Brexit just won’t break!  March 29^th and April 12^th came and went and now the deadline has been extended to October 31, 2019.  Will Parliament make a decision between now and then, will it be a soft/negotiated Brexit, or a hard Brexit which would be an automatic ejection from the European market? Will another extension be given?   Anything could happen and there is no way of predicting the outcome.  If the UK capitulates, its days as a world economic power are over and it is very unlikely that any nation will ever challenge the EU again because, if the UK failed, how could anyone else resist them?  If the UK resists and retains their sovereignty, the other EU nations may do the same and the EU’s ability to intimidate and control its members will begin to diminish with more of their members likely exiting.

EU Leaders Agree to Delay Brexit Until Oct. 31 (4.10.19) WSJ  https://www.wsj.com/articles/eu-prepares-to-push-brexit-into-next-year-11554900794?mod=hp_lead_pos6

Brexit Betrayal – Treachery or Treason? (3.24.19) https://www.youtube.com/watch?v=q8hw-X3V9Jo&feature=youtu.be

May’s Brexit Deal Is Rejected for a Third Time by Lawmakers (3.29.19) WSJ https://www.wsj.com/articles/mays-brexit-deal-is-rejected-for-a-third-time-by-lawmakers-11553870628

Theresa May Vows to Resign to Get Brexit Deal Through Parliament (3.27.19) WSJ https://www.wsj.com/articles/theresa-may-vows-to-quit-to-get-brexit-deal-through-parliament-11553708350?mod=hp_lead_pos1

Central Banks & Currency

In the first three months of this year, the Fed has gone from arguing about how much and how often interest rates should be raised to arguing about whether or not to lower them.  When compared to the EU, Japanese or Chinese central banks, the Federal Reserve looks pretty good at the moment; however, the Fed’s balance sheet plans have too many assets.  US debt is too high, and too much qualitative easing for too long has put the Fed between a rock and hard place.  The Feds are not alone; however, as most of the central banks of the world are in a similar place.  James Skinner wrote:

“The Pound remains the best performing currency in the G10 universe for 2019 but the British currency has much further to rise, according to analysts at Morgan Stanley, who’ve recently told clients to buy the British currency.  The U.S. Federal Funds rate of 2.5% is substantially higher than the BoE’s 0.75% but markets are already speculating the Federal Reserve could cut its interest rate next year so if the BoE were to lift Bank Rate the Pound-to-Dollar rate differential would move in favour of Sterling.  It is a gradual increase in market bets on BoE rate hikes that Redeker says will drive the Pound-to-Dollar rate up to Morgan Stanley’s forecast of 1.52 by year-end.”

Reuters reported that Saudi Arabia is threatening to sell its oil in currencies other than the US Dollar if Washington passes a bill exposing OPEC members to US antitrust lawsuits, three sources familiar with Saudi energy policy said.  The bill called NOPEC has been purposed a number of times but has never gotten any traction.  According to the WSJ:

“India’s central bank cut its main lending rate for the second time this year as recent low inflation rates gave it the freedom to try to bolster economic growth.  The Reserve Bank of India’s monetary-policy committee, headed by Gov. Shaktikanta Das, on Thursday lowered the repurchase rate to 6% from 6.25%. All 10 economists polled by The Wall Street Journal had predicted a quarter-percentage-point rate cut.”

Growth Stumbling, but Central Bank Arsenals are Near Empty (4.12.19) Reuters https://www.reuters.com/article/us-global-economy/growth-stumbling-but-central-bank-arsenals-are-near-empty-idUSKCN1RO1KS

India’s Central Bank Cuts Key Lending Rate to 6.0% (4.4.19) WSJ                                            https://www.wsj.com/articles/indias-central-bank-cuts-key-lending-rate-to-6-0-11554372112

Things are Only Getting Tougher for Chair Jerome Powell and his all Over the Place Fed (4.3.19) CNBC  https://www.cnbc.com/2019/04/01/things-are-only-getting-tougher-for-fed-chair-jerome-powell.html

The British Pound is a Buy says Morgan Stanley (3.28.19) https://www.poundsterlinglive.com/gbp-live-today/11090-the-british-pound-is-a-buy-says-morgan-stanley

Saudi Arabia Threatens to Ditch Dollar Oil Trades to Stop NOPEC (4.4.19) Reuters https://www.reuters.com/article/us-saudi-usa-oil-exclusive/exclusive-saudi-arabia-threatens-to-ditch-dollar-oil-trades-to-stop-nopec-sources-idUSKCN1RH008

Debt

Fox News reported that, “last month, the national debtOpens a New Window. surpassed $22 trillion — or nearly $180,000 per taxpayer. That figure will roughly double within three decades, since spending on Social SecurityOpens a New Window., Medicare and Medicaid will balloon as America’s population ages.  Unfortunately, it’s too late for a “grand bargain” now.”  A slowing world economy, tighter credit and rising debt are creating problems for China as well.   CNBC said, “According to experts, defaults for Chinese corporate bonds — issued in both U.S. dollars and the Chinese yuan — soared last year, according to numbers from two banks.  Yuan-denominated debt rose to an unprecedented 119.6 billion yuan ($17.8 billion) — four times more than 2017, according to a February report by Singapore bank DBS.  Japanese bank Nomura’s estimates, provided to CNBC, were even higher, putting the size of defaults in onshore bonds — or yuan-denominated bonds — at 159.6 billion yuan ($23.8 billion) last year. That number is roughly four times more than its 2017 estimate.”

Chinese Companies Are Defaulting on Their Debts at an Unprecedented Level (3.20.19) CNBC  https://www.cnbc.com/2019/03/20/chinese-companies-had-record-amount-of-corporate-bond-defaults-in-2018.html

The Federal Government Should Default on its Debt (3.19.19) Fox News https://www.foxbusiness.com/economy/the-federal-government-should-default-on-its-debt

Political Unrest & Elections

The battle between globalism and nationalism continues to playout across the globe.  Finland’s Social Democrats look to have edged a victory for the first time since 1999, barely beating the nationalist Finns Party 17.7% to 17.5%.  Israeli Prime Minister Netanyahu won a 5^th term and gained seats in the Knesset strengthening his position, and Australia’s prime minister has just called for new elections, hoping to expand the number of seats in his party’s control.

Immigration continues to create political unrest, as another migrant horde has broken through Mexico’s southern border and attacked Mexican border police on their way to the US border.  There are complaints that the bottle necked ports and borders are costing shippers millions.  President Trump has threatened to close the US-Mexican border if Mexico does not stop the stream of immigrants on their end.

Chinese fishing boats invaded Philippine sovereign territory, as China continues to push at the borders of international waters.  The WSJ reported that “Chinese fishing vessels have swarmed the waters around a Philippine-controlled island in the South China Sea in recent months—sparking fears in Manila that Beijing is trying to assert greater control in a disputed area.  Since January, at least 275 Chinese boats functioning as part of a maritime militia have gathered for varying lengths of time near Thitu Island, according to the Philippines’ military. Their tactics raise concerns about their “role in support of coercive objectives.”

The WSJ reported problems in both Libya and Turkey, as a renegade Libyan military commander, reportedly supported by Saudi Arabia, launched an assault on the Tripoli capital, risking returning the country to a full-blown civil war.  Turkey’s Erdogan decided to purchase an air-defense system from Russia despite US warnings that using the equipment would jeopardize Ankara’s role within the North Atlantic Treaty Organization.  Vice President Pence called Erdogan’s decision reckless.  The US declared Iran’s Revolutionary Guard a terrorist organization, subjugating it to all the penalties that go with such a designation. It is unusual to brand a branch of a nation’s military a terrorist group, but Iran’s support of terrorism is clear, and the Revolutionary Guard are a complicit party.  Facebook and CEO Mark Zuckerberg are also stirring up international unrest by continuing to anger individuals and governments around the world by their reckless disregard for people’s privacy, the rule of law of various nations, and the imposition of their bias views and removal  of people and groups from Facebook with whom they disagree with.

Social Democrats Set to Win Close Legislative Election in Finland (4.14.19) WSJ https://www.wsj.com/articles/social-democrats-set-to-win-close-legislative-election-in-finland-11555278024

Netanyahu Rode Israel’s Rightward Shift to Successful Election Result (4.10.19) WSJ https://www.wsj.com/articles/benjamin-netanyahu-appears-to-set-to-lead-israel-in-record-fifth-term-11554888521?mod=hp_lista_pos1

Australia to Pick Its Next Leader—With an Election (4.11.19) WSJ https://www.wsj.com/articles/australias-embattled-conservatives-call-new-election-11554937191

Saudi Arabia Promised Support to Libyan Warlord (4.12.19) WSJ https://www.wsj.com/articles/saudi-arabia-promised-support-to-libyan-warlord-in-push-to-seize-tripoli-11555077600

Libyan Warlord Launches Assault on Country’s Capital (4.5.19) WSJ https://www.wsj.com/articles/libyan-warlord-launches-assault-on-capital-11554474313?mod=hp_lead_pos7

US Designates Iran’s Islamic Revolutionary Guard Corps a Foreign Terrorist Org. (4.8.19) WSJ https://www.wsj.com/articles/u-s-designates-irans-islamic-revolutionary-guard-corps-a-foreign-terrorist-organization-11554733155?mod=hp_lead_pos1

Erdogan Vows to Buy Russian Missiles Despite U.S. Warnings (4.8.18) WSJ  https://www.wsj.com/articles/erdogan-vows-to-buy-russian-missiles-despite-u-s-warnings-11554754854

U.S. Clashes With Turkey Over Russian Air-Defense System (4.3.19) WSJ https://www.wsj.com/articles/nato-chief-tells-congress-alliance-remains-urgently-needed-11554309999

China’s Fishing Militia Swarms Philippine Island, Seeking Edge in Sea Dispute (4.4.19) WSJ https://www.wsj.com/articles/chinas-fishing-militia-swarms-philippine-island-seeking-edge-in-sea-dispute-11554391301

Hostile Migrants Break Border Gate to Enter Mexico, Then Attack Police & They’re Headed North https://www.theblaze.com/news/migrants-break-border-fence-mexico?utm_source=Sailthru&utm_medium=email&utm_campaign=Daily-Newsletter__PM-Final%202019-04-14&utm_term=TheBlaze%20Daily%20PM%20-%20last%20270%20days

U.S. Shift on Mexican Border Triggers Trade Bottleneck (4.3.19) WSJ https://www.wsj.com/articles/u-s-action-on-mexico-border-triggers-trade-havoc-11554325826

World Economies & Market

The WSJ reported that “The International Monetary Fund cut its outlook for global growth to the lowest since the financial crisis amid a bleaker outlook in most major advanced economies and signs that higher tariffs are weighing on trade.  It’s the third time the IMF has downgraded its outlook in six months.”  The report goes on to say that the IMF raised its forecast for Chinese growth, while lowering it for the US, the euro area, Japan and India.  The UK economy grew in February, in spite of the Brexit uncertainty.  Italy’s populist government conceded it won’t hit the budget-deficit target agreed on with European Union authorities, setting the stage for renewed tensions with Brussels.  Currently world stock markets are continuing to grow, even as the outlook for world economies is beginning to diminish.  Trade wars and negotiations continue between the US and China, but it looks as though they may have made a little progress with a trade deal enforcement accord and discussions on currency manipulation over the past month.  In the second week of April the EU prepared tariffs against the US, but two days later, changed their minds and paved a way for trade pact talks. Many of the EU nation economies continue to struggle, including Germany.

Global Stock Rally Defies Dimming Outlook for World Economy (4.14.19) WSJ https://www.wsj.com/articles/global-stock-rally-defies-dimming-economic-outlook-11555239600

European Union Paves Way for U.S. Trade-Pact Talks (4.14.19) WSJ https://www.wsj.com/articles/european-union-paves-way-for-u-s-trade-pact-talks-11555014335

EU Prepares Tariffs Against U.S. Amid WTO Battle (4.12.19) WSJ https://www.wsj.com/articles/eu-prepares-tariffs-against-u-s-amid-wto-battle-11555100352

U.S.-China Trade Pact Takes Aim at Currency Manipulation (4.12.19) WSJ https://www.wsj.com/articles/u-s-china-trade-pact-takes-aim-at-currency-manipulation-11555074003?mod=searchresults&page=1&pos=5

U.S., China Reach Accord on Trade-Deal Enforcement, Mnuchin Says (4.10.19) WSJ https://www.wsj.com/articles/u-s-china-reach-accord-on-trade-deal-enforcement-mnuchin-says-11554922623?mod=searchresults&page=1&pos=9

UK Economy Grew Steadily in February (4.10.19) WSJ                   http://www.wsj.com/articles/uk-economy-grew-steadily-in-february-151554885698

IMF Cuts Global Growth Outlook to Lowest Pace Since Crisis (4.9.19) Bloomberg https://www.bloomberg.com/news/articles/2019-04-09/imf-cuts-global-growth-outlook-to-lowest-since-financial-crisis?srnd=premium

Italy Warns of Bigger Budget Deficit (4. .19) WSJ  https://www.wsj.com/articles/italy-warns-of-bigger-budget-deficit-11554842380?mod=hp_listc_pos2

Japan’s Business Confidence Hits Two-Year Low as Trade War Stings (3.31.19) Reuters https://www.reuters.com/article/us-japan-economy-tankan/japans-business-mood-hits-two-year-low-as-trade-war-stings-idUSKCN1RD0ZF?il=0

German Manufacturing Slump Piques Fears Over Europe’s Flagship Economy (4.4.9) WSJ https://www.wsj.com/articles/german-manufacturing-slump-piques-fears-over-europes-flagship-economy-11554385603

In the last week of 2018 the Dow saw the worst-ever Christmas Eve selloff, followed by the greatest one day gain and then another drop.  Needless to say, steep losses and extreme volatility reigned in the final quarter of 2018 and have continued in the first month of 2019. The WSJ summed it up 2018 as follows:

“Stocks rise on the year’s final trading day, but not enough to offset bruising last few weeks of selling.  U.S. stocks drifted higher, but closed out 2018 with their steepest annual declines since the financial crisis, reflecting growing unease among investors about the health of the nearly decade-long bull run.  For the year, the Dow industrials were down 5.6%, the S&P 500 off 6.2% and the Nasdaq down 3.9%.  Stock markets elsewhere around the world fared even worse. The Stoxx Europe 600 shed 13% in 2018, while the U.K.’s FTSE 100 declined 13% and Japan’s Nikkei Stock Average fell 12%.  The volatility spared few asset classes. Oil prices hit multiyear highs in October, only to tumble in the fourth quarter as investors grew increasingly worried about a potential supply glut.”

At the mid-January World Economic Forum in Davos, Switzerland, the investment experts seemed to uniformly agree that, globally, things are moving toward lower growth and an eventual recession. A coming recession would wreak much greater havoc on the EU and Japan, who still have negative interest rates and are printing money.  The WSJ reported that “Europe seems stuck, its economic recovery running out of steam and its politics shaken by the growing strength of nationalist politicians in many European countries.  The International Monetary Fund cut its 2019 global growth forecast by 3.5% based on weaker-than-expected economic performance in Europe, especially in Germany and Italy.  Decision-making could be further hampered after EU elections in May. Anti-EU parties are widely expected to make headway in the European Parliament.”

On Jan 25^th, a bill was passed that ended the partial US government shutdown, an event which had no tangible impact and few people even would have known was happening if media outlets with agendas had not sensationalized it.  A short-term spending bill was passed, however this quick fix will only last until February when the issue will need to be addressed again.

Trump Signs Spending Bill, Ending Longest Government Shutdown in U.S. History (1.25.19)

https://www.wsj.com/articles/trump-considering-agreeing-to-sign-three-week-spending-bill-as-early-as-friday-11548439078

Guggenheim’s Minerd Says a Recession Will Be Tough When It Gets Here (1.23.19) Bloomberg

https://www.bloomberg.com/news/videos/2019-01-23/guggenheim-s-minerd-says-a-recession-will-be-tough-when-it-gets-here-video

Europe’s Political Funk Sets Back Its Economy (1.23.19) WSJ

https://www.wsj.com/articles/europes-political-funk-sets-back-its-economy-11548270493

U.S. Indexes Close With Worst Yearly Losses Since 2008 (12.31.18) WSJ

https://www.wsj.com/articles/global-stocks-rise-to-end-turbulent-2018-11546247179?mod=hp_lead_pos1

Volatile Stocks Test Investors Resolve (12.29.18) WSJ

https://www.wsj.com/articles/wall-streets-late-rally-drives-global-stocks-higher-11545987880

Dow Industrials Fall to End Volatile Week (12.29.18) WSJ

https://www.wsj.com/articles/wall-streets-late-rally-drives-global-stocks-higher-11545987880

Chinese Dumped $1B of U.S. Real Estate in Third Quarter, Extending Retreat (12.25.18) WSJ

https://www.wsj.com/articles/chinese-dumped-1-billion-of-u-s-real-estate-in-third-quarter-extending-recent-retreat-1543924802

World Markets

Bloomberg reported: “The Nikkei 225 Stock Average skidded below the 20,000 level and was headed for bear market territory in the latest blow for Japanese equities experiencing their worst December on record.  The Nikkei 225 fell 5.1 percent to 19,147.45 in Tokyo at the midday break Tuesday, with all members in the red. The blue-chip stock gauge dropped below 20,000 for the first time since September 2017.”

The WSJ reported: “U.S. stocks fell, notching their second straight session of losses, after downbeat Chinese economic data added to signs of slowing growth around the world.  Major indexes began the day lower and never managed to break higher, weighed down by a report showing China’s exports unexpectedly slid in December.  The data showed both slowing global growth and uncertainty over trade relations have started to take a toll on the world’s second-largest economy.  Dimmer expectations for global growth and disappointing holiday sales have forced many U.S. companies to slash their forecasts, pushing the estimated earnings-growth rate for the quarter to around 11%, according to FactSet.  Elsewhere, the Stoxx Europe 600 fell 0.5% following a downbeat session across Asian markets.”

The WSJ also reported: “China’s overall December exports unexpectedly fell 4.4 percent from last year.  China’s December trade surplus with the U.S. fell to $29.87 billion from $35.54 billion in November. WATCH: Trump will win the trade war with China, says Gary Shilling | China’s economic expansion slowed to its slowest pace in nearly three decades last year, as a bruising trade fight with the U.S. exacerbated weakness in the world’s second-largest economy.  The 6.6% growth rate for 2018 is the slowest annual pace China has recorded since 1990.”  At the World forum in Davos, the IMF lowered its global growth forecasts, affirming what most of the global finance managers had already been forecasting as well.

IMF Lowers 2019 Global Growth Forecast (1.21.19) WSJ

https://www.wsj.com/articles/imf-lowers-2019-global-growth-forecast-11548075601?mod=djcm_davos_email2

China Annual Economic Growth Is Slowest Since 1990 (1.21.19) WSJ

https://www.wsj.com/articles/china-annual-economic-growth-rate-is-slowest-since-1990-11548037761

The World Braces for Slower Economic Growth (1.21.19) WSJ

https://www.wsj.com/articles/the-world-braces-for-slower-growth-11548116422

Stocks Slip on Signs of Slowing Growth (1.14.19) WSJ

https://www.wsj.com/articles/global-stocks-slump-on-signs-of-slowing-economic-growth-11547454618

US trade deficit with China grows to a record and it’s likely even worse than the data show (1.13.19) https://www.cnbc.com/2019/01/14/china-2018-full-year-december-trade-exports-imports-trade-balance.html?__source=newsletter%7Cmorningsquawk

Japanese Stock Rout Accelerates in Worst December for Almost 60 Years (12.24.18) https://www.bloomberg.com/news/articles/2018-12-25/nikkei-225-falls-below-20-000-as-japanese-stock-rout-accelerates?srnd=premium

Brexit & the EU

In December PM May brought back the Brexit deal she negotiated with the EU, which both the liberal and conservative parties said was DOA, nine of her cabinet ministers resigned and a no confidence vote was taken, however she retained enough votes to remain PM.  Weeks later May’s agreement was officially voted down and another no confidence vote was taken, which May survived a second time.  The plan has since been revamped and another vote is scheduled for next week, however prospects for acceptance by the EU and passage in Parliament are low. If the plan fails to pass again, May could resign or face a third no confidence vote which could remove her from office.  Former British Foreign Minister and primary architect of the original Brexit vote, Boris Johnson, is being named as a likely successor, which would almost guarantee a hard Brexit and an ejection form the EU market. UK markets and the pound will initially take a hit, but once the trade deals the UK has negotiated with the rest of the world are revealed, they will ascend, just as they did after the initial Brexit vote. These trade deals will likely undercut EU trade deals, positioning UK markets and the pound to continue to outperform the EU, as the UK has outperformed the EU in almost every economic measurement, since its citizens voted to leave the EU three years ago.

Goldman Sachs Says Brexit May Help Sterling Shine (1.24.19) Bloomberg

https://www.bloomberg.com/news/videos/2019-01-25/goldman-sachs-says-brexit-may-help-sterling-shine-video

Pound Heads for Best Week Against Euro Since 2017 (1.24.19) Bloomberg

https://www.bloomberg.com/news/articles/2019-01-25/pound-heads-for-best-week-since-2017-against-euro-on-brexit-hope

U.K. Parliament Roundly Rejects May’s Brexit Plan (1.15.19) WSJ

https://www.wsj.com/articles/u-k-parliament-roundly-rejects-mays-brexit-plan-11547581277

Britons Most at Risk in a Messy Split from EU are Least Worried (1.10.19) WSJ

https://www.wsj.com/articles/britons-most-at-risk-in-a-messy-split-from-eu-are-least-worried-11547388412

Central Banks & Currencies

Ever since the crisis of 2008, there has been a desire by many nations of the world to be less reliant on the US.  Since that time, a new world bank, the AIIB, is now fully operational. Treaties have been signed to directly exchange currencies, bypassing the USD.   Another global payment system is about to be launched which will be an option to the current SWIFT system.  In the next global financial crisis, other nations won’t have to rely on the US if they don’t want to.

“The endgame is an alternative global payments system that will substitute for SWIFT and be controlled by Russia and China with participation by countries including Turkey, Iran, North Korea and possibly many others. This alternative system will exclude the U.S. and U.S. dollars, finally creating a way for nations to trade and settle balance of payments without using dollars and without relying on portals such as SWIFT and Fedwire that are controlled by the U.S. In turn, this means that U.S. economic sanctions will no longer be effective because countries will have an easy way around them using this new nondollar system. Putin is insistent on this new system and is close to achieving it. When the new system is rolled out, you won’t be able to say you weren’t warned “We are not setting the target of moving away from the dollar — the dollar is moving away from us…”- Vladimir Putin  “…and those who take respective (sanctions) decisions are shooting themselves not just in the foot but slightly higher, as such instability in calculations in dollars creates a desire of many global economies to find alternative reserve currencies and create settlement systems independent of the dollar,” Putin added, speaking at an investment forum in Moscow, according to Russian TV network RT.” -Market Watch

The WSJ also reported, “the banks hit hardest by the financial crisis have retreated from overseas lending in the decade since the 2008 collapse of Lehman Brothers, marking a rare example of a sector in which leverage has been curtailed even as global debt has boomed.  The total amount of cross-border bank debt has dropped from a peak of $35.453 trillion in the first quarter of 2008 to $29.456 trillion in the second quarter of this year, a fall of nearly 17%. The decline in interbank lending—the credit banks extend to other banks—has been particularly steep.   Two of the top contenders to become the next European Central Bank president said they don’t know if the institution will be able to raise interest rates this year.”

The global boom may be over, but this doesn’t mean the world is about to stumble into a recession. Labor markets, in particular remain quite strong, businesses may be reluctant to invest, but not to hire. Nonetheless, central banks need to proceed carefully, “in a low-growth world, a little bit of monetary tightening can go a long, and painful, way.” – WSJ

Fed Weighs Earlier End to Bond Portfolio Runoff (1.25.19) WSJ

https://www.wsj.com/articles/fed-officials-weigh-earlier-than-expected-end-to-bond-portfolio-runoff-11548412201

The Global Boom, Barely Begun, May Be Over (1.23.19) WSJ

https://www.wsj.com/articles/theglobal-boom-barely-begun-may-be-over-11548243000?mod=djcm_davos_email2

ECB Presidential Contenders Wary on Chance of 2019 Rate Hike (1.25.19) Bloomberg

https://www.bloomberg.com/news/articles/2019-01-25/ecb-presidential-contenders-play-it-cautious-on-rate-hike-chance

Great Retreat from Global Bank Lending Continues (12.31.18) WSJ

https://www.wsj.com/articles/great-retreat-from-global-bank-lending-continues-11546261201

Putin Says U.S. Actions Driving The World Away From The Dollar (11.29.18) https://www.marketwatch.com/discover?url=https%253A%252F%252Fwww.marketwatch.com%252Famp%252Fstory%252Fguid%252F47e23128-f3df-11e8-ad71-a9fa5576a6ef&link=sfmw_tw#https://www.marketwatch.com/amp/story/guid/47e23128-f3df-11e8-ad71-a9fa5576a6ef?mod=dist_amp_social

Debt, Downturns & Recessions

The US economy is still strong; growth is good, unemployment is at historical lows and will probably remain so in the first half of this year, but the signs of recession are appearing and there are great concerns on the horizon.  While interest rates were low, all the Fannie Mae & Freddie Mac bonds that were purchased by the Federal Reserve with 3% and 4% coupon rates easily paid the debt service attached to them.  Last year the US prime rate began the year at 1.5% and treasuries had a 3% over all interest rate, but in 2019 our prime rate is now 2% and treasuries are starting with a 4% or more rate.   If interest rates are raised two more times, as they are slated to be, our debt service will rise to 5%, which means most of the bonds that were purchased will no longer be able to pay the debt maintenance on what the US owes.

According to the WSJ: “In the aftermath of the financial crisis, a swath of individuals and families began a long and painful deleveraging process.  Businesses, meanwhile, quickly moved in the opposite direction—loading up on cheap debt to the point where many observers now worry that highly leveraged companies pose a threat to the global economy.  U.S. corporate debt has climbed to roughly 46% of gross domestic product, the highest on record, according to data from the Federal Reserve and Commerce Department. Businesses in emerging markets, such as China, have gone on an even bigger borrowing binge, taking advantage of ultralow interest rates and, in some cases, state-driven policies designed to propel economies forward.”

There is a pension crisis brewing in the private sector, but even more so in the government sector.  Simon Black wrote, “The World Economic Forum reported that in 2015, worldwide pensions were underfunded by $70 TRILLION. That is larger than the top 20 economies in the world, combined.  In the US alone, federal, state, and local government pensions are $7 trillion short on the funding they need to pay what they have promised.  And none of this includes Social Security’s almost $50 trillion of unfunded obligations.  And the private sector isn’t in great shape, either. US corporate pensions are a combined $553 billion in the hole. And one quarter of those funds are expected to go broke within a decade.”

The WSJ also reported that: “Los Angeles officials are socking away money for the next recession.  The nation’s second-largest city has set aside close to $500 million across several funds to help weather emergencies.  States commonly use rainy-day funds to smooth the jolt from recessions, which can come quickly when sales- and income-tax revenue plummets. Thirty-one states boosted rainy-day fund balances in the last fiscal year, and 26 have projected increases this year, according to the National Association of State Budget Officers.”  The article goes on to list many other cites beginning to prepare for the next recession.  The coming recession has been a major focus in the first month of 2019 by US cities, major investment analysts, as well as at the World Financial Forum in Davos, Switzerland.  It would probably be wise for the average investor to be paying attention as well.

Los Angeles and Other Cities Stash Money to Prepare for a Recession (1.24.19) WSJ

https://www.wsj.com/articles/los-angeles-and-other-cities-stash-money-to-prepare-for-a-recession-11548345600

Debt, Dope & Casinos Chicago is Circling the Drain (1.8.19) SMC

https://www.sovereignman.com/trends/debt-dope-and-casinos-chicago-is-circling-the-drain-24406/?utm_medium=email&utm_source=sm_notes&utm_campaign=notes&utm_content=201918_pot_chic

Your Tax Dollars at Work Govt Officially Forgiving Student Debt (12.31.18) SMC https://www.sovereignman.com/trends/your-tax-dollars-at-work-govt-officially-forgiving-student-debt-24388/?utm_medium=email&utm_source=sm_notes&utm_campaign=notes&utm_content=20181231_student_debt

Corporate Debt Hitting Record Levels (12.29.18) WSJ https://www.wsj.com/articles/corporate-debt-is-reaching-record-levels-11546099201

Congress Quietly Formed a Committee to Bail out 200 Pension Funds (12.26.18) SMC https://www.sovereignman.com/trends/congress-quietly-formed-a-committee-to-bail-out-200-pension-funds-23169/?utm_medium=email&utm_source=sm_notes&utm_campaign=notes&utm_content=20181226_end_year

Chinese Dumped $1B of U.S. Real Estate in Third Quarter, Extending Retreat (12.25.18) WSJ

https://www.wsj.com/articles/chinese-dumped-1-billion-of-u-s-real-estate-in-third-quarter-extending-recent-retreat-1543924802

The Biggest Emerging Market Debt Problem Is in America (12.20.18) https://www.project-syndicate.org/commentary/collateralized-corporate-loans-possible-crisis-by-carmen-reinhart-2018-12?utm_source=Project+Syndicate+Newsletter&utm_campaign=c2eb3b265f-sunday_newsletter_23_12_2018&utm_medium=email&utm_term=0_73bad5b7d8-c2eb3b265f-93489681

I Thought This Deal Was Absurd, But Pensions Are Piling In (12.8.18) SMC

https://www.sovereignman.com/trends/i-thought-this-deal-was-absurd-but-pensions-are-piling-in-24351/?utm_medium=email&utm_source=sm_notes&utm_campaign=notes&utm_content=20181128_socsec

Time to Worry (11.30.18) Weekly Standard https://www.weeklystandard.com/james-grant/congress-is-plenty-bipartisan-when-it-comes-to-ignoring-the-national-debt

Political Unrest

There is much political turmoil across the world; the battle between globalism and nationalism is on center stage and nationalism has clearly gained the upper hand.  There are many internal and international conflicts going on at the same time, and even more agendas.

On January, 23 the US declared its support of the Venezuelan opposition leader who, along with the Venezuelan parliament, declared the current leader Maurado a usurper and himself to be the legal and rightful leader of the country.  Greece is edging toward political uncertainty with the Macedonia agreement which is being rejected by various factions and is resulting in many internal conflicts.  French citizens have been demonstrating in mass for the last nine weeks and the government has capitulated to their demands.  Italy ignored the EU and passed a budget which the EU condemned.  The US is sanctioning Iran, Israel has been carrying out military strikes on Iranian targets, and there is mass public unrest and demonstrations against the Iranian government.  China has declared war on both its Christian & Islamic populations, attempting to eradicate these faiths, and if they deem it necessary, even the citizens who hold them.

The Chinese technology company Huawei and the Chinese government have been universally condemned, their business executives arrested in many nations for espionage, and the use of their services declared illegal.  Forbes wrote: “The arrest of Huawei CFO Meng Wanzhou in Canada last month for breaking U.S. sanctions law, followed by the firing of Huawei sales executive Wang Weijing in Poland last week shows China can be a bad actor, exactly as Washington believes. The Poland story centers around spying allegations, where Wang allegedly sought trade secrets from the government.’  China is losing the PR battle, for years, U.S. companies have been complaining that China does not honor intellectual property rights. Washington believes tech powerhouses like Huawei owe much of their growth to IP theft.” 

China’s growth estimates don’t look good and are getting worse.  They are clearly losing the trade war and its about to get a lot worse for them.  Quite simply, 90% of China’s GDP comes from exports, so the US is affecting 90% of their trade with us, but exports account for only 15% of US GDP, thus China is only affecting 15% of our trade with them.  No matter how you look at it, the US easily wins any trade war between China and the US.

The Russians and the Chinese have been pushed together into an uneasy alliance, something the US has always tried to strategically prevent.  The US has always attempted to work with China against Russia or Russia against China.  President Trump tried to do this with Russia to prevent an ever aggressive China from gaining more ground, but was prevented from doing so by Congress and the inept Mueller investigation.

U.S. Recognizes Venezuelan Opposition Leader as Interim President (1.23.19) WSJ

https://www.wsj.com/articles/tens-of-thousands-protest-venezuelan-president-maduro-11548264274

China Is Losing The Trade War In Nearly Every Way (1.14.19) Forbes https://www.forbes.com/sites/kenrapoza/2019/01/14/china-is-losing-the-trade-war-in-nearly-every-way/#6b083b927f03

French Antigovernment Protesters March for Ninth Straight Weekend (1.13.19) WSJ

https://www.wsj.com/articles/french-antigovernment-protesters-march-for-ninth-straight-weekend-11547303859

Greece Edges Toward Political Uncertainty Over Macedonia Deal (1.10.19) WSJ

https://www.wsj.com/articles/greece-edges-toward-political-uncertainty-over-macedonia-deal-11547388165

Huawei Targeted in U.S. Criminal Probe for Alleged Theft of Trade Secrets (1.16.19) WSJ https://www.wsj.com/articles/federal-prosecutors-pursuing-criminal-case-against-huawei-for-alleged-theft-of-trade-secrets-11547670341?mod=hp_lista_pos1

Venezuela’s Congress Declares President Nicolas Maduro a Usurper as Opposition Leader Rises (1.15.19)  https://www.theblaze.com/news/venezuela-congress-maduro-usurper?utm_source=Sailthru&utm_medium=email&utm_campaign=Daily-Newsletter__PM-Final%202019-01-15&utm_term=TheBlaze%20Daily%20PM%20-%20last%20270%20days

China Applies Xinjiang’s Policing Lessons to Other Muslim Areas (12.23.18) WSJ https://www.wsj.com/articles/china-applies-xinjiangs-policing-lessons-to-other-muslim-areas-11545566403

China and Russia Inch Closer Together (12.13.18)

https://www.axios.com/china-russia-relationship-closer-putin-xi-trump-f1e3e0e3-37ed-44f5-b8a1-fc71ed1551bb.html

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

Five Eyes Intelligence Alliance Builds Coalition to Counter China (10.28.18) Reuters

https://www.reuters.com/article/us-china-fiveeyes/exclusive-five-eyes-intelligence-alliance-builds-coalition-to-counter-china-idUSKCN1MM0GH

Antiestablishment 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 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 Tuesday.  The 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.

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

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 10^th 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

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 24^th, 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 8^th 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 momentum … However, 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

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

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/

Contrary to most media reports, the G-20 Summit on Friday and Saturday was a great success.  Previous to the meeting most US media posted articles expressing fear that Trump would be taken advantage of by Putin, but the results and an EU body language expert point to an opposite conclusion.  Trump doesn’t get intimidated by anyone, especially the media.  Apparently, the G-20 Summit participants were intimidated by Trump, as he was able to change the G-20 member positons:

• Trump persuaded them to ‘agree to disagree’ on climate issues and soften the trade language associated with it
• He also helped protect the US steel industry from illegal and unfair trade practices of various nations, like China dumping steel and under cutting the rest of the world

His scheduled 30 minute meeting with Putin lasted 2.5 hours, and apparently the press has no idea what they talked about or you would be hearing about it.  The one thing we do know is that Trump and Putin in two hours did what the rest of the world hasn’t been able to do in two years, which was to establish a Syrian cease fire.  I have no doubt that much more will come from that 2.5 hour meeting.

In my July 1, 2017 Economic Update I wrote:

“The US House and Senate are focused on Russian conspiracies and alleged collisions, they can’t seem to get anything done and Russia and the rest of the world are laughing, not at Trump, but at Washington.  At the same time, whether deserved or undeserved, most of the western world is demonizing Putin and the last thing anybody wants is for Trump and Putin to meet face to face.  Although they don’t agree on everything, they both are disrupters and are not part of the global leader good old boy club.  The other G-20 leaders are very afraid of what could happen if two of the most powerful nations and leaders got together and started resisting their agenda. July 7-8, the G-20 nations will gather in Hamburg Germany and Trump and Putin will finally meet face to face, just like Obama & Bush did.  This certainly will be the most significant meeting in the G-20 gathering.”

It looks like that’s exactly what happened.

Body Language Expert Shows Who Dominated the Putin Trump Meeting (7.7.17) TheBlaze

http://www.theblaze.com/news/2017/07/07/body-language-expert-shows-who-dominated-the-putin-trump-meeting/amp/

Jobs, Climate and Steel Highlight Trump’s Effect on the G-20 (7-8-17) Bloomberg

https://www.bloomberg.com/news/articles/2017-07-08/ivanka-trump-sits-in-for-her-father-at-g-20-meeting-table

G-20 Leaders Find Trade Compromises but Are Split on Climate (7-8-17) WSJ

https://www.wsj.com/articles/g-20-leaders-set-to-reach-compromise-on-trade-at-summit-1499513260

Trump, Putin Spar on Hacks, Act on Syria (7-8-17) WSJ

https://www.wsj.com/articles/trump-putin-shake-hands-in-first-face-to-face-meeting-1499423683?mod=nwsrl_world_news

G-20 Forges Trade Compromise as US Tariff Threat Lingers (7-8-17) Bloomberg

https://www.bloomberg.com/news/articles/2017-07-08/g-20-reaches-compromise-on-trade-after-wrangles-on-first-day

As the 2nd Quarter ends, World Markets are mostly up, but have been radically shifting on almost a daily basis because of direct and indirect effect of events going on all over the world. Central banks are both talking about and taking direct action in regard to raising interest rates and unwinding their portfolios and holdings, which have dominated the global bond markets since 2008, but especially the last two years.

Along with Central banks, elections have created all kinds of uncertainty and it looks like that trend will continue. UK Prime Minister May called for a snap election in June and lost her conservative majority, but was able to form a coalition government with Northern Ireland’s Democratic Unionist Party to keep her position as Prime Minister. Macron beat back Le Pen for the French Presidency and created quite the stir when he purposely squeezed Trump’s hand for an extended time in a photo shoot. Looks like Merkel has a lock on German elections, but she is being criticized for being too nice to Trump, maybe she should squeeze Trump’s hand too. Italian Elections are still in play and the anti-EU candidate is leading in the polls, as two of Italy’s largest banks have to be bailed out, which the Italian government blames on the EU.

India’s cash ban continues to create havoc and protests. Venezuela continues its descent into dysfunction and default. The state of Illinois may become the first state in the union to default. Cash is beginning to be squeezed from all directions, as Bitcoin and Ethereum are entering into the mainstream and their market values have climbed to record levels. Financial institutions, international corporations and governments are both discussing and taking action toward eliminating cash and utilizing blockchain technologies.

Europe’s Banking Union Fails Its Latest Test (Audio) (6-28-17)
https://www.bloomberg.com/news/audio/2017-06-28/europe-s-banking-union-fails-its-latest-test-view-audio
Italy’s Padoan on Commitment to Two Failed Banks (6-26-17)
https://www.bloomberg.com/news/videos/2017-06-26/italy-s-padoan-on-commitment-to-two-failed-banks-video
India Economy Trails Forecasts as Cash Ban Continues to Weigh (5-31-17) https://www.bloomberg.com/news/articles/2017-05-31/india-economy-trails-forecasts-as-cash-ban-continues-to-weigh
A New Financial System Is Being Born (5-26-17) by Tyler Durden
http://www.zerohedge.com/news/2017-05-25/new-financial-system-being-born?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
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
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

Central Banks
The Federal Reserve decided to begin to unwind (reduce) their bond holdings and purchases, but they have to be careful because too much too soon could drive down treasuries and hurt the US and global bond markets, as they begin to shrink liquidity levels. As expected, the Fed raised interest rates a quarter point and is planning to raise them again in September or October. Historically, 84% of the time the Feds have raised interest rates the economy has gone into recession; this has happened in 16 of the last 19 rate hike cycles. The Fed is confused and not sure what to do, because inflation and the stock market are not responding like they have in the past. They continue to error, because their methods of analyses are too narrow in their scope and insufficient for today’s global marketplace. In the June 16th – 5 Minute Forecast, Jim Rickards said, “the Fed blithely dismisses all the lousy economic data and recent dis-inflationary trends as ‘transitory,’ that’s the Fed’s favorite word when the data don’t fit their thesis… The Fed also saw strength based on job creation and a low unemployment rate — which totally ignores declining productivity and labor force participation.” Jim believes the Fed has grossly miscalculated and this will cause the Fed to flip to easing later in the year, and that the financial markets don’t see this coming.

Reuters has reported: “The Federal Reserve is inconsistent in the way it monitors big banks and that lack of consistency could make it difficult to identify emerging risks across banks, according to a study by auditors at the U.S. central bank released on Monday. Each of the 12 regional Federal Reserve Banks nationwide had different guidance for how they continuously monitored large financial institutions, the study from the Office of the Inspector General found.”

Bloomberg also reported: “The Fed raised interest rates again on June 14, even though inflation is below its target. That’s because it’s counting on low unemployment to push up wages and prices. The U.S. central bank isn’t sure why inflation is staying so low—but it’s raising rates anyway, risking a recession. But those who set interest rates are in the awkward position of not understanding how things got so good—and are therefore confused about what to do next.”

According to the WSJ: The Bank of Mexico lifted the overnight interest rate target by a quarter percentage point to 7%, the highest level since early 2009, and indicated that the tightening cycle that began in September has ended for now. Bloomberg reported: At the ECB Forum in Sintra, Portugal, Mario Draghi hinted at how he may sell a gradual unwinding of European Central Bank stimulus and how the ECB may, if appropriate conditions exist, become less accommodative in 2018. The ECB president repeated his mantra that the Governing Council needs to be patient in letting inflation pressures build in the euro area and prudent in withdrawing support. “Any adjustments to our stance have to be made gradually, and only when the improving dynamics that justify them.” The Canadian Central Bank has also signaled that they are going to raise interest rates in July and the UK said they may as well.

Pound Surges as Bank of England’s Carney Hints at Rate Rise (6-28-17) WSJ
https://www.wsj.com/articles/boes-carney-some-removal-of-stimulus-may-be-necessary-if-economy-improves-1498658542
Bank of Canada’s Poloz Signals July Rate Rise in Play (6-28-17)
https://www.wsj.com/articles/boc-gov-stephen-poloz-signals-july-rate-rise-in-play-1498652646
Global Bonds Gyrate as Investors Try to Parse Central Banks Next Stimulus Moves (6-28-17) WSJ
https://www.wsj.com/articles/eurozone-bonds-extend-selloff-on-hints-of-ecb-taper-1498638797
Draghi Sees Room for Paring Stimulus Without Tightening Policy (6-27-17) https://www.bloomberg.com/news/articles/2017-06-27/draghi-says-stimulus-still-needed-even-as-euro-area-reflates
Mexico’s Central Bank Lifts Rates to 7% (6-22-17)
https://www.wsj.com/articles/mexicos-central-bank-lifts-rates-to-7-1498156813
Central Bank Cash Flood Swells Bond Danger (6-2-17)
https://www.bloomberg.com/gadfly/articles/2017-06-02/central-banks-are-raining-cash-and-flood-is-swelling-bond-danger
The Fed Is Flying Blind (6-14-17) Bloomberg | https://www.bloomberg.com/news/articles/2017-06-15/the-fed-is-flying-blind?cmpid=BBD061517_MKT&utm_medium=email&utm_source=newsletter&utm_term=170615&utm_campaign=markets
Federal Reserve Inconsistent in Monitoring Big Banks Say Auditors (10-12-17) Reuters http://mobile.reuters.com/article/idUSKBN1752HW

Political Unrest & Elections
UK’s PM made a huge mistake when she called for early elections and lost her conservative majority and had to form a coalition government with Northern Ireland’s Democratic Unionist Party. The 3rd Brazilian president in two years has been charged with corruption and has only been in office about 7 months since the last president was impeached. Merkel called the UK and US unreliable partners, because each has disagreed with her and the EU on different issues. Since WWII, the US and the UK have never been accused of not being reliable partners, so this is pretty significant rhetoric, especially when issues of global climate control and the right of a nation to determine its own national sovereignty are the divisive issues trumping international security and trade.

The US House and Senate are focused on Russian conspiracies and alleged collusion, they can’t seem to get anything done and Russia and the rest of the world are laughing, not at Trump, but at Washington. At the same time, whether deserved or undeserved, most of the western world is demonizing Putin and the last thing anybody wants is for Trump and Putin to meet face to face. Although they don’t agree on everything, they both are disrupters and are not part of the global leader good old boy club. The other G-20 leaders are very afraid of what could happen if two of the most powerful nations and leaders got together and started resisting their agenda. July 7-8, the G-20 nations will gather in Hamburg Germany and Trump and Putin will finally meet face to face, just like Obama & Bush did. This certainly will be the most significant meeting in the G-20 gathering.

The WSJ reported: the EU’s executive launched legal proceedings against Poland, Hungary and the Czech Republic for refusing to take in asylum seekers, reigniting a fight that is likely to widen as the bloc seeks unity in Brexit negotiations with the U.K. The former communist countries that joined the EU about a decade ago have almost no experience integrating Muslim populations. Poland and Hungary refused to take any asylum seekers, while the Czech Republic took 12 last year. It recently announced it would quit the program. Legal proceedings against member states can end up in EU’s top court and bring financial penalties unless the countries reverse course. None of the three countries have indicated they would change their minds. European Commission chief Jean-Claude Juncker has warned that refusing to admit refugees might result in Central and Eastern European states receiving less financial support. Polish Foreign Minister Witold Waszczykowski said that the threat of funding cuts amounted to “blackmail” and questioned the legality of such a move. “We will keep on defending our principles,” Waszczykowski said. The Blaze reported: “The European Union is so dedicated to the relocation of Muslim refugees from the Middle East to Europe that it is threatening members who don’t participate with economic sanctions. Poland answered the threat with a defiant message.” EU bureaucrats seem hell bent on pushing their immigration agenda in both Brexit negotiations as well as against its own member states. If they continue to arrogantly make their members give up their national identity and sovereignty to fit their European utopian ideal, they will be the cause of more nations exiting the EU.

Trump to Meet Putin at G-20 Summit for First Time as Leaders (6-29-17)
https://www.bloomberg.com/news/articles/2017-06-29/trump-to-meet-putin-at-g-20-summit-for-first-time-as-president
Brazil’s President Michael Temer is Charged with Corruption (6-27-17) WSJ
https://www.wsj.com/articles/brazil-president-michel-temer-is-charged-with-corruption-1498520407
May Clinches Deal With Northern Irish Party to Support Minority Government (6.27.17) https://www.wsj.com/articles/theresa-may-clinches-deal-with-northern-irish-party-to-support-minority-government-1498473399?mod=nwsrl_world_news
EU Raises Stakes Over Refusal to Take Asylum Seekers (6-13-17) WSJ
https://www.wsj.com/articles/eu-raises-stakes-over-refusal-to-take-asylum-seekers-1497366799
The EU Threatens Poland for not Accepting Muslim Refugees & Their Response (6-19-17) Blaze http://www.theblaze.com/news/2017/06/19/the-eu-threatens-poland-for-not-accepting-muslim-refugees-heres-how-they-responded/
Putin Praises Trump and Suggests Russian Hand in Hacking (6-1-17)
https://www.bloomberg.com/politics/articles/2017-06-01/putin-says-he-likes-guys-like-trump-and-hopes-for-better-ties
Merkel Warns US, Britain no Longer Reliable Partners (5-28-17) MSN
http://www.msn.com/en-us/news/world/merkel-warns-us-britain-no-longer-reliable-partners/ar-BBBB462?li=BBnb7Kz&ocid=UE07DHP
Russians Are Laughing at the U.S., Not Just at Trump (5-19-17) By Leonid Bershidsky https://www.bloomberg.com/view/articles/2017-05-19/russians-are-laughing-at-the-u-s-not-just-at-trump

Brexit
Bloomberg reported: “Britain is ready to fight the European Union’s demand that judges on the continent hold sway in the U.K. after Brexit. Brexit Secretary David Davis, in a direct challenge to officials in Brussels, said the European Court of Justice won’t have a role protecting the rights of 3.2 million EU nationals living in U.K. after the country leaves in 2019.” PM May said, she’ll be ‘bloody difficult’ in Brexit talks. “EU ministers finalized their Brexit negotiating position a day after the U.K. threatened to quit talks on its departure unless the bloc drops its demands for a divorce payment as high as 100 billion euros ($112 billion). Even a 1 billion pound settlement would be “a lot of money,” Brexit Secretary David Davis said in an interview published in the Sunday Times. Davis went on to say, “We don’t need to just look like we can walk away, we need to be able to walk away.” As the war of words continues, the EU has threatened the UK, the US and other EU nations, while decrying the demise of the British economy, which continues to out preform the EU. The UK and EU can’t seem to come to terms on any of the main points, so their supposed two years of negotiations will most likely be cut short and the UK will initiate a hard Brexit.

Brexit Fight Looms Over Role of European Court, U.K. Warns (6-23-17)
https://www.bloomberg.com/news/articles/2017-06-25/u-k-credit-binge-may-spur-boe-s-carney-to-rein-in-exuberance
London’s Brexit Apocalypse Is Nowhere in Sight (6-1-17)
https://www.bloomberg.com/news/features/2017-06-01/the-whistleblower-behind-caterpillar-s-massive-tax-headache-could-make-600-million
EU Finalizes Brexit Position as U.K. Threatens to Quit Talks (5-20-17)
https://www.bloomberg.com/politics/articles/2017-05-23/trump-seeks-3-6-trillion-in-spending-cuts-to-reshape-government
Ted Cruz Destroys European Leader After he Taunts America Don’t Mess with Texas (4.1.17) http://www.theblaze.com/news/2017/04/01/ted-cruz-destroys-european-leader-after-he-taunts-america-dont-mess-with-texas/
EU to Trump Mess With Brexit and We’ll Mess With Texas (3-30-17)
https://www.bloomberg.com/politics/articles/2017-03-30/eu-s-juncker-to-trump-back-brexit-i-ll-push-texas-independence

Global Markets & Economies
The IMF, in its annual review, lowered its forecast for the U.S. economy from 2.3 to 2.1%, because they don’t think the Trump Administration can deliver tax cuts and higher infrastructure spending. The IMF believes the US growth rate will fall to 1.7%, over the next five years, if US policy does not significantly change. WSJ reported: “China’s efforts to open up its markets to global investors won a long-awaited endorsement when MSCI Inc. said it would add Chinese shares to its emerging-markets index. MSCI’s decision Tuesday to add China A-shares, stocks denominated in yuan and listed in either Shanghai or Shenzhen, to its MSCI Emerging Markets Index stands to boost demand for Chinese stocks by billions of dollars over time.”

The June 21st 5 Minute Forecast reported: “Russia updates its gold purchases on the 20th of the month. Over the last month the Central Bank of Russia added 21.8 metric tons to its stash. At 1,708 metric tons, Russia’s gold holdings are the sixth largest in the world, right behind China’s. Well, except that China is lowballing its numbers.”

Germany, unlike most of the EU, is doing very well and has been pressuring the ECB to stop printing money and raise interest rates. Hong Kong’s financial secretary announced a budget surplus of $92.8B ($11.9B in USD) and their total fiscal reserve was nearly HKD $1 trillion, around $120 billion USD.

IMF Lowers Forecast for U.S. Economy Amid Rising Policy Uncertainty (6-27-17) WSJ https://www.wsj.com/articles/imf-lowers-forecast-for-u-s-economy-amid-rising-policy-uncertainty-1498568402
IMF Cuts U.S. Outlook, Calls Trump’s Growth Target Unlikely (6-27-17)
https://www.bloomberg.com/news/articles/2017-06-27/imf-cuts-u-s-outlook-calls-trump-s-growth-target-unrealistic
Take Advantage of this Free Insurance Policy for your Savings (6-26-17) SMC
https://www.sovereignman.com/trends/take-advantage-of-this-free-insurance-policy-for-your-savings-22063/?inf_contact_key=a061246253755f6f97afe7738e76a5ce8fcf6c273a246fafef79b709fbdc5eb9
MSCI to Add China Shares to Indexes, Opening Market to More Foreign Investors (6-19-17)
https://www.wsj.com/articles/msci-to-include-china-a-shares-in-indexes-1497992319
Booming German Economy in Election Year Puts ECB in Crossfire (5-23-17) https://www.bloomberg.com/politics/articles/2017-05-23/booming-german-economy-in-election-year-puts-ecb-in-crossfire

Recessionary Signs, Debt & Defaults
Most markets continue to hold their own despite recessionary signs, rising debts and looming defaults. Housing starts dropped 5.5%. U.S. new-home construction declined for the third straight month in May, signaling a softening in home building at a time of tight supply. Bloomberg reported: “Illinois may soon become the first state on record to have its bond rating cut to junk. Illinois is on track this fiscal year to spend over $6 billion more than it brings in, and public universities are reeling from the loss of state aid. On June 1, S&P Global Ratings warned that the loss of its investment-grade rating is likely unless action comes soon. States aren’t eligible to petition U.S. courts to escape from their debts, the way cities such as Detroit have. While Congress amended the law to allow for Puerto Rico to do so, any effort to extend that to states is extremely unlikely, would face intense opposition and may not pass constitutional muster. Mutual funds that are only allowed to own investment-grade securities would be unable to purchase its bonds, leaving it potentially more dependent on non-traditional buyers such as high-yield and hedge funds. Putting the state’s bonds just one step below investment grade indicates that’s a fairly distant possibility. No state has defaulted since Arkansas did in the Great Depression.’ As international bond raters are about to lower Illinois municipal bonds to junk status, we’ll have to see what the US will do, if the state of Illinois does default. The US is only one of many nations dealing with debt. India has one of the fastest growing economies on the globe, but they have a growing mountain of bad debt at the nation’s banks. China was also downgraded because of its growing mountain of debt.

Italy’s Newest Bank Bailout Cost as Much as its Annual Defense Budget (6-26-17) SMC https://www.sovereignman.com/trends/italys-newest-bank-bailout-cost-as-much-as-its-annual-defense-budget-22088/?inf_contact_key=01fa71ed74275c2c2e276333889ade4ee3e27225c53853e98e4b9ccc96020d6e
Here’s One Record Illinois Doesn’t Want to Attain QuickTake Q&A (6-20-17) https://www.bloomberg.com/news/articles/2017-06-20/here-s-one-record-illinois-doesn-t-want-to-attain-quicktake-q-a
S&P, Moody’s Downgrade Illinois to Near Junk, Lowest Ever for a U.S. State (6-1-17) https://www.bloomberg.com/news/articles/2017-06-01/illinois-bonds-cut-to-one-step-above-junk-by-s-p-over-stalemate
Illinois Budget Crisis Is About to Get Even Harder to Solve (5-31-17)
https://www.bloomberg.com/politics/articles/2017-05-31/illinois-budget-crisis-is-about-to-get-even-harder-to-resolve
Why India’s Zombie Debt Imperils Modi’s Plans (5-29-17)
https://www.bloomberg.com/politics/articles/2017-05-30/why-india-s-zombie-debt-imperils-modi-s-plans-quicktake-q-a
China’s Downgrade Could Lead to a Mountain of Debt (5-24-17)
https://www.bloomberg.com/news/articles/2017-05-24/china-downgrade-may-build-debt-mountain-as-firms-borrow-at-home
China’s Stocks, Yuan Erase Losses Triggered by Moody’s Downgrade (5-23-17) https://www.bloomberg.com/news/articles/2017-05-24/china-stocks-slump-yuan-falls-after-moody-s-cuts-credit-rating
U.S. Housing Starts Fall for Third Consecutive Month in May (6-16-17) WSJ
https://www.wsj.com/articles/u-s-housing-starts-fall-for-third-consecutive-month-in-may-1497616335
U.S. Consumer Sentiment Declined in Early June (6-16-17) WSJ
https://www.wsj.com/articles/u-s-consumer-sentiment-declined-in-early-june-1497622592
Sloppy Subprime Loans Will Deepen Auto Woes (5-22-17)
https://www.bloomberg.com/gadfly/articles/2017-05-22/sloppy-subprime-auto-loans-will-deepen-car-makers-woes
Retail Bankruptcies March Toward Post-Recession High (3-31-17) CNBC
http://www.cnbc.com/2017/03/31/retail-bankruptcies-march-toward-post-recession-high.html

In the June 21st Daily Reckoning report, Jim Rickards wrote, “The systemic dangers are clear. The world is moving toward a sovereign debt crisis because of too much debt and not enough growth. Declining productivity is the last nail in the coffin in terms of countries’ ability to deal with the debt. Unlike 1998 and 2008, the next panic will be unstoppable without extreme measures — including IMF money printing, lock-downs of banks and money market funds”

In the article below, Simon Black shares his experience with our current banking system. Black explains, “SWIFT is a worldwide banking network, it’s how one financial institution sends and receives wire transfers and payments and it is absolutely critical to global banking. SWIFT runs on Windows Vista, an obsolete operating system that Microsoft no longer supports. And the absurdity of having to find an obsolete computer running an obsolete operating system to connect to the supposedly most advanced and important international payment network in the world.” I think you will find the other Simon Black articles below both entertaining and insightful.

Argentina Issues 100-year Bond What Could Possibly go Wrong (6-20-17) SMC https://www.sovereignman.com/trends/argentina-issues-100-year-bond-what-could-possibly-go-wrong-22073/?inf_contact_key=dab2de50286192df63e50f0588d7ca12b211e72db24695a49e25561b502997a3
Record Wealth in America 72% of US Businesses Are Not Profitable (6-12-17) SMC https://www.sovereignman.com/trends/record-wealth-in-america-72-of-us-businesses-are-not-profitable-21989/?inf_contact_key=3676b5325ffbc03f7544ce0b4cb585118315c396cd6042b822d8cc22fccb2d66
I Never Knew How Screwed up Global Banking was Until I Started my Own Bank (5.2.17) Simon Black https://www.sovereignman.com/trends/i-never-knew-how-screwed-up-global-banking-was-until-i-started-my-own-bank-21494/?inf_contact_key=0240d362cd9efe62fa004640b004eb1ff6654304520e20ce16520eb2921c68cd
Mining CEO Explains Why Silver Could Reach $136.67 (5-8-17) SMC
https://www.sovereignman.com/trends/mining-ceo-explains-why-silver-could-reach-136-67-21608/?inf_contact_key=ae2f32a529ded7de057b1b7f4aca86bace4cc610effc4d454966754b761956da