Much has happened in the last several weeks. The IMF downgraded world growth for the second time this year. Boris Johnson replaced Theresa May as the UK Prime Minister and in his first speech said, “There are no ifs ands or buts, the UK will exit the European Union with or without an agreement by Oct 31, 2019.” He also said he would not meet with EU officials unless they give him a better deal than they gave former PM May. The G-7 Nations are meeting and all eyes and ears are on President Trump to see what he will do next in the trade wars. The EU economy is on shaky ground with a nearly zero growth rate, and they fear they will be the next trade war victims, if they don’t get rid of their trade barriers and open their markets to US trade. Gold has gone up almost $300 an ounce for the first time in five years and crossed the $1500 threshold, which is a 25% increase for 2019. Central banks are lowering interest rates, while political unrest continues to rise.
Europe’s Shaky Union Faces Trump’s G-7 Stress Test (8.20.19) Bloomberg
IMF Downgrades World Growth, Warns of Precarious 2020 (7.23.19) Yahoo News
https://news.yahoo.com/imf-downgrades-world-growth-warns-precarious-2020-143309185.html
Currency & Crypto-Currency
JP Morgan wrote, “China, the economies of Southeast Asia, including India, have strong secular tailwinds driven by younger demographics and proliferating technological know-how. Specifically, the Asian economic zone—from the Arabian Peninsula and Turkey in the West to Japan and New Zealand in the East and from Russia in the North and Australia in the South—now represents 50% of global GDP and two-thirds of global economic growth. Of the estimated $30 trillion in middle-class consumption growth between 2015 and 2030, only $1 trillion is expected to come from today’s Western economies. As this region grows, the share of non-USD transactions will inevitably increase which will likely erode the dollar’s “reserveness”, even if the dollar isn’t replaced as the dominant international currency. In other words, in the coming decades we think the world economy will transition from U.S. and USD dominance toward a system where Asia wields greater power. In currency space, this means the USD will likely lose value compared to a basket of other currencies, including precious commodities like gold.
New Zealand passed legislation allowing for payments to be made with crypto-currency. Many nations have expressed both concern and outright disagreement with Facebook’s plan to release its own crypto called Libra, including the Fed Chairman Jerome Powell. Bloomberg reported: “The People’s Bank of China is “close” to issuing its own cryptocurrency, according to a senior official. Mu repeated the PBOC’s intention that the digital currency would replace cash in circulation, rather than M2, which would generate credit and impact monetary policy. The digital currency would also support the yuan’s circulation and internationalization, he said. (China’s PBOC Considers Plan to Replace Cash and Sideline Bitcoin). The remarks signal the PBOC is inching toward formally introducing a digital currency of its own after five years of research. Facebook Inc.’s push to create cryptocurrency Libra has caused concerns among global central banks, including the PBOC, which said the digital asset must be put under central bank oversight to prevent potential foreign exchange risks and protect the authority of monetary policy.” The Swedes, on the other hand, are getting chips in their hands which allow them to buy and sell without cash credit cards or crypto- currency.
China’s PBOC Says Its Own Cryptocurrency Is Close to Release (8.11.19) Bloomberg
New Zealand Officially Legalizes Paying Employees With Crypto-Currency (Aug 2019)
https://www.classic.ird.govt.nz/resources/1/c/1c6029d0-611c-4a15-9cbf-b712129ab76c/tib-vol31-no7.pdf
Swedes are Getting Implants in Their Hands to Replace Cash, Credit Cards (7.14.19) https://nypost.com/2019/07/14/swedish-people-are-getting-chip-implants-to-replace-cash-credit-cards/
Powell Says Libra Cannot go Forward without Addressing Serious Concerns (7.10.19) Yahoo Finance https://finance.yahoo.com/news/powell-libra-cannot-go-forward-without-addressing-serious-concerns-212100567.html
Is the Dollar’s Exorbitant Privilege Coming to an End (7.10.19)
The Gold Rush is On
Generally, if gold is going up, a company whose business is directly or indirectly related to gold also goes up. However, if that company is not wisely managed, makes mistakes in its business operations and/or one of its managers or employees commits an illegality, it could go down in a rising gold market. Many experts believe there is far more paper gold than there is physical gold, and in a crisis, if people want to exchange their paper gold for real gold, they will come up short. When the stock market begins to falter, physical gold, gold company stocks and mutual funds with gold and precious metals are likely to go up. However, if the gold and precious metals mutual fund has a big exposure to 401k plans, they could drop right along with the stock market, because, when people panic, they don’t carefully scrutinizing their investment holdings, they tend to bail out of everything they have, driving down the value of every company in their mutual fund. This does not happen with physical gold in a crisis, it usually goes up when the stock market goes down. Bullion Star wrote, “The ECB, Swiss National Bank, and Swedish Riksbank have all issued coordinated press releases dated 26th July, confirming that there will not be a fifth central bank gold agreement when the current agreement expires in September 2019.” This indicates that central banks are about to start buying gold.
By Not Renewing the CBGA, Central Banks in Europe Look Ready to Buy Gold (7.26.19) https://www.bullionstar.com/blogs/ronan-manly/by-not-renewing-the-cbga-central-banks-in-europe-look-ready-to-buy-gold/
Debt & Recession
The debt of most nations is rising, but there are some that have refused the addictive spend now, deal with the consequences later attitude of most nations and central banks. The WSJ wrote: “The [U.S.] $22 trillion of debt is the most owed by any country on Earth. However, when compared with the size of the U.S. economy—also the world’s largest—the public debt doesn’t rank in the top 25, according to the Central Intelligence Agency’s World Factbook. Japan and Greece have the highest debt-to-GDP ratios, at 236% and 182%, respectively. The U.S. debt-to-GDP ratio is currently 104%. The US economy is doing well, but the national debt is also rising at an alarming rate. “Borrowing by the federal government is set to top $1 trillion for the second year in a row as higher spending outpaces revenue growth and concern about budget deficits wanes in Washington and on Wall Street” – WSJ.
Home Depot has joined many other companies in lowering their growth expectations, and the number of RV purchases has dropped which many say is a precursor to recession. According to the 2019 Annual Report of The Board of Trustees of The Federal Old-Age & Survivors Insurance & Federal Disability Insurance Trust Funds, Social Security & Medicare trust funds will be fully depleted in 15 years. The report estimates, Social Security and Medicare combined are underfunded by over $100 Trillion. If things don’t change and corrective actions are not taken, the US dollar will eventually devalue and the US government will go bankrupt. Congress passed a deal to defuse the debt-limit issue for two years and push the debate past the 2020 presidential election. That said, the Trump Administration will do everything they can to keep the US economy afloat until after the 2020 election. If re-elected, Trump will likely begin to deal with these problems and do the very unpopular things, like raise the age of Social Security from 62 & 65 to 67 & 70, cut all kinds of government programs and prepare the country for what’s coming.
The National Debt, Explained (8.11.19) https://www.bloomberg.com/news/videos/2019-08-11/the-national-debt-explained-video
The U.S. National Debt, Visualized (8.3.19) WSJ https://www.wsj.com/articles/the-national-debt-visualized-11564830209
Federal Borrowing Soars as Deficit Fear Fades (7.29.19) WSJ
White House & Congress Reach Deal on Spending, Debt Ceiling (7.22.19) WSJ https://www.wsj.com/articles/white-house-and-congress-near-agreement-on-spending-debt-ceiling-11563799484?mod=hp_lead_pos2
Switzerland Has a Budget Surplus. Here’s How, and What the US Could Learn (7.8.19) https://www.dailysignal.com/2019/07/08/switzerland-has-a-budget-surplus-heres-how-and-what-the-us-could-learn/
Ex-RBI Chief Flags Risks for India’s Overseas Borrowing Plan (7.13.19) Bloomberg https://www.bloomberg.com/news/articles/2019-07-13/ex-rbi-chief-rajan-flags-risks-for-india-s-overseas-debt-plan
The 2019 Annual Report of The Board of Trustees of The Federal Old-Age & Survivors Insurance & Federal Disability Insurance Trust Funds, Social Security & Medicare https://www.ssa.gov/OACT/TR/2019/tr2019.pdf
Central Banks
The US, Mexico, Thailand and other nations are lowering interest rates. The EU is preparing a new expansive stimulus program which means more money printing, bond buying and lower interest rates, to be released in its September meeting. Unlike the rest of the nations that raised their interest rates in 2017 and 2018, the EU has not raised interest rates since the 2008 crisis, and to make matters worse they are already at -.4% and are reportedly headed to -.6%. Negative interest rates are a fiscal fantasy that shouldn’t exist. They only serve to provide the EU with false legitimacy and solvency, when, in reality, they are insolvent and bankrupt.
ECB Primes Big Bazooka for September (8.15.19) WSJ
https://www.wsj.com/articles/ecb-stimulus-package-may-beat-expectations-official-says-11565876685
By Not Renewing the CBGA, Central Banks in Europe Look Ready to Buy Gold (7.26.19) https://www.bullionstar.com/blogs/ronan-manly/by-not-renewing-the-cbga-central-banks-in-europe-look-ready-to-buy-gold/
World Economy & Global Markets
German and EU economies are on the brink of recession, but other economies like the US, Australia and Switzerland are doing well. Australia is set to triple its exports of grain-fed beef to China by 2030 to satisfy the nation’s growing appetite for the highly marbled meat, according to Rabobank Group. CNN reported that “China’s economic growth has slumped to its lowest level in nearly three decades as the world’s second largest economy feels the effects of a prolonged trade war with the United States.” The trade wars continue, as President Trump continues to attempt to deal with the trade deficit and open other countries to US markets. The US is also investigating the Big Tech companies to see if they have acted unfairly, broken anti-trust laws and inhibited competition.
China’s Appetite for Australia’s Marbled Beef Is Growing (8.20.19)
States to Launch Antitrust Probe of Big Tech Firms (8.19.19) WSJ
China’s Economic Growth Slumps to Lowest in 27 Years as the Trade War Hits (7.15.19) CNN https://www.cnn.com/2019/07/15/economy/china-gdp-growth/index.html
Political Unrest
Hong Kong protests continue; everyone is watching to see what China will do and President Trump is warning China to handle things wisely. Italy’s Prime Minister will be resigning, ending the coalition government. The EU bureaucrats may be rejoicing, but they could end up with an even more anti-EU replacement if they are not careful. Tensions between India & Pakistan continue to rise and these two nuclear powers are being urged by world leaders to act with restraint. Many believe that one of Russia’s nuclear missile depots exploded, as four monitoring stations went silent after the blast; as with most things that happen internally in Russia, all questions are met with no response. China’s Huawei has been found to not only be spying on governments and countries which use it, but also to be helping Africa and other nations spy on one another. It looks as if Canadian Prime Minister Trudeau may have damaged his re-election chances, having broken Canadian conflict of interest laws. Both India and China are taking away freedoms and bearing down on their Islamic populations, with China literally placing entire Islamic town and village populations in internment facilities.
Italian Prime Minister to Resign, Declaring End of Coalition (8.20.19) WSJ
Italian Politics Meet European Rigidity (8.21.19) Bloomberg
Italy Stumbles Into Its Next Absurd Crisis (8.21.19) Bloomberg
Trump Urges Restraint by India and Pakistan in Kashmir Conflict (8.19.19) WSJ
Pakistan Extends Powerful Army Chief’s Term (8.19.19) WSJ https://www.wsj.com/articles/pakistan-extends-powerful-army-chiefs-term-11566239708
More Russian Nuclear Monitoring Stations Went Silent Days After Blast, Official Says (8.19.19) WSJ | https://www.wsj.com/articles/more-russian-nuclear-monitoring-stations-went-silent-days-after-blast-test-ban-officials-says-11566232680
Canada’s Trudeau Found to Have Broken Conflict-of-Interest Law (8.15.19) WSJ
Huawei Technicians Helped African Governments Spy (8.14.19) WSJ
India’s Modi Defends Decision to Clamp Down on Kashmir (8.8.19)
https://www.wsj.com/articles/indias-modi-defends-decision-to-clamp-down-on-kashmir-11565282857
After Detentions, China Razes Muslim Communities to Build Loyal City (3.20.19) WSJ
Fulton's Perspective on Global Economies, Markets & Political Events 