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

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google+ photo

You are commenting using your Google+ account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s