in a time of relative global peace: maintaining the industries necessary for prevailing in a large-scale war… The second goal of economic nationalism is the need to preserve a middle layer (class) in the nation’s economic order… The third goal of economic nationalism is if the price of national security and a durable, free middle class is a modest reduction in gross domestic product, the economic nationalist is willing to pay it.”

 

Macron Appeals for EU Unity in Face of Nationalism (4.17.18) WSJ

https://www.wsj.com/articles/macron-appeals-for-eu-unity-in-face-of-nationalism-1523979040

Hungary’s Orban Wins Fourth Term as PM (4.8.18) WSJ

https://www.wsj.com/articles/hungary-votes-in-election-with-orban-set-to-secure-a-fourth-term-1523162923

Disillusionment Is Sweeping Eastern Europe (3.22.18)

https://www.bloomberg.com/news/articles/2018-03-22/europe-has-a-problem-in-russia-s-old-stomping-ground

Surge by Populists Leaves Italy Without Clear Victor (3.4.18) WSJ

https://www.wsj.com/articles/italys-elections-appear-to-have-yielded-a-hung-parliament-exit-polls-1520201994

The Case for Trump’s Tariffs and America First Economics (3.8.18) NYT https://www.nytimes.com/2018/03/08/opinion/trump-tariffs-economics.html

Has the King of the East Now Taken His Throne China’s New Emperor for Life (3.6.18)  Newsweek | http://www.prophecynewswatch.com/article.cfm?recent_news_id=2059

Germany’s Oldest Party Drops Below Right-Wing Upstart in Poll (2.19.18) WSJ

https://www.wsj.com/articles/germanys-oldest-party-drops-below-right-wing-upstart-in-poll-1519064013

In Europe Separatists & Nationalists Are Sprouting Old Colors (1.3.18) WSJ

https://www.wsj.com/articles/in-europe-separatists-and-nationalists-are-sprouting-old-colors-1514980800

 

Conclusion

So what does the future hold?  Simon Black shared some of the highlights of Bank of America CEO Jamie Dimon’s annual newsletter to shareholders, stating that the US is facing some serious economic headwinds and that the unwinding of quantitative easing could have unintended consequences.  He also acknowledged that markets have a mind of their own, regardless of what fundamentals say and that he sees a real risk “that volatile and declining markets can lead to a market panic.” One must make decisions with great caution and wisdom in these times, as conventional indicators are no longer proving accurate in predicting market behavior.

 

IMF Spots Trouble Ahead for the Global Economy After 2020 (4.17.18)

https://www.bloomberg.com/news/articles/2018-04-17/imf-spots-trouble-ahead-as-solid-global-growth-poised-to-slow-jg3oe4z8

The World’s Most Powerful Banker Sees Chance of Market Panic (4.5.18) SMC https://www.sovereignman.com/investing/the-worlds-most-powerful-banker-sees-chance-of-market-panic-23253/?utm_medium=email&utm_source=sm_notes&utm_campaign=notes&utm_content=201845_dimon

Saudi Crown Prince Says Israelis Have the Right to Their Own Land (4.3.18) https://www.bloomberg.com/news/articles/2018-04-02/saudi-crown-prince-israelis-have-the-right-to-their-own-land

South Africa’s New President Shuffles Cabinet, With an Eye to the Past (2.27.18)

https://www.wsj.com/articles/south-africas-new-president-shuffles-cabinet-with-an-eye-to-the-past-1519683339

Jan 2018 Economic Update

Many things happened in 2017 that no one anticipated or expected.  The Dow finished at 24,719.22, the highest annual close in history.  On January 24th, the markets opened with the Dow at 26,307, Gold at $1,357 and silver at $17.33.  The US economy and markets were not expected to do as well as they did.  President Trump’s tax reform & deregulatory actions helped boost market expectations.

In the first month of 2018, President Trump issued some of the promised tariffs on solar panels and washing machines which are a part of his America First plan. The US government also shut down, only to be refunded a few days later for three more weeks.  It will probably shut down again in February, as the Democrats and Republican threaten each other with the political hammer of a future shut down.  The one person in Washington who is benefitting is President Trump, who is continuing to stand firm on immigration and getting the border wall built.  Stay tuned for Feb 8th when the US government runs out of money again.

The WSJ reported, “Lawmakers in both parties and the Trump administration are negotiating overhauls of the two companies critical to home mortgages, but in government conservatorship since the financial crisis—that could keep them at the center of the U.S. mortgage market for years to come, abandoning long-stalled proposals to wind them down.”  WSJ also expressed concerns about the market saying:

Bond yields are on the rise again, and it’s making shareholders jittery. They are right to worry, as low yields are the main support for historically high stock valuations. Shares are very expensive compared with their own history on almost every measure, but compared with locking in a paltry 2.5% for 10 years they don’t look so bad. Working out this equity risk premium is contentious, to put it mildly.  Worse, we know that when investors are overly optimistic they overestimate earnings, making it look like the reward for holding equities is higher.  If the narrative changes, bond yields could rise rapidly. Perhaps 2018 is the year inflation fears finally arrive.

Rising bond yields are causing shareholders to worry, as low rates are the main support for historically high stock valuations.   One positive correction in the banking market is the repeal of the Jimmy Carter era mandatory requirement for banks to lend to low income borrowers, which was a major contributor to the 2008 financial and real estate crisis.

US Imposes New Tariffs, Ramping Up ‘America First’ Trade Policy (1.22.18)

https://www.wsj.com/articles/u-s-imposes-trade-tariffs-signaling-tougher-line-on-china-1516658821

Congress Passes Three-Week Spending Bill to End Shutdown (1.22.18) WSJ

https://www.wsj.com/articles/senate-expected-to-advance-bill-that-would-end-shutdown-1516641107

Deadline Passes, Triggering Shutdown (1.20.18) WSJ

https://www.wsj.com/articles/showdown-looms-as-senate-democrats-prepare-to-reject-spending-bill-1516364692

Shares Are Wildly Overpriced. But Bonds May Be Even Worse (1.11.81) WSJ

https://www.wsj.com/articles/shares-are-wildly-overpriced-but-bonds-may-be-even-worse-1515694390

Trump Officials Seek to Change Rules on Lending to the Poor (1.10.10) WSJ

https://www.wsj.com/articles/trump-administration-seeks-to-change-rules-on-bank-lending-to-the-poor-1515624418

Government Shifts Gears on Fannie Mae, Freddie Mac (12.16.17) WSJ

https://www.wsj.com/articles/government-shifts-gears-on-fannie-mae-freddie-mac-1513515600

Senate Passes Sweeping Revision of U.S. Tax Code (12.2.17) WSJ

https://www.wsj.com/articles/senate-passes-sweeping-revision-of-u-s-tax-code-1512197717

 

World Markets

EU and UK markets and economies continue to perform well in spite of the ups & downs of Brexit talks.   Bloomberg reported Europe’s growth resurgence is showing little sign of losing steam.  Angel Talavera, an economist at Oxford Economics in London Said, “The rebound in the hard numbers provides a more consistent growth picture for the eurozone.” The latest forecasts predict that Germany, France and Spain will all grow 2 percent or more this year.  In Italy, where elections are one of the key risk factors, expansion may slow to 1.4 percent from 1.6 percent.  Christian Lips of NordLB Hanover said, “We are optimistic for 2018 and expect the upswing to continue with similar momentumHowever, the currently positive corporate and consumer sentiment should not obscure the fact that the forecast for 2018 is subject to considerable risks, including geopolitical conflicts, political risks, Greece, and elections in Italy.”

EU businesses are letting Brussels know they are not happy with US regulatory reform & tax reform, because it makes their top heavy bureaucracy, over regulated and over taxed system less competitive.  This is a perfect example why competition is positive.  Bloomberg reported that the International Energy Agency predicted the US is positioned to dominate global gas and oil markets for many years to come, thanks to their resumption of crude oil sales and the shale oil production.  In New Zealand, home purchases by non-citizens have been banned in an attempt to quell the property value bubble created by foreign home buyers.  The US has dropped out of the top 10 most innovative countries in the world, South Korea holds the number one seat, Sweden is number two for the second year in a row.  Singapore, Germany, Switzerland, Finland, Japan and France, placed in the top 10 as well.  President Trump ruffled more feathers in Brussels right before he exited the annual International Finance meetings in Davos Switzerland, by threatening retaliation against the EU unfair trade policies.

President Trump Hints at Retaliation Against EU for Unfair Trade Policies (1.28.18) WSJhttps://www.wsj.com/articles/president-trump-hints-at-retaliation-against-eu-for-unfair-trade-policies-1517157101

The U.S. Drops Out of the Top 10 in Innovation Ranking (1.24.18)

https://www.bloomberg.com/news/articles/2018-01-22/south-korea-tops-global-innovation-ranking-again-as-u-s-falls

Euro-Area Economic Boom to Roll on After Strong Start to 18 (1.15.18)

https://www.bloomberg.com/news/articles/2018-01-15/euro-area-economic-boom-to-roll-on-after-strong-start-to-2018

U.S. Tax Plan Draws Attacks Abroad, Prompts Calls for Cuts in Response (12.11.17) WSJ https://www.wsj.com/articles/european-finance-chiefs-hit-out-at-u-s-tax-plans-1513000469

U.S. to Dominate Oil Markets After Biggest Boom in World History (11.13.17)

https://www.bloomberg.com/news/articles/2017-11-14/iea-sees-u-s-shale-surge-as-biggest-oil-and-gas-boom-in-history

New Zealand Bans Foreign Home Buyers (10.25.17) BBC | https://www.bbc.com/news/amp/business-41745129

 

Central Banks

Most Central banks are talking interest rates hikes, and US, UK & Australian banks have already began raising rates.  While the EU economy has seen improvement, it’s not enough to stop printing money and raise interest rates, but they are giving lip service to scaling down their bond buying.  Japan and many EU nations are staying pat and keeping their negative rate positions.  Italy’s fragile economy is very concerned about the ECB raising interest rates, thereby reducing the amount of Italian debt that would be purchases by the EU, potentially derailing its meager recovery.  In December, former Federal Reserve Chair Janet Yellen raised the bench mark interest rate and said the Fed expects to raise rates three times in 2018; new Fed Chair Jerome Powell expects to raise them as well.  There is potential for change in Fed policy, as President Trump has appointed a new chairman and three new Federal Reserve Board members.

Fed Raises Rates, Eyes Three 2018 Hikes as Yellen Era Nears End (12.13.17) https://www.bloomberg.com/news/articles/2017-12-13/fed-raises-rates-while-sticking-to-three-hike-outlook-for-2018

European Shares Down as ECB Leaves Rates Untouched (12.14.17) WSJ

https://www.wsj.com/articles/global-markets-rise-on-latest-fed-rate-increase-1513215420?mod=nwsrl_foreign_exchange&cx_refModule=nwsrl

ECB to Scale Down but Extend Bond-Buying Program (10.26.17) WSJ

https://www.wsj.com/articles/ecb-to-scale-down-bond-buying-program-into-2018-1509018685

Italy Faces Challenge of Living Without ECB Alchemy (10.29.17) WSJ

https://www.wsj.com/articles/italy-faces-challenge-of-living-without-ecb-alchemy-1509274805

 

Currency

Bloomberg’s dollar index approached its lowest level in three years as the euro extended gains that have pushed it to its strongest positioning since 2014.  Mexico’s peso was the big outperformer as emerging currencies gained, while the yuan reached a two-year high as the People’s Bank of China raised the currency’s fixing.  The dollar remains under pressure after five straight weeks of declines, despite solid U.S. growth.  The German central bank’s decision to include the Chinese yuan in its own reserves was another factor dragging on the dollar.  On Jan 14, The Bloomberg Dollar Spot Index declined 0.6 percent to the lowest in about three years.  The euro climbed 0.6 percent to $1.2274, the strongest in more than three years.  The British pound increased 0.6 percent to $1.3811, the strongest in about 19 months.  The Japanese yen appreciated 0.5 percent to 110.53 per dollar, hitting the strongest in more than four months.  The Mexican peso jumped 1.2 percent to 18.8176 per dollar, the strongest in almost six weeks.  On January 24, at the world finance meetings in Davos Switzerland, the US made it clear that the USD value is going lower, making US products more competitively priced in the international market place.

Hong Kong is a rare exception in the world.  The Hong Kong Monetary Authority, the country’s central bank, is among the best capitalized on the planet.  Plus, the government is awash with cash and routinely runs substantial budget surpluses.  Hong Kong has virtually zero debt and nearly $1 trillion Hong Kong dollars ($126 billion) in net foreign reserves. At some point Hong Kong will be depegging form the USD and when it does it will shoot up in value.

Gold Rally Picks Up Steam as Dollar Falters (1.27.18)

https://www.wsj.com/articles/gold-rally-picks-up-steam-as-dollar-falters-1517054401

White House Declares Open Season on the Dollar at Davos (1.24.18)

https://www.bloomberg.com/news/articles/2018-01-24/white-house-seen-declaring-open-season-on-dollar-at-davos

Dollar Slide Deepens as Euro Strength Saps Stocks: Markets Wrap (1.14.18) https://www.bloomberg.com/news/articles/2018-01-14/asia-set-for-equity-gains-on-economic-optimism-markets-wrap

Own This Currency No Its Not a Cryptocurrency (10.18.17) SMC

https://www.sovereignman.com/international-diversification-strategies/own-this-currency-no-its-not-a-cryptocurrency-22513/

 

Cryptos

The biggest surprise in 2017 was the crypto currency market expansion into the mainstream which left every other market in its dust.  Even Bank of America’s chairman Jamie Dimon had to eat his own words.  Crypto currencies are now in hedge funds, banks, retail and business purchases, they are here to stay and they are going to expand into both the investment and everyday buying and selling of world markets.  However, the SEC and other market regulators are making moves to try and reign in the wild wild west crypto currency market.

Bitcoin continues its unpredictable radical ups and downs, however after a 1000% plus gains in 2017, but in 2018 has been mostly down.  Bloomberg reported: 

Bitcoin was overbought and sentiment was ecstatic,” said Ari Paul, chief investment officer of BlockTower Capital Advisors. “This is an overdue correction triggered by South Korean regulation fears.”  In South Korea, a hotbed of trading, regulators warned they may shut down cryptocurrency exchanges completely after limiting their operations. China is said to have intensified its curbs on trading of the digital coins, extending restrictions to over-the-counter and peer-to-peer platforms after banning exchanges last year. In the U.S., the Securities and Exchange Commission asked at least 15 funds to pull applications this month for bitcoin-related exchange-traded funds.  Bloomberg went on to write, In 2018, things will be different,” says Eugéne Etsebeth, formerly of the South African Reserve Bank.  “G7 central banks will start buying cryptocurrencies to bolster their foreign reserves,” he affirms, concluding:  “Central bank money will pour into cryptocurrencies.”  Here is a voice not of the bitcoin glee club or the moon-mad fringe… but a former central banker… a totem of the establishment.  Our agents have also forwarded us the following dispatch, by way of Peter Smith, CEO of Blockchain:  I think this year will be the first year we start to see central banks start to hold digital currencies as part of their balance sheet.  

Germany has developed some of the most sophisticated crypto platforms. The German people have embraced cryptocurrencies because of their love for cash and irritation with the EU central bank negative interest rates and money printing, both of which have lowered the value of German currency.  Even the IMF is looking into creating its own crypto currency; I suspect the crypto craze will continue its invasion into markets, businesses and banks in 2018.  

Bitcoin Finds a Home in Cash-Loving Germany (1.17.18) WSJ

https://www.wsj.com/articles/bitcoin-finds-a-home-in-cash-loving-germany-1515330000

Bitcoin Steadies After 26% Slump as Traders Brave Volatility (1.7.18)

https://www.bloomberg.com/news/articles/2018-01-17/bitcoin-steadies-from-26-slump-as-traders-brave-volatility

SEC Statement on Cryptocurrencies and Initial Coin Offerings (12.11.17)

SEC Chairman Jay Clayton | https://www.sec.gov/news/public-statement/statement-clayton-2017-12-11

SEC Halts a Real Initial Coin Offering (12.12.17) WSJ

https://www.bloomberg.com/view/articles/2017-12-12/sec-halts-a-real-initial-coin-offering

IMF’s Lagarde says digital currencies could boost its own SDR (9.29.17) Reuters

https://uk.reuters.com/article/uk-imf-lagarde/imfs-lagarde-says-digital-currencies-could-boost-its-own-sdr-idUKKCN1C41QP

 

Debt

In January, Venezuela’s oil industry has continued it’s decent into collapse.  The S&P declared Venezuela in default on their bond payments which they paid late, but there is little hope in their ability to make any future is payments; default looks to be a foregone conclusion for 2018.

According to Bloomberg, “US delinquencies on subprime loans made by non-bank lenders are soaring toward crisis levels. Fresh investment has dried up and some of the big banks, long seen as potential suitors, have pulled back from the auto lending business. To top it off, state regulators are circling the industry, asking whether it preyed on borrowers and put them in cars they couldn’t afford.”

Reuters reported that China announced deleveraging, asset management and other financial reforms and is moving very quickly to implementing these reforms.  The IMF and international rating agencies have been encouraging them to do this for some time.  Bloomberg also reported:

A Chinese central bank official said China should allow local governments to go bankrupt to help rein in regional authorities’ excessive borrowing.  Vice Finance Minister Zhu Guangyao said on Saturday that addressing “hidden debts” of local governments and state-owned companies’ debts are key to prevention of systemic financial risks, the China Securities Journal reported.    China may very well devalue its own currency later this year, as they did in 2015, in order to pay off some of their debt. . 

Venezuela Has Some Bad News and Some Really Bad News (1.18.18)

https://www.bloomberg.com/gadfly/articles/2018-01-18/venezuela-s-oil-production-collapse-bad-news-worse-news

China Central Bank Official Says Bankruptcy May Benefit the Country (12.24.17) https://www.bloomberg.com/news/articles/2017-12-25/pboc-official-says-local-government-bankruptcies-are-needed

Subprime Auto Defaults Are Soaring, and PE Firms Have No Way Out (12.21.17) https://www.bloomberg.com/news/articles/2017-12-21/subprime-auto-defaults-are-soaring-and-pe-firms-have-no-way-out

Markets Get Wake-up call from China’s Post-congress Deleveraging Moves (11.28.17)

https://www.reuters.com/article/us-china-debt-risk-analysis/markets-get-wake-up-call-from-chinas-post-congress-deleveraging-moves-idUSKBN1DS0GG

Venezuela’s Bondholder Meeting Is a Bust as S&P Declares Default (11.14.17) https://www.bloomberg.com/news/articles/2017-11-14/venezuela-s-bondholder-meeting-is-a-bust-as-s-p-declares-default

 

Brexit

The only thing the UK & EU have agreed upon is the divorce settlement.  The battle lines for Brexit remain immovable with each side saying the other must relent.  Foreign Secretary Boris Johnson and Environment Secretary Michael Gove say the country’s best hope lies in setting its own regulations, even if that means tougher trading restrictions.  According to Bloomberg: 

Johnson fired a fresh salvo over the weekend, using an interview with the Sunday Times to call for a “liberal Brexit.” He said the advantages of leaving the EU haven’t been properly outlined to the public. He said the U.K. must strike a trade deal that gives it the power to discard EU laws, and that failure to do so would render Britain a “vassal state” of Brussels.

The prospects of a soft Brexit (negotiated settlement) appear low, with a hard Brexit (exiting the EU market with no trade deal) looking far more likely.  As long as both sides at least pretend to be negotiating, the formal trade agreements remain in place, so the UK might as well string it out, since they know that hard exit is the most likely outcome.

UK & EU Reach an Agreement on Brexit Divorce Terms (12.8.17) WSJ

https://www.wsj.com/articles/u-k-european-union-reach-deal-on-brexit-divorce-terms-1512716442

May Risks Brexit Row Over Migration and Trade During Transition (12.17.17)

https://www.bloomberg.com/news/articles/2017-12-18/may-risks-brexit-row-over-migration-and-trade-during-transition

 

Political Unrest

There is great political unrest throughout the nations and it does not appear the turmoil will subside anytime in the near future.  Much of this turmoil is being caused by the clash between the rise of nationalism and the push for globalism.  It’s happening in the UK, US, Poland, Spain Italy, Austria and many other nations.  People in the EU, don’t want be Europeans, they want be British, Italian, Polish, etc.  People are resisting becoming one global community, they want to be nations with their own unique culture history and identity and this trend seems to be increasing.

According to the WSJ: Italy’s President Sergio Mattarella dissolved parliament Thursday and called elections for early March, a vote that will highlight the economic and political problems still stalking Europe and the country’s role as the weakest flank in the currency union.  The vote—the latest in a series of momentous elections in Europe—will be in line with the overwhelming trends of 2017, featuring a fractured electorate, continued pressure from populist movements and predictions of a struggle to form a cohesive government.  But for many European leaders, Italy remains the most worrisome spot in the eurozone, given the huge size of its public sector debt, its weak banks and poor competitiveness.  The elections, set for March 4, aren’t likely to put those concerns to rest, as the center-left tries to fend off a populist upstart and the return of Silvio Berlusconi, the 81-year-old whose political rebirth is further shaking up politics. The 5 Star Movement—the anti-establishment group that stormed Italian politics during the crisis on popular anger with legacy politicians—could win about 30% of the vote.

Italy experienced much conflict with the EU throughout 2017, resulting in the growing anti-EU sentiment among its citizens and political candidates.  Depending on the outcome of Italian elections, Italy may propose its own referendum to exit the EU.

German Chancellor Angela Merkel, who was supposed to be the strongest leader in the EU, has not been able to form a cohesive government.  The WSJ reported, “The failure of Ms. Merkel has left Germany in one of the worst political crises of its postwar period.  The poll also showed that 67% of Germans think Ms. Merkel’s best days as chancellor are behind her.  If they are not, Ms. Merkel will have to rule Germany with the first minority government in its postwar history or ask voters to return for a second ballot.”

Poland is ignoring EU court rulings against it and is being looked at like a rogue state by the EU.  Catalan separatist have won elections once again in Spain and continue their quest for independence.  The European Union is anything but united.

The EU is not alone in its political and economic uncertainty, Venezuela is being sanctioned by most of the Western nations, further complicating their deteriorating economy.   Turkey just invaded Syria and is attacking the Kurds, ignoring warnings from the US, UK, Russia.  China just accused the US of incursion of their territory in the South China Sea.  Palestinian UN reps called for countries to repeal their recognition of Israel as a nation.  Saudi Arabia is positioning itself for a territorial conflict with Iran, and the Iranian people have been violently protesting their government. This is just few of these international incidents, as many others nations are experiencing financial and territorial disputes.

US legislators and the Trump Administration are continuing to shake up world economies and foreign policy by: recognizing Jerusalem as the capital of Israel, reducing funding to the UN, putting new trade tariffs into effect, raising interest rates, immigration policies, tax reform and pushing America First policies.

As Turkey Invades, Kurds See Betrayal Once Again (1.23.18) WSJ

https://www.wsj.com/articles/as-turkey-invades-kurds-see-betrayal-once-again-1516709168

Next Year in Jerusalem (12.22.17) WSJ | https://www.wsj.com/articles/next-year-in-jerusalem-1513984384

Turkey’s President Dismisses U.S. Call for Restraint Along Syria Border (1.22.18) WSJ

https://www.wsj.com/articles/tillerson-u-k-s-johnson-reiterate-call-for-turkish-kurdish-restraint-1516635253

DHS Secretary Reveals Crackdown is coming against leaders of Sanctuary Cities (1.17.18) GB  https://www.theblaze.com/news/2018/01/17/dhs-secretary-reveals-crackdown-is-coming-against-leaders-of-sanctuary-cities-heres-what-she-said

Merkel Begins Last-Ditch Effort to Form Coalition Government (1.7.18) WSJ

https://www.wsj.com/articles/merkel-begins-last-ditch-effort-to-form-coalition-government-1515338103

Iranians Protest Over Economic Malaise (12.30.17) WSJ

https://www.wsj.com/articles/iranians-protest-over-economic-malaise-1514579608

Italy’s President Calls National Elections as Country Grapples with Economic Pain (12.28.17) WSJ | https://www.wsj.com/articles/italys-president-calls-national-elections-as-country-grapples-with-economic-pain-1514481781

Poland Risks Being the EU’s Rogue State (12.10.17)

https://www.bloomberg.com/news/articles/2017-12-10/forget-brexit-poland-risks-being-the-eu-s-real-rogue-state

Catalan Separatists Have a New Plan to Defy Madrid’s Authority (11.25.17) https://www.bloomberg.com/politics/articles/2017-11-25/catalan-separatists-have-a-new-plan-to-defy-madrid-s-authority

Australian Government Loses Majority After Court Ousts Dual-Citizen Lawmakers (10.27.17) WSJ https://www.wsj.com/articles/australian-government-loses-majority-after-court-disqualifies-lawmakers-1509076826

Austrian Vote Paves Way for Nationalist Party to Enter Government (10.15.17) https://www.bloomberg.com/news/articles/2017-10-15/austria-shifts-to-right-in-election-that-empowers-nationalists

 

Conclusion

The last weekend in January finance ministers, treasurers, directors and financial services business met in Davos Switzerland to access & discuss the current state of global economies and markets.  Many of the attendees were upbeat and the IMFs Christine Laguard expected growth to be on the increase in 2018.   President Trump, US Treasurer Mnuchin and a large US delegation arrived and put a damper on globalist aspirations.  President Trump declared that America was open for business and that the world has nothing to fear and will benefit from his America First policies.  Central bankers and many global leaders aren’t happy about US policy, but international corporations doing business in the US were supportive.  US markets continue rise and optimism continues to prevail.  The EU, Japan, the emerging markets all seem to be moving in a positive direction.  Unfortunately, the other thing that is rising along with the markets in these nations is their debt.  Many economies like the EU and Japan are still being fueled by artificially low interest rates, and money printing.   We enter 2018 with a positive outlook and rising markets, but there are undercurrents that will eventually push to the surface and have to be dealt with.

Business, Political Leaders Size Up Trump’s Speech at Davos (1.27.18) WSJ

https://www.wsj.com/articles/business-political-leaders-size-up-trumps-speech-at-davos-1516983624

Davos 2018 Updates From the World Economic Forum (1.27.18) WSJ

https://www.wsj.com/livecoverage/davos-2018?mod=wsjapp

White House Declares Open Season on the Dollar at Davos (1.24.18)

https://www.bloomberg.com/news/articles/2018-01-24/white-house-seen-declaring-open-season-on-dollar-at-davos

Trump Tells Davos America First Will Benefit the World (1.26.18)

https://www.bloomberg.com/news/articles/2018-01-26/trump-to-say-america-first-will-benefit-world-in-davos-speech

The IRS’s Guidance on Property Taxes Has the U.S. Confused (12.28.17)

https://www.bloomberg.com/news/articles/2017-12-28/confusion-reigns-on-property-taxes-as-towns-grapple-with-changes

Tax Changes Are Coming Monday Here’s When it Will Affect You (12.29.17) MSN | http://www.msn.com/en-us/money/taxes/tax-changes-are-coming-monday-here%e2%80%99s-when-it-will-affect-you/ar-BBHt4wp?li=BBnb7Kz&ocid=UE07DHP

Russia Skirts U.S. Sanctions With $27 Billion Arctic Gas Plant (12.9.17) WSJ

https://www.wsj.com/articles/russia-skirts-u-s-sanctions-with-27-billion-arctic-gas-plant-1512731306

CFPB Chief Mulvaney Says Days of Pushing the Envelope Are Over (1.24.18)

https://www.bloomberg.com/politics/articles/2018-01-23/cfpb-chief-mulvaney-says-days-of-pushing-the-envelope-are-over

My Opinion of Bitcoin & Crypto Currencies

Let me first attempt to define Bitcoin, after which I will explain how one actually can purchase and transact with it.  Bitcoin is a crypto/digital currency, its money just like paper currency, and it fluctuates against other currencies both paper and digital.  It’s a tool, a method of legal tender, to whoever agrees to accept it, no different than any other currency.

There are over 1100 crypto currencies, collectively referred to as blockchain technologies.  Bitcoin is the most recognizable, because it was the first crypto currency and in many ways, acts as the unofficial world reserve digital currency.  Currently, the only way most people can purchase any other crypto currency is to first convert their cash into Bitcoin after which they can exchange their Bitcoin for other digital currencies.

Most governments frown upon crypto currencies because they can’t effectively control, track or tax them, which many consider, to be crypto currency’s most attractive features.   It enables people to anonymously purchase things with no paper trail.  There is no doubt that eventually crypto currency will be regulated and taxed, but for now it’s the wild, wild west.  In fact the largest crypto currency depository Coinbase was just told to release all the names and Bitcoin purchases under $20K to the IRS in the first week of December.

Bitcoin and crypto currencies were never intended to be an investment, but that is how the public and markets are treating them.  You aren’t buying a share your buying a token, which is a digital representation of a currency that has a specific value at the moment you purchase it.  Its value goes up and down against other currencies, like the dollar goes up and down against other currencies.  Different digital currencies have different values, consequently the cryptos that used by more people, companies and financial institutions will tend to have a greater value and potential for gain.  Thus it takes research to decide which of these digital currencies may have the greatest future potential.

Many people are interested in purchasing crypto currencies, but are uncertain about how to do it and how these currencies really work.  There are many companies and crypto brokers who for $2,500 or more will be happy to help, however, a prudent investor ought not to buy what they don’t understand, because if you don’t understand it how will you know a good price to buy it or sell it or why one crypto currency is better than another.  Unfortunately, the masses only look at the return they see some are getting and jump on the band wagon.

It took around 10 years for Bitcoin to reach $1,000, but it has taken only eleven months in 2017 for it to reach $16K per token.  This calls for some questioning… is Bitcoin in a bubble… of course it is.  Could the bubble get bigger… yes it can.  Will it eventually pop… most likely.  Are all cryptos in a bubble… no.  Are there various reasons to look at one crypto currency as opposed to another… yes.

Bitcoin will hit a certain level and drop and its fall will likely be dramatic as its ascent. However, regardless of what happens to Bitcoin, crypto currencies are here to stay and corporations, the markets, the regulators, the IRS and even the banks know it.  Physical cash will eventually be replaced by digital currencies and this likely will happen more quickly than most think.  There are many pros and cons to going digital for companies, global markets, banks and individuals, but for the sake of brevity, let’s leave that for another article. 

How do you get crypto currency?

The process of opening a crypto currency account, converting your cash into digital currency, purchasing specific cryptos and then storing them is complicated and cumbersome.  Some people will not be able to figure it out; others will not have the patience to follow through, while others who are techies will love it.  The learning curve is steep and you have to methodically go through every step to protect your assets from being hacked.  This is why people are willing to pay $2,500 or more for someone to do it for them, and/or walk them through the process step by step.

 

Steps

  • To open up a crypto currency account you will first have to select a digital currency conversion company to do the conversion. Coinbase is the largest digital conversion company com
  • You will have download a google app called Authenticator which requires you to input a code within 20 seconds every time you do anything on the account or you won’t be able to move to the next step.
  • After you open a digital currency account you must complete a test deposit into your digital currency conversion company from your bank account, debit card or credit card.
  • You then must go online or check with your bank, debit or credit card to make sure the transaction was successful (this could take from 30 minutes to 4 days)
  • Once you have confirmed the transaction amount, you repeat the process  to do the actual transfer
  • Once the transfer is complete you will own that amount in Bitcoin. Again, this step can take30 minutes up to 4 full days, after which point you can transfer your Bitcoin to the crypto currency platform of your choice
  • To transfer to a Crypto platform (Bittrex is currently the most common with the most choices https://bittrex.com/ ) you must down load another authenticator code (which again changes every 20 seconds and must be inserted for every step)
  • Then you transfer the Bitcoin from the currency conversion company to your chosen crypto currency platform. Confirmation can take from 1 to 24 hours
  • After you receive confirmation, you can then purchase other crypto currencies. You have to purchase each crypto currency in Bitcoin, so if you want to purchase $200 of a specific crypto currency you have to go a website ( https://www.coindesk.com/calculator/ ) that will tell you what fraction of a Bitcoin that equates to in order to make the purchase and you must complete the transaction in 20 seconds or start over.
  • After you finish your first purchase, you must place it in a “digital wallet,” which is usually a part of the digital platform company you chose.
  • You can only purchase one digital currency at a time, so you have to go through the whole process each time you choose a different crypto

 

As you can see, it’s complicated.  If you don’t have a smart phone like an android or i-phone, you can’t do this, because it’s the only way to download the Authenticator App and receives texts while making the transactions.  If you are not proficient on the computer and smart phone, you should also think twice before attempting to purchase crypto currency.  Regardless of what happens to Bitcoin, crypto currencies are here to stay and are the currency of the future.

Even so, crypto currencies are fiat currency backed by nothing, just like paper currency.  The question is: who is really in control of it?  We are told no one controls it, which is hard for me to believe.  Many people lost billions when the Bitcoin exchanges got hacked, and because the transactions are not traceable, there was no recourse.  The exchanges said they have fixed the problem, but that begs the question: who fixed it and how did they fix it?  It is claimed that peer to peer transactions (transactions between two people or sources) can’t be hacked, which so far that seems to be true, but there is still uncertainty surrounding this new market. 

How I Selected My Crypto Currency

  • As with any option, I personally wouldn’t put too many eggs in one basket, like Bitcoin, but diversify into a number of different crypto currencies
  • I would pay attention to those which are more functional and technologically advanced

and are being widely utilized by companies, banks and nations to transact and do business

I have gone through the process of purchasing five different crypto currencies.  I did it with the knowing I could lose it.  The crypto currency market is very volatile, but I wanted to have a better understanding of the process, so I could explain it to others.  I think there is money to be made in crypto currency, but its not like a mutual fund, you need to pay attention to what’s happening and you have to buy, sell and transact on the account   Bitcoin and crypto currencies have never experienced a downturn or a drop in the US dollar, both of which would definitely effect crypto currencies, but we don’t know how.   My greatest concern in regard to this new digital currency technology this: If I wanted to create a one world currency, I would create a crypto currency that everyone would have to participate in.  Once in place this system could destroy people’s ability to buy things privately and anonymously.  When people ask me about Bitcoin, I tell them they should do whatever they personally feel led to do; because at this point the future of each blockchain technology is unknown.

What to Expect When Bitcoin Future Start Trading (12.8.17) Bloomberg Video https://www.bloomberg.com/news/videos/2017-12-08/what-to-expect-when-bitcoin-futures-start-trading-video

Here’s What You’ll Want to Know About the Bitcoin Bubble (12.8.17) The Blaze
http://www.glennbeck.com/2017/12/08/heres-what-youll-want-to-know-about-the-bitcoin-bubble/?utm_source=Sailthru&utm_medium=email&utm_campaign=20171208GBDaily&utm_content=Final&utm_term=Glenn%20Beck

Jim Rickards Bubble Can’t Be Maintained (12.8.17) Business Insider

https://www.facebook.com/businessinsider/videos/10155287340829071/

Is Bitcoin a Bubble Here’s What Two Bubble Experts Told Us (12.8.17)

https://arstechnica.com/tech-policy/2017/12/is-bitcoin-a-bubble-heres-what-two-bubble-experts-told-us/?amp=1

Coinbase CEO on Crypto Surge, Bitcoin Futures, IRS (12.6.17) Bloomberg Video

https://www.bloomberg.com/news/videos/2017-12-07/coinbase-ceo-on-crypto-surge-bitcoin-futures-irs-video

How Do You Keep Your Bitcoin Safe (12.7.17) WSJ  

https://www.wsj.com/articles/how-do-you-keep-your-bitcoin-safe-1512680385

Bitcoin’s Wildest Rise Yet: 40% in 40 Hours (12.7.17 WSJ

https://www.wsj.com/articles/bitcoin-tops-15-000-as-manic-rally-gains-even-more-momentum-1512647315

Hackers Steal More Than $70 Million in Bitcoin (12.7.17) WSJ

https://www.wsj.com/articles/millions-may-be-missing-in-bitcoin-heist-1512625176

The Government is Coming for Your Bitcoin (12.1.17) SMC https://www.sovereignman.com/trends/the-government-is-coming-for-your-bitcoin-22724/?utm_medium=email&utm_source=sm_notes&utm_campaign=notes&utm_content=2017121_conibase

Here’s How to Stay One Step Ahead of the Government’s Secret Plan for Crypto Cash (11.16.17) https://agorafinancial.com/2017/11/16/blockchain-billions/?utm_source=email&utm_medium=issue&utm_campaign=issue

The IRS Is Puzzled Why Out of 500,000 Coinbase Users, Only 900 Reported Gains or Losses (11.13.17) http://www.zerohedge.com/news/2017-11-13/irs-puzzled-why-out-500000-coinbase-users-only-900-reported-gains-or-losses

Bitcoin Has an Unusual Relationship With Volatility (11.19.17)

https://www.bloomberg.com/view/articles/2017-11-20/bitcoin-has-an-unusual-relationship-with-volatility

Even a $31 Million Hack Couldn’t Keep Bitcoin Down (11.21.17)

https://www.bloomberg.com/amp/news/articles/2017-11-21/bitcoin-falls-after-31-million-theft-of-cryptocurrency-tether

The One Way Governments Could Actually Kill Bitcoin (10.16.17) SMC

https://www.sovereignman.com/investing/the-one-way-governments-could-actually-kill-bitcoin-22505/

Only Buy Bitcoin if You’re Ready to Lose (10.31.17)
https://lifehacker.com/only-buy-bitcoin-if-youre-ready-to-lose-it-1820006087

IMF’s Lagarde says digital currencies could boost its own SDR (9.29.17) Reuters https://uk.reuters.com/article/uk-imf-lagarde/imfs-lagarde-says-digital-currencies-could-boost-its-own-sdr-idUKKCN1C41QP

Cryptocurrency Mania Goes Beyond Bitcoin (5-24-17)

https://www.bloomberg.com/news/articles/2017-05-24/cryptocurrency-mania-goes-beyond-bitcoin-as-altcoins-lead-gains

What is this Blockchain Thing (4-20-17) https://medium.com/startup-grind/what-is-this-blockchain-thing-a5d2abb99297

Post-Bitcoin Technology Has Geeks, Giants, and Hackers Excited (3-28-17) https://www.bloomberg.com/news/articles/2017-03-23/post-bitcoin-technology-has-geeks-giants-and-hackers-excited?cmpid=socialflow-twitter-businessweek&utm_content=businessweek&utm_campaign=socialflow-organic&utm_source=twitter&utm_medium=social

The Future of Cryptocurrency By Investopedia Staff | http://www.investopedia.com/articles/forex/091013/future-cryptocurrency.asp

Bitcoin & ICBMs up, Inflation, Retail Sales & Productivity Down, Political Instability Continues

In his first speech to the UN, Trump denounced NK and Iran, who in turn denounced him.  Trump said he would “totally destroy” NK if necessary.  Chancellor Merkel won her re-election in Germany, but by the weakest majority since WWII, and with the anti-EU parties gaining seats.  Catalonia passed an Independence Referendum to secede from Spain and become their own nation.  Spain is calling the referendum illegal, Catalonia says it is legal, and so ensues another version of Crimea vs Ukraine.  The EU sides with Spain because Catalonia doesn’t want to be a part of the EU and, as with the UK Brexit, they are afraid other parts of the EU might resort to this method of exiting the EU.  The Kurds voted overwhelmingly for independence, which has upset Turkey, Iraq and Iran who consider the Kurds a threat politically and economically as they would control some large oil reserves.

Retail sales and inflation are down in both the US & EU.  Bitcoin is still up from its value at the beginning of the year, but down 40% from its highest point.  The one thing that keeps going up is North Korean ICBMs.  Not be out done, Iran also felt it necessary to do a nuclear test.   Needless to say stability is not a part of the equation.

 

Central Banks

Central banks are all talking about raising interest rates, printing less currency and beginning to unwind their portfolios, which means they will stop buying bonds and/or start selling some of their holdings.  So far the only major central bank to raise interest rates has been the US.  The Federal Reserve has set October for the start of their previously announced plan to shrink its $4.5 trillion balance sheet. As expected, policy makers left the benchmark interest rate unchanged in a range of 1 percent to 1.25 percent.  In a press conference, Fed Chair Janet Yellen called this year’s inflation undershoot a “mystery.” They have missed their target for the past five years.  Actually, the Fed has missed the target for 25 years, which begs the question, why anyone pays any attention to a Fed estimate.  The WSJ wrote, “In her press conference, Ms. Yellen acknowledged the inflation shortfall had proved more persistent and was more broad-based than officials had anticipated. “I can’t say I can easily point to a sufficient set of factors that explain this year why inflation has been as low,” she said.”  Vincent Reinhart, chief economist at Standish Mellon Asset Management and former head of the Fed’s monetary affairs department said, ““Central bankers feel guilty about where they are and if given an opportunity to renormalize policy, they’ll take it.”

Fed to Start Paring Holdings, Keeps December Rate Rise on the Table (9-20-17) WSJ

https://www.wsj.com/articles/fed-keeps-december-rate-rise-on-the-table-eyes-slower-path-for-increases-1505930513

Fed to Shrink Assets Next Month, Boost Rates by Year End (9-20-17)

https://www.bloomberg.com/news/articles/2017-09-20/fed-asset-shrinking-to-start-next-month-rate-hike-seen-in-17

 

Debt & Signs of Recession

Bloomberg reported that Canada, Turkey, Thailand and many other nations would be on the edge of a banking crisis, if global borrowing rose by 250 basis points (2.5%).  The Bank for International Settlement (BIS) warned that, “Credit-to-GDP ratios remained well above trend levels for a number of jurisdictions, including Canada, China and Hong Kong SAR.”

A forensic study conducted by the BIS, concluded: “enormous liabilities have accrued through FX swaps, currency swaps, and “forwards.” The data is tucked away in the “footnotes” of bank reports. Contracts worth tens of trillions of dollars stand open and trillions change hands daily. Yet one cannot find these amounts on balance sheets. This debt is, in effect, missing. “These transactions are functionally equivalent to borrowing and lending in the cash market. Yet the corresponding debt is not shown on the balance sheet and thus remains obscured,” said BIS’s quarterly report.  Signs of excess are visible everywhere, as the London Telegraph Financial Post reported, “Corporate debt is now considerably higher than it was pre-crisis. Leverage indicators have reached levels reminiscent of those that prevailed during previous corporate credit booms.  A growing share of firms face interest expenses exceeding earnings before interest and taxes.

Bloomberg reported that, S&P Global Ratings cut China’s sovereign credit rating for the first time since 1999, citing the risks from soaring debt, and revised its outlook to stable from negative.  The sovereign rating was cut by one step, to A+ from AA-.  Analysts also lowered their rating on three foreign banks that primarily operate in China, saying HSBC China, Hang Seng China and DBS Bank China Ltd. would be unlikely to avoid default should the nation default on its sovereign debt.  Moody’s cut its rating on China to A1 from Aa3 in May, citing similar concerns over economy-wide debt and effects on state finances.

Both Trump & Treasury Secretary Mulvaney said Puerto Rico will receive hurricane aide but no bailout for their bankrupt nation.  Bloomberg reported that Mulvaney said the administration is devising an aid package to send to Congress that will deal with rebuilding and repair:  “We are not going to bail them out. We are not going to pay off those debts. We are not going to bail out those bond holders,” he said.  Puerto Rico is not alone in its financial struggles, as the sub-prime problems which helped create the 2008 crisis are happening again in nations across the board, and Fannie & Freddie may need a $100 billion bailout.

No U.S. Bailout for Puerto Rican Debt, Trump’s Budget Chief Says (10.3.17) https://www.bloomberg.com/news/articles/2017-10-04/trump-suggests-puerto-rico-s-debt-may-need-to-be-wiped-out

S&P Cuts China’s Credit Rating, Citing Risk from Debt Growth (9-21-17)

https://www.bloomberg.com/news/articles/2017-09-21/s-p-lowers-china-s-rating-to-a-from-aa-says-outlook-stable

Canada Flagged as Hidden $14 Trillion Credit Bubble Stokes Global Crisis Fears (9-18-17) http://www.nationalpost.com/m/canada+flagged+hidden+trillion+credit+bubble+stokes+global+crisis+fears/14739264/story.html

Fannie-Freddie Might Need $100 Billion in New Crisis, FHFA Says (8-7-17) https://www.bloomberg.com/news/articles/2017-08-07/fannie-freddie-might-need-100-billion-in-new-crisis-fhfa-says

New U.S. Subprime Boom, Same Old Sins: Auto Defaults Are Soaring (7-17-17) https://www.bloomberg.com/news/articles/2017-07-17/new-u-s-subprime-boom-same-old-sins-auto-defaults-are-soaring

 

World Economies & Markets

WSJ reported that: Eurozone wages rose at the fastest pace in more than two years during the three months leading up to June, a sign inflation may be set to rise to the European Central Bank’s target.  The 19-nation eurozone economy has grown more strongly than expected this year, shrugging off the uncertainty created by a series of elections in the Netherlands, France and Germany that threatened, but failed, to yield gains for anti-euro nationalists.  The ECB’s economists now forecast the eurozone economy is on course for its best year since 2007, reducing the need for support from policy makers.  Just like in the U.S., however, inflation has yet to show signs of a sustained rise toward the central bank’s target, which is just under 2%.  Despite this, retail sales declined across the euro area for the second straight month in August, signaling a warning to the European Central Bank as it considers a reduction in its stimulus measures from early 2018.

WSJ reported: “Canadian factory sales plunged in July on a pullback in auto production, in a further sign that the economy has hit a rough patch following a year of roaring growth.   Manufacturing shipments declined 2.6% in July, on a volume, or price-adjusted, basis, factory sales fell 1.4%.New Zealand’s gross domestic product expanded 0.8% in the second quarter from the previous three months and along with Australia is preforming very well.  China’s consumer-price index increased 1.8% from a year earlier, compared with a 1.4% gain in July, but that did not prevent China from being downgraded by Moody & the S&P.”

In her Global Outlook report, Gail Fosler wrote, “We see the U.S. stock market as fragile and increasingly vulnerable to a downshift in employment. While stock prices lead unemployment in recoveries, an unemployment upturn tends to lead stock price downturns at peaks. Recent trends in recession indicators point to a pending reversal in unemployment, and hence a prospective decline in stock prices.  These trends are consistent with the discussion of financial risk and the notion of a U.S. reset/recession.”

Eurozone Retail Sales Fall Again, Posing Quandary for ECB (10.4.17) WSJ

https://www.wsj.com/articles/eurozone-retail-sales-fall-again-posing-quandary-for-ecb-1507107753

Stock Market Risks (9-21-17) By Gail Fosler | https://www.gailfosler.com/stock-market-risks

Eurozone Wage Growth Hits Two-Year High (9-15-17) WSJ

https://www.wsj.com/articles/eurozone-wage-growth-hits-two-year-high-1505470250

New Zealand Economy Rebounds Ahead of Election (9-20-17) WSJ

https://www.wsj.com/articles/new-zealand-economy-rebounds-ahead-of-election-1505951236

China Inflation Rebounds in August, Beating Expectations (9-20-17 WSJ

https://www.wsj.com/articles/china-inflation-rebounds-in-august-beating-expectations-1504933096

Canada Factory Sales Plunge in July (9-19-17) WSJ

https://www.wsj.com/articles/canada-factory-sales-plunge-in-july-1505826312

 

The EU, Political Uncertainty & Shifting Allegiances

The WSJ reported that the EU is trying to get more tax revenue from multinational companies and they say they are trying to level the corporate playing field across the continent.  The Journal went on to say, “This move risks exacerbating tax disputes among member states, and undermining the bloc’s unity.   And the European Commission, the bloc’s executive, is considering adopting a French-led proposal to tax digital companies on revenue—as opposed to profit—generated in Europe to better account for what they believe companies should be paying.  Bureaucrats always prefer to tax economic activity rather than profits because it secures tax revenues even in downtimes. 

The EU bureaucracy in Brussels, doesn’t care about companies or their employees, it only cares that it has tax revenue to spend.  It should be irrelevant what the EU thinks they should get, they aren’t a nation and they weren’t voted into office; they are an unelected bureaucratic body which answers to no one and has no checks or balances on their power.  The WSJ explains that this is why several EU countries, such as Luxembourg and Ireland, have already expressed skepticism, and larger more indebted EU members want to protect their revenues from what some smaller countries see as a power grab by the EU.   EU member countries are supposed to agree unanimously on tax matters, but the smaller states have insisted on maintaining their freedom to maneuver on tax matters.  EU antitrust chief Margrethe Vestager stressed the importance of a level playing field and a functioning single market, and wants to usurp that power from member nations.  This is the MO of federal bureaucracies, they usurp an ever increasing amount of control and authority. This is why the UK and Switzerland left, why Italy, Poland, the Czech Republic and Hungry may leave, and why Germany’s Chancellor Merkel and the Netherlands establishment party lost seats.  In spite of her dwindling support, Chancellor Merkel arrogantly declares the UK must pay the EU divorce settlement.  The EU and UK are no closer to an agreement than they were in March when negotiations began.

Taxation Tests European Unity (10.5.17) WSJ |  https://www.wsj.com/articles/taxation-tests-european-unity-1507236355

German Results Reflect European Unease Over Identity, Economy (9.24.17) WSJ

https://www.wsj.com/articles/german-results-reflect-european-unease-over-identity-economy-1506288918

Merkel Warns U.K. It’ll Have to Pay EU Obligations in Brexit (8-26-17)

https://www.bloomberg.com/news/articles/2017-08-26/merkel-warns-u-k-it-ll-have-to-pay-eu-obligations-under-brexit

EU Takes Action Against Poland Over Judiciary Overhaul (7-29-17) WSJ

https://www.wsj.com/articles/eu-takes-legal-action-against-poland-over-judiciary-overhaul-1501329235?mod=nwsrl_world_news&cx_refModule=nwsrl

Bloomberg wrote: “A tainted election victory for the German chancellor betrays the east-west divide in Europe. The surge in support for Germany’s anti-immigrant party in weekend elections is a stark reminder of the fault line that cuts through the European Union.  Chancellor Angela Merkel’s conservative alliance won the German election, but a steep drop in its support and an anti-immigrant party surge signaled political turbulence ahead for Europe’s largest economy.”

Another article in the WSJ went on the say, “The election result signaled a sudden turn for a political system whose relative stability has underpinned the European Union in recent years as it lurched from crisis to crisis.  Ms. Merkel’s Christian Democrats and their Bavarian sister party saw their worst result since 1949, losing around a fifth of the 41.5% support they garnered just four years ago. The Social Democrats suffered their worst election since World War II.  The nationalist AfD (AfD is the alternative for Deutschland Party, which wants to exit the EU) party was predicted to get 13.5%, which would make it the first time in more than half a century that a party this far to the right has won seats.”   Germany’s election result confirms the overriding trend of European politics in the past year: the crumbling of the Continent’s established parties in the face of voter anxiety over economics and identity.

The WSJ reported that in Hungry the ANO party’s mantra is to reject the euro because it would be “another issue that Brussels would be meddling with,” said Hungarian Prime Minister Viktor Orban.  His approval ratings are very high, even after he scoffed at a European court defeat over having to accept migrants.  Orban suggested the EU is trying to “rape” his country into being like Western Europe.  The leadership in Warsaw appears unfazed, as do financial markets. The zloty is among the world’s 10 best-performing currencies against the euro this year, along with the Czech koruna.

Poland angered Germany by asking for as much as $1 trillion of World War II reparations.  The French Prime Minister showed his support for Germany by skipping a scheduled meeting with Kaczynski and cancelling a defense contract for new helicopters.  “Nobody will impose their will on us from abroad,” said Polish the President.  “Even if in certain matters we’ll be alone in Europe, we’ll remain an island of freedom.”

In New Zealand, like in Europe and the US, immigration is one of the biggest issues and political party differences.   The WSJ reported that, “Immigration to New Zealand hit 72,400 this year, fanning criticism that the National-led government has fueled economic growth with this influx.  The New Zealand First Party takes an especially tough line on immigration. Nationalism, the desire to be a sovereign nation, is on the rise all over the world.  The people in New Zealand want to be New Zealanders, the UK want to British, Italians want to be Italian, Germans want to German, US citizens want to be Americans etc.

WSJ reported that, “…voters in the Spanish region of Catalonia overwhelmingly backed independence on Sunday in a referendum that was boycotted by opponents and marred by violence, putting Spain on the brink of a political and constitutional crisis.  Preliminary results showed that approximately 90% of votes were cast in favor of a split with Spain.”  The EU is calling the vote illegal, because Catalonia didn’t ask permission and doesn’t want to be a part of the EU.  The vote is also upsetting other European Union members, concerned it could fuel discontent in independence-minded regions such as the U.K.’s Scotland and Belgium’s Flanders. The vote could also lead to Spanish Prime Minister Rajoy to resign.

Catalans Support Secession from Spain in Vote Boycotted by Opponents (10-1-17) WSJ https://www.wsj.com/articles/voters-turn-out-in-catalonia-for-independence-referendum-1506838287

European Commission Calls Catalonia Vote Illegal (10.2.17) WSJ

https://www.wsj.com/articles/european-commission-calls-catalonia-vote-illegal-1506943214

Catalonia’s Independence Referendum: What You Need to Know (9.29.17) WSJ

http://www.wsj.com/video/catalonia-independence-referendum-what-you-need-to-know/F812FC12-C32A-49DE-BB89-BE6E69E7C567.html

Kurds Vote Overwhelmingly in Favor of Independence from Iraq (9-27-17) CNN http://www.cnn.com/2017/09/27/middleeast/kurdish-referendum-results/index.html

Iraq Imposes Flight Ban on Kurds After Independence Vote (9-29-17) WSJ

https://www.wsj.com/articles/iraqi-forces-close-in-on-islamic-state-stronghold-in-iraq-1506689055

Merkel’s Bavarian Ally Wages Rebellion from the Right (10.6.17) WSJ

https://www.wsj.com/articles/merkels-bavarian-ally-wages-rebellion-from-the-right-1507282202

The Dark Past in Merkel’s Backyard (9-26 -17) WSJ

https://www.bloomberg.com/politics/articles/2017-09-26/the-dark-past-in-merkel-s-backyard

Merkel’s Coalition Wins German Election, but Share of Votes Drops (9-24-17) WSJ

https://www.wsj.com/articles/merkel-on-track-for-victory-in-german-election-exit-polls-show-1506269223

After New Zealand’s Unclear Election, Populists Play Kingmaker (9-23-17) WSJ

https://www.wsj.com/articles/after-new-zealands-unclear-election-populists-hold-power-1506165974

Even in Staid Germany, Protest Parties Poised to Gain Ground (9-21-17) WSJ

https://www.wsj.com/articles/even-in-staid-germany-protest-parties-poised-to-gain-ground-1506025444

 

Conclusion

The EU, the UN and other global entities’ influence and control are currently diminishing.  The global establishment is being challenged and shaken by the rise of nationalism and the desire of individual citizens to keep their national sovereignty, history, culture and identity.  Bloomberg reported that, UK Prime Minister May’s threat to withhold funding from the UN, echoes a call for reform.  Secretary-General Antonio Guterres, is pushing for overhaul of some of the organization’s troubled peacekeeping programs. Tests that will need to be met before U.K. funding is released include centralizing UN operations in each country, and improvements in transparency, including the UN publishing its expenditures, according to May’s office.

The US is also questioning many of the UN’s programs and considering not funding things they deem detrimental to the US and its citizens.  North Korea, Iran, China and other nations are forcing the US to go it alone and form its own policy to deal with trade, international disputes and military threats, due to the lack of cooperation from the UN, EU and other globalist groups with their own agendas.   The exact outcomes of the political, social and economic unrest and irregularities currently brewing are undeterminable at this time.  It is certain however, as water in a kettle, this economic and political instability will eventually come to a boil and no matter which area hits the boiling point first, it will spill over into other areas.

A North Korea Nuclear Test Over the Pacific Logical, Terrifying (9-22-17) Reuters

http://www.reuters.com/article/us-northkorea-missiles-atmospheric-test/a-north-korea-nuclear-test-over-the-pacific-logical-terrifying-idUSKCN1BX0W5

May Says U.K. to Withhold Part of Funding If UN Doesn’t Reform (9-21-17) https://www.bloomberg.com/news/articles/2017-09-20/may-says-u-k-to-withhold-part-of-funding-if-un-doesn-t-reform

Russia and China Hold First Joint Naval Exercises in Baltic Sea (7-25-17) Bloomberg https://www.bloomberg.com/news/articles/2017-07-25/russia-and-china-hold-first-joint-naval-exercises-in-baltic-sea

US House & Senate Make Grave Mistake – US Will Suffer for their Foolishness

The House and Senate have foolishly and purposely made it almost impossible for the US to have any credibility in the eyes of the rest of the world. By passing new Russian sanctions with a veto proof majority, they have at least at the moment, completely eliminated any chance for the US and Russia to be able to work together to stop North Korea and China, and have severely damaged Trump’s ability to be commander-in-chief. They have ignored the century long strategy of balancing of the super powers, which has always been to side with Russia against China or China against Russia, but never allow Russia and China against the US. We have already begun to enter a trade war against China which is going to get very nasty, not to mention our differences with them in the South China Sea. I didn’t think it possible for any US House and Senate to be worse than during the Obama years, but I was wrong. I have never seen a more foolish, inept, ineffective and damaging House and Senate than the one we have today. Their conduct and actions over the last seven months have made the US the laughing stock of the world.

Russia warned that if the US passed sanctions and did not stop all this foolishness there would be consequences and unlike the US, these are not empty threats. They have now expelled 700-1000 US diplomats and seized US compounds and I guarantee you this is only the beginning. Russia is devastatingly better at intelligence gathering, espionage, negotiation and military strategy than the US. This move may very well go down as one of the worst mistakes the US House and Senate have ever made and hopefully will not lead to even greater consequences. The damage is not irreparable, however the whole politically motivated, meaningless and baseless Russian collusion investigation needs to cease, or the US will continue to descend into greater dysfunction and irrelevance at home and abroad.

Russia to Cut 755 U.S. Diplomats, Staff Amid New Sanctions (7-30-17) WSJ
https://www.wsj.com/articles/russia-to-force-out-755-u-s-diplomats-and-staff-1501447537
Vladimir Putin Expels More Than 700 U.S. Diplomats From Russia, Seizes U.S. Compounds (7-30-17) http://www.theblaze.com/news/2017/07/30/vladimir-putin-expels-more-than-700-u-s-diplomats-from-russia-seizes-u-s-compounds/
China Parades New Missile in Warning to Rivals Abroad and at Home (7-30-17) WSJ
https://www.wsj.com/articles/chinas-new-missile-a-warning-to-rivals-abroadand-at-home-1501409739?mod=nwsrl_asia_news&cx_refModule=nwsrl
Russia and China Hold First Joint Naval Exercises in Baltic Sea (7-25-17) Bloomberg https://www.bloomberg.com/news/articles/2017-07-25/russia-and-china-hold-first-joint-naval-exercises-in-baltic-sea
Russian Scientists Design Stormtrooper Uniform for Military (7-1-17) Blaze http://www.theblaze.com/news/2017/07/01/russian-scientists-design-stormtrooper-uniform-for-military-and-it-looks-incredible/
Is Putin the Preeminent Statesman of Our Times (3-31-17) American Conservative – Patrick Buchanan http://www.theamericanconservative.com/buchanan/is-putin-the-preeminent-statesman-of-our-times/