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.”
