Where The Future Looks Bright

QUESTION: Do you think stem cell research will be the next advance in medicine?

KW

ANSWER: It is a shame that much is misunderstood and has been driven offshore.  So many people think Stem Cells are taken from dead babies. They are gathered from the umbilical cord but can be extracted from your teeth or even fat tissue in your own body. But the answer is yes. Stem Cell research is the next generation that can really be our saving grace for the future against superbugs. They can tank you blood and create a new heart. Aside from the day when you will be able to replace organs, it is helping to shorten the 10-year cycle in the development of new drugs.

This is right on time and it should provide the next advancement in medicine providing the next way of technological advancement.  Biotech companies can also “print” living tissue using specialized 3D printers. They can print tissue that can be used to produce skin for grafts, or cartilage for joints. This is the next great advancement in medicine. One company is Aspect Biosystems, which went into partnership with Johnson & Johnson to develop 3D-printed knee meniscus tissue.

The future is not all dark and foreboding. That seems to be limited to the political-economy. In other areas, the future looks different and promising.

Australian Tax Office Scandal

COMMENT: 

The Hunt for taxes
Just to bring to your attention a scandal coming out with the Tax office in Australia pursuing aggressive revenue targets, and using unethical practices to generate it.
D

ANSWER: The scandal in Australia with the head of the Tax office is shocking involving a $165 million tax-fraud ­syndicate scandal. The police have arrested people in Australia which is admirable. The  2013 US scandal about the United States Internal Revenue Service (IRS) doing similar acts of abuse of power was never prosecuted or really investigated. It was revealed back then that the IRS had selected political groups applying for tax-exempt status for intensive scrutiny based on their names or political themes. This led to a pretend investigation by Attorney General Eric Holder. In January 2014, James Comey, who at the time was the FBI director and walks on water, told Fox News that its investigation had found no evidence warranting criminal charges in a neat cover-up.

Finally, in late September 2017, a report by the Treasury Department’s inspector general found that from 2004 to 2013, the IRS used both conservative and liberal keywords to choose targets for scrutiny. Finally, in October 2017, Trump agreed to settle a lawsuit filed on behalf of more than 400 conservative nonprofit groups who claimed that they had been discriminated against by the Internal Revenue Service. The settlement included an apology from the IRS and a very substantial monetary settlement. That’s how they do it in the States. Government is always above the law and people like Comey always protect the bureaucracy. He is now doing everything in his power to take down Trump for the bureaucracy.

The Australian Taxation Office and all its tax-avoidance investigations are now in jeopardy since the deputy commissioner is facing criminal charges­ and four of its offic­ials stood down as well. This would NEVER happen in the United States.

Kidnapping for Profit

COMMENT: I read your piece on taking the profit out of prostitution to end kidnapping young girls. That has been a huge problem in Eastern Europe and girls were even getting kidnapped in Western Europe on vacation. Here in Italy, there was a huge problem of kidnapping people and demanding money from their families. The government passed a law that if a family member was kidnapped, they froze the accounts of the family to prevent people from paying. At first, it seemed cruel. But once it was no longer profitable to kidnap people, it stopped. I think your idea would probably work.

VSZ, Rome

REPLY: When they tried prohibition in the USA, it did not stop people from drinking. What it did do was establish the Mafia in the USA. Suddenly booze was profitable. When prohibition ended, the Mafia was well funded and expanded into other ventures. When you make anything illegal, it becomes tax-free and there is the incentive to expand whatever that business might be. We are talking about human nature. During a crisis, legal goods are suddenly going for a premium. They call it price gauging which is illegal in Florida but it still goes on in a storm.

They are now warning Americans traveling to some parts of Mexico for they are starting the same scheme – kidnapping people for ransom. If there is a profit to be made from any illegal activity, it will be exploited. It does not matter what the subject might be from drugs, booze, to prostitution. Just follow the money.

Market Talk- April 24, 2018

Asia opened better and saw some impressive gains from the core. The Nikkei had a solid day with a near 1% gain whilst the Yen remains soft flirting with the 109 handle. Exporters and industrials led many o the advances with some banks also lending a hand. Shanghai gained an impressive 2% in todays market, its strongest in over two months. Renewed confidence and Party determination is rumoured to be the bullish factors behind today rally. In Hong Kong the Hang Seng also added another 1.3% with property, housing and energy stocks all contributing to the rally. Although the SENSEX had a positive morning, by lunch we were back almost to unchanged on the day. Afternoon trading was strong following the region and we closed near the days high adding +0.5%. INR retraced some recent losses but still remains on its bearish track.

Obviously, the sell-off in US markets came late in the day for European bourses and so they closed mixed. Almost all were better during the morning session, even as data (German business confidence) released lower than expected. Lets just get onto the late afternoon developments as this will influence Asia’s opening Wednesday. The bond market was again drifting lower (price) as US 10’s hit 3% and influenced Europe but, it was key earnings that is assisting the decline. Again, the NASDAQ has led this sell-off with Facebook, Amazon, Netflix etc. all down around 4%. 3M beat expectations but the forecast for lower numbers appeared to coincide with the 500 point hit the DOW took. It is a big week for tech earnings which will lead to more price swings in little volume. The vast majority of the S+P index have reported and were better than expected, but with volumes low exaggerated moves are here for a while. US 10’s trading 3% is having more of a psychological effect than anything else, but it is a move many have been waiting for. Probably have the traditional analysts erring on the side of caution as they tend to worry over large swings, but is best to stay calm and let the numbers you. The key will probably be the currency markets and so is worth keeping a very close eye on the DXY and emerging market currencies for the week.

The VIX has rallied 15% today, but is still trading in the teens even with the DOW down 3% YTD. The market is yet to accept the last few years rally, as we await the next big move. This is all about posturing and acceptance. Volumes are light because of this uncertainty but, the currency is telling you what to do. The capital flow remains into the US even with the current weakness in the long end bonds. Short term rates will move unabated as the FED continues to normalise the short end. So expect more of the same over the short-term.

Japan 0.06%, US 2’s closed 2.47% (u/c), 10’s 2.995% (+1.5bp), 30’s 3.17% (+3bp), Bunds 0.64% (+1bp), France 0.84% (u/c), Italy 1.76% (-3bp), Greece 3.95% (-5bp), Turkey 12.30% (+6bp), Portugal 1.65% (-2bp), Spain 1.28% (-2bp), and Gilts 1.54% (u/c).

Why Parliamentary Political Systems are Dangerous

COMMENT:  Hi Martin, reading your article about the SPD imposing Marxism on Germany is horrifying. To see established political parties so greedy that they’re willing to partner with fringe parties to maintain control is nuts.

We’re currently seeing this in British Columbia where the Liberal party lost its majority due to a government formed by new Democrats and the Greens. Now, this handful of green party MLAs wield enormous powers. They’re impeding the expansion of kinder Morgan’s pipeline to Vancouver, despite FEDERAL regulatory approval.

How can so few, be so greedy, as to crush the economic activity and benefits that this creates for thousands of workers? Bring on the crash and reboot, I’m sick of this.

Mike C.
Calgary

REPLY: This is what is wrong with the Parliamentary System. There should be a run-off with a second election between the two top candidates. This is what they do in France. The systems employed in most other countries allow fringe groups to get control. Do not forget that Hitler won during the 1932 German election less than 36.8%. This is what is wrong with such political systems. You would think that we have learned our lessons from the past by now.

Gold v Dollar

QUESTION: Hey Martin
You always say that us in Europe better get our money out while we still can.
I know that you recommend bank account in US but that isn’t always so easy.
As some kind of alternative, what do you think about storing some gold in Asia ( Hong Kong, Singapore etc.)

I am no gold bull and I understand that you take the risk of gold still going under 1000 dollars but in the long game you always say that the tangible asset survive.

mainly I like this option because it’s easy to set up, relatively cheap and I don’t have to report it.

If you could find the time to give me the possible down sides in this and that way keep me from doing a big and costly mistake I would really appreciate that.
J.P

ANSWER: What you have to keep in mind is timing. Many people like to refer to the Great Depression as their guide. Keep in mind we were on a gold standard so the rise in the dollar meant a rise in gold. As the Sovereign Debt Crisis hit in 1931, first the capital fled to the dollar. Then when the dollar was the last one standing, pressure on the dollar began as people assumed the US would default like everyone else. That did not happen, but FDR devalued the dollar relative to gold moving it from $20.67 to $35.

There are already 13 nations in default of their national debts. If interest rates go up 1%, we will see another almost 30 join the default list. Take interest rates up 2.5%, and the list will soar to probably 100 nations in default.

The first crack in the world monetary system will ONLY be caused by a strong dollar – not a weaker one. First, you get the dollar rally, then you get the dollar collapse. So keep this in mind. If you buy gold and then see a decline, will you panic and sell the bottom, which is typical? That becomes the game.

There are other places to have dollar accounts. But the USA is not part of the reporting system back to Europe. Most other places are. The USA has become the new tax haven for the world – not American unfortunately.

The Failure of Human Judgment

QUESTION: You have said it is a waste of time to try to persuade a government to act in advance of a crisis. Nobody seems to even come close to you with experience and contacts. Still, do you think it is possible to ever change that reality?

PL

ANSWER: Sadly no. The only possible way to change it would be to eliminate career politicians and people would serve one term as originally intended. People make a judgment in the own self-interest. Then you have the problem of human judgment. The majority is always wrong in markets as I have stated many times. But that decision-making process is wrong in so many other fields that also require a judgment.

The author of Harry Potter, JK Rowling, told her readers on Twitter that she received “loads” of rejections before she finally got published. She said she was rejected 11 times before someone took a chance on her. This is the fate of human judgment in so many fields far too often because people also judge others by themselves. Some women were angry that I dared to say that not all prostitutes were forced. They judge others by themselves. There are people who have always slept around and others who value celibacy. We are all not the same. Likewise, Goldbugs cannot accept that gold is not money because that is their view and the rest of the world is wrong.

When you judge others by yourself, you will never arrive at an objective decision. This is why the majority will ALWAYS be wrong in just about anything that requires human judgment. So eleven publishers rejected Harry Potter. What does that say about human judgment?

Market Talk- April 23, 2018

Asia tried to be positive today, but soon after the opening bell we were back in the red again with early volume increasing. However, with the exception of Nikkei, HSI and Shanghai this was the case. Early jitters were rejected for the SENSEX in India as support for IT, banks and auto’s helped values. The INR continues to drift settling close to the days high at 66.45 which is proving most beneficial for the stock market. Interesting that it was the IT sector that led prices lower on the Hang Seng as dealers claim fears of the potential US trade conflict. The HSI finished lower following mainland Shanghai index weaker down -0.5%. The Nikkei lost -0.35% but what made matters worse for Japan, is that it combines with the Yen’s 1% decline today now challenging the 109 handle. It was the currency markets that dominated much of the talk today and that across all time zones.

Fear that the US economy will accelerate away from the rest of the world was the reason given for the bond market weakness today and that had repercussions everywhere. Hot talk was the US 10’s move toward the psychological 3% barrier which also hit European peripheral but more so, has seen a significant move in the DXY (US Dollar Index). The dollars bounce was the major reason European indices faired well today. In positive early US trading that helped sentiment but the turn towards the US close has seen European futures join the drift lower. UBS numbers beat expectation but closed the day off almost 3% given concerns over the competitive playground and the “Unpredictable market environment” it was claimed.

US started-out well but, was then hit as bond yields, the energy price reversal and commodities weighed on confidence. Although 3% US 10’s was averted intraday, it remains on the table for the week. We have not had a 3% handle since late 2013 when volumes were light and they managed an up-tic on Christmas Eve; prior to that is was back in 2011. This is being absorbed by equity markets currently and so will probably lighten the effect once realised. All indices finished the day with only minimal losses. Currency is the main key for this week. It is worth keeping an eye on this especially when it starts to accelerate the capital flow into the US.

Japan 0.07%, US 2’s closed 2.47% (+1bp), US 10’s 2.98% (+2bp), 30’s 3.14% (-1bp), Bunds 0.63% (+3bp), France 0.84% (+1bp), Italy 1.79 (+2bp), Greece 4% (u/c), Turkey 12.24% (u/c), Portugal 1.67% (+5bp), Spain 1.30% (+4bp), and Gilts 1.54% (+6bp).

 

Nicaragua Protests Over the Collapse of Social Security

At least 10 people have died in Nicaragua during this week’s violent protests over the government’s planned changes to the social security system. Nicaraguans began protesting on Wednesday against measures that increase worker contributions and lower pensions. The economics of Marxism has completely failed and the decline in the birthrates spells doom for most pension models.

This has been a direct confrontation with Ortega, a former Marxist guerrilla who has had to face the reality of Marxism as did Russia and China. Protestors in Managua threw rocks and set fires in unrest that started Wednesday, and police responded with tear gas and rubber bullets. Late on Saturday, local media stated that a reporter was shot and killed during a live broadcast from Bluefields, a town on Nicaragua’s Caribbean coast that has been hit by the violence.

This is the CIVIL UNREST that will rise up around the West as socialism continues to collapse. The taxes must rise and the benefits must decline and even that will not keep the social systems in place for more than two years. We will have to face a complete revision of the monetary system. How that is approached will determine if we have violent confrontations with government and the rich are dragged from their homes and hanged as has so often taken place in the past.

Europe v America

QUESTION: Why is Europe still in an economic crisis among its banks while the US banks are obviously beyond the crisis days of 2008-2009?

Thank you for your insight.

HT

ANSWER: The bad loans in the states were really dumped into Freddie Mac, is a public government-sponsored enterprise created in 1970 to expand the secondary market for mortgages. The main difference between Fannie and Freddie boils down to who they buy mortgages from. Fannie Mae primarily purchases mortgage loans from commercial banks, while Freddie Mac primarily buys mortgages from smaller banks that are often called “thrift” banks.

The bad real estate loans were stuffed into Fannie and Freddie so the bad debt was not in the banks. In Europe, the bad loans are still on the books of the banks. Hence, the European banking crisis was not been addressed and this is the primary difference between American v Europe.