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Oil prices have defied bullish efforts to curb oversupply. Here’s our take on why.
By Elliott Wave International
I have a friend… let’s call him Larry. Let’s just say, Larry is not a fan of taking risks. He likes his reflexes fast, his cars slow, and his financial markets secure for the long haul.
So, when Larry called me up at the beginning of this year to say he’s boarding the highly-volatile crude oil market, I was appropriately stunned. But here’s the thing. He was still being “wary Larry,” meticulously weighing the risks. It just so happens they seemed to pale in comparison to the overwhelming rewards.
See, at the time, oil bulls had been served the ultimate bullish advantage on a black-gold platter; namely, the first major oil supply cut in eight years.
To recap: On January 1, the long-awaited agreement between OPEC and its major exporting partners like Russia to curtail production by 1.8 million barrels a day went into effect.
And, according to the mainstream experts, the massive effort to cut the oil glut would also light the fire beneath oil prices. Here, these news items from January 2017 capture the bullish enthusiasm for crude’s upside:
- “Bullish bets on oil rose to a record in January, reflecting widespread optimism that crude prices are poised to move higher as OPEC starts cutting.” (Jan. 31 Wall Street Journal)
- “Oil prices are expected to remain on the upside in 2017… supply reduction deal not to disappoint.” (Jan. 21 South China Morning Post)
- “Crude oil prices have begun the year with a bang. The rally got a boost from the OPEC agreement… The strong rally beyond $50 has wiped out the threat of any sharp fall in price.” (Jan. 3 Hindu Business Line)
Yet — instead of rallying, crude oil prices did the total opposite. After a brief spike, first prices went sideways, and come February, oil prices lost their grip on an 18-month high, falling in a down-up-down series to a 10-month low on June 20.
In fact, since February, oil prices have plummeted 20% to enter official bear-market territory, enduring their worst first half-year in two decades.
It goes without saying that Larry, along with the entire throng of supply-cut-watching-oil-bulls, were caught off guard by oil’s slide. Beckoned a June 21 news source:
“Bulls discount OPEC cuts…as oil set for worst H1 [econ speak for first half of the year] since 1997. The slide in oil prices seems to be unstoppable. The supply deal’s effectiveness is increasingly questioned.” (Reuters)
Wait. Now — six months later and 20% lower in price — the “supply deal’s effectiveness” is questioned? What about before?
See, we believe oil’s selloff was going to occur despite OPEC’s historic cuts. The reason being, the oil cartel does not control the long-term oil price trend; investor psychology, which unfolds as Elliott wave patterns on oil’s price chart, does.
And, right at the onset of oil’s turn down, on February 22 our Energy Pro Service identified a bearish, Elliott wave structure on oil’s price chart. There, Energy Pro Service chief analyst Steve Craig outlined the following long-term course and wrote:
“Repeating: The jury is out, but my working assumption is that wave (A) of triangle wave ((4)) has concluded. If so, the market should trace out a large zigzag for the wave (B) decline that retraces at least 55% of the wave (A) advance.”
The next chart captures the complex unwinding of oil prices into bear market territory:
It’s safe to say, next time wary Larry decides to participate in the oil market, he may think twice about relying 100% on fundamental, news-led analysis as his guide.
Adding Elliott wave analysis into the mix may just give him — and you — that objective, risk-limiting insight into crude oil’s next big move all traders look for.
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Financial, Economic and Social Mood Update (July 2, 2017)
The US stock market continues to be remarkably robust – the Dow Jones 30 Industrials Index reached a new record high of 21,535 on June 20, 2017.
Greece has had four (4) financial bailouts in the course of the last eleven (11) years, and in spite of this massive subsidy of a failed country, the Greek stock market has still fallen by an astounding 90 percent since 2006. They represent the future for much of the “developed” countries. As we learned last month, the U.S. Commonwealth of Puerto Rico is already de jure bankrupt. The government of the U.S. Virgin Islands and the State of Illinois are the next candidates for bankruptcy and junk debt status. The state governments of both New Jersey and Maine have shut down due to an impasse – the failure of the executive and the legislative branches of governments to agree on how to tackle a budget crisis. Ultimately, there is no such thing as a free lunch, and both taxes and welfare benefits cannot and must not be allowed to survive at current sky high levels. Socialism, communism, Marxism, etc. destroy human initiative by having “ass backwards” incentives – they reward failure and they punish success. The rest of the world is not so stupid – countries such as Mainland China and India continue to march forward with more free market reforms. Even their high performing children are crowding American children out of Ivy League, big name and even regional state colleges and universities. The only institutions of higher learning left to American high school graduates will be minor colleges and universities, community colleges, trade schools, adult education and for-profit institutions (many of which are actually going bankrupt).
Lending standards (requirements) today are weaker than ever before. Prior to the most recent financial crisis in 2007, so-called “covenant lite” loans comprised 25 percent of institutional loan issuance. Today, that figure is a frightening 70 percent of all new loans. These risky loans require far less documentation and thresholds for credit worthiness. In many cases, all the borrower needs is a pulse – i.e., that they are alive. This is of course setting the world up for the impending financial crash.
Fiat currencies originating from countries with the most massive debt (this debt being comprised of “normal” debt plus unfunded liabilities plus derivative financial instruments) such as the USA, the EU bloc plus Japan will eventually collapse the hardest. They will likely be replaced by national and regional currencies backed by precious metals (mostly gold bullion) and by very new digital and crypto currencies such as Bitcoin. I have been trying to establish a relationship with the largest Bitcoin exchanges in the USA. My initial search was for Circle Bitcoin, but I was unable to locate them on the Internet. My second search was with Kraken Bitcoin, which is based in San Francisco, California. I opened an account and verified myself up to Tier 2 status (the first status is Tier 0 and the second is Tier 1). In order to fund an account via your bank, you must be verified up to Tier 3 status, which requires giving your SSN. Their customer service is extremely slow to respond (I am guessing that they simply do not have enough staff due to the extreme growth in trading) and they submit encrypted Adobe Acrobat PDF documents which are impossible to open – extremely frustrating to deal with to say the very least. The 3rd largest American Bitcoin exchange is Gemini – their customer reviews on the Internet are somewhat better than those of Kraken Bitcoin, but not by much.
The major investment banks and trading houses need to step up to the plate, so to speak, and start trading in these electronic currencies of the future. Many online businesses are already eliminating traditional commercial banking services by accepting direct end customer payment for their goods and services in the form of crypto currencies such as Bitcoin – Elliott Wave International, Amazon, E-Bay and PayPal to name a few. The retail sector of the economy is the major sector of the global economy, comprising circa 70 percent of worldwide GDP. Amazon is already the number one retail player in the USA, with a 20 percent retail sector market share. Other online companies (such as E-Bay, PayPal, Craig’s List and the like) have another 18 percent of the retail market in the USA. Walmart (the largest “brick and mortar” store in the USA) has a 10 percent market share. Unlike most other “dying” brick and mortar retailers, Walmart is aggressively entering the online retail business – a very smart and necessary move to stay alive in today’s world.
Financial, Economic and Social Mood Update (June 1, 2017)
The biggest financial news this month is not the stock market, but the declaration of bankruptcy by the United States Commonwealth of Puerto Rico effective May 4, 2017. Puerto Rican government debt is now selling at just 65 cents on the Dollar. Puerto Rican debt was already yielding 10 percent interest per annum prior to the declaration of bankruptcy, roughly equivalent to that of Brazil – which itself has gone from being a member of the star “BRICS” bloc to being one of Latin America’s most troubled economies.
This biggest American government entity declaration of bankruptcy (to date) is just the tip of the iceberg. The next state governments next in line to do likewise include Illinois, Arizona, Ohio and Nevada – and local government entities on the same list include the likes of Chicago, Dallas, Houston and El Paso. These 9 government entities in the USA (including Puerto Rico) have a total of 63 million inhabitants, or 19 percent of the entire population under American political jurisdiction.
In last month’s blog, I once again discussed the current state of the global motor vehicle manufacturing industry. Today, that industry builds 151 million new units per year which is divided among 109 manufacturing holding companies. This pie is 67 percent Asian (i.e., built by Asian-based companies), 25 percent European and 8 percent American. In 1947, or just two years after the end of the Second World War, the global motor vehicle market was 92 percent American. Twenty years from today, the motor vehicle market is forecast to be 81 percent Asian, 15 percent European and just 4 percent American. Unit volume is forecast to increase to 425 million per year, with big gains especially among major emerging market players such as in Mainland China and India. Antiquated players such as the Ford Motor Company and General Motors Corporation will be hard pressed to maintain their corporate independence – they will likely repeat the fate of the doomed independent automakers of the past. GM has already retreated out of Europe, India and South Africa. GM now imports vehicles for sale in South America from plants in Asia. GM will reduce staff in its sole remaining “international” HQ office in Singapore. None of the 3 major American brand groups (GM, Ford or Chrysler) will partake in the Japanese International Auto Show for 2018 models.
Australia will soon be void of any auto plants at all – for any manufacturer.
Recent examples of vanishing independent automakers include the likes of Lada of Russia (majority owned by Renault of France since 2016), Chrysler Corporation (100 percent owned by Fiat of Italy since 2014), Ducati Motor Holding (purchased by Volkswagen in 2012), MAN Trucks (purchased by Volkswagen in 2011), Scania AB of Sweden (purchased by Volkswagen in 2008), the MG Rover Group (purchased by SAIC of China in 2005), Fuso Truck and Bus Corporation of Japan (majority owned by Daimler AG of Germany since 2005), Rolls-Royce Motors (owned by BMW of Germany since 2003), Skoda Auto of the Czech Republic (purchased by Volkswagen in 2000), Samsung Motors (purchased by Renault of France in 2000), Detroit Diesel (owned by Daimler AG of Germany since 2000), Western Star Trucks of Cleveland, Ohio (owned by Daimler AG of Germany since 2000), Volvo Cars (purchased by Ford in 1999 and then by Geely of China in 2010), Dacia of Romania (purchased by Renault of France in 1999), Bentley Motors Limited (purchased by Volkswagen in 1998), Bugatti (purchased by Volkswagen in 1998), Automobili Lamborghini (purchased by Volkswagen in 1998), Daihatsu Motor Company (majority owned by Toyota since 1998), Kia Motors (majority owned by Hyundai since 1998), Lotus Cars of England (owned by Proton of Malaysia since 1996), Mini (purchased by BMW of Germany in 1994), American Motors Corporation or “AMC” (purchased by Chrysler Corporation in 1987), SEAT of Spain (purchased by Volkswagen in 1986), Freightliner Trucks (owned by Daimler AG of Germany since 1981) and Audi (purchased by Volkswagen in 1964).
Financial, Economic and Social Mood Update (May 2, 2017)
The employment cuts coming to the public sector of the US economy in 2017-2021 will be even more severe than reported in last month’s update. Instead of the maximum 12 million positions to be eliminated, the figure may now go as high as 18.6 million. As said so many times, the resources to staff, maintain and fund the socialist welfare state simply no longer exist. As the late Margaret Thatcher of England once said, socialism does not work because eventually, you run out of “other peoples’” money to spend. Socialism, communism, Marxism, Leninism, Stalinism, Maoism, Fascism, religious fundamentalism, crony capitalism and feudalism are all among the WORST forms of government possible. Only the true capitalist free market as articulated so clearly by Adam Smith of England will work well.
The US attack on Syria is yet another ongoing mistake of American foreign policy regardless of which of the two large political parties is “in charge” in Washington – Democratic or Republican, are equally as bad. The American government, its so-called Allies around the world and the international mainstream media all claim that the Syrian government is responsible for having used chemical weaponry on their own population – propaganda we have heard in the past with respect to Iraq before “regime change” removed the government of Saddam Hussein. Both the Syrian government and the Russian government (the Russians are allied to Syria) deny having done this. All one needs to do is to study the “fruit” of “regime change” where so-called dictators have been targeted. The removal of the Shah of Iran in 1979 produced an Islamic fundamentalist regime in Tehran. The removal of Saddam Hussein in Iraq in 2003 produced the horror of ISIL-ISIS-Daesh. The removal of strongmen in countries such as Egypt and Libya has only given the region more chaos and anarchy. The removal of the government in Afghanistan (after the attack on the World Trade Center in New York City in 2001 – where I worked at the time) led to merely more instability, chaos and terror in Afghanistan. The current civil war in Syria has given us much of the so-called refugee crisis which has inundated the European Union with far too many immigrants………………newcomers who are in large part hostile toward western culture and values.
Update on the Automotive Industry
Interesting things are happening in the global vehicle industry. Total worldwide output of motor vehicles including cars, light trucks, large commercial trucks, motorcycles and motor-scooters is up to 151 million units per year made by 109 manufacturers. 67 percent of the market is controlled by business groups based in Asia, 25 percent is held by European-based companies and merely 8 percent is controlled by the Americans. Back in 1947 (2 years after the end of the Second World War) US auto companies held a global market share of 92 percent……………..this situation has now reversed itself. In 1947, General Motors Corporation alone controlled a 50 percent global market share and 40 percent in the USA. In 1927 (after the demise of the Ford Model T), General Motors had a 78 percent market share in the USA alone. Those days are gone, never to return.
Among the 109 manufacturers in the global vehicle industry, many companies have chosen set up alliances and to cooperate with each other. Honda is primarily a motorcycle manufacturer and they cooperate with other Japanese motorcycle manufacturers especially outside of their native Japan. These companies combined (Honda, Kawasaki and Yamaha) control 19 percent of global unit output.
Volkswagen AG of Germany and Austria is the largest company in terms of car production (passenger cars and light trucks) plus large commercial trucks. VW already controls or has an equity interest in many other automotive brands including Audi, SEAT, Skoda, Bentley, Lamborghini, Bugatti, Ducati, Porsche, Scania, MAN, NEOMAN, ERF, Navistar International, Cosworth, Quattro and Karmann. VW has manufacturing cooperation agreements in place with the likes of Magna, Steyr, Puch, GAZ-Volga, BMW, SAIC and FAW. FCA (Fiat Chrysler Automobiles) has at one point or another sought a merger agreement with either Volkswagen AG or with General Motors Corporation. FCA is based in the Netherlands and its ownership is entirely based in Italy. FCA owns the active brands of Fiat, Lancia, Alfa-Romeo, Maserati, Ferrari, Iveco, Magirus-Deutz, Chrysler, Dodge, Jeep, Ram, Mopar and Yugo. VW is a much larger company compared to FCA – VW would own 81 percent of the equity in a merger combining VW and FCA. The two automotive groups put together control 17 percent of the global market.
Next in rank comes Renault-Nissan, which like FCA is based in the Netherlands. Most of the group’s equity ownership is based in France and Japan. They own the brands of Renault, Dacia, Samsung, Nissan, Infiniti, Datsun, Mitsubishi and Lada. Renault-Nissan shares some cross ownership with Daimler AG of Germany. Daimler owns the brands of Mercedes-Benz, Maybach, Smart, Freightliner, Western Star, Fuso, Setra and Detroit Diesel. This alliance controls 9 percent of the worldwide vehicle market.
In 4th place is Toyota of Japan which owns the brands of Toyota, Lexus, Hino, Daihatsu, Isuzu and Fuji-Subaru. They have 8 percent of the global market.
In 5th place is Peugeot SA of France. Peugeot is 14 percent owned each by the Peugeot family, by the French government and by Dongfeng of China, Dongfeng being 45 percent owned by Volvo AB of Sweden. They have the brands of Peugeot, Citroën, DS, Dongfeng, Mack Trucks, Volvo Trucks, Opel and Vauxhall. They manufacture cars for Holden of Australia and for Buick of the USA and China. Volvo Auto is entirely a separate company, being owned by Geely of China. Peugeot has 6 percent of the global market.
In 6th place is Hyundai-Kia of South Korea with 5 percent of the global market.
Among the remaining larger automotive groups with at least a one percent global market share are medium sized players who are no longer necessarily able to compete on a fully global scale. The Ford Motor Company of Dearborn, Michigan (Ford and Lincoln brands) has just 4 percent of the global market, and appears less likely than its crosstown rival GM to merge with another automaker. General Motors Corporation of Detroit, Michigan (brands of Chevrolet, Cadillac and GMC) has just 3 percent of the global market and no longer has any significant representation in either Europe or Africa. Suzuki (which terminated its former equity cross ownership with Volkswagen AG) makes both cars & motorcycles and like GM has 3 percent of the global market. Solex of France (they make carburetors, motorized bicycles and mopeds) and Mazda of Japan (a money losing former brand of the Ford Group) have just one percent of the global market each. Mazda will likely be absorbed by Toyota of Japan. Both GM and Ford are dependent upon their native US market for survival, and the next collapse in US retail sales has likely already commenced. But this time around (unlike in 2000-2002 and again in 2007-2009), the combined resources of the public sector of North America, Japan and the EU will not be able to bail out the failing manufacturing companies, banks and insurance companies.
A number of developing national automotive industries have a significant share of the global market when put together. Vehicle companies from India have 13 percent of the market. Those from Mainland China have 8 percent of the market. Those from Taiwan and Iran have one percent of the market each.
Financial, Economic and Social Mood Update (April 2, 2017)
The nominal stock market is still near record high (nominal) values, but like I said in last month’s update, the purchasing power of the American Dollar has greatly diminished. One of the most astute commentators today is Mr. David Stockman, former Budget Director under the late U.S. President Ronald Wilson Reagan. Mr. Stockman points out that regardless of which of the two large U.S. political parties has a governing majority (either the Democratic Party or the Republican Party), the USA has slid so far down with respect to its massive debt burden that we have literally passed the point of no return – as Patrick Buchanan says (he is yet another veteran of the Reagan Administration), the USA is clearly becoming a Third World Country.
Mr. Stockman points out that regardless of what current U.S. President Donald J. Trump wants, there will likely be no tax cut and no massive spending on necessary American infrastructure – the USA simply no longer has the resources to do these things. Even the nominal stock market is severely over-valued, and will eventually crash to the ground. Massive cuts in employment are coming to the public sector in the USA, in particular to employment on the state, county and city government levels. These cuts and consolidation will commence around June 2017 and they will not stop for a long time. Millions of current employees will be adversely affected simple because the USA has literally run out of financial resources. Circa 12 million positions are slated for elimination or “down sizing.”
Socialism has never worked, it does not work today and it will never work in the future. Plainly said, Socialism is an “ass backwards” philosophy which has all the wrong incentives – it rewards failure and it punishes success. Former U.S. President Barack Hussein Obama oversaw the largest expansion of the socialist welfare state in American history especially due to his so-called “Affordable Health Care Act.” Defeated candidate Hillary Rodham Clinton wanted to oversee an even larger expansion of the socialist welfare state by reducing the minimum age for both Social Security and Medicare to 55. Her defeated Socialist rival Bernie Sanders wanted even more Socialism & Communism in the form of so-called “free” college education.
Americans at the highest level of society already pay an overwhelming burden in the form of mandatory taxes and insurance – FOX News commentator Bill O’Reilly pays 90 percent of his gross income in the form of mandatory taxes & insurance. My own rate is up to a staggering 83 percent of gross earned income. Affluent Americans are forsaking their U.S. citizenship in record numbers, migrating to countries as far and wide as New Zealand and Colombia. Americans will be prudent to acquire dual citizenship and beyond.
The American middle class is vanishing, and with it the necessary bedrock to maintain a democracy and a free society. 58 percent of Americans no longer file an income tax return, because their annual income falls below the necessary threshold requiring them to do so. Of the 42 percent who do file an income tax return, fully 46 of these have chosen to pay the “Obamacare” tax penalty instead of actually purchasing health insurance – this is yet another glaring example of the failure of socialized medicine. Nobody should be “forced” to buy anything! An average mean of 47 percent of American babies are now born into families receiving “Medicaid,” the so-called “free” health care plan for the so-called “poor.” Among the 50 US states, babies born into Medicaid account for 49 percent of all births in the USA. This ranges from a high of 72 percent in New Mexico to a low of 27 percent in New Hampshire. The demographic and cultural makeup of the USA has also changed dramatically. Today, a mere 25 percent of children in American schools are native born Caucasians.
Europe (the EU)
Dutch voters went to the polls on March 15. The media tells us how the “far right” supposedly “lost” this election. Not really. Far right political parties in Europe have been virtually taboo since Germany surrendered to the Allied powers in May 1945. In recent years, far right political parties have finally come close to winning national elections. In the Austrian Presidential election in December 2016 the right wing Freedom Party of Austria won an impressive 46 percent of the popular vote. French voters will go to the polls in April and May (first and second round, respectively) to elect a President. National Front leader Marine Le Pen is polling as much as 44 percent of the popular vote for the second round – another record high performance for a right wing candidate in the post-World War 2 period. The vote in the Netherlands turned out as follows. The Christian Democrats (similar to the Republican Party in the USA) won 13 percent of the vote. The Socialists (similar to the Democrats in the USA) won 16 percent of the vote. The Liberals (similar to the Libertarians in the USA) won 30 percent of the vote – the Dutch Prime Minister comes from this political party. The Greens (environmentalists) won 10 percent of the popular vote. The far right political party of Geert Wilders won a record 20 percent of the popular vote. Conservative independents won 6 percent and a Pensioners Party (in favor of even more generous Social Security and health care) won 5 percent of the popular vote in Holland. The parties of the far right wing will likely gain support as times become ever more challenging in many more countries all over the world.
The Real Value of the US Dollar (March 1, 2017)
The nominal stock market is demonstrating amazing robustness. The Dow Jones 30 Industrials Index hit an all-time record high value of 21,162 on March 1, 2017. The Wilshire 5000 Index (which includes all publicly listed corporations in the USA) hit an all-time record high value of 25,009 on the same date. But the “real” value of money is much more significant than its nominal value or denomination. In terms of the value of gold bullion (the only true global “currency” or medium of financial exchange), the US Dollar has lost a whopping 64 percent of its purchasing power since 1999 or 18 years ago. By comparison, one of the worst economies on earth today (Venezuela) has seen the “real” value of its national stock market crash by 76 percent in the 10 years since 2007. By this assessment, the USA is not that much ahead of Venezuela.
The US Dollar will have to be devalued in the very near future. The USA is seeking a more level playing field especially with regard to both Mainland China and Japan, and the USA will have to become more competitive vis-a-vis exporter nations if good manufacturing jobs are to return to the USA. The rumored near term devaluation of the US Dollar will be in the neighborhood of 2 or 3 to one. In other words, the nominal cost of imported goods and services in the USA will increase by two to three fold compared to now.
What is today the USA reached the relative height of its per capita prosperity in the year 1739, or 278 years ago. After the American Revolutionary War ended in 1783, the 13 American states were among the wealthiest political jurisdictions in the entire world – equivalent to countries such as Monaco, Liechtenstein, Luxembourg, Norway and Qatar today. As of 2013, there were already 106 independent nations and dependent territories worldwide with a higher per capita GDP compared to the USA. Since then, the relative standing of the USA has deteriorated further.
The USA desperately needs to regain its lost manufacturing base. The American Dollar must be devalued not merely to make the USA more competitive in terms of wage cost, but also in order to address the massive American problem of debt, of unfunded liabilities and of contingent liabilities. Taxes must also be reduced in a very significant way. The American public sector of government and so-called “nonprofit” healthcare has become a horrific albatross around America’s neck. Top rates for mandatory taxes and insurance in the USA now stand at an unacceptable 90 percent of income – these include income taxes, social insurance taxes, payroll taxes and mandatory health insurance.
A very good example of a country where socialism-communism has destroyed that country in today’s world is Venezuela. As recently as 1995 Venezuela had one of the most prosperous economies in Latin America, and the city of Caracas was one of the top Spanish-speaking commercial & investment banking cities in the Western Hemisphere alongside Miami, Florida. Today, Venezuela is among the most impoverished countries on earth. Here is a new article on conditions in Venezuela by the “Socio-economist” magazine, published by Elliott Wave International: http://www.socionomics.net/2017/02/article-negative-social-mood-wreaks-havoc-on-venezuela/.
The European Union (EU)
On the opposite side of the Atlantic Ocean, the European Union (EU) is facing the most serious crisis of confidence in Europe since the end of the Second World War in May 1945. The majority of the people in many key European countries no longer have a positive view of the government of the EU. This includes 70 percent of Greeks, 61 percent of Cypriots, 60 percent of the British, 59 percent of the French, 58 percent of the Italians, 52 percent of the Austrians, 51 percent of the Swiss and the Czechs and even 50 percent of the Germans. These key European countries are those in which public sector “bailouts” have decimated savings through the near bankruptcy of commercial banks (such as Greece and Cyprus) and in more affluent countries where taxpayers have been hit the hardest to pay for the costly European social welfare state (such as in the UK, France, Italy, Austria, the Czech Republic and Germany). The most important national elections within the EU countries in 2017 will take place in France, the Netherlands and Germany. It is 100 percent certain that France will turn markedly to the right, and very likely that the Netherlands will do the same. In Germany, there is a real possibility that the 12 year administration of Chancellor Angela Merkel may finally come to an end. The Social Democratic Party of Germany (SPD) has made Martin Schulz, the former President of the European Parliament in Strassburg, Alsace their Chancellor Candidate. The three parties of Germany’s left wing including the SPD, the Greens (Environmentalists) and the Left Party (the former ruling communist party of Eastern Germany from 1945 to 1990), will attempt to join forces in order to oust the Angela Merkel’s centrist Christian Democratic Union (CDU) and the Christian Social Union (CSU) of Bavaria from national power in Berlin. The right wing parties in Germany include the free market Free Democratic Party (FDP), the nationalist Alternative for Germany (AfD) and the Free Voters (FW) of Bavaria. The only ethnic minority party of significance in Germany is the SSW of Schleswig-Holstein which represents the ethnic Danish and ethnic Frisian minorities of northern Germany – this party organizes with the SPD in parliament.
Adam Opel-Vauxhall sale to Peugeot-Citroën of France
General Motors Corporation is in talks to sell their German-British subsidiary (all of GM’s European operations) to the Peugeot Group of France by March 9, 2017. GM is the largest automaker in the USA and ranks number 6 in the world in terms of annual new unit sales. Adam Opel AG is a German company founded in Rüsselsheim (Hessen) in 1862 as a manufacturer of sewing machines. They made their first bicycle in 1886 and their first automobile in 1899. GM purchased a majority stake in Opel in 1929 and assumed full ownership of Opel in 1931. Vauxhall was founded in London, England in 1857 as a manufacturer of pumps and marine engines. They became an iron works company in 1897 and they made their first car in 1903. Vauxhall was purchased by General Motors in 1925.
Peugeot of France is the 2nd largest automaker in Europe after Volkswagen AG of Germany. Fiat Chrysler Auto of Italy is a larger company compared to Peugeot, but much of their operations are in the USA as opposed to Italy. Peugeot was founded in the Free County of Burgundy in 1810 as a manufacturer of coffee mills and bicycles. They made a steam-powered tricycle in 1889 and a gasoline-powered car in 1890. Peugeot was bailed out of financial insolvency in 2014 when the French government purchased a 14 percent equity stake in the company and when Dongfeng Motors of China purchased an additional 14 percent equity stake in Peugeot. The Peugeot family still owns 14 percent of the company as well, with the remaining 58 percent being listed on the French stock exchange. Dongfeng is 55 percent owned by the Chinese government and 45 percent owned by the Swedish Truck maker Volvo AB (Volvo cars is entirely separate from Volvo AB and it is owned by Geely of China). Geely is listed on the Hong Kong Stock Exchange (the Hang Seng Index).
Citroën is another French automotive brand owned by Peugeot. Citroën was founded in 1919. Due to the financial insolvency of Citroën, their fellow French company Peugeot purchased 38 percent of Citroën in 1974. This equity stake had to increase to 90 percent by 1976 due to continuing financial problems at Citroën. In 2009 Citroën launched a new upscale brand called “DS.” The original Citroën DS luxury car of 1955-1975 was the first production car in the world to be equipped with disc brakes.
The sale of Opel & Vauxhall to Peugeot should be complete by March 9, 2017 for the sum of US $2 BILLION. Opel makes almost 900,000 vehicles per year and will increase the worldwide annual unit sales rank of PSA Peugeot-Citroën to number 15 out of 109 vehicle manufacturers.
General Motors will keep its global rank of number 6, but it will have withdrawn from the European market. The new and somewhat smaller GM will be left with the American brands of Buick, Cadillac, Chevrolet & GMC plus the Australian brand of Holden and the Chinese brand of Wuling.
China has the largest auto market in the world. Volkswagen ranks number one in China, followed by GM-Wuling of the USA, Hyundai of South Korea, Changan of China, Toyota of Japan, Buick (GM), Nissan, Ford, Honda, Chevrolet (GM), Kia, Dongfeng, Audi (VW), Chery, BYD, Haval (Great Wall), Geely, Peugeot, Citroën, BAIC, Skoda (VW), BMW, Suzuki, Mazda, JAC, Great Wall, Baojun, Haima, Besturn, Lifan, Zotye, Mercedes-Benz, Brilliance, Roewe (formerly Rover of the UK now owned by SAIC of China), Trumpchi and Venucia. All of these brands sold at least 100,000 new cars in China in one calendar year. They ranged from 2,710,504 for Volkswagen to 114,035 for Venucia, a brand owned by both Dongfeng and Nissan. The VW Group brands of VW, Audi and Skoda sold 3,749,760 new cars and trucks in China.
Financial, Economic and Social Mood Update (February 4, 2017)
The big date was January 20, 2017 – the inauguration of Donald J. Trump as the 45th President of the United States (POTUS). This marked not merely a changing of the administration in the USA, but more importantly a key element in the overturning of the existing global power structure going back at least to 1944. The main source of power in the world is the “creation” of money. The respective central or national banks of the world perform this all important function, and certain central banks are more important than others. Those which come to mind today include the central banks of the USA (the Federal Reserve System), the UK (the Bank of England), the EU (the European or German Central Bank in Frankfurt), Switzerland, Japan and the much newer BRICS bloc. “BRICS” stands for Brazil, Russia, India, China and South Africa. Above the central banking system of individual countries or “supra national” states such as the EU, NAFTA and BRICS are organizations of global reach such as the World Bank and the IMF (International Monetary Fund). The most important newer such organization is the AIIB (Asian Infrastructure Investment Bank) which is led by Mainland China. China by herself has 17.9 percent of global GDP today, but more importantly the 100 plus member countries of the AIIB (by no means confined to Asia) control almost 80 percent of global GDP in 2017. The USA has a mere 15.6 percent of global GDP today compared to 50 percent in 1945. The USA has a mere 10 percent of the global vehicle industry in 2017 compared to 92 percent 70 years ago in 1947. The USA and its closest financial allies (mainly Japan) control less than 20 percent of global GDP in 2017. These are the important numbers – almost 80 percent of global GDP controlled by the members of the AIIB and less than 20 percent of global GDP controlled by the USA-Japan-etc. A major devaluation of the US Dollar is not far off. This will commence with a 2 to 1 devaluation of the US Dollar vis-à-vis all other currencies. Imported goods in the USA will thus double in price, and countries currently exporting to the USA will see their business shrink. Large export economies such as China and Germany will have to find alternative markets, and many of the 90-plus million idle Americans will hopefully be put back to work in domestic American manufacturing, trades and agriculture.
The US stock market indices (Dow Jones 30 Industrials Index, NASDAQ Composite Index, S&P 500 Index, Wilshire 5000 Index) all hit nominal highs on January 6, 2017 with the Dow reaching 20,126. Nevertheless, the stock market and the bond market is NOT the place to be. The US stock market has already lost much of its purchasing power in terms of the value of Gold Bullion, and the approaching devaluation of US currency will decimate this purchasing power even more. Investors should be short the US stock market, short US bond prices, and they should be stocking up on precious metals, foreign currencies (excepting the Euro) and hard foreign assets.
One important aspect which remains to be seen is how the rivalry between the USA and Mainland China will progress. One hopes that this will be resolved peacefully, and that all parties involved will see the importance of maintaining world peace, cross-national cooperation and global trade. The rhetoric of the Trump Administration vis-à-vis China has already softened, so this is a very positive sign.
Yet more evidence of the declining affluence of the USA can be seen in the rising average age of motor vehicles on the American road. Worldwide, the average vehicle in existence (automobiles, light trucks, large commercial trucks, motorcycles, motor-scooters, mopeds and motorized bicycles) is 5 years old. In the USA, it is now 12 years old. In “basket case” economies such as Argentina and Cuba, it is 15 years old and 30 years old, respectively. The only reason people refrain from buying a new vehicle is because they cannot afford to do so – statistically speaking, there is no other reason.
The global Auto Industry in 2016
2016 ended with the production of more than 150 million motor vehicles – cars, light trucks, large commercial trucks, motorcycles and motor-scooters. 67 percent of the market was held by Asian companies, 23 percent by the Europeans and the remaining 10 percent by the USA. The company with the largest unit volume was Honda of Japan (20 million), but this includes 15.5 million motorcycles and motor-scooters. Number 2 was Volkswagen AG of Germany with 10.3 million – VW’s sole motorcycle brand is Ducati of Italy which is very high end and low volume (44,000 bikes per year). Number 3 was Toyota of Japan with almost 10.1 million and number 4 was Hero of India (a motorcycle manufacturer) with 10 million units in 2016. Number 5 in the world was Hyundai of South Korea (which includes Kia of South Korea) at a little under 8 million units. Hyundai is also the strongest vehicle manufacturer in terms of overall financial strength, whereas VW of Germany fell to number 2 in terms of overall financial strength due to the cost of their self-inflicted diesel exhaust emissions scandal. Most of this cost was incurred in the expensive and highly regulated US market. In spite of this scandal, VW Group of America had its 4th best year since they officially entered the US market in 1949 with 591,054 units sold in the USA in 2016. VW will soon introduce a larger and redesigned Tiguan SUV (made in Germany), a large family SUV called the VW Atlas (made in Chattanooga, Tennessee) and perhaps even the very attractive Skoda brand from the Czech Republic.
Number 6 in the world was General Motors Corporation of the USA with just under 7.5 million units sold. Number 7 was the Ford Motor Company of Dearborn, Michigan with just under 6.4 million units sold. Number 8 was Suzuki of Japan (they make both cars and motorcycles) with a little over 5.3 million units sold in 2016. Number 9 was Nissan of Japan with a little over 5.17 million units sold. Nissan is an important corporate alliance partner of Renault of France, Dacia of Romania, Samsung of South Korea, Daimler AG of German and Lada of Russia. Number 10 was Fiat-Chrysler of Italy with 4.865 million units sold. There were 109 vehicle manufacturers in the world at the end of 2016.
|Auto Group (2016)||Units||Major Brands|
|1||Honda (Japan):||20,043,838||Honda, Acura (15.5 million motorcycles)|
|2||Volkswagen (Germany):||10,300,000||Volkswagen, Audi, SEAT, Skoda, Bentley|
|3||Toyota (Japan):||10,083,831||Toyota, Lexus, Daihatsu, Hino|
|4||Hero Motor Corporation (India):||10,000,000||Hero Motorcycles|
|5||Hyundai-Kia (South Korea):||7,988,479||Hyundai, Kia|
|6||General Motors (USA):||7,485,587||Buick, Cadillac, Chevrolet, GMC, Opel|
|7||Ford (USA):||6,396,369||Ford, Lincoln|
|8||Suzuki (Japan):||5,303,081||Suzuki, Maruti (2,269,000 Motorcycles)|
|9||Nissan (Japan):||5,170,074||Nissan, Nissan Diesel, Datsun, Infiniti|
|10||Fiat Chrysler Auto (Italy):||4,865,233||Fiat, Lancia, Alfa-Romeo, Maserati, Ferrari|
|11||SAIC (China):||4,500,000||Baojun, Maxus, MG, Roewe, Soyat, Yuejin|
|12||Yamaha Motorcycles (Japan):||4,246,194||Yamaha|
|13||Bajaj Auto Motorcycles (India):||4,240,000||Bajaj|
|14||Kawasaki Motorcycles (Japan):||3,906,380||Kawasaki|
|15||Dongfeng (China):||3,500,000||Dongfeng (45% owned by Volvo AB)|
|16||Renault (France):||3,032,652||Renault, Dacia, Samsung|
|17||TVS Motorcycle Company (India):||3,000,000||TVS Motorcycles|
|18||Peugeot (France):||2,982,035||Peugeot, Citroën, DS|
|19||FAW (China):||2,700,000||Besturn, Freewind, Haima, Hongqi, Jiaxing|
|20||BMW (Germany):||2,416,466||BMW, Mini, Rolls-Royce (117,100 cycles)|
|21||Daimler (Germany):||2,134,645||Mercedes-Benz, Maybach, Smart|
|22||Solex Motorized Bicycles (France):||2,000,000||Solex|
|23||China Changan Automotive (China):||1,900,000||Changan|
|24||Chongqing Lifan (China):||1,635,894||Chongqing, Lifan (1.4 million motorcycles)|
|26||Loncin Motorcycles (China):||1,500,000||Loncin|
|27||Mitsubishi (Japan):||1,218,853||Mitsubishi, Diamond Star|
|28||Beijing Automotive Group (China):||1,169,894||Beijing, AIG (12% owned by Daimler AG)|
|29||Tata (India):||1,009,369||Tata, Land-Rover, Jaguar|
|30||Zongshen Motorcycles (China):||1,000,000||Zongshen|
|31||Geely-Volvo Cars (China):||999,802||Geely, Volvo|
|32||Fuji-Subaru (Japan):||938,553||Fuji, Subaru|
|33||Great Wall Motor (China):||869,592||Great Wall|
|35||Sanyang Motorcycles (Taiwan):||620,000||Sanyang|
|36||Piaggio Motor-Scooters (Italy):||615,500||Piaggio|
|37||Jinan Qingqi Motorcycle Company (China):||612,993||Sinnis|
|38||JAC Automotive (China):||584,038||Anhui, Jianghuai|
|39||Kymco Motorcycles (Taiwan):||570,000||Kymco|
|42||Iran Khodro (Iran):||509,204||Iran Khodro|
|45||Italika Motorcycles (Mexico):||400,000||Italika|
|46||Saipa (Iran):||368,778||Saipa Diesel, Pars Khodro|
|47||Avtovaz (Russia):||307,890||Avtovaz, Lada, Moskvitch|
|48||Royal Enfield Motorcycles (India):||302,591||Royal Enfield|
|49||Harley-Davidson Motorcycles (USA):||249,849||Harley-Davidson|
|50||Hunan Jiangnan Automobile (China):||221,524||Hunan, Jiangnan|
|51||Dafra Motorcycles (Brazil):||200,000||Dafra|
|52||Guangzhou Automobile (China):||199,341||Guangzhou, Changfeng, Guangqi|
|53||Zanella Motorcycles (Argentina):||168,000||Zanella|
|54||Paccar (USA): Big Five||152,589||Kenworth, Peterbilt, DAF, Tatra, Foden|
|55||China National Heavy Duty Truck (China):||152,218||China National Heavy Duty Truck|
|56||Ashok Leyland (India):||134,603||Ashok Leyland|
|57||FAW Haima Automobile Company (China):||111,878||Haima|
|58||Shannxi Auto (China):||107,377||Shannxi|
|59||Minsk Motorcycles (Belarus):||100,000||Minsk|
|60||Proton (Malaysia):||97,662||Proton, Lotus|
|61||Xiamen King Long (China):||93,927||Xiamen, King, Long|
|62||Gaz (Russia):||83,408||GAZ, Volga|
|63||Modenas Motorcycles (Malaysia):||83,333||Modenas|
|64||Tesla Motors (USA):||80,000||Tesla|
|65||AKT Motorcycles (Colombia):||80,000||AKT|
|66||Southeast Fujian (China):||70,019||Soueast|
|67||Zhengzhou Yutong (China):||67,801||King Long, Higer, Zhongtong Bus, Ankai|
|68||Rongcheng Huatai (China):||66,119||Hawtai|
|69||Navistar International (USA):||65,101||Navistar, International|
|70||Guihang Youngman Lotus (China):||63,724||NEOPLAN, MAN, Lotus|
|71||Sollers OAO UAZ Severstal Auto (Russia):||57,171||UAZ|
|72||Triumph Motorcycles, Limited (England):||49,000||Triumph|
|73||Eicher Motors, Limited (India):||46,701||Eicher, Royal Enfield|
|74||IMZ-Ural Motorcycles (Russia):||42,667||IMZ-Ural|
|75||Chengdu Dayun Automotive Group (China):||40,422||Dayun, Weichai|
|77||Hebei Zhongxing Automobile Company (China):||37,354||ZX|
|78||Jincheng Suzuki Motorcycles (China):||36,000||Suzuki|
|79||National Electric Vehicle Sweden (China):||35,000||formerly Saab Automobile|
|82||Polaris-Indian Motorcycles (USA):||16,250||Victory, Indian|
|84||DINA Camiones S.A. de C.V. (Mexico):||8,395||DINA|
|87||Gogoro Motor-Scooters (Taiwan):||4,000||Gogoro|
|88||Clews Competition Motorcycles (England):||3,500||CCM|
|89||Hindustan Motors (India):||2,500||Hindustan|
|90||Aftab Automobiles (Bangladesh):||2,400||Aftab|
|91||TVR Motors Company, Limited (England):||2,000||TVR|
|94||Norton Motorcycle Company (England):||1,000||Norton|
|95||Pyeonghwa Motors (North Korea):||650||Pyeonghwa|
|96||McLaren Automotive (England):||375||McLaren|
|97||Optare Group, Limited (England):||320||Optare|
|98||Métisse Motorcycles (England):||300||Métisse|
|99||Boss Hoss Motorcycles (Tennessee, USA):||300||Boss Hoss|
|100||Mastrettadesign Tecnoidea (Mexico):||200||Mastretta|
|101||Sungri (North Korea):||150||Sungri|
|102||Ariel, Limited (England):||100||Ariel|
|104||Confederate Motorcycles (Alabama, USA):||61||Confederate|
|105||Midual Motorcycles (France):||35||Midual|
|108||Hesketh Motorcycles (England):||24||Hesketh|
|109||Avinton Motorcycles (France):||10||Avinton|
Financial, Economic and Social Mood Update (January 1, 2017)
So-called “liberal” and left-wing governments are in a broad retreat all over the world. Even Vice President Joe Biden of the USA said in December 2016 that Germany and Canada are the last two major (i.e., most powerful and most affluent) government stalwarts of this so-called grouping.
The much anticipated and long awaited “Global Economic Reset” (actually a global currency reset which determines the ranking of worldwide reserve currencies held by central banks, commercial banks, investment banks, corporations and individuals) is upon us at the start of the year A.D. 2017. The baton has been held by the US Dollar since it overtook the GBP British Pound Sterling in 1944. The “Special Drawing Rights” (SDR) held by the IMF, World Bank and other supra national quasi-public sector central banks is about to shift and give the number one position to the BRICS countries (Brazil, Russia, India, China and South Africa) which have surpassed the US economy in terms of size of GDP (Gross Domestic Product). The most important of the 5 BRICS countries is Mainland China, and its new OBOR (One Belt, One Road) grouping will actually become even more important than BRICS. OBOR is comprised of 64 countries which together have 60 percent of the world population and 40 percent of global GDP……………………..much larger than the USA, NAFTA or the EU. What does this mean? As I have continually said especially when talking about “debt” (not just conventional “debt,” but unfunded liabilities and contingent liabilities as well) it will translate into relative devaluations of the Japanese Yen, the EU Euro and most especially of the US Dollar. Americans will feel this as their incomes remain frozen and as their cost of living will skyrocket many fold.
The foreign exchange market is the biggest financial market on earth – larger than the bond market, the stock market, or the commodities market. As with any other market, the futures market gives us much more insight compared to just the daily cash market. This is where one can see the eventual collapse of the American Dollar. It is necessary to study futures currency cross rates with many currencies, not merely with the so-called major currencies. In the short term, the market appears ready to accept up to a three-fold devaluation of the American Dollar – this from looking at futures currency cross rates going back 4 weeks. Over the longer term, the market appears ready to tolerate as much as a 29-fold devaluation of the American Dollar – this from studying futures currency cross rates going back 3 months.
All of these phenomena are related – i.e. the collapse of the equity market, the bond market, the commodities market and the currency market. As stated so often in the past, the level of debt (which includes conventional debt, unfunded liabilities and contingent liabilities) is far too high and cannot be paid off. The USA is the “mother of all debtor nations,” so to speak, with a whopping 97.87 percent of the global debt total either owned by entities in the USA or in debt denominated in US Dollars. Unfunded liabilities are owed mostly by government entities (the bulk of this is for social welfare programs) and contingent liabilities are mostly “bets” made by money center banks. Almost 290 million Americans are so-called “beneficiaries” of so-called government welfare benefit programs. Most of these people are no longer gainfully employed, and even those who are employed can no longer pay their own way, so to speak. In other words, their wages are so low that they cannot support themselves financially. And their skill set is so low that they cannot earn higher wages. A similar situation exists but to a lesser degree in both the European Union (EU) and Japan – the other two “debtor” regions in the world. The only way to solve this massive problem is to eliminate the public sector (i.e. government) as much as possible. Only the free market can solve this problem, and the massive social and economic crash is the manifestation of this powerful free market. The whole racket of government “social welfare entitlements” must come to an end – the political class has successfully used this scheme over the course of multiple generations to dumb down the masses, to make them willingly dependent upon the government and to thereby destroy modern democracy.
The crash will move the balance of power away from the Americas, Europe and Japan and it will move this balance of power toward Asia and Africa…………………especially toward East Asia, Mainland China, South Asia, India, Central Asia, the former Soviet Union and Sub-Saharan Africa.
The prognosis for the stock market remains the same. The Dow Jones 30 Industrial Average will likely rise to about 20,000 and collapse thereafter – no temporal political party in any country on earth has control over this. One interesting part of the equity market is that of privately held companies, i.e. those not listed on any public stock exchange. In the USA the most vibrant part of this market exists in the Silicon Valley of the San Francisco – San Jose Bay Area due to the information technology and high technology sector. The term “Unicorn” refers to privately held corporations in the USA with an estimated fair market value of US $1 BILLION or more. In January 2016 there were 229 such corporations but by May 2016 this had fallen to just 160 companies. The forecast for September 2016 would be 112 corporations and that for January 2017 would be merely 78 companies. This foretells the collapse in not just American but in global stock market indices. A level of ZERO would be reached by January of 2022 or just five years from today.
The USA must peacefully adjust to its new status of no longer being a so-called “superpower.” President-elect Donald J. Trump of the USA has already stated his desire for the USA to join China in the OBOR initiative – disagreements over trade, the South China Sea and Taiwan aside. Trump has also stated his desire to cease the insane NATO confrontation and attempted geographic encirclement of Russia – and for Russia and the USA to join forces with Mainland China (a new “Triple Alliance” or “Triple Entente”) to defeat ISIS-ISIL-Daesh. It is very high time for all of this to become a reality.
The future of China is not merely as an economic superpower. The political changes enacted in Mainland China since 1976 have in effect given the Chinese people their economic freedom much more so than during the dictatorship of Mao. Today, fully 60 percent of the Chinese economy is private sector – the public sector still comprises 40 percent of GDP, which in any case is much less than in many western countries. On the political front, the Chinese people can already vote for different candidates on the provincial and local level (but not yet on the national level). In terms of religious freedom, many major eastern and western faiths already thrive in China, but unfortunately much of this is still heavily regulated by the national government in Beijing. The future of Mainland China should follow that which has already taken place in jurisdictions such as Macao (the former Portuguese colony), in Hong Kong (the former British colony) and on Taiwan (governed by the Chinese Republican Nationalists who also governed Mainland China from 1911 until the Communist revolution of 1949). The government in Beijing needs to give complete freedom to the major religious faiths operating in Mainland China, they need to adopt a uniquely “Chinese” form of democracy as is seen on Taiwan, and they need to end any remaining restrictions on family size………………..the so-called one and two child policy which exists in Mainland China today. China and much of mainland East Asia is facing a demographic collapse similar to that facing North America, Europe and the former Soviet Union. Even Latin America, the Middle East and South Asia have natural population growth rates which are now only slightly positive. Africa remains the sole continent with population growth comparable to that which the entire human race enjoyed until a generation or so ago – a growth rate absolutely necessary to ensure a healthy economy and pension system.
Financial, Economic and Social Mood Update (December 1, 2016)
The Dow Jones 30 Industrials Index reached a new record nominal high of 19,225 on November 30, 2016. It will likely rise to about 20,000 before crashing in a very major way. The global bond market has already commenced its decline, and the currency markets have become much more active (and volatile) as well. The US Dollar is the ultimate global bubble and will likely be the final market to collapse to the ground – after the collapse of the bond, stock, commodity, real property and consumer products markets.
On November 8, 2016 the USA partook in the massive populist wave which is encompassing much of the world by electing the political outsider Donald J. Trump to be the 45th President of these United States. Examples of similar populist politics can be seen in Europe – in the UK vote to leave the European Union, in Hungary (95 percent of the Hungarian electorate rejecting the EU policy of open immigration from the Islamic countries), in Poland, Moldova, Ukraine and the Baltic countries (nationalist governments less than friendly toward Russia), in Russia itself (suffering under western economic sanctions but 80 percent in favor of President Vladimir Putin), and in numerous other European countries where nationalist parties are upsetting the post-World War 2 balance of power (in the Netherlands, Belgium, France, Italy, Germany and the 5 countries of Scandinavia). Populism & nationalism are also evident in Asia – in the Philippines (the new “tilt” toward China & Russia, the huge war on illegal drugs), in China (leading the most massive economic charge in history to develop Eurasia), in Japan (she has the 4th largest navy on earth), in Iran (asserting her power in the Persian Gulf and the Middle East), in Turkey (seeking to expand into territory formerly held by the Ottoman Empire) and in Israel (ever defiant in the face of an Islamic tidal wave).
The impetus behind the creation of a united Europe after the devastation & destruction of the Second World War has been critical to maintaining peace & prosperity since May of 1945. The problems threatening this today include both “globalization” (which is threatening both jobs and wages) and mass human immigration from outside of the European cultural realm. The voting electorate is rebelling against high-handed policies coming from Brussels (the EU government of Jean-Claude Juncker) and from Berlin (the Christian Democratic – Social Democratic “grand coalition” of German Chancellor Angela Merkel) – policies resulting in decisions not popular with much of the European electorate. Unless and until the leadership and the policies coming out of Brussels & Berlin change, the threat of resurgent European nationalism and regionalism will continue to rise. I have repeatedly maintained that Brussels & Berlin need to backtrack – to take EU policy back to where it was a number of years ago, to make it less centralized (and thus more responsive to local concerns) and more like the EFTA (European Free Trade Association) is today. Today’s EFTA was how the EU used to be years ago.
If the leadership of the EU fails to recognize this (and more importantly) fails to act upon this by addressing the legitimate concerns of the European electorate, the ultimate casualties may be the peace, unity and prosperity enjoyed since 1945. The next big election to watch is the Italian referendum on the economy and banking, which will take place on the weekend of December 3, 2016. If the Italian government loses this election (and if the right wing wins), it will be another very major blow to the Euro, to the EU, to NATO, to Brussels and to Berlin.
The only non-US governments yet to congratulate Mr. Trump upon his election to the American Presidency (without “conditional” remarks) are the governments of Russia, Mainland China, the Philippines, Hungary, Israel, Egypt, the UK and the Vatican. Those who have congratulated him with reservations include the governments of France, Germany and Mexico. German Chancellor Angela Merkel cautioned Mr. Trump to respect “democratic” principles. Instead of lecturing Mr. Trump, she should do as she says with respect to both Germany and Europe. In other words, stop calling all voters on the right side of the political spectrum neo-Nazis, fascists, xenophobes and the like – name calling serves no good purpose whatsoever – it is a very ugly form of propaganda and serves only to make decent people extreme out of sheer desperation.
Where Hillary Clinton sought to confront both Russia and China militarily in places such as Syria and the South China Sea, Mr. Trump now has the unique opportunity to bring an end to such expensive and destructive policies. With respect to Russia, the west now has the chance to end economic sanctions imposed upon Russia after she annexed the Crimean Peninsula. The west can choose to respect the wish of the Crimean electorate to reunite with Russia, and to open a fair discussion on the future of the Ukraine. The western and the central Ukraine appear to wish to move closer to the European Union whereas the eastern Ukraine (the “Donbass” region) may appear to want to move in the same direction as did the Crimean Peninsula by joining Russia.
With respect to China and Europe, the USA now has the unique opportunity to abandon its failed trans-Pacific and trans-Atlantic policies (the trans-pacific partnership has been killed off by incoming Democratic minority leader of the US Senate Charles Schumer), and to join China’s modern “Silk Road” policy of “One Belt, one Road.” This record breaking $8 TRILLION investment seeks to expand both trade and infrastructure between China and the rest of Asia, Europe and Africa. It will be a good thing for the entire global economy, and if possible America should partake in this endeavor.
I have been writing about the emerging global asset market collapse for the past decade – the biggest such collapse in recorded history. Everything is on track for this crash regardless of the temporal political leadership in any country on earth. The US stock market continues to peak, and the US bond market is experiencing an historical peak as well (the global bond market lost US $1.7 TRILLION of wealth in November 2016). We can expect interest rates in the USA and Canada to eventually far exceed the double digit levels of 1981-1984, when central bank rates reached 22 percent per annum. The US equity markets (corporate stocks) will eventually to levels near zero. In recent updates I have described how the emerging collapse of the USA and in the emerging collapse of American purchasing power can be seen in the US real estate market – many markets all over the world are considerably more expensive compared to those in the USA, while many overseas consumers use little or no debt to purchase their homes. In the USA, the situation is reversed – prices tend to be much lower, and consumers often require 100 percent debt financing. A similar trend can now be seen in the global automotive market. Fewer Americans can afford to buy new vehicles, which has increased the average age of the American vehicle fleet to more than 11 years. In other impoverished countries, the average age of cars and trucks is even higher – 15 years in Peronist Argentina and 30 years in Communist Cuba. The average age of vehicles on the road worldwide is a mere 5 years – indicating that in most other countries, people do have the purchasing power to buy a new car or truck more often.
The only way for any economy in any country on earth to reach any level of prosperity is via the free market. Socialism, communism, fascism, feudalism, and theocracy have failed in the past, they continue to fail today, and they will never succeed. Perhaps the freest economy on earth was that of the original 13 colonies of the USA, in particular in the non-plantation states of the north. The emerging social and economic crash will be so profoundly severe just because of public sector intervention in global economies in terms of central bank policies (low to zero to negative interest rates to expand credit), so-called progressive rates of taxation, so-called social welfare benefit transfer payments to those who do not work, so-called national healthcare, so-called “free” higher education, so-called subsidized housing, so-called nutrition assistance, and never-ending global wars to facilitate “regime change.”
Financial, Economic and Social Mood Update (November 1, 2016)
The Dow Jones 30 Industrials Index reached a new nominal high value on August 15, 2016 and this record is still in place – the index remains about 800 points below the record as of November 1, 2016.
There is a need to rise above the chatter and the nonsense of the body politic in much of the world and assess where we now are and where we are going in the near future. Much (but not all) of the formerly industrialized world is in decline – this is evident in the per capita GDP rankings which I discussed in last month’s update. The USA is on the cusp of becoming a de facto Third World country. The overwhelming majority of Americans are recipients or so-called “beneficiaries” of a massive socialist welfare state. They are being supported or held up by a tiny minority of Americans who still support the US economy financially, by artificially low interest rates, by artificially high bond prices, by artificially high corporate stock prices, and by an artificially highly valued US Dollar which is still the number one global reserve currency since 1944. None of this will endure much longer. Most of the inland US states already resemble a Third World country – income levels, demographic implosion and real property values (or the lack thereof) reflect this fact. Canada is considerably more affluent and better off than the USA on a per capita basis. Much of Latin America is something of a global backwater – it does not partake in the economic boom currently enveloping much of Asia and Africa. Mainland China has become and will continue to become the ancient global superpower which she used to be. Much of Asia, Africa, the former USSR, Europe and the Pacific Island realm is now anchored to her massive economy, massive population and rapid economic growth. Japan continues to be in the midst of a massive demographic collapse, which is reflected in collapsing income, dying mid and small sized cities (even the world’s largest urban area of Tokyo-Yokohama is now in population decline) and in the fact that within a decade fully one-third of Japanese residences will be vacant. Russia and the former USSR continue to be under harsh economic sanctions mostly influenced by the USA and by the EU – this is reflected in Russia’s conflicting status as both the number one military nuclear power on earth and as a virtual Third World Country in terms of per capita GDP. Needless to say, this is an extremely dangerous situation which threatens world peace, prosperity and stability.
The declining empire of the USA maintains a highly hostile foreign policy which places a declining US military in well over 100 countries all over the globe. The USA seeks to antagonize the likes of Mainland China, Russia, former Soviet Central Asia, Iran, North Korea, Syria, Afghanistan and Iraq. This could well lead to the USA and Russia coming to military blows against each other in theaters of war such as Syria – something which the controlled American media has virtually kept silent from the American public. 52 percent of the Russian population believes that a war with America is coming.
The European Union (EU) is fighting for its very existence due to a backlash against overly intrusive, socialistic and culturally dis-respectful central rule from Brussels. This has been witnessed in the UK decision to exit the European Union, in the overwhelming Hungarian rejection of the EU open door immigration policy toward the Middle East & North Africa (95 percent of the Hungarian electorate voted against the EU and in favor of their right wing government in Budapest), and it will likely continue in Austria, where an ultra-conservative right wing party may succeed in toppling the current left wing Social Democratic & Green presidential coalition government.
Much of Central Africa remains the most impoverished corner of the world, but this may not continue due to the emerging economic relationship with Mainland China. North Africa is more similar to the Middle East and to Central Asia (it is majority Islamic), and Southern Africa is considerably more affluent when compared to Central Africa. Much of South Africa, Namibia, Botswana and even Angola now approach “First World” economic development status.
US policy in the Philippines (in place since the USA took the Philippines, Guam and the island states of Micronesia & Palau away from Spain by armed force in 1898 – the very same year that the USA annexed by force Hawaii, Puerto Rico and Guantanamo Bay) is now at risk due to the Philippines finally asserting its political and economic independence and a political “tilt” toward both Mainland China and Russia. The sole remaining lackey states of the USA in East Asia and the Pacific island realm are now Japan, Australia, Guam, American Samoa and the Commonwealth of the Northern Mariana Islands.
In past monthly financial updates, I have written about the ongoing decline of the fossil fuel industry (coal, crude oil and natural gas products), the rise of renewal energy (nuclear, bio fuels, geothermal, wind turbine and solar panel power). Many countries around the world (including very large countries) have converted and are in the active process of converting their national power grids over to the latter alternatives. Norway, the Netherlands and now Germany have finally introduced parliamentary legislation to eliminate all brand new gasoline & diesel motor vehicles and ships by the year 2030 (new article from the German media): http://www.spiegel.de/auto/aktuell/verbot-von-benzin-autos-und-diesel-autos-ausgebrannt-kommentar-a-1115707.html. Even if one does not read & understand German, you can copy and paste the article into one of the very many free “translate” pages on the Internet. Norway is a small, highly affluent country with 5.2 million people (there are 12 million Norwegians worldwide) and it is a long standing member of the EFTA (the non-EU part of Western Europe). Norway has already used much of its crude oil & natural gas wealth to convert to non-fossil fuels. Germany and the Netherlands are two highly affluent Germanic member states of the European Union. Germany has 82.2 million inhabitants (there are 210 million Germans & German-speaking people worldwide) and the Netherlands has 17.1 million inhabitants and there are 29 million Dutch people worldwide. The German and the Dutch languages are very closely related – modern Dutch (which includes Flemish from Belgium and Afrikaans from Southern Africa) is very similar to modern Low German or “Plattdeutsch” which is spoken in parts of Northern Germany, Southern Denmark, East Prussia (Polish Masuria), Russia (the Volga Germans) and Mexico (German Mennonites). In any case, the future of fossil fuels will become ever more limited. Regions which remain overly dependent upon them for both economic activity and government revenue (in particular Russia, the USA, Mexico, Venezuela, Nigeria, the Middle East and North Africa) will continue to experience economic despair and decline.
Another important topic discussed in previous monthly financial updates is that of debt, and how grossly elevated levels of debt (which includes conventional debt, unfunded liabilities and contingent liabilities) will necessitate massive currency devaluation in the USA, the EU and Japan – there is simply no other way to eliminate the debt, because it cannot and will never be paid off. We are starting to see the ramifications of this once more in pending money center bank failures (example = Deutsche Bank of Germany), public sector government bankruptcy (Greece, Cyprus, the US Commonwealth of Puerto Rico) and in likely bankruptcies (State of Illinois, City of Dallas in Texas). Contingent liabilities will be the downfall of money center banks, whereas unfunded liabilities will be the downfall of the socialist welfare state. The USA, the EU and Japan will likely have to devaluate their fiat currencies to put them on par with the much more normal level of debt in the rest of the world. In order to do this, the US Dollar will have to be devalued by 1,957.4 fold (the USA owes 97.87 percent of the world’s debt), the Euro will have to be devalued by 32.8 fold (the EU owes 1.64 percent of the world’s debt) and the Yen will have to be devalued by 8.8 fold (Japan owes 0.44 percent of the world’s debt). The rest of the world combined owes just 0.05 percent of the world’s debt. This will turn the USA, the EU and Japan into de facto Third World countries. Back on July 23, 2013 Safe Wealth Group of Switzerland (an affiliate company of Elliott Wave International) forecast that gold bullion would eventually rise to US $32,000 per ounce by 2019. On October 10, 2016 they updated this forecast for gold to increase up to US $40,000 per ounce by 2018 – in other words, a higher target within a shorter span of time. The only reason for this is the deteriorating political, economic, financial and social situation in the USA. This would equal a 31.8 fold devaluation of the US Dollar by 2018. I am already seeing a 2.1-fold devaluation in the US Dollar by sometime in 2017 based upon the daily currency futures market. What does this mean? Pretend that your income remains constant from now until 2017, but that by 2017 everything you buy (all goods and services) will be 2.1 times as expensive. The 1,957.4 fold devaluation of which I speak of would be an all-time historical worldwide record – worse than the current records (in order of magnitude) of Hungary (1946), Mainland China (1949), Zimbabwe (2008), the Free city of Danzig (1923), Yugoslavia (1994), Mexico (1993), Weimar Germany (1923), Greece (1944), Armenia (1993), Turkmenistan (1993), Taiwan (1948), Peru (1990), Bosnia-Herzegovina (1992), France (1796), Ukraine (1992), Poland (1923), Nicaragua (1991), the Congo-Zaire (1993), Russia (1992), former Soviet Georgia (1994), Tajikistan (1992), Argentina (1990), Bolivia (1985), Belarus (1992), Kyrgyzstan (1992), Kazakhstan (1992), Austria (1922), Bulgaria (1997), Azerbaijan (1992), Uzbekistan (1992), Chile (1973), Estonia (1992), Angola (1996), Brazil (1990) and Vietnam (1998). These were hyperinflations of between 774 percent (Vietnam in 1998) and 75,624 percent per annum (Hungary in 1946).
A Third World War in 2016 or 2017?
Unfortunately most of the media in the west is not telling us about this. The USA and Russia could soon come to armed blows over the war in Syria. Syria is an ally of Russia, and has been so since 1956. The USA and its allies (NATO, the EU, Australia and the Persian Gulf states of Saudi Arabia, Jordan the UAE and Qatar) have been attempting yet another “change of regime” to topple the pro-Russian government since 2011. Casualties to date include 470,000 dead and 12.4 million refugees out of a total population of just 17.1 million. Since the fall of the former Soviet Union in 1991, the USA and its allies have “taken over” 22 countries which were formerly part of the Soviet bloc. Russia and its main global military allies (Belarus, China, North Korea and Iran) have in turn “taken over” (or are attempting to convert) 12 countries. Recent advances include Chinese port facilities in Greece, a Chinese airbase in the Azores Islands (part of Portugal), Philippine government tilt toward China and Russia, a 95 percent popular rejection of EU refugee policy by the voters of Hungary, Turkey & Iraq making common cause with Russia in terms of Middle Eastern policy, and Russian food shipments to the starving population of Venezuela. In spite of these recent Russian successes, Russia has been losing the post-Cold War competition with the USA and the EU since 1991.
Russia has now appeared to draw the line. The Russian government has told the world that any American or NATO attacks on Russian or Syrian forces in Syria will be considered as an act of war against Russia. Russia recently told its global diplomats and businessmen to send their school aged children back home to Russia immediately. Russia recently held nuclear air raid drills in which 40 million people from her larger cities partook. Russia has moved more anti-ballistic missile defenses to her westernmost bases in East Prussia. She is also sending her sole aircraft carrier battle group to Syria via the English Channel, the North Atlantic and the Mediterranean Sea.
If Hillary Rodham Clinton is elected President of the USA on November 8, it is very likely that a Third World War will erupt between the USA and Russia over Syria. Donald Trump (Republican Party), Gary Johnson (Libertarian Party) and Jill Stein (Green Party) have all said that they do not want war with Russia. Hillary Clinton and her fellow hawks within both the Democratic and the Republican Parties (such as Senator John McCain of Arizona) have stated that they want to enforce a “no fly” zone over Syria, which will directly confront the air forces of Russia, Syria, Iran and Iraq – Iraq has since become an ally of Russia in Syria.
The Russian armed forces have 1 million active personnel, 2 million active reservists and 20 million inactive reservists. The main nuclear military powers in the world (in terms of strategic yield in mega-tonnage) are Russia, the USA, China, the UK, France and North Korea. Russia and her allies have 61 percent of the world’s explosive nuclear arsenal. The combined nuclear arsenals of all countries have more than enough explosive and radioactive power to wipe out all life on earth.
The very negative social mood in the world today can be explained through the depressed global stock market. In the largest market of the USA, the Dow has made no net gain in real money terms (Dow/Gold Value) since 1996 or 20 long years. In Japan (which had the largest global stock market in 1989), there has been no net gain in nominal value since 1985 or 31 years ago. Average stock markets throughout both Europe and Asia are even more depressed than in the USA, and we have not yet seen the “real” global crash.
The US Presidential election scheduled for November 8 appears to have become very close – perhaps too close to call. Clinton is running perhaps one percentage point ahead of Trump based upon all national polls in which the media is overwhelming slanted in favor of the Democratic Party side. Assuming no toss-up states, Trump has something like 259 of the 270 Electoral College votes necessary to win the American Presidency. One or perhaps 2 additional US states (such as Nevada and Colorado) would tip the scale in his favor. Gary Johnson (Libertarian Party) is running at about 5 percent and Jill Stein (Green Party) is running at about one percent of the popular vote – historically very high numbers for both small parties. The Senate looks to split 50-50 for each major party, but the House of Representatives will likely be 54 percent Republican compared to 57 percent today.
Financial, Economic and Social Mood Update (October 1, 2016)
The Dow Jones 30 Industrial Index and the S&P 500 Index both made new record nominal highs on August 15, 2016.
Our world is constantly in a state of change. Where is it going right now – where do its leaders want it to go, where do its people want it to go, and is there a difference between the two? The infamous “leaders” at the top of the so-called “New World Order” have been pushing for more supra-national governmental organizations and ultimately for a one-world government. They seek less democracy, more uniformity, more government bureaucracy, more socialism for the masses, the elimination of the middle class and more privilege and power for an extremely tiny upper class, i.e., for themselves. Socialism and government welfare benefit programs are a means of “dumbing down” the masses, to make them dependent upon the leadership and to prevent them from altering their social status, i.e. from advancing into the middle class and ultimately into the upper class.
The first attempt at global government came in the form of the League of Nations after World War One in 1918. The impetus for this body was to prevent another destructive world war. It obviously failed in that attempt, and since the end of World War Two in 1945 it has been replaced by the United Nations – much more enduring than the League of Nations, but limited in its effectiveness. The most advanced form of a regional supra-national government has been the European Union, which has created an entirely new level of government bureaucracy complete with policy-making authority, a supra-national parliament in Strassburg (French spelling = Strasbourg) and a vast central authority in Brussels. The impetus behind the EU was, once again, to avoid destructive wars such as World Wars One and Two. It sought to prevent the resurgence of the Prussian-German national state (1866-1933) and of the National Socialist German dictatorship (1933-1945).
The EU has antagonized many of its inhabitants & citizens by creating a central authority which is too far-reaching in its scope, by having too much government bureaucracy (which is too expensive) and most recently by having a policy of mass human immigration which is too open to too many people from outside of the European cultural realm. The EU would do well to study the forms of German empire which existed prior to the Prussian-German national state of 1866-1933, namely that of the Holy Roman Empire of the German Nation (800-1806), the brief Federation of the Rhine (1806-1815) and the subsequent Germanic Confederation (1815-1866).
With the exception of the Napoleonic Federation of the Rhine (1806-1815), the period from 800-1866 was marked by an elective monarchy in which the strongest German Noble Houses came to the forefront of leadership, where the German Throne was ultimately inherited by the Noble House of Habsburg-Lorraine – the same aristocratic family that ruled Austria-Hungary until 1918. Austria had become the most powerful German-speaking state by 1438, and she was only successfully challenged & defeated by Brandenburg-Prussia in 1866. What enabled Austrian leadership over the Noble Houses of Europe to endure for so many years (800-1866) was the fact that her style of leadership was far less centralized – it allowed for much more regional control and autonomy.
The Holy Roman Empire of the German Nation (800-1806) was both a Germanic and a Christian medieval empire. The great old Roman Empire (753 B.C.-A.D. 800) fell from within much like the USA is in the process of doing today. Rome was overrun by Barbaric Germanic tribes, but this was much more like a vacuum as opposed to a planned invasion – the Barbaric Germanic tribes were merely filling the void left by a collapsing society. These Indo-Germanic (or Indo-European, which is identical) tribes founded what became the modern nation-states of Europe (both east and west) and of North Africa. It is for this reason that all of the Noble families of Europe have an ultimate ancestry in Germany – this is Europe’s undeniable political heritage. The white (or Caucasian) human race is also of Indo-Germanic / Indo-European ancestry – a trail which leads from the European continent all the way to the northern majority of the Indian subcontinent………….this common ancestry encompasses the Indo-Germanic / Indo-European peoples, the Semitic peoples (Jews and Arabs), the Turkic peoples and the Indo-Ayran peoples of the Indian subcontinent.
Great as Europe is, it was not one of the original “superpowers” in the world and will not likely be so in the future. Most of the world (60 percent in terms of population) is from Asia. The earliest centers of human civilization in Asia were in Mainland China, on the Indian subcontinent and in the “Fertile Crescent” of the Holy Bible – the oldest “recorded” (or “advanced”) human civilization located in between the Tigris and the Euphrates Rivers. The other great human civilizations of the ancient world centered in ancient Egypt, Central America (the Aztecs) and in South America (the Incas) were also Asian in terms of their ancestral roots. The people who founded these empires had migrated from Asia – over the former land bridge in between Siberia and North America in the case of the Native American Aztecs of Mexico and Incas of Peru.
At the time of the Birth of Jesus Christ of Nazareth, roughly one-quarter (25 percent) of the human race lived in Mainland China. Today, that figure is around 20 percent. Prior to the European-led subjugation of the ancient Chinese Empire (around 1840 when the British Empire took possession of the great ports of Singapore and Hong Kong, an incredible 40 percent of the human race lived in the great “Middle Kingdom” of the Empire of China. China and Asia lost the technology race in the 19th Century and were encroached upon especially by the British Empire (India, Burma, Malaysia, Brunei Singapore and Hong Kong which were central to the dreadful Opium trade), which was joined by the likes of the Empires of France (Indo-China including Vietnam, Laos and Cambodia), the Empire of Japan (Taiwan, Korea and Manchuria), the Russian Empire (Mongolia and Siberia), the German Empire (the Province of Shantung which became central to the failed “Boxer Rebellion,” Micronesia, Palau, the Marshall Islands, Nauru, Samoa and Papua New Guinea), the Dutch Empire (Indonesia) and the American Empire (the Philippines, Guam and Hawaii). Portugal had been in the region as well (Macau), but her presence was far less intrusive and oppressive. The same can be said for Austria-Hungary (the City of Tientsin, the Nicobar Islands and Sabah) whose military commander in Tientsin expressed open sympathy for China during the Boxer Rebellion – he said “if I were Chinese, I too would be a Boxer.” The Opium Wars and their aftermath would keep China “down” from 1840 through the brutal Imperial Japanese invasion (1930-1945) and the devastating communist “Cultural Revolution” of Chairman Mao (1949-1976). The monumental changes in China since 1976 have brought us to where we are today – a world in which China now has the largest national GDP and fully 50 percent of the global manufacturing base. China’s leadership seeks to restore the ancient “Silk Road” which led from China to the rest of Asia, Europe and Africa – an infrastructure of trade which was the economic foundation of the ancient world. China’s 700 cities will generate 30 percent of all global GDP growth in between now and the year 2030.
The modern Chinese policy of “One Belt, one Road” (OBOR) seeks to restore the ancient Silk Road which was founded two centuries before the Birth of Christ. It now includes an amazing US $8 TRILLION investment in land infrastructure (North Asia, Central Asia and Europe) and maritime infrastructure (Southeast Asia, South Asia and Africa) which will connect these regions to Mainland China via two-way economic trade. The land-based initiative is known as the “Silk Road Economic Belt” (SREB) and the maritime arm of the investment is known as “Maritime Silk Road” (MSR). They were unveiled in September and October of 2013, respectively. Much of this is being funded through the Asian Infrastructure Investment Bank (AIIB) which is based in China, and which has funded US $300 BILLION worth of infrastructure projects thus far. The MSR reaches into the South China Sea, the South Pacific Ocean, the wider Indian Ocean area and into Africa (especially Zanzibar, and with a modern standard-gauge rail link in between the cities of Nairobi, Kenya and Kampala, Uganda). Much of this is being managed from the city of Hong Kong.
The USA seeks to thwart OBOR via their efforts in the Trans-Pacific trade partnership (which lacks significant member countries) and in the Trans-Atlantic trade partnership (which seeks to unite the USA and the EU, but which as little popular support in the EU).
OBOR encompasses (as of September 2016) 60 percent of the human race and 40 percent of global GDP.
A Global Economy in Flux
A globe in flux (change) means that those who were once powerful and prosperous may no longer be so, and vice versa. These changes are visible within national borders and across them.
In Germany (the country with the largest population and GDP in the EU) real estate prices in “booming” cities such as Berlin, Hamburg, Munich & Cologne are 100 times as expensive compared to in economically depressed towns in the eastern provinces of the former GDR (German Democratic Republic, or “East Germany”). In the USA, real estate prices for very nice single family homes in Honolulu, Hawaii are 19 times as expensive compared to in Dayton, Ohio in America’s formerly industrialized Midwest. The most expensive metro region on earth is the eastern French Riviera (population 933,000) where real estate prices are 210 times as high as in Dayton. Other very affluent & expensive metropolitan regions include London (population almost 14 million = 81 times as pricey as Dayton), Hong Kong (population over 7 million = 76 times Dayton prices), Paris (population over 12 million = 71 times Dayton), Singapore (population over 5 million = 66 times Dayton), Mumbai-Bombay (population over 20 million = 51 times Dayton), Geneva (population 197,000 = 47 times Dayton), Rome (population over 4 million = 38 times Dayton), Helsinki (population 1,431,000 = 32 times Dayton), Manila (population almost 23 million = 31 times Dayton), Bermuda (population 64,000 = 31 times Dayton), Luxembourg (population 562,000 = 30 times Dayton), Taipei (population over 7 million = 28 times Dayton), Tel Aviv (population 3.7 million = 28 times Dayton), Sydney (population 4.84 million = 27 times Dayton), Shanghai (population 34 million = 27 times Dayton) and Cebu City (population 2.619 million = 25 times as expensive as Dayton, Ohio). Santa Clara, California (in the heart of the ultra-prosperous Silicon Valley) has housing prices 15 fold of housing prices in ultra-depressed Dayton, Ohio.
The foreign exchange currency futures market is pointing to an eventual dramatic reversal of fortune for the U.S. Dollar. I see certain currencies trading at or near short term “lows” compared to the U.S. Dollar (an exchange in the Dollar’s favor), but the futures prices tell me that this trend is virtually exhausted, and that the U.S. Dollar will soon lose the most value it has lost within the past 27 years.
Much of the Pacific Rim is booming economically, and this reach can be seen quite clearly on the Pacific Coast of the western hemisphere, where states, provinces and countries such as Hawaii, Alaska, British Columbia, Washington State, Oregon, California and Chile far outperform inland states – the latter often resembling “Third World” countries.
In a decade or so, one-third of homes in Japan will be vacant due to demographic collapse – not enough births, not enough young people, very few immigrants and a rapidly ageing older & retired population. Even the world’s number one metropolis of Tokyo-Yokohama (38 million people) has started to lose population. In other Japanese cities and especially in the Japanese countryside, the situation is dire.
One hears about young people fleeing rural areas for big cities, which has become more acute due to declining birth and fertility rates. One also hears about mass human immigration – Middle Easterners & North Africans flooding Europe, Latin Americans flooding the USA, and so forth. Many of the latter two groups of people are lacking in employable skills, but young Europeans migrating from depressed countries such as Spain & Portugal into Germany fill skilled openings. The situation is similar with Eastern Europeans heading into the UK. But guess what? Many talented young Germans are heading toward global boom cities such as Hong Kong, Singapore and Manila, while many of the “interior” states of the USA are dying economically. Much of rural Guatemala & Honduras are dying out – their people have headed north into Mexico and the USA.
The changes are endless, and so are the challenges. What is the solution? Government, central authority and large organizations (be they public sector or be they private sector) tend to stifle human ingenuity and progress. High rates of taxation & generous social welfare programs punish success and reward sloth. The answer is to have far less central authority, far less bureaucracy, much lower taxes and to allow everyone to keep the financial fruits of their labor. China has begun to move in this direction since 1976, but they will make even more progress if they continue in the same direction – open the political process to more parties, allow the freedom of the major religious faiths, remove the central bank from the economy (allow credit & debt to find their own free equilibrium in the open market) and allow couples to have as many children as they want. The last point is critical – China now has a human fertility rate even lower than in the industrialized countries of Europe and North America. The dire result of not having enough children can be seen in Japan today.
The world is becoming more technological. Society of the future should have less government (the public sector is already de facto bankrupt), it should have private health care with many small entities providing that care (the large non-profit organizations of today are swallowing too many public resources and providing highly impersonal care at sky high cost), it will have fewer large corporations (so many have already “downsized,” and that process is far from complete) and it should many more small businesses & sole proprietorships – much like the economy of generations ago. Yet another debt bubble set to burst is that for higher education. The educational system of today is too costly, too bloated with staff, and it teaches so-called skills most of which are not needed. In other words, it is high overrated. The educational system of the future needs to focus more on trade schools & apprenticeships and less on institutions of higher learning (colleges and universities). Much like health care and governmental administration, it needs to be less cumbersome and more tailored to local needs.
Which parts of the world have the highest income levels in September 2016? The 35 most affluent out of 318 nations or autonomous territories on a per capita GDP basis are (in order / by ranking) Luxembourg, Qatar, Norway, Switzerland, Singapore, Ireland (an impressive comeback from near bankruptcy), San Marino, Sweden, Iceland (another impressive comeback), Denmark, Australia, the Netherlands, Austria, Canada, the UK, Germany, Finland, Hong Kong, Belgium, France, New Zealand, the UAE, Israel, Italy, Kuwait, Brunei, South Korea, Spain, Malta, Cyprus (yet another impressive comeback), Taiwan, the Bahamas, Slovenia, Saudi Arabia and Trinidad & Tobago.
The Philippines was the 2nd wealthiest per capita nation in Asia in 1965 (after Japan) but by 1986 they were among the poorest. The Philippines have made an impressive comeback since 1986. They now have among the highest annual economic growth rates in the world. Their per capita GDP ranks them in the top 24 percent of nations or autonomous territories in the entire world. The most affluent Philippine islands of Luzon and Cebu have a per capita GDP on par with the USA, the latter ranking number 37 in the world.
The 16 poorest per capita nations in the world are all in sub-Saharan Africa – these are the Central African Republic, the Congo (formerly Zaire), Burundi, Liberia, Niger, Malawi, Mozambique, Guinea, Eritrea, Madagascar, Togo, Guinea-Bissau, the Comoros Islands, Sierra Leone, Gambia and Burkina Faso (formerly Upper Volta). OBOR should prove to be a very positive force for such countries.
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Financial, Economic and Social Mood Update (September 4, 2016)
The Dow Jones 30 Industrial Index and the S&P 500 Index both made new record nominal highs on August 15, 2016. The global bond market is on the cusp of what will likely be its most massive crash in recorded history – interest rates and yields are at artificially low levels (about 30 percent of global sovereign debt is actually trading at negative yields) and the next major historical wave should take interest rates in the industrialized world beyond levels last seen in 1981 and 1982 – in other words, well into double digits.
The largest monetary investment in recorded human history is now actively being led from Mainland China. The Chinese refer to this as the “Silk Road” and/or as the “One Belt, one Road” project. The money committed thus far equals US $1.4 TRILLION, involving 64 member countries (mostly in East Asia, South Asia, Central Asia, the former USSR, and in Europe) with 40 percent of world GDP and 60 percent of the global human population. China is busy building roads, high speed rail networks, deep water shipping ports, and transportation pipelines for crude oil and natural gas which lead from 63 other countries into China. China itself already ranks number one in population (19 percent of the world total) and number one in PPP GDP (18 percent of the world total ahead of either the EU or the USA). China is the number one manufacturing nation in the world – fully half of all physical goods produced in the world today come from Mainland China. All of this is the fruit of the change in Chinese leadership which took place in 1976. China’s next major geopolitical goal is to change or to replace the Bretton Woods system which made the US Dollar the number one global reserve currency since 1944.
Previous monthly financial update blogs have discussed the massive social & economic changes underway and the even bigger changes in store for our near future. One of the topics previously discussed is that of global real property prices, and the importance of debt financing. One should recall that the priciest markets in the world actually rely far less upon debt financing compared to relatively weak markets, and that many of the weakest real estate markets can now be found in the interior states of the USA, in Central America and in Central Africa.
Positive changes and negative changes continually take place all over the world – the “real world” is in a perpetual state of flux. The negative changes in store for the USA are primarily due to the absolutely massive level of US Dollar indebtedness, which includes conventional debt, unfunded liabilities and contingent liabilities. The European Union (28 member countries including the UK) and Japan are the two other parts of the world which have relatively serious debt problems – albeit nothing compared to the debt problems of the USA.
Consider the following figures which have been published by the IMF (International Monetary Fund). Per capita GDP (nominal Dollars in 2015): EU = $18,412, USA = $17,968, China = $11,385, Japan = $4,116, India = $2,183 and Russia = $1,179. Per capita GDP (PPP Dollars in 2013): EU = $34,563, USA = $53,001, China = $11,868, Japan = $36,654, India = $5,450 and Russia = $24,298.
The per capita GDP figures which really stand out are those for Japan and for Russia – the fortunes of both countries have fallen dramatically. Japan was the first major economy to experience a financial bubble, a financial crash, a human demographic implosion and an ongoing economic deflation which is still not over. Japan’s most serious problem is a chronic lack of population growth – they have far too many older people and far too few births. Russia experienced economic bankruptcy due to 74 years of totalitarian communist rule which ended in 1991, and they lost much of the old Tsarist Russian Empire due to the collapse of the former Soviet Union in 1991. The “core” territory of the ethnic Russian people is actually confined to “European Russia.” The native peoples of Siberia are in fact very closely related to the Native American peoples of Alaska and the Western Hemisphere – they are basically Asian in race. The various peoples of Central Asia are mostly Asian, Turkic and Muslim. The various peoples west and south of European Russia are related to the Finns (Finns, Estonians & Karelians), the Baltic peoples (Latvians & Lithuanians), western Slavs (Poles, White Russians and Ukrainians), the peoples of the Caucasus Mountains and even some Muslims (such as the Tatars, the Chechens and the Azerbaijanis). Since 1991, both the EU and NATO have advanced geographically at the expense of the former Soviet Union – this has been a deliberate policy directed from Washington, Rome and Brussels. The economic sanctions imposed upon Russia by much of the western world are in response to Russian counter-moves in places such as Crimea, the eastern Ukraine, Moldova (Transnistria), Georgia (South Ossetia and Abkhazia), and Azerbaijan (Nagorno-Karabakh).
The American led policy of isolating Russia has had negative social effects as well. Society in Russia, the former Soviet Union and even in parts of Eastern Europe is far less advanced, far less progressive and far less tolerant compared to societies in Central Europe, Western Europe, Southern Europe, Scandinavia, the British Isles, North America, Latin America, the Caribbean, Southern Africa, Australia, New Zealand, Oceania, and East Asia. Societies in the former eastern Bloc and in Muslim world are marked by uncomfortably high levels of old ethnic hatreds, national hatreds, racial hatreds, religious hatreds, gender group hatreds and economic “ism” intolerance (the latter emanating from decades of totalitarian communist, socialist, and Marxist-Leninist domination).
As said in the recent past, alternative (non-fossil fuel) energy is making major advances across the globe. Both Norway (population 5 million) and the Netherlands (population 17 million) have proposed legislation which will prohibit selling new motor vehicles powered by either gasoline or diesel engines starting in 2025, with the same prohibition extending to the shipping industry in 2030. Norway already has the highest percentage of new motor vehicles being plug-in (entirely electric or hybrid electric) compared to any other country in the world (28 percent of the new car market during the first 7 months of 2016).
The Auto Industry
As mentioned in previous financial updates as well, the global motor vehicle industry is 66.4 percent Asian – in other words, annual unit production from companies based in Asia or owned by Asian interests. It is 22.2 percent European and 11.4 percent American. The main groups in the Americas are General Motors and Ford Motor, with the remainder being mostly motorcycle manufacturers from Latin America.
The largest groups based in Europe are Volkswagen, Fiat-Chrysler, PSA Peugeot, Renault, BMW, Solex (a French motorized cycle manufacturer), Daimler, Piaggio, AvtoVaz (Lada), Minsk Motorcycles, GAZ, UAZ, Triumph Motorcycles, IMZ-Ural Motorcycles, ZAZ, KRAZ, PAZ, Clews Competition Motorcycles, TVR Motors, MAZ, and the Norton Motorcycle Company. None of the European companies ranking after Daimler A.G. have a global presence.
Volkswagen A.G. is profitable, but the company remains vulnerable to the continued fallout from the diesel emissions scandal which it inflicted upon itself. Thus far, the company has reached a compensation agreement with the government of the E.U. member states (with the exclusion of the U.K.), the U.S. federal government and roughly 36 U.S. state governments. Most new VW vehicles have been banned from sale in South Korea. VW is still in negotiations with the governments of Australia and Canada.
The Volkswagen Group diesel emissions scandal and the global momentum behind “alternative energy” (i.e. all forms of energy other than fossil fuel energy, the latter being crude oil, natural gas and coal) highlight the predicament of the worldwide motor vehicle industry. Companies on all continents are increasing investment in plug-in electric, hybrid electric, hydrogen fuel cell, ethanol, grain alcohol and partial zero emission gasoline technologies. All of this is extremely expensive, which will provide more than ample incentive for companies to merge. Companies will require greater critical mass (size) to remain competitive and profitable.
The US Presidential Election of November 2016
In spite of almost unified opposition from the media, from the political establishment (of both major political parties), and from Wall Street, Donald J. Trump has finally started to chip away at the opinion poll lead of Hillary Rodham-Clinton. As of this morning, he was trailing her by an average of 3.4 percentage points among all national polls in a 4 way race (Democratic = Clinton, Republican = Trump, Libertarian = Johnson and Green = Stein). Clinton remains plagued by her e-mail scandal (related primarily but not exclusively to the Benghazi debacle), the Clinton Foundation ($239 million net worth and $10 million of annual income), and her health (rumors of brain damage, problems with balance, and respiratory problems). As discussed previously, the Democratic Party platform calls for the most massive increase in the size of the socialist welfare state in American history – far larger than universal Obama healthcare – this includes 12 weeks of annual employer-paid medical leave, a higher minimum wage, Social Security (lowering the age to 52), Medicare (lowering the age to 55), a carbon tax on the crude oil / natural gas / coal industries, and higher education (to be entirely funded by taxpayers). There is no way that the existing welfare state can last, and certainly no way that the proposed expansion can endure. At this point, the USA is headed down the same road as that experienced by Venezuela – a road of political and economic ruin for what was once one of the most prosperous countries in Latin America (Caracas used to be the number one banking & finance center in Latin America).
If Donald J. Trump can overcome the polls and win the US national election, he will have the massive task of trying to work with the Congress to overcome the burdens of the welfare state (debt), political corruption and of a highly interventionist foreign policy – all of which have effectively bankrupted the United States. The Senate will likely turn Democratic in November, whereas the House will likely remain Republican. To run a government which actually functions, Mr. Trump will have to take a cue from the two candidates running on the Libertarian Party ticket in 2016. Both Gary Johnson (New Mexico) and William Weld (Massachusetts) are successful former Libertarian Republican Governors from overwhelmingly Democratic states. In both cases, these men worked with overwhelmingly Democratic state legislatures to make government work well. This is what is truly important in the world of “public service” – party labels need to fall by the wayside, and people need to work with each other for the common good.
Financial, Economic and Social Mood Update (August 2, 2016)
The Dow Jones 30 Industrial Index and the S&P 500 Index both made new record nominal highs on July 29, 2016. A little over one week before that, the US government bond market reached a new high as well. Interest rates have since turned back upward, with the 10 year US government note up by 21 basis points. The energy commodity market remains rather weak, with crude oil at $39 per barrel (a 28 percent drop in about 2 months).
All of the major American political parties have chosen their Presidential and Vice Presidential candidates for the November 2016 election. The Democratic ticket has an average popular vote advantage of 4.4 percentage points as well as an electoral vote margin of 118 electors (Real Clear Politics). The forecast result for the US Senate is 53 GOP versus 47 Democratic (a Democratic gain of one seat). Income taxes, payroll taxes, retirement contributions and mandatory health insurance premiums are now extremely high, with the most successful American citizens paying up to 90 percent of their annual income to the government, insurance companies and pension plans. The bottom 58 percent of the American population pays no federal income tax whatsoever. 90 percent of the American population receives some sort of monthly government benefit transfer payment.
The Democratic Party platform calls for the most massive expansion of the socialist welfare state in American history – even more so compared to Obamacare. It calls for an hourly minimum wage of $15, no more sub-minimum wage for tipped workers & disabled workers, 12 weeks per annum of fully funded “FMLA” (Family Medical Leave Act,” which is for the serious illness of employees and their immediate family members including spouses, children, siblings, parents, grandparents and grandchildren), a carbon tax on fossil fuels (crude oil, gasoline, diesel, natural gas, methane, natural gas liquid products and coal), an end to the Foreign Tax Credit, the re-introduction of the 1933 Glass-Steagall Act (reinstating the legal barrier in between commercial and investment banking), the breakup of the large money center banks, no more capital punishment, no more privately-owned prisons, amnesty for illegal aliens in the USA, a higher level of legal immigration, fully subsidized higher education (with at least 10 hours of work per week to qualify for the benefit), a “public option” for Obamacare (a government owned healthcare exchange to compete with private industry), the lowering of the Medicare benefit age from 65 to 55, and the lowering of the Social Security benefit age from 62 to 52.
One of the possible economic policies of a new Clinton-Kaine Administration (in unison with the Federal Reserve System of the USA, the European Central Bank in Frankfurt, the Japanese Central Bank, the Swiss Central Bank, and the Bank of China is something now colloquially referred to as “helicopter money.” This is a profoundly dangerous idea which was practiced by the former Weimar Republic of Germany in 1923, and more recently by countries such as Zimbabwe, Argentina and currently by Venezuela. Since 1913, most central banks have engaged in the artificial expansion of credit. Most recently, they have engaged in holding interest rates at artificially low levels (negative levels in the EU, Switzerland and Japan). This is all part of an unsuccessfully desperate attempt to create consumer loan demand where none exists. No demand exists (and most banks are unwilling to lend) because the entire globe has become saturated with debt, with unfunded liabilities and with contingent liabilities.
“Helicopter money” is far more dangerous and destructive compared to the artificial expansion of credit. It is the modern day version of “printing money.” Perhaps one scenario is if the taxation authorities were to credit all taxpayers with all of their income tax withholding, payroll tax withholding, pension contribution withholding and health insurance premiums. Government benefit programs where recipients have put in only part of the money they eventually receive will likely be increased as well – these include Social Security, SSI, Disability, Workmen’s Compensation and Unemployment Compensation. Government programs which are 100 percent taxpayer funded (where recipients have put in no money for the benefits they receive) will likely also be increased – these include the Earned Income Tax Credit (EITC) and Food Stamps (SNAP).
If the Trump-Pence ticket continues to close the gap with Clinton-Kaine, then the “helicopter money” option will become less likely. In any case (rhetoric and name calling aside) one should remember that Donald Trump is not as “conservative” or “right wing” when compared to the post World War 2 Republicans of the past – Bush 1, Bush 2, Reagan, Nixon, Ford and Eisenhower. The postwar GOP is almost dead as a political party. Both Trump and Cruz are not part of the GOP establishment. Cruz is part of the “religious right,” and all the “mainstream” GOP candidates combined received a very small share of the popular vote. Another viable alternative is the Libertarian Party ticket with Gary Johnson (former GOP Governor of New Mexico from 1995-2003) and William Weld (former GOP Governor of Massachusetts from 1991-1997). Both men are libertarian Republicans with a successful track record of working well with Democratic legislatures in their home states. Weld left the Massachusetts governorship early to accept Bill Clinton’s nomination to be US Ambassador to Mexico, but he did not get that job because he was opposed by the right wing extremist GOP Senator Jesse Helms from North Carolina. In any case, people such as Mr. Helms are becoming ever less common in the modern western world.
Venezuela (governed by socialists since 1995) has turned from one of the most prosperous countries in Latin America into the world’s “poster child” for hyperinflation, now running at 1,640 percent per annum. Supermarkets and other stores in Venezuela are now almost void of inventory, and the population of the country is in a virtual state of anarchy, desperate for the basic necessities of food.
Safewealth Group of Switzerland, a financial services company affiliated with Elliott Wave International of Atlanta, released a brand new forecast for the price of gold on July 23, 2016 which goes through year end 2019. They forecast that fiat paper currencies will implode in value, led by currencies such as the US Dollar, the Euro and the Japanese Yen. Gold bullion closed at US $1,371 per ounce on August 2, 2016. The new forecast calls for gold to reach US $32,000 per ounce by December 31, 2019 which would translate into a 23-fold devaluation of the US Dollar. What would this mean for the average resident of the USA if their incomes were to remain equal compared to today? This would mean crude oil at $916 per barrel, natural gas at $63 per MCF, regular gasoline at $27 per gallon wholesale (retail would be $46 per gallon at the pump in inexpensive locations), sterling silver at $482 per ounce, the highest jumbo money market savings account at 25 percent interest per annum, car loans at 76 percent, the prime business lending rate at 81 percent, jumbo home mortgages at 88 percent and jumbo home equity lines of credit at 118 percent. The American federal government and most American states, counties, cities & school districts would likely go bankrupt much like modern Puerto Rico (an American Commonwealth).
Financial, Economic and Social Mood Update (July 2, 2016)
I am pleased to announce that my two websites (www.theborromeofamily.com founded in November 2006) and my monthly financial blog (www.financialeconomicupdate.com established in July 2013 became affiliates of Elliott Wave International effective June 21, 2016. As time goes on I will add more EWI articles and links which will enable my visitors and subscribers to access the many useful financial tools offered by Elliott Wave International. I’ve been a satisfied customer of EWI since January 2000 and would recommend their services to everyone. Their affiliates include roughly 500 of their 600 institutional subscriber companies all over the world. 26 of my subscribers have joined EWI thus far.
I am also pleased to announce that I am now an official junior news moderator (rank of 59) for the English language version of the Russian news website www.sputniknews.com. Sputnik News has 67 English language moderators which continues to grow. Senior Americans on their team include Paul Craig Roberts and Pat Buchanan (both worked for the Administration of President Ronald Reagan, with Dr. Roberts being the Assistant Secretary of the Treasury Department), former Congressman Ron Paul, current Senator Rand Paul from Kentucky, and Robert Francis Kennedy, Jr.
The referendum for the United Kingdom to leave the European Union (EU) on June 23 looks to be a critical turning point in history, with movements in numerous other European countries seeking to do likewise. The authoritarian and socialist nature of the EU along with unlimited human immigration from the Islamic world is fueling widespread discontent among the native peoples of Europe. The important goals should be to preserve the hard won peace and prosperity with which Europe has been mostly blessed since the guns fell silent at the end of World War Two in May of 1945. The UK should seek to rejoin the European Free Trade Association (EFTA) which they left in 1973 when they became part of the European Economic Community (now the EU). The remaining members of EFTA include those European countries which have never joined the EU including Switzerland, Norway, Iceland and Liechtenstein. Russian President Vladimir Putin has suggested that the EU work more closely with his own economic bloc known as the EEU (Eurasian Economic Union) which includes Russia, Kazakhstan, Belarus, Armenia and Kyrgyzstan. This is a very sound idea which the Europeans should embrace. All of Europe and all of Asia need one common free trade zone, peace, prosperity and a military security agreement in which they are partners and not adversaries.
In the meantime, we can expect far more market volatility all over the world as more countries leave the EU and as independence movements assert themselves within individual European countries. Examples include Scotland in the UK and Catalonia in Spain. There is the possibility that the central banks of the USA, Europe, Japan and beyond may spend their last “ammunition” in the form of “helicopter money” (an extreme form of economic “stimulus”) which will ultimately destroy most global asset markets and most global fiat currencies – especially the US Dollar and the Euro.
The power structure of the world continues to change, with Anglo-Saxon, American and European influence in an ongoing decline. The German Empire collapsed at the end of World War Two in the rubble of Adolf Hitler’s Chancellery in May of 1945. The old Austro-Hungarian Empire came to an end in November 1918 with the abdication of the Habsburg Monarchy. The British Empire was so exhausted after two world wars, and in spite of being a “victor” nation in both 1918 and 1945 she could no longer hold onto her global empire. France reached her peak during the time of Napoleon Bonaparte and has never quite recovered from her defeat in Waterloo in 1815. Spain ceased to be the number one world power when her naval Armada was defeated by the English Royal Navy in 1588, and she lost her colonial empire in Latin America & the Philippines in the 19th century. Russia lost control of the former Soviet Union when the USSR collapsed in 1991. Portugal’s time as a world power precedes that of her neighbor Spain. Italy has never quite recovered from the fall of the old Roman Empire in A.D. 476. White minority rule ended in southern Africa in Zimbabwe (formerly Southern Rhodesia) in 1980, in Namibia (former German Southwest Africa) in 1990 and in the Republic of South Africa in 1994. Similar changes are happening in the United States of America. On Pearl Harbor Day in 1941, the USA was 91 percent white or Caucasian. Today, that figure has fallen to just 46 percent of the American population. The political landscape of America reflects these changes. The most noticeable change in 2016 is the demise of the post-World War 2 Republican Party – the global military interventionist party of Eisenhower, Nixon, Ford, Reagan, Bush 1, Bush 2, McCain and Romney. The mainstream GOP of 2016 received something like 5 percent support among the entire US population, their last remaining candidate having been Governor John Kasich of Ohio. The new populist Republican Party is led by Donald J. Trump of New York, and the religious right Republican Party is led by Senator Ted Cruz of Texas – neither of these “outsider” groups are part of the Republican leadership establishment. The pre-World War 2 Republican Party was far more isolationist in terms of foreign policy (something handed down from President George Washington of the old Federalist Party) but lost out when Robert Taft was defeated by Dwight Eisenhower in 1952. Isolationism (or better: non-interventionism) is a much sounder policy than endless foreign wars.
The real GOP was also much more libertarian in terms of its economic and financial policies. In 1932 just 10 percent of the American population was receiving social welfare “benefits” compared to 90 percent of the American population in 2016. Many libertarian Republicans have left the GOP for the Libertarian Party of Gary Johnson of New Mexico and William Weld of Massachusetts (both former GOP Governors who comprise the Libertarian Party ticket for November 2016). Both men have track records of success and good governance working in unison with Democratic Party legislatures in both New Mexico and Massachusetts.
One good indicator of things to come is looking at the powerful multi-billionaire George Soros. He is one of the most powerful people on the earth, the rumored point person for the TRILLION Dollar Rothschild family empire (based primarily in the UK and France) and a force for evil – such as US led efforts for “regime change,” “color revolutions” (fake democracy), secular agenda, extreme left wing agenda and the orchestrated riots against Donald Trump rallies in the USA. Mr. Soros is bailing out of the stock market and he is hoarding gold bullion. Not surprising, because the stock market will not survive extreme debt, the extreme credit bubble, and because gold based currencies will eventually replace fiat currencies, the latter being backed by nothing but quasi central banks and the diminishing tax base.
The emerging financial, social and economic collapse will reverse the fortunes of many people on earth, including the very rich and powerful. Case in point: Elizabeth Holmes (born in 1984) is the CEO of Theranos, a high technology company which processes blood tests for hospitals and medical clinics. She was reportedly worth a net US $4.7 BILLION at the end of 2015, which would have placed her among the 460 richest people on earth, or within the top 0.0000062 percent of the population. Due to the collapse of Theranos’ stock value on the open market, and due to the fact that she owned only common shares and not preferred shares of stock in Theranos, her net worth declined to zero by June 1, 2016. Preferred shares of stock tend to behave like debt more than like shares of stock.
In previous monthly issues, I have discussed the fact that real estate in much of the world (including in formerly second and third world countries) is now much more valuable than real estate in much of the USA. Add to this fact that in many countries consumers must pay 100 percent cash for large ticket items such as real estate and new cars, whereas in the USA such purchases are largely subsidized with credit – no money down, zero interest rates and low monthly payments. The most depressed parts of the USA are those states in particular which do not border either the Atlantic or the Pacific Oceans. Case in point with formerly industrial states such as Ohio and Michigan, and with formerly prosperous metropolitan areas such as Cleveland and Michigan – high end homes can often be purchased for around $100,000 and homes in depressed and abandoned neighborhoods can be purchased for less than $10,000 and sometimes for less than $1,000 each. In northern New Mexico (the wealthiest part of New Mexico in communities such as Santa Fe and Taos), high end single family homes in gated communities with country clubs will start at around $500,000 to $600,000 for a home with roughly 1,600 square feet of living space. A similar home in the San Francisco-San Jose Bay Area of northern California will go for something like $1.5 million or for three times as much, and in East Honolulu, Hawaii (near Diamond Head) such a home will go for roughly $3 million. In Makati or Mandaluyong (two suburbs of Manila in the Philippines) such a home will cost about $5.3 million. On the eastern French Riviera including Monaco such a home will cost a record US $33.6 million. Low end homes in Santa Fe, New Mexico in parks for manufactured or mobile homes will cost as little as $18,000 for a single wide mobile home of roughly 1,300 square feet of living space. In coastal California (Los Angeles – Santa Barbara) such a home might cost $1 million with a plot of land.
Financial, Economic and Social Mood Update (June 1, 2016)
In my April 2016 issue I talked about how the futures market has already given me the opportunity to see what will eventually happen when the daily stock market indices crash to the ground. Stock market indices are by no means the only futures market, and I also track assets such as currencies, commodities (in particular energy products and precious metals) as well as bond prices & yields.
Eventually, I believe that we will see the American Dollar lose its standing as the premier global reserve currency, and that America’s very bad habit of extreme indebtedness will cause the US Dollar to depreciate not just against precious metals but against foreign currencies as well. Understand that fully 97.87 percent of the world’s debt, unfunded liabilities (such as pensions & government benefit payments) and contingent liabilities (such as financial derivative instruments) are owed by people in the USA and denominated in American Dollars. In other words, no other country even comes close. The upper limit of technical resistance for the British Pound Sterling is now US $1.5929 per one US Dollar (daily cash contract 52 week high). For the Euro, it is now US $1.39068 per one US Dollar (December 2020 futures contract 18 day moving average). For the Philippine Peso, it is 43.9684 Pesos per one US Dollar (18 day moving average on the daily cash contract).
In the case of crude oil, the lowest resistance point for one blue barrel (bbl) is $11.30 for the July 2016 futures contract. In the case of natural gas, it is 5.8 cents per one mcf (14 day moving average for the daily cash contract). In the case of regular unleaded gasoline, it is 63.75 cents per one gallon (9 day moving average for the daily cash contract). In the precious metals market, the upper resistance point for one ounce of gold bullion is $1,588.59 (9 day moving average for the daily cash contract). For silver it is $23.93 per ounce (same futures contract as for gold bullion). Note that many billionaires are now moving out of global stock markets and into gold bullion. Safewealth Group of Switzerland (a partner of Elliott Wave International of Atlanta, Georgia) believes that gold’s upward thrust could reach US $7,890 per ounce by 2019. This alone would devalue the US Dollar by between 6 and 7 fold compared to today. The thing that continues to get my attention with respect to the futures markets is the extreme volatility on a day to day basis……………………..not a good omen.
Renewable energy (i.e. not including fossil fuels such as crude oil, natural gas and coal) now comprises a record high 28 percent of the world’s energy consumption. This is projected to rise to 100 percent after the year 2050 when nuclear fusion plants will go commercial. Note that nuclear fusion (unlike nuclear fission plants which we have today) does not use the dangerous hard mineral of uranium – it basically uses water. Renewable energy includes hydro power, geothermal power, wind power, solar power, biofuels, grain fuels (such as ethanol made from either sugar cane, corn or palm leaves) and nuclear power. Germany has become the very first country to consume 100 percent renewable energy. This is significant in that Germany is a major global economy (number 4 in the world) with 86 million people. Other countries with majority usage of renewable energy include Albania (95%), Portugal (95%), Ethiopia (93%), Brazil (85%), Iceland (85%), Russia (84%), India (81%), New Zealand (75%), Austria (70%), Colombia (70%), Norway (68%), Kenya (66%), Canada (65%), Spain (64%), Denmark (57%) and Uruguay (55%).
Note that the very powerful Rockefeller family trust (the Rockefeller empire launched the crude oil and natural gas industry before the American Civil War) has pulled out completely from fossil fuels.
The Automotive Industry
The automotive industry includes the manufacture of cars, light trucks, large commercial trucks, motorcycles and motor-scooters. In 1947 this industry was 92 percent American. Today, it is over 66 percent Asian, more than 22 percent European and less than 12 percent American. The company which makes the most vehicles per annum is Honda of Japan as this figure of 20 million units includes both cars and motorcycles. Number 2 is Volkswagen A.G. of Germany at slightly over 10 million units per year – mostly cars and trucks with a small number of Ducati motorcycles. VW has the highest monetary turnover (sales revenue) of any automotive group on earth, being closely followed by number 3 Toyota of Japan. Toyota also sells more than 10 million vehicles per year along with number 4 Hero Motorcycles of India. Number 5 General Motors of the USA is at 9.8 million vehicles per year. GM is 41.61 percent owned by major US institutional & mutual funds and 5 percent owned by senior GM management. Number 6 Hyundai-Kia of South Korea (8 million vehicles per year) is now the financially strongest auto group ever since VW committed the extremely foolish error of the diesel emissions scandal. Number 7 Ford Motor of the USA is at slightly under 6 million vehicles per year and is still 40 percent owned by the heirs of Henry Ford. Number 8 Nissan of Japan is at slightly over 5 million units per annum and is 43 percent owned by Groupe Renault of France.
Here is just another example of how purchasing power in the USA has evaporated and continues to do so. Daimler A.G. of Germany (which makes Mercedes-Benz cars and trucks) is the 2nd largest luxury automaker in the world after BMW of Germany and slightly ahead of Audi of Germany (Audi is owned by Volkswagen). Mercedes-Benz now makes many SUVs in addition to passenger cars, but the classifications have remained the same over many years. The Mercedes-Benz S-Class is the global standard for large luxury passenger cars. Prices start around US $90,000 and often wind up over US $110,000 with a normal set of options. The Mercedes-Benz E-Class represents the medium “bread and butter” range of luxury cars which form the core of the Mercedes-Benz global product portfolio. These cars start around US $55,000 and often leave the lot at more than US $62,000. They no longer make up the core of the Mercedes-Benz product portfolio in the USA, simply because they are out of reach for most upscale American consumers…………….unlike the situation in Asia and Europe. The bulk of American Mercedes-Benz sales fall into the C-Class category, which were once named the “Baby Benz.” The B-Class are smaller crossover cars, the A-Class are mini cars (not sold in the USA) and below the A-Class is the Smart marque. The Smart For-Four (a very small 4 door 4 seater) is sold in Europe and is based upon a platform built by Renault of France (Renault-Nissan and Daimler own a small part of each other’s equity). Below that is the very tiny Smart Four-Two, which is available in the USA. Above the Mercedes-Benz S-Class is the Mercedes-Benz Maybach S-Class………..very large super luxury sedans starting at US $189,000 (they continue in the tradition of the great “big Mercedes-Benz” 600 Pullman Limousine and the pre-World War 2 Mercedes 770 once owned by German Royalty).
In spite of all of the negative publicity surrounding VW (due to the diesel scandal), they are still the 2nd most liquid auto group on earth. The number one spot has been held by Hyundai-Kia of South Korea since the VW diesel scandal broke in September 2015. The next financially healthiest auto groups (in order) are 3) Ford Motor of the USA, 4) BMW AG of Germany, 5) Daimler AG of Germany, 6) Toyota of Japan, 7) SAIC of China, 8) FAW of China, 9) Honda of Japan, 10) Renault-Nissan of France & Japan, 11) Tata of India, 12) Geely of China, 13) Caterpillar of the USA, 14) John Deere of the USA, 15) Volvo AB Truck of Sweden, 16), Suzuki of Japan, 17) BYD of China, 18) Chongqing Lifan of China, and 19) Paccar of the USA.
The Global Real Estate Market
In the recent past I have discussed how many so-called Third World countries already have much higher real estate prices compared to in the USA, and that in many of these markets buyers pay with 100 percent cash unlike in the USA where almost all purchasers borrow very heavily (up to 100 percent of the purchase price). This is because Americans have very little savings or liquidity. Two-thirds of the American population is unable to cover an expense of $1,000 or more. The American economy both public (government and non-profit) and private (corporate and individuals) sectors are being subsidized in the form artificially low interest rates. This is both unnatural and unhealthy – it allows unprofitable entities to survive at the expense of healthy entities, it penalizes savings & success, it rewards failure and it causes the economy to sink ever deeper in debt which cannot and will never be paid off. There are at least 27 mostly inland US states which rank very low in terms of global real estate value – states which border neither the Atlantic nor the Pacific Oceans. They are in effect in a Third World status comparable to the most depressed national economies on earth such as Guatemala and Honduras, which have the highest crime and murder rates in the world. Just how “poor” is this? These places (at least 27 US states along with countries such as Somalia, Kosovo, Malawi, Central African Republic, the Congo, Burundi, Liberia, Niger, Eritrea, Tokelau, Guatemala, Honduras, Guinea, Mozambique, Madagascar, Guinea-Bissau, Togo, Sierra Leone, Comoros, Ethiopia, Gambia, Haiti, North Korea, Mali, Burkina Faso, Rwanda, Benin, the Solomon Islands, South Sudan, Afghanistan, Uganda, Zimbabwe, Kiribati, Western Sahara, Nepal, Senegal, Vanuatu, Yemen, Chad, Papua New Guinea, Tajikistan, Micronesia, Lesotho, Tanzania, Cameroon, Guatemala and Honduras) rank within the bottom 12 percent of the entire world in terms of real property value. This example points not to the end, but to the very beginnings of America’s problems as it changes into a Third World country.
Financial, Economic and Social Mood Update (May 1, 2016)
The nominal value of the Dow Jones 30 Industrials Index is less than 600 points below its all-time record high from May 19, 2015, but the true picture of the economy remains very unsettling. Real GDP figures are much less than what the general sees in the official figures. Many countries heavily dependent upon energy commodity prices such as crude oil, natural gas and coal are in dire financial condition due to the crash in energy prices. Saudi Arabia is borrowing money from international banks due to its government budget deficit, and the unemployment rate among Saudi youth is 40 percent. This economic collapse is a major reason behind the massive illegal immigration from the Islamic world to Europe in general and Germany in particular. Many countries all over the world have been hard hit by the collapse in energy commodity prices since 2007 – ranging from 51 percent to 86 percent down depending upon the commodity. Crude oil may go as high as $60 per barrel and natural gas as much as $3 per MCF. After that happens, crude oil will likely crash below $15 and as far as a mere $1 per barrel. By the time crude oil reaches new record highs (above $147 per barrel), the US Dollar will have ceased being the global reserve currency. By then, the US Dollar will have lost its inflated value vis-à-vis all other currencies. The USA, Europe and Japan will have been cut down to size, and the new power blocs of the BRICS and “next 11” countries will have no choice but to back their currencies with precious metals such as gold, silver and platinum. The world will always need “currencies” because it is simply not practical for people to have to trade in physical precious metals (especially in gold or platinum). “Junk silver” can and should be re-introduced in coinage, but larger amounts cannot help but be in either paper or electronic form.
Former US Congressman Dr. Ron Paul of Texas has said that the final and the biggest financial bubble of all which will eventually collapse is the US Dollar. One can already see the beginnings of this in 1) the drop in the purchasing power of the Dollar vis-à-vis gold bullion since the year 1999 (87 percent down by the year 2009 and still 60 percent down today) and in 2) Purchasing Power Parity (PPP) GDP which raises the relative wealth of most countries compared to the USA.
Central banks in many countries such as Japan and in parts of Europe (within the European Union and outside of the EU such as in Switzerland) are desperately trying to create consumer demand and loan demand where none exists by making their core lending rates negative. What do negative interest rates do aside from robbing savers and subsidizing borrowers? They distort the cost of lending, and they make bankrupt companies appear to be profitable. They drive capital out of the country and even into developing countries. Ultimately, they are making central banks themselves take a very risky step by investing their own core capital in the stock market………………..all in a desperate attempt to make a positive financial return on their capital.
The lowest stock index resistance levels remain very weak. They have risen since my experience with them last month, but they remain very depressed. For the Dow the figure is 8,077, for the NASDAQ it is 2,524.64 and for the S&P it is a mere 0.25. Many people believe that corporate profits often drive stock market prices, but the opposite is actually the case. Corporate profits worldwide are imploding – a very deflationary omen for the longer term.
Real estate prices in the USA also appear to be exhibiting behavior consistent with the tail end of a price bubble. The “hot” markets such as Denver are not increasing at the same rate as before. Laggard markets (especially inland markets on neither the Pacific nor the Atlantic coasts) are actually showing signs of life after 9 years in the dumps. This is the case where I am in New Mexico and I’ve heard similar stories from people I know in neighboring states such as Arizona, Utah and Texas. These markets are “benefiting” from the tail end of the bubble, but they will likely never revisit their historical highs from 2007.
Many non-US real estate markets are already far pricier than any in the USA – more proof that the purchasing power of the American population is a far cry from what it used to be just a few years ago. Furthermore, many of these pricey and robust markets (not funded by credit as they are in the “no money down” USA) are in what used to be poor third world countries. A nice home on a good sized suburban lot in the San Francisco-San Jose Bay Area of California (the priciest real estate market in the continental USA) will cost over US $1 million. Fully 804 million people worldwide already reside in metro regions as expensive as or more expensive than the SF-SJ Silicon Valley Bay Area. A similar home in metro areas in Bermuda, Luxembourg, Taiwan, Israel, Australia, Mainland China and the Philippines will cost over US $4 million. In metro areas of Finland & Greece it will be over US $5 million. In Italy it will be over US $6 million, in Switzerland over US $7 million, in metro areas of India, Japan and Russia more than US $8 million, in Singapore over US $10 million, in Paris over US $11 million, in Hong Kong-Macao-Shenzen or London over US $12 million, and on the eastern French Riviera (population 933,000) more than US $33 million. Hardly any part of the world is now “cheap.” A similar house will cost at least US $125,000 in places inhabited by 6,432 billion people or 88% of where the world’s people now live. This corresponds to the story of human nutrition. Being overweight, obese or diabetic is now more of a problem compared to malnutrition or starvation. 40 percent of the world’s people are either overweight or obese, and no more than 12 percent are “poor.”
Before the diesel emissions scandal went public in September 2015, Volkswagen was by far the most profitable auto group in the world. At the tail end of the last financial bubble in 2007-2008 they were among the 3 most valuable companies on earth – on par with the largest commercial bank in China and the largest oil & gas conglomerate in the USA. The management tenure of former VW Group CEO Martin Winterkorn (2006-2015) has turned out to be the worst in VW’s history since having been founded by Ferdinand Porsche, Sr. in 1931. A preliminary settlement has been reached with the US federal government, but numerous American state governments, foreign governments and private parties are suing VW for damages and deceptive business practices. VW remains financially very sound, but it is vulnerable due to the actions of a few high level managers and engineers. The sad thing is that those responsible for such transgressions often go unpunished (Winterkorn left VW with a $32 million golden parachute) and those not responsible pay the price on their behalf (VW has laid off 3,000 white collar workers in Germany). High level managers continue to draw large compensation packages – one member of the VW Board is being paid $20 million this year the average compensation among VW Advisory Board members is US $10 million.
Fiat Chrysler Auto of Italy had its merger overtures toward General Motors and Ford Motor of the USA rebuffed, but their similar overtures toward Toyota of Japan and Volkswagen of Germany remain unanswered. Hyundai-Kia of South Korea is not interested in a merger, and Daimler A.G. of Germany has a cooperation agreement (and cross ownership as well) with Renault-Nissan……………a move they undertook years ago in an effort to remain independent from then-mighty Volkswagen A.G. of Germany. SAIC of China owns one percent of General Motors and Dongfeng of China has enabled PSA (Peugeot-Citroën of France) to remain independent of other European automakers.
The Philippine Election of 2016
In addition to the USA, the Philippines is also having a national election – this taking place on May 9, 2016. The incumbent Liberal Party of current Philippine President Benigno Aquino 3rd looks to take huge losses. The leading candidate for the Presidency is the incumbent mayor of Davao City on the large southern island of Mindanao (Rodrigo Duterte has a 9 point lead over his nearest opponent). Davao is the 3rd largest metro area in the Philippines after Manila (24 million people) and Cebu (3 million people). Duterte is running on a “law and order” platform in a country with a booming economy but a high crime rate. Per capita GDP stands at US $7,846 and population including overseas Filipinos (largely in North America and the Middle East) is 116 million – 4th in east Asia after China, Indonesia and Japan.
The leading candidate for Vice President is Leni Robredo of the incumbent Liberal Party (26%), with Ferdinand Romualdez “Bongbong” Marcos, Jr. (1957), the only son of Ferdinand and Imelda Marcos running a close second at 25%. He (Marcos) has failed to acknowledge the wrongdoings of his parents during their rule over the Philippines (from 1965 to 1986), but he remains a popular politician and has made some constructive policy statements in public. One such policy statement is to repudiate the overly pro-American and anti-Chinese position of the current Philippine government. The countries of Asia need good relations with Mainland China in the exact same way that the countries of Europe (the EU led by Germany and EFTA led by Switzerland) need good relations with the Russian Federation of Vladimir Putin. Good relations are a necessity (not an option) due to the need for peace, prosperity and a future with economic growth. US foreign policy remains highly destructive and relies solely upon 1) military power (troops in more than 100 countries around the globe), 2) antagonistic policies toward substantial countries (such as Russia, China and Iran), 3) “Regime Change” and “Preventive War” which has destabilized the Islamic world, and 4) an economic policy meant to feed America’s insatiable appetite for ever more credit to fund its massive welfare state (example: one third of the US population is now receiving “free” medical care subsidized by people who actually work for a living and who pay far more than their fair share of taxes).
Financial, Economic and Social Mood Update (April 2, 2016)
Many mainstream investment brokers criticize Elliott Wave International for the lack of accuracy. For instance, after the stock market crash of 1987 (a 25 percent loss in one day of trading), EWI first forecast that the bull market would last until 1995. The actual top for the NASDAQ came in December 1999, and for the Dow and the S&P 500 it came in January 2000. The first phase of the crash took the Dow from 11,700 in January 2000 to 7,100 in October 2002. The Dow recovered to 15,800 by October 2007 (5 years later) and then the second phase of the current crash took the index down to just 6,400 by March 2009. The Dow recovered to 18,300 by May of 2015 – 11 months ago. The aspect which makes forecasting so challenging is that the current wave structure goes back at least 300 years – in other words, the historical magnitude of what is taking place is nothing short of massive. Other estimates place the current wave structure going back either 400 years, 1500 years, 5000 years or perhaps hundreds of millions of years – a societal peak & collapse of historical proportion. Another problem is that most Elliott Wavers are seen as academics. In other words, they don’t get paid for investing money, but merely for studying, analyzing and forecasting.
It is for this last reason that I like to follow someone like Fabian Calvo. He’s a young man of just 37 years who has been a professional real estate investor for the last 15 years. In that time he has become one of the largest and most successful REIT (Real Estate Investment Trust) managers in the USA. He has become successful more by doing than by studying. In other words, all the training in the world cannot help someone become a success – they need actual hands-on experience to become proficient.
Fabian believes that the asset bubble (especially the stock market and the real property market) will continue to peak into the middle of 2016 and that it will start to collapse going into the US Presidential election in November 2016. By this he refers to the blue chip indices (Dow, NASDAQ, S&P, NYSE, Wilshire) and the strong metropolitan real estate markets in the USA.
Over the course of the last 11 months (a drop of 18,200 points) and in particular over the past 7 weeks (a drop of 12,300 points) I’ve seen the stock market futures do something I’ve never seen them do in the 18 years that I’ve followed the market. The upper resistance point for the Dow is at the 17,800 level which happens to coincide with Elliott Wave International’s most current forecast. But the lower resistance point has actually fallen to zero on an 18-40 day moving average – the corresponding lowest resistance for the NASDAQ is also zero and for the S&P 500 Index it is zero as well. Safewealth Group of Switzerland (they invest mainly gold bullion and cash notes for millionaires and billionaires from all over the world) forecasts that the lower resistance point is more like 600. Elliott Wave International believes it will ultimately fall below 400 – perhaps even below 95. They believe that the other blue chip indices will cease to exist altogether. The very important fact here is that by following the futures markets, I have been able to experience this massive crash before it actually takes place. And the futures markets are in no way limited to stock indices. I also follow the futures markets for foreign exchange, energy, precious metals and bonds. Why is this so important? For example, the US Dollar has lost up to 87 percent of its purchasing power since 1999, and its volatility within the past 12 months has been as much as 19 percent. Energy prices show weakness going forward 14 years, and natural gas prices may literally collapse to the ground in as little as 3 years from today. Precious metals are likely near an important low today, and will likely shoot into the stratosphere over the coming years. High quality (low risk) bond yields are flattening in terms of short term compared to long term, and all interest rate yields are likely at historical lows today – on the cusp of a massive increase. Junk debt is already yielding high rates – in excess of 14 percent per annum for the riskiest American companies. What does all of this mean? The power structure in this world will soon shift like we have not seen it done so since 1) the end of World War Two, 2) the start of World War One, 3) the fall of the Holy Roman Empire (the Napoleonic Wars), 4) the Protestant Reformation, and 5) the fall of the old Roman Empire (the rise of the Germanic states). In short, a new group of people will be entering the driver’s seat…………in particular the BRICS countries with China, India, Russia, Brazil and South Africa at the fore and in this likely order.
Many other phenomena are happening at the same time. I’ve mentioned more than once that the USA is no longer necessarily the most prosperous part of the world by far. Many global metropolitan and provincial real estate markets are far more expensive than the most expensive markets in the USA, and they are achieving this with cash purchases as opposed to the credit purchases in the USA. This alarming trend will continue exponentially as the stock market crashes and as the final bubble (the US Dollar) bursts at the very tail end of the current asset market crash. This will likely cause the USA to join the ranks of the most depressed economies on earth – hyperinflation plagued countries such as Venezuela / Argentina / Bolivia / Cuba / Zimbabwe and the poorest countries such as the Congo & Malawi.
The US Presidential election of 2016 looks more and more like the end of the republic which came into being in July 1776. The GOP is in the midst of a suicidal civil war. Both GOP front runners (Trump and Cruz) are outsiders hated by their own party leadership. The sole remaining GOP candidate (Kasich) is the failed governor of a formerly industrial state – a state with a once-mighty manufacturing base now reduced to the level of a third world country. The Democratic Party features an establishment criminal (Clinton) versus a socialist-communist (Sanders). If the former is finally indicted for her crimes, either Sanders will win the nomination or someone like Joe Biden will be drafted by the party leadership to face the GOP and at least one major third party in November 2016. The largest American third parties are the 1) Libertarian Party (likely nominee former 1995-2003 New Mexico Governor Gary Johnson as he was in 2012), the 2) Green Party (far left) and the 3) Constitution Party (ultra conservative).
Financial, Economic and Social Mood Update (March 1, 2016)
It is utterly amazing to listen to the media tell us about how good everything is, and one can say the same thing of the major investment houses (investment banks) – they tell us that America is on top of the world, that the economy is booming and that we should continue to pour our hard-earned savings into the stock market. One need only look at the US Presidential Primary and Caucus season in 2016 – it is playing out like a horror show. On one side are 2 socialists (the Democratic Party) and on the other side is a circus (the Republican Party). I would say that Ben Carson appears to be a decent and honest fellow, but unfortunately he has no chance of winning.
Fabian Calvo of California (Fabian 4 Liberty) is a 37-year old REIT manager and centimillionaire who makes his money from real estate – it is his bread and butter. He believes that the US real property market (at least in the major bubble markets such as Denver, San Francisco-San Jose, Seattle, Honolulu, Los Angeles, Atlanta and Miami) will continue to rise into the middle of 2016, and that all American real estate will start to collapse thereafter.
Many financial advisors and forecasters talk about how mighty the US Dollar is, but what I see is as follows. The Dollar has lost about 70 percent of its purchasing power since 1999, and very many people in much of the world already live in urban areas and provincial regions which are far more expensive and wealthier than much of the USA. San Francisco – San Jose / Silicon Valley is the priciest urban area on the US mainland (metro Honolulu – Oahu / Hawaii is about twice as expensive as the Bay Area), but it ranks number 57 in the entire world in terms of real estate prices. In other words, 1.3 billion people in the world now live in urban areas or provincial regions which are even more expensive than the San Francisco Bay Area. What is more, most American real estate purchases are made with little or no money down, whereas in other countries these purchases must be made in cash. The urban areas I speak of include Monaco-French Riviera, London, Hong Kong-Shenzen, Paris, Singapore, Moscow, Tokyo-Yokohama, Mumbai (Bombay), Geneva, Rome, Athens, Helsinki, Bermuda, Luxembourg, Taipei, Tel Aviv, Sydney, Manila, Seoul, Delhi, Karachi, Sao Paolo, Cebu City and Vancouver. There are likely a number of other cities which belong on this list, but have no statistics for them at this time…………..their inclusion will merely increase the number of people on this planet who live better than the American people do.
In September 2015 Fabian led a small group of wealthy Americans on a trip to Colombia to invest in real estate and to obtain Colombian passports. Another investment advisor in Maryland (Porter Stansberry) recommends that wealthy Americans invest their capital in foreign real estate, foreign bank accounts and foreign-domiciled precious metals. The message appears to be quite clear – in other words, get out of Dodge before it’s too late.
The St. Louis, Missouri Federal Reserve Bank published an article on February 23, 2016 which claims that crude oil may be worthless by the middle of 2019. The forecast calls for the WTI benchmark price (West Texas Intermediate and Brent Crude from London are the 2 major global benchmark indices for crude oil prices) to fall to $20 per barrel by August 2016, to $17 per barrel by January 2017, to $10 per barrel by March 2017, to $5 per barrel by August 2017, to $1 per barrel by January 2018 and to zero by July 2019. This will be very bad for economies in places such as the USA, Canada, Mexico, Venezuela, Brazil, Norway, the UK, Russia, North Africa, the Middle East, the Persian Gulf, Nigeria and perhaps even Mainland China. But for many other countries falling oil prices will be very good.
CIA analyst Jim Rickards believes that crude oil may eventually skyrocket up to $450 per barrel, but I believe that if this happens, it will be in a post-deflationary crash environment where the US Dollar has very little value compared to most other currencies. In other words, crude oil may be expensive in US Dollars at that time, but it will not necessarily be expensive in other global currencies. Fabian Calvo refers to that future time after a so-called “Global Economic Reset” wherein the US Dollar will no longer be the number one global reserve currency. In that environment, you should expect to see every other currency retrace whatever historical loss it has ever suffered vis-a-vis the US Dollar. Figure it out for yourself – ask yourself what your own domestic currency was worth at its height versus the US Dollar (in other words, the best exchange rate you can remember over the course of history). When we reach that point, it will be the USA as a Third World Country and not countries now thought of as “poor.”
For access to archives and more, please visit www.financialeconomicupdate.comand/or our mirror site at http://www.theborromeofamily.com/the-marc-nonnenkamp-show/.
New Media Wire of Los Angeles, California featured an article on my new Volkswagen book on February 29, 2016. The article was seen on 151 news sites in the USA with 6.6 million viewers. Here is the article as it appeared on the site of the investment firm TD Waterhouse:
Volkswagen AG OTC Pink – Current Information:VLKAF
Tuesday March 01, 2016 8:30 PM ET. Data delayed 15 minutes.
Vol/Avg Daily Vol
A Major New Book About the Fascinating History of the Volkswagen Automotive Brand Titled “Volkswagen: a Car for the People – a Success Story: Second Edition”11:44AM ET on Monday Feb 29, 2016 by Marketwire
A major new book about the fascinating history of the Volkswagen automotive brand, titled “Volkswagen: a Car for the People – a Success Story: Second Edition” (by Marc E. Nonnenkamp, Create Space Publishing – February 2015, 336 pages) was recently reviewed by South African-born British automotive author, photographer and journalist Mr. Glen Smale of Wales, the UK. Smale is a highly accomplished author of books on brands such as Porsche, Ferrari and Jaguar and is well qualified to comment on automotive books and journals.
Marc Nonnenkamp’s first edition of this book (published in March 2011 also through Create Space, an Amazon subsidiary) was read by more than 39,000 people from all over the world. The much-enhanced 2nd edition has already been read by over 9,000 readers worldwide and is available exclusively on Amazon websites in the USA, Canada, Mexico, Brazil, Japan, India, Australia, Spain, France, the UK, the Netherlands, Germany, Austria and Italy. It retails for US $40.99 paperback or just US $9.99 as an Amazon Kindle e-book (more than 4,000 Kindle sales to date). The publisher necessitated an enhanced price for the paperback edition due to 96 color illustrations that take the reader down a fond trip through memory lane, which visits Volkswagen’s rich history going back to the old Austro-Hungarian Empire (the Volkswagen’s original designer, Dr. Ferdinand Porsche, Sr. was born in the former Austrian province of Bohemia).
This fascinating book was published before the Volkswagen diesel scandal was made public in September 2015. It gives us an intriguing look into an automotive company driven by engineering technology. The reader learns about the core values built around hard work and honesty which made VW a global player during the days of the good old air-cooled cars (remember the Bug, the Bus, the Thing, the Squareback, the Fastback, the Notchback, the 411 and the Ghia?) and the first generation of the water-cooled cars (the likes of the Rabbit, the Scirocco, the Vanagon, the Dasher, the Quantum, the Corrado and the Fox?). They’re all here in this great book!
This awesome book is a definite “must have” for those of us who like or love Volkswagens, or for those of us who really dig cars and just want to find out a whole lot more about the company that built the Bug. The book is written in both English and German to reach its primary audience in North America, Europe, the British Isles and Down Under in Australia.
In the words of reviewer Glen Smale, “At the back of the book the author lists engine changes, body changes, export trends, sales figures and even special VW editions. There is also a list of 39 sources of useful VW history and information, which give the reader a wide and deep resource from which to glean additional information. It is amazing that there is still more information and greater insight from the world of VW to come from the research by authors such as Marc Nonnenkamp.”
Here are some direct Amazon.com links to purchase this super automotive work of historical literature:
— Amazon USA:
— Amazon Australia:
— Amazon Canada:
— Amazon India:
— Amazon United Kingdom:
— Amazon Germany:
Financial, Economic and Social Mood Update (February 1, 2016)
The Grand Supercycle stock market crash appears to have commenced (72 percent probability as of tonight). The Short Fund has gained more value in January 2016 than in all of 2014 and 2015 combined. The maximum global equity loss since the stock market peak on May 19, 2015 stands at US $28 Trillion or 42 percent of total global wealth.
One of the most important global stock indices is the Baltic Dry Index, which measures prices for the worldwide maritime industry. 90 percent of all physical goods are normally shipped over the oceans, seas and rivers of the world. The index reached a peak of 12,000 in 2008 and stands at a mere 500 in 2016 – a cumulative loss of 96 percent. For the first time in recorded human history, the oceans of the world are very empty and void of human commercial traffic – demand has literally collapsed. It is for this reason that the European Union, Japan and Switzerland have turned to negative interest rates out of desperation. The Swiss will soon vote on a proposal to guarantee every single adult citizen of Switzerland an income of US $30,000 per year – the most extreme example I have ever seen of welfare. This zeal to create consumer demand where none exists will do nothing less than destroy the fiat currencies of these countries. The debtor regions of the world – the USA, Europe and Japan – are ultimately doomed. Capital will flee their borders, their currencies will collapse (example = the US Dollar will likely be the final and the biggest equity bubble to burst in the entire world) and the formerly “poor” countries of the 2nd and 3rd world will be the new economic superpowers. The USA will become the ultimate epitome of a Third World Country. Already 90 percent of Americans are “poor” (lower class), 68 percent of Americans destroy their credit rating by the age of 30 and 63 percent of Americans are just $500 away from being on the street. This is merely a small precursor of what is around the corner.
The US Presidential election has taken a clear path against traditional party leadership. On the Republican side, non-mainstream candidates such as Donald Trump, Ted Cruz, Ben Carson, Rand Paul, Carly Fiorina, Mike Huckabee and Rick Santorum have a combined average of 70 percent support among the Republican electorate. Establishment candidates such as Mark Rubio, Jeb Bush, Chris Christie and John Kasich have a combined average of only 21 percent support – the remaining 9 percent of Republicans support no Republican candidate.
On the Democratic side, establishment candidate Hillary Rodham-Clinton stands at 50 percent and is falling – she had in excess of 70 percent support a year ago. Avowed Socialist Bernie Sanders has 38 percent support and is gaining – he has won the critical backing of the “Move on” political action committee headed by billionaire George Soros which backed Barack Hussein Obama in both 2008 and 2012. The former governor of Maryland (O’Malley) has just 2 percent average support among all national opinion polls. 10 percent of registered Democratic voters support no Democratic Party candidate at all. Hillary Clinton is also losing ground against most potential Republican opponents, whereas Bernie Sanders runs quite well against most potential Republican candidates.
Up until today it would have been unthinkable for an avowed Socialist (Marxist Leninist) to be a competitive candidate to lead the USA. America used to be home of the free market and of individual liberty – but no more. The Socialist platform wants to raise the maximum US income tax rate to a whopping 90 percent and to increase total taxation of the US economy by 47 percent over what it is today under President Obama (which is already extremely high). The maximum rate today including federal / state / local income taxes, mandatory insurance (social insurance, health insurance, unemployment insurance, and workmen’s compensation / disability insurance) is already 70 percent. The Socialist platform would place the USA on par with countries such as France, Venezuela, Argentina and Bolivia – and very likely lead to the hyperinflation & devaluation of the US Dollar which we believe will follow the total deflationary collapse of the US economy. This would place the USA on par with the per capita poorest country on earth – the Congo in central Africa, formerly known as Zaire and as the Belgian Congo before that. This could well be on track for fulfillment by the year 2017.
As of late January / early February the market is in something of a temporary rebound. Crude oil prices should recover to about $36 per barrel before falling again to an ultimate goal of $8 per barrel. Natural gas prices should rebound to about $3 per MCF before they fall once again and reach an ultimate target of $1.50 per MCF. The US Dollar is close to reaching an historical high versus other currencies all over the world, and it will soon begin to fall in what is the most massive financial bubble in human history. The largest wealth management funds on earth are actively dumping equities – these include the House of Saud (from Saudi Arabia) = $8 TRILLION in net worth, the House of Abu Dhabi = $4 TRILLION and the Rothschild-Soros Alliance = $1 TRILLION. All told these 3 groups hold 20 percent of the world’s corporate stock market wealth.
Update on the Auto Industry
Autonews.com published a very enlightening article on January 21, 2016 which discusses pollution levels produced by automakers during the 2014 model year in terms of average CO2 (Carbon Dioxide) emissions measured in grams per mile. This was interesting in light of the fact that evidence of Volkswagen A.G.’s diesel emissions “cheat” software goes back as far as 2006. Volkswagen was not even among the top 12 global auto industry polluters – in other words, even in spite of their management’s duplicity, the Volkswagen product is still more environmentally friendly compared to many other carmakers around the globe.
The top 12 auto industry polluters in terms of carbon emissions are 1) Fiat-Chrysler (includes Chrysler, Dodge, Jeep, Ram, Fiat, Maserati, Ferrari and Alfa-Romeo), followed in order by 2) General Motors (includes Chevrolet, Cadillac, Buick, GMC, Opel, Vauxhall and Holden), 3) Ford Motor (includes Lincoln), 4) Daimler A.G. (Mercedes-Benz, Smart, Freightliner, Sterling, Western Star, Beijing, AIG and Fuso), 5) Toyota (includes Lexus, Daihatsu, Hino and Scion), 6) Kia, 7) BMW (includes Mini and Rolls-Royce), 8) Nissan (includes Infiniti, Renault, Dacia, Samsung and Lada), 9) Honda (includes Acura), 10) Hyundai, 11) Subaru (this really surprised me!) and 12) Mazda. These 12 companies hold 60 percent of the worldwide global motor vehicle market in terms of market share measured in unit volume sales.
The most environmentally friendly (clean) carmakers ranked by size are thus 1) Volkswagen A.G. (includes Audi, SEAT, Skoda, Bentley, Lamborghini, Bugatti, Ducati, Porsche, Scania and MAN), 2) SAIC (Shanghai Automotive of China, a major partner of VW which owns the formerly British brand of MG), 3) Dongfeng of China (45% owned by Volvo Truck A.B. of Sweden), 4) Suzuki of Japan (formerly allied to VW), 5) Peugeot S.A. of France (includes Citroën and DS), 6) FAW of China (yet another Chinese ally of VW), 7) China Changan, 8) Mitsubishi Motors, 9) Tata Motors of India (owns both Jaguar and Land-Rover), 10) Geely of China (owns Volvo Cars of Sweden), 11) Great Wall Motor of China and 12) Iran Khodro. These 12 largest “cleaner” manufacturers hold 34 percent of the global auto and truck market.
For access to archives and more, please visit www.financialeconomicupdate.com and/or our mirror site at http://www.theborromeofamily.com/the-marc-nonnenkamp-show/.
Financial, Economic and Social Mood Update (January 2, 2016)
The stock market lost some ground in 2015. Our short fund, which was launched on December 31, 2013 (2 years ago) finished 2015 with a gain. This gain was somewhat smaller than the gain for 2014, but it was a gain nevertheless.
Where are this society and this economy headed?
The bond market has been giving way for more than one year, and the US Federal Reserve was finally forced to acknowledge this by reversing its 9-year course of nearly free credit. There is always a “lag time,” but one should expect to see all interest rates rise – be they for credit or for retail bank & credit union cash deposits.
Prices for commodities and real property are already collapsing in most markets, and this collapse should accelerate markedly in 2016. One possible exception is in precious metals for commodities such as gold, silver, platinum and diamonds. The US Dollar will also likely commence its long collapse vis-à-vis almost all other currencies – the US Dollar will be both the largest and the final bubble to collapse to the ground. A consortium comprised of Mainland China, the Russian Federation and Iran is already leading the way to supplant the US Dollar as the primary global reserve currency.
What will this mean for the USA, the US Dollar and for the American people? The bottom line is that their purchasing power is already evaporating. Aside from the few cities and states in an economic boom, most of the USA already resembles a third world country. The middle class is almost gone (it comprises no more than 10 percent of the American population). Real property prices in many places around the world (in the developed “first world,” in the formerly communist “second world” and in the formerly impoverished “third world”) are far above prices even in the priciest North American markets such as Hawaii, California and British Columbia – or in regional boom cities such as Denver, Seattle, Miami, Atlanta and San Antonio. Real estate prices in the most depressed areas of the USA such as in the formerly industrial states (examples = Ohio, Michigan) resemble prices from decades ago in major US metropolitan markets……………..similar to 40 or 50 years ago in New York or the San Francisco Bay Area. The collapse of demographics is driving the collapse of American real estate – the number of young people is in decline, and even the number of “new” affluent retirees is in decline. Remember, the Baby Boom ended in 1964 – the youngest Baby Boomers are already 52 years old, and dedicated retirement communities commence at age 55 by US law. There is now an oversupply of such communities, which began back in 1945 with “Sun City” in both Florida and Arizona.
The middle class in the USA has largely evaporated, and it is under severe pressure in Europe. The primary benefactors of this decline have been not merely the “top one percent,” but the billionaires of the world. But even the very rich suffered a net loss in 2015 – richest 400 families on earth saw their net worth decline as did the stock market. They are the primary owners of corporations, so it makes perfect sense that a declining stock market will also reduce their wealth. The free market is far more efficient in redistributing wealth compared to government taxation & social engineering. This emerging crash will cut the rich down to size far more efficiently than any communist, socialist or social democratic government legislation.
The Paris Climate Accord
The Paris Climate Accord has been signed by 195 countries and has a goal of eliminating the use of coal, crude oil and natural gas in between 2030 and 2050 – it is the continuation of the Kyoto Accord from 1998. Clean energy such as solar, wind, biofuels and especially nuclear fusion energy (this should become commercially viable after 2050) must replace fossil fuels according to this new agreement. The coal industry has been in decline for much of this past decade, and commodity prices for crude oil and natural gas are collapsing. Former energy drilling “boom” markets such as North Dakota and Pennsylvania are going bust. The energy industry is by far the largest industry on earth, and number two is motor vehicle manufacturing. Toyota (the largest car company in the world in terms of unit volume) has committed itself to eliminate the internal combustion engine by 2030 – Toyota is switching over to hybrid electric, plug in electric and hydrogen fuel cell propulsion. Volkswagen (the second largest car company in the world in terms of unit volume and number one in terms of monetary turnover) is using its own self-inflicted diesel debacle to switch production over to gasoline, electric and ethanol cars. The largest electric carmaker today is BYD (“Build Your Dreams”) of Mainland China, albeit their total unit volume is still very modest – circa 434,000 units per year. A major investor in BYD is Berkshire Hathaway of Omaha, Nebraska (i.e., US multi-billionaire Warren Buffett). This is the same man who purchased the BNSF railroad (Burlington Northern Santa Fe). This was a brilliant investment for these bad times – not merely critical transportation infrastructure, but a lot of real property in many states with tremendous capacity for agriculture, ranching and energy……………in other words, a huge asset base which produces a large amount of cash income.
97 million new cars and light trucks were sold worldwide in 2015, but the automobile industry will find itself under relentless pressure from declining demographics and from government legislation due to emissions. The largest carmakers are Toyota, Volkswagen and GM (10 million units each in 2015), Hyundai-Kia (8 million), Ford (6 million), Nissan, Fiat-Chrysler, Honda and SAIC-Nanjing (5 million units each), Dongfeng (4 million), Suzuki, Peugeot, Renault and FAW (3 million units each), BMW, Daimler and China Changan (2 million units each) and Mazda, Mitsubishi, Beijing Automotive, Tata, Geely-Volvo Cars, Subaru, Great Wall Motor, Iran Khodro, Mahindra, Isuzu and Brilliance (one million units each).
Both 2016 and 2017 are likely to be marked by emerging US Dollar inflation and the loss of the foreign exchange value of the US Dollar. This will gain traction especially after the physical asset markets (corporate stock, real property, commodities, consumer items and collectibles) have collapsed to the ground. There is the outside chance that the Dow Jones 30 Industrial Index may reach 20,000 – but regardless it will collapse to the ground with amazing speed. I believe that once the Dow falls below 14,000 or 15,000 it will have no support left down to the level of near zero. Elliott Wave International has forecast for 16 years that the Dow will hit bottom sometime in the middle of 2016. REIT Manager and financial blogger Fabian Calvo (age 37) believes that US bubble real estate markets will continue to rise into the middle of 2016, and that the entire US real estate market will collapse to the ground in the second half of 2016 – especially leading into the US Presidential election in November 2016. The US political process has become entirely dysfunctional, and the corrupt Clinton and Bush dynasties of the 2 big parties are under severe pressure from within their own respective and disgruntled ranks.
An interesting Russian article about the future of the US Dollar: http://sputniknews.com/politics/20151228/1032422450/iran-china-russia-dedollarization-economy.html
Financial, Economic and Social Mood Update (December 1, 2015)
The stock market is still in the midst of yet another strong bear market rally since the interim low of August 24, 2015. Our short fund reached a record high on August 24, 2015 – up by 665 percent since inception on December 31, 2013. The bear market rally has cut the YTD record value reached on August 24, 2015 by a whopping 73 percent in a mere 3 months. People not partaking in this short fund simply do not grasp how volatile, sickly and dangerous America’s predicament is. We do grasp this concept, and we firmly believe that the final result will bring the American economy down to the ground and our short fund into the financial and economic stratosphere – case in point: over the course of the last month I have seen the short fund go from “dismal” performance (a small gain over 2014) to “hot” performance (a profit even greater than the record seen in 2014) over the course of ONE DAY of stock market trading.
This extreme volatility confirms my belief that the “real” crash activity will occur within a matter of hours or days whenever the time comes. America may go to bed as a “first world” country one night and wake up the next morning as a “third world” country. I believe that the true catalyst for the collapse may well be the bond market, and not the stock market – the latter will merely follow the lead established by the former.
What drives this market more than anything else? Answer – social mood, especially human demographics. The 3 largest urban areas on the planet today are Tokyo (Japan), Jakarta (Indonesia) and Manila (the Philippines). New York is the largest American urban area with a rank of number 9 in the world. Tokyo has 38 million inhabitants, Jakarta has 31 million and Metro Manila has 24 million. Both Indonesia and the Philippines are still considered to be “third world” countries, but they are changing (i.e. developing) at a very fast pace. For instance, “high end” single family residences in Metro Manila go for an average of US $5 million. Almost 90,000 people reside in subdivisions with such homes in Metro Manila – evidence of a large amount of wealth. Most of the bustling metro regions in the “third world” are marked by high population density, rapid population growth, rapid economic growth and rapid rates of new construction. High rise buildings and construction cranes will be seen in every direction. Much of the construction is going “up,” because land area is limited and thus quite costly. New homes are often on very small lots, and most new homes have more than one story due to the need for space – the space cannot be spent on gardens or yards.
Developing countries especially in Asia are also marked by vibrant retail economic activity. Whereas shopping malls are dying out in much of the mainland USA, they continue to sprout and thrive around the Pacific Rim. Mega malls with up to 5 stories of stores, shops, restaurants, movie theaters and video games jam packed with people day and night, underground parking garages of multiple levels jam packed with new and late model cars and trucks from all over the world – all of this is evidence of an economic boom not to be seen in the mainland USA.
Auto manufacturers from both Mainland China and India have already established their own retail franchises in much of Asia. They have not yet penetrated the market with many sales, but this is likely to change over the course of the near future. Asia has since surpassed both the western hemisphere and Europe to become the largest and most important retail vehicle market in the world. What does this mean? Consumers in many Asian countries and even in Europe now have a larger and better selection of cars than consumers in the USA. This is all part of a rapidly changing world – a change in purchasing power, a change in wealth and ultimately a change in geo-political power.
I have published 3 books on the German auto giant Volkswagen – the first in August 2010, the second in March 2011 and the newest one in February 2015. Shortly before the emissions scandal broke, VW had achieved its goal of becoming the largest vehicle manufacturer in the world in terms of annual unit sales. They have since fallen back into second place (after number one Toyota). VW had been number one in the world in terms of overall financial strength (total revenue, total profit, cumulative profit and stock market value) for about 10 consecutive years. They have now fallen into second place in terms of this financial strength after Hyundai of South Korea and are barely ahead of number 3 BMW of Germany. Further weakness will likely lie ahead for VW – they have had to borrow money, their credit rating has been slashed and November 2015 sales have taken a hit resulting in a 2-week unpaid furlough for VW employees in Germany during the month of December 2015.
In hindsight, one can now say that VW’s senior management has done something very bad (and very stupid) which has endangered the future of the company, of German industry and of the automotive sector in general – all government regulators are bound to scrutinize all automakers much more so…………and they will do so in every country around the globe.
I’ve been an old-school VW fan for much of my life, having been raised with the boxer motor, air-cooled and rear-engined cars of VW’s first generation. This technology lost out after VW’s merger with Audi in 1964. VW chose not to develop the old boxer-engines into modern machines…………..the only companies in the world to do this were Fuji-Subaru of Japan and Porsche of Germany. Air-cooled technology was abandoned altogether. The sole company to develop air-cooled engines into the modern era was Tatra of the Czech Republic, and this on a very limited scale. Tatra makes fewer than 800 large commercial trucks per year.
VW chose to purchase a number of very expensive but low volume “prestige” brands such as Bentley of England, Bugatti of France, and both Lamborghini and Ducati of Italy. Skoda of the Czech Republic and SEAT of Spain were made into mass-market national clone brands of Volkswagen, with Skoda being highly successful and SEAT continuing to lose money. I would have wanted to see VW pursue more mass-market national brands through merger activity. They attempted to buy both Proton of Malaysia and Suzuki of Japan, but failed in both attempts. The Malaysian government wanted to retain control of Proton, and Suzuki management did not want to lose their corporate independence to VW. Other countries with national brands that would have made nice takeover targets for VW in my own opinion would have included France (Peugeot, Citroën and Renault), the UK (Vauxhall owned by GM), Australia (Holden owned by GM), Sweden (Volvo Cars), Italy (Fiat), Romania (Dacia owned by Renault) and Russia (Lada owned by Renault). But all of this is now beyond reach unless and until VW successfully corrects the mess they made through the emissions scandal.
VW Commercial Vehicles includes both MAN of Germany and Scania of Sweden, which manufacture large commercial vehicles. The former “Caminhoes” subsidiary of Chrysler in Brazil belongs to VW as well, which is why one sees large tractor-trailers and 18 wheel rigs with the VW logo in Latin America and Europe. VW had wanted to purchase more of such subsidiaries, but this plan is on hold due to the disastrous emissions fiasco which VW created on its own. Their likely targets would have included the likes of Kenworth, Peterbilt, DAF, Foden and Navistar.
VW does have ongoing partnerships with both SAIC and FAW of China, and SAIC (the largest Chinese automaker with annual unit volume of 4.5 million cars and trucks) is expanding its export business through MG (Morris Garages) – a British brand now owned by SAIC of China. SAIC sells “Roewe” (formerly “Rover”) in mainland China and MG in export markets – both brands have the same lineup of cars. SAIC also owns the dormant British brand names of Austin, American Austin, Morris, Princess, Vanden Plas and Wolseley. These brands are what was left over from BMC, British Leyland, Austin-Rover and finally from MG-Rover which went bankrupt before being bought out by Nanjing of China (which was in turn merged into SAIC of China).
How much more damage the emissions scandal will do to Volkswagen is the big question. Senior management should be replaced with outsiders, but this not a very likely scenario. Senior management in any organization is difficult to replace, and senior managers in any organization often leave the scene with highly lucrative “golden parachutes” regardless if they do good or bad. Little guys usually do get punished, but big guys are rarely punished – this is a sad fact of life in human society all over the world. Senior managers have very recently left Volkswagen with golden parachutes worth US $20 million to $30 million……………….much more than most employees in the organization can ever hope to earn.
For access to archives and more, please visit www.financialeconomicupdate.com and/or our mirror site at http://www.theborromeofamily.com/the-marc-nonnenkamp-show/.
Financial, Economic and Social Mood Update (November 1, 2015)
The stock market has been in the midst of yet another strong bear market rally since the interim low of August 24, 2015. Our short fund reached a record high on August 24, 2015 – up by 665 percent since inception on December 31, 2013. The bear market rally has cut the YTD record value reached on August 24, 2015 by a whopping two thirds in a mere two months. People not partaking in this short fund simply do not grasp how volatile, sickly and dangerous America’s predicament is. We do grasp this concept, and we firmly believe that the final result will bring the American economy down to the ground and our short fund into the financial and economic stratosphere. We believe that America and Europe are in the process of dying out, and that the future belongs to the rapidly growing economies of both Asia and Africa. We see Latin America as very uncompetitive compared to both Asia and Africa.
A number of very recent news items highlight the fact that we are literally on the cusp of total social and economic collapse, and that the supremacy of the US Dollar is about to end abruptly. HSBC Bank released a statement that the entire world has entered a recession – global GDP has fallen by 3.4 percent in 12 months and global trade has collapsed by 8.4 percent in just one year: http://www.charismanews.com/opinion/52657-the-numbers-say-that-a-major-global-recession-has-already-begun.
The global recession is tied to the US Dollar losing its standing as the premier global reserve currency since 1944: http://www.zerohedge.com/news/2015-08-15/americas-economic-reset-will-trigger-global-recession-new-crises. The IMF is on the verge of admitting the Chinese Yuan to the basket of currencies comprising the SDR or “Special Drawing Rights” – currently comprised of the US Dollar, the Euro, the Japanese Yen and the British Pound Sterling.
Housing repossessions are up by 66 percent in the USA since last year: http://www.cnbc.com/2015/10/14/repossessions-spike-66-as-foreclosure-crisis-lingers.html.
An Elliott Wave International article about Volkswagen A.G. stock price history: http://www.elliottwave.com/freeupdates/archives/2015/10/14/What-Really-Drove-VW-s-Stock-Price-Over-a-Cliff.aspx#axzz3onct2qup. The main story is not the diesel emissions scandal (which was profoundly stupid of VW to do), but the saturation and overcapacity in the global automotive sector – all auto manufacturers are under extreme pressure and many will not survive the coming economic crash. In spite of its stupidity regarding 2 liter diesel engines (“cheat” software), VW remains in a very strong financial position, and the initial unit sales reports for October 2015 look encouraging………….an increase over October of 2014. Toyota is likely the only automotive company with the resources to absorb Volkswagen, but we do not believe that Toyota is interested in doing this. Furthermore, a merger of such large companies (Toyota and VW) would invite intense governmental regulatory scrutiny in many countries due to antitrust concerns.
Financial, Economic and Social Mood Update (October 1, 2015)
As we discussed in last month’s update, the Dow Jones 30 Industrials Average Index lost 3,086 points from May 19 to August 24 – a combined loss of at least US $2.1 TRILLION. The first major phase of the current “Grand Supercycle” Degree crash from January 2000-October 2002 cost 4,600 points, while the second major phase of the same crash from October 2007-March 2009 cost 9,400 points – a cumulative investment loss of US $11.9 TRILLION. Most professional money managers and most individual investors consistently underperform the market, because they have an uncanny “herd instinct” ability to buy high and to sell low – i.e., they have the worst possible timing.
The next phase of the crash will likely take the Dow down to the level of 12,700 before the end of 2015, the next phase after that below the level of 3,400 and the final phase should take the Dow well below 400 by the middle of 2016. Almost all asset prices will suffer similar declines at the same time. Bonds will crash, sending interest rates to levels beyond those seen in the first and second quarters of 1981 – when retail savings rates were in the high teens, CDs in the low 20s and IRA “teaser” rates were at 30, 40 and even 50 percent. Most commodity prices will also crash – such as crude oil, natural gas, ethanol and gasoline. Retail prices of gasoline will not come down that much, because most crude oil refineries in the USA have been shut down and gasoline must now be shipped and imported from Central America into the USA. Precious metals prices are on the rebound (gold and silver are going back up).
Prices for real property, cars and collectibles are already crashing. The only “hot” real estate markets left in the USA today are 1) Denver (Colorado), 2) Atlanta (Georgia), 3) San Francisco-Silicon Valley (California) and Seattle (Washington). Every other market has at least some very serious trouble. Miami (Florida) and Phoenix (Arizona) are next line after Seattle, but even here there is lethal trouble in the market. Some suburbs of Phoenix are a whopping 66 percent down from their record high prices back in 2007 (8 years ago). New Mexico is down by 42 percent from 2007, and Metro Tucson (the 2nd largest metro area in Arizona after Phoenix) is down by 34 percent from 2007. The situation is very similar in the US states of Idaho and Utah, even in large metro areas such as Salt Lake City, Utah.
Japan has long been at the forefront of this massive Grand Supercycle crash. The Nikkei Dow reached its all-time high in 1989 (26 years ago) and Japan has thus seen no net increase in wealth since 1983 (32 years ago). Japan’s demographic collapse means that more adult diapers are now sold in Japan compared to infant diapers. 8 million residences in Japan are vacant today, and this number is forecast to rise to 20 million by the year 2033 – one out of every 3 homes in Japan. The average Japanese family today has only 2.11 members.
The stock market, the bond market, energy, collectibles and real estate will eventually repeat what they did during a crash which occurred in the USA before the American Civil War (1861-1865) and in Western Europe during the so-called “Tulip Bubble” of 1634-1637 – they will implode by 99 percent or more. This will bankrupt many commercial banks, insurance companies and pension annuity funds. People will literally see their savings accounts, retirement annuities and retirement pensions (including Social Security) cut by massive amounts or disappear altogether.
The final front to collapse will be fiat currencies, which are backed by nothing but the ability of Central Banks to create credit and/or print money. The Global Economic Reset (GER) will affect the US Dollar more than any other currency on earth due to the fact that Americans literally owe 98 percent of the debt on the planet. No “official” currency devaluation has thus far taken place in the USA, but the American people are already well aware that the purchasing power of their money has fallen dramatically. Retail food prices, retail energy prices, health care costs, long term care costs, insurance costs and taxes have all gone through the roof – thus impoverishing much of the former American middle class.
The IMF will “reset” the Global Reserve Currency before the end of 2015. Currently, the SDR (Special Drawing Rights) for the Global Reserve Currency is a basket of the US Dollar, the EU Euro, the UK Pound Sterling and the Japanese Yen. The Dollar has been in first place since 1944 but will likely be overtaken by the Euro in 2015 – in spite of Europe’s many problems. It is profoundly unfair that the rest of the world’s currencies are not included in the SDR. The major regions not represented include the BRICS, the “Next 11” countries, plus the smaller countries of Latin America, Africa and Austral-asia. Mainland China will continue to export her deflation along with other smaller Asian countries exporting their deflation (dumping their exports at fire sale prices) such as Taiwan, Singapore, Malaysia, India, South Korea, the Philippines, Thailand and Hong Kong (a special economic zone of China). After Asia’s correction is complete all of these countries should experience very robust growth.
As mentioned in last month’s update, a currency devaluation of 66-fold would make the USA the poorest per capita country on earth on par with the Congo-Kinshasa (formerly Zaire and the Belgian Congo). Such currency devaluations have been common throughout recorded history on all continents – no exception. The futures market & recent equity market crashes give us a good picture into this scenario. The crash of 2007-2009 wiped out 70 percent of America’s financial wealth. The current futures market indicates a 21.32 percent decline for the NASDAQ, a 29.43 percent decline for the Dow and a whopping 98.55 percent decline for the S&P 500 Index. Even the futures market lags actual trends, so we believe that the 98.68 percent decline makes perfect logical sense for all US equity markets. Such a collapse would devalue the US economy by a staggering 69-fold. The USA already has the social structure of a third world country, because the American middle class has all but ceased to exist. The top 0.1 percent of Americans have as much wealth as the bottom 90 percent – leaving a scant 9.9 percent in the once large middle class.
The Chinese futures market trading volume contracted by 99 percent in between the high in June 2015 to September 8, 2015 (largely due to government intervention, which always makes things worse and never better).
What to do?
- Sell non-necessary real estate now and place cash proceeds in a safe bank.
- Enjoy rising interest rates & dividend yields (both will go up in unison) and wait to purchase desired real estate at the bottom of the crash. Ditto with buying the cars and the collectibles you truly desire (same timing).
- Stock up on gold, junk silver and other precious metals. Stock up on food items as well – rainy day savings.
- Position yourself to benefit from eventual “revaluation” of BRICS and “Next 11” country currencies vis-à-vis the US Dollar, the Euro and the UK Pound Sterling.
- This should CYA on all fronts – stocks, bonds, cash, commodities and currencies.
The “new world order” has thus far not succeeded in starting World War 3 in the Ukraine, but they are getting alarmingly close to doing so in Syria, where American and Russian troops are now on the ground as so-called “military advisors” facing each other in combat. Of the 10 million refugees fleeing ISIS, ISIL, Al-Qaida and the Mujahadeen in Syria, Afghanistan and Iraq fully 69 percent are from Syria, where the USA and the UK are once again attempting to accomplish “regime change” – something they have done with disastrous results since World War 2 in countries such as Iran, Iraq, Afghanistan, Egypt and Libya. These disasters have largely caused the current global problem with Islamist extremist terrorism: http://sputniknews.com/columnists/20150911/1026866473/eu-refugees-debate.html.
Financial, Economic and Social Mood Update (September 1, 2015)
The Global Economic Reset (GER) is likely not far off. We believe that it may occur in between now and October of this year. The relatively small (3.5%) currency devaluation in China is part of a massive phenomenon – China is literally exporting her deflation to the rest of the world. China is the largest manufacturing nation on earth (50 percent of all physical goods on the planet) and she is literally dumping her goods on world markets at bargain prices. Why? Demand in China has fallen, so she has no alternative if she is to keep her labor force busy and her global market share intact. At the same token, foreign companies active in China must slash their prices (and their profits) in an effort to maintain their own market share in China. China is the largest automotive market on earth (23 million units sold per year!), and the largest players there (notably Volkswagen and General Motors) are cutting their retail prices in China by as much as 30 percent per car model. These are just some of the repercussions from the 42 percent decline in the Chinese equity market since June 2015. The corresponding reduction in Chinese purchasing power should be felt in the few “lucky” developed country bubble markets around the globe – metro regions such as San Francisco, Honolulu, Seattle, Denver, Washington, New York, Boston, Miami, Vancouver, Toronto, Sydney, Melbourne, Tel-Aviv, Moscow, Paris, Milan, Berlin, Hamburg, Munich, Cologne, Frankfurt and London. In spite the fact that asset prices in such regions have been driven by overseas investment and by “hot” industries such as IT (Silicon Valley), unit sales in American real estate have reached a mere 43 percent of what they were during the main peak of 2007. Metro regions not among the “hot” areas will likely fall all the way to the ground – much as old railroad towns did in the American West. The demand to keep them economically afloat simply does not exist.
The Dow Jones 30 Industrial Average Index lost 3,086 points from May 19 to August 24, 2015 and fulfilled the requirement for the first phase of the current crash. A standard retracement would take the Dow back up by 1,179 points – to the level of 16,444 (it actually reached 16,656 on August 27, 2015). The next level of the crash should take the Dow at least to the level of 12,700.
One massive phenomenon driving the global deflationary collapse is the global human demographic collapse. It is most pronounced in countries inhabited by White (Caucasian or European) peoples, followed by countries inhabited by Asian peoples – but it is evident among all population groups……………across all races, all nationalities, all religions, rich and poor alike. In 1900 32 percent of the world’s population was Caucasian or European – in ten years this will fall to just 6 percent. In 1750 fully 66 percent of the world’s population was Asian (42 percent in one country alone – China) – by the year 2025 this will fall to just 44 percent. Africans (or blacks) comprised one percent of the world’s population. In 10 years this will rise to 39 percent – but fertility and family size are on the decline even in Africa. Latin America also comprised a tiny one percent of the world’s population from 1750-1900. This is set to rise to 11 percent by the year 2025, but fertility and family size are falling in Latin America and the Caribbean as well – even more so compared to Africa.
What does this mean? By the year 2025 there will be fewer than 1.6 workers for every one retired person on earth. Long before that time, the entire pension and social welfare system will go bust. This is already the case in places such as Europe, North America and Japan. The public sector pension plan for all US state, county and municipal government employees already has a whopping 4 retirees for every one worker (no typo). This is of course being artificially funded by very high rates of taxation and by ever more government debt. Bankruptcy has been artificially postponed (and thus made far worse when the crash does eventually come) by central banks having inflated the global credit market with ever more debt – and by keeping interest rates artificially low (and bond prices artificially high). Former US Federal Reserve Chairman Alan Greenspan admits that the bond market is artificially high – and thus headed for a massive collapse in our very near future. Prepare for interest rates to return to and eventually exceed the levels we last saw in 1981.
The number of Americans who are totally and completely “on the dole” (they are completely subsidized and contribute nothing to the economy) includes those on 1) Medicaid, 2) Obamacare) and 3) means-tested VA Benefits – 106,579,000 individuals. This is actually far worse than programs such as food stamps, Social Security, Medicare, WIC, Disability, SSI, Section 8 Housing and TANF – because these 106 million people represent an unlimited medical care liability. Within a few short years from today they will literally absorb fully 100 percent of government spending – no joke, no typo.
Asset prices can collapse and remain at low levels for an extended period of time given the fact that demand remains slack. This can be the case with real estate (for both selling prices and rental prices), commodities and collectibles. Interest rates can remain at relatively high levels for an extended period – say 10 to 30 percent on the retail level. But what can really break of the back of an economic power is currency devaluation. If the US Dollar were to eventually devalue 66-fold, America would be on par with the per capita poorest country in the world – the Congo (Kinshasa), once known as “Zaire” and before that as “Belgian Congo.”
Elliott Wave International believes that crude oil prices will bottom in the short term at $41 per barrel, have a bounce to at least $48 per barrel, and then fall further to around $32 per barrel. There will likely be another bounce thereafter, after which crude prices may eventually collapse to less than $10 per barrel.
What sets Elliott Wave International apart from all other social, economic and financial forecasting firms is the breadth and the quality of their research. Yet another fine example of this difference in quality is their article on the biggest top in 600 million years. It has to do with the number of super-categories of species which inhabit the planet earth. Their study indicates that we may be headed for the biggest mass extinction of species ever recorded – something which is of course beyond the ability of human activity to control or influence. An Elliott Wave in the number of genera (“The Largest Top of All Time”): http://www.socionomics.net/2015/07/article-an-elliott-wave-perspective-on-scientists-calls-for-the-biggest-top-of-all-time/#axzz3itphO8zP.
Financial, Economic and Social Mood Update (August 1, 2015)
The Global Economic Reset (GER) is likely not far off. We believe that it may occur later this month, in September or in October of this year.
We’ve come up with yet another very telling and revealing statistic which clearly demonstrates just how far the United States of America has fallen. The per capita cost of the social welfare state in the USA, which includes healthcare, welfare, pensions, subsidized housing, VA benefits and unemployment compensation is a staggering US $20,716 per year. Much of the so-called “money” used to calculate GDP is actually “funny money” generated by the credit inflation-policy of the Federal Reserve Bank. Per capita income is far lower than per capita GDP. Even per capita GDP looks far less impressive compared to the rest of the world when PPP (Purchasing Power Parity) is used – this is a more accurate way of calculating the cost of living in all the countries and autonomous territories around the world. The lowest figure we’ve been able to locate for per capita income in the USA is US $26,672. This means that a whopping 78 percent of American per capita income is now comprised of welfare payments. The real American economy has virtually ceased to exist, because almost no physical products are “Made in the USA” anymore. Mainland China is the number one manufacturing nation in the world, and Brazil has surpassed the USA as the number one agricultural exporter in the world – both of these being members of the BRICS nations. Even Russia is the number one energy exporter in the world – another member of the BRICS group.
The market today gives us a stark picture of a market in trouble:
- The number of publicly listed companies has fallen by 36 percent since 2000.
- The Dow lost 7 percent of its value from May 19 to July 28 of 2015.
- The 25 largest public sector pension plans in the USA have a $2 TRILLION shortfall (unfunded liability).
- The bankrupt city of Chicago, Illinois is paying 8 percent interest on its 27-year bonds.
- Junk bonds (which comprise the vast majority of all bonds) have lost 12 percent of their value year to date.
The futures market today gives us an interesting picture of current expectations:
- Crude oil prices up 37 percent by December 2023.
- Natural gas prices up 83 percent by December 2027.
- 30-year Bond yield to increase to 5.18 percent by March 2016 (currently at 3.27 percent).
- 10-year Note yield to increase to 5.31 percent by September 2016 (currently at 2.31 percent).
- 2-year Bill yield to increase to 1.49 percent by September 2016 (currently at 0.66 percent).
We believe that the Global Economic Reset (GER) will cause many foreign currencies to rise dramatically in value relative to the US Dollar. We also believe that the GER will cause the prices of precious metals such as gold bullion, platinum and sterling silver to rise much more than the current futures markets anticipates – changes not merely of percentage, but of multiples compared to today.
For access to archives and more, please visit www.financialeconomicupdate.com and/or our mirror site at http://www.theborromeofamily.com/the-marc-nonnenkamp-show/.
Financial, Economic and Social Mood Update (July 1, 2015)
Observing the performance of the Dow Jones 30 Industrials Futures Index Short Fund enables us to better monitor and analyze stock market volatility within the bear market rally and thereby determine the start of the actual market crash. Any loss in value in the Dow Index results in an increasingly exponential gain in the value of the fund, thus allowing us to see a volatility which other people barely notice.
Western nations (most especially the USA) continue to pursue a dangerous & reckless foreign policy which threatens world war against nations such as Russia, China, North Korea, Iran and Syria. NATO countries have more than 93,500 military personnel and 1,000 armored fighting vehicles (including battle tanks) in the western and central Ukraine. NATO Border States such as Poland, Lithuania, Latvia, Estonia and Romania continue to ask for more such military “assistance” from the USA and the rest of NATO – pointed directly at Russia. The American Navy and its military allies in East Asia (particularly Japan and the Philippines) persist in antagonizing Mainland China over island and coral reef disputes in the South China Sea. China has the largest GDP on earth, the largest manufacturing base on earth, the largest population on earth and plans to add more than 400 combat ships to its Navy to counter this western threat. This madness threatens humankind with annihilation and must cease immediately. Military alliances such as NATO are a threat to world peace and must be disbanded. The EU must peacefully seek a customs union (a free trade zone) with the nations of the former USSR and Asia. The US should join them not to dominate them, but as an equal among nations.
The primary subject of this month’s update is the pending “global economic reset” whereby the US Dollar will finally lose the worldwide reserve currency status it has enjoyed since 1944.
Working back in time the following currencies have held this unique and powerful status:
- United States Dollar (1944-Present)
- British Pound Sterling (1860-1944)
- Royal Netherlands Guilder (1602-1860)
- Austro-Venetian Ducato (1284-1602)
- Middle Eastern-North African-Balkan Gold Dinar (697-1284)
- Greek Byzantine Solidus (312-697)
- Imperial Roman Denari (211 BC-AD 312)
- Punch-Marked Coins of India (600 BC-211 BC)
- Ancient Greek Drachma (1100 BC-600 BC)
A country loses this powerful status when its monetary, financial and economic policies result in high levels of debt and finally bankruptcy. CIA analyst Jim Rickards believes this will occur with the US Dollar in late August of 2015.
We have studied 72 historical cases of deflation, hyperinflation, reserve currency resets, stock market crashes and bond market crashes in an attempt to analyze what is happening today. We subscribe to 18 forecasting and news services outside of our own to keep up to date with current events. We believe that some currency or basket of currencies backed by gold and/or silver will replace the US Dollar – be this the SDR (Special Drawing Rights), the Chinese Yuan, the Russian Ruble and/or the Middle Eastern Dinar. We believe that the US government will be forced to devalue the US Dollar in a desperate attempt to pay off massive levels of debt and to fund massive levels of social welfare transfer payments, that the foreign exchange rate of the US Dollar (and thus the cost of living in the USA) will increase anywhere from 7 to 21 fold in the near term future. A devaluation in excess of 66 fold would put the USA on par with the per capita poorest nation on earth today – the Congo of central Africa, formerly known as Zaire.
There have been a number of signs in the news over the last few days of trouble on the horizon. Both General Motors and Honda are preparing for charges (losses) to their second quarter 2015 net income. Governments in Greece, the UK and Austria have stated that no more failing commercial banks will be bailed out. Greece and Puerto Rico have defaulted on their sovereign debt. Greek debt is selling for 68 cents on the Dollar and Puerto Rican debt is selling for 65.75 cents on the Dollar on the free market. Chicago (the 3rd largest American municipality) is also heading toward bankruptcy and announced 1,400 staff layoffs today.
The likely “Mechanics” of the Global Economic Reset
The International Monetary Fund (IMF) and the World Bank were established in 1944 shortly before the end of World War 2 at the Bretton Woods Conference in New Hampshire. The formal transfer of Reserve Currency status was made from the British Pound Sterling to the United States Dollar. Since 1969 the IMF has used something called “Special Drawing Rights” (XDR aka SDR). The SDR is made up of a basket of 4 major world currencies – the US Dollar, the Euro, the British Pound Sterling and the Japanese Yen. The SDR was created in response to the gradual removal of the Gold Standard, whereby currencies had to be backed with a country’s reserves of gold bullion. The Gold Standard was removed and replaced with paper money, or “fiat currencies” backed by nothing but the central banking system’s ability to issue new credit (often referred to as “printing money”). The “weight” of the SDR is adjusted once every 5 years, with the most recent adjustment having been made in 2010. When the 2015 adjustment occurs, it is very likely that the Euro will surpass the US Dollar in weight – hence causing a “Global Economic Reset” for the first time since 1944.
As a temporary measure the US Dollar will likely be replaced with the SDR. The impending financial collapse of Greece may be the catalyst which will cause the IMF and the World Bank to be replaced by the Chinese-led “Asian Infrastructure and Investment Bank” which was founded in 2014. The equity ownership of the AIIB is 30% Chinese, 13% Euro Zone, 8% Indian, 7% Russian, 4% South Korean, 4% Australian, 3% Indonesian, 3% Brazilian, 3% British, 3% Turkish, 3% Saudi Arabian, 2% Iranian and One Percent each for Thailand, Pakistan, Malaysia, the UAE, the Philippines, Poland, Singapore, Switzerland, Egypt, Bangladesh, Vietnam, South Africa, Sweden and Kazakhstan. The remaining 3% is held by the rest of the world. China and Russia will return to the Gold Standard before the end of 2015, which is the optimal solution for the entire world. Gold has always been the closest thing to a global currency, which is exactly what the world needs to ensure more financial responsibility and stability. The SDR will likely be replaced by the Chinese Yuan as the primary new Reserve Currency before the end of 2015. China has the number one manufacturing base in the world (since the 2000s), the largest GDP (since 2014), and the city of Hong Kong is the world’s number one financial center – ahead of New York, London and Frankfurt. This first phase of the “Global Economic Reset” will likely cut the relative purchasing power of the US Dollar by three (3), resulting in a 3-fold increase in the relative cost of living in the USA. The 93 percent of the American population which has no direct ties to any foreign country will be most affected by this coming change.
Financial, Economic and Social Mood Update (June 1, 2015)
The Dow Jones 30 Industrials Index Futures Short Fund has increased in value by 3.8 fold since December 2013, but once again that will not be the subject of this month’s update. We did reset the fund based upon the new market high of May 19, 2015 in an effort to defend our trading position. The primary reason for establishing the Dow short fund was so that we could better monitor and analyze market volatility within the bear market rally and thereby determine the start of the actual market crash.
The main subject of this month’s issue is the pending economic “reset” whereby the US Dollar will finally lose its special position as the majority global reserve currency, a standing it has enjoyed since 1945 when it replaced the British Pound Sterling as such. CIA analyst Jim Rickards believes that this will occur in late August 2015. The USA has enjoyed an advantage since 1945 because much of everything in the world must be purchased in US Dollars. The loss of this privilege will translate into a much lower standard of living in the USA – likely on par with many so-called developing nations of the Third World.
Historical examples of misfortune include currency devaluations such as Germany in 1923, when a Billion Reichsmarks could not buy a pound of butter. Another example is the Philippines, where the Philippine Peso was tied to the US Dollar from 1898 until 1956. The Philippines became a US Territory in 1898, a US Commonwealth (like Puerto Rico is today) in 1935 and an independent Republic in 1946. The Peso was pegged at 2 Pesos per one US Dollar from 1898 until 1956, or ten years after Philippine independence. Bad policy in Manila made the Peso fall from a value of 50.0 American cents in 1956 to just 2.3 American cents today. Phenomena such as these ruin the living standard for most ordinary people (and have occurred throughout much of the world at different times in history) – a fate finally to be visited upon the American people.
Two money center banks, HSBC in the UK and the Bank of America in the USA, are already advising their private banking clients to hold a significant percentage of their liquid wealth in 1) cash (in paper notes and silver coins) and in 2) gold bullion. Safewealth Group of Switzerland (a partner of Elliott Wave International of Atlanta) recommends its clients have 50 percent of their liquid wealth in physical gold and 50 percent in cash currency notes stored in vaults in Switzerland. Their clients are almost all millionaires and billionaires, and this is an extremely frightening recommendation to have no liquidity deposited in actual bank accounts.
A number of our subscribers have thus far pointed something out regarding gold – namely, that the logistics of trading in gold for daily use is very impractical. One ounce of gold is worth about US $1,190, most people do not have such physical gold and even fewer people are qualified to determine the exact value of gold. Most people could not determine the value (or the authenticity) of gold by looking at it, and trading for everyday needs in products and services would be nearly impossible – anything from shopping for groceries, to buying gasoline, to paying mortgage or utility bills, or anything else.
On May 20, 2015 the Russian government reported (http://sputniknews.com/asia/20150520/1022369120.html) that Mainland China and Russia will revert to the old gold standard before the end of 2015. This is the only feasible solution to the current mess which was created due to 1) central banking systems, 2) inflation of credit (debt) and financial derivatives, and 3) fiat paper currencies backed by nothing. Virtually all of the debt and financial derivatives (off balance-sheet contingent liabilities) in the world are owed by the USA (circa 98 percent) and the EU (circa 2 percent). This is due to 1) an inflated financial market based upon speculation and 2) a bloated social welfare state whereby the overwhelming majority of the populations of the USA and the EU receive more in transfer payments than they pay into the system – severely aggravated by collapsing demographics wherein very few children are born, traditional family structures have been decimated and populations are becoming overwhelmingly elderly, retired, unemployed, unemployable, disabled and dependent upon assistance.
The only solution is for the entire world to join China’s new global bank (the Asian Infrastructure Investment Bank) and currency standard backed by physical gold reserves – a banking system as such with bank account balances and currency backed by gold is the sole alternative for any economy. The current nominal value of the US stock market is meaningless in terms of gold – if it were valued in gold, the Dow would lose up to 87 percent of its value and the cost of living in the USA would increase by 7 to 8 fold overnight.
On May 26, 2015 the Russian news further reported that Canada and Mainland China have agreed to replace the US Dollar with the Chinese Yuan for inter Chinese-Canadian trade: http://sputniknews.com/business/20150526/1022574907.html.
Financial, Economic and Social Mood Update (May 1, 2015)
Our Dow Jones 30 Industrials Index Futures Short Fund has increased in value by 3.6 fold since December 2013, but once again that will not be the subject of this month’s update.
The coming economic “reset” refers to the US Dollar losing its privileged status as the world reserve currency. The most significant players in the coming new order will be the BRICS nations – specifically Mainland China, India and Russia (the other BRICS members are Brazil and South Africa). Of these 5 countries, Mainland China and Russia are the most geopolitically sophisticated.
Immediately following the 5 BRICS countries are the so-called “Next 11” countries as named by Goldman Sachs. These 16 emerging power economies belong to 1) Mainland China, 2) Brazil, 3) Russia, 4) India, 5) South Africa, 6) Mexico, 7) South Korea, 8) Indonesia, 9) Turkey, 10) Iran, 11) Nigeria, 12) Egypt, 13) the Philippines, 14) Pakistan, 15) Vietnam and 16) Bangladesh. 11 of these countries are in Asia, 3 are in Africa and 2 are in Latin America. None of the new power centers will be in either North America or in Europe.
Dr. Ron Paul (retired US Congressman and former Presidential candidate in both Republican primaries and as the Libertarian nominee) recently said that the ultimate financial “bubble” is that of the US Dollar. This is factual statement – the US Dollar will be the last and the biggest bubble to collapse in our immediate future. I have great respect for Ron Paul – he is one of the few politicians in any major party in the world who is not corrupt.
The USA’s reckless foreign policy of threatening a Third World War against Russia and China is based upon a desperate attempt to preserve America’s status as the premier military superpower – she has already lost the status of number one economy to Mainland China. NATO troops specifically deployed against Russia have increased to 88,555 men and 935 armored fighting vehicles stationed in the Ukraine and Lithuania. 68 percent of this force is American, 26 percent of it is German and the remaining 6 percent come from 15 other NATO countries. Russia has reserved the right to defend itself with nuclear weapons – exactly as NATO did during the Cold War against the former Warsaw Pact from 1945-1991. The major political parties in both the USA and throughout the NATO alliance in North America and in Europe support this highly destructive and reckless policy. We are now in a unique situation where smaller political parties of both the extreme Left Wing and Right Wing do not support world war against Russia and China – and actually want peace and good relations with the emerging power bases of Asia. Peace with Russia and Asia is the only sane alternative for Europe and the “old” nations of the industrialized world – we are dying out demographically and need a peaceful and prosperous future with the booming majority of the eastern and southern hemispheres.
The change in fortune approaching the developed countries will not be unlike that which occurred in South Africa and Zimbabwe-Rhodesia when they moved to one man, one vote and when their once privileged minorities faced a very different world from the one they knew for so many years.
Here are a few recent updates of financial and social news from around the world:
- Greek government debt is trading at 68 percent below face value, compared to nearly face value one year ago – this in effect is like an interest rate of 32 percent.
- There are 70 million empty brand new high-rise apartment units in mainland China. When the Chinese real estate market crashes, this will have massive ripple effects throughout Asia, Europe, the USA and Canada – remember that no part of the world will be totally immune from the coming asset market crash.
- 71 percent of the debt issued over the last 2 years has been junk-grade debt. Historically about 79 percent of companies issuing junk debt eventually go bankrupt.
Financial, Economic and Social Mood Update (April 2, 2015)
Our Dow Jones 30 Industrials Index Futures Short Fund made a healthy gain during the month of March 2015 – it is already up for the year to date, but that will not be the subject of this month’s update.
A consensus has been reached by many of us in the bearish camp due to the fact that this bear market rally has lasted for so long (6 years and counting) and that we are experiencing the 3rd top within this Elliott Wave Grand Supercycle topping process (the first in 2000, the second in 2007 and now the third top in 2015). The consensus is that this crash will not be worst in 300 years, but that it will be worst crash in at least 1,500 years – since the fall of the Western Roman Empire in A.D. 476.
This consensus bodes ill for both the USA and for the US Dollar as the global reserve currency. Some of us believe that the bubble will burst in 2015, others in 2016 and still others in 2017 or so. The important point is that the horizon is short term – the status quo will not last much longer. The USA has 4 percent of the world’s population but owes 98 percent of its debt. The European Union has 7 percent of the world’s population and owes the remaining 2 percent of the world’s debt. The rest of the world (89 percent of the human race) does owe debt, but what they owe collectively is less than one percent of the world’s debt – hence the very bad situation in which the EU and especially the USA will soon find themselves.
As fiat currencies (paper money backed by nothing but the central banks of the world) implode, other assets of value will have to replace them. These other assets will likely be precious metals – gold, platinum, silver and copper (in this order), property (real property and certain other hard assets) and perhaps new electronic money not controlled by any central bank such as Bitcoin.
The disastrous situation in which the USA finds itself is likely why the USA is recklessly pushing for World War 3 against countries such as Russia, Mainland China and Iran. The USA is gambling desperately in a futile attempt to preserve the global status of the US Dollar and near zero interest rates to subsidize its massive appetite for debt which in turn subsidizes the massive American social welfare state of healthcare, pensions and other income assistance for people who do not work for a living.
One retired US Army general called for the Western countries (NATO) to “kill Russians.” This is even more out of control than the US Senate’s open letter threatening President Obama’s efforts to reach an arm’s limitation agreement with Iran – one of the few Islamic countries willing to combat ISIS. 11 NATO countries now have 47,000 military troops and 600 fighting vehicles in the Ukraine – a reckless and open threat of war against the Russian Federation.
The world of the near future will see government entities (federal, state and local), non-profit organizations (which includes most healthcare), large corporations, many financial firms and many individuals go bankrupt. The only alternative will be self-employment, small business and entrepreneurship. Gold and/or currencies backed by gold will emerge as a replacement for modern fiat currencies. The net cost of living in the USA based upon the relative value which the US Dollar has already lost compared to gold since 1999 will increase by at least five-fold. The USA will be reduced to the living standard of a below-average Third World Country. The emerging new global order (led by Mainland China) can be seen in the brand new “Asian Infrastructure Investment Bank” (AIIB) – China’s alternative to the World Bank and the IMF. The only countries refusing to join are the USA and North Korea. Other countries still deliberating (they have not yet applied for membership) include all of Spanish-speaking Latin America & the Caribbean, Greenland, Africa (except for Egypt which has joined), Yemen, Iraq, Syria, Iran, Turkmenistan, Afghanistan, the UAE, the Caucasus, Ireland, the Baltic states, Belarus, Poland, the Czech Republic, Slovakia, Hungary, the Balkan countries, Bhutan and Papua New Guinea. 71% percent of the world’s population has already become part of China’s new world bank, and it looks like this percentage will go considerably higher.
Financial, Economic and Social Mood Update (March 1, 2015)
Our Dow Jones 30 Industrials Index Futures Short Fund reached a record high value on January 16, 2015 but has fallen quite far since then due to the bear market rally thereafter. Here is a case in point which highlights just how volatile and dangerous this market is. As of January 16 our investment was up by a net 877 percent compared to our starting point on December 31, 2013 (15 months ago). Today our investment is up by a net 258 percent.
The private CIA analyst (consultant) Jim Rickards believes that the US economy will crash by August 2015 – a mere 5 months from today. REIT manager (partner) Fabian Calvo believes that the US real estate market could be trading for pennies on the Dollar by January 2016 – a mere 10 months from now.
The European stock markets have already fallen an average 22 percent below their record highs. The Greek stock market is 83 percent below its all-time high. The retail sector of the US economy is already starting to give way – it makes up 70 percent of US GDP. Since January 2015 food service sales have fallen by one percent. Furniture sales have fallen by 9 percent, clothing sales by 10 percent and sporting goods, hobby, book and music sales in the USA have collapsed by 32 percent. The number of crude oil rigs in the USA has fallen by 39 percent since October 2014. Global commodity prices are 60 percent below their record high 8 years ago, and shipping prices have collapsed by 90 percent in 7 years.
What will cause the remaining stock market, bond market and regional real estate market bubbles in the USA to collapse virtually overnight? We believe it may happen once the US Dollar loses its global reserve currency status – the number one factor being that global crude oil transactions must be done in US Dollars. BRICS, SCO (Shanghai Cooperation Organization), OPEC and the IMF are not far from abandoning this requirement. 98 percent of world’s debt is owed by the USA – largely due to money center banks holding financial derivatives, Dollar-denominated debt due to the credit bubble (mortgages, credit cards, student loans) and unfunded liabilities due to the welfare state (Medicaid, Obamacare, Medicare, Social Security, Food Stamps, WIC, SSI, Disability, Workers Compensation, Public Housing, Public & Private sector pensions and TANF).
I believe that the critical time frame for this emerging collapse (the most massive social and economic collapse in thousands of years) could occur within the span of a matter of days or hours – not months or weeks. In other words, once the collapse gets rolling most individuals, families, investors, money managers, pension fund managers, corporate executives and bankers will not be able to react quickly enough. The crash will destroy wealth and redistribute wealth unlike anything in recorded history. Our own Dow Jones 30 Industrial Index Futures Short Fund is well positioned to take advantage of this historical opportunity. Our 4,157 investors have a combined net worth of US $71 Billion which will balloon in value with the crash.
In spite of the Ukrainian cease-fire agreement reached in Minsk between Russia, the Ukraine, Germany and France, NATO continues to supply the Ukrainian government with both troops and weaponry – more than 29,000 NATO troops and 380 armored fighting vehicles thus far. This is profoundly dangerous and could well lead to a Third World War. Russia’s patience with this reckless behavior on the part of the Ukraine and NATO will not last forever. Many people in the west – particularly in the USA and Europe – are under the illusion that Russia represents no credible military or economic threat. This is the same foolish attitude that sent both Napoleon Bonaparte and Adolf Hitler to utter defeat.
I will repeat that no war can be won, in particular against Russia. European peace is dependent upon dismantling NATO and upon making the EU far less centralized than it has been since initiation of the Eurozone currency union. The EU and the Russia’s Eurasian Economic Union should seek to create both a comprehensive free trade zone and a collective security agreement which will respect national sovereignty and autonomous minority groups within national borders.
Market trends for the future do not favor North America and Europe. It appears to us that much of Asia (in particular Mainland China, India, Russia, South Korea, Taiwan, Singapore and even Japan) is on the verge of a major secular bull market. Other countries in Asia cannot help but benefit from this – a “trickle down” effect.
I released the second edition of my book “Volkswagen: a Car for the People – a Success Story” on February 14, 2015. The book is already ranked in the USA, Australia and Japan. It ranks # 2 among automotive history books in Australia, and #2 among all automotive books in Japan. VW announced record net profits for 2014, and their 5-year global investment plan calls for expenditures of US $151 billion among all 11 VW Group brands – Volkswagen, Audi, SEAT, Skoda, Bentley, Lamborghini, Bugatti, MAN, Scania, Porsche and Ducati. They are the largest global auto group in terms of monetary sales (US $263 billion per year versus US $249 billion at # 2 ranking Toyota) and the VW Group earns 59 percent of all global auto industry profits. Daimler AG of Germany is the 3rd largest auto company in the world in terms of sales (US $157 billion per annum) and General Motors of the USA ranks number 4. GM has the highest cost structure of any auto group on earth with an average new car costing US $35,000 to the retail customer – 50 percent above the industry average.
Financial, Economic and Social Mood Update (February 1, 2015)
Our Dow Jones 30 Industrials Index Futures Short Fund reached yet another intraday record high value on January 16, 2015 – up 99 percent in just 16 days. It has since fallen somewhat, but it is still up by a net 59 percent in the first month of 2015. We state this fact not to brag or to boast – but to demonstrate just how fundamentally dangerous, volatile and sick this market is. The short fund goes up in value whenever the Dow goes down – and vice versa. When the market collapses to the ground the short fund will soar into the stratosphere – short funds will be main source of capital left on earth……………..they will be necessary to rebuild the global economy from the ground up. The only short funds of which we are aware exist in the USA, Canada, New Zealand, Singapore, China, Taiwan, India, Russia, the UK, the Channel Islands, Switzerland and Austria. Most of these funds are privately held. The publicly traded Rydex Fund is the only one of its kind. The Rydex Fund is worth just $146 million as of right now – a far cry from the privately held funds, which run into the centi-billions of Dollars.
The deflationary depression has taken hold over large swaths of the globe – from East Asia (including Japan, China, the Indian Subcontinent and the countries of Southeast Asia), to Europe (the EU and Switzerland), and to much of North America (outside of core “bubble” asset markets such as New York, Boston, Washington, Miami, San Francisco, Seattle, Honolulu, Toronto and Vancouver). The bubble is being driven by 1) the IT bubble and 2) foreign investment (largely from Asia and Latin America). Neither will last much longer – the investment from Asia and Latin America is here because it has already dried up in the countries where it originated.
Crude oil has fallen 61 percent in just 7 months (down 76 percent compared to 2008). It will likely rally (it has begun to do so over the past day or so) before falling yet again to less than $10 per barrel by the end of the deflationary collapse – likely by the middle of 2016. The all-important energy sector comprises 21 percent of global GDP and is a core industry driving the highly dependent service sector (70 percent of GDP). About 94 percent of all global GDP is directly or indirectly dependent upon energy – crude oil, natural gas and hard minerals such as coal.
The most conservative Central Bank in the world (in Switzerland) has finally surrendered to the free market (Amen!). They will no longer intervene to purchase toxic debt in an effort to keep the Swiss Franc from appreciating vis-à-vis the Euro. The Euro is likely doomed – the first major domino to fall will probably be Greece.
Some countries have moved beyond deflationary collapse and are now flirting with hyperinflation – including Argentina, Venezuela, the Ukraine and perhaps Russia. Japan might not, but Europe and especially North America will likely head down this same path after the deflationary collapse.
On January 16, 2015 I listened to an internal US government presentation wherein it was stated that the entire federal budget (and those of all 50 states and all local government entities) will soon be consumed by the two most expensive social welfare programs – Medicaid (82 million beneficiaries) and Medicare (49 million beneficiaries). Other monster welfare programs in the USA include Food Stamps (64 million beneficiaries including family members), WIC (“Women, Infants & Children” with 22 million beneficiaries), SSI (“Supplemental Security Income” including Disability and Worker’s Compensation with 20 million beneficiaries), Public Housing with 13 million beneficiaries, TANF (“Temporary Assistance to Needy Families” with 5 million recipients) and all other means-tested welfare programs with 4 million recipients. All told fully 81 percent of the American population receives more in government benefit payments than they contribute to the economy – a mere 19 percent of the US population is productive. This is far from enough, and furthermore the bulk of America’s subsidized prosperity is being help up with credit and debt – largely from other countries such as China. This will come to an end as soon as the US Dollar loses its status as the world reserve currency – something that has been in place due to its mandatory use to purchase Crude Oil as the “Petro Dollar” negotiated by Henry Kissinger, Saudi Arabia and OPEC in 1973. When this subsidy ends, the USA will experience hyperinflation (after the deflationary collapse currently underway). Deflation and hyperinflation will make the USA into a third world country and it will wipe out much of the remaining middle class.
The potential of World War 3 starting in the Ukraine has increased over the course of the past month. The West has been waging economic warfare against Russia in the form of sanctions since March 2014. Three American Presidential administrations (Clinton, George W. Bush and Obama) have repeatedly broken agreements reached during the first Bush administration (1989-1993) to respect the borders of the former Soviet Union – both NATO and the EU have expanded toward the east and they fully intend to advance all the way to Vladivostok. Needless to say, Russia and the countries of Asia, Africa and the Middle East are not in favor of this – to put it mildly. The number of refugees fleeing and attempting to flee the Ukraine has increased to 1,769,000. These could be ethnic (primarily Christian Russian and Jewish), economic (primarily western Ukrainian and ethnic Polish) or young Ukrainian men trying to flee their military draft. The result of all of this can only be bad.
Financial, Economic and Social Mood Update (January 1, 2015)
The biggest social, economic and financial crash in the history of the human race has not yet gotten rolling, but timing is by far the most difficult aspect of financial forecasting – especially when we’re talking about a wave structure which may go back 5,000 years. We remain confident that this crash will commence in the coming year of A.D. 2015. The 12/31/2014 intraday low of the Dow Jones 30 Industrial Index remains 328 points below its all time nominal high reached on December 26, 2014.
Our track record after having finally initiated a hedge fund which sells the Dow Jones 30 Industrial Index short on December 31, 2013 (one year ago) is as follows. The short fund index was re-set six (6) times on April 4, May 13, June 20, July 17, November 21 and December 26, 2014. The net gain after 12 months is an impressive 54 percent. The entire fund has 4,157 investors with a net worth of almost US $44 Billion. The investors have deposited 95 percent of their capital in our recommended list of the safest rated commercial banks, credit unions and insurance companies.
The biggest and most dangerous “wild card” on the global stage today is the pending world war pitting east versus west – the east headed by Russia and the west headed by the USA and the EU. The focal point of this conflict is in the Ukraine. The American Congress has passed a law enabling the American President to use lethal force against Russia in the Ukraine. The goal is to absorb the Ukraine into both the EU and NATO, and ultimately to effect “regime change” in Russia. This is the same dangerous and reckless policy which the USA has used in countries such as Iran, Iraq, Afghanistan, Egypt and Libya (the so-called “Bush Doctrine” of “Preventive War” – very similar to the suicidal Austro-Hungarian policy which launched World War One in 1914). The difference is that this time, the “opponent” (i.e. Russia) is the militarily most powerful nation on earth – a nation with the world’s most powerful nuclear arsenal and a clear conventional track record of having resoundingly defeated both Napoleon Bonaparte’s Greater France in 1815 and Adolf Hitler’s Greater Germany in 1945. The USA will send 30,000 troops and 150 tanks to eastern Europe in 2015 – to the Baltic states, Poland and Romania. This will bring total US troop strength in Europe to 98,000. The UK has 21,500 troops on the continent and Canada has 1,000.
Central banks all over the world (most notably in the USA, the UK, the EU, Switzerland, China and Japan) continue to practice a very dangerous policy of credit expansion – but it is failing miserably. Outright deflation has taken hold in Japan, the EU, the UK and Switzerland, and it is on the verge of doing so in the USA. Commodity prices have already crashed far below their record high values – crude oil by 66%, natural gas by 86%, wholesale regular gasoline by 79%, gold bullion by 39% and silver by 69%. In the last 7 weeks AAA rated short and medium term bond prices with anywhere from 3-month maturity up to 5-year maturities have fallen as well (this translates into rising interest rate yields). US 6-month bills have gone up by 2.4-fold in yield. American junk corporate debt now yields 6.80 percent interest. Greek debt yields 9.09 percent and the Russian Central Bank raised their key interest rate to 17 percent. After asset prices collapse in the USA (deflation), American interest rates will surpass the levels of 22 to 50 percent last seen in April of 1981………33 years ago (inflation and perhaps even hyperinflation). The world is entering a bear market that will last for about 80 years. The inflation rate in Russia has reached 10 percent. In the Ukraine it is 21 percent and in Venezuela it is 63 percent (highest in the world today).
CIA analyst Jim Rickards believes that the real US rate of unemployment is 23 percent of the labor force – I believe it is more like 59 percent (63 million working and 92 million not). I watched his interview. He says that the USA and the US Dollar would have collapsed back in 1973 with the Arab oil embargo, but that Henry Kissinger brokered a deal with OPEC agreeing to use US Dollars to purchase all oil worldwide. The USA guaranteed Saudi Arabia’s hegemony in the Persian Gulf region. Obama has now changed this policy and is planning to back Iran as the new power in the Middle East – I guess this has to do with ISIS being a Sunni Muslim terrorist group (Iran is almost all Shiite and the only other country with a Shiite majority is neighboring Iraq). Because of the change in US policy, Saudi Arabia is furious and is preparing to dump the Petro Dollar – this will signal the end of the US Dollar as the global reserve currency – a role it has played since 1945 when it replaced the British Pound.
Foreign countries are already dumping US treasury debt. Why are the US economy and US Dollar still holding up? Why are interest rates in the USA still so low?
The largest foreign buyer of American government debt is now Belgium, which is a farce. I suspect that the Fed, the European Central Bank and ultimately the IMF are using Belgium as a false investor front to prop up the USA. Once the IMF decides it is okay to switch away from the US Dollar the American economy and US Dollar will both be toast.
Financial, Economic and Social Mood Update (December 1, 2014)
We expect the biggest socio-economic and stock market crash in recorded human history to commence in 2014 and for the major “bottom” of this massive crash to arrive by June 30, 2016 – 19 months from today. By “bottom” we mean the Dow Jones below 400 (as low as 95) and both the NASDAQ and the S&P 500 ceasing to exist. Theoretically the Dow could go down as far as 1 (one) – this is actually very important and it is a potential boon to both millionaire short fund investors and to ordinary savers with just a few hundred Dollars.
The Dow Jones 30 Industrial Average lost 1,308 points from December 31, 2013 to February 3, 2014, rallied up to 17,351 on September 19, 2014, hit 15,770 within 26 days (by October 15, 2014) and is now in another hope-filled bear market rally which reached yet another record intraday nominal high of 17,894.83 on November 21, 2014 – prompting us to reset our short fund index again. We forecast that the Dow will hit the 13,300 to 15,500 level in January 2015, rally again, and then crash much harder thereafter. Bear markets move much faster than bull markets because they are driven by fear instead of hope. Hope works slowly and fear works very quickly. The stock market lost 9 months of gain in just 15 days following September 19, 2014! The volatility which this market has displayed for the first 11 months of 2014 convinces me beyond any doubt whatsoever that it is creating a “spring mechanism” which will make it collapse virtually overnight when that fateful day arrives.
Deflation will very likely precede hyper-inflation, and the best examples today exist in Japan, Europe and America. Japan began its deflationary collapse in 1989 and is still in it. Japanese GDP contracted a whopping 8,8 percent in the 2nd and 3rd quarters of 2014, and Japanese industrial output remains at 1989 levels – in other words, no net progress in 25 long years.
Some of our subscribers who cannot afford to invest in an expensive short fund or in a private foreign bank feel helpless – but this need not be the case! Even people with far less than US $100,000 have many options which they should already be using. We should all be putting our savings into safe banks and credit unions across the USA (these tend to be small institutions, but may include some larger ones as well). For those people with assets and family members in foreign countries, they may require a larger bank not domiciled within their state of residence – most small banks and credit unions have no international banking services at all. In addition to banks and credit unions, we also recommend safe insurance companies and safe money market funds. Remember that this deflation will collapse asset prices and bond prices, which will eventually lead to much higher interest rates in North America – far exceeding the levels we saw in late 1980 and early 1981. Back then bank time deposits paid up to 22 percent and IRA accounts offered pre-April 15 “teaser rates” as high as 50 percent. Some economists forecast interest rates eventually as high as 70 percent in our near future. Safe insurance companies will become especially attractive once interest rates soar, because annuities (pensions) will become much, much more affordable to purchase than they are today with such artificially low interest rates. We will be glad to provide a list of such institutions upon request – banks, credit unions, insurance companies and money market funds. There are 6,799 commercial banks, 6,429 federal credit unions and 850 insurance companies in the USA. There are 3,500 mutual funds worldwide, many of which are available to American investors and savers. The number of “safe” institutions and funds is actually quite small – a mere 5 percent of the total number of institutions and funds over the course of the last 2 years. Our “safe” list includes 2 mutual funds, 11 insurance companies, 44 larger banks (few of them “mega” banks) and 832 mostly smaller commercial banks and credit unions in 50 states, DC and Puerto Rico. Capital in safe banks and financial institutions will increase in relative value (purchasing power) as more of the 95 percent of unsafe institutions fail. Governments around the world will eventually run out of resources (i.e. credit) to perform perpetual bailouts of failed banks, insurance companies, automakers, motion picture companies and citizens (welfare recipients, pensions, healthcare, student loans, the disabled, the unemployed, veterans, etc.).
Keeping your cash safe (however small the amount) will result in a many-fold increase in your purchasing power once the economy collapses. The lowest retail interest rates are now negative in Europe and as low as 0.01% for checking accounts at some American banks. The best savings and money market rates at certain safe banks can run as high as 0.85% for a minimum $5,000 deposit today. Imagine if you have $100,000 and rates eventually increase 25-fold. Your real purchasing power will increase to US $2.5 million – you will be in the position of a millionaire…………………within the top one percent of people worldwide – not bad!
Our private LLC short fund has doubled in value in just 11 months (it had gone up as high as 8-fold on October 15, 2014 – and we believe that it will go far higher once the stock market crash resumes). The private LLC short fund is closed to new investors, and such short funds, overseas private bank accounts (mainly in Switzerland, Liechtenstein, Austria, Luxembourg, Singapore and New Zealand), overseas physical custodians (mainly in Switzerland and the UK Channel Islands), overseas money managers (in Canada for US investors) and even “mass market” short funds (in Florida) are out of reach for most people – they require minimum investments of 100K, 200K, 500K, one million, 5 million and sometimes even 25 million US Dollars. “Family Offices” of about 1,000 commercial banks around the world require anywhere from one to 100 million Dollars minimum net worth (these are “wealth management” teams). But safe banks, credit unions, insurers and money market funds are NOT out of reach for most people – higher yield accounts normally require about $5,000 but ordinary savings accounts often require less than $1,000 to avoid monthly fees.
Why is this so important? If interest rates go to the levels of 1982 (we believe they will much, much higher) ordinary “safe bank” savers will see their purchasing power increase by no less than 27-fold. If the Dow Jones 30 Industrials Index falls to the level of 95 (Elliott Wave International’s bottom target) our private LLC short fund investors will have seen their money increase by 187-fold by the forecast target of June 30, 2016. Interest rates will likely soar after the crash – and this means that all of us (rich, middle class and small “safe bank” savers alike) will see our purchasing power soar. If interest rates go up to 70 percent this will mean an 87-fold increase in purchasing power – I suppose you can see where this argument is headed. The highest rates in world history were in Hungary in 1946 at a whopping 75,624 percent. Number 2 was Zimbabwe in 2008 at 35,871 percent (most people in Zimbabwe were so poor they could not afford dish washing soap). Number 3 was the former Yugoslavia in 1994 at 23,469 percent. Number 4 was the former GermanWeimarRepublic in 1923 at 7,617 (where a wheel-barrow full of cash could not afford a pound of butter). Number 5 was Greece in 1944 at 6,529 percent. In cases such as these, the difference between being rich or poor will be “do you have your money in a safe bank, credit union, insurance company or mutual fund?” Better to be among the 5 percent safe than among the 95 percent broke………………
Financial, Economic and Social Mood Update (November 1, 2014)
We expect the biggest socio-economic and stock market crash in recorded human history to commence in 2014 and for the major “bottom” of this massive crash to arrive by June 30, 2016 – 20 months from today. By “bottom” we mean the Dow Jones below 400 (as low as 95) and both the NASDAQ and the S&P 500 ceasing to exist. The Dow Jones 30 Industrial Average lost 1,308 points from December 31, 2013 to February 3, 2014, rallied up to 17,351 on September 19, 2014, hit 15,770 within 26 days (by October 15, 2014) and is now in another hope-filled bear market rally which reached yet another record intraday nominal high of 17,395.54 on October 31, 2014 – prompting us to reset our short fund index again. We forecast that the Dow will hit the 13,300 to 15,500 level in January 2015, rally again, and then crash much harder thereafter. Bear markets move much faster than bull markets because they are driven by fear instead of hope. Hope works slowly and fear works very quickly. The stock market lost 9 months of gain in just 15 days following September 19, 2014! The volatility which this market has displayed for the first 10 months of 2014 convinces me beyond any doubt whatsoever that it is creating a “spring mechanism” which will make it collapse virtually overnight when that fateful day arrives. Read this very interesting and related article: http://moneymorning.com/ext/articles/rickards/25-year-great-depression.php?iris=252778.
All major markets (with two exceptions) are now heading down – most stocks, commodities (including the very important energy sector) and foreign currencies. The sole exceptions are high grade bonds and blue chip stocks, and these will turn down anytime as well. Artificially low interest rates is the only factor holding up the faltering economies of the industrialized countries – when the bond market collapses, interest rates will soar beyond the levels seen in 1980-1982 and the social welfare states of the affluent countries will come crashing to the ground. The cumulative losses for some important commodities include crude oil (46% down), gold bullion (38% down) and silver (66% down). We forecast that interest rates in the USA will increase by at least 70 percent by the end of 2015, which would bring the 10-year note to at least 4.00 percent (up from 2.34 percent today).
President Vladimir Putin of Russia hit it on the nose (again) when he commented on the economy on October 17, 2014. He said that crude oil prices below $80 per barrel will collapse the entire global economy (the price hit $79 on October 31, 2014). He seems to be the only world leader smart enough to grasp this important fact. The energy industry is the dominant global industry – it literally subsidizes the existence of much of the world’s population. Remove this subsidy, and the fantasy world of the social welfare state will collapse.
Regarding geopolitics, the world should immediately do the following:
- Reach a permanent truce in the Ukraine, removing all financial and economic sanctions against Russia.
- Agree to a plebiscite in the eastern Ukraine allowing these regions to merge with Russia if they so desire.
- Allow Europe alone to forge a new comprehensive economic and security agreement with Russia and the countries of the former Soviet Union.
- Quarantine the Ebola-stricken countries of northwest Africa with absolute travel bans until the plague is contained and snuffed out – the rest of Africa is already doing this. It is the only prudent choice.
- The USA, Europe, Turkey and Israel should reach a comprehensive truce with the former USSR, Syria, Iran, Kurdistan and Palestine and focus all military efforts in the Middle East and North Africa to defeat ISIS. If this is not done every Islamic country and eventually every country in the world will be threatened with their very existence.
I would like to give an example of how profitable a well-managed short index is during a massive crash. One of our investors began December 31, 2013 will a little over US $31 million. By February 3, 2014 the position was worth in excess of US $89 million. By July 17, 2014 the position had fallen to about US $41 million (due to a bear market rally) and by August 6 it had risen to exceed US $189 million. It declined to just US $77 million by September 19 but increased to US $258 million by October 15. It is worth US $101 million tonight, even with record nominal high reached by the Dow Jones 30 Industrial Index on October 31, 2014. The same percentage performance is mirrored for all 4,157 short fund investors regardless of the amount invested – a net gain of 226% in 10 months………………and the crash has not really begun in earnest – when it does, watch out. These returns will go into the stratosphere.
Financial, Economic and Social Mood Update (October 1, 2014)
We expect the biggest socio-economic and stock market crash in recorded human history to commence in 2014 and for the major “bottom” of this massive crash to arrive by June 30, 2016 – 21 months from today. By “bottom” we mean the Dow Jones below 400 (as low as 95) and both the NASDAQ and the S&P 500 ceasing to exist. The Dow Jones 30 Industrial Average lost 1,308 points from December 31, 2013 to February 3, 2014 and is now trying to end the first bear market rally of 2014 – the next leg down should take the Dow at least to the level of 12,000 – perhaps as low as 4,000.
Our Dow Jones 30 Industrials Short Index was re-started on September 19, 2014. The short index was closed and re-started on September 19, 2014 because the Dow reached yet another new intraday high of 17,350. We have continually said that the higher the Dow goes, the more bearish and dangerous this market will become. The time frame for the crash remains the same. Keeping very close tabs on the fund will allow us to avoid losses and to prepare for astronomical gains once the market truly collapses – our goal is a 183-fold increase by June 30, 2016. We don’t dare short sell any other index, because we don’t expect any of the smaller indices to survive the crash.
Hedge funds, insiders, overseas investors and institutional investors have all become net sellers of stocks. Individual investors and corporations buying back their own stock are the only remaining net purchasers of stocks. Corporate buybacks represent the big majority of this final offensive. Commodity prices, currencies and bonds are all falling. The US Federal Reserve is finally admitting that interest rates will rise, because the market always leads the way – rates will likely rise faster and higher than the Fed currently admits. The Fed says that rates will rise by three-fold over the course of the coming 3 years. Two-thirds of America’s $253 Trillion debt burden is now owned by foreigners – this figure represents unfunded liabilities (mostly for social security, medicare, pensions, healthcare, welfare and veterans benefits), corporate debt, mortgage debt, credit card debt, auto loans, student loans, municipal debt and the national debt of the USA.
The Ukrainian Parliament in Kiev has agreed in principle to autonomy for the Russian-speaking eastern Provinces of Donetsk and Luhansk (the “Donbass” region), but the truce is fragile. Russia wants autonomy for all of the eastern and the southern Ukraine, which would join the CrimeanPeninsula and reach all the way to the city of Odessa on the Romanian border – thus eliminating the Ukraine’s access to the Black Sea – President Vladimir Putin refers to this area as “New Russia.” President Putin has told the German Newspaper “Süddeutsche Zeitung” that the Russian Army could overrun all of the Ukraine, Moldova, Romania, Poland, Lithuania, Latvia and Estonia within a matter of days. The European countries of Belarus, Armenia, Serbia, Montenegro, Hungary, Bulgaria, Greece, Cyprus, Slovakia and the CzechRepublic have expressed their friendship toward Russia in relation to the conflict over the Ukraine. The best way to de-escalate this very dangerous situation is to invite Russia and her eastern neighbors to join the rest of Europe in a collective economic and security agreement – perhaps an economic agreement more like EFTA than like the EU, and a security agreement more like the WEU than like NATO.
The pro-democracy demonstrations in Hong Kong and Macao have the potential to ignite an even larger powder keg than Europe – the Communist Chinese government in Beijing has less patience than the Russian government in Moscow, and both countries are allied with each other.
I would like to give an example of how profitable a well-managed short index is during a massive crash. One of our investors began December 31, 2013 will a little over US $31 million. By February 3, 2014 the position was worth in excess of US $89 million. By July 17, 2014 the position had fallen to about US $41 million (due to a bear market rally) and by August 6 it had risen to exceed a whopping US $189 million. It stands at over US $139 million tonight. The same percentage performance is mirrored for all 4,157 short fund investors regardless of the amount invested – a net gain of 348% in 9 months………………and the crash has not really begun in earnest – when it does, watch out. These returns will go into the stratosphere.
Financial, Economic and Social Mood Update (September 1, 2014)
We expect the biggest socio-economic and stock market crash in recorded human history to commence in 2014 and for the major “bottom” of this massive crash to arrive by June 30, 2016 – 22 months from today. By “bottom” we mean the Dow Jones below 400 (as low as 95) and both the NASDAQ and the S&P 500 ceasing to exist. The Dow Jones 30 Industrial Average lost 1,308 points from December 31, 2013 to February 3, 2014 and is now trying to end the first bear market rally of 2014 – the next leg down should take the Dow at least to the level of 12,000 – perhaps as low as 4,000. One additional factor leading to a contracting global economy is the collapsing worldwide rate of human fertility. 133 of 225 independent countries and autonomous political entities have a fertility rate below that of replacement – a dire omen for pension plans, employment, businesses, consumer spending and GDP over the entire world. An inverted population pyramid (and financial pyramid) will never survive.
Our Dow Jones 30 Industrials Short Index was re-started on August 26, 2014. The short index was closed and re-started on August 26, 2014 because the Dow reached yet another new intraday high of 17,153. We have continually said that the higher the Dow goes, the more bearish and dangerous this market will become. The time frame for the crash remains the same. Keeping very close tabs on the fund will allow us to avoid losses and to prepare for astronomical gains once the market truly collapses – our goal is a 181-fold increase by June 30, 2016. We don’t dare short sell any other index, because we don’t expect any of the smaller indices to survive the crash.
It’s shuddering to consider that so many people (both “professional” and amateur) are buying into this market so heavily so late in the game – but that is the nature of crashes. That’s why so many people get wiped out, and why the majority of people will never be really rich……………….most human beings operate by “herd instinct” and inherently have bad timing. Why else would so many investors be so optimistic with Russia and the Ukraine on the verge of launching a third world war? That is true insanity to the utmost degree. Not that I want to see this happen – I hope that this war will not escalate. 8 of the 28 EU members are pushing for a much harder line against Russia – these include the UK, Sweden, Finland, Estonia, Latvia, Lithuania, Poland and Romania. 5 EU members are actually moving toward Russia’s side – these include Bulgaria, Hungary, Slovakia, Greece and Cyprus. 2 members are being prodded (against their own will) to have a harder stance toward Russia – these are Germany and Russia. The remaining 13 EU member countries are sitting on the fence and hoping that this nightmare will just go away. Romania has joined Poland in a very dangerous and reckless policy of arming the Ukraine. War is raging in two (2) eastern Ukrainian provinces. The western countries of North America and Europe are playing with fire – this is a war they will never win. The resources of the eastern countries (both human and material) are simply too massive for the western countries to overcome.
I would like to give an example of how profitable a well-managed short index is during a massive crash. One of our investors began December 31, 2013 will a little over US $31 million. By February 3, 2014 the position was worth in excess of US $89 million. By July 17, 2014 the position had fallen to about US $41 million (due to a bear market rally) and by August 6 it had risen to exceed a whopping US $189 million. It stands at over US $80 million tonight. The same percentage performance is mirrored for all 4,157 short fund investors regardless of the amount invested – a net gain of 158% in 8 months.
Financial, Economic and Social Mood Update (August 3, 2014)
We expect the biggest socio-economic and stock market crash in recorded human history to commence in 2014 and for the major “bottom” of this massive crash to arrive by June 30, 2016 – 23 months from today. By “bottom” we mean the Dow Jones below 400 (as low as 95) and both the NASDAQ and the S&P 500 ceasing to exist. The Dow Jones 30 Industrial Average lost 1,308 points from December 31, 2013 to February 3, 2014 and is now trying to end the first bear market rally of 2014 – the next leg down should take the Dow at least to the level of 12,000 – perhaps as low as 4,000.
Our Dow Jones 30 Industrials Short Index was re-started on July 17, 2014 and has realized a net gain of 4.75% to date (annualized return of 101.88% return on investment – far above what any commercial bank pays on cash deposits). The short index was closed and re-started on July 17, 2014 because the Dow reached yet another new intraday high of 17,151. We have continually said that the higher the Dow goes, the more bearish and dangerous this market will become. The time frame for the crash remains the same. Keeping very close tabs on the fund will allow us to avoid losses and to prepare for astronomical gains once the market truly collapses – our goal is a 181-fold increase by June 30, 2016. We don’t dare short sell any other index, because we don’t expect any of the smaller indices to survive the crash. The July 17 high was marked by an important bearish divergence – i.e. no other index hit a new high, which is yet more evidence that this credit-inflated rally is rapidly running out of steam.
Note: the markets (stocks, bonds, energy, metals and currencies) started moving faster on the night of July 30 and during the day on July 31 and August 1. We will keep our subscribers posted on the importance of this move. The US Federal Reserve is reducing its purchase of US government debt, which will coincide with falling bond prices and rising interest rates. The insane policy of growing government spending and zero interest capital to fund that government debt is finally ending, because the rest of the world no longer wants to loan money to the USA. We are very pleased with the performance of our short fund – and this is merely the start.
The 5 BRICS nations (Brazil, Russia, India, China and South Africa) are rapidly moving away from trading in the US Dollar – they set up their own global bank as an alternative to the World Bank and the IMF (International Monetary Fund). Other countries on the same path include Australia, France and the members of OPEC. When (not if) the US Dollar loses its status as the global reserve currency, the USA will fall to the level of a third world country. This is the reason why the USA is pushing up against Russia’s borders in Europe – and the reason why the world may be heading toward a third world war.
The most dangerous crisis in the world is in the Ukraine. The Ukrainian puppet government in Kiev (installed by the EU and the USA acting on behalf of a powerful trans-national cabal based in New York City) is waging a brutal war against its Russian minority in the eastern Ukraine. 517,000 ethnic Russians have fled the Ukraine for safe haven in Russia since February 2014, and more than 100,000 people have become refugees within the Ukraine itself. Russian and Ukrainian military forces have already crossed each other’s borders, and both sides have shelled each other’s countries with artillery.
A tragic international “incident” is now in place due to the shooting down of a civilian Malaysian airliner over Ukrainian airspace. The EU parliament in Strassburg, Alsace-Lorraine (France) voted to impose “real” economic sanctions on Russia – whether or not this actually takes place depends upon how the 28 European national parliaments vote on the bill. The question is: how much longer will Russia restrain herself against the Ukraine and Europe. I fear that the answer is not much longer – this may become a global third world war before the end of 2014. The death of 300 airline passengers is a bad thing, but starting a world war is even worse. Will the Malaysian airliner go down in history as another assassination in Sarajevo (1914) or another invasion of Poland (1939)? Two world wars and the influenza epidemic (1914-1945) cost the lives of more than 130 million people. This time around it would be much, much worse – most of the earth’s population may perish.
The German national government is attempting to broker a deal with Russia to keep the peace in Europe and the world. Berlin’s proposals are as follows:
1. Recognition of Crimean independence, which would allow legal unification between Russia and Crimea.
2. A guaranty of the Ukraine’s remaining territorial integrity, with local autonomy offered to Ukrainian provinces wishing such an arrangement (this would allow Russian-speakers in the east to have autonomy from Kiev).
3. The Ukraine would integrate economically and politically into the EU (European Union).
4. The Ukraine would not become part of NATO.
5. Sanctions on Russia would be removed.
6. Russia would resume energy exports to the Ukraine and Europe.
7. Russian energy companies would be allowed to develop energy deposits in the eastern Ukraine.
The likely result of rejecting the German proposal for peace will be:
1. World War 3
2. The division of the EU in two 2 camps with economic sanctions on Russia being the driving force for the division. Governments towing the US hard line on Russia include the UK, Sweden, Poland, Romania, Lithuania, Latvia and Estonia (7 of the 28 members of the EU).
Financial, Economic and Social Mood Update (July 1, 2014)
We expect the biggest socio-economic and stock market crash in recorded human history to commence in 2014 and for the major “bottom” of this massive crash to arrive by June 30, 2016 – 24 months from today. By “bottom” we mean the Dow below 400 (as low as 95) and both the NASDAQ and the S&P 500 ceasing to exist. The Dow Jones 30 Industrial Average lost 1,308 points from December 31, 2013 to February 3, 2014 and is now trying to end the first bear market rally of 2014 – the next leg down should take the Dow at least to the level of 12,000 – perhaps as low as 4,000.
Our Dow Jones 30 Industrials Short Index was re-started on June 20, 2014 and has realized a net gain of 1.36% to date (annualized return of 44.97% return on investment – far above what any commercial bank pays on cash deposits). The short index was closed and re-started on June 20, 2014 because the Dow reached yet another new intraday high of 16,978. We have continually said that the higher the Dow goes, the more bearish and dangerous this market will become. The time frame for the crash remains the same. Keeping very close tabs on the fund will allow us to avoid losses and to prepare for astronomical gains once the market truly collapses – our goal is a 178-fold increase by June 30, 2016. We don’t dare short sell any other index, because we don’t expect any of the smaller indices to survive the crash.
The long term forecast for the economy is as follows – the Dow should reach bottom by 2016, the economy should collapse by 2017 and the monetary system & government (including the currency) may all collapse by 2026. A third world war may come as early as 2030, with regional wars occurring in between now and that time. What can be done to prevent such a horrific outcome?
What are global economies doing? In Latin America, the countries on the Pacific Rim are doing better than their counterparts on the Atlantic coast. Sub-Saharan Africa (with the exception of South Africa and Zimbabwe) is growing even faster than Asia. East Asia (with the exception of Japan), South Asia, Central Asia, the Middle East and North Africa are all growing healthily and attracting a good deal of foreign investment capital. The USA is following Europe into a severe downward spiral – US growth is already in negative territory – minus 3 percent in the first quarter of 2014. The European Central Bank in Frankfurt is now paying negative interest rates – one can just imagine what capital will do. The EU will not last much longer – the EU Parliament election in May 2014 proved this much. The largest private sector investments on the planet include the crude oil and natural gas deal for Siberia (US $8.2 TRILLION) and the new Sino-Russian natural gas deal (worth US $400 BILLION). Our short fund should be well positioned to take advantage of similar opportunities – our 3 full time fund managers & 2 part time fund consultants based in the USA, Canada and Germany (all MBAs) oversee US $38 BILLION for 7,140 investors among 10,400 paid subscribers in 180 countries and all 50 US states.
Voters in many countries have finally decided to say “no” to the EU – a secular & socialist attempt at world government. The concept of the EU was born among Dutch, Belgian and Luxembourg exiles in London in the Fall of 1944…………and Dutch voters rejected the EU in May 2014 more strongly than in any other of the 28 member European countries. Their attempt in 1944 was good enough – they wanted to prevent another world war, and they felt that the way to do this was to bury nationalism. But nationalism, or regionalism, or tribalism (or ethnicity) cannot be buried – it is a natural part of human society.
Leaders of the EU still seek to expand the body today. Their ENP (European Neighborhood Policy) seeks to absorb all of Europe, North Africa, Asia Minor, part of the Middle East, the Caucasus and the former USSR. The Russians have a similar idea, but of course they want to dominate it – as well as to include Mainland China in the venture.
The UK is actually considering leaving the EU and rejoining EFTA, which is a much looser economic union. This is not a bad idea, but what is lacking is a much more comprehensive solution. Before the EU, Hitler tried to unite Europe (and more) by force of arms. His empire endured only from 1933 to 1945 (12 years). Before that, the German Emperor tried to unite Europe and the European colonial holdings by force – the culmination of this was World War One. The Prussian-German Empire in Central Europe endured just from 1866 to 1918 – 52 years. An Austrian-dominated Germanic Confederation held the European (and thus global) balance of power from 1815 until 1866 (51 years), when Brandenburg-Prussia defeated Austria in the German Civil War. Napoleon Bonaparte of France was Hitler’s “idol” – he also tried to unite Europe (and the world) by the force of Arms and tried to establish a European balance of power in the German “Confederation of the Rhine” from 1806 until he was defeated at Waterloo in Belgium in 1815…………a paltry 9 years.
The longest lasting multinational balance of power existed in the “Holy Roman Empire of the German Nation” which endured from A.D. 800 until Napoleon Bonaparte of France destroyed it in 1806. It grew out of the Germanic tribes which defeated the old western Roman Empire in A.D. 476 and which founded all of the modern nation states of Europe and North Africa – this is the reason why most noble families (monarchies) in Europe are both related and of German extraction – this German-Roman Empire endured for 1,330 years. This is also the reason why all Caucasian (white) people are descended from the Indo-European (or Indo-German, or Indo-Aryan) people………….this includes all Caucasians, Arabs, Semites, Persians and most of the people of modern India. The old Roman Empire lasted from the founding of Rome in 753 B.C. to A.D. 476 in the west – 1,229 years.
The vacuum soon to be left by the EU must not be allowed to fester – it should be replaced by an expanded EFTA, a new Holy Roman Empire or perhaps by Vladimir Putin’s Eurasian Economic Union – all of them loser unions compared to the EU secular and socialist “super-state.” A third world war is not a sane option – current moves by the USA and Poland to arm the Ukraine are a real danger to world peace – a danger which Russia and her Asian, Islamic and African allies will never permit to go unchecked.
The Ukraine has been within Russia’s geopolitical, cultural and economic sphere of influence for more than 1,130 years. The USA has initiated the very high-risk policy of trying to pry the Ukraine away from Russia out of extreme desperation. Both America and Europe stand upon the cusp of the most massive deflationary collapse in history. Due to extremely high levels of debt, both their asset bases and their currencies will not last much longer – in other words, they will soon lose the global hegemony they have enjoyed for hundreds of years. Russia and her allies in the east are already in the process of moving away from trade denominated in US Dollars or Euros – eventually this trend will leave these western currencies both worthless and powerless. America’s dangerous policy in the Ukraine is an act of desperation to try to prevent this from happening. Poland is one European country unfriendly toward Russia (for historical reasons) – hence the American use of Poland in this dangerous ploy.
Financial, Economic and Social Mood Update (June 1, 2014)
We expect the biggest socio-economic and stock market crash in recorded human history to commence in 2014 and for the major “bottom” of this massive crash to arrive by June 30, 2016 – in a little more than 24 months or 761 days from today. By “bottom” we mean the Dow below 400 (as low as 95) and both the NASDAQ and the S&P 500 ceasing to exist. The Dow Jones 30 Industrial Average lost 1,308 points from December 31, 2013 to February 3, 2014 and is now trying to end the first bear market rally of 2014 – the next leg down should take the Dow at least to the level of 12,000 – perhaps as low as 6,000.
Our Dow Jones 30 Industrials Short Index was re-started on May 13, 2014 and has realized a net gain of 0.57% to date (annualized return of 10.97 return on investment – far above what any commercial bank pays on cash deposits). The short index was closed and re-started on May 13, 2014 because the Dow reached yet another new intraday high of 16,735. We have continually said that the higher the Dow goes, the more bearish and dangerous this market will become. The time frame for the crash remains the same. Keeping very close tabs on the fund will allow us to avoid losses and to prepare for astronomical gains once the market truly collapses – our goal is a 175-fold increase by June 30, 2016. We don’t dare short sell any other index, because we don’t expect the other indices to survive the crash.
The long term forecast for the economy is as follows – the Dow should reach bottom by 2016, the economy should collapse by 2017 and the monetary system & government (including the currency) may all collapse by 2026. A third world war may come as early as 2030, with regional wars occurring in between now and that time.
The Ukraine remains a tinderbox, but the most important political news this past month was the election to the European Parliament. The EU consists of 28 member countries with 500 million inhabitants. The European Parliament has been an elected body since 1979 (elections every 5 years) and its members now exercise more political, legal and financial clout than do the 28 national legislatures. In short, the EU has become one massive socialist and secular mess. The governing coalition of Christian Democrats (similar to the Republican Party in the USA) and Social Democrats (similar to the Democratic Party in the USA) won a combined record low 53 percent of the popular vote. The opposition consists of the Right Wing (libertarians, social conservatives, nationalists and regional autonomists) with 34 percent and of the Left Wing (environmentalists and communists) with 13 percent of the Europe-wide popular vote. The fortunes of the political Right have risen since their nadir after World War Two, whereas the fortunes of the political Left have fallen since their post-World War Two peak. Both the Right and the Left tend to be far friendlier toward modern Russia compared to the governing coalition, which tends to obey the line of the USA (albeit in a lukewarm fashion). The Right Wing parties from France (the National Front) and Austria (the Freedom Party) will try to pool their resources to dismantle the EU. The Right Wing parties from countries with a more “insular” outlook (such as the UK, Denmark, the Netherlands and Belgium) will merely try to pull their respective countries out of the EU.
There is discord in America as well. It has come to the point where there really is not much of a difference between the Democratic Party and the Republican Party. Both parties are in favor of a large socialist welfare state (the Democrats a bit more so) and both parties are in favor of much military intervention abroad (the Republicans a bit more so). The Democratic Party was hijacked by “progressives” in 1912 (Wilson), by socialists in 1932 (Roosevelt) and by secularists in 1992 (Clinton). The Republican Party was hijacked by watered-down Democrats in 1952 (Eisenhower). The Democratic Party is supported by voters who love welfare (53 percent of the American population receives more from the system than they contribute to it) and by people who live in the past – witness their love affair with old Brown in California, with old Rodham-Clinton on the national level and with the aged Kennedy dynasty. The Republican “establishment” is not much different. Witness old John McCain who wants conflict with Russia, or old Jeb Bush who wants to erase the border with Mexico. The “new” Republican Party is very libertarian in nature (think of men like Rand Paul and Ted Cruz) – they want limited government (the reason the USA declared its independence from England in 1776) and no more foreign wars…………..remember the good advice given to us when President George Washington made his farewell address in 1797. They have a good deal in common with the National Front of France and with the Freedom Party of Austria.
The solution for Europe is a comprehensive collective economic and security union which allows for national and regional autonomy – one that includes all countries from east and west (including Russia and the former USSR) – a free market union which allows for very limited government. This will allow for true military (including nuclear) disarmament.
The early phase of the biggest economic crash in history erased 69 million American jobs from 1999 to the present (15 years). There are only 86 million full time private sector jobs left today – the next phase of the crash will have no problem eliminating what remains.
By the time they reach age 65, 95 percent of Americans are 1) retired, 2) dead, 3) financially broke or 3) financially dependent upon government handouts (Social Security, Medicare, Food Stamps). This fact comes from Fabian Calvo who runs a very successful financial blog, subscription service and real estate investment firm (his paying clients run into the millions of individuals worldwide). He is 36 years old.
Financial, Economic and Social Mood Update (May 1, 2014)
We expect the biggest socio-economic and stock market crash in recorded human history to commence in 2014 and for the major “bottom” of this massive crash to arrive by June 30, 2016 – 25 months or 792 days from today. By “bottom” we mean the Dow below 400 (as low as 95) and both the NASDAQ and the S&P 500 ceasing to exist. The Dow Jones 30 Industrial Average lost 1,308 points from December 31, 2013 to February 3, 2014 and is now trying to end the first bear market rally of 2014 – the next leg down should take the Dow at least to the level of 12,000 – perhaps as low as 6,000.
Our Dow Jones 30 Industrials Short Index was re-started on April 4, 2014 and has realized a net gain of 0.85% to date (annualized return of 11.07% return on investment – far above what any commercial bank pays on cash deposits). Our stop point will prevent any investment loss – the lowest possible return will be a return of original capital. We are comparing today’s market to the fractal from 1928-1932, when the Dow lost 86 percent (our forecast through June 2016 calls for a 99 percent decline). From 1930-1932 the Dow experienced 7 major temporary retracements on the way to a cumulative 86 percent crash. At that time, the average bear market rally endured for 40 days (a total of 280 days) and retraced 24 percent of value. A similar roller-coaster will exist in between today and June 2016.
The short index was closed and re-stared on April 4, 2014 because the Dow reached yet another new intraday high of 16,631. We have continually said that the higher the Dow goes, the more bearish and dangerous this market will become. The time frame for the crash remains the same.
The long term forecast for the economy is as follows – the Dow should reach bottom by 2016, the economy should collapse by 2017 and the monetary system & government (including the currency) may all collapse by 2026. A third world war may come as early as 2030, with regional wars occurring in between now and that time.
Russia annexed the Crimean peninsula after a popular referendum in favor of the same, and now they are making demands on the eastern and southern Ukraine – areas heavily sympathetic to Russia. We believe that this conflict if handled in the wrong way by both the Russian side and the NATO side could indeed lead to a Third World War. War is NEVER the optimal solution – more people inevitably lose much more than they gain…………especially those who are killed. There must be solutions that all sides can respect – perhaps regional plebiscites in which voters decide to be part of Russia or part of an independent Ukraine tied closer to the western world. Any long term security and economic agreements where Europe is concerned must include Russia, because Russia is part of Europe and must not be isolated. NATO (like the former USSR and the former Warsaw Pact) is a vestige of the Cold War. The EU much like the UN seeks to be a “super state” – this is also not a good alternative. Any cross-border agreements need to respect regional sovereignty, autonomy and unique cultural-linguistic-political-religious-social-economic diversity – a format like the EFTA (European Free Trade Agreement) would be much better than that of the EU. Current EFTA members include Switzerland, Liechtenstein, Norway and Iceland. Most western European countries used to be members of EFTA before they made the switch to the EU – a mistake in our opinion.
Note: the situation in Europe is becoming more precarious by the day………..inching closer to war. NATO (which includes the USA and Canada) has 2,069,000 troops deployed on the continent equipped with 27,600 artillery pieces, 10,500 tanks and 1,600 aircraft. Russia has 845,000 troops deployed on her border with Europe, but she has more reserves in Siberia – much like before Germany invaded her in World War 2 in June of 1941. Russia has 3,250,000 men under arms. The Ukraine has 1,214,825 troops – but many of them have already gone over to the Russian side complete with their equipment. China (which now has the world’s largest economy) is conducting joint naval maneuvers with Russia in the South China Sea. China and North Korea have 16.5 million men under arms. The USA had (past tense) the largest global economy from 1872-2014 (142 years).
President Putin of Russia as ordered (not asked) the coup-installed President of the Ukraine to remove all of his troops from the pro-Russian eastern and southern Ukraine. President Obama of the USA has warned Russia not to cross any NATO border, because this will trigger a global war involving North America and Europe versus the former Soviet Union.
Financial, Economic and Social Mood Update (April 1, 2014)
We expect the biggest socio-economic and stock market crash in recorded human history to commence in 2014 and for the major “bottom” of this massive crash to arrive by June 30, 2016 – 26 months or 822 days from today. By “bottom” we mean the Dow below 400 (as low as 95) and both the NASDAQ and the S&P 500 ceasing to exist. The Dow Jones 30 Industrial Average lost 1,308 points from December 31, 2013 to February 3, 2014 and is now trying to end the first bear market rally of 2014 – the next leg down should take the Dow at least to the level of 12,000 – perhaps as low as 6,000.
Our Dow Jones 30 Industrials Short Index commenced on January 1, 2014 and has realized a net gain of 1.26% to date (annualized return of 5.04% return on investment for 2014). Our stop point will prevent any investment loss – the lowest possible return will be a return of original capital. We are comparing today’s market to the fractal from 1928-1932, when the Dow lost 86 percent (our forecast through June 2016 calls for a 99 percent decline). From 1930-1932 the Dow experienced 7 major temporary retracements on the way to a cumulative 86 percent crash. At that time, the average bear market rally endured for 40 days (a total of 280 days) and retraced 24 percent of value. A similar roller-coaster will exist in between today and June 2016.
There have been 68 defaults on sovereign (national) debt around the entire world since 1998, and many more countries will default once the next phase of the crash commences in earnest. Virtually no country on earth has AAA-rated national debt anymore. The evolving geopolitical crisis centered in the Ukraine does not portend well for Russia, for other former states of the USSR, for the European Union or for the USA. It is already harming equity markets, bond markets, import-export trade and commercial banking. Eurasia would be better served with a free trade zone instead of with military alliances or with a supra-national state – a free trade zone of independent nations, provinces and regions from Portugal to Vladivostok, from Lapland to the Caucasus Mountains, and from the Arctic Ocean to the Steppes of Central Asia – something more like an expanded European Free Trade Area (EFTA) – not like the European Union (EU), not like the North Atlantic Treaty Organization (NATO) and not like the Commonwealth of Independent States (CIS).
Financial, Economic and Social Mood Update (March 1, 2014)
We expect the biggest socio-economic and stock market crash in recorded human history to commence in 2014 and for the first “bottom” of this massive crash to arrive by June 30, 2016 – 27 short months or 853 days from today. By “bottom” we mean the Dow below 400 (as low as 95) and both the NASDAQ and the S&P 500 ceasing to exist. The Dow Jones 30 Industrial Average lost 1,308 points from December 31, 2013 to February 3, 2014 and is now in the midst of the first bear market rally of 2014.
Our Dow Jones 30 Industrials Short Index commenced on January 1, 2014 and has realized a net gain of 2.30% to date (annualized return of 14.23% return on investment for 2014). Our stop point will prevent any investment loss – the lowest possible return will be a return of original capital. We are comparing today’s market to the fractal from 1928-1932, when the Dow lost 86 percent (our forecast through June 2016 calls for a 99 percent decline). From 1930-1932 the Dow experienced 7 major temporary retracements on the way to a cumulative 86 percent crash. At that time, the average bear market rally endured for 40 days (a total of 280 days) and retraced 24 percent of value. A similar roller-coaster will exist in between today and June 2016. A potentially dangerous “wild card” is the current situation in the Ukraine – the US and the EU are foolishly challenging Russia in a country which has been part of Russia’s backyard for more than 1,100 years…………an integral part of Russian Orthodox tradition and the cornerstone of the modern Russian state. Nations such as Red China, North Korea, much of the Islamic world and perhaps even India stand to support Russia in this emerging global conflict.
We are very bullish on the following metropolitan areas in the USA. In order for any state to have a good long term future, that state needs at least one vibrant metro area. We have started to choose such areas with a good long-term future over the coming 80 years or so – these are good places to base business operations and good places to raise a family. These areas include Denver (Colorado), Omaha (Nebraska), Des Moines (Iowa) and Knoxville (Tennessee). We are also looking at 3 small “micro-metropolitan” areas in Iowa, Arkansas and Missouri, respectively and will update the list as necessary.
Now we would like to address the emerging global demographic disaster, which in turn drives the emerging global social and financial-economic collapse. In a nutshell, human beings have ceased to procreate enough – thus leading to ageing and shrinking populations. In order to maintain zero population growth, every human female must give an average 2.11 live births in her lifetime (the number is above 2.0 to account for average infant and child mortality). Out of 285 independent countries and dependent territories on earth, just 109 of them or 38 percent have a fertility rate of 2.11 or more. Areas with the highest fertility rates of between 3 and 8 children per woman include a narrow band of countries in Central Africa plus Yemen, Afghanistan, the Ivory Coast, Zimbabwe, Kenya, Jordan, Iraq, the Philippines, Papua New Guinea, Guatemala, Honduras and Belize. But at current trends, even this will not last much longer.
The worldwide decline in fertility rates is universal – it is clearly evident on all continents, in all countries, among all cultures, among all ethnic groups, all races, all languages, all faiths, all religious groups and all income groups from rich to middle class to poor. It can be explained by the emerging negative social mood that is driving the emerging social and economic collapse – people of all stripes simply do not have positive faith in their future. There is a universal fear of the future. It will take at least 80 years to turn the tide of falling demographics. This turn of events should come after the nadir of the coming crash.
What does this mean for the global economy? All of modern commercial banking, insurance and the pension system depend upon high levels of confidence and an environment where many people contribute to the economic base – but where few people draw upon that same economic base. A young, vibrant and growing population can and will support such pyramid schemes, but an ageing and shrinking population will do the exact opposite. To secure economic health, one needs many workers – but fewer retirees. One needs many people who purchase insurance policies – but fewer people who make insurance claims. An economy needs many savers and depositors, but fewer people who go into debt and/or cease being net savers of capital.
This also explains why taxes are rising and why government benefits are being cut at the same time – not fun for any of us. It also explains why most left wing and centrist politicians in areas such as North America and Western Europe are pushing for massive (even illegal) immigration from regions such as Latin America, Eastern Europe, the Middle East and Africa – they are desperately looking for more people to contribute to the tax base, the labor base and for more votes for themselves. But none of these plans will succeed – the only thing that will reverse collapsing social demographics, deflationary economic depression and collapsing finances is a rise in human fertility rates – in short, the world needs to return to traditional nuclear families headed by fathers & mothers, more children (no less than 3 per nuclear family) and the extended family of multiple generations and cousins living under the same roof and in closely-knit communities – the only true social welfare system on earth that ever has worked and that ever will work.
Financial, Economic and Social Mood Update (February 1, 2014)
We expect the biggest socio-economic and stock market crash to commence in 2014 and for the first “bottom” of this massive crash to arrive by June 30, 2016 – 28 short months from today. By “bottom” we mean the Dow below 400 (as low as 95) and both the NASDAQ and the S&P 500 ceasing to exist. The Dow Jones 30 Industrial Average lost 1,033 points in January 2014.
Our Dow Jones 30 Industrials Short Index commenced on January 1, 2014 and has realized a net gain of 6.64% to date (annualized return of 78.19% return on investment for 2014). Our stop point will prevent any investment loss – the lowest possible return will be a return of original capital.
A few comments on the auto market – China realized record new car and truck sales in 2013, and the first Chinese retail car brand should enter the US car market in 2015. Volkswagen of America realized their 2nd best unit sales in the US market in 2013 since they entered the US market back in 1949 (this includes VW’s sister brands of Audi, Porsche and Bentley). Holden GM will cease manufacturing cars and trucks in Australia entirely – they will soon import all new vehicles from Asia (GM-Daewoo) and Europe (GM-Opel). Ford Motor Company surpassed Toyota to become the 5th largest imported brand in China after Volkswagen, GM, Hyundai and Nissan. Buick had their best worldwide sales year ever in 2013 (surpassing the Buick all time high of 1984) due to robust sales in China – Buick sells many more cars in China than in the US. Fiat now owns 100% of Chrysler due to their buyout of the UAW Pension Fund bailout share. GM has divested its 7% share in Peugeot-Citroën of France and Peugeot is thus looking for a new global partner in Dongfeng of China. The new Peugeot S.A. would thus be 14% owned each by 1) Dongfeng of China, 2) the Peugeot family of Burgundy and by the French government in Paris (total 42% by 3 large shareholders). Volkswagen A.G., Hyundai-Kia, Daimler A.G., BMW A.G. and Fuji-Subaru all had record worldwide unit sales in 2013.
Now for some analysis of individual countries – we will only comment on countries with a positive long-term outlook – countries with negative outlooks should be avoided due to economic problems resulting from too much corruption or too many natural disasters.
We fully expect both China and India to become the largest national economies over the course of the coming 8 decades – this will likely be realized within the next 10 years. In spite of being the first victim of deflation and in spite of very bad demographics (too few young people) we expect Japan to emerge as the 3rd largest global economy due to fundamental strengths. Another emerging nation to watch on the Indian subcontinent is Pakistan – we see them having fundamental strength compared to other emerging markets. Our long term prognosis for the USA is similar to that for Japan. In spite of being saddled with 81 percent of the world’s debt and in spite of facing the largest social and economic crash in 5,000 years, we fully expect the USA to secure a long-term global rank of number 5. Our long term forecast for Germany is similar to that for both Japan and the USA – we believe that in spite of debt problems within the EU Germany will emerge as the strongest country on the European continent. Another emerging economy we’re considering on the Indian subcontinent is Bangladesh – similar to our long-term view of Pakistan. We expect Russia to emerge as the number two long-term player in Europe after Germany – both countries are indispensable to long-term peace, stability and prosperity in Europe. We consider the biggest and strongest long-term players in Latin America to be Mexico and Brazil. We believe that the number 3 player in Europe will be the UK (England) even after we anticipate possible Scottish national independence in 2014 – the trio of Germany, Russia and England are important to Europe’s long-term future. France will emerge as a significantly smaller player in the new Europe. The same holds true for countries such as Spain, Poland, the Czech Republic, Hungary, Austria, Switzerland, Slovakia, Croatia, Portugal, Sweden, Ireland, Slovenia, Italy (a very diminished role compared to today), Finland and Norway. Other countries around the world with relatively good outlooks (compared to the bulk of countries that won’t even make the list) are located in regions such as former Soviet Central Asia, east Africa, South America, the Indian subcontinent, Turkey, North Africa, Canada, Australia, New Zealand and one country in southern Africa (Botswana).
Next month’s issue will focus on 1) specific areas of the USA on which we are long-term bullish and 2) the magnitude of the global demographic disaster, which in turn drives the emerging deflationary collapse – the most massive social and economic collapse in perhaps 5,000 years of recorded human history.
For access to archives and more, please visit www.financialeconomicupdate.com and/or our mirror site at http://www.theborromeofamily.com/the-marc-nonnenkamp-show/
Financial, Economic and Social Mood Update (January 1, 2014)
The Dow Jones 30 Industrial Average (16,588), the S&P 500 Index (1,849) and the Dow Jones Wilshire 5000 “total market index” (19,706) all made new intraday nominal record highs on December 31, 2013, but these blue-chip indices are among the last asset classes to be doing so. Sub-indices for transportation stocks, utility stocks, banking stocks, mining stocks, construction stocks and commodities reached their respective highs long ago – ditto for the broader market (including all publicly listed corporations), which is reflected in the NASDAQ indices. The current bubble in the global real estate market is similar – highs are being reached in certain “core” metropolitan markets – certain larger cities – but peripheral markets (the bulk of real estate markets) have remained relatively weak. The scary fact is that bank lending continues flowing into this inflated asset class.
The important news is that Japan has never emerged from net deflation since 1989, and that the Japanese economy has made no net progress in two decades. Equally important is that at least six European Union (EU) national economies have finally slipped into deflation – these being Greece, Ireland, Portugal, Spain, Italy and the Netherlands. Also very important is that US producer prices (which measures wholesale inflation) have been in deflationary mode for three consecutive months. Add to this fact that the US Central Bank (the Federal Reserve System in place since 1913) will commence the decline of its bond-purchasing program immediately, to be decreased by 82 percent over the coming 7 months. Home prices, sales and overall employment continue to decline in the USA.
Gold prices remain 37 percent below their record highs, and crude oil is 33 percent below its record high. Another very important indicator of mass social mood is that US President Barack Obama’s popularity into his 5th year as President is below that of all previous two-term Presidents excluding Richard Nixon. By the time the crash is complete, we fully expect Obama to break all previous records for unpopularity. Another socialist President headed for likely failure is Francois Hollande of France – his popularity has fallen even faster (into the mid 20s) placing him on par with US Presidents such as Jimmy Carter and Harry Truman (each at 24 percent), both of whom left office as the next least-popular American Presidents after Richard Nixon (19 percent approval in 1974).
For access to archives and more, please visit www.financialeconomicupdate.com
Financial, Economic and Social Mood Update (December 1, 2013)
The Dow Jones 30 Industrial Average (16,174), the S&P 500 Index (1,813) and the Dow Jones Wilshire 5000 “total market index” (19,275) all made new intraday nominal record highs on November 29, 2013, but this is not the most important story. The global economy is faltering in a very big way, and my forecasts are coming true – the lagging stock market indicators are among the few indices at record nominal highs due to the last vestiges of extreme social optimism within a drawn-out bear market rally.
There is simply too much debt on the planet, too much of it is in the form of financial derivative instruments and it is highly concentrated. 82 percent of the debt in the world is owed by the USA, 12 percent by the EU, 5 percent by Japan and one percent by the rest of the world. Deflation will soon grip both Europe and the USA as it has gripped Japan since 1989 – but this coming deflation will be far bigger and much more rapid in taking hold. Because of the magnitude of the crash, there will be very few places to hide. Two months ago, the analysts at Elliott Wave International (www.elliottwave.com) revisited an older forecast wherein the Dow would rise to the level of 16,000 (where we are today) and crash below 100 within a time span of just 3 months. This is very likely, and it highlights the need for people to move their assets to safer locations / institutions as soon as possible.
Deflation is the opposite of inflation, and the concept is difficult for many people to understand. Deflation is caused by a contraction in the overall supply of money, of which credit is the largest component. Due to massive defaults by banks, credit unions and insurers, surviving cash will increase in relative value – i.e., its purchasing power will soar. The solidity of a financial institution is determined by the quality of its loans – and most loans today are in the form of real estate mortgages. Asset based lending is susceptible to financial bubbles – credit inflation – and will be devastated in a deflationary collapse. Asset based loans (unlike business loans) are not self-liquidating………..they have no natural source of income generation. Government “insurance” of bank deposits and pensions will become meaningless, because the government’s source of income and wealth – namely tax receipts and the ability to generate more credit / borrow more money – will evaporate. Tax receipts have never recovered from the peak of 2007-2008, and the bond market begun its collapse in the summer of 2012………this phenomenon will merely accelerate, and interest rates / yields will soar to levels well beyond what we saw in 1981 – in other words, well into double digits.
Those few people who will “win” in a deflationary environment are those who lose the least, because most people will literally lose everything they have.
Another aspect to consider in the modern world is the breakdown of infrastructure and the implications of this breakdown. Think of the tsunami in Fukushima, Japan or of the recent typhoon (= hurricane, cyclone) in the central Philippines. The velocity of the emerging crash will cause automated systems to fail – buy and sell orders for assets will literally go lost as too many people head for the financial “exit doors” at the last moment. Depositors will make a run on the banks, and only the first few depositors to do so will get their money – everyone else will be left to divide pennies on the Dollar from failed financial institutions. Massive natural disasters will merely add to the misery. People will no longer be able to make a living in areas devoid of basic physical infrastructure.
The safest assets remain cash notes (currency) and precious metals (mainly gold) stored in private institutions in havens such as Switzerland. Such conservative institutions have very high capital reserve ratios – often up to 20 and 30 percent of their asset base. Gold will deflate to a certain degree (much like all other assets) but unlike them gold will retain its long-term value as the number one medium of global exchange. Gold is the only true “global” currency.
For access to archives and more, please visit www.financialeconomicupdate.com
Financial, Economic and Social Mood Update (November 1, 2013)
The Dow Jones 30 Industrial Average (15,721), the S&P 500 Index (1,775) and the Dow Jones Wilshire 5000 “total market index” (18,781) all made new intraday nominal record highs on October 30, 2013, but this is not the real story. The economy is already faltering in a very big way, and my forecasts are coming true – these lagging stock market indicators are the only indices at record nominal highs due to the last vestiges of extreme optimism within a bear market rally.
There is ever more evidence of the massive magnitude of the emerging crash, which will be the largest social and economic crash in recorded history. Socialized medicine in the USA will not translate into universal healthcare, but into the bankruptcy of health care in America. Not many people are signing up for the so-called “affordable” health care act (i.e., “Obamacare”) but the biggest news is in the population group avoiding it by a whopping 69 percent – those people aged 18 to 34. These young adults cannot afford it, and even more importantly they simply don’t need it due to their good health. Because they are deserting the system in droves, insurance premiums for everyone else will skyrocket. Just as in any socialist pyramid scheme, socialized medicine needs such people to partake in order to subsidize older and unhealthy people in this case.
Puerto Rico (a US Commonwealth) has the worst finances of any state or dependency of the USA. Their public pension system is merely 3 percent funded, and the Commonwealth government of Puerto Rico has literally run out of money. They depend upon transfer payments from the federal government, and are now asking commercial banks to lend them money to keep them afloat. Puerto Rico’s credit rating is so poor that they can no longer raise money in financial markets, and their interest rates are on par with those of Greece.
Commercial banks in the USA are already fearful of losing lucrative low-interest deposits and they are worried they will not be able to cover cash withdrawals due to their very weak capital reserves. Remember how important “safe banks” are? Capital controls in the USA are not far away – you will have to use your “wits” to survive. Be creative and think outside of the box!
Mexico (a country with 117 million people) continues to rely on illegal immigration to the USA as a “crutch” for its own economy. 17 million illegals reside in the USA and 33 million more Mexicans want to migrate to the USA. The Mexican federal government has issued long term bonds with a maturity of 100 years – the longest and riskiest term of any debt on earth. In the most recent Mexican presidential election fully 70 percent of the electorate voted for socialist or communist political parties.
Few people promote what I call “unrestricted capitalism” – something that unfortunately does not exist. I believe that the country which came closest to a free market was the America we knew from Jamestown in 1607 until the onset of World War One. That freedom produced the greatest, the most prosperous, the strongest, the most vibrant and the most blessed country in modern history.
Most of most powerful people in the world do not promote capitalism – they promote the socialist welfare state and one-world government. The reason for this is their fear of competition – they simply do not want to see other people challenge their wealth but especially their political power. John Davidson Rockefeller, Sr. called competition “evil.”
I believe the opposite – a world without competition is evil and robs the human spirit. Competition creates excellence and prosperity, and there is no greater equalizer of wealth than the free market – the free market creates opportunity for the most people, and not government.
Germany (the largest and richest member of the European Union) had a national election in September in which the political spectrum moved toward the left. Germany has yet to form a new government and basket-case EU countries such as Greece and Portugal are already in need of additional bailout money from German taxpayers.
The Automotive Market
Volvo AB of Sweden is a large truck manufacturer separate from Volvo Cars – the latter is owned by Geely of China. Volvo AB makes large commercial trucks under the brand names of Volvo (Sweden), Mack (USA) and Dongfeng (China). They have virtually eliminated R&D spending in an effort to improve their profits. This is terrible for long term viability, but the move is likely being undertaken to prepare the company for a sale / merger with a larger and stronger group. Volvo AB owns 45% of Dongfeng.
The short-lived “alliance” between General Motors of the USA and Peugeot S.A. of France is unraveling. Peugeot needs a cash infusion to survive, and is hoping that the French government and Dongfeng of China will together purchase 50% of Peugeot S.A. How can his happen if Volvo AB-Dongfeng will itself go up for sale?
Volvo Cars of Sweden (owned by Geely of China) and Peugeot S.A. of France are in a very similar situation to Volvo AB. Their product portfolios are ageing, and they simply don’t have the necessary R&D capital to ensure future viability.
Tesla Motors of the USA is a bubble waiting to burst. Their market value has soared to US $20 billion but their revenue, profitability and unit sales will never justify this. Non-automotive companies such as Facebook, Google and Apple are in the same predicament – they are massive bubbles waiting to pop.
Many automotive brands have died since the market peak of 1999. They include Mercury, Plymouth, Hummer, Saturn, Oldsmobile and Pontiac. Before the current weak “recovery” began in March 2009 Ford considered terminating Lincoln and GM considered terminating both Cadillac and GMC. Ford is now very strong, but GM is not.
Expect to see many more brands die off during the coming collapse.
Financial, Economic and Social Mood Update (October 1, 2013)
The equity markets made new nominal highs yet again on September 18, 2013 which makes the situation in the market even more dangerous (the Dow has fallen 600 points since then). I believe we are now on the cusp of one of the largest social and economic crashes in 5,000 years – even more destructive than the fall of the Western Roman Empire 1,500 years ago. The Dow may peak around the level of 16,000 and crash to a level below 100 within a time span of three (3) months – a decline of 99,4 percent. This has not yet commenced, but when it does – watch out. There is very little time left to sell real estate, collectibles, stocks, bonds and move cash into safe banks, credit unions and insurance companies.
This makes the mechanics of trading the market even more challenging. The global debt bubble of US Dollar-denominated debt (81 percent of the world total) may thus deflate within a time period of just three (3) months. What does this mean? It means that the US Dollar’s value will absolutely soar to the sky within those 3 months, after which time it will fall to the ground as absolutely worthless. One can only imagine what this phenomenon will mean for world peace, for social unrest and for the financial future of millions or even billions of human beings.
The most important indicator for this deflationary crash is collapsing credit – all in spite of the fact that the US Federal Reserve Bank is “pumping” the economy with US $1.02 TRILLION in new credit per year. For the first time since the Great Depression, credit is finally contracting in both Europe and America – something that did not occur during the stock market crashes of 2000-2002 and 2007-2009. Both the CPI (Consumer Price or “inflation” index) have fallen (gone into negative territory) in 2013 to date – a negative 0,81 percent in Europe and a negative 0,10 percent in the USA. The last time this happened in Europe was in 1927 and the last time this happened in the USA was in 1932. The Great Depression US stock market crashed in 1929 and did not recover its 1929 value until 1949 – a lag time of 20 years. This time around, the US stock market “real value” peaked in late 1999. It will likely not recover until 2100, or 101 years since it began to fall. Japan was the first country to collapse this time around, and in 2013 they are still at the level they first reached in 1983 – in other words, no financial progress in 30 long years. The road ahead will be long and grueling for Japan, Europe and the USA.
The likely stars of the coming century will be countries such as China, India, Russia and numerous other contenders in the formerly communist and developing world – 144 nations out of 262 total independent countries worldwide. One market likely to turn up very shortly is Bangladesh.
The Automotive Market
A record number of cars and trucks are on schedule to be manufactured worldwide during 2013 – 87,309,118 based upon actual output for the first 6 months of the year. The problem is that sales are not keeping up with output – they are running at an annual rate of 85,283,054 – which translates into overcapacity and the need to cut prices in the near future. This is yet another powerful deflationary trend.
The ranking of global markets is clear – Australasia is a clear number one (50% of the total), Europe-Africa is a clear number two (37%) and the Americas are a clear number three (13%). This takes into account not merely output and sales, but the location of corporate ownership – in other words, who owns the income.
The European market is crashing first (ditto with the European equity market) – sales of new cars and trucks fell to just 653,872 units in August 2013 – the lowest monthly sales in at least 24 years. German car companies hold 53% of the European market followed by the French (24%), the Japanese (6%), the Italians (5%), the Americans / British / Chinese / Russians (2 percent each) and the Koreans / Indians / Austrians / Malaysians (one percent each). The large brands such as Peugeot-Citroën, Volkswagen, Audi-SEAT and Opel-Vauxhall are falling the hardest today. Sales were kept afloat with incentives for too long, and now the painful result has begun to manifest.
The European national markets falling the hardest compared to last year are Cyprus (down 42 percent ), the Netherlands (minus 34%), Romania (minus 24%), Croatia and Ireland (minus 19%), Finland (minus 16%), the Czech Republic (minus 14%), France-Italy-Switzerland (minus 11%), Sweden (minus 10%), Austria (minus 9%), Germany-Luxembourg (minus 8%), Greece-Latvia-Slovakia-Russia-Ukraine (minus 7%), Spain-Malta (minus 5%), Hungary-Serbia (minus 4%), Armenia (minus 3%), Bulgaria-Lithuania-Bosnia (minus 2%) and Poland-Slovenia (off by one percent compared to 2012).
Financial, Economic and Social Mood Update (September 1, 2013)
The US stock market has not broken the nominal high it reached on August 2, 2013, which gives us the opportunity to discuss something more important – the reasons that make this emerging crash unavoidable.
The world is facing the most massive social and economic crash in at least 1,500 years of recorded history. This is a deflationary collapse, driven primarily by the massive amount of debt that cannot and will not be paid off. Debt and credit are related to each other as are interest rates / yields and bond prices – so this is the market we need to look at very closely. And since 81 percent of the world’s financial assets are denominated in US Dollars, we need to look specifically at the US market.
Wholesale (i.e., non-retail or non-consumer) interest rates / yields will be found in financial instruments issued by the US federal government, by US state and local governments (municipal bonds) and by US corporations. Long term and medium term rates have been climbing for more than a year, with their corresponding note and bond prices collapsing. Short-term rates (with maturities ranging from 2 years down to readily liquid money market accounts) are still very low.
Long-term money has always been of higher risk merely by definition – the farther one goes into the future, the less one knows. But for the first time in many decades, we are now seeing a marked difference in interest rates offered by safe banks and by non-safe banks (safe banks comprise about 5 percent of all financial institutions). The non-safe bank or credit union will offer to pay you very little on your short-term money, but markedly more on your long term deposits. The safe bank or credit union will pay you comparatively more on your short-term money and less on your long-term deposits. In other words, the safe bank can operate with more confidence in the short term – and they have no need to pay more for long-term money.
When (and not if) short term interest rates finally go up, we will see the equity and debt markets cave in. The entire market needs only about one month of time to crash completely and the time frame for this to happen is in between today and the next 3 years – or by the year 2016. We will probably see a marked deterioration in the equity and debt markets much sooner, i.e. by 2014 or 2015.
The Automotive Market
My English-German book “Volkswagen: a Car for the People – a Success Story” (2011) told about how the Volkswagen Group of Germany has become by far the most profitable and financially liquid auto group in the world. The first phase of the crash took place from 2000 to 2002, the second phase from 2007 to 2009 and the third and most violent phase is upon us right now. Many large companies were “bailed out” with taxpayer money – names like Citigroup, the Bank of America and American International Group (AIG) Insurance come to mind. The same was true in the automotive industry – most of the large auto companies in the USA (General Motors and Chrysler), Japan and Europe were bailed out by their respective national governments – without a bailout, they would have gone under. Ultimately the “poster children” of the bailout will not survive – and the same holds true for the highly indebted governments that bailed them out – the governments of the USA, Japan and the European Union (EU).
Many auto groups such as General Motors, Fiat-Chrysler and Peugeot-Citroën have returned to profitability (for the time being) but they have done so by spending very little on R&D (Research & Development). Volkswagen is very profitable, but spends massive amounts of capital on R&D. What does this mean? Within just a few years, the other auto companies will have almost no new product, whereas Volkswagen will have a profusion of new product and new technology.
Which are the most financially liquid vehicle and auto groups in the world listed in order of financial strength (those who can afford to invest for the future)? They are 1) Volkswagen of Germany, 2) BMW of Germany, 3) Daimler of Germany, 4) Hyundai-Kia of South Korea, 5) Honda-Acura of Japan, 6) Renault-Nissan of France & Japan, 7) Caterpillar of the USA, 8) John Deere of the USA, 9) Volvo Truck of Sweden, 10) Tata Motors of India, 11) BYD of China, 12) Chongqing-Lifan of China, 13) Paccar of the USA and 14) Geely-Volvo Cars of China. If the company is not on this list, they will have liquidity problems very soon – and they may not survive the third phase of the economic crash.
There are other powerful social and economic forces at work that will challenge even the strong automakers. What are they? In the USA, Europe and Japan younger people are simply buying far fewer cars than their parents and grandparents. There are fewer younger people today compared to earlier generations due to smaller families and a much lower birth rate. The few successful young people of the developed economies are migrating into much larger cities for work and for social contact – large cities where private vehicles are not really necessary due to population crowding, public transit and automotive cost of storage & maintenance.
The hottest developing markets are beginning to meet the challenge of too much traffic and too much environmental pollution (poor air, water and ground quality due to exhaust emissions and industrial waste from factories). The biggest market of all in Mainland China is already restricting driving private vehicles (odd-even license plate days for driving in the largest cities) and they are being more cautious about approving new manufacturing plants. BMW’s most recent application for a new factory in China has been turned down for the time being due to environmental concerns. China is turning toward solar energy in a big way, and other (cleaner) alternatives exist as well. Much of the world’s best solar energy technology comes from Germany, but South Korea is leading the way in converting waste (garbage dump trash) into clean bio-diesel for vehicle and commercial power usage. The largest global effort underway after the international space station is nuclear fusion technology based in France. This is the same energy that powers our sun and all of the stars in the universe – it is limitless, safe, clean and very inexpensive. Nuclear fusion power plants are not science fiction and will likely be used all over the world after 2050. In between now and 2050 natural gas, bio-diesel (converted from waste) and solar energy are the cleanest and most cost effective alternatives to crude oil, coal and nuclear fission technology (nuclear fission is the opposite of nuclear fusion). Ethanol technology is not acceptable because it diverts food for human beings and farm animals (corn, palm leaves and sugar cane) into energy.
Financial, Economic and Social Mood Update (August 2, 2013)
The Dow Jones 30 Industrial Average made a new intraday record high on August 1, 2013 (15,650.69) and the S&P 500 Index did so as well (1,707.85). This makes the financial markets in the USA even more dangerous. Markets in Europe, Asia, Africa and Latin America have already turned sharply down for the most part. Two markets which we should monitor closely are that for gold bullion and the US Dollar. Gold is heading down along with most equity and debt markets, whereas the US Dollar will head upward until the global credit bubble collapses to the ground – a necessary deflation of grossly overextended mostly US Dollar-denominated credit.
The most difficult key to decipher is that of market timing. Gold’s maximum downside target heading into the middle of 2014 is US $742.44 per oz. Crude oil (both WTI and Brent) may fall to just $50 per barrel by year end 2013. The WTI benchmark stands for “West Texas Intermediate” and Brent crude is traded on the London exchange. Any difference in price refers not to the “quality” of crude oil (sweet, sour, slop, etc.) but to transportation costs of getting the refined product to the wholesale – retail market. Due to the boom thanks to better technology (fracking, deep vertical and horizontal drilling, etc.), 25 percent of all oil rigs on earth are now located in the US State of Texas. Gold and crude oil are perhaps the most important commodities – even more important than national currencies.
The European Union (EU) bailout has touched 8 member countries thus far: Greece, Spain, Portugal, Ireland, Romania, Hungary, Cyprus and Latvia (ranked in order of total cost). The important change for the future is that henceforth taxpayer funds will not be able to insure all bank deposits. The worst case to date is Cyprus, where depositors with more than 100,000 Euros in the bank (roughly equal to US $132,000) have lost 47.5 percent of their savings – turned into worthless bank stock. But all depositors are affected – people are severely limited as to how much money than can withdraw from their accounts. Once the global markets collapse I believe that more than 90 percent of investor capital will be lost – the same sad story of Cyprus will be repeated throughout Europe, North America and Japan. When will this happen? My guess is as soon as immediately and as late as 2016.
The economies with the most potential over the coming 75 years include the 30 hottest economies of the former 2nd and 3rd world – Mainland China, India, Russia, Mexico, South Korea, Indonesia, Iran, Saudi Arabia, Taiwan, Thailand, Egypt, Pakistan, Colombia, Malaysia, Nigeria, the Philippines, Hong Kong, the Ukraine, Peru, Singapore, Vietnam, Chile, Bangladesh, Algeria, the UAE, Israel, Iraq, Kazakhstan, Qatar and Morocco (listed in order by size of total PPP GDP).
Note – 2nd world refers to formerly communist countries and 3rd world refers to formerly developing (poor) countries. 1st world refers to formerly developed (rich) countries.
Financial, Economic and Social Mood Update (July 1, 2013)
The Dow Jones 30 Industrial Average has lost 1,000 points in the past month, but there is much more to the real story. Equity indices are crashing worldwide – notably in Europe, Japan and Brazil. An even bigger story is unfolding in the bond market. Liquidity is finally drying up, bonds are crashing and yields are going up. Investors who withdrew cash from banks and put that money into bonds are losing their shirts. Governments worldwide (notably in North America, Europe and Japan) now pay more to fund their debt than most commercial banks do.
The massive stimulus package in Japan (even larger in nominal terms than that in the USA) has already flopped. The US Federal Reserve’s policy of “quantitative easing” is winding down to end entirely by June 2014 – not due to the Fed Chairman’s choice (as is reported in the news) but because the USA is finally running out of credit. Central banks follow the market – they do not lead it. Central banks merely respond to what the market dictates. And markets are driven by the collective social mood of billions of human beings – not by a few powerful individuals. Remaining tax revenues will shrivel up, and massive cuts in benefits, pensions, health care, welfare programs and employment are coming to the public sector. Government agencies, school districts, police departments and fire departments will have to cut staff en masse. Banks and insurance companies will soon fold because so many of their loans cannot and will not be paid off or even serviced (monthly debt and mortgage payments) by borrowers. Savers will lose their savings, and pensioners and beneficiaries will lose their pensions and annuities.
Put your money into one of the few safer financial institutions before it is too late to do so.
The recent bank “bailout” in Cyprus (one of the 27 member nations of the European Union or EU) penalized depositors with more than 100,000 Euros in the bank (roughly US $130,000) – they lost 60 percent of their savings above that amount. The end result was a 37% loss of all money deposited in Cyprus.
The European Union (EU) recently passed a new rule with respect to all future bank “bailouts” in the 27 country union. Depositors and shareholders will have to surrender 8 percent of their money before the governments step in to help the banks. Once the stock market crashes I expect the actual losses to exceed 90 percent of all wealth – liquidity is simply drying up.
Financial, Economic and Social Mood Update (June 2, 2013)
The mania in the market sent the Dow Jones 30 Industrial Index (15,542), the S&P 500 Index (1,687) and the Dow Jones Wilshire 5000 Total Market Index (17,799) to record nominal highs on May 22, 2013. But nevertheless, the specter of a global deflationary crash remains more powerful than ever. Total assets worldwide equal US $1 QUADRILLION of which 59 percent are financial derivative instruments (largely held by 15 global money center banks), 13 percent un-funded liabilities (largely of the American welfare state) and 6 percent total debt of the USA (both public and private sector).
The value of the market in real terms (taking purchasing power into account) is down by 77 percent in terms of gold since 1999. The US Federal Reserve Bank has a balance sheet of $4 TRILLION, largely of toxic mortgage debt. Silver (one of the most important industrial metals) has fallen by 53 percent since April 28, 2011. The government of Japan recently passed a stimulus package even larger than that in the USA, signaling Japan’s imminent doom in succumbing to a deflationary collapse which began all the way back in 1989.
Economic growth has stalled in much of the developed world (many countries in the European Union are already going backwards) whereas growth remains robust throughout much of Asia, the former USSR, Africa and South America. Real wealth is growing by leaps and bounds in the former second and third world countries. Begging / panhandling has fallen off, rural populations can now find better employment than as personal servants, squatter camps are not as common, construction is booming (both commercial and residential), infrastructure is improving (energy supply, road systems, water systems) and many entities (both public and private sector) are “growing up” into first-world status. The rapidly growing middle classes are purchasing new homes, condominiums, automobiles and consumer appliances like never before. Shopping malls better those in developed countries with greater size, more stores, better goods and more consumer activity. Large commercial trucks (a strong sign of good business) crowd still inadequate road networks. The largest economies in the former second and third world include 1) China, 2) India, 3) Russia, 4) Brazil, 5) Mexico, 6) South Korea, 7) Indonesia, 8) Turkey, 9) Iran, 10) Taiwan, 11) Saudi Arabia, 12) Thailand, 13) Egypt, 14) Pakistan, 15) Colombia, 16) Malaysia, 17) Nigeria, 18) the Philippines, 19) Hong Kong and 20) the Ukraine.
Financial, Economic and Social Mood Update (May 2, 2013)
The latest (most up to date) “turn date” time frame for the equity market is between April 22 and May 2, 2013. The forecast for both the EU and the USA is ultra-bearish. As I mentioned last month, the first domino to fall is Cyprus, a small member state in the European Union (EU). Their GDP is forecast to fall as much as 15 percent in 2013-2014, and the official unemployment rate in Cyprus is already 30 percent. The Euro can no longer function as a single supra-national currency. How can Euros from bankrupt / near bankrupt countries such as Cyprus, Greece, Ireland, Spain, Portugal, Italy, France, Belgium and Slovenia trade the same way as Euros from healthier countries such as Germany, Austria, Luxembourg, the Netherlands, Slovakia, Malta, Estonia and Finland?
On April 11, 2013 the Dow Jones 30 Industrial Index reached 14,887.51 and on May 2, 2013 more importantly the S&P 500 Index reached an all-time record nominal high of 1,598.60 – thus surpassing the high reached back on October 9, 2007. The Wilshire 5000 Total Market Index reached a record nominal high of 16,542.61 on April 11 – this index includes all publicly traded corporations listed in the USA. This is yet another ultra-bearish bear market rally signal that the most extreme social and economic crash in 5,000 years will take place very, very soon. The European stock market (the Euro Stoxx 50 Index) has already fallen by 52 percent compared to its nominal high from March 2000 – 13 long years ago. Europe has NEVER exceeded its “real” purchasing power high from 2000, thus confirming that the Europeans will crash BEFORE the USA.
The Dow Jones 30 Industrial Average will likely crash to a level below 100 (this is no typo) in between now and sometime in the year 2016. The NASDAQ and the S&P Indices will likely cease to exist. The Dow will probably “recover” after 2016 to a level around 4,000 – after which it will crash again below 100 by 2023. All of this is a result of declining social mood and deflation – and it will make many countries very dangerous places to be.
A demographic nightmare of epic proportions is unfolding in the USA – too many unproductive people versus too few productive people. 70 million Americans already receive Medicaid, and with the advent of Obamacare in January 2014 this may increase by another 84 million so-called uninsured and underinsured Americans. Add to this 33 million illegal aliens who may gain legal status with so-called immigration reform and 33 percent of Mexicans who are considering emigration to the USA. Many of the same people receive social welfare benefits such as Food Stamps (20 percent of US households), disability and worker’s compensation (14 million people) and unemployment benefits (12.5 million people). Add to this 50 million regular retirees receiving Social Security and 44.1 million Americans already living abroad or legally eligible to do so. A paltry 13 percent of the US population (41 million workers) is now supporting the remaining 87 percent. When the US Dollar eventually loses its global reserve currency status the USA will be doomed as a country – the US will no longer be able to borrow money to subsidize its so-called lifestyle.
On April 7, 2013 it was reported in the news that Portugal can no longer pay its government employees – they will be compensated in the form of government treasury bills (debt) instead of cash, and public sector retirees in Portugal will have their pensions cut by 6.4 percent……….a drop in the bucket considering the dire situation of Portugal. Many Portuguese are already migrating to countries such as Germany, Brazil, Angola and Mozambique. In 2012 Greece cut pension payments by 20 percent, and cut pay for existing employees depending upon industry sector by 20 to 50 percent. Teachers and school staff had their pay cut 33 percent and employees of utility companies were cut by 50 percent. Greeks are migrating to countries such as Germany, the Netherlands and Australia. The official unemployment rate in Greece and Spain is about 25 percent, with youth unemployment over 50 percent. Entire neighborhoods and real estate developments lie vacant in both Ireland and Spain. Belgium will likely separate into Flemish, Walloon and German nation-states, and the popularity of new French President Francois Hollande is at 27 percent and sinking by the day. The UK (an EU member but not part of the Euro currency zone) has already cut its national budget (especially health care) by a draconian amount. All of this is just the start of the massive DEFLATIONARY spiral.
Financial, Economic and Social Mood Update (April 2, 2013)
The Dow Jones 30 Industrial Average reached an all time record intra-day high nominal value of 14,677.44 on April 2, 2013. This is an ultra bearish signal that will likely mean the most severe social and economic collapse in 5,000 years of recorded human history. This would take recorded history back to the time of great deluge or Biblical flood of Noah’s Ark. The emerging crash should be the most severe and rapid in both the European Union and in the USA – in this order. The EU should reach bottom in a year or so whereas the USA will take about 3 years to hit bottom. The crash in countries such as Japan, Australia and Canada is moving in slow motion, meaning that they may take decades to reach bottom. Most of these currently industrialized nations will turn into 3rd world countries – in fact, Greece has already been re-classified as a developing country.
The so-called Euro Zone and IMF bailout of Cyprus sets an extremely dangerous precedent. Politicians will confiscate bank checking, savings and/or time deposit accounts (up to 60 percent thereof from account holders with more than US $130,000) to bail out the bankrupt socialist welfare state, its mountain of unproductive constituents and banks with mountains of bad loans. Furthermore, bank depositors will not be allowed to take more than the equivalent of a few thousand Dollars out of Cyprus and will not be allowed to withdraw the equivalent of more than a few hundred Dollars per day from their accounts. The European Union (EU) and the USA are the center of the collapse of the global welfare state. What is happening in Cyprus today is just the start, and it is a fulfillment of more than a decade of Elliott Wave International forecasting. FDIC deposit insurance is no better than a sticker on a window and banks will not be bailed out because there are not enough financial resources to do so. Governments are running out of tax revenue, so depositors will be left in the lurch.
Financial Update (March 1, 2013)
Nomura Securities (the oldest investment bank in Japan) is the first major global brokerage house to call for an imminent market crash of up to 50 percent. It’s a definite step in the direction of better accuracy, but the market crash we face will much worse than that – more like 99 percent within the coming few years.
The first major “mainstream” media outlet, moneynews.com (featured on Bloomberg.com) finally posted an article on February 19, 2013 calling for a stock market collapse of up to 90 percent. The research was done by Robert Wiedemer, whose YouTube video on the subject has been viewed 40 million times. The culprit for this emerging disaster is of course the massive credit inflation policy of the Federal Reserve System: http://www.moneynews.com/Outbrain/billionaires-dump-economist-stock/2012/08/29/id/450265?PROMO_CODE=FE8A-1.
The Fed’s current reckless policy has been in place since 1995. We will eventually see the collapse of the US Dollar, hyperinflation and very high interest rates (above 21 percent per annum) in the USA and Europe – but this will happen after the stock market collapse is complete by about 2016.
The Dow Jones 30 Industrial Average reached an intra-day high of 14,149.15 on February 28, 2013 – within 0.3 percent its all time nominal high from October 9, 2007. Surpassing this mark within a bear market rally (not a bull market rally, which is VERY different) will be a profoundly contrarian and powerful bear market indicator – the worst in at least 5,000 years of human social mood. I hope it does not happen, but it looks very likely that it may happen. Intraday volatility (i.e. the difference between the high and low price within one trading day) including the futures market is very high, and the velocity of the crash as it stands right now would bring the Dow to a value of zero by December 2013. When the Dow finally tops and begins crashing in earnest, this velocity will speed up phenomenally. After this coming crash there should be one more (but smaller) bear market rally before the final collapse that will likely go into 2016. 45 percent of Americans already have no net savings.
One of the major American media outlets reported that pets (domestic animals) now outnumber human children by an astounding 4 to 1 in the USA. This is yet another stark example of the demographic nightmare confronting the USA and much of the industrialized world. There are simply not enough younger, productive and working people to support the overwhelming burden of the welfare state, the pension system and the healthcare system. It will all come crashing to the ground within just a few years.
CNBC News had an interesting article on February 8, 2013. The US Federal Government faces automatic spending cuts on March 1 equaling US $1.2 Trillion over time. The cuts will result in the layoffs of 46,000 federal employees and in 800,000 additional federal employees being furloughed by 20 percent (i.e. a 20 percent reduction in both hours worked and in salary paid). By 2016 another 500,000 federal employees will have to be laid off. The 1,346,000 federal employees to be affected equal 61 percent of all civilian employees of the US Federal Government. This 61 percent collapse in Federal Government employment until 2016 equals a similar CNBC forecast for employment in the entire American economy made just a few months ago. I estimate that 65 percent of the American population receives more in the form of so-called “benefits” than they contribute into the economy (65 percent and not 47 percent as estimated by Mitt Romney in November 2012). A further 14 percent of the American population has either already emigrated abroad or can legally do so at a moment’s notice. This leaves just 21 percent of the American population truly gainfully employed – a mere 66 million people. The CNBC news article from a few months ago forecast 40 million job losses between today and 2016, or 61 percent of those 66 million working people.
Regardless of both large American political parties trying to delay the inevitable, reality is catching up with America very quickly. Both the European Union (27 member countries with 485 million people) and the USA (50 states with 315 million people) are rapidly approaching their sour appointment with destiny.
I believe that the global economy of the future will resemble the global economy of the distant past in many important ways. There will be far less government, fewer large corporations and many more small business entities or many more self-employed people. In the Europe of the middle Ages, the Christian Church ran almost all education, healthcare and welfare (the latter entirely in the form of charity). There is no other way and no better way to run a global society – the way modern industrialized societies are running today is leading to complete financial and moral ruin.
Financial Update (February 1, 2013)
One of my subscribers (who used to be a skeptic about Elliott Wave forecasting) brought a very useful news item to my attention during the second week of January. Needless to say, Duane is now convinced that my forecasting is fully accurate. He told me it was reported in the news that out of every Dollar the US Federal Government spends today, it has merely 22 cents of tax revenue – the remaining 78 cents is brand new debt. This includes unfunded liabilities (such as Social Security, Medicare and Medicaid) in addition to the “normal” annual federal budget. Any private corporation would have to include such items on their income statement, and all of us as individuals and families do likewise. It is the only morally acceptable and financially responsible thing to do, but the US Federal Government fails to do it.
The US Federal Government is already paying a higher rate of interest on its debt than many commercial banks do on their deposits – another indicator of the total collapse of the American economy coming in between today and the middle of 2016. The European Union will collapse first, and then the USA. Canada, Australia and Japan could reach their final collapse many years (perhaps even decades) later, because these 3 countries are declining in very slow motion.
In my August 2012 Financial Update I wrote about the problem of having so many less-than-productive younger adults in the USA. Of all Americans under the of 40, 40 percent are living with their parents and 29 percent are in school, for a grand total of 69 percent – leaving just 31 percent of younger adults working full time.
The situation in the European Union (EU) is similar in this respect, with 54 percent of people under the age of 40 either living with their parents or going to college – leaving just 46 percent who work full time. The EU has a population of 485 million, while the USA has a population of 315 million (including the many Americans who now live abroad). The percent of less-than-productive younger adults varies widely among the EU member countries, with Scandinavia in the best shape by far. Here is how the EU countries rank from worst to best: Slovakia (97 percent of those under age 40 either living with their parents or going to school), Bulgaria (96%), Malta (90%), Greece (88%), Portugal (80%), Italy and Poland (77%), Slovenia (76%), Romania and Hungary (73%), Spain (at 65% four points below the USA), the Czech Republic (57%), Austria (41%), Ireland (37%), Belgium (27%), the UK (26%), Germany (25%), France (20%), the Netherlands (17%), Sweden and Finland (7%) and finally Denmark in the best shape (just 3% of younger adults underemployed).
The Dow Jones 30 Industrial Average reached the level of 14,019 on February 1, 2013 – within 260 points or 1.8 percent of the all-time nominal high of 14,279 from October 9, 2007. As I said in my October 2012 Financial Update, if the 14,279 level is ever surpassed this will be the most bearish omen in 5,000 years. We will no longer be talking about safe banks, but about “safe caves” (in the “crash” regions of the European Union and the USA) and safe haven countries around the world.
Financial Update (January 1, 2013)
Happy New Year!
I want to say something about the so-called “fiscal cliff” in the USA. Propaganda from the government and the media aside, it is the following problem. The government spends too much money and/or takes too little money in the form of taxes.
Given the complete failure of government (i.e. socialism) and given the demographic disaster of too few productive people / too many dependent people, there is only one sane alternative. 65 percent of the American population either contributes nothing to the economy (they are on the dole) or they contribute less than they receive in so-called “benefits” (they are still on the dole). 14 percent of the American population has emigrated or can emigrate abroad at any moment – they are contributing to the economies of foreign countries, not to the economy of the USA. A mere 21 percent of the American population is supporting the entire USA in the form of their labor, talents, wealth and income. They cannot and will not perform this service much longer.
Realistically taxes on the performing 21 percent should be cut, and spending should be cut even more to balance the government budget. Unfortunately this will not happen. Even more people will join those already on the dole due to retirement and economic contraction (additional unemployment and bankruptcy), and America wither away along with the European Union (EU). Japan is collapsing in slow motion, and both Canada and Australia will emulate Japan in this respect.
New taxes awaiting the American public in 2013 will crush the US economy. The payroll tax holiday will expire, meaning an average $1,700 per year more in Social Security tax for the typical family. Commonly used tax credits for both children and education will expire as well, translating into an average tax increase of $2,500 per family = $4,200 when added to the increased payroll taxes. None of the above includes increasing tax rates, or the 27 million American families who will be hit with the AMT (Alternative Minimum Tax) for the first time in April 2013. Add to this rising insurance premiums due to the new healthcare law; Blue Cross Blue Shield of California has already requested a rate increase of 20 percent. One insurance industry CEO forecasts overall increases of 50 percent, and premiums for Medicare will go up by 100 percent after 2014.
Most of the rest of the world (the former 2nd world = formerly communist countries, and the former 3rd world = formerly developing countries) have woken up and turned to the free market of capitalism. Notable socialist / communist / corrupt exceptions include Cuba, Venezuela, Argentina, Bolivia, South Africa, Zimbabwe, the Congo (formerly “Zaire”) and North Korea. Cuba is moving toward the gradual privatization of its economy, which is encouraging. It is tragic to see the countries of the former industrialized world (the USA, Canada, Japan, Australia and the European Union) in the same boat with the above-mentioned “losers.”
The Dow Jones Industrial Average will fall by at least 10,000 points (more likely by 13,000 points) over the coming 3 ½ years, i.e. by July of 2016. Most other asset classes in the EU and the USA will fall by comparable amounts, losing more than 90 percent of their current value. These asset classes include equities, bonds, real property, collectibles, currencies and commodities. The American Dollar will rise in value until these mostly Dollar-backed asset classes collapse (deflate) in value. Thereafter the US Dollar will collapse.
Financial Update (December 1, 2012)
The Emerging Crash
The Dow Jones 30 Industrial Average lost 1,221 points since October 5 (minus 9 percent), but the real news is in the broader American market (S&P, NASDAQ and NYSE) – it has surrendered 21 percent of its stock value and 23 percent of its bond value since then. The market is now retracing some of its most recent loss, but this will not last long. The US government is now purchasing from 75 to 90 percent of the US federal deficit, and the EU is buying almost 100 percent of its own debt. While Europe and America are going town the tube of welfare (the “Hell-fare of welfare”), China is cutting income taxes for 900,000 businesses – hooray for China. Cuba is undergoing the most important tax reform since the failed Socialist-Communist revolution of 1959 – they will now ensure that all of Cuba’s citizens pay into the tax system (the exact opposite of what the USA is doing today). Hooray for Cuba. Countries all over Asia, the former USSR, Latin America and even Africa are now booming. The global middle class grew from 500 million people in 2010 to 1.8 billion people in 2011. Add to this 1.4 billion additional people in the lower-middle class. The global free-market economy works success (unlike socialism or communism as practiced in the EU and the USA): One billion people all over the world own a motor vehicle, 2.4 billion people are on the Internet (owners of desktop, laptop or tablet computers) and 5 billion people own cell phones or smart phones.
10 member nations within the European Union (EU) are already under “severe stress” – extremely high unemployment (more than 20 percent of the labor force), collapsing tax revenue (declines exceeding 60 percent), collapsing government budgets (declines exceeding 20 percent) and collapsing consumer demand – these countries include Greece, Cyprus, Ireland, the UK, Portugal, Spain, Italy, Belgium, Sweden and Slovenia. Some of these countries are experiencing a huge exodus of productive people in the form of mass emigration (such as Greece, Ireland, Portugal, Spain, Italy and Sweden). Some are experiencing severe political instability in the form of regional secessionist movements (including the UK, Spain, Italy and Belgium). The USA will join these countries under “severe stress” come January 2013.
Germany (the cornerstone of the European Union) is not without its own severe problems. Two-thirds of German municipalities (counties and cities) are near financial insolvency. The crash will bring down the EU and the Euro currency in short order. None of the remaining 16 EU members can support the organization on their own as Germany is trying to do today. The second biggest economic power within the EU is France, and the French economy is significantly smaller than that of Germany.
China deserves special mention due to its size, wealth, power and influence. Some analysts believe that the Chinese economy (GDP) has already surpassed that of the USA to become number one in the world. It is important to recall that both China and Vietnam have already experienced their short term market crashes and are thus poised to boom into a bull market. China has been the number one auto market since 2010. Domestic sales in 2012 should = 15.6 million vehicles, and worldwide Chinese auto exports should = 3.1 million units sold. The number one short term goal of China’s new political leadership is financial market and currency reform. The Chinese Yuan is poised to replace the US Dollar as one of the most important currencies for the coming century. Other currencies to watch in the same regard include the Taiwanese Yuan, the Russian Ruble and the Dinar of the Middle East / North Africa / Balkans. “Haven” currencies include the Swiss Franc, the Singapore Dollar, the New Zealand Dollar of course gold and silver (note: precious metals especially after the EU and the USA collapse no later than 2017). Gold and silver will crash with the rest of the broader market until the global credit bubble is fully deflated.
The Auto Industry
Another subject close to my books is the auto industry, itself the core of manufacturing, which is in turn the core of the global economy. I write about similar themes when discussing individuals, companies, industries and entire nations – namely that government (socialism) is the problem, and that the free market (capitalism) is the only solution. I’ll take that conviction one step further: unrestricted capitalism is the only solution. Only the free market can create wealth and overcome poverty – nothing else has ever worked, does work or will ever work.
Volkswagen is the best-managed and the most profitable auto group on earth. VW’s core industry is in passenger cars, where they have emerged to be the clear global number one in unit sales. A mere 43 companies (groups) manufacture passenger cars in the world today, and the VW Group is the undisputed leader in unit sales as well. For every 100 passenger cars sold by Volkswagen worldwide in 2011, the list is as follows (statistics from the OICA of France – the International Organization of Motor Vehicle Manufacturers founded in 1919):
- Volkswagen (from Germany – controlled by the Porsche family): 100
- General Motors (from the USA – owned by the American government): 84
- Toyota (from Japan – owned by the Toyoda family): 83
- Hyundai (from South Korea): 75
- Nissan (from Japan – owned by Renault): 44
- Peugeot (from France – supported by the French government): 39
- Honda (from Japan): 35
- Ford (from the USA – 40 percent owned by the Ford family): 32
- Renault (from France): 30
- Suzuki (from Japan – 10 percent owned by VW): 29
- Fiat (from Italy): 22
- BMW (from Germany): 21
- Daimler (Mercedes-Benz of Germany): 18
- Mazda (from Japan): 14
- Mitsubishi (from Japan): 12
- Geely (from China – owns Volvo Cars of Sweden): 11
- Avtovaz (Lada of Russia – owned by Renault): 8
- Chery (from China): 8
- Tata (from India – owns Jaguar and Land Rover of the UK): 8
- Saipa (from Iran): 7
- Chana (from China): 7
- Fuji (Subaru of Japan – partly owned by Toyota): 6
- Chrysler (62 percent owned by Fiat of Italy): 6
- BYD (from China – partly owned by Warren Buffett): 6
- Dongfeng (from China – joint venture ally of Peugeot): 5
- Great Wall (from China): 4
- FAW (from China – joint venture ally of VW): 4
- SAIC (from China – owns MG and Roewe of the UK – ally of VW): 4
- Mahindra (from India – joint venture partner of Navistar): 3
- Changan (from China): 3
- Anhui JAC (from China): 3
- Brilliance (from China): 2
- Proton (from Malaysia – owns Lotus of the UK): 2
- Kuozui (from China): 2
- Hunan Jiangnan (from China): 2
- Iran Khodro: 2
- Porsche (100 percent owned by VW): 2
- Chongqing Lifan (from China): 2
- Fujian (from China): 1
- Beijing (from China – joint venture ally of Daimler): less than 1
- Shannyi (from China): less than 1
- Qingling (from China): less than 1
- GAZ (from Russia – joint venture ally of VW): less than 1
79 million motor vehicles were sold worldwide in 2011, of which 62 million were passenger cars, SUVs and light trucks (related to my list above). The remaining 17 million units were comprised of large commercial vehicles (similar to trucks larger than UPS delivery trucks), heavy commercial vehicles (similar to the “18 wheelers” you see on the Interstate) and heavy buses (much like city buses, commuter buses and Greyhound buses). 42 companies worldwide make LCVs (large commercial vehicles), 31 companies make HCVs (heavy commercial vehicles) and just 19 companies make heavy buses. These figures of fewer companies and brands indicate that the global market crash is already consolidating the number of auto industry players – the same way it happened during the Great Depression of 1929-1941.
2.77 billion vehicles have been manufactured since the invention of the wheel. 1.027 billion vehicles exist worldwide today, of which 966 million were built by companies still in active – the remaining 61 million vehicles still around were made by “orphan brand” companies no longer in business. Lancia of Italy is the latest brand to fall victim and become an orphan brand. Other more recent examples of companies now dead include Mercury, Merkur, Edsel, Pontiac, Oldsmobile, Hummer, Saturn, Geo, Bedford, Plymouth, Imperial, DeSoto, Eagle, AMC, Rambler, Studebaker, Avanti, Checker, Willys, Packard, Nash, Hudson, Kaiser, Frazer, Henry J and Crosley.
Financial Update (November 1, 2012)
Most of the “formerly” industrialized nations are marching toward their doom – the USA, Canada, Australia, Japan and the European Union (all 27 members). These countries represent 14 percent of the global population. Spain’s tax receipts have collapsed by 63 percent in just 4 years – perfect evidence of an economy literally falling to the ground. The corresponding figure in the USA is a collapse of 52 percent. The US Federal Reserve Bank is purchasing 48 percent of the Federal Government deficit. The European Central Bank has a new policy whereby they are willing to purchase unlimited debt from troubled EU member countries. Such actions will utterly destroy both the US Dollar and the Euro within a matter of a few years. A survey of big company CFOs (Chief Financial Officers) now places Greece at a higher level of investment risk compared to either Libya or Syria. One brand new book in England claims that by 2014 the UK will have a third world economy.
In last month’s financial update I mentioned that European stock market trading volume has declined 83 percent since 2008. The corresponding figure for the US stock market is a 58 percent decline – more evidence that the doom of this economy is close at hand. The Dow Jones 30 Industrial average did reach a short term intraday high of 13,661 on October 5, but the broader American market has fallen by 8 percent since then.
European commercial banks will shed at least US $2.8 Trillion in assets – this figure has been forecast as high as US $4.5 Trillion. This represents bad loans which must be written off or sold at pennies on the Dollar. It is a very bearish omen because these banks will not be lending anytime soon. 10 members of the EU are already under what I would call “severe stress” – in other words, both the economy and the welfare state are on the brink of collapse. These 10 members include Greece, Cyprus, Ireland, Portugal, Spain, Italy, Slovenia, Belgium, Sweden and the UK. They suffer from very high unemployment, collapsing tax receipts, collapsing government budgets and political instability. Spain, Italy, Belgium and the UK are facing very credible secessionist movements in Catalonia, the Basque Country, Galicia, the South Tyrol, Venetia, Lombardy, Flanders and Scotland.
In the USA, 50 percent of the population receives more in government “benefits” than they pay in taxes. With the advent of socialized medicine in 2013, this number will rise to 65 percent. Another 14 percent of the people have already emigrated or plan to do so – see the statistics by country of destination in my financial update from last month. Of the remaining 21 percent who hold up the country with their labor and their money, statistically all of them are looking for new employment. They are potential candidates for emigration, after which nobody would be left to support the voracious appetite of the welfare state.
Safewealth Group of Switzerland (a service strongly endorsed and recommended by Elliott Wave International of Atlanta) is already telling people in both the European Union and the USA to take their money out of banks domiciled in the EU and the USA. A private source has informed me that trust company clients in the USA are already withdrawing their money at an alarming rate – a virtual run on the bank, so to speak. Regardless of the outcome of the American elections on November 6, there will never be any recovery in the USA unless and until the welfare state (so called “entitlement programs”) are severely reduced or even eliminated – I doubt that either the Republican Party or especially the Democratic Party have the will to face this harsh reality. The USA just like other formally industrialized countries faces a demographic nightmare which will take the wind out of the sails of the modern welfare state within a matter of one to five years depending upon the country.
But not all of the news is doom and gloom. Let’s turn to countries with good news. 70 percent of the world’s people live in countries whose economies are growing. The largest of these economies in terms of GDP are the 4 BRIC countries plus the “Next 11” countries as named by Goldman Sachs. These 15 countries are 1) China, 2) Brazil, 3) Russia, 4) India, 5) Mexico, 6) South Korea, 7) Indonesia, 8) Turkey, 9) Iran, 10) Nigeria, 11) Egypt, 12) the Philippines, 13) Pakistan, 14) Vietnam and 15) Bangladesh.
The 10 hottest economies in terms of annual GDP growth are now 1) the Philippines (7 percent), 2) the Ukraine (6 percent), 3 through 5) Peru, India and Bangladesh (5.5 percent each), 6) Malaysia (5.3 percent), 7) Vietnam (5.2 percent), 8 and 9) Egypt and China (5.1 percent each) and finally 10) Algeria (5 percent). While the formerly industrialized countries (14 percent of the global population) crash to the ground and while the basket case countries of the Third World do nothing (16 percent of the world), the vibrant countries of the former Second and Third World will soar into the stratosphere (70 percent of the world’s population).
The Philippines (the most rapidly growing national economy in 2012)
As in much of Asia, the Philippine economy is dominated by family owned “trading houses” – i.e. conglomerate business groups. The Philippine Islands were unified politically when they were taken over as a Spanish Crown Colony in 1521. America took them away from Spain after the Spanish-American War in 1898, and the Republic of the Philippines became independent in 1946. The Philippine economy was the second richest per capita economy in Asia until 1965 when Ferdinand Marcos came to power. He and his wife Imelda ruined the Philippine economy much like Juan and Eva Peron did in Argentina. The difference between the Philippines and Argentina is that the Philippines turned the corner after Marcos finally left office in 1986. It has taken the country a long time to regain lost ground, but real economic progress is finally visible. The largest Filipino business groups are headed by 1) Henry Sy (SM Real Estate Holdings, SM Malls and Shoemart department stores), Lucio Tan (Fortune Tobacco, Asia Brewery and Philippine Airlines), Jaime Augusto Zobel de Ayala (Ayala Corporation, Bank of the Philippine Islands, Honda cars, Isuzu cars, alliance with Mitsubishi of Japan) and John Gokongwei (JG Summit Real Estate Holdings and JG Summit Malls). The top 26 business groups in the Philippines are headed by centi-millionaires (people with a net worth of at least US $100 million).
Financial Update (October 1, 2012)
The European Union (EU) will be the first formerly industrialized region in the world to collapse under the weight of deflationary social and economic depression. The USA will follow the EU into collapse. Japan, Canada and Australia will also collapse, but in slower motion compared to the EU and the USA. Slovenia may soon become the 6th member of the EU to request a financial bailout due to having too much debt it cannot repay (after Greece, Ireland, Portugal, Cyprus and Spain). Italy is not far behind. Demonstrations and riots are now a daily occurrence in both Greece and Spain. Spain is threatening to break up into 4 countries – Castilian Spain, Catalonia, Galicia and the Basque Region.
It is time for residents and citizens of these countries to consider emigration, either to an emerging economy growing into an economic superpower (such as China, Brazil, Russia, India, Mexico, South Korea, Indonesia and Turkey for younger people) or to one of the smaller safe haven countries (such as Taiwan, Switzerland, Singapore, Norway or New Zealand for established people).
An American Diaspora is already underway. More than 42 million Americans (14 percent of the US population) have already emigrated, live abroad part of the year, have dual residency / citizenship or are in the process of doing this. Many people go the country of their ancestry, but not all – many are college graduates emigrating for opportunity or even retirees moving abroad. The main destinations for Americans are Mexico (5 million), Syria (3.8 million), Brazil (2.4 million), the Philippines (2 million), Canada (1.7 million), Italy (1.4 million), Israel (1.3 million), the African continent (1.2 million), the UK (1.1 million), Germany (689,000), Australia (569,000), the Dominican Republic (555,000), China (484,000), South Korea (454,000), Spain (429,000), Hong Kong (406,000), Poland (406,000), Costa Rica (339,000), Japan (337,000), Colombia (305,000), Taiwan (257,000), Belgium (244,000), Saudi Arabia (244,000), Switzerland (217,000), Lebanon (169,000), Panama (169,000), New Zealand (120,000), France (119,000), Sweden (112,000), Austria (102,000), Hungary (102,000), Singapore (102,000), India (102,000), the Netherlands (96,000), Ireland (85,000), Argentina (71,000), Chile (68,000), Denmark (59,000), Norway (54,000), Malaysia (54,000), Russia (42,000), Pakistan (34,000) and Portugal (15,000). Not all of these countries are good choices, but the point is that a massive human movement is underway. 50 percent of Americans receive a “benefit” check from the American government, 14 percent have emigrated or are doing so and just 36 percent of Americans are contributing financially to their own country. With numbers like this, no country can or will last.
Here is more hot news: whereas most global stock markets are on the cusp of either a major collapse (the formerly industrialized countries listed in the paragraph above) or a major downward correction, both Mainland China and Vietnam are on the verge of a major bull market. The EU stock exchanges have witnessed an 83 percent decline in trading volume since 2008 – this is a major indicator for a huge collapse to come very soon. With an 83 percent decline in their business, one wonders how European stockbrokers earn a living.
The Dow Jones 30 Industrial Average reached an intraday high of 13,653.24 on September 14, 2012 – its highest level since it reached 13,338.66 back on May 1, 2012. This makes the bearish case even stronger – NOW is the time to sell stocks, bonds, currencies and commodities BEFORE they crash. The U.S. Federal Reserve Bank is purchasing $48 billion of U.S. Federal Government debt every month, adding toxic waste to its balance sheet and endangering the future of the U.S. Dollar currency. The Fed is thus buying 48 percent of all new federal government debt – a very ominous sign. If Americans and foreigners alike have lost their appetite for American government debt, the days of America are numbered. Foreigners are buying 26 percent of US debt. The private sector (financial institutions, mutual funds, pension funds, individuals, brokers, dealers, trusts and estates) buy 23 percent. Other levels of government (states, municipalities, school districts, Medicare and Social Security) buy the remaining 3 percent. Tax revenue is down by 56 percent compared to 2008, and the youth underemployment rate for Americans aged 18 to 24 is 48.3 percent – almost as high as in Greece and Spain. With so many idle people, these countries will soon be classified as “Third World” – they will hold little or no attraction for multinational corporations. They won’t have sufficient income, so they won’t be able to buy goods and services to any degree profitable to most companies.
The nominal high value in the Dow Jones 30 Industrial Average was reached on October 9, 2007 = an intraday high of 14,279.96. If this level is ever surpassed, we will no longer be anticipating the most massive social and economic crash in 1,500 years (the fall of the Western Roman Empire), but most likely the worst crash in 5,000 years (the great flood). If this happens, we will talk more about safe havens (locations) instead of safe banks. Gold will finally emerge into the only true global currency.
Public healthcare budgets in the 27 EU countries have been cut by up to 50 percent – and these cuts are reaching some of the financially healthier countries such as the UK. EU member countries weaker than the UK include Greece, Cyprus, Ireland, Portugal, Spain, Slovenia and Italy. Healthier economies such as those in Switzerland and the Netherlands have moved to a voucher healthcare system – moving away from national healthcare and back toward a vibrant free market system. There is no alternative to the free market, and the free market will eventually force this to happen everywhere.
Emigrants (both legal and illegal) are fleeing Greece, Cyprus, Ireland, Portugal and Spain in droves – at a net loss of 3 percent of total population per year. At the current rate of emigration, these countries will have no people left 32 years from today. Independence movements are emerging in places such as Quebec (from Canada), Scotland (from the UK), the Basque Region (from Spain), Catalonia (from Spain), Galicia (from Spain), the South Tyrol (from Italy), Trent (from Italy), Venetia (from Italy) and Bavaria (from Germany). The age of the supra-national state (United Nations, European Union, etc.) and the modern nation-state is coming to an end in the formerly industrialized world.
The Euro has lost its luster. Switzerland, Liechtenstein and Norway are all outside of both the EU and the Euro currency zone and don’t want to join. Bulgaria has indefinitely frozen plans to adopt the Euro currency. The Czech Republic, Hungary and Lithuania have shelved their target dates to join the Euro currency zone. Sweden and the UK are EU members, but have chosen not to adopt the Euro currency.
Financial Update (September 1, 2012)
The mainstream media finally admits that people retiring henceforth will be the first generation in American history to receive less from Social Security than they paid in during their working years. Add to this the fact that the USA is losing people to emigration – young people moving abroad for better opportunity, foreigners returning home, scientists leaving for better opportunity, middle class and wealthy retirees retiring abroad. Half the people in America have a net worth below US $10,000. How this will damage the American economy even further remains to be seen.
How big are America’s federal welfare programs? Here they are in terms of recipients:
- Medicaid = 54 million
- Social Security = 51 million (includes Disability)
- Medicare = 48 million
- Food Stamps = 46 million
- Veteran’s Administration (VA) Benefits = 27 million
- Obamacare = 25 million (estimate by 2020)
- Earned Income Tax Credit = 21 million
- Unemployment Insurance (UI) = 10 million
- Supplemental Security Income (SSI) = 8 million
- State Children’s Health Insurance Program = 7 million
- Temporary Assistance to Needy Families (TANF) = 4 million = cumulative total of 301 million recipients for all federal welfare programs.
There is some overlap in these programs. For example, almost everyone on Medicare is on Social Security. Everyone on SSI is also on Social Security and Medicare. Everyone in categories 10 and 11 (TANF) is likely on Medicaid, Food Stamps and/or the EITC. Out of 314 million Americans in 2012 at least half receive checks from the federal government. The moral of the story is this: the welfare state cannot and will not last. We are witnessing the second “fall of Rome.” Other formerly industrialized countries are in a very similar situation as the USA – these include Canada, Australia, Japan and all 27 members of the European Union (EU). Both the EU and the USA will collapse rapidly by 2017 whereas Japan, Canada and Australia will have a slow, prolonged deflationary collapse. Default on the national debt of Greece is already at 75 percent and counting – pension funds, insurance companies and banks have lost three-quarters of their “investment” in Greek national government debt. Interest rates in the USA crept up by about 20 basis points on the 10-year US Treasury note and 30-year US Treasury bond since last month, and then retraced somewhat.
Analysts from Goldman Sachs believe that the 4 BRIC nations (Brazil, Russia, India and China) plus the “Next 11” (N-11) countries will be the largest national economies sometime in the 21st century. The largest N-11 countries are the 4 MIKT – Mexico, Indonesia, Korea (South) and Turkey. The others are Iran, Nigeria, Egypt, the Philippines, Pakistan, Vietnam and Bangladesh. If this happens, it will be the most important geopolitical shift of economic power since the High Middle Ages. The USA has been the most powerful nation on earth since it entered World War One on the side of the Allies in 1917. The UK (England, Scotland and Wales) was the most powerful country in the world from its defeat of the Spanish Armada in 1588 until 1917. The Kingdoms of Portugal (1094-1492) and then Spain (1492-1588) were the first modern European states to reach for global power. Up to the High Middle Ages, national power was regional in nature. The greatest regional powers of the time were Germany (the Holy Roman Empire), Russia, France, the Netherlands, Sweden, the United Kingdom of Poland and Lithuania, the Byzantine Empire, the Ottoman Empire, the Islamic Empire, Japan, China, India and the Mongol Empire. The world is now returning to a power structure more comparable to that which existed during the Middle Ages.
After the demise of the modern fiat currencies around 2017 (these mainly being the US Dollar, the Euro and the Japanese Yen), there will arise global currencies backed by precious metals. The main worldwide precious metals are of course gold and silver. Currencies backed by gold include the Yuan (of China and Taiwan), the Ruble (of Russia, Belarus, Abkhazia, South Ossetia and Transnistria) and finally the Dinar (of Algeria, Bahrain, Iraq, Jordan, Kuwait, Libya, Macedonia, Serbia and Tunisia). “Safe haven” currencies will include the Swiss Franc (of Switzerland and Liechtenstein), the New Zealand Dollar and the Singapore Dollar.
The automotive market
In Hampton Roads, Virginia (the metro region that includes Norfolk, Virginia Beach, Chesapeake, Hampton, Suffolk and Williamsburg) the best selling new cars are 1) the Hyundai Elantra and 2) the Volkswagen Jetta. This is yet another sign of the times. The strongest vehicle companies in the world active in the US market in order of profitability are VW (which includes Audi, Porsche, Suzuki, Lamborghini and Bentley), Hyundai-Kia, BMW-Mini, Renault-Nissan (which includes Infiniti), Daimler (which includes Mercedes-Benz, Smart, Freightliner and Sterling trucks), John Deere, Tata (which includes Jaguar and Land Rover), Caterpillar, Honda-Acura, Volvo (owned by Geely of China) and Paccar (which includes Kenworth and Peterbilt trucks). All other vehicle companies are losing money and/or are drowning in unfunded pension, healthcare and plant / equipment leasing debt.
VW is using greater Hampton Roads as a “test market” for their plan to expand in the USA. Hampton Roads has about 1.6 million inhabitants and is situated just south of the huge metro regions of the densely populated Northeastern USA.
The labor union representatives on the Board of Directors of Volkswagen A.G. have expressed their opposition to any further corporate acquisitions by VW – notably mentioning Proton Automotive of Malaysia. I believe that this is a terrible mistake, and shows once again how destructive labor unions are. German law requires all German companies to reserve half of corporate Board seats for labor representatives. How VW will circumvent this obstacle remains to be seen – perhaps they might incorporate in a different country – as did Renault-Nissan B.V. in the Netherlands (Renault is French and Nissan is Japanese).
Ferrari sales are collapsing, and Fiat-Chrysler (the owner of Ferrari) is already asking for help from the European Union – on top of being bailed out by American taxpayers. General Motors is losing so much money in Europe (Opel-Vauxhall) that they may request a 2nd bailout from American taxpayers. Peugeot-Citroën of France is also dying, but the French government’s efforts to “save” them may actually speed their demise. It is high time to sever the umbilical cord to these failing companies.
Daimler A.G. of Germany is terminating the expensive Maybach brand due to lagging sales – the rest of Daimler’s portfolio (Mercedes-Benz, Smart, Freightliner, Sterling, Western Star, Fuso, Setra, Orion, Omnibus, Thomas and Detroit Diesel) is doing well.
Ford sales Europe are collapsing. Ford made the astonishing decision to terminate its compact pickup truck line in the USA (the Ranger), so they will have only mid, full sized and super sized pickup trucks (the F-150, F-250, F-350, F-450, F-550, F-650 and F-750). Half of Ranger customers have deserted Ford altogether, and the mid sized pickup segment has also begun to collapse – affecting Ford, GM, Chrysler, Toyota, Nissan and Honda. GM will also end its compact pickup truck line – the Chevrolet Colorado and the GMC Canyon. Unsold inventory of large pickup trucks industry-wide is 4.5 month’s worth.
Financial Update (August 1, 2012)
The European Union continues to crumble. Greece, Cyprus, Ireland and Portugal are de facto bankrupt. Spain and Italy are seeing their borrowing costs rise to unsustainable levels. The European Central Bank in Frankfurt is lowering borrowing costs to near zero in a vain effort to jump start the economy – the same failed policy begun by Japan after 1989 and copied by the United States since 1995. The Japanese stock market (the Nikkei Index) now stands where it did all the way back in 1982 – 30 long years ago. Commercial banks have started to avoid certain European public sector bonds and notes. Japan ($19.9 Trillion), the United Kingdom ($10.2 Trillion), Germany ($5.7 Trillion), France ($5.6 Trillion), Italy ($2.6 Trillion), the Netherlands ($2.5 Trillion), Spain ($2.4 Trillion), Ireland ($2.3 Trillion), Belgium ($1.5 Trillion), Switzerland ($1.3 Trillion), Australia ($1.2 Trillion), Hong Kong ($900 Billion), Greece ($600 Billion) and Portugal ($500 Billion) are all following the lead of the United States in accumulating a massive amount of total public and private sector debt. Total debt in the USA stands at $57 Trillion not including unfunded liabilities of $125 Trillion (mostly pensions and healthcare included by other countries in their respective debt figures) and financial derivatives of US $592 Trillion. Financial derivatives are contingent liabilities betting on the financial performance of import-export payments, loans, bonds, notes, hedge funds, stocks, currencies and commodities. If the bet works, then the bank holding the derivative earns fee income. If the bet fails, the bank can fail. The 5 largest American banks hold 42 percent of the US $592 Trillion derivative total. Contingent liabilities do not appear on a balance sheet, but only in the notes at the end of a quarterly or annual report.
The fiscally healthier smaller countries of the Euro Zone would be prudent to separate themselves from the growing Euro Zone mess. These countries include Austria, Luxembourg, Slovenia, Slovakia, Finland, Estonia and Malta. The EU member countries not yet in the Euro Zone should reverse their decision to join the Euro currency Zone. These countries include the United Kingdom, Denmark, Sweden, Latvia, Lithuania, Poland, the Czech Republic, Hungary, Romania and Bulgaria – but I doubt if their politicians have the courage to do it.
The privatization sales by the Greek national government have netted a mere 14.4 percent of their goal from 2011-2012 – 1.8 billion Euros compared to a planned 12.5 billion Euros. Asset prices are depressed and there just are not enough willing buyers.
More amazing statistics have emerged about the pending disaster in the USA. Of all adult Americans under the age of 40, fully 40 percent reside with their parents and another 29 percent are in college – just 31 percent are employed full time. There are now 7 public sector (government and nonprofit) retirees & beneficiaries for every one public sector employee. Unfunded pension & healthcare liabilities for the 1,000 largest American corporations equal US $435 Billion, but the corresponding figure for the American public sector is an astonishing US $4.6 Trillion. The entire American economy now has a grand total unfunded pension liability of US $6.6 Trillion. Of the 88 million Americans paying into Social Security and Medicare today, 85 percent of them will likely retire by 2021. The labor force is simply vanishing while those on social welfare are mushrooming. More people are joining Disability every month than are finding jobs in the USA. What’s more, the US Department of Agriculture is working with the newly elected socialist government of Mexico to increase the number of people receiving American Food Stamps. Total financial collapse cannot be far off.
The US economy is already starting to show evidence of evolving into a Third World economy. 3 million vacant jobs cannot be filled because the skills to fill these jobs no longer exist in the USA. Qualified young people are emigrating abroad and qualified foreigners are going back to their countries of origin.
The evidence that we are in a deflationary depression is overwhelming. Interest rates on AAA rated debt are at all time lows – the USA, Germany, France, Belgium, Denmark and Finland are now all paying zero interest on short term government debt. The American government has taken on US $10 Trillion of new debt in the last 5 years in a vain attempt to jump start the economy. In spite of this, real estate prices have fallen by 45 percent and commodity prices have crashed by 39 percent in the same time period. It is already too late for property owners to sell their real estate holdings at a profit or even for break-even, but there is still a little time to dump your risky bonds (junk bonds and municipal bonds) and overpriced stocks. The deflationary depression we are experiencing today is the most severe social and economic depression since the fall of the Western Roman Empire in A.D. 476. The markets will likely surrender almost all of their remaining values by 2016, so please act while you still can.
The fallout in the global auto industry is finally starting to take place. In spite of public sector bailouts, GM, Ford, Fiat-Chrysler, Peugeot-Citroën, Renault, Toyota, Mazda, Mitsubishi, Honda, Harley-Davidson and Navistar are all in serious trouble. GM, Ford, Fiat, Peugeot-Citroën and Renault will likely lose a combined US $4 billion in Europe in 2012, shut dozens of factories and lay off hundreds of thousands of employees. Car companies from Germany (Volkswagen, Daimler and BMW), South Korea (Hyundai-Kia), India (Tata) and China (Geely, BYD and Chongqing Lifan) are doing the best. These healthy vehicle companies already have a combined 69 percent global market share in terms of unit sales.
The new global “locomotive” economies are finally starting to slow down, which will eventually translate into credit drying up for North America, Japan, Australia and the European Union. These locomotive economies are China (first half 2012 GDP growth down to 7.6 percent per annum), India (corresponding figure of 5.3 percent) and Brazil (1.8 percent). 40 percent of the global population and 80 percent of the global economy (combined GDP) is already experiencing either a recession or an economic depression.
Financial Update (July 1, 2012)
The most ferocious phase of the worldwide social and financial collapse has begun. It is visible in countries like Greece, Ireland, Portugal, Italy and Spain – it will soon spread to France…….and most of all to the United States. The level of debt is extreme, creditworthiness is nonexistent and the ability to pay interest on this debt will evaporate. Creditors are pulling the plug by refusing to lend, by calling in their loans and by raising interest rates.
Default on the national debt of countries such as Greece, Ireland and Portugal is already as much as 50 percent; in Spain and Italy it is 25 percent. Many employers in Greece can no longer pay their employees, and the national government has fallen behind in payments to suppliers. The Greek economy has literally ground to a halt within the last 2 months. Creditors and business partners from abroad no longer extend credit, and Greeks have withdrawn 35 percent of their deposits from Greek banks. Bank runs in Ireland and Spain have withdrawn 20 percent of deposits, in Portugal it is 18 percent and the corresponding figure in Italy is already 14 percent. The largest retailer in Greece (Carrefour, which is number 2 worldwide after Wal-mart) has chosen to leave the Greek market. Nothing could be more telling as to how dire the situation is. The situation in Greece is so hopeless that retailers no longer want to sell them food, clothing or appliances.
Stockton, California has become the largest American municipal government to declare bankruptcy thus far. Many, many American states, cities, counties and school districts are waiting to follow their lead. Stockton has 292,000 residents and has seen real estate prices collapse by 44 percent since 2006. Stockton has cut 25 percent of its police force, 30 percent of its fire department and 40 percent of all other public employees. The remaining 60 percent of the work force will see pay cuts and retirees (who outnumber active workers by 5 to one) will see pension cuts. City properties such as office buildings, parking garages and hockey rink are being repossessed by lenders. Stockton (and much worse to come very soon) is the future of America.
The collapse will bring most countries in western and southern Europe to their knees. After the crash, the countries of central, northern and Eastern Europe will fare much better. Interest rates on the debt of both France and the USA have finally begun to notch slightly upward. Medium term debt rates (for notes) in France are around 2.8 percent and in the USA they are roughly 1.6 percent.
It is critical to get your savings into a safe bank or credit union, and your pensions & annuities into a safe insurance company. Safe banks will become safer during the crash because people will withdraw their money from unsafe banks and migrate to safer banks. The 95 percent of unsafe banks and insurance companies will likely not survive. Most corporations and all levels of government (federal, state and local) will go bankrupt. Here is the stark reality about global debt:
- The USA has 4.46 percent of the world’s population and owes 81.86 percent of the debt……a complete disaster waiting to happen.
- The European Union has 7.12 percent of world’s population and owes 11.52 percent of the debt – not good, but not as bad as the USA.
- Japan has 1.81 percent of the world’s population and owes 6.40 percent of the debt – worse than Europe, but not as bad as the USA.
- The rest of the world has 86.61 percent of the population but owes just 0.22 percent of the debt – an excellent way to run your finances.
124 mostly larger American banks have been forced by the US Congress to write legal “living wills.” These agreements will activate once the banks fail. The largest banks mentioned include JP Morgan Chase, Bank of America, Citigroup, Goldman Sachs and Morgan Stanley. The US federal government no longer has the means to bail them out, so they will receive no further taxpayer assistance.
The formerly developed countries with the most severe problems (Greece, Ireland, Portugal, Spain, Italy, France and the USA) are the same countries where socialistic “tax the rich” schemes are the most popular. These actions will only make things worse. We have a situation where half the people in these locations do absolutely nothing productive – they sit at home and wait for a monthly benefit check (pension, welfare, etc). The remaining half of the population is divided into two categories. One category is the unfortunate group that must work and pay taxes to support the idle majority. The other category includes those who have chosen and are choosing to emigrate. No country that has made these mistakes in the past and that has not overturned them has ever recovered. It is quite a sorry list, and includes Cuba, Argentina, Venezuela, Bolivia, Zimbabwe and the former East Germany (which continues to lose people to Western German provinces).
Financial Update (June 1, 2012)
The stock market made a near term (recent) high of 13,338 on May 1, 2012 but it also reached a near term intraday futures low of 12,099 on June 1, 2012 – a drop of 9.3 percent in one month = 1,239 points lost. Here are more bearish facts you won’t read in most media sources. Stock trading volume is down by 46 percent in 5 years – in other words, far fewer people are participating in the market. Only 30 percent of the population own stocks or bonds today compared to 65 percent from 1999-2007. The actual number of companies (corporations) has fallen by 37 percent since 1997. No wonder so many working-age people have become idle. The number of IPOs (initial public offering of corporate stock) has dropped by 68 percent since 1999. No wonder we have no real growth.
The reason we don’t want to see the market exceed its nominal high of 14,279 (from October 9, 2007) is because that would signal the most massive social collapse in 5,000 years. As it is, we are already facing the greatest collapse in 1,500 years or since the fall of the Western Roman Empire. In short, I’d much rather seek out safe banks than a safe cave in the mountains.
Let’s examine some of the worldwide evidence that an equity market high is hopefully in place. Japan was the first country to begin their slow collapse in 1989 – 23 long years ago. Since then, Japanese stocks and real estate have lost 70 percent of their value. Real estate in Ireland (one of the five EU “PIIGS” countries) and in the USA have lost 50 percent in the last 6 years – a much more rapid decline compared to that in Japan. Wages and pensions in Greece (the first country to begin the collapse of the entire 27-member European Union) have fallen from 30 to 50 percent in two years – once again a much more rapid decline than in Japan, the USA or than in the rest of the EU. Unemployment rates and real estate price declines in EU countries such as Portugal, Ireland, Greece and Spain (4 of the 5 “PIIGS”) are around 25 percent. The Euro has lost 22 percent of its value since its record high versus the US Dollar in 2008.
The political situation in Europe is deteriorating rapidly. The media likes to talk about the rise of the extreme (neo fascist) right wing in countries such as France, Greece, Hungary, Belgium, Holland and Italy – but the real story is the rise of the socialist (neo communist) left wing. These parties include the socialists, the greens (environmental extremists), communists and now the even worse “pirate” parties of Europe. Pirates do not respect copyright laws (hence their name) and they want even more of a “guaranteed minimum income” (welfare for the idle) than do the socialists, the greens and the communists. The new government in France wants to have the highest tax rate on earth at 75 percent of income. Remember this – any political party and government who do not respect private property eventually will not respect human life. This is a frightening fact to behold. Such parties have gained tremendous ground in countries such as France, Greece, Belgium, Holland, Italy and Germany.
The “formerly industrialized world” is in rapid decline due to 1) a severe overload of debt and 2) imploding demographics (too few births). These countries include Japan, the European Union (all 27 member countries), the USA and ultimately both Canada and Australia. As the global economy stalls, the rising BRIC (Brazil, Russia, India and China) nations, the “Next 11” countries I mentioned last month and an emerging 3rd and 4th tier of countries will lend much less money to the formerly industrialized nations, and they will ultimately withdraw their existing investments in order to shore up their domestic economies.
What will this mean? Consumer demand will evaporate in the formerly industrialized world, with real estate values and retail sales crashing to the ground. Government tax receipts will collapse and banks will become insolvent. Most people will lose their jobs, their pensions and their savings. Governments will find it difficult to survive.
What is the time frame for this powerful scenario? The answer: not long at all – this should come to pass over the next five years, or between now and 2017.
How is the social & economic power structure (i.e. order) of the world changing? The roughly 70 emerging BRIC, Next 11, 3rd and 4th tier nations comprise 70 percent of the world’s population. The formerly industrialized declining nations make up 14 percent of the world’s population. The remaining roughly 90 countries (those yet to develop at all or those that crashed long ago) are home to 16 percent of humanity. 3rd tier countries include 30 smaller countries in Asia, the former USSR, the Balkans, Latin America, North Africa, the Middle East, Africa, the Caribbean, New Zealand, Norway and Switzerland. 4th tier countries include 26 even smaller economies in Asia, the Pacific Islands, the Indian Ocean, the Middle East, the former USSR, Central America and Africa.
Here is a very sobering example regarding the demographic collapse of the formerly industrialized world. In the USA, 88 million active workers actually contribute into the Social Security System (many active workers don’t, largely due to low earnings). 125 million people currently draw Social Security ‘umbrella” benefits (Social Security, Medicare, Medicaid, Food Stamps, Disability Insurance, Veterans Benefits and Unemployment Insurance). 70 million people will retire over the coming 20 years, thus no longer contributing into the system – they will become beneficiaries. The population is shrinking to due a low birth rate and emigration, so who knows how many (or how few) younger people will enter the labor force over the coming decades.
The deficit in the USA is far worse than the government admits. The USA Today reported that if we were to include the annual increase in Social Security and Medicare liability (something that state, local and foreign governments have to do with their own annual increase in pension and healthcare liabilities), the federal deficit this year is really US $5.0 trillion instead of US $1.3 trillion. The entire federal budget is really thus $7.6 trillion, or about half of American GDP. The federal government has merely 34 cents in tax revenue for every Dollar it spends – 66 percent of the federal budget is new debt. This terrible situation should not, must not, cannot and will not last much longer – the welfare state will simply collapse with the broader economy.
Why is it so important to move your savings out of the vast majority of unsafe banks and into one of the few safe banks? Why is it just as important to move your pension out of the vast majority of unsafe insurance companies and into one of the few strong insurance companies – especially when safe institutions pay such low interest and annuity rates? It’s this simple: if you leave your savings and pensions in an unsafe institution, you will very likely lose 100 percent of what you have. That’s no fun to say the very least.
But then what happens when 94 percent of the people in the formerly industrialized countries lose up to 99 percent of their net worth? The remaining 6 percent of the people will see their purchasing power skyrocket – that will be VERY GOOD for them. Based upon the ultimate year 2017 low target for the Dow Jones 30 Industrial Average of 95 (yes, you read that correctly), their purchasing power in 2017 will be as much as 166 times what it was back in 1999. Not bad at all.
Bank runs are already getting very serious in Greece, Spain and Italy. The time for the rest of us to find a safe bank and insurance company is NOW and not later – the bank runs will reach the rest of the formerly industrialized countries over the course of the coming 5 years.
Financial Update (May 1, 2012)
The stock market is still showing very dangerous signs of bullish sentiment combined with low trading volume. The Dow reached an intraday high of 13,338 today – I hope it never reaches the nominal high of October 2007 (14,279) because that will signal the largest socio-economic crash in recorded history. Sectors of the economy that will collapse in the crash include stocks, bonds, currencies, commodities, real estate, retail sales, education and health care.
One smaller American credit ratings agency lowered the credit rating of the US Federal Government to AA. The budget deficit for the month of March 2012 reached US $198 billion, or 61 cents out of every Dollar spent. More than 46 ½ million people are on Food Stamps, or more people than the population of nations such as Colombia, Spain, the Ukraine or Tanzania. The number of able-bodied working-aged Americans not in the labor force has reached a record 88 million people – more than the entire population of countries like Vietnam, Ethiopia, Germany or Egypt. American city governments will cut more than 1,126,000 jobs in 2012, and this phenomenon will soon spread to counties, school districts, state governments, the federal government, health care, insurers and the legal profession. The state government of Illinois is already US $9 billion in default.
50 percent of new American college and high school graduates are jobless or unemployed – on par with near-bankrupt European economies such as Greece, Ireland, Portugal and Spain. Many young people no longer graduate at all, and when they are added to the statistics joblessness and underemployment among those aged 28 years and under increases to well over half.
China is the world’s largest owner of gold bullion. Indications are that the Chinese are trading in their US Dollar holdings for still more gold and non-fiat currencies such as their own Yuan, the Middle Eastern Dinar and the Russian Ruble. China may finally abandon its destructive one-child policy in an effort to avoid the demographic disaster engulfing developed economies and in an effort to compete against rapidly rising India.
The European press is acknowledging the failure of the most recent round of EU bailouts for Greece, Portugal and Ireland. The real trouble is just about to begin, with much larger countries such as Spain, Italy and France to give way in the next round of the crash.
General Motors is one of the “poster children” of the bailout in the USA. They either received from US taxpayers or had debt “forgiven” in the total amount of US $331 billion (the corresponding figure for Chrysler Corporation is US $80 billion). In spite of this massive handout, GM saw their US market share drop to a 90-year low of just 17.5 percent in March 2012. US gasoline consumption is contracting so rapidly that half of the oil refineries on the East Coast are set to shut down – the oil companies will open new refineries in other countries that have growing economies. Natural gas prices are falling so quickly that many American power plants are converting from older-technology coal to cleaner natural gas. 62 percent of all American natural gas wells have been shut down since 2002 due to depressed natural gas prices. Gasoline-electric hybrid cars are losing their luster early on – just 35 percent of hybrid drivers chose to buy such cars the second time around. The USA continues to lose both American citizens (170,000 per month) and foreign nationals in the USA (165,000 per month) at an alarming rate. 25,410,000 people have left the country since 2005, or 8 percent of the population. One analyst on CNBC recently predicted that the real estate market may not recover for up to two generations, or 80 years. Bloomberg News reported on April 31, 2012 that 14 percent of all homes in America are vacant.
The two Japanese consumer electronics giants Sony and Sharp had a combined loss of US $11 billion in 2011 due to declining purchases of TV sets, and Sony announced 10,000 job cuts worldwide (6 percent of their workforce). All of these indicators point to collapsing demand much like what has happened in Japan since 1989. Japan has the lowest birth rate in the world today (7 per 1,000 people per year), and the Japanese stock market and real estate markets (both the most valuable in the world in 1989) have lost 70 percent of their value in 23 years. The future of Western Europe, North America and Australia will look much like Japan. The only countries bucking the falling trend of Western and Central Europe are those not in the European Union (EU) – namely Switzerland, Liechtenstein and Norway.
Much of the rest of Asia is continuing to surge forward. 53 percent of all worldwide motor vehicle production in 2011 took place in Asian countries, with 23 percent each for Europe (including all of Russia) and the Americas. Just one percent of production took place in Africa. 6 of the hottest global real estate markets are hot due to the hottest market of them all – China. These markets include Hong Kong, Singapore, Taiwan, Canada and Malaysia.
Goldman Sachs is the source of the term “BRICs” – referring to the emerging superpowers of Brazil, Russia, India and China. They just named the “Next 11” – second tier economies that include Bangladesh, Egypt, Indonesia, Iran, Mexico, Nigeria, Pakistan, the Philippines, Turkey, South Korea and Vietnam. This is very good news for these 11 countries.
My latest list of 208 safe American banks (just 2.7 percent of all American banks) has been updated, and now includes the two safest credit unions in each state. Here are some of the winners from particular states: the National Bank of Arizona in Tucson, Union Bank of California in San Francisco, City National Bank of Los Angeles, Northern Trust of Miami in Florida, First Hawaiian Bank and the Bank of Hawaii (both in Honolulu), BNY Mellon of Pennsylvania, Comerica Bank of Dallas in Texas, UBS Bank in Utah, and Capital One of Mc Lean, Virginia (Capital One is 10 percent owned by ING of the Netherlands).
The 369 “safe” American financial institutions on my past (161) and current lists (208) represent 4.8 percent of the total banks, credit unions and insurers. Unsafe institutions will eventually collapse due to the collapse of their mostly real estate-based asset base. The players in this emerging tragedy are already set up. Foreclosures and other distressed sales comprised 29 percent of all US real estate transactions in March 2012. But this is not the whole story. The government is once again making things worse by trying to fix a problem which they created in the first place – much like with the emerging crash in both education and health care. 80 percent of foreclosed properties are being kept off the market by the government in an effort to bolster prices and property tax collections, but this cannot continue indefinitely. If these properties were on the market today, foreclosures and other distressed sales would comprise 67 percent of all real estate transactions. The figure of 67 percent equals the percentage of all real properties with mortgages (the remaining one-third are cash transactions with no loans). In other words, virtually ALL mortgages will eventually go bad – hence dooming not merely real estate and construction, but banks, credit unions, insurers and property tax collections (municipalities, local government and school districts) as well.
Financial Update (April 1, 2012)
The Dow Jones 30 Industrial Average Index reached the level of 13,289.08 on March 16, 2012. This continues to demonstrate the most dangerous behavior. Any breach of the all time nominal record high reached on October 9, 2007 (14,279) means we will head for the most massive crash in recorded history. Elliott Wave International (www.elliottwave.com) is already giving advice on safe physical storage for currency (cash notes in US Dollars, Swiss Francs, Singapore Dollars and New Zealand Dollars) and precious metals such as gold (preferably gold bars) and silver (non collector coins such as those in circulation in the USA before 1963). The contact companies are located in Switzerland and Canada.
Greece is broke, and it already has one of the most left-wing parliaments in all of Europe. Polls indicate the coming election will go even further to the left, with Communists making big gains – this can only mean that Greece as a country is doomed. France is also set to switch to the left (to the Socialist party). The French Socialists have promised to go backwards by lowering the official retirement age, raising the top income tax rate to 75 percent, and they want to go back on government austerity measures – this means that France and likely the European Union as we know it are doomed. There is no way that healthier countries such as Germany, Austria, the Netherlands, Finland, the UK, Poland, the Czech Republic, Slovenia and Slovakia can tolerate such irresponsible behavior on the part of both Greece and France… unless they bankrupt themselves –which is a very real possibility. Even more importantly, Asia will not tolerate such nonsense – emerging Asia (China, India, Russia, etc.) will simply stop lending money to fund handouts to idle people in Europe, North America, Australia and Japan.
FEMA (the Federal Emergency Management Administration) has run out of money to help the tornado-stricken state of Illinois, which is itself approaching financial ruin to the point of having to cut Medicaid. The Federal Reserve estimates that interest rates will finally begin rising sometime in the year 2014. Elliott Wave International believes that the rate the Fed charges to member banks will exceed the record of 1980-1981 (21 percent) by the end of the crash, or by 2016-2017. The future of America is a long term bear market that may endure until the year 2100, or for 88 more years.
I would like to discuss two major aspects of the American economy which clearly demonstrate that the emerging crash is well underway.
1. The first issue is the demographic structure of the modern American welfare state. Its roots go back to the establishment of Social Security in 1936, but now include Social Security “umbrella” programs such as Medicare, Medicaid, Disability (Worker’s Compensation), Unemployment Insurance and Food Stamps. One might even stretch this to include Veteran’s Benefits, which is another very similar welfare program. All told, the umbrella programs have 125 million beneficiaries who are supported by a mere 88 million active employees paying Social Security, Medicare, Disability and Unemployment Insurance taxes – in other words, 1.4 beneficiaries per one active employee. This is a demographic disaster. In 1945, there were 16 active employees for every single beneficiary. The UAW (United Automobile Workers) pension plan has about 3.2 beneficiaries for every one active employee, and the PERA (Public Employees Retirement Association) has 4.4 beneficiaries for every active employee. The latter plan supports 20 million current state, county, City and school district employees across the entire USA.
A very clear example of the disastrous trend in the USA is to be found in California. With 37.7 million inhabitants, it is the most populous American state. California has added a net 10 million people since 1985 (over the last 27 years). Of these, 7 million or 70 percent are on welfare in the form of Medicaid and “Medi-Cal.” 2.9 million are working poor who although not on welfare (they are to be applauded for this) do not contribute to the income tax base – their incomes are too low to accomplish this. A mere 100,000 or one percent of the “new” Californians since 1985 pay income taxes. 33 percent of Californians are on welfare in the form of Medicaid. The corresponding figure in New Mexico is an almost equally astronomical 29 percent.
Another stark example in the growing demographic nightmare is the Detroit Public School (DPS) system. They have already contracted to 4,000 teachers, of whom 1,400 with either retire or be laid off in 2012-2013. Do the math – they could be extinct in less than 3 years.
2. The second issue is the American retail service economy. Core industry (such as manufacturing and agriculture) is dying out, and so-called services already account for 70 percent of US Gross Domestic Product (GDP). I suspect that the actual figure is much higher, because manufacturing jobs account for a mere 8 percent of the labor force. Two (2) powerful and dynamic retail giants already have 60 percent of the entire American population as regular monthly retail customers. These are Wal-mart (with 32 percent) and Amazon.com with (28 percent). Wal-mart allows customers to shop for groceries online, and will often deliver the purchased groceries right to the customer homes free of extra charge. Both retailers are operating on reduced profit margins, and Wal-mart has even begun to cut certain staff and staff hours. The strong retailers are thus tightening their belts, and all other retailers will find it a challenge just to survive.
Another important issue I would like to discuss is that of global corporate “winners.” Everyone familiar with my books and financial updates knows that I talk a lot about Volkswagen AG of Germany. The VW Group’s core profit before income taxes is already a world record US $42 billion. When one includes monies allocated for global expansion (and thus not part of net profit before taxes) the figure jumps to US $166 billion. The next two most profitable companies in the world are (in this order) Gazprom of Russia and ExxonMobil of the USA, with US $24 billion and US $19 billion in respective net income = US $43 billion for both companies combined. But when one adds the massive new crude oil, shale oil, natural gas and shale gas project approved for Siberia, this climbs to well over US $ 1 trillion (i.e. one thousand billion Dollars) – a truly amazing figure which will create real wealth, real jobs and a real future for the people of Siberia and beyond.
Hyundai of South Korea is the 30th most profitable company in the world and Daimler AG of Germany (the owner of the famous Mercedes-Benz brand) ranks 33rd.
The Chinese economy is already accounting for 30 percent of the world’s economic growth. A credible forecast I read back in 1987 (25 years ago) said that China would account for 31 percent of the world’s GDP by 2087 (i.e. 100 years after that forecast). It looks like they will reach that level long before then. India was forecast to reach 28 percent of worldwide GDP by 2087 according to the same source – I have no doubt that they will achieve that goal as well. Other Asia-Pacific economies poised for the top tier of growth and financial strength include Russia (Siberia), South Korea, Taiwan, Singapore and perhaps even Myanmar (Burma) provided Myanmar turns toward the free market in its upcoming national election. Other Asian and Middle Eastern economies poised for likely growth include Pakistan, Bangladesh, Turkey, Thailand, Nepal, Afghanistan (provided the war stops), Uzbekistan, Kazakhstan, Azerbaijan, Tajikistan, Kyrgyzstan, Turkmenistan, Georgia (provided they cease conflict with Russia), Armenia, Mongolia and Bhutan.
Countries such as the Philippines, Indonesia, Malaysia, Brunei and Vietnam are all candidates as second tier players. Both Japan and Australia are heading into a very serious and drawn out deflationary collapse. Canada is about 7 years behind the USA in terms of its deflationary collapse – the collapse of Canada will be postponed, but by no means avoided or tempered. The only countries in Europe with a secured future appear to be those countries not part of the EU and who do not want to become part of the EU – namely Switzerland, Liechtenstein and Norway.
Neither Latin America (with the exception of Brazil) or Africa have the critical mass required to compete successfully with Asia. The 21st century is very clearly emerging as the Asian century.
Financial Update (March 2, 2012)
On February 29, the Dow Jones 30 Industrial Average Index reached the level of 13,055.75 – beyond the level of 12,876 reached on May 2, 2011. This action is prolonging the crash, which is not good news. The calculated trend-line potential for the Dow through the end of February 2012 was a level of 13,026 – which has already been surpassed……….this is a bad omen pointing to an even more massive crash.
Similar things have happened over the course of the last 17 years, which have made the emerging crash much more devastating. The historical high would have occurred around 1995 (when the Dow first reached the level of 5,000) but the Federal Reserve Bank prolonged the financial bubble by offering yet more credit. The Dow reached a real high (in terms of its purchasing power) in January 2000, when it surpassed 11,700. It crashed down to 7,100 by October 2002 but once again the Federal Reserve offered more credit. The result was the disastrous real estate price bubble and the Dow reaching a nominal high (but not a real high) of 14,279 on October 9, 2007. The index then crashed down to 6,469 by March 2009. Since that time, we have been experiencing a bogus partial recovery. The Fed is by no means omnipotent, and overall credit is already contracting – regardless of rock bottom interest rates. The economy is simply saturated with too much debt.
In real terms, the Dow has lost 87 percent of its purchasing power since January 2000. The average American has lost 69 percent of his or her savings in the stock market over the course of 12 years. Real estate reached a peak in 2006 but has lost 51 percent of its value since then. Housing starts are at their lowest per capita level since 1899. The US labor market has lost 21 million net jobs since 2008 and 11 million American citizens are now living and/or working abroad. The USA is losing people and jobs at the rate of 1,370,000 per month.
How does prolonging the crash hurt us? In 1995 we were looking forward to the worst global crash in about 300 years, or going back to the time of the South Seas financial bubble. By 2007 we were looking forward to the worst global crash in roughly 1,500 years, or looking back to the time of the fall of the Western Roman Empire in A.D. 476. The very real result of that is the emerging collapse of the European Union. If by chance the Dow were to surpass its nominal record of 14,279 (Barron’s magazine recently had a cover article calling for a level of 15,000 to 17,000), we would then be looking forward to the worst crash in about 5,000 years. If that were to happen, Elliott Wave International would no longer be helping us find the 2 percent (2 out of every 100) safe banks – they would be trying to help us find a safe cave in the mountains. In other words, the wholesale collapse of human civilization as we know it – I hope this does not happen – but the wave structure and the activity in the market may be pointing this way.
The reason we’re in this mess is DEBT. Credit (and thus debt) is plaguing three (3) primary regions of the world – the USA, the EU (27 countries) and Japan. These 29 countries have 13 percent of the world’s population but they owe 97 percent of its debt.
Japan’s deflationary crash began first in 1989 and hasn’t stopped. Japan has 2 percent of the world’s population and owes 6 percent of its debt. Housing and auto sales have collapsed by up to 80 percent and the Japanese population will shrink by one-third in less than 50 years – a wholesale economic, social, financial and demographic disaster.
In the 4th quarter of 2011 Americans paid down their consumer debt (mortgages, auto loans, credit card loans and student loans) by $252 billion. If this were to continue at the same pace, there would be no consumer debt in the USA in a mere 13 years. It’s a good thing that people are paying down their debt, but a bad thing that it’s coming all at once – which will drive the economy deeper into the deflationary crash. This is a perfect example of a necessary “over-reaction” to the massive debt induced since 1913 by the Federal Reserve System. It is also powerful proof that the most massive crash in history will indeed take place.
The EU is collapsing right now. Europe has 7 percent of the world’s population and owes 9 percent of its debt – a situation not quite as bad as that of Japan. Greece is falling first. Greece is a country of 11 million people virtually on welfare. Pensions and salaries have been cut by anywhere from 22 to 50 percent, but much worse is coming. As it now stands, Greece cannot repay 84 percent of its debt. Other countries are waiting in line behind Greece – Portugal, Ireland, Italy, Spain, France, Belgium and even once healthier countries like Lithuania, Latvia, Estonia, Hungary, Romania, Bulgaria, Slovenia, Slovakia, Malta, Cyprus, the UK, Austria and Germany. The only EU countries not yet downgraded by rating agencies are Sweden, Finland, Denmark, the Netherlands, Luxembourg, Poland and the Czech Republic. The only solution to this growing mess is to end the failed socialist experiment of a supra-national welfare state. Large majorities of voters in the EFTA countries (Western European nations which have thus far avoided joining the EU) want nothing to do with EU membership. These countries include Switzerland, Norway, Iceland and Liechtenstein.
The USA will collapse last but by far the worst. The USA has 4 percent of the world’s people but owes a staggering 82 percent of its debt. American banks hold 60 percent of the world’s debt in the form of derivative financial instruments. The Social Security “umbrella” of welfare programs (Social Security, Medicare, Medicaid, Disability, Food Stamps and Unemployment Insurance) equal 18 percent of the debt in the entire world.
Here is an update on safe banks. The FDIC “insures” 7,723 financial institutions in the USA, of which 159 have safe ratings anywhere from A+ to C+ by Weiss Ratings of Florida. Weiss is much tougher on ratings than large outfits such as Moody’s, Standard & Poors or Fitch. These safety grades are somewhat different from ratings agency rankings. In a ratings agency, the A-category is investment grade, the B-category is high risk (junk grade), the C-category is in high chance of default, the D-category is already in default and the E-category is in default with no hope of recovery.
Weiss safety ratings for banks, insurers and credit unions are as follows. A is excellent, B is good, C is fair, D is weak and E is very weak. Only 159 institutions or 2 percent of the total have grades of C+ or higher. Most of these institutions are very small, such as banks with only one office or branch. Among the safe commercial banks, just 7 of them have total assets in excess of $10 billion – making them “mid sized” but certainly not large. This can be difficult for those of us with no safe bank near where we live, or when safe banks are perhaps too small for our financial needs. One safe Internet bank is American Express Federal Savings Bank (FSB) of Salt Lake City, Utah. They have no physical branches and offer merely two products online – savings accounts and certificates of deposit. They have $38 billion in total assets and are now paying 0.90 percent per annum on their savings account (this is not a checking account and has no bill-pay function). Their website is at www.personalsavings.americanexpress.com and their toll free telephone number is 1-800-446-6307. Another subsidiary called American Express Centurion Bank is also headquartered in Salt Lake City and has total assets of $28 billion – they offer services to foreigners and to Americans with substantial financial needs abroad.
What makes 98 percent of our banks, insurance companies and credit unions so weak? The number one answer is real estate (mortgage) lending. Most of them have far too many loans backed by real estate – a form of collateral which has seen its value drop by 45 percent in roughly 8 years. Most of these loans are still being carried at face value on the books, which is misleading. The loans are worth much less than face value. Other sources of bad loans include car loans, consumer loans, student loans and sovereign debt loans. Large money center banks have made their situation even worse with derivative financial instruments, which are like “bets” made on the performance of the very same bad loans. If the loan performs, you make fee income. If the loan fails, you lose your shirt – and everything else you own. The few (2 percent of the total) strong financial institutions have stuck to basics, such as lending only to businesses or by lending to financially healthy customers who don’t require loans to survive. A financially healthy entity can pay off its loans right away, and would only go into debt to expand even more at the expense of its weaker competition.
Financial Update (February 3, 2012)
The equity markets are very close to reaching what will likely be their “best” top (or high value) for the coming 90 years. The Dow came within 35 points of its May 2, 2011 high of 12,876 on January 26 (Thursday), and lost 401 points or 3.1% intraday by January 30 (Monday). It went back up to 12,869 this morning (within 7 points of the May 2011 high). The most ferocious phase of the crash will likely commence within the first quarter of 2012. When this occurs, we could see daily losses of 50 points in the S&P 500 Index and 900 points in the Dow Jones 30 Industrial Index. The nominal target “goal” for the Dow is below 1,000 before the end of 2012, which will equal a nominal loss of 94 percent in just 5 years. In terms of gold (the only true global currency) the Dow has lost 87 percent of its real value since 1999. Its nominal loss will soon equal this real loss of purchasing power. Here’s another sobering fact: the Dow’s real value in terms of gold is no higher in 2012 than it was all the way back in 1926 – 86 years ago. All asset classes with the exception of the U.S. Dollar will crash to the ground over the coming 5 years – stocks, corporate bonds, municipal bonds, most foreign currencies, commodities (energy, precious metals, food, livestock and industrial materials), collectibles and real property. GDP, paid employment, tax receipts and the modern social welfare state (government) will collapse along with them.
One possible leading indicator is the Baltic Dry Index, which fell a massive 60 percent in January 2012 alone. This index measures shipping costs for container vessels. 90 percent of all goods worldwide are moved by water, and consumer demand is simply collapsing throughout the northern hemisphere. Official US unemployment fell to 8.3 percent in January 2012, but that is not the real story. A record 1.2 million people left the labor force in January, which is the worst figure for one month. With such a high rate of job losses, the USA would have absolutely no jobs whatsoever in 10 years and 3 months from now. 11 million Americans now live outside of the USA, with 6.5 million of these being younger people under the age of 35. We are losing people at the rate of about 170,000 per month, and the State Department has imposed a penalty of $450 for renouncing US citizenship. Such moves are fruitless, as they have been in places such as the former East Germany, Argentina and communist Cuba. In fact, Eastern Germany is still losing people to Western Germany 22 years after German reunification in 1990.
The economy (especially manufacturing) is literally dying out, which means that the country is dying out. US housing starts are at their lowest level since 1922 (90 years ago) and in per capita terms (because the US population is now 3 times as large as it was 90 years ago) housing starts are at their lowest level since 1899, or 113 years ago.
Mortgage foreclosures are booming, up 25 percent from 2011. Wide areas of Detroit, Cleveland, Las Vegas and the entire state of Florida are already vacant. US real estate prices, both residential and commercial, are down 42 percent since 2004. By 2017 the cumulative loss in value since 2004 will exceed 90 percent. Housing prices fell by 3.7 percent from November 30, 2011 to January 31, 2012 – an annualized rate of 22.2 percent.
Government is literally eating the life-blood of the economy, eating up 66 percent of all US production. Compare this to a mere 40 percent in “communist” China. Real inflation has been at zero for the last 4 years, and the threat we face today is deflation.
The present situation in Greece is the future of America – government benefit payment cuts of 20 to 40 percent, daily protests and riots, bank runs and socialized medical care running short of drugs as basic as aspirin.
The weak will die and the strong will get stronger. The US military has seen its budget cut by 35 percent since 2009 and personnel (active and reserve combined) cut by over 60 percent in the same time. But more cuts are coming – the administration needs to reduce this by a further one-third. The USA is simply running out of both money and credit. Other countries around the world are increasing their militaries by the most rapid rates since World War Two – they are simply responding to a new playing field in which there will no longer be one or two “superpowers” – a playing field that will instead have many, many second or third-tier competitors. The interesting thing here is that I’m seeing this by looking at the navies of the world, and have noticed a marked change since I finished writing my books on the German Navy (“The German and the Austrian Navies: Volume Number One and Volume Number Two”) in 2009. Countries normally assign last priority to a navy – after an army or an air force. Navies take much more capital and time to build – both for ships and boats and to train the crews required to man these water-borne units. In short, much more instability and conflict lie ahead. Here is the link to the latest press release for my German and Austrian Navy books: http://www.prnewschannel.com/2012/01/24/complete-listing-of-every-german-naval-vessel-to-ever-sail-also-explores-importance-of-sea-born-trade-to-european-world-history/.
In the auto industry, it is much the same story. Much of what I forecast in my book titled “Volkswagen: a Car for the People – a Success Story” is already coming to pass. Weaker players especially in countries such as Italy (Fiat-Chrysler) and France (Peugeot-Citroën and Renault-Nissan) are seeing their sales and market value decline before the crash. During the crash, they will find it hard to survive at all. Auto companies from Japan (especially Toyota-Subaru, Mitsubishi, Mazda and Honda – in this order) are also experiencing great difficulty. The Fukushima earthquake, tsunami and especially the nuclear plant disaster (far bigger than Chernobyl) have crippled Japan’s economy. The Japanese are no longer an export nation for the first time in 32 years. The most recent shipment of new Japanese cars and trucks to Russia were quarantined and sent back to Japan due to high levels of radiation. General Motors Europe (Opel and Vauxhall) is falling hard, and Ford’s 2011 global profit was mostly a one-time accounting event. Ford’s loss for 2005-2008 was upgraded to US $30 billion. The stronger players are from Germany (Volkswagen, Daimler and BMW) and South Korea (Hyundai-Kia), with companies from China (SAIC-Nanjing, FAW, Chana, BYD, Geely-Volvo, Beijing-AIG, Dongfeng, Chery, Anhui-JAC and Brilliance) and India (Tata, Mahindra and Bajaj) leading the charge from the developing economies. A record 18.5 million new cars were sold in China in 2011. Here is the link to the latest book review for my VW book by Glen Smale of “Vehicle Engineer” of the United Kingdom: http://www.vehicle-engineer.com/index.php?option=com_content&view=article&id=74:volkswagen-a-car-for-the-people-volkswagen-ein-wagen-fuer-das-volk&catid=34:books&Itemid=70.
My next group of books is written about the toy car industry (“Scale Model Collectible Cars”). I’m pleased to see that a name from the past of the British toy industry has resurfaced. Budgie-Oxford used to make die-cast cars in the approximate scale of 1:64 – similar to both Lesney Matchbox and Husky (later known as “Corgi Juniors”). Budgie made the toy cars and Oxford used to make toy trains similar to Hornby (the corporate owner of Corgi), Jouef of France (now also owned by Hornby of England), Märklin of Germany and Lionel of the USA. Oxford is now making a line of 1:76-scale die-cast cars comparable to the 1:76-scale “Trackside” line made by Corgi. Very many scale model toy cars are made to compliment train sets. This holds true for 1:60 N-scale, 1:90 and 1:87 Ho-scale, 1:76-scale, 1:50 scale Corgi “Super-haulers of Renown” (commercial trucks) and 1:43 O-scale. Many of the vehicles bring back fond memories of Lesney Matchbox products made during the 1950s and the 1960s.
Financial Update (January 1, 2012)
Warning signs of the total social-economic collapse abound. The meltdown inEurope is gaining momentum, with both national governments throughout the entire Euro currency zone and major commercial banks facing regular credit rating downgrades. The bank runs in Greece, Latvia and other countries are also pickup up speed. People and businesses are literally taking their money out in cash and moving it to safe countries such as Switzerland.
Prices for real estate and certain cars are collapsing, but something interesting is taking place in the energy market. The price of refined fuel is falling even faster than the price of crude oil, natural gas and other commodities. Why is this? Demand is collapsing. Fewer people have jobs, fewer people commute to work, fewer people have automobiles and other people are just driving less to save money. The number of motor vehicles in the entire world has grown from 600 million in 1997 to 1 billion today, but in the United States the figure has fallen from 300 million in 1997 to just 240 million in 2011 – a stunning collapse of 20 percent. Total US vehicle sales (all types of vehicles, not just cars) have crashed by 61 percent from 2005 to 2011.
Something even more alarming is taking place in the labor market. The USA has lost 15.0 million private sector jobs and 0.58 million public sector jobs since 2008. On top of this is something even more ominous. Since 2008, 4.6 million young Americans (those aged 18 to 34) have moved abroad to work or to study. These are the people the economy can least afford to lose. The situation is not unlike in the former East Germany, Argentina or Cuba. The best and brightest people are leaving and those with little or no value stay behind. The young Americans are moving primarily to China, Russia, Brazil and other countries in Latin America. The USA has thus lost at least 20.18 million jobs since 2008 – or an average of 420,000 per month. If one were to add people who have left the labor force and moved on to disability and social security, the numbers will look even worse. 49 percent of the American population already receives a benefit check from the government. Add public sector employees, and this rises to 57 percent. Add the 30 million people to be covered under Obamacare by 2018, and this increases to 67 percent. The normal rate of growth in beneficiaries (largely due to the ageing of the population) adds 2 percent of theUSAper year. At this rate, 100 percent ofAmericawill be on the dole by 2028. Obviously, something like that can never happen – the economy will collapse long before then. It will continue to crash between now and 2017, with things getting much worse every year. Although all sectors of the economy are losing jobs (government, large corporate and small business), I believe that small business and self-employment is the wave of the future – the economy of tomorrow will resemble the pre-industrial economy in more ways than one.
For the first time since I can remember, 50 percent of the USA is living either below the official poverty line or on low income – in other words, America is no longer a “middle class” country. The USA is rapidly becoming a 3rd world country. Among young Americans aged 18 to 24 years, a whopping 40 percent are considering emigration. In the counties of Northern New Mexico where I reside, the median age is already above 60 – another frightening statistic of a dying region (retirement-specific communities worldwide have median ages above 70, but one would expect something like that).
America has just 4 percent of the world’s population, but owes 82 percent of its debt. $600 Trillion of this debt is in the form of financial derivatives, 42 percent of which are held by the five largest American money center banks. Another $125 Trillion is in the form of unfunded liabilities for Social Security, Medicare, Medicaid, Disability, Unemployment Compensation, Food Stamps, private pensions and Veterans Benefits. Yet another $57 Trillion is in the form of debt already owed by the Federal Government, State Governments, Local Governments, School Districts, Fire Departments, Police Departments, Colleges, Universities, corporations and individuals (largely home mortgages). Still another $38 Trillion has been lost in the stock market and investments since 1999.
How have the most financially irresponsible American Presidential administrations since 1913 bankrupted the USA? Here is the list, and how they’ve done it:
1. Woodrow Wilson (Democrat): Federal Reserve System and World War One.
2. Franklin Roosevelt (Democrat): Social Security, World War Two, the United Nations, the World Bank and the International Monetary Fund.
3. Harry Truman (Democrat): Korean War.
4. John Kennedy (Democrat): Vietnam War and Food Stamp Program.
5. Lyndon Johnson (Democrat): Vietnam War, Medicare and Medicaid.
6. Richard Nixon (Republican): Earned Income Tax Credit.
7. George Herbert Bush (Republican): First Iraq War.
8. Bill Clinton (Democrat): expansion of Federal Reserve lending in 1995, loosening of accounting standards which set the stage for the failure of Arthur Andersen, Worldcom, etc.
9. George Walker Bush (Republican): Second Iraq War, War on Terror, Patriot Act, Homeland Security and First Bank Bailout.
10. Barack Obama (Democrat): Afghan War, Second Bank Bailout, Obamacare (30 million people to be added to government benefit rolls by 2018), extended Unemployment Compensation and Stimulus Program.
I mentioned earlier this month that the list of “safe banks” is changing. This is happening because many banks are seeing their credit ratings lowered. For instance, State Street Bank of Boston has fallen off the list. Many banks are falling off the list, and other banks (more often than not very small banks) are moving up the list by default – not because they are doing better. In Arizona, the number one rated bank is still Nordstrom FSB – a bank owned by the same department store and which has no branches. You likely need a Nordstrom store credit card to open an account with their bank. The number two rated bank is now in Yuma, Arizona– a city with one of highest unemployment rates in the country. In New Mexico, the two safest banks are very small banks headquartered in Eastern New Mexico (near the Texas border oil patch) and in Lordsburg – a tiny city situated between Tucson and Las Cruces on I-10. Similar changes are happening to banks all over the USA in all 50 states.
Financial Update (December 2, 2011)
The so-called “trap doors” of the emerging crash are closing, and the future of the world becomes clearer by the day. This is the largest socio-economic crash in more than 1,500 years, or since the fall of the old Western Roman Empirein A.D. 476. Government entities on levels (national, provincial and local), financial institutions and many corporations are seeing their creditworthiness downgraded on a very regular basis. Banks on my “safe list” change as well – please ask me for an update if this is something you wish to know.
Japan was the first country to fall into a deflationary crash in 1989, and they are not done crashing. The USA followed in 1999: there was a false nominal recovery from 2002-2007, a more severe crash from 2007-2009, a very weak temporal recovery from 2009-2011 and we are now falling into a far more ferocious phase of the crash. The European Union will collapse before the USA, and the collapse of the EU is happening right now.
This massive crash was caused by the massive debt which has been created by the central banks of the world. The European Central Bank was established in 1998, the Federal Reserve Bank of the USA goes back to 1913, the Bank of Japan was born in 1882 and the Bank of England was founded in 1694. The USA has just 4 percent of the world’s population, but owes 82 percent of its debt. The European Union owes 8 percent of the world’s debt, Japan owes 6 percent and all 168 other countries combined owe just 4 percent. The collapse of the EU will be more than sufficient to break many governments, banks and corporations in the West, but the eventual collapse of the USA will be the “mother of all crashes.”
The crash should bring the markets in Japan, Europe and North America to the level of near-zero by 2014 to 2017. After this happens, interest rates in the USA will finally rise to a level where the USA will be forced to default – far worse than Greece is today. The situation in the USA is beyond dire, but as usual the mainstream media don’t even mention this. Short term US treasuries yield just 0.02 percent today. This would merely have to rise to 0.27 percent to use all remaining annual income in the USA. In other words, the US would be paying interest on the national debt and nothing else. Rates won’t likely rise until the crash is complete (2014 to 2017) – but still: you can see what I mean.
What will replace the modern central banks, the European Union and the American Dollar as a global reserve currency? Silver but especially gold is the only true global currency. National currencies backed by gold such as the Yuan of China and Taiwan, and the Dinar of the Middle East, North Africa and the Balkans will become the new worldwide reserve currencies. Switzerland will remain a safe haven, and will be joined by countries such as Singapore and New Zealand as additional safe havens. The European Union will break apart. Bankrupt countries such as Greece, Portugal, Ireland, Italy, Spain, France and Belgium will revert to their respective old national currencies and be far less affluent than they are today. Stable countries will join Germany to create a new central European regional power. These countries will likely include Austria, Luxembourg, the Netherlands, Finland and perhaps others such as Slovenia and Slovakia. Countries not yet part of the Euro currency zone (such as Poland and the Czech Republic) remain something of a question.
Very many countries of the former Communist world and the former Third World will become both great global powers and regional powers of the future. Global powers will include the likes of China, India, Russia and Brazil. Regional powers will abound in many places. Many countries in sub-Saharan Africa now enjoy growth rates even higher than that of China. Secondary powers in Asia will include countries like Indonesia, Taiwan, Singapore and South Korea. Even countries below the secondary category will enjoy healthy rates of economic growth.
In the auto industry I expect many weak companies in Europe, Japan and the USA to go under. Strong companies such as Volkswagen, Renault-Nissan, Hyundai, Daimler and BMW are already using their strength to command very high prices for both contemporary and obsolete component parts. The companies with the real potential to challenge them in near future include those larger firms from China (such as Shanghai Auto, Dongfeng, First Auto Works, Chana Automobile and Beijing Automotive). Shanghai is of particular interest because they own the rights to the formerly British brands of MG, Roewe, Austin, Morris, Wolseley and Princess. MG is already being exported from China to 31 countries in Asia, the Middle East, Africa, Europe and Latin America. Not all the goods made in China are of low quality, so don’t make the mistake of underestimating the Chinese. By 2020 China will have half the global auto market, and don’t forget that countries such as India and Russia are waiting in line after China. India is pretty much the same size as China, and Russia has huge room to grow. And after them, there are more than 150 other “formerly poor” countries waiting in the wings.