economy


Screen Shot 2015-11-18 at 4.55.47 PM

From Ray Dalio

Now that we’re a month past the election and most of the cabinet posts have been filled, it is increasingly obvious that we are about to experience a profound, president-led ideological shift that will have a big impact on both the US and the world. This will not just be a shift in government policy, but also a shift in how government policy is pursued. Trump is a deal maker who negotiates hard, and doesn’t mind getting banged around or banging others around. Similarly, the people he chose are bold and hell-bent on playing hardball to make big changes happen in economics and in foreign policy (as well as other areas such as education, environmental policies, etc.). They also have different temperaments and different views that will have to be resolved.

Regarding economics, if you haven’t read Ayn Rand lately, I suggest that you do as her books pretty well capture the mindset. This new administration hates weak, unproductive, socialist people and policies, and it admires strong, can-do, profit makers. It wants to, and probably will, shift the environment from one that makes profit makers villains with limited power to one that makes them heroes with significant power. The shift from the past administration to this administration will probably be even more significant than the 1979-82 shift from the socialists to the capitalists in the UK, US, and Germany when Margaret Thatcher, Ronald Reagan, and Helmut Kohl came to power. To understand that ideological shift you also might read Thatcher’s “The Downing Street Years.” Or, you might reflect on China’s political/economic shift as marked by moving from “protecting the iron rice bowl” to believing that “it’s glorious to be rich.”

This particular shift by the Trump administration could have a much bigger impact on the US economy than one would calculate on the basis of changes in tax and spending policies alone because it could ignite animal spirits and attract productive capital. Regarding igniting animal spirits, if this administration can spark a virtuous cycle in which people can make money, the move out of cash (that pays them virtually nothing) to risk-on investments could be huge. Regarding attracting capital, Trump’s policies can also have a big impact because businessmen and investors move very quickly away from inhospitable environments to hospitable environments. Remember how quickly money left and came back to places like Spain and Argentina? A pro-business US with its rule of law, political stability, property rights protections, and (soon to be) favorable corporate taxes offers a uniquely attractive environment for those who make money and/or have money. These policies will also have shocking negative impacts on certain sectors.

Regarding foreign policy, we should expect the Trump administration to be comparably aggressive. Notably, even before assuming the presidency, Trump is questioning the one-China policy which is a shocking move. Policies pertaining to Iran, Mexico, and most other countries will probably also be aggressive.

The question is whether this administration will be a) aggressive and thoughtful or b) aggressive and reckless. The interactions between Trump, his heavy-weight advisors, and them with each other will likely determine the answer to this question. For example, on the foreign policy front, what Trump, Flynn, Tillerson, and Mattis (and others) are individually and collectively like will probably determine how much the new administration’s policies will be a) aggressive and thoughtful versus b) aggressive and reckless. We are pretty sure that it won’t take long to find out.

In the next section we look at some of the new appointees via some statistics to characterize what they’re like. Most notably, many of the people entering the new administration have held serious responsibilities that required pragmatism and sound judgment, with a notable skew toward businessmen.

Perspective on the Ideology and Experience of the New Trump Administration

We can get a rough sense of the experience of the new Trump administration by adding up the years major appointees have spent in relevant leadership positions. The table below compares the executive/government experience of the Trump administration’s top eight officials* to previous administrations, counting elected positions, government roles with major administrative responsibilities, or time as C-suite corporate executives or equivalent at mid-size or large companies. Trump’s administration stands out for having by far the most business experience and a bit lower than average government experience (lower compared to recent presidents, and in line with Carter and Reagan). But the cumulative years of executive/government experience of his appointees are second-highest. Obviously, this is a very simple, imprecise measure, and there will be gray zones in exactly how you classify people, but it is indicative.

Below we show some rough quantitative measures of the ideological shift to the right we’re likely to see under Trump and the Republican Congress. First, we look at the economic ideology of the incoming US Congress. Trump’s views may differ in some important ways from the Congressional Republicans, but he’ll need Congressional support for many of his policies and he’s picking many of his nominees from the heart of the Republican Party. As the chart below shows, the Republican members of Congress have shifted significantly to the right on economic issues since Reagan; Democratic congressmen have shifted a bit to the left. The measure below is one-dimensional and not precise, but it captures the flavor of the shift. The measure was commissioned by a National Science Foundation grant and is meant to capture economic views with a focus on government intervention on the economy. They looked at each congressman’s voting record, compared it to a measure of what an archetypical liberal or conservative congressman would have done, and rated each member of Congress on a scale of -1 to 1 (with -1 corresponding to an archetypical liberal and +1 corresponding to an archetypical conservative).

When we look more specifically at the ideology of Trump’s cabinet nominees, we see the same shift to the right on economic issues. Below we compare the ideology of Trump’s cabinet nominees to those of prior administrations using the same methodology as described above for the cabinet members who have been in the legislature. By this measure, Trump’s administration is the most conservative in recent American history, but only slightly more conservative than the average Republican congressman. Keep in mind that we are only including members of the new administration who have voting records (which is a very small group of people so far).

While the Trump administration appears very right-leaning by the measures above, it’s worth keeping in mind that Trump’s stated ideology differs from traditional Republicans in a number of ways, most notably on issues related to free trade and protectionism. In addition, a number of key members of his team—such as Steven Mnuchin, Rex Tillerson, and Wilbur Ross—don’t have voting records and may not subscribe to the same brand of conservatism as many Republican congressmen. There’s a degree of difference in ideology and a level of uncertainty that these measures don’t convey.

Comparing the Trump and Reagan Administrations

The above was a very rough quantitative look at Trump’s administration. To draw out some more nuances, below we zoom in on Trump’s particular appointees and compare them to those of the Reagan administration. Trump is still filling in his appointments, so the picture is still emerging and our observations are based on his key appointments so far.

Looking closer, a few observations are worth noting. First, the overall quality of government experience in the Trump administration looks to be a bit less than Reagan’s, while the Trump team’s strong business experience stands out (in particular, the amount of business experience among top cabinet nominees). Even though Reagan’s administration had somewhat fewer years of government experience, the typical quality of that experience was somewhat higher, with more people who had served in senior government positions. Reagan himself had more political experience than Trump does, having served as the governor of California for eight years prior to taking office, and he also had people with significant past government experience in top posts (such as his VP, George HW Bush). By contrast, Trump’s appointees bring lots of high quality business leadership experience from roles that required pragmatism and judgment. Rex Tillerson’s time as head of a global oil company is a good example of high-level international business experience with clear relevance to his role as Secretary of State (to some extent reminiscent of Reagan’s second Secretary of State, George Shultz, who had a mix of past government experience and international business experience as the president of the construction firm Bechtel). Steven Mnuchin and Wilbur Ross have serious business credentials as well, not to mention Trump’s own experience. It’s also of note that Trump has leaned heavily on appointees with military experience to compensate for his lack of foreign policy experience (appointing three generals for Defense, National Security Advisor, and Homeland Security), while Reagan compensated for his weakness in that area with appointees from both military and civilian government backgrounds (Bush had been CIA head and UN ambassador, and Reagan’s first Secretary of State, Alexander Haig, was Supreme Allied Commander of NATO forces during the Cold War). Also, Trump has seemed less willing to make appointments from among his opponents than Reagan was (Reagan’s Chief of Staff had chaired opposing campaigns, and his Vice President had run against him).\

By and large, deal-maker businessmen will be running the government. Their boldness will almost certainly make the next four years incredibly interesting and will keep us all on our toes.

Screen Shot 2015-11-18 at 4.55.47 PM

Bill Gross isn’t buying the Trump rally and the prospects for growth driving it.

As President-elect Donald Trump’s economic team takes shape, led by Treasury Secretary nominee Steven Mnuchin, investors are misguided in betting that promised tax cuts, infrastructure spending and deregulation will spur faster growth, according to an e-mail Thursday from Gross, the billionaire bond fund manager. He said the benefits from such fiscal stimulus likely would be temporary.

Gross said future growth is primarily a function of productivity, which has flat lined for the last several years and shows little promise of accelerating.

“A strong dollar and continuing structural headwinds including aging demographics, de-globalization trade policies, and accelerating debt-to-GDP in almost all countries at now higher interest rates, promise to contain productivity at perhaps 1 percent annual growth rates and therefore real GDP growth at 2 percent,” he wrote.

The Dow Jones Industrial Average was up Thursday, the 13th daily gain in the 16 trading days since Trump’s surprise Nov. 8 election victory. Treasuries extended losses, continuing the biggest increase in yields on 10-year notes since 2009 following Trump’s triumph. Yields on the 10-year may rise to almost 2.5 percent by the end of this month, Gross said.

“An investor should move to cash and cash alternatives, such as high probability equity arbitrage situations,” Gross, who runs the $1.7 billion Janus Global Unconstrained Bond Fund, said. “Bond durations should be far below benchmarks.”

Jeffrey Gundlach, whose DoubleLine Capital oversaw more than $106 billion as of Sept. 30, also warned investors Thursday to be wary of a Trump rally.

“There is going to be a buyer’s remorse period,” Gundlach said in an interview with Reuters. “The dollar is going to go down, yields have peaked and will move sideways, stocks have peaked as well and gold is going to go up in the short term.”

Screen Shot 2015-11-18 at 4.55.47 PM

The Trump rally raged on this week with all major U.S. indexes hitting record highs, but despite the historic run, David Stockman is doubling down on his call for investors to sell everything.

“This 5 percent eruption is meaningless. It’s some robo machine trying to tag new highs,” Stockman said Tuesday on CNBC’s “Fast Money,” in a dismissal of the S&P 500 rally.

“I see a recession coming down the pike in 2017. The stock market is going to go down and it’s going to stay down long and hard because, for the first time in 25 years, there’s nothing to bail it out.”

This echoed the initial call Stockman made Nov. 3, when he urged investors to sell stocks and bonds before the presidential election.

However, since the Nov. 8 election, the Dow Jones industrial averagehas gained 4 percent en route to surpassing 19,000. Additionally, theS&P 500 and Nasdaq also hit record highs in the same time period, gaining 3 percent and 4 percent, respectively.

Yet Stockman, who was director of the Office of Management and Budget under President Ronald Reagan, reaffirmed that markets are heading for disaster.

“My call stands. Sell the stocks, sell the bonds, get out of the casino,” Stockman explained to CNBC in an off-camera interview. “Bonds have already cratered by nearly $2 trillion worldwide and have miles to go. This isn’t a rotation into stocks, either. It’s the greatest sucker’s rally ever.”

Stockman, author of “Trumped: A Nation on the Brink of Ruin… And How to Bring It Back,” lamented that there will be no Trump stimulus or Reagan-style boom. He further added that he expects “an unprecedented fiscal bloodbath” resulting from the $20 trillion worth of debt that the U.S. currently has on the books.

“This isn’t Ronald Reagan with a clean $1 trillion balance sheet and with a fluke GOP and a Southern Democratic coalition that only materialized because he got shot,” Stockman said in reference to John Hinkley Jr. attempting to assassinate Reagan in Washington, D.C., in 1981. “Nor is it LBJ in 1965 with a thundering electoral mandate and a massive congressional majority for the Great Society.”

On the contrary, Stockman, who initially predicted that Trump would win the election, added that Washington will be in chaos by June. This is because he anticipates ongoing disruptions from the tea party, which Stockman doesn’t foresee as allowing additional deficit increases.

Furthermore, Stockman doesn’t believe that Trump can pass a bipartisan stimulus plan without capitulating on his promise to repeal and replace Obamacare. Additionally, Stockman cast serious doubt over Trump’s ability to enact a meaningful tax cut or to develop a major infrastructure program. If so, Stockman believes that could very well trigger a civil war within the Republican Party.

“So when the recession hits this summer, the Fed will be out of dry powder and fiscal policy will be paralyzed,” concluded Stockman. “This time the market will crash and stay crashed.”

Given this prediction, Stockman re-emphasized that gold and cash will be king and urged investors to shift their portfolios accordingly. He also recommend shorting the S&P 500 through ETFs such as the SH or theSDS.

Gold-is-Not-an-Investment

Screen Shot 2015-11-18 at 4.55.47 PM

If President-elect Donald Trump has made anything clear about what he plans to do in his first 100 days in office, it’s that he wants to make some changes to trade.

More specifically, he’s in opposition to the Trans-Pacific Partnership: a trade agreement between Pacific Rim countries for the greater and cheaper movement of goods between them.

The TPP has been a hotly contested trade issue for years now, championed by Obama as an agreement to increase wealth in the US by opening up Asian markets to American goods. Critics say it endangers American workers by making it too tempting for companies to outsource their factories to Asia.

A vote on the bill has still not be held in Congress, and its future is now largely in doubt in the wake of Trump’s historic election. Trump transition team internal documents obtained by Politico say that pulling out of the deal will be at the top of his first 100 days’ agenda.

A large percentage of footwear is made in countries included in the TPP pact. Why does that matter for sneakers? Tariffs are high for footwear, ranging from 5% to 40% depending on the materials used, according to the Office of Textiles and Apparel.

Around 97-99% of sports footwear sold in the US is made elsewhere, accounting for nearly $3 billion in tariffs paid, according to the pro-trade organisation Footwear Distributors and Retailers of America. Nearly half a billion dollars of that comes from TPP countries, chiefly Vietnam and Malaysia.

China — which, with 66% of inventory, is the the largest exporter of shoes to the US — was not involved in TPP negotiations. The second-largest exporter, Vietnam, was. Should TPP have been agreed to, tariffs for shoes imported from Vietnam and other countries into the US would have been reduced or eliminated, reducing the built-in cost to outsource sneaker manufacturing overseas.

This would have meant potentially reducing the cost of sneakers in the US, according to NPD group analyst Matt Powell, and an increase in sports shoe sales overall.

The players

Nike, the largest sportswear maker in the world, made no secret of the fact that it was in support of TPP. It has 26 footwear factories in Vietnam, the majority of which create shoes for the American market. The swoosh promised to bring up to 10,000 jobs to the US should the pact be approved and put into action. Nike said a reduction in tariffs could be used toward more advanced manufacturing.

German sportswear giant Adidas also supported the deal for similar reasons.

New Balance, which manufactures up to 25% of its shoes in the US, notably opposed the trade agreement. The company recently reiterated their stance on the agreement, which some mistook for support of Trump policies. Many began burning or throwing away their New Balance shoes in protest.

The game

In all likelihood, from what Trump has said previously and the documents obtained recently, TPP won’t be on the table in a meaningful way anytime soon.

That means that prices will most likely stay the same for footwear, and any hope for some relief from the problems pressuring giants like Nike will not abate soon. The possibility of greater sales while maintaining similar margins is out the window for sportswear companies who import the vast majority of its footwear.

However, with TPP off the table, initiatives like Adidas’ “speedfactory” in Atlanta seem more important than ever, as more advanced manufacturing methods means that high-tech factories in the US make more economical sense.

There’s a potential for more “made in the USA” written under your shoe’s tongue in the coming decades.

screen-shot-2016-11-22-at-5-33-07-am

Screen Shot 2015-11-18 at 4.55.47 PM

In the fall of 2014, portfolio manager Dylan Grice did not know Donald Trump would run for President of the United States.

But it seems he did know that Trump would win.

It was a different time. Two years ago it seemed like the world was finally emerging from the slow economic growth it had experienced since the end of the financial crisis. The stock market was riding high, deals were getting done at record rates, and companies had no problem selling their bonds no matter what their grade. It seemed like we, the world, would soon get rich again.

But in a note called ‘Vampires, credit and cycles of trust,’ Grice rejected that notion.

“One trend we’re particularly concerned by is the increasing prominence and relevance of ‘tribal’ fault-lines long invisible to the rest of the world,” he wrote.

Something dark and divisive was taking over the world. While the market carried on as if everything was fine, confrontations of all kinds were on the rise. The cooperation between nations; between governments and their people; between people and corporations; was falling away. Grice could see it, and he knew that eventually, it would consume a market in deep denial.

“What we do think we know is that financial markets are playing with a very cooperative mind-set while the key players and factions in the outside world are not. Non-cooperators are on the ascendency and the investment climate will soon reflect this.”

Why is this? It’s simple. Markets do not function without trust and cooperation. Meanwhile, as Grice laid out in this paper, human history moves in cycles of trust — in peaks and troughs of cooperation.

We the world in 2016 are descending into the trough of a trust cycle that peaked with the end of the Cold War and the cooperation that followed until September 11th, 2001. In this downward spiral there can only be pain and conflict until we learn to trust one another again.

And that takes a great deal of time, and in that time, suffering.

Make America Tribal Again

I needn’t expound on the tribal nature of Trump’s campaign. It was about keeping people out of America, not bringing people in. It was about returning to a past the country lost, not opening our minds to the future we should, and inevitably must, face.

In no other part of Trump’s policies is this more evident than in his toxic talk of global trade. It is as vicious as it is unfair.

Never mind that global trade has been on the decline for the last 5 years, never mind that Americans have lost a thousands of jobs to automation rather than globalization. None of that matters. Trump’s rhetoric about China, about Mexico, about NAFTA, about the Trans Pacific Partnership, is not about facts, it’s about feelings.

And it’s certainly not about cooperation or peace either. It is about an aggressive tit for tat in which the United States has already been offended.

In Trump’s mind Americans – the citizens of the most rich and powerful country in the world – are victims. And we victims, he believes, are entitled to take back what is ours. This combination of victimisation and entitlement is one of the most dangerous combinations in human nature.

So again, we can turn to Grice’s paper. Credit, as Grice points out, comes from the Latin word for trust. Like credit, trust takes a long time to build but just moments to destroy. It is a cycle — when trust reigns there are always those who see a way to take advantage. Slowly, then, as others observe the success non-cooperators are enjoying, trust breaks down into utter chaos.

Over the past century we’ve completed roughly two cycles in which credit (and trust) has boomed and then gone bust, resulting in massive sovereign debt defaults.

Those two periods were the 1920s into the Great Depression and the 1970s into the 1980s when many emerging markets defaulted after commodities prices collapsed.

As for the Great Depression, it was with an uncooperative mind-set that the US — its back angrily turned against the world after World War I and struggling with economic inequity — enacted the Smoot Hawley Tariff in 1928, which put tariffs on 20,000 imports.

It was supposed to help farmers struggling with a modernising world. What it did was tip the world into the Great Depression.

“As a result, US trade halved within years, and global trade weakened even more, even if it continued at low levels within regional trading blocs such as the Commonwealth and the remnants of the Gold Bloc,” wrote Deutsche Bank strategists in a recent note to clients.

“The rise in protectionism served as an important catalyst to the global recession.”

That recession was the crystallization of our distrust, and that trust was only rebuilt after the world was entirely remade through the violence of WWII.

There’s nowhere to run

It is fair to say that the world staved off chaos with the bust of our last financial crisis through careful cooperation. But cycles find a way of asserting themselves. With Trump’s election, with Americans’ demonstration of failure to trust each other and the world, we have joined the darkness Grice was talking about.

“Moreover, Trump’s election victory comes at a time when support for free trade policies and multilateralism is flagging elsewhere. Protectionist parties are poised to do well next year in elections in European countries such as France and the Netherlands. And the UK referendum result means that one of the EU’s strongest advocates for free trade no longer has any influence over EU trade policy,” wrote analysts at Oxford Economics in a recent note.

“The upshot is that there is now a significant risk that the world enters a period of rising trade barriers and tit-for-tat trade wars. Along with an ageing population and fading benefits from technological change, this will help to keep global growth well below its pre-crisis pace for a long time yet.”

Slow growth, if Grice is correct, is the rosiest scenario here. In his paper he discussed the close relationship between debt, inflation and ultimately default. Sovereign and corporate debt has climbed in a time of low interest rates, but those interest rates are rising.

“… this long upswing in debt ratios suggests inflation risk to be a real inflation risk to be a real threat. This would indeed be more consistent with the internal dynamics of trust and cooperation,” he wrote.

And inflation is coming. Trump’s anti-globalization policies will bring it on, as Deutche Bank analysts pointed out in a recent note:

Another important implication is that de-globalization is inherently inflationary. The benefits of trade for productivity growth are well established in economic theory. The disruption of global value chains would constitute a particularly negative supply-side shock that lowers potential output. If multinational corporations were forced to re-onshore production on the basis of prohibitive trade barriers, the likely rise in wage costs as well as in producer import prices would likely be passed on to consumer prices. Slower productivity growth is strongly associated with higher inflation.

These are all ideas that Trump has discussed in one way or another as beneficial to the United States, but they’re not. They’re detrimental to the entire world.

And, it is with great regret that I inform you that it is a world we all live in.

Screen Shot 2015-11-18 at 4.55.47 PM

There are constant bank runs. The bond markets panic, and governments along its southern perimeter need bail-outs every few years. Unemployment has sky-rocketed and growth remains sluggish, no matter how many hundreds of billions of printed money the European Central Bank throws at the economy.

We are all tediously aware of how the euro-zone has been a financial disaster. But it is now starting to become clear that it is a social disaster as well. What often gets lost in the discussion of growth rates, bail-outs and banking harmonisation is that the eurozone is turning into a poverty machine.

As its economy stagnates, millions of people are falling into genuine hardship. Whether it is measured on a relative or absolute basis, rates of poverty have soared across Europe, with the worst results found in the area covered by the single currency.

There could not be a more shocking indictment of the currency’s failure, or a more potent reminder that living standards will only improve once the euro is either radically reformed or taken apart.

Eurostat, the statistical agency of the European Union, has published its latest findings on the numbers of people “at risk of poverty or social exclusion”, comparing 2008 and 2015. Across the 28 members, five countries saw really significant rises compared with the year of the financial crash. In Greece, 35.7pc of people now fall into that category, compared with 28.1pc back in 2008, a rise of 7.6 percentage points. Cyprus was up by 5.6 points, with 28.7pc of people now categorised as poor. Spain was up 4.8 points, Italy up 3.2 points and even Luxembourg, hardly known for being at risk of deprivation, up three points at 18.5pc.

It was not so bleak everywhere. In Poland, the poverty rate went down from 30.5pc to over 23pc. In Romania, Bulgaria, and Latvia, there were large falls compared to the 2008 figures – in Romania for example the percentage was down by seven points to 37pc.

What was the difference between the countries where poverty went up dramatically, and those where it went down? You guessed it. The largest increases were all countries within the single currency. But the decreases were all in countries outside it.

It gets worse. “At risk of poverty” is defined as living on less than 60pc of the national median income. But that median income has itself fallen over the last seven years, because most countries inside the eurozone have yet to recover from the crash. In Greece, the median income has dropped from 10,800 euros a year to 7,500 now. In Spain it has not been quite so dramatic, but median income has still gone down from 13,996 euros a year to 13,352. In reality, people are getting both relatively and absolutely poorer.

There are other measures that make that clear as well. Across the EU, 8pc of people are defined as “severely materially deprived”, which means that they lack access to what most civilised societies regards as basic necessities – if you tick four out of nine boxes, which include not being able to afford to heat your home, eat meat or fish or a similar protein at least every other day, or pay for a phone, then you fall into that category.

Strikingly, several eurozone countries are now starting to lead on those measures. Greece, inevitably, is rising fast, with 22pc of the population now falling into that category, compared with only 11pc back in 2008. In Italy, a country that was as prosperous as any in the world two decades ago, a shocking 11pc of the population are now “materially deprived” compared with 7.5pc seven years ago. In Spain the rate has doubled, and in Cyprus it is up by more than 50pc.

And yet if you look at countries outside the single currency, that rate is either broadly stable, as it is in the UK for example, or else falling at a respectable rate – in fast-growing Poland, for example, the numbers suffering “material deprivation” has halved in the last seven years, and, at 7.5pc, is now a lot less than it is in Italy.

That matters. The EU set itself a target of significantly reducing the key measures of poverty by 2020. It is failing miserably. Even worse, it is becoming clear that one of its own main policies, the creation of the euro, and the botched, half-hearted rescue packages that have just about held the thing together, are largely responsible.

It is hard to think of any other plausible explanation for the stark difference between poverty rates for the countries inside and outside the eurozone. Why should Greece and Spain be doing so much worse than anywhere in Eastern Europe? Or why Italy should be doing so much worse than Britain, when the two countries were at broadly similar levels of wealth in the Nineties? (Indeed, the Italians actually overtook us for a while in GDP per capita.) Even a traditionally very successful economy such as the Netherlands, which has not been caught up in any kind of financial crisis, has seen big increases in both relative and absolute poverty.

In fact, it is not very hard to work out what has happened. First, a dysfunctional currency system has choked off economic growth, driving unemployment up to previously unbelievable levels. After countries went bankrupt and had to be bailed out, the EU, along with the ECB and the IMF, imposed austerity packages that slashed welfare systems and cut pensions. It is not surprising poverty is increasing under those conditions.

In the financial markets, there is an endless focus on the state of the banking system within the eurozone, on rising budget deficits, and on the risk of deflation and the havoc it might play on asset prices. But in the end, the financial crisis does not matter that much. It can be fixed with bail-outs and by printing more money. Even if it can’t, it just means some banks and investment funds will be worse off.

But the fact that poverty levels are rising so fast in what were prosperous countries is shocking. There is no sign of that rise slowing down – indeed, in countries such as Greece and Italy, it is accelerating. What were once dirt-poor countries, such as Bulgaria, or middle income countries like Poland, are fast over-taking what used to be developed Europe.

Not being able to afford a phone, or to eat meat three times a week, is no fun. But thanks to the euro that is now the fate of millions of Europeans – and it will not change until the currency is taken apart.

Screen Shot 2015-11-18 at 4.55.47 PM

Just reading through much of the so called ‘analysis’ on why Brexit will be such a disaster, higher unemployment, falling trade, falling house prices, Bank exposure to non-performing loans, lower capital investment, falling pound and uncertainty.

I might have missed a few.

But, for all the hyperbole, there is a lack of cogent analysis.

Trade is important. If however you are trading goods/services that are in demand because they are either higher quality, or competitive on price, why, apart from subsidies, would you lose that trade.

If you hold the trade simply because of government subsidies, then, likely, that line of investment is not standalone profitable and valuable resources are being misallocated.

This is the nature of EU trade. We buy French XYZ and the French buy our ABC. Would that trade exist absent any government intervention? Maybe yes, maybe no.

As to the banks.

The banks should have been lending to qualified buyers and securing those loans with collateral that could support a default. The problem with inflated housing bubble prices is that the collateral never supports a default. The bank is usually overexposed.

From when I last lived in London, your average wage couldn’t buy a house/flat in London. The problem has only become worse. A fall in prices will see a steady demand for property at lower prices…..it is as usual, the banks that have been caught out through chasing mortgage fees etc.

Capital investment is a function of return [profitability] to capital. A high return, sees increasing investment. A low return, low investment or even liquidation. Therefore, fears of falling investment suggest that there was a lot of government subsidy, driven by EU membership, to invested capital. If that pork disappears, then of course the capital investment falls in tandem, or is liquidated.

Next Page »