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 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
Fed to Shrink Assets Next Month, Boost Rates by Year End (9-20-17)
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)
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
Eurozone Wage Growth Hits Two-Year High (9-15-17) WSJ
New Zealand Economy Rebounds Ahead of Election (9-20-17) WSJ
China Inflation Rebounds in August, Beating Expectations (9-20-17 WSJ
Canada Factory Sales Plunge in July (9-19-17) WSJ
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
Merkel Warns U.K. It’ll Have to Pay EU Obligations in Brexit (8-26-17)
EU Takes Action Against Poland Over Judiciary Overhaul (7-29-17) WSJ
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
Catalonia’s Independence Referendum: What You Need to Know (9.29.17) WSJ
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
Merkel’s Bavarian Ally Wages Rebellion from the Right (10.6.17) WSJ
The Dark Past in Merkel’s Backyard (9-26 -17) WSJ
Merkel’s Coalition Wins German Election, but Share of Votes Drops (9-24-17) WSJ
After New Zealand’s Unclear Election, Populists Play Kingmaker (9-23-17) WSJ
Even in Staid Germany, Protest Parties Poised to Gain Ground (9-21-17) WSJ
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
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