QUESTION: Hi Marty, I hope you’re doing well. Having been a follower of yours for some time now, and been enlightened from that, I am ever in your debt for what you have shared and (hopefully!) will continue to share. I am an economic history student studying at the University of Edinburgh, and I have to say the professors are consistently bamboozled when I bring anything up that I read on your blog! I am going into my second year now and am in particular very much interested in population flows. I am trying to set up my own ‘database’ to store all of this information and subsequently start creating my own analyses in a similar image of our dear friend Mr. Socrates. To get to my point, I am wondering how you went about initially setting up Socrates, what sort of coding or programs you were using and if there were any big potholes to try and avoid when setting up something like this? I am in absolute awe of Socrates and yourself, but I am enticed by the challenge of doing something I can call my own. Any help at all is very much appreciated I hope to hear from you soon!

Kind regards,

C

ANSWER: Yes, you will find traditional economics fall short of reality. They rest upon supply and demand, yet assume they can stimulate demand with Keynesian economics to raise or lower interest rates. They are clueless with regard to international trends because that would mean that they could not manipulate any economy, for there are always external factors they have no control over. Consequently, all theories are based upon what I call the “Fish Bowl Economy” that assumes everything is self contained and nothing external will enter their perfect world.

From a programming standpoint, there are no off-the-shelf programs to do what is necessary. Languages are really much the same. VB and C are the main languages, but then there are specialties like Prologue, etc. I was always into artificial intelligence from the start. The pitfall to avoid is to NEVER presume anything. Just let the data reveal the truth. As soon as you make an assumption, you will fail. Migration has always contributed to dictating the rise and fall of nations. Let the data show you the way. That is the exciting path to discovery.

The World Trade Organization (WTO) has warned that there is a “dramatic slowing of trade growth” unfolding. The WTO has revised downward its projections, saying trade is now on track this year to grow at the slowest pace since 2009.

The hunt for taxes is destroying the world economy and on January 1, 2017, all governments will begin sharing info on foreigners. The assumption is that anyone doing anything outside the USA is hiding money from taxes. With this attitude, world trade will continue to collapse into 2020.

Canada has a different legal structure compared to the United States. Canada is one of the most decentralized countries in the world where provinces are actually responsible for most major social expenditures as a whole. The Canadian provinces receive large, unconditional transfers from the federal government whereby some provinces receive transfers from the federal government that are more important sources of revenue than their own local taxes. This does set the stage for resentment between provinces, which is rather different from the United States model where the states are separate, individual, sovereign entities.

When we then look at the next tier lower, Canadian municipalities are effectively only agents of provincial governments, and in the United States, they too are stand alone entities. Therefore, in Canada, we have a hierarchical budget and debt constraints that combine to restrict the revenues of municipalities. Consequently, the province impacts the direct expenditures and controls access to capital markets for municipalities. If a local government gets into financial trouble, then the province comes to the rescue in various ways and can even change the municipal territorial boundaries, which is sort of similar to merging banks when in trouble. The province can even take over functions and has the authority to take over control of a municipality’s finances.

Municipalities cannot, therefore, actually go bankrupt in Canada since they are implicitly guaranteed by the province. This also means that in Canadian municipalities, the normal interest rate spreads or disparities are based upon various credit ratings and are not really a big factor at the municipal level, but rather at the provincial level. In Canada, local borrowing requires prior provincial approval and is severely limited. Therefore, the credit rating tends to be that of the province. Such debt constraints are a product of the implicit provincial responsibility for bailing out any municipal default, which is a legacy of the Great Depression, since in Canada, that event caused a tidal wave of local defaults amounting to about 10% of all Canadian municipal debt.

Canada has continued to expand the size of provincial transfers to municipalities as a percent of GDP, which has reached nearly the 50% level. This tends to introduce a different risk whereby if the province gets in trouble, it will directly impact all municipalities within its domain. So during the Great Depression it was one municipality against another, today in a sovereign debt crisis everyone risks going down with the ship.

In Canada, provinces have freedom to choose their own tax bases and rates. In practice, the majority of provincial income taxes are collected by the federal government under tax collection agreements. The underlying terms dictate that the same base is taxed for the federal income tax. Therefore, the Canadian federal government collects corporation income taxes and personal income taxes for several provinces under these arrangements. Therefore, in the United States, there tends to be tax competition among states where some states do not have income taxes at all, but the Canadian federal and provincial governments essentially tax the same basis. The Canadian federal government collects more from its taxes than its direct spending. The excess taxation is transferred through two large, unconditional transfer programs to the provinces.

Therefore, the risks in a sovereign debt crisis are actually higher in Canada than the United States. The Canadian structure means it is one for all and all for one, whereas in the United States there will be a disparity between states as some will survive better than others. A Detroit bankruptcy is not possible in Canada, whereas in the United States everyone stands alone and a collapse of one does not take down the whole. So a collapse in Illinois will not take down North Carolina.

In general, the conclusion for trading in Asia was positive with core indices closing up around 1%. However, it did not open that way where we saw the Nikkei off 0.75% as concerns continue around the BOJ’s uncertainty. Both Shanghai and Hang Seng opened with little change but gathered momentum as the day wore-on eventually closing around 1% higher. What changed all was the Trump/Clinton live debate and the markets interpretation of a probable Clinton victory. This was enough to lift the Nikkei to unchanged by lunchtime and then add 0.85% into the close. We also saw the S+P and DOW futures trade 0.5% better as Asia took the initiative.

Upon this mornings European open it was again Deutsche Bank that was again the main talking point. Trading in Deutsche Bank shares were 3% lower by mid-morning (hitting a 52 week low) at 10.18 but did see a revival in the afternoon taking shares back to unchanged. These concerns are forcing cash into the Bund market as part of the flight to safety trade. Oil prices did not help confidence after falling 3% following OPEC meeting. Concerns also around Germany’s second largest bank, Commerzbank, also saw its shares down almost 3% after they announced around 9k jobs cuts. The rally seen as the US markets opened was enough to provide a little comfort for European trading which eventually found core markets close around -0.25% lower.

A few second tier data releases (Case-Shiller Index, PMI and Consumer Confidence) were all better than expected and could be claimed aided markets but are second tier so their effects were limited. All this resulted in a positive US closing up 0.8% across the board which is also having a positive impact on DAX and CAC futures, late trading +0.5% higher.

More US bull flattening in US Treasuries with 2’s closing unchanged at 0.74% with 10’s closing 1.56% (-2.75%). German Bunds performed even more given the continued uncertainty within the German banking community. 10yr Bund closed -0.14% closing the US/bund spread at +170bp (u/c). Italy 10’s closed 1.21% (+2bp), Greece 8.19% (-4bp), Turkey 9.43% (-14bp), Portugal 3.38% (+3.5bp) and 10yr Gilts closed 0.67% (-2bp).

Well of course the press has made it known that their verdict on the first U.S. presidential debate is that Hillary Clinton “won”, yet Donald Trump didn’t lose badly enough to really change anything. Hillary avoided offering to produce her emails and Trump was playing Mr. Nice Guy while Hillary was negative and nasty. The roles did switch. When Trump said he would release his tax returns when she released her emails, Hillary ignored it and said Trump was hiding something.

Otherwise, it was a rather non-event with Hillary claiming “trickle down” economics failed and she will raise taxes on the rich, which she does not reveal as household income of $250,000 and not billionaires. She had no plan to cut taxes to bring back more than $2 trillion in cash corporate keep offshore. Economic growth increased with Reagan and has declined ever since raising taxes. She blames 2007 on trickle down when it was the Clintons who repealed Glass Steagall allowing the securitization of mortgages. Trump let that one go.

Hillary said students should get a better deal, and Trump missed the opportunity to point out it was the Clinton Administration that made student loans not dischargeable. There are cases where a student dies and the parents must still pay.

On the black community, Trump missed another fact. Hillary was talking about mandatory minimum sentences are harsh. Trump should have said it was the Clintons who imposed that law which has landed up to 40% of black males into prison at some point.

Hillary did win because Trump played Mr. Nice Guy. That was a mistake.

Hillary also had an undisclosed Gmail account. It’s amazing how Hillary hides everything, never tells the truth, covers everything up, and yet the New York Times endorses her. You have to wonder what is going on here. This woman is so distrustful that there is no comparison to any other American politician in history. They threw Martha Stewart in prison for making false statements to the government and obstruction of justice. Give the same info to a grand jury and let’s see if they indict Hillary. They will never do that, which proves America is no longer the land of the free and home of the brave.

QUESTION: So i read your article ” Germany About to Raise Property Taxes Significantly “. It is really amazing to read such a piece. It shows me how important Correlations are. Im eager to learn and i hope i can educate myself by reading a book written by you. My question is, is it correct, that those correlations indicate “when to borrow money”  “and when not borrow money” because of the “number” of the interest rates? So in this current Time frame it is bad to borrow from the banks to invest in German Real Estate correct?

Kind regards and thank you for your commitment, your work safes lives.

ANSWER: Buying or selling real estate is tricky. On the one hand, real estate is a hedge against government, particularly when there is inflation. The problem with real estate has always been that you cannot simply pick it up and move. German real estate is even more complicated. The proposed tax increase will cover the refugees and bankrupt municipalities that really cannot declare bankruptcy. In Germany, tax increases may be passed to the renter when they take place. This is not the case in the United States. This proposed property tax increase can and WILL be passed on to renters in Germany. So this tends to actually further deflation insofar as it reduces net disposable income.

In Germany as a whole, there are 16 states, some 450 counties, and 12,500 towns and cities. Municipalities have responsibilities for public order, infrastructure, cultural institutions, and public transport. To finance these essential services, the German municipalities draw upon three local taxes, which are classified as two different property taxes and a local business tax. In addition, they are allocated tax revenue from the federal state, which includes income taxes, federal value-added taxes, and state-allocated grants. Overall, the shared tax base eliminates over-dependence on a property tax and serves to balance disparities in both resources and needs at the local level. There is no actual “sovereignty” of states independent from the central government as in the United States.

German municipalities, lacking an independent sovereignty, cannot go bankrupt. German states implicitly guarantee public debt incurred by local municipalities. Consequently, this all means that municipalities in fiscal distress do not experience interest rate disparities as we see in the United States. Additionally, German state regulators can actually just take over a municipality if it goes into insolvency and can even mandate a “Haushaltssicherungskonzept,” which is a budget consolidation plan. Effectively, this is similar to a Chapter 9 plan in a U.S. bankruptcy court, which essentially demonstrates how the municipality can return to a balanced budget within 10 years.

Raising property taxes in Germany is a national issue rather than a local municipality problem, but the underlying law allows the tax increase to be passed on to the renter. Therefore, this has encouraged people to buy property to rent out. Many were buying property, assuming they would be renting to refugees.

Now, the question of property as a hedge against government takes shape based upon the geopolitical risk for Germany. This is where it gets tricky. If we assume the state survives but the currency declines, then borrowing in euro today at a FIXED rate that is low under 3%, becomes a hedge against both the currency and the state. However, if property taxes are passed on to renters, you may find rent declines like Berlin where students dominated the market. If there is civil unrest domestically or a geopolitical risk, such as Russia moving into Eastern regions of Europe, then property will decline when confronted with such risks.

With geopolitical risk aside, yes, there is a hedge potential value to real estate with fixed rates under 3% for 10 years out. This all becomes a geopolitical risk.

Once a politician, always a politician. They are just incapable of telling the truth. The New York Post, who may become the American version of the British Guardian, has now exposed that Obama used a fake name to communicate with Hillary on her private server because he KNEW what she was doing. While tens of thousands of Clinton’s emails have been made public so far, the government has not released any emails from Obama.

Obama told CBS news that he had no idea that Hillary was using a private email server until it was reported by the New York Times on March 2, 2015. That is clearly an outright lie, and if he were in a private fraud case, he would be criminally charged with her for conspiracy. Hillary’s continuous crime included other parties who may join the plot later and incur joint liability. His use of fictitious names is PROOF that he knew what she was doing was a crime, for he tried to hide his identity as a co-conspirator. This raises the question of whether he will benefit from the Clinton Foundation in the future.

Of course, those in government are always exempt from the same laws they use to persecute the public. So there is no way the FBI would dare recommend indicting Obama, and the plot to ignore the law is beginning to be exposed a bit more. If they had indicted Hillary, then they would have to charge Obama as a co-conspirator. That is the way it would work in any other setting.

A weaker opening for Asia with the Nikkei 0.7% lower mid-morning and just kept drifting having heard Mr Kuroda inflation expectations and his possible “lower interest rates” comments. The Hang Seng and Shanghai indices traded heavy also as confidence was lost once the Shanghai broke the psychological 3k level. All core Asian indices closed between 1.25 and 1.75% on the day and that certainly did not help the European opening.

Angela Merkel’s comment about not supporting Deutsche Bank if the need were to arise certainly did not bode well with investors in this mornings markets. By lunchtime the DAX was around 1.5% lower and the afternoon took it even further closing over 2% lower. Deutsche Bank itself lost 7% in todays trading but also stated that they intend to sort any problems they may or may not have out for themselves. In 2007 DB shares were trading at 80, today they closed at 10.53. Other exchanges were also lower with FTSE, CAC and IBEX all between 1.25 and 1.75% weaker. Doubt, uncertainty and a lack of direct leadership currently haunts the direction for Europe as they search for tangible benefits! Mario Draghi addresses the Bundestag on Wednesday which may also provide some further clarity on QE guidance.

Todays uncertainty also dragged the US markets lower given the heavy sentiment and ahead of the first presidential debate to be held later this evening. It will be interesting to see how markets react to debate (the first of three) but as we approach it sounds as though the market makers want Hilary whilst the market takers vote Trump. DOW, S+P and NASDAQ were all lower but certainly held-in better than either Europe or Asia. Later this evening we see Asian futures have lost another 0.65% from he close with cash finding its way into the core Bond markets again.

The US curve returned to the bull flattening with 2’s dropping 2bp (closing 0.735%, not bad considering they auctioned today) whilst 10’s closed 1.58% -3.5bp. In Europe 10yr Bunds rallied to -0.12% (3.5bp move) which closes the US/Germany spread at +170bp. Italy closed 10yr at 1.18% (-3bp), Greece 8.23% (+1bp), Turkey 9.57% (+28bp Moody’s cut to junk status), Portugal 3.35% (u/c) and UK Gilt 10’s closed 0.695%.

The lack of integrity among the press is becoming just in your face. The New York Times published an amazing endorsement of Hillary Clinton on Saturday in hopes that they can persuade their readers to overlook all the scandals of Hillary and make her President. I would understand not endorsing either, but to ignore the law, the corruption, and common sense, merely reveals that the New York Times cannot be trusted. This is even more astonishing from the standpoint that the New York Times was the paper to break the story on Hillary’s emails on March 2nd, 2015. It was also the New York Times that published “2008 Crisis Deepened the Ties Between Clintons and Goldman Sachs” explaining how Hillary came to help rescue their image. It was the New York Times that reported how Hillary kept changing her story on the emails. To simply ignore all of this as if it never happened leaves one speechless at the political attempt to manipulate the public. This is what the New York Times actually wrote in their endorsement:

“In any normal election year, we’d compare the two presidential candidates side by side on the issues. But this is not a normal election year. A comparison like that would be an empty exercise in a race where one candidate — our choice, Hillary Clinton — has a record of service and a raft of pragmatic ideas, and the other, Donald Trump, discloses nothing concrete about himself or his plans while promising the moon and offering the stars on layaway. (We will explain in a subsequent editorial why we believe Mr. Trump to be the worst nominee put forward by a major party in modern American history.)”

To call Trump the “worst nominee put forward by a major party in modern American history” is just astonishing and leaves one with their mouth wide-open. Emails, corruption, Clinton Foundation taking money from foreign governments when Hillary is Secretary of State all means nothing. If this is honorable showing trustworthiness, then the old saying people judge others by themselves means this is what the New York Times also thinks is acceptable. This endorsement is clearly a desperate attempt by the ESTABLISHMENT to rig the election just as the media did in Britain to convince the people they should surrender their dignity to Brussels. There too the press predicted a major depression and collapse of Britain if they people voted to exit Europe. Nothing of the sort has unfolded and the scare tactics of mainstream media in that instance was deplorable. Goldman Sachs, Morgan Stanley and Credit Suisse have all had to revise their forecasts that called for the end of the world if BREXIT passed.

The New York Post has said it best. This election has captured in their bold headline: American journalism is collapsing before our eyes. Indeed, this is the end of mainstream media. If Trump wins, this victory may see the decline and fall of mainstream media once and for all. As the younger generation abandon such media, even Warren Buffett has said he would only invest in local community newspapers.  USA Today has been offering buy-outs for employees with over 15 years on the job who are 55 or older to reduce the work force.

TV began to displace newspapers with their nightly news programs and coverage of political debates live. That started the process of the decline and fall of newspapers. Now the internet is here and the younger generations do not buy newspapers. The lifeblood of media has been advertising revenue. That has turned the tide. There is a growth of 15.7% in advertising revenue, but it is all on the internet with not increases appearing for TV or newspapers. This biased and foolish endorsement of Hillary by the New York Times has simply exposed that they are part of the ESTABLISHMENT and this is really what is under attack in these elections on a global basis. It is like supporting Napoleon in the Battle of Waterloo on that fateful day of June 18th, 1815.