G-20 Summit & 2.5 Hour Meeting with Putin (7.10.17)

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

Central Bank Hikes, DC Stalls & Political Unrest Create Uncertainty

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

Elections, Political Upheaval, Brexits Create Volatility (5-19-17)

As May comes to a close, both market and political volatility have increased; it’s hard to separate the two.  The Trump presidency seems to be self-destructing with Trump tweets, allegations of interfering with a Federal investigation and a former FBI Director being appointed as a special council/prosecutor sent the Dow falling 370 points in one day.  The establishment candidate Macron won in France, but the anti-EU party gained more seats than ever before, just like in the Netherlands two months earlier.  In Italy, anti-EU populist candidate Beppe Grillo has consistently led in all the polls. On May 18th, Brazilian markets fell because their current PM, who less than a year ago replaced the previously impeached PM, paid hush money and it looks as though he will be forced to resign.

Ex-FBI Chief Mueller Named Special Counsel on Russia Probe (5-17-17)

https://www.bloomberg.com/politics/articles/2017-05-17/former-fbi-chief-mueller-named-special-counsel-on-russia-probe

Dow Falls 370 Points, Bonds Rally on Trump Turmoil: Markets Wrap (5-17-17) https://www.bloomberg.com/news/articles/2017-05-16/yen-climb-to-weigh-on-japan-stocks-gold-gains-markets-wrap

Brazil Markets Plunge as President Caught in Scandal (5-18-17)

https://www.bloomberg.com/news/videos/2017-05-18/markets-react-to-brazil-in-political-crisis-video

A Populist Storm Stirs in Italy (5-12-17) WSJ

https://www.wsj.com/articles/a-populist-storm-stirs-in-italy-1494596762?mod=nwsrl_world_news

 

Brexit Battle

In the UK Prime Minister May called early elections on June 8th to strengthen her negotiating position in their divorce from the EU, while at the same time issuing the Tory manifesto that no deal is better than a bad deal and setting a stage for a hard Brexit.  The EU is regularly warning the UK that they do not have the upper hand and will suffer if they don’t relent.  German Chancellor Merkel (also running for reelection) arrogantly warned that there will be repercussions if the UK refuses to allow free and unhindered immigration.  In my opinion these negotiations are going nowhere.

U.K.’s May Commits Tories to Hard Brexit Stance in Manifesto (5-18-17) https://www.bloomberg.com/politics/articles/2017-05-18/u-k-s-may-commits-tories-to-hard-brexit-stance-in-manifesto

U.K. Picks New Fight With EU Over Citizens’ Rights, Brexit Bill (5-12-17) https://www.bloomberg.com/politics/articles/2017-05-14/u-k-picks-new-fight-with-eu-over-citizens-rights-brexit-bill

EU Rejects May’s Charge of Election Meddling, Appeals for Calm (5-4-17)

https://www.bloomberg.com/politics/articles/2017-05-04/eu-rejects-may-s-charge-of-election-meddling-appeals-for-calm

EU Throws Down Brexit Gauntlet to U.K. as Talks Edge Closer (4-29-17) https://www.bloomberg.com/politics/articles/2017-04-29/eu-throws-down-brexit-gauntlet-to-britain-as-talks-edge-closer

 

The EU

The EU is a mixed bag of economic reports.  Bloomberg reported:

“U.S. protectionist measures and China’s economic adjustment may risk Europe’s recovery.  The European Union raised its 2017 economic growth forecast Thursday, saying the bloc’s revival is strengthening despite geopolitical risks that could undermine its fifth year of recovery.  Gross domestic product in the 28-country EU will grow by 1.9% in both 2017 and 2018.”

Italy’s recovery is 0.9%, but Greek estimates were pared to 2.1%, as their economy slipped back into recession in the first quarter.  EU officials are optimistic, pointing to declining unemployment and positive French elections.  France’s unemployment numbers dropped to the best level in five years.  Germany’s GDP grew at 0.6%, or 2.4% in annualized terms, comfortably outpacing the U.S., which expanded by 0.7% annualized in the first quarter.

Greek Economy Limps Onto Launchpad After Late-Night Vote (5-19-17) https://www.bloomberg.com/politics/articles/2017-05-19/greek-economy-limps-onto-launchpad-after-late-night-budget-vote

France’s Unemployment Rate Falls to Lowest Since 2012 Chart (5-18-17)

https://www.bloomberg.com/news/articles/2017-05-18/france-s-unemployment-rate-falls-to-lowest-since-2012-chart

German Growth Outpaces U.S. on Rising Exports, Construction (5-12-17) WSJ

https://www.wsj.com/articles/german-growth-outpaces-u-s-and-u-k-as-mild-weather-boosts-construction-1494571069

EU Raises Growth Forecasts but Warns on Threat from Brexit and Trump (5-12-17)

https://www.wsj.com/articles/eu-raises-growth-forecasts-but-warns-on-threat-from-brexit-and-u-s-1494493064

 

Australia

Australia is not without problems, but conditions seem to be improving.  The value of the Australian Dollar has fallen, but business confidence has risen to its highest level in seven years.  Employment surged in March, along with the biggest gain in full-time jobs in almost 30 years, as a recovering jobs market joined a spike in business conditions to suggest a stronger economy.  The recovery in Australia’s labor market, coupled with the best business conditions since 2008, as well as the improvement in full-time employment, could lead to a November rate hike.  Chairman Lowe said:

My overall assessment is that the recent increase in household debt relative to our incomes has made the economy less resilient to future shocks.  Double-digit growth in debt owed by investors at a time of weak income growth cannot be strengthening the resilience of our economy. Both from an individual and an economy-wide perspective, we need to pay attention to how the higher level of debt affects our resilience to future shocks.”

Lifting interest rates to pop the bubble is too risky: it would threaten the recovery given slack in the labor market and already record-low wage growth.

Australia’s Full-Time Employment Surges Most in Nearly 30 Years (4-12-17) https://www.bloomberg.com/news/articles/2017-04-13/australian-employment-surges-in-march-on-full-time-jobs-rebound

Surging Debt Has Weakened Australia’s Resilience, RBA’s Lowe Says (5-3-17) https://www.bloomberg.com/news/articles/2017-05-04/rba-s-lowe-says-surging-debt-has-weakened-economy-s-resilience

Australian Business Confidence Jumps to Highest in Seven Years (5-7-17)

https://www.bloomberg.com/news/articles/2017-05-08/australian-business-confidence-jumps-to-highest-in-seven-years

The Australian Dollar’s Outlook Darkens (5-15-17)

https://www.bloomberg.com/news/articles/2017-05-15/australian-dollar-s-outlook-darkens-as-long-positions-dwindle

 

Emerging-market companies have increased their borrowing by a staggering $17 trillion since 2008, according to the Institute of International Finance.  Worry grows over impact on repayments if global growth eases or interest rates increase.  Emerging-market companies are binging on U.S. Dollar debt and that could become a source of trouble in some parts of the world if growth slows, interest rates rise or the USD resumes its ascent.  China continues to deal with its spending and debt problem, but still has 6% GDP growth.  India is also dealing with debt problems and is still reeling from its prime minister’s attempt to change from a cash economy to a banking economy; however its growth rate is 7.2%, better than China and dwarfing the US at 1.8%.

 

RBI Says Infusing Funds Into India Lenders Won’t Solve Debt Mess (5-9-17) https://www.bloomberg.com/news/articles/2017-05-19/rbi-says-infusing-funds-into-india-lenders-won-t-solve-debt-mess

Inflation Drop Unlikely to Sway India’s Hawkish Central Bank (5-19-17)

https://www.bloomberg.com/news/articles/2017-05-17/inflation-plunge-unlikely-to-sway-india-s-hawkish-central-bank

Flood of Dollar Debt Could Come Back to Haunt Emerging Economies (4-23-17) WSJ https://www.wsj.com/articles/flood-of-dollar-debt-could-come-back-to-haunt-emerging-economies-1492945204

 

Central Banks

The Federal Reserve is planning to raise interest rates in June, and to begin to unwind their balance sheet, which means not purchasing new bonds and allowing their current holdings to mature and fall off the books.  In a WSJ interview, “Bank of Japan Gov. Haruhiko Kuroda defended the drastically expanded monetary stimulus he has overseen. The BOJ holds more than 40% of outstanding Japanese government bonds, its policy centers on keeping interest rates very low through enormous bond purchases—as well as trillions of yen worth of Japanese shares, so many investors have a stake in the unwinding.  Mr. Kuroda said a policy divergence between Japan and the U.S.—where the Federal Reserve has begun to raise interest rates—is a “natural” phenomenon. Europe and Japan are “lagging behind” the U.S., he said.”  The minutes of the ECB’s latest policy meeting underlined that a minor change in language could cause investors to quickly price in a completely new policy path toward higher interest rates.”  Whatever course is chosen, the combined balance sheets of the US, Japan and the EU, total over $13 Trillion and the unwinding will be a massive undertaking and will certainly affect global markets.

ECB Wary of Repeat of Fed’s Taper Tantrum (5.18.17) WSJ

https://www.wsj.com/articles/ecb-wary-of-repeat-of-feds-taper-tantrum-1495125177

Bank of Japan Chief: Unwinding Stimulus Won’t Bring Turmoil (5-16-17) WSJ

https://www.wsj.com/articles/bank-of-japan-chief-unwinding-stimulus-wont-bring-turmoil-1494916140

Warsh Calls for Fed-Treasury Plan to Smooth Balance-Sheet Unwind (5-5-17) https://www.bloomberg.com/news/articles/2017-05-05/warsh-calls-for-fed-treasury-plan-to-smooth-balance-sheet-unwind

Fed Sticks to Gradual Rate-Hike Approach Despite Slowdown (5-3-17)

https://www.bloomberg.com/news/articles/2017-05-03/fed-signals-gradual-rate-hike-approach-intact-despite-soft-patch

Markets Start to Ponder the $13 Trillion Gorilla in the Room (4-19-17)

https://www.bloomberg.com/news/articles/2017-04-19/markets-start-to-ponder-the-13-trillion-gorilla-in-the-room

 

Conclusion

US markets and world markets are based far more on perception than they are on reality.  As long as consumers and investors keep spending and investing, things will continue to move forward.  However, this can be problematic, because “no fear” can cause investors to invest stocks with high PE (price to earnings) and many stocks are already 50% overvalued.  This means people would lose a lot in a downturn.  Bloomberg reported that Global shadow banking assets grew to an estimated $80 trillion in 2014, with $36 trillion of that deemed risky  to the financial system, by the Financial Stability Board.  However, trying to regulate it would create more problems than it solves and could severely damage commerce which has relied on alternative banking for centuries.  The Chinese and U.S. stock markets are going in opposite directions.  The divergence means the two markets are the least in tune since August 2008 – just before the collapse of Lehman Brothers Holdings Inc. unleashed chaos on the global financial system. On a final note, China’s President Xi will be hosting a Summit with the leaders of over 30 nations this weekend, however, the US wasn’t invited.  I have no doubt the US will be one of the main topics of discussion.  I have included two articles from Simon Black which I found quite illuminating, one on banking and the other on silver.  Like it says in Mathew 24 & 25, we need to be watchful and pay attention.

Beijing Puts Its Best Foot Forward for Xi’s Summit (5-14-17) Bloomberg News https://www.bloomberg.com/politics/articles/2017-05-14/beijing-suddenly-has-blue-skies-clean-air-as-xi-hosts-summit

Market’s ‘Fear Gauge’ Nears 1993 Low (5-8-2017) WSJ

https://www.wsj.com/amp/articles/markets-fear-gauge-nears-1993-low-1494263976

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

I Never Knew How Screwed up Global Banking was Until I Started my Own Bank (5.2.17) SMC 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

Shadow Banking (5-19-17) https://www.bloomberg.com/quicktake/shadow-banking

China’s $8.5 Trillion Shadow Bank Industry Is Back in Full Swing (4-18-17) https://www.bloomberg.com/news/articles/2017-04-18/china-s-8-5-trillion-shadow-bank-industry-is-back-in-full-swing

World’s Biggest Stock Markets Haven’t Been This Split Since 2008 (4-25-17) Bloomberg News https://www.bloomberg.com/news/articles/2017-04-25/world-s-biggest-stock-markets-haven-t-been-this-split-since-2008

 

 

International Unrest, Political Uncertainty & Shaky Global Economies 4-26-2017

As April ends and May begins the soil in the north central states in the USA is very wet, not firm, and if you were to drive over it you would most likely get stuck.  The current political and financial state of the US, EU, Japan, and China are also not very firm, filled with potential potholes and sinkholes.

In the last four weeks international unrest has greatly increased: Syria was accused of using chemical weapons against its own people. Russia is accused of lying about the removal of the chemical weapons from Syria and of aiding and abetting Assad.  President Trump without asking the world’s permission, during his meeting with Chinese Premier Xi, bombed Syria and the military installation which the US believes the chemical weapons came from.  Russia then accused the US of acting illegally according to international law.

North Korea has been firing ballistic missiles toward Japan and others and making threats against the whole world.  The US issued statements that NK needs to behave or else, causing military dictator Kim Jung Un to say he would destroy the US and daring them to retaliate.  Trump then sent 5 ships off the coast of Korea to participate in war games with Japan, Australia and South Korea.  Russia then sent an aircraft carrier 25 miles off the coast of the US and the Chinese have mobilized 250,000 troops on the northern border of NK.  Putin has made it clear that things are spiraling out of control and cautions all sides not to take military action in a speech on Thursday April 27th.

Along with these events the US dropped the largest non-nuclear bomb in existence on top of a series of ISIS tunnels in Afghanistan.  ISIS, however, has continued terrorist actions in France and other nations over the last week.

Politically, the Netherlands is trying to form a coalition government in the next 60 days or they will have another set of elections.  France has just had the first round of elections leaving LaPenn (the anti-establishment, anti-EU candidate) and Macron (the establishment candidate) to battle one another in a runoff election on May 9th.  PM May of the UK has called elections 3 years early hoping to gain more seats and strengthen her ability to negotiate the Brexit from the EU, as the negotiations are not going well.  Italy has not called elections yet, but the anti-establishment candidate has a commanding lead.

On the economic front: the EU is treading water with a nearly zero growth rate, the US growth rate was reduced after the first quarter from 2.8% to .2% by the Atlanta Fed, China’s debt is scaring everyone including them, but Russia had one of the most improved economies in 2016 and is pegged to be one of the best preforming economies in 2017.

President Trump unveiled his tax plan this week which doubles the deduction for married couples, lowers the US Corporate tax from one of the highest rates at 35% to 15%, and reduces the number of tax brackets from 7 to 3. It eliminates the estate/death tax, retains mortgage and charitable deductions, but eliminates other deductions… more details to follow.

On April 28th, the government is slated to run out of money, but will probably pass a temporary extension for a week.  A huge fight is brewing whether to raise or not raise the debt ceiling and at this point the various Washington factions each think they can win, so unless something changes a battle is almost guaranteed.  If the debt ceiling isn’t raised in the next month or two there will be a government shutdown, like there was during the Obama administration.  This time, however, things are different and no one knows what Trump, the Freedom Caucus, the Dems or the rest of the House and Senate will do.

US and global markets have not factored in a US government shutdown, a new war, another EU exit or non-establishment elected leader, so if one or more of the events occur, it will certainly rattle global markets.

Until next time,

Fulton Sheen

Media Source Links

Congress Does Bare Minimum to Keep Government Open Next Week (4-28-17

https://www.bloomberg.com/politics/articles/2017-04-28/house-does-bare-minimum-to-keep-u-s-government-open-next-week

US Economy Expands at the Slowest Pace in Three Years (4-28-17) Bloomberg Video https://www.bloomberg.com/news/videos/2017-04-28/u-s-economy-expands-at-slowest-pace-in-three-years-video

Federal Reserve Bank of Atlanta GDP Forecast for 2017 (4-27-17) https://www.frbatlanta.org/cqer/research/gdpnow  |

https://www.frbatlanta.org/-/media/Documents/cqer/researchcq/gdpnow/RealGDPTrackingSlides.pdf

White House Unveils Trump’s Opening Tax-Cut Bid (4-26-17)

https://www.bloomberg.com/news/articles/2017-04-26/white-house-unveils-trump-s-opening-bid-for-biggest-tax-cut

EU Toughens Brexit Stance in Sign U.K. Vote Won’t Alter Approach (4-20-17) https://www.bloomberg.com/politics/articles/2017-04-20/eu-toughens-brexit-stance-in-sign-u-k-vote-won-t-alter-approach

These Economies Are Seen Improving Dramatically This Year (3-20-17)

https://www.bloomberg.com/news/articles/2017-03-20/these-economies-are-seen-improving-dramatically-this-year

 

Hold On It’s About To Get Rocky (3-11-17)

So How Did It Turn Out (updated 4-3-17)

The following events will very likely create a lot of volatility in both the political landscape as well as the global marketplace.  Any one of these events would be sufficient to create reverberations, but put together, they should create a high degree of uncertainty. Two of the four of the events below happened.

  • The Federal Reserve meets next week on March 14-15 and will raise interest rates
  • Dutch Elections will be held on March 15th
  • The UK plans to trigger Article 50, which will actually exit the EU
  • French Elections are April 23rd

There looks to be an almost 90% certainty that the Federal Reserve will raise interest rates, (they raised them .25 points) which normally means the USD will go up and the stock & bond market will go down.  This will cause borrowing in the US to become more expensive and businesses may choose to hold back expanding, mortgage payments will rise and consumers may not want to take on more debt at higher rates.  It also makes US debt (US bonds & treasuries) rates rise which increases the debt service payments that the US Treasury has to make on the now $20 trillion it owes the rest of the world, creating even a greater deficit.  This is especially true since a vast majority of the $20T is short term debt, a year or less which means it automatically goes up with interest rates like an ARM-mortgage.

On the same dates next week, the citizens of the Netherlands will be voting in their parliamentary elections, the results of which will not only decide which party will be in the majority, but also whether the Netherlands will stay or exit the EU.  Gerritt Wilder and the freedom party are currently leading in the polls and the same dire predictions which were made against Donald Trump and the UK exiting the EU are being made against him. Wilder’s party didn’t win the majority, but his party came in second in the amount of seats.  In a parliamentary system, if one party does not win an outright majority, it must form a coalition government which means they must work with other parties to achieve the number of seats necessary to form a working majority under one prime minister; if this can’t be achieved in 90 days they have to have new elections.  The winning party may or may not achieve this as they have already vowed not to work with Wilder’s party.  So what happens next? We’ll have to wait and see for the next 90 days, which continues to create uncertainty in the EU.   The EU is scared to death that another country may have a referendum and exit, but this would be the first exit of an EU nation currently using the Euro, which means it would go back to its original currency.  The Netherlands along with Germany is the only other solvent nation in the 19 Euro nations.  Their exit would hurt the European Central Bank (ECB) making them less solvent than they are already.

Prime Minister May, wants to trigger Article 50 before the end of March, which will mark the UK’s formal departure from the EU.  The only question is whether that will be a soft/negotiated exit or a hard/complete expulsion from the EU markets.  A soft/negotiated exit could take years, a hard exit with no negotiations would be immediate and would completely close EU markets to the UK.  Either option will create problems for both the EU and UK.  However, realistically the chances of a deal are not good.  In my opinion, the UK is in a no win situation and it would be in their best interest to do a hard Brexit.  They should ignore the EU, who want to make an example out of Britain, because they want to scare off other EU nations planning on exiting.  The UK’s future may be bumpy this year, but the EU’s prospects look much worse, and they are not in very good negotiating position because they are going to have to focus their attention on other potential exits of major members such as the Netherlands, France and Italy.  If these nations exit, the EU is over.

In April, French elections will determine the final two candidates who will run against each other in the final election a few months later.  Currently, another Trump-like candidate, Marie Le Pen, is leading all the polls.  If she is elected, she has promised to have a referendum to exit the EU.  Just like with Trump, Wilder and Brexit, all kinds of dire predictions and consequences are being pronounced if Le Pen wins.  Following the April elections, there will be an additional three months of uncertainty which will continue to rock world markets.  Although elections are not currently scheduled after the resignation of Italy’s prime minister in December, the leading candidate and party is another Trump-like figure who has promised an EU exit referendum.  Also three-time Prime Minister Berlusconi is proposing to bring back the Lira, the former Italian currency.

So hold on, as a whole lot of shaking is coming our way in the coming weeks.  For those of you waiting to exit before a lot of expected shaking, this may be one of those times.

U.K.’s May Battles Party Rebels for Power to Trigger Brexit (3-11-17)
https://www.bloomberg.com/news/articles/2017-03-10/u-k-s-may-faces-tory-brexit-backlash-over-her-no-deal-threat
Traders Prepped for the Fed. Then What (3-10-17)
https://www.bloomberg.com/view/articles/2017-03-10/traders-prepped-for-the-fed-then-what
Enter Berlusconi A Man a Ban and His Plan to Restore the Lira (3-9-17)
https://www.bloomberg.com/news/articles/2017-03-09/enter-berlusconi-a-man-a-ban-and-his-plan-to-restore-the-lira
The Euro Is Drifting Apart and the End of QE Could Worsen It (3-3-17)
https://www.bloomberg.com/politics/articles/2017-03-03/that-ever-closer-euro-still-hasn-t-arrived-as-qe-nears-its-end
Dutch Election Wide Open as All Vie to Pick Up Wilders Votes (3-5-17)
https://www.bloomberg.com/politics/articles/2017-03-06/dutch-election-wide-open-as-parties-vie-to-pick-up-wilders-votes
The Euro Is Drifting Apart and the End of QE Could Worsen It (3-3-17) https://www.bloomberg.com/politics/articles/2017-03-03/that-ever-closer-euro-still-hasn-t-arrived-as-qe-nears-its-end
Rutte Warns of Dutch Chaos If Populist Wilders Wins Election (3-2-17)
https://www.bloomberg.com/politics/articles/2017-03-03/rutte-warns-of-dutch-chaos-if-populist-wilders-wins-election
Italy Splitting into Oblivion (2-24-17) http://www.reuters.com/article/us-italy-eu-commmentary-idUSKBN1631QK
Populism Is Shaking the Edifice of Central Bank Independence (2-27-17)
https://www.bloomberg.com/news/articles/2017-02-27/age-of-populism-shakes-pedestal-of-central-bank-independence
Le Pen Gains in French Polls as Security Concerns Win Voters (2-20-17)
https://www.bloomberg.com/politics/articles/2017-02-20/le-pen-advances-in-french-polls-as-security-concerns-sway-voters-izef48iu

World Political Change, International Economies & Markets

What’s going to happen in 2017? Who will the new political leaders be, how many more nations will exit the EU, how will negative interest rates and government debt affect world markets? How much currency can a nation print and how many bonds can they buy before the weight of their debt causes them to default? Will international disputes be negotiated or will these disputes escalate? We may very well find out the answers to these questions in 2017.

2016 was the year of “never happened before’s” and wrong bets. Brexit wasn’t supposed to happen, but it did. The EU was supposed to expand, but it contracted, as Switzerland, Sweden, Iceland and others withdrew their applications. The EU utopian idea of open borders and an end to the sovereign nations of Europe is gone, as borders are closed and many more referendums on exiting the EU are coming. Clinton was supposed to win, but Trump did. The US economy was supposed to have a growth rate of 2.8%, but it didn’t, and interest rates were supposed to be raised four times, but like the year before, they were only raised a quarter point in December. The Japanese economy was supposed to expand and the yen was supposed to devalue, but they didn’t, instead the yen rose and the BOJ dropped interest rates to negative.1%. Assad was supposed to be defeated and the rebels were supposed to create a democracy, but they didn’t, and now the Assad government is poised to retake control over Syria with the help of Russia.

Speaking of Russia, it was supposed to give back Crimea and be forced into submission by EU and US economic sanctions, but that didn’t happen. The Russian Central Bank bucked the trend of the other central banks of the world by raising their interest rates to 15% and took the hit to bring back their economy. In fact, Russia’s stock market had one of its best years ever, the Ruble was the best preforming currency against the USD in 2016, and Russia accomplished all of this without doing business with the EU or US.

Negative interest rates started in 2014, but negative yielding sovereign bonds and debt have never existed before until last year. Until 2016 governments and their central banks have only bought government bonds(sovereign debt), but Japan and the EU bought so many that they ran out of government issued bonds and started buying corporate bonds, and Japan has been buying ETFs as well. In fact, Japan and the EU governments are bordering on becoming controlling owners of public companies because of this, which has also never happened before. The problem with things that have never happened before is that no one has any idea what the ramifications will be. In other words, we have no idea what will happen next.

Massive Political Change & EU Shakings
It won’t be politics or business as usual in 2017. The current ruling elite, political leaders, parties and establishment structures are being rejected across the globe at breath taking speeds and proportions. France is going to be more pro France and less pro EU no matter which candidate wins, Fillon or La Penn, however if La Penn wins, a referendum and a potential French-exit is almost guaranteed. Italy’s prime minister just resigned in December and they have been in a banking crisis for the last nine months. Italy is very frustrated with EU regulations which prevent them from bailing out their banks and have been vehemently arguing with Germany over the last year. This, along with the immigration issue, could be enough to cause Italy to exit the EU; no doubt they, along with other EU nations, are closely watching the UK exit process and taking notes.

The Netherlands referendum & elections are coming up and both the anti-EU candidates and the EU exit referendum and are favored to win. Germany has been trying to keep the EU together, but is now having its own banking problems with its largest bank, Deutche Bank teetering on the edge of insolvency and having trouble recapitalizing. Germany has also been opposed to the ECB QE program from day one. To make matters worse German Chancellor Angela Merkel, the most prominent EU leader is running behind in the poles as well, due to her relentless support of open borders, and all the terrorist incidents resulting from her polices.

The UK and EU have been facing off aggressively, but can’t get off square one, which is immigration. The UK said immigration and full control of its borders is not negotiable and the EU says the UK must accept EU immigration rules and free movement with no borders to have free trade with the EU. Prime Minster May has decided to proceed with a hard Brexit which has driven the pound down, but it won’t stay there long, as May has already begun to negotiate deals with the US, China, Japan and others. A hard Brexit means the UK is going to exit the European Union single market and not take two years to negotiate an exit. In other words, the UK will focus its attention on trading with the rest of the world, even if the EU completely shuts them out of the European market. This is highly unlikely, because the EU stands to lose more than the UK and most of its members want to trade with the UK. Even more threatening to the EU is if the UK does not negotiate a gradual exit and continues to prosper, basically ignores the European Union, it would virtually guarantee more member nations leaving, ultimately resulting in the eventual disintegration of the EU.

European solidarity erupted in a full scale Ideological Civil War at the Davos Conference in Switzerland this month. Dutch Prime Minister Mark Rutte said, “The whole idea of an ever-closer Europe has gone, it’s buried,” and dismissing calls for full political union as a dangerous romantic fantasy. “The fastest way to dismantle the EU is to continue talking about a step-by-step move towards some sort of super state,” – (Mishtalk.com) Most of the current EU leaders are up for election and if the current polls hold, few will be re-elected. Bloomberg reported, Leaders in Spain and Germany voiced concern that the Europe Union faces collapse as a result of anti-establishment forces campaigning to tear down the bloc, singling out their common neighbor France as the potential trigger. The London Telegraph reported, “the eurozone must break up if its members are to thrive again,” according to a former European Central Bank official Jürgen Stark, who served on the ECB’s executive board during the financial crisis. “As long as the ECB gives a signal in its operations to governments that ‘we are the backstop’ and ‘we will prevent country ‘a’ or country ‘b’ from becoming insolvent’ – there will be no structural reforms,” he said. Many of the leading candidates are advocating leaving the EU, which will create more referendums. It looks very likely that the EU will have more nations exit in 2017, which will drive down the value of the euro, weaken its influence and lead to its eventual disintegration.

Eurozone Destruction Necessary if Countries Are To Thrive Again, Warns Former ECB Hawk (1-29-17) http://www.telegraph.co.uk/business/2017/01/29/eurozone-destruction-necessary-countries-thrive-warns-former/
France’s Neighbors Sound Alarm Over Election Catastrophe Risk (1-26-17) https://www.bloomberg.com/politics/articles/2017-01-26/france-s-neighbors-sound-alarm-over-election-catastrophe-risk
May Faces Hurdles to Starting Brexit Talks After Court Rules (1-24-17) https://www.bloomberg.com/politics/articles/2017-01-24/may-faces-new-hurdles-before-brexit-talks-after-court-ruling
Fillon Urges Merkel to Bring Russia in From Cold in Berlin Talks (1-23-17) Yahoo News http://finance.yahoo.com/news/fillon-urges-merkel-bring-russia-130939357.html
May Set to Defy EU by Opening Pre-Brexit Trade Talks With Others (1-23-17) https://www.bloomberg.com/politics/articles/2017-01-23/u-k-set-to-defy-eu-and-open-trade-talks-with-other-countries
EU Populists See Trump Victory as Beginning of End for Old Order (1-21-17) https://www.bloomberg.com/politics/articles/2017-01-21/eu-populists-see-trump-victory-as-beginning-of-end-for-old-order
Ideological Civil War in Davos Dutch Premier Labels “Political Union a Dangerous Romantic Fantasy, Gone, Buried” (1-19-17) https://mishtalk.com/2017/01/19/ideological-civil-war-in-davos-dutch-premier-labels-political-union-a-dangerous-romantic-fantasy-gone-buried/
Why Theresa May is Right to Take A Huge Gamble on Hard Brexit (1-18-17) http://www.marketwatch.com/story/why-theresa-may-is-right-to-take-a-huge-gamble-on-hard-brexit-2017-01-17
May Pledges Vote on Brexit Taking U.K. Out Of EU’s Single Market (1-17-17) https://www.bloomberg.com/politics/articles/2017-01-17/may-promises-u-k-parliament-vote-on-her-final-brexit-deal
Renzi Quits as Italy Referendum Defeat Deepens Europe’s Turmoil (12-4-16) https://www.bloomberg.com/news/articles/2016-12-04/renzi-heading-for-defeat-in-italian-referendum-exit-polls-show
First Brexit Then Trump Now Italy (12-3-16) Daily Reckoning https://dailyreckoning.com/brexit-trump-now-italy/
France Becomes Battleground for Protest Vote (12-2-16) Bloomberg Video http://www.bloomberg.com/news/videos/2016-12-02/france-becomes-battleground-for-protest-vote
Gallo Euro Zone Break Up Risks Rising Next 6-12 Months (11-30-16) Bloomberg Video http://www.bloomberg.com/news/videos/2016-11-30/gallo-euro-zone-break-up-risks-rising-next-6-12-months
Europe’s Next Unnerving Referendum QuickTake Q&A (11-25-16) https://www.bloomberg.com/news/articles/2016-09-12/it-s-italy-s-turn-to-unnerve-with-a-referendum-quicktake-q-a

Central Banks
Things are not starting off well for the European Central Bank (ECB) in 2017. They have a growing shortage of short dated bonds, which can be used as collateral in repurchase agreements, however, their repo market is becoming more and more dysfunctional. Because the ECB has been buying so many bonds with its QE program, there are not enough bonds to go around. Bloomberg wrote:

“Demand for Core European Debt Intensifies ECB’s QE and repo policies have pushed yields down even further Source: (Bloomberg) Toward the end of December it became all but impossible to find offers to lend out core European government paper. Cash-rich foreign investors shifting into securities with higher yields and longer maturities, and investment funds’ usual year-end rotation out of equities and into fixed income, sapped supply for repo participants – neither of these buyers tend to lend their holdings.… Other regions, such as the U.K., have none of these issues, and their markets function smoothly. But they don’t have a clutch of bickering nations to contend with, and for euro-area money markets, that’s never going to change.” This is another reason for member nations to exit the EU. Bloomberg reported, annual price increases exceeding 2 percent in some states – and that German dissatisfaction with the ECB has morphed into frustration. Germany wants interest rates to go up now, but Spanish Prime Minister Mariano Rajoy expressed concern last week over a premature tightening, given that his nation still has about a fifth of its workforce standing idle, as EU disunity increases.

CNBC reported, the top 50 central banks around the world have seen a total of 690 interest rate cuts since the collapse of Lehman Brothers in September 2008, and may start to run out of ammunition soon. Alex Dryden, global market strategist at JP Morgan Asset Management, warned CNBC that central banks are running out of room to maneuver: “The Bank of Japan, now owns over 45 percent of the government bond market, over 65 percent of the domestic ETF market and are a top 10 shareholder in 90 percent of listed firms. They have also cut rates into negative territory. There isn’t much more they can do.”

Jim Rickards former CIA financial analyst, author and commentator, believes the Federal Reserve will raise interest rates as fast as it can, not because the US economy is improving, but because it needs interest rates to be up at least 3% or better, or they will be powerless to do anything for the recession they know is coming.

The incoming Trump administration is broadly supportive of congressional-led efforts to restrict the Federal Reserve’s ability to conduct monetary policy, a key lawmaker said: “We share many of the same goals,” House Financial Services Committee Chairman Jeb Hensarling said in a brief interview Wednesday. With two slots vacant on the Fed’s seven-seat board, Trump will have an opportunity to nominate monetary policy makers more to his liking. He’ll also have a chance to pick a new chairman and vice chairman in 2018, when Yellen’s term and that of her deputy, Stanley Fischer, expire.

Anti-ECB Sentiment Gaining Rapidly In Germany Due To Rising Inflation (1-29-17) https://www.bloomberg.com/politics/articles/2017-01-29/german-pride-shifting-to-frustration-in-role-as-motor-of-europe
Germany’s Schaeuble urges ECB to start unwinding stimulus this year (1-13-17) Reuters http://www.cnbc.com/2017/01/13/germanys-wolfgang-schaeuble-urges-ecb-to-start-unwinding-stimulus-this-year.html
Europe’s Bond Market Time Bomb (1-4-17) https://www.bloomberg.com/gadfly/articles/2017-01-04/ecb-s-dragged-europe-s-bond-collateral-baggage-into-2017
The Real Reason the Fed Is Raising Rates (1-3-17) Jim Rickards & The Daily Reckoning
U.S. and China on Collision Course (12-22-16) Jim Rickards https://dailyreckoning.com/u-s-china-collision-course/
Central Banks Have Cut Interest Rates 690 Times Since Lehman Brothers (12-22-16) http://www.cnbc.com/2016/12/22/central-banks-have-cut-interest-rates-690-times-since-lehman-brothers-is-there-a-way-out.html
Trump Team Broadly Backs Efforts to Rein In Fed, Hensarling Says (12-7-16) https://www.bloomberg.com/news/articles/2016-12-07/trump-team-broadly-backs-efforts-to-rein-in-fed-hensarling-says

Global Economies & Markets
European stocks are shaking off their 2016 blues just as they became the cheapest, relative to U.S. peers in more than seven years. “Though we’re not raging bulls on Europe, it’s a region we now strongly prefer over the U.S.,” said Alan Mudie, head of investment strategy at Societe Generale SA’s private banking unit. India’s economy and small business operations have been in chaos since December after Prime Minister Modi got rid of the 500 & 10,000 Rupee bills overnight and is forcing Indian companies to move away from using cash and toward automatic bank payments and checks. Currently India’s economy operates on a 90% cash basis and few people have bank accounts. Modi decided to go after what he claims is the black market (money launders, counterfeiters and other criminal elements), however, his real motivation is tax revenue from the 20% of illegal activity, and he has made it very difficult for the 80% of law abiding citizens of India.

Reuters reported, “The world’s largest trading nation posted gloomy data on Friday, with 2016 exports falling 7.7 percent and imports down 5.5 percent. The export drop was the second annual decline in a row and the worst since the depths of the global crisis in 2009.” Customs spokesman Huang Songping told reporters, The trend of anti-globalization is becoming increasingly evident, and China is the biggest victim of this trend.” If China were held to more rigorous accounting standards, much of their growth would be shown to be artificial.

European Stocks Slide to 3-Week Low as Trump Spurs Trade Angst (1-23-17) https://www.bloomberg.com/news/articles/2017-01-23/european-stocks-fall-toward-one-month-low-as-banks-lead-losses
China Posts Worst Export Fall Since 2009 as Fears of U.S. Trade War Loom (1-13-17) Reuters http://www.reuters.com/article/us-china-economy-trade-idUSKBN14X0FD
Europe’s Bond Market Time Bomb (1-4-17) https://www.bloomberg.com/gadfly/articles/2017-01-04/ecb-s-dragged-europe-s-bond-collateral-baggage-into-2017
U.S. and China on Collision Course (12-22-16) Jim Rickards https://dailyreckoning.com/u-s-china-collision-course/
India’s Small Businesses Facing Apocalypse Amid Biggest Financial Experiment in History (12.21.16) https://www.theguardian.com/world/2016/dec/21/indian-businesses-demonetisation-apocalypse-biggest-financial-experiment-in-history
European Stocks Are Trading at Their Biggest Discount Since 2009 (12-7-16) https://www.bloomberg.com/news/articles/2016-12-07/bulls-awaken-to-european-stocks-cheapest-to-u-s-since-2009

US Economy & Markets
20 years, to the day, after Greenspan’s iconic speech that warned of the unintended consequences of “irrational exuberance,” we find ourselves, yet again, in the midst of perhaps the largest asset bubble in history. Greenspan himself now says he’s more worried about debt than equity. He also recognized his warning had little impact; and repeated his view that bubbles are almost impossible to stop once they “get going.” In a Bloomberg, article Paul Schmelzing said, “The current bond market is facing the “perfect storm” of potential steepening of the bond yield curve, monetary policy tightening, and a multi-year period of sustained losses due to a “structural” return of inflation resembling that of 1967. Last quarter was the worst for government bonds since 1987, according to data compiled by Bloomberg.”

Business Insider reported that “retailers are bracing for a fresh wave of store closures at the start of the new year. The industry is heading into 2017 with a glut of store space as shopping continues to shift online. Nearly every major department store, including Macy’s, Kohl’s, Walmart, and Sears, have collectively closed hundreds of stores over the last couple years to try and stem losses from unprofitable stores and the rise of ecommerce. But the closures are far from over. Macy’s has already said that it’s planning to close 100 stores, or about 15% of its fleet, in 2017. Sears is shuttering at least 30 Sears and Kmart stores by April, and additional closures are expected to be announced soon. CVS also said this month that it’s planning to shut down 70 locations. Mall stores like Aeropostale, which filed for bankruptcy in May, American Eagle, Chicos, Finish Line, Men’s Wearhouse. As stores continue to close, many shopping malls will be forced to shut down as well.” When an anchor store like Sears or Macy’s closes, it often triggers a “downward spiral in performance” for shopping malls, Morningstar analysts wrote in the report from October. Another US territory, the Virgin Islands, are also now experiencing similar problems as Puerto Rico in 2016 when it defaulted on its bond payments four times last year.

Harvard Academic Sees Debt Rout Worse Than 1994 Bond Massacre (1-4-17) https://www.bloomberg.com/news/articles/2017-01-04/harvard-academic-sees-debt-rout-worse-than-1994-bond-massacre
A Giant Wave of Store Closures is About to Hit the US (12-31-16) http://nordic.businessinsider.com/stores-closing-macys-kohls-walmart-sears-2016-12/
4 Economic Myths Surrounding the US Economy Peter Schiff (12-30-16) http://schiffgold.com/videos/peter-schiff-4-economic-myths-surrounding-us-economy/
As Puerto Rico Moves On, Another U.S. Territory Crisis Arises (12-21-16) https://www.bloomberg.com/news/articles/2016-12-21/as-puerto-rico-moves-on-another-u-s-territory-crisis-arises
20 Years Later, Greenspan’s Irrational Exuberance has Become Even More Irrational (12-5-16) http://www.zerohedge.com/news/2016-12-05/20-years-later-greenspans-irrational-exuberance-has-become-even-more-irrational

Foreign Affairs
To say old leaders, new leaders, populists and candidates are not seeing eye to eye is an understatement. The differences are stark and the suggested solutions range from conventional same old solutions to innovative and radical. The US, Viet Nam, Japan, and the Philippians are all confronting China about the South China Sea islands. The US is also about to label China a currency manipulator, question the ‘One China’ policy in relation to Taiwan, potentially engage in trade wars, as well as contend with them on a number of other issues. Russian sanctions have failed and Trump is most likely going to eliminate them, while Germany wants to keep them, but other EU nations and other are questioning them as well. The UN Resolution against Israel has been denounced by the US, UK and other nations, and the US House and Senate already have bills in place to de-fund the UN. Russia and the US may team up to deal with ISIS as the rest of the world have not been decisive and handled it poorly. These are very volatile issues both financially and politically and how they are handled will have global ramifications.

Fillon Decries U.S. Bank Fines in European Pitch Against Trump (1-23-17) https://www.bloomberg.com/politics/articles/2017-01-23/fillon-urges-merkel-to-bring-russia-in-from-cold-in-berlin-talks
China Slams Western Democracy as Flawed (1-22-17) https://www.bloomberg.com/politics/articles/2017-01-22/china-slams-western-democracy-as-flawed-as-trump-takes-office
The Next World War (1-19-17) Daily Reckoning https://dailyreckoning.com/next-world-war/
War with China Could Break Out in the South China Sea (1-17-17) By Jim Rickards http://beforeitsnews.com/financial-markets/2017/01/war-with-china-could-break-out-in-the-south-china-sea-2903349.html
We Have ‘Ironclad’ Info. That Obama ‘Helped Craft’ Anti-Israel Resolution (12.25.16) http://www.theblaze.com/news/2016/12/25/netanyahu-spokesman-we-have-ironclad-info-that-obama-helped-craft-anti-israel-resolution/
Israel Rejects Shameful UN Resolution Amid Criticism of Netanyahu (12-24-16) https://www.theguardian.com/world/2016/dec/24/israel-rejects-shameful-un-resolution-amid-criticism-of-netanyahu

Conclusion
The Stock market is up, the Bond market is down. As of mid-January, gold was $1,200, a 4.6% gain so far in 2017. Excluding the US & Russia, global trade and markets are down and inventories are high, as there are too many goods chasing too few dollars. In the US, unemployment numbers are down, but the under-employed list is growing, currently its around 1.4 million people between the ages of 18-62 who are jobless. Restaurant attendance is down 20%, retailers are bracing for a fresh wave of store closures in 2017. Donald Trump is about to execute his plan to change the status quo, rewrite global trade agreements and institute new foreign policy. How will it all play out? We will just have to watch and see.

Summing Up 8 Years Of Barack Obama (1-20-17) SMC https://www.sovereignman.com/expat/summing-up-8-years-of-barack-obama-20697/
Here’s What Happened When Ancient Romans Tried to Drain the Swamp (11-25-16) SMC
https://www.sovereignman.com/trends/heres-what-happened-when-ancient-romans-tried-to-drain-the-swamp-20511/?inf_contact_key=5dd52ee9904be7b160b04d138b04d37b59cc53d7fa0614880e1bfc9536d3797d
About that Fair Share (11-21-16) SMC https://www.sovereignman.com/trends/about-that-fair-share-20505/
The Peak & Decline of International Reserves Warns of Massive Asset Deflation Ahead (11-19-16) http://www.zerohedge.com/news/2016-11-19/peak-decline-international-reserves-warns-massive-asset-deflation-ahead
Global Trade is Slowing (11-17-16) http://www.bloomberg.com/news/articles/2016-11-17/global-trade-is-slowing

War on Cash (11-23-16)

In addition to other wars and rumors of war going around, there is a global war being waged against cash.  In 2016 the EU stopped printing €500 euro notes, the US talked about discontinuing to print $100 bills, but got too much push back, India abolished 500 & 1,000 Rupees, Australia is talking about eliminating some larger bills and Citibank of Australia is eliminating cash altogether in 2017.  The lists of reasons to eliminate cash are many, but none of them benefit consumers.  Banks will save money, governments say it will stop money laundering, and banks and central banks could go as negative as they want with interest rates and there would be nothing bank depositors could do about it.  If cash is eliminated your freedom and privacy to buy what you want, go where you want and donate to what you want goes with it .

It is very likely that, someday, governments and banks will eliminate cash, and they have definitely moved in that direction in 2016.   The more central banks of the world go negative, the more likely this is to happen.  The US is about to raise interest rates in December, like they did last December, and I suspect we will see a similar drop in the stock market, as we did in 2015.  This will cause the USD to rise in value, but again like last time that rise won’t last long.  The last two or three weeks of December are likely to be very volatile.

The articles and interviews below do a good job of defining the issue, as well as discussing the “what nexts.”  This is another financial indicator to watch as banks and central banks prepare and position themselves for the difficulties coming their way.  We talk about manipulation, devaluation and how some currencies have little or no real value, but for all its problems, the elimination of currency would be worse.

 

Rupee Sinks to Record as Foreign Funds Dump Indian Assets on Fed (11-23-16)

http://www.bloomberg.com/news/articles/2016-11-24/rupee-falls-to-brink-of-record-low-as-india-outflows-accelerate

What Will India Do With 23 Billion Worthless Banknotes (11-22-16)

http://www.bloomberg.com/news/articles/2016-11-22/five-times-to-the-moon-and-back-scale-of-india-s-junked-bills

A Cashless Society Enslaves You to the System (11-18-16) Glenn Beck | http://www.glennbeck.com/2016/11/17/h1-cashless-society/?utm_source=Sailthru&utm_medium=email&utm_campaign=20161118GBDaily_A&utm_term=Glenn%20Beck?utm_source=glennbeck&utm_medium=contentcopy_link

War on Cash Intensifies Citibank to Stop Accepting Cash at Some Branches (11-16-16)  SMC https://www.sovereignman.com/trends/war-on-cash-intensifies-citibank-to-stop-accepting-cash-at-some-branches-20495/?inf_contact_key=4e4c0325ee899b48eb790f97d4b9283fab00b45056f5eae9307ac5efc409333f

The War on Cash Just Escalated Big-Time Says Rickards (11-17-16) Daily Reckoning

http://beforeitsnews.com/financial-markets/2016/11/rickards-the-war-on-cash-just-escalated-big-time-2895122.html

Scenes of Panic As Gold Price Skyrockets in India After Currency Ban (11.16.16)

http://www.zerohedge.com/news/2016-11-16/stunning-scenes-panic-gold-price-skyrockets-india-after-currency-ban

Australia Should Scrap Big-Denomination Bank Notes, UBS Says (11-13-16)

http://www.bloomberg.com/news/articles/2016-11-13/australia-should-follow-india-and-scrap-big-bank-notes-ubs-says

Rupee Note Cancellation Plunges India Into Panic (11.10.16)  The Guardian https://www.theguardian.com/world/2016/nov/10/rupee-note-cancellation-panic-in-india-banks-500-1000

India Abolishes 500 and 1,000 Rupee Notes to Fight Corruption (11-9-16)

http://www.bloomberg.com/news/articles/2016-11-08/india-abolishes-inr500-1-000-rupee-notes-to-fight-corruption

German Savers Lose Faith in Banks, Stash Cash at Home (9-1-16) WSJ

http://www.wsj.com/articles/german-savers-lose-faith-in-banks-stash-cash-at-home-1472485225

500 Euro Notes will no Longer be Produced (5-5-16) SMC

https://www.sovereignman.com/trends/it-finally-happened-500-euro-notes-will-no-longer-be-produced-19199/

Circulation of Switzerland’s 1,000 Franc Note Jumps (2-22-16) WSJ

http://www.wsj.com/articles/circulation-of-switzerlands-1-000-franc-note-jumps-1456139134

Is the $100 Bill Endangered (2-17-16) WSJ

http://www.wsj.com/video/is-the-100-bill-endangered/A98EC24A-95A8-4E6E-843C-229DA5FC4016.html