Angela Merkel Down for the Count?

There are some saying that Angela Merkel will be overthrown in a matter of weeks and others saying that there is no plot to remove her. Nevertheless, scandal rising in Germany over the refugee crisis keeps brewing behind the curtain. Cyclically, 2018 may be a peak in Merkel’s career despite what people are trying to deny.

Angela Merkel was born in Hamburg, West Germany, on July 17, 1954, and was actually trained as a physicist. She entered politics after the 1989 fall of the Berlin Wall. She eventually rose to the position of chairwoman of the Christian Democratic Union party becoming Germany’s first female chancellor. Moreover, Merkel has actually become the best-known politician in Europe whose face is more recognized than anyone else in Europe no less Brussels.

Merkel grew up in a rural area of the German Democratic Republic or East Germany. She studied physics at the University of Leipzig, earning a doctorate in 1978, and later worked as a chemist at the Central Institute for Physical Chemistry, Academy of Sciences from 1978 to 1990. She has obviously not made the connection between physics and the economy for if she just looked at the laws of thermodynamics she would have an epiphany and realize that there MUST be a business cycle.

Nevertheless, with the fall of the Berlin Wall in 1989, Germany was caught up in a euphoric moment and many expected East Germans to have the same work-ethics as those in the West as well as an understanding of the way things really worked. Merkel joined the Christian Democratic Union (CDU) political party and was quickly appointed to Helmut Kohl’s cabinet as minister for women and youth. She rose simply because she was a woman and from the East. It made good political propaganda. Merkel would later serve as minister for the environment and nuclear safety.

The political tide began to change and with Kohl’s defeat in the 1998 general election, she was named secretary-general of the CDU. Then in 2000, Angela Merkel was chosen party leader, but she lost the CDU candidacy for the chancellor to Edmund Stoiber in 2002.

Finally, on October 10th, 2005 Germany was on the brink of a new and volatile political era until a deal was cut that made the conservative leader Angela Merkel the country’s first ever woman chancellor. It came only after three weeks of a long, complicated dispute over the previous month’s indecisive election, Gerhard Schröder announced he was resigning. Angela Merkel became chancellor leading a “grand coalition” between her Christian Democrat party and its Bavarian ally the Christian Social Union, and Schröder’s Social Democrats.

Many questioned just how long such a coalition would last. Nonetheless, Schröder’s resignation came with a huge price tag. The Social Democrats emerged from days of secret negotiations with eight seats in Germany’s new cabinet and virtually all the big portfolios – including foreign, finance, health, environment, and transport. Merkel gave up tremendous economic power to become chancellor with the CDU taking only six cabinet posts. Merkel denied that the Social Democrats had got all the best jobs, and instead called it a “new beginning for Germany”.

Therefore, Merkel became Germany’s first female chancellor since it became a nation in 1871 who was also from East Germany fulfilling a dual role as the first female chancellor and the first East German chancellor to take control of Germany. Merkel was then elected to a second term in 2009.

Angela Merkel was reelected for a fourth term as chancellor in September 2017 with a vote that was well below 35%. However, although her CDU party held its majority in the Bundestag, because of her policy on allowing all the refugees into Germany, the far-right Alternative for Germany (AfD) won 13% emerging as the new third-largest group in parliament for the first time a right-wing political party regained any power since 1961.

Following the 2017 election, political problems surfaced by mid-November 2017 in the attempt to form a new government coalition collapsed. The Free Democratic Party (FDP) pulled out of talks with the CDU/CSU and the Greens, over differences regarding the refugee crisis.

The entire refugee crisis is clearly going to be Merkel’s downfall. Then in March 2018, the SPD voted to renew its coalition with the CDU after its leader Martin Schulz resigned. This step finally cleared a path for Merkel to retain the position as chancellor, but she would have to give up financial control to the socialists to maintain her political power for a fourth term.

Nevertheless, the refugee crisis and the mismanagement of the entire issue has resulted in clashes between Angela Merkel and German interior minister Horst Seehofer. There is a serious political crisis brewing where Merkel could be forced out of her chancellor position.

Is Draghi Really Ending QE?

Mario Draghi said the euro-area economy is strong enough to overcome increased risk,  and therefore this justifies the European Central Bank’s decision to end bond purchases bringing to an end a decade-long failed experiment. The truth behind this statement is starkly different than being portrayed in the press. Draghi also pledged to keep interest rates unchanged at current record lows until his personal term is finished next year. There is the contradiction for if the ECB stops buying debt, who will do so at artificially low rates of interest?

Draghi knows full well that he has utterly destroyed the bond markets in Europe. The ECB has also made it clear that they will REINVEST when the bonds previously purchased mature. The Federal Reserves has taken the opposite position and will NOT reinvest allowing their balance sheet to shrink.

If the economy is that strong, then why not end the QE right now? The fallacy here is that this has nothing to do with the economy. The ECB has simply had the member states on life-support. Interest rates will soar in Europe on long-term debt or there will be no buyers. Pension funds cannot buy 10-year bonds at even 3% when they need 8% to cover liabilities.

The statement by Draghi is creating a total paradox. You cannot keep short-term interest rates where they are and charge negative rates for deposits and simultaneously end QE and expect to sell bonds to the public at insanely low levels.

The press interprets this as the ECB with ending QE because they are “betting that the euro-area economy is robust enough to ride out an apparent slowdown amid risks including U.S. trade tariffs and nervousness that Italy’s populist government will spark another financial crisis” reported Bloomberg. What is seriously omitted here is that the member states will be UNABLE to sell long-term debt at these low levels to the private sector and the free market will send rates higher. This means that the states will have to then raise taxes to stay within the EU criteria and that will further suppress the European economy.

We are simply at the end of the road of this complete insanity. So buckle up. Get ready for the ride of a lifetime and make sure you keep your hands and feet safely inside the vehicle. Is the ECB risking a total collapse in public confidence when they discover you cannot keep rates artificially low and end QE simultaneously?

Malaysia Looking to file Lawsuit Against Goldman Sachs?

May was an important turning point in Southeast Asia. The corruption that has engulfed the previous Malaysian government centered around a sovereign wealth fund involving Goldman Sachs has rocked the entire Malaysian peninsula. The national debt, which was believed to have been $170 billion, appears to be more like $250 billion of 80% if the national GDP.

Prime Minister Mahathir Mohamad was sworn in on May 10th. When his aides first entered the government offices, they were confronted with a shocking sight. There were garbage bags filled with shredded documents intermixed with left-over food half eaten thrown everywhere. It was clear, the previous government sought to destroy all the evidence of their corruption.

The new finance minister discovered computers that even the highest-ranking bureaucrats could not access. Computers were set up to prevent access by anyone other than one or two people. Evidence of massive corruption was what turned the election on May 9th, 2018.

Goldman Sachs’ role, I wrote back in 2015, has been highly criticized in the Malaysian media and political circles after it emerged that 1MDB sovereign wealth fund paid hundreds of millions of dollars to the bank for helping it raise $6.5 billion in three bond deals in 2012 and 2013. Goldman Sachs earned around $590 million in fees plus commissions and expenses from underwriting the bonds, according to Reuters. The reported fees are highly excessive, nearing 10% when such fees are typically only 1% in bond underwriting.

There is now talk about filing suit against Goldman Sachs for its role in this scandal. The likelihood of filing a lawsuit against them in New York City being successful is probably zero. They will have to deal with the most corrupt court perhaps in the world that is notorious for protecting its local banks – Southern District of New York and the Second Circuit. My recommendation is to petition the Supreme Court to bring the suit in Washington DC that they will NEVER receiver a fair trial in New York City and they should get on the phone to Donald Trump to start applying political pressure.

Singapore WEC 2018

We want to thank everyone for a great WEC in Southeast Asia and the venue was excellent. The turn of events in the Malaysian peninsula were right on schedule with the change in government, which made a very interesting topic for this session.

We will be looking forward to holding annual events in Asia in the future.

California Dreaming & Separatist Movement

On the November election in California, enough signatures were gathered just over 400,000 to put a question on the ballot – should California be split into three states? The discontent in California is certainly regional. The proposal for three states would break California up into North, South, and just California.

Tim Draper has been the primary bankroller behind the division idea. He managed to collect at least 402,000 signatures to divide California into three parts. Northern California will be composed of the region from Oregon down to San Francisco. Southern California would include Fresno, Bakersfield, and San Diego. Then there will be California between these two regions which will be with its capital at Los Angeles. Effectively, three capital cities would emerge, San Francisco, Los Angeles, and San Diego. Anyone who has been to California knows that indeed there are three distinct cultures.

Silicon Valley is a region in the southern San Francisco Bay Area referring to the Santa Clara Valley, which serves as the global center for high technology, venture capital, innovation, and social media. This will be part of Northern California leaving behind the craziness of the Los Angeles politics that has far too often swamped the philosophies of Northern California.

This is once again part of the separatist movement that is rising everywhere around the world. It is all part of the same cycle of Civil Unrest.

Giving Up your DNA to Anyone – Bad Idea

The pitch by various ancestry operations is to send in your DNA by spitting into a vile and they will tell you your ethnic background. Sounds nice, but they then keep it. Why? The greatest danger is that such info can be turned over to the government at any moment. Giving up your DNA is actually giving up your entire family. People have been arrested because their DNA has been traced thanks to some family member who the government has in their database.

But the risk of a crime is not really the big issue for most people. The real risk is that insurance companies can deny insurance based upon getting your DNA covertly and determining that you are at high risk of heart attack or stroke. Canadian lawmakers passed the Genetic Non-Discrimination Act on March 8, 2017. This law would make it illegal for employers or insurance companies in Canada to discriminate against people based on their genetic information.

Back in 2008, Congress passed the Genetic Information Nondiscrimination Act of 2008, which prohibits discrimination against Americans based on their genetic information in both health insurance (Title I) and employment (Title II). The danger presented is if you “voluntarily” give up your DNA, they can argue you “waived” all your rights. Then Health Insurance Portability and Accountability Act, The Affordable Care Act, the Americans with Disabilities Act all are supposed to protect you from discrimination based upon your DNA.

You should know that last year on August 22nd, 2017, the United States District Court of the District of Columbia ruled that the Equal Employment Opportunity Commission (EEOC), should reconsider the rule that states it is permissible for employer-sponsored wellness programs to offer inducements in exchange for employees’ health information. The cap for these inducements is 30% of the cost of health insurance for a single person.

They are claiming that the 30% cap is to maintain the voluntary nature of workplace wellness programs. They are only allowed to gather employees’ health information IF participation in the wellness program is voluntary. In AARP v. EEOC (EEOC & DNA), the American Association for Retired Persons challenged EEOC’s rule allowing the 30% inducement, arguing the cap is in no way voluntary as it is high and, therefore, coercive. The court decision stated that EEOC had not adequately explained why it concluded that the 30% cap was reasonable to maintain the voluntariness of wellness programs. The judge did not immediately call for EEOC to strike the rule but has directed the agency to reconsider the rule and develop a reasonable explanation for the connection between voluntariness and the 30% cap. That is DISCRIMINATION based upon your DNA and people need to be very careful because insurance companies are NOTORIOUSLY dishonest!!!!!!!!!!!!!!

NEVER voluntarily give up your DNA to anyone!!!!!!!!!!! These companies change their policies all the time. They call it “updating” but that means when you turn over your DNA and they said they would not resell that info, here comes a policy statement that retroactively changes the terms you agree to way back when. We are used to this Ex Post Facto changes in policy from Facebook, Google, and countless others. It is a HUGE risk when it comes to personal info and especially DNA.

 

Netflix Signs Barack and Michelle Obama

 

I mentioned before that Netflix had originally wanted to air The Forecaster movie, and then all of a sudden they refused because of politics. Well, now Barack Obama and his wife Michelle just signed a contract with Netflix. Netflix has signed a contract with the Obamas for the production of films, documentaries, and a series. Obviously, it seems that Netflix is also becoming politically “connected” like CNN. Netflix is planning TV productions with the Obamas who have created the Obamas film company, known as “Higher Ground Productions,” that is expected to begin in 2019. It looks like we will be in store for political propaganda delivered by Netflix just in time for the 2020 elections.

Market Talk- June 15, 2018

 

Markets always seem to be waiting for something and even today it appears they were concerned about the BOJ and then later the US/China Trade Talks. The result for cash was that the market felt that the BOJ offered a helping hand after it today downplayed its previous view on inflation. The subsequent bounce in the Nikkei (+0.5%) was one of the few markets that managed a positive return today. The other core market to benefit off of today events was the Australian ASX (+1.25%), but that too saw currency declines -0.4%. Shanghai and the Hang Seng
both lost around -0.6% as concerns escalate over the Trade Talks. SENSEX did well just to close unchanged as most of the afternoon session was spent in negative territory. However, the markets was probably helped by the continued decline in the INR, this evening closing with a 68 handle.

Europe was generally weaker across the board with the UK’s FTSE (1.7%) being hit hardest. The UK continues to battle with BREXIT plans and so we are seeing the currency also under pressure and also market concerns surrounding US trade. Core Europe were also lower with DAX and CAC off around -0.6% the pair, whilst peripherals (IBEX, FTSE MIB) closed a little over 1% lower. The markets are still concerned about the ECB’s possible tapering from QE from September. We did hear Draghi state that the door could remain open but these moves appear a little more concerning.

US core were waiting for more information about US/China trade tariffs and so were trading lower in the uncertainty. By the close all core had recovered much of the intraday declines closing just 80 points off on the DOW. Earlier in the session the DOW was down almost 300 points but had recovered by the close. Eventually, we heard the US put a Trade number of $50bn of charges on trade and later we hear China stated a $32bn number. The result of todays trading really blends into the previous rally and is having a negligible impact. It may be too early to make such a claim but the market consensus is that somehow these guys will work things out. US stocks still looking in good shape with gains of around 5% over the past month for NASDAQ and the broader S+P.

Japan 0.03%, US 2’s closed 2.55% (-2bp), 10’s 2.92% (-2bp), 30’s 3.05% (u/c), Bunds 0.4% (-2bp), France 0.73% (-3bp), Italy 2.59% (-13bp), Greece 4.41% (-11bp), Turkey 15.64% (u/c), Portugal 1.78% (-12bp), Spain 1.29% (-5bp), and Gilts 1.32% (-1bp). ECB active again….

 

Do We Really Borrow From Only Ourselves? Does the Debt/GDP Ratio Means Anything?

QUESTION: Mr. Armstrong, the famous economist Paul Krugman says that debt is ok when we owe it to ourselves. He calls it “deficit scolding” as he wrote in the New York Times. Would you like to comment on this statement?

GH

ANSWER: Paul Krugman seems to lack any historical understanding of how nations rise and fall. Anyone who claims debt is OK and can be infinite because “we” owe it to ourselves is clueless. He wrote in the article you referred to that “we have a more or less stable ratio of debt to GDP, and no hint of a financing problem.” The debt to GDP ratio is interesting but totally irrelevant. China’s debt to GDP stands at 250%, the USA at 103%, and Greece buckled at 186%. Obviously, this ratio is rather meaningless as a forecasting tool. I have published this chart on call money rates previously. In my studies, I quickly discovered that you cannot reduce the cause of any effect to a single issue. We can see that the peak in call money rates took place during 1899 and it was the lowest in 1929 when the Great Depression hit. You can’t even claim that if interest rates hit some magical level the stock market would crash. The world is far more complicated than just this one-dimensional approach to everything.

Capital flows were fleeing the USA in 1899 so interest rates went higher with a shortage of money. In 1929, the capital was in the USA for it rushed here because of World War I. The inflow of capital created an excess so the peak in call money rates was lower than 1899 when capital was fleeing. We even have the world of President Grover Cleveland from the Panic of 1893 commenting on the net capital outflow because of the “unsound” financial policy of the Silver Democrats.

The greatest mistake in the analysis is always trying to reduce any effect to a single cause. The world is a complex mechanism. It is indeed like a rainforest. There are countless species and each is interconnected. Exterminate one and you will find that it was the food source for another which dies. That species, in turn, was the food source for yet another and so on. The world economy is equally complex. This is why I say we are ALL CONNECTED. Create a war in one region, we may not be involved with troops, but the capital flows shift.

Everything is interconnected. There is no single cause and effect. Looking at GDP debt ratios is pointless. This is also why fundamental analysis is notoriously wrong. The majority tries to reason the future based upon this one-dimensional analysis and they NEVER got it right. I have posted this video clip of Larry Summers before. He is asked why can’t you guys ever get it right just once. His excuse is blunt. The economy is extraordinarily complex like the weather. He argues nobody can forecast the direction.

For anyone to say that debt can be infinite when we owe it just to ourselves is a fool. At times, 70% of the national debt has been accumulating interest payments. A national debt is the single greatest way we transfer wealth among citizens as well as nations. I kept yelling on Capitol Hill that Quantitative Easing would fail, it would not “stimulate” the economy for a very simple reason. The assumption that the Fed would buy 30-year bonds and then the banks would lend into real estate with lower interest rates was crazy. The debt is NOT owned by exclusively Americans. China was smart and it sold the 30-year bonds and swapped to 5-year or less paper. The money was transferred out of the country. To pretend this is a debt we “owe” ourselves is just fantasy.

Even domestically, if I am the lender and you are the borrower, then you are paying me because you borrowed the money. Your wealth is transferred to me because you could not wait to buy something for cash. Sorry, I believe Adam Smith was someone who tried to observe HOW things actually work instead of trying to support a predetermined conclusion.

 

Economic Migration v Welfare Migration

COMMENT:

Sir,

After reading your blog post about the 300% increase in the cost of healthcare for refugees, I wondered the cost in this country for illegal aliens. Healthcare. Education. Food stamps. Etc. I googled anywhere from 3.4 to 11 billion dollars from health care alone.

I laughed out loud after reading the above. You wrote about the turn on the last group of people off the boat.

Keep up the good work and see you in Nov

DK

ANSWER: The cost of socialism is not merely over the top, it has altered the migration patterns within human society tremendously. The waves of migration from Europe to America were each inspired by the economic conditions at home. Therefore, we find the Irish, Germans, Italians, and English all coming during varied waves or periods overall when looking at the majority (naturally there were people from each group who moved for personal reasons). Nonetheless, the one thing that they all had in common was that they paid for their passage and they did not expect social benefits for free.

Today, the migration patterns are purely economic, but they are inspired by socialism whereby they need only show up and receive automatic income and benefits. When the European migration took place, predominantly during the 19th century and then waves after World War I and World War II, the people received no handouts from the taxpayer. There were no social programs to receive free living expenses. Churches provided food when people gave to charity BEFORE there were taxes. Europeans migrated to the United States to start new lives and to earn a living — not because they would be subsidized.

There are waves of migration that are caused by political unrest and no doubt some of that was at the reason for people fleeing Syria. Less known is the wave of refugees fleeing to Colombia from Venezuela who are also seeking security and economic stability since the army continues to support the Venezuelan socialist government that is collapsing. There were Americans in the south who fled to Brazil during the Civil War. They were called Confederados (Portuguese pronunciation: [kõfedeˈɾadus]) and were some 10,000 to 20,000 Confederate American refugees. They settled primarily in the state of São Paulo.

Providing welfare checks to show up on your soil alters the reasons for migration that have existed for thousands of years.