viernes, mayo 05, 2017



Viernes 5 de mayo del 2017

Queridos amigos,

Les escribo estas líneas con motivo de mi próximo viaje, por lo que estaré ausente de la oficina y de nuestras lecturas cotidianas, desde el lunes 8 hasta el lunes 29 de mayo próximo.

Durante estos días no tendré acceso regular al Internet ni a mis correos.

En términos financieros globales, la tendencia no ha cambiado mucho desde mi última carta en Octubre pasado, cuyo link les incluyo para no ser repetitivo.  

Lo que sí se puede apreciar es el continuo deterioro del tejido social en los países desarrollados, lo que se ha traducido en el surgimiento del liderazgo de opciones políticas populistas y el rechazo al establishment político de las últimas décadas, en medio del deterioro económico y una creciente situación de inequidad y desigualdad, con la consecuente inquietud social. La clase media ha seguido deteriorándose y no preveo un cambio de tendencia en el corto plazo, lo cual solo seguirá incrementando los niveles de insatisfacción y desigualdad. 

Al mismo tiempo se ha observado una creciente divergencia entre los niveles de las bolsas de acciones y los mercados financieros y el crecimiento económico real.  

Esta situación es obviamente insostenible en el mediano y el largo plazo. 

Mientras tanto, los mercados financieros y las economías son cada vez más dependientes de las decisiones de los bancos centrales y cada vez menos de la realidad económica de la oferta y la demanda.  

En consecuencia, de lo anterior, las acciones y posiciones de los inversionistas y los especuladores financieros son cada vez más influenciadas y dependientes de las acciones de los bancos centrales, incrementándose proporcionalmente los niveles de volatilidad y el riesgo. 

El libre mercado es solo un recuerdo de los libros de teoría económica y las consecuencias de estas intervenciones y manipulaciones serán funestas e impredecibles para todos. 

Para una mayor profundización de estos temas, les sugiero leer los artículos seleccionados del blog, aquí, aquí y aquí.  

Por todo lo anterior seguimos recomendando máxima prudencia, ya que el ciclo parece encontrarse cada vez más cerca de su corrección, la cual será de una importancia global nunca vista en los últimos 30 años, debido a las enormes deudas, la interconexión global de los mercados, la tecnología, y las intervenciones y manipulaciones de los bancos centrales. 

Mientras tanto, me despido de Uds. hasta mi regreso. 

Muy cordialmente,


PD. Para leer los artículos pueden entrar directamente al blog:

Donald Trump, Kim Jong Un and the risk of nuclear miscalculation

It is possible that the US president believes a first strike is a workable option

by: Gideon Rachman

© FT montage

In 1950, a combination of ill-judged words in Washington and miscalculation in Pyongyang led to the outbreak of the Korean war. Now, as the world contemplates the prospect that another war might break out on the Korean peninsula, the danger is that governments in the US and North Korea will once again miscalculate — and slide into conflict.

Many historians trace the outbreak of the Korean war to a speech given by Dean Acheson at the National Press Club in Washington in January 1950. The US secretary of state spoke about America’s “defence perimeter” in Asia — and suggested that Korea lay beyond the perimeter.

In Pyongyang, the leader of North Korea, Kim Il Sung, took note of the clear implication that the US would not defend South Korea. Five months later his armies poured across the 38th parallel and invaded the South. But Kim had miscalculated. The US did fight. The Korean war cost hundreds of thousands of lives, led to direct fighting between US and Chinese forces — and has never formally ended. To this day, peace in Korea is maintained by an armistice rather than a formal peace treaty.

Where Acheson signalled indifference, President Donald Trump is signalling resolve — vowing that the US will stop North Korea’s nuclear programme and hinting heavily that he is prepared to take pre-emptive military action.

But once again there is a distinct danger that North Korea will lash out unpredictably.

The country’s leader Kim Jong Un, the grandson of Kim Il Sung, has embraced his forebear’s militarism, isolationism and paranoia. If the current Kim concludes that the US is indeed poised to attack his regime, he will be tempted to attack first. His incentive to move fast will only have been increased by stories in the media, that the US’s war plans involve an early attempt to kill the North Korean leadership.

North Korea’s military doctrine, as expressed in recent exercises, envisages the first use of nuclear weapons to ward off defeat or destruction. Jeffrey Lewis, an academic expert, wrote recently in Foreign Policy: “Kim’s strategy depends on using nuclear weapons early — before the United States can kill him or special forces can find his missile units . . . He has to go first, if he is to go at all.”

Although North Korea has not yet developed a nuclear missile that can hit the west coast of the US, it may well have nuclear-capable missiles that could hit South Korea or Japan. The South Korean capital, Seoul — which is just 35 miles from the North Korean border — is definitely vulnerable to a devastating barrage of conventional artillery. And Japan and South Korea are very worried by North Korea’s chemical weapons.

Mr Trump’s heavy hints that the US is considering an attack on North Korea are designed to put pressure on China to “deliver” its client state on the Korean peninsula. This might work. The Chinese government is openly alarmed by events in North Korea and may pressurise Pyongyang much more heavily. It is also possible that the Kim regime is more intimidated than its outward swagger suggests and could yet freeze its nuclear programme.

But while it is certainly conceivable that the Trump administration’s bellicose strategy could deliver, it is more likely that North Korea will not back down — and that the Trump strategy will therefore fail. In that case, the US president is faced with a dilemma. Does Mr Trump’s “very powerful armada” steam away from the Korean peninsula, with its mission unaccomplished? Can the administration present an intensification of economic sanctions, possibly in conjunction with China, as the very tough action that it has promised?

Mr Trump is capable of shameless switches in rhetoric and policy. So it is certainly possible that he will simply back down on North Korea, or will embrace the status quo as the dramatic change that he has been seeking all along.

However, it is also possible that Mr Trump has convinced himself that a first strike on North Korea is a workable option. Any such conclusion would fly in the face of standard military advice, which holds that it is impossible to “take out” the North Korean nuclear programme with a single wave of attacks and that therefore, following any such assault, South Korea, Japan and US bases in the region, would be exposed to retaliation.

The US military is well aware of the risks entailed by a first strike on North Korea. So it is encouraging to recall that General HR McMaster, Mr Trump’s national security adviser, has written a book lambasting US generals for not giving frank advice to politicians during the Vietnam war.

Set against that is the danger that Mr Trump — after a chaotic start to his presidency — has concluded that military action is the key to the “winning” image that he promised his voters. The president lapped up the bipartisan applause that he got for bombing Syria. He dropped a huge conventional bomb on Afghanistan shortly afterwards and his son, Donald junior, tweeted his exultation — complete with an emoji of a bomb.

There are members of the president’s inner circle who do indeed believe that the Trump administration is seriously contemplating a “first strike” on North Korea. But if Kim Jong Un has drawn the same conclusion — he may reach for the nuclear trigger first.

The Geopolitics of Nuclear Weapons

By George Friedman, Xander Snyder, and Cheyenne Ligon

President Trump has reversed his stance on a number of foreign policy issues, including NATO, Russia, and China. This leaves citizens in the United States and worldwide more unsure than ever of what to expect from the coming months and years.

Nuclear bombs have a strange quality: They are a type of weapon that countries spend enormous sums of money to develop but don’t actually intend to use. While chemical weapons have been frequently used in war, no country has detonated a nuclear bomb since the end of World War II.

Nuclear weapons are in their own category. Their efficacy comes from their ability to deter aggression, as the potential for massive devastation forces countries to rethink moves that threaten an adversary’s essential national security interests. States, therefore, are unlikely to use nuclear weapons against one another. However, the risk of a nuclear attack would increase if they were to fall into the hands of non-state actors that follow a different set of calculations that don’t necessarily take into account the defense of a predefined territory.

Nine countries currently have nuclear weapons with an assortment of delivery systems. The following graphics outline which countries possess or have possessed nuclear weapons, as well as some states capable of producing them. They also show how these weapons have reshaped the constraints that countries face in their geopolitical calculations.

Current Nuclear Powers

This map highlights three aspects of the global nuclear arsenal. The first is a distinction between deployed and reserve weapons. Deployed nuclear weapons are already attached to a delivery system and ready to use. Warheads in reserve still require this final attachment step before they can be delivered.

The second aspect is the three delivery systems that comprise the nuclear “triad”: land-based missiles (usually ballistic missiles but sometimes also cruise missiles), submarine-launched missiles (SLBMs), and weapons carried by aircraft (usually bombers but sometimes air-to-surface cruise missiles loaded on fighters or fighter-bombers). Land-based ballistic missiles—especially intercontinental ballistic missiles (ICBM)—provide long-range strike capability within a short period. SLBMs have retaliation capabilities in the event that a country’s land-based ballistic missile arsenal is destroyed in a first strike. Warheads on aircraft are more flexible, since bombers can be recalled after a strike has been ordered, but they are slower to reach their target than missiles (except in the case where bombers are already in flight and their target is nearby). Each nuclear country has a different mix of delivery capabilities, but only the Uni ted States and Russia are known to definitively possess a full triad, while China and India are suspected to have it.

The third aspect is the large portion of global nuclear arms held by the United States and Russia.

Currently, the US has approximately 4,480 warheads, and Russia has 4,500. These figures include both strategic warheads (which are meant to strike sites located far from any hypothetical battlefield) and nonstrategic, or tactical, warheads (which are intended to be used near a battlefield, and as a result, are usually less powerful). The size of these arsenals, however, pales in comparison to each country’s peak inventory during the Cold War: The US had 31,255 in 1967, and the Soviet Union had 40,159 in 1986.

Throughout the Cold War, the doctrine of mutually assured destruction required a sufficiently large force that would allow for a massive retaliation even if a first strike eliminated a large portion of a country’s nuclear arsenal. Additionally, during most of the Cold War, delivery systems were not particularly accurate, which required that nuclear weapons have very large yields to reliably strike a target that might be located miles away from the point of detonation (many hydrogen bombs were in the several megaton range). As the accuracy of delivery systems improved, fewer nuclear warheads were required to maintain a credible deterrence threat, leading to a decline in both countries’ arsenals.

Nuclear weapons fundamentally alter the relations between countries because each country is forced to think more pointedly about its adversaries’ security imperatives. Developing a strong understanding of those imperatives is critical to avoiding a nuclear retaliation. While several “hot” wars and other tense moments occurred during the Cold War, none escalated to a direct confrontation between the Soviet Union and the US.

For a more recent example, consider the case of North Korea, which has received a lot of attention in the last week due to a recent missile test and the expectation of another nuclear test. It is a poor country whose nuclear program has allowed it to punch above its weight internationally and force superpowers to approach it with great caution. North Korea’s deterrent capability would be eliminated the moment it uses a nuclear weapon, which would be akin to committing certain suicide.

While many fear the irrationality of North Korea’s leadership, Geopolitical Futures’ current understanding of the regime is that it has persisted for decades throughout the Cold War and after the fall of the Soviet Union because it is able to make cautious calculations and has continued to choose not to inflict destruction on itself.

Former Nuclear States

Note: While Iran appears to have discontinued its nuclear program in accordance with the Joint Comprehensive Plan of Action, we chose to include it in the third map to discuss the geopolitical ramifications of an Iranian nuclear breakout.

Several countries had nuclear weapons or weapons programs that were subsequently abandoned. Three factors contributed to these forfeitures: changes in geopolitical circumstances that decreased the need for nuclear deterrence, pressure from a major power that provided a guarantee under its own nuclear umbrella, and outside intervention that resulted in destruction of the weapons programs.

Belarus, Kazakhstan, and Ukraine all inherited nuclear weapons when the Soviet Union collapsed in 1991. Belarus was left in possession of 81 warheads and an assortment of nonstrategic nuclear weapons. Kazakhstan had 1,410 nuclear-tipped missiles. Ukraine was left with 1,900 strategic warheads and between 2,650 and 4,200 nonstrategic nuclear weapons, making it the third-largest nuclear arsenal in the world. All three countries signed the Nuclear Non-Proliferation Treaty (NPT) and returned the weapons to Russia by the mid-1990s to be dismantled.

South Africa is the only country that independently developed its nuclear weapons and subsequently forfeited them. The pro-apartheid government pursued nuclear energy and weapons development from the 1960s to the ’80s, eventually producing six nuclear weapons. In 1989, the program was stopped as apartheid came to an end and the government of F.W. de Klerk handed power over to the African National Congress. The weapons and associated facilities were dismantled, and South Africa signed the NPT in 1991.

Two developments influenced South Africa’s decision. A 1988 agreement between Cuba, Angola, and the US resulted in the withdrawal of 50,000 Cuban troops that had been stationed in Angola during the Cold War and supported by the Soviet Union. The risk of Soviet intervention posed by these troops in the ’70s was one of the main reasons South Africa developed nuclear capability in the first place. Second, South Africa weighed the costs and benefits of joining the NPT and realized that improved relations with the world more than offset the decreasing deterrent utility from the bomb since the Cuban forces had been withdrawn and the Soviet Union no longer posed a threat.

Argentina and Brazil are two of the seven other countries that abandoned their nuclear programs before acquiring nuclear weapons. They both secretly pursued nuclear weapons capability beginning in the late ’60s to early ’70s. By the early ’90s, both countries had given up their weapons programs and signed the NPT.

South Korea and Taiwan had secret nuclear programs in the ’70s that were discovered by international intelligence. Both programs were subsequently disbanded—South Korea’s in 1975 when it signed the NPT, and Taiwan’s in 1988 as a result of diplomatic pressure from the US.

In the Middle East and North Africa, Iraq, Syria, and Libya all had active nuclear weapons programs.

Iraq’s nuclear program was forcibly dismantled after the Gulf War, and Libya voluntarily gave up its secret nuclear program in 2003 under the direction of Moammar Gadhafi. Syria’s nuclear ambitions never progressed as far as those of its neighbors, but it is believed to have possessed enriched uranium and built a research reactor with the aid of North Korea. In 2007, Israeli airstrikes took out Syria’s reactor, suspending the nuclear program indefinitely.

Nuclear Latency

When a country does not currently have nuclear weapons but has a peaceful nuclear program that could be used to produce nuclear weapons, it is said to be in a state of “nuclear latency.”

To build a nuclear weapon, a country must have technical knowledge and capabilities, access to materials, and a well-developed industrial sector. Of the 31 countries that possess nuclear power plants, we have identified five important countries for which the acquisition of nuclear weapons would radically impact relations with both their regional neighbors and global powers. These countries have both the technological and economic resources to develop nuclear weapons and are likely to play pivotal roles in major geopolitical events within the next decade.

Iran’s nuclear ambitions led to intense negotiations with the West. In 2015, the negotiations resulted in the signing of the Joint Comprehensive Plan of Action (JCPOA), which saw Iran shelve its nuclear program for a set period of time in exchange for benefits including sanctions relief. However, if Iran were to continue enriching uranium in secret and develop a nuclear weapon despite the JCPOA, it would alter the balance of power in the region. Iran would have a new, asymmetric power relative to its Sunni rivals and force Israel to reconsider strategies that incorporate pre-emptive strikes.

Japan has large stockpiles of plutonium from civilian uses and already possesses uranium enrichment and plutonium reprocessing technologies. Estimates of Japan’s breakout time range from six months to several years. Japan’s alliance with the United States has thus far deterred it from developing nuclear weapons because it knows it can rely on the US for defense.

However, North Korea’s progress in its nuclear program could drive Japan to reconsider. A nuclear Japan would threaten China’s desired hegemony in the region and force it to proceed with greater caution in its actions in the South China and East China seas.

South Korea and Taiwan have advanced civilian nuclear programs and technical knowledge that could be redirected into a weapons program. They also have the need to defend against regional threats. As North Korea appears to move closer to possessing a deliverable nuclear warhead, the South Korean government has debated acquiring a nuclear weapon. Taiwan is in a similar position.

Its sovereignty is threatened by mainland China, which possesses nuclear weapons. Taiwan could consider developing a nuclear weapon to discourage Chinese aspirations to fully reclaim the island.

South Korea and Taiwan are concerned about escalation, however, so instead choose to rely on the nuclear guarantee provided by their alliance with the US.

On the other side of the world is Germany. Germany is a highly industrialized state with civilian nuclear capabilities. It is currently protected under the NATO nuclear umbrella by the US and the European nuclear powers (France and the United Kingdom). It also is bound by international treaty not to pursue weapons development. However, it is not inconceivable that Germany would consider developing nuclear weapons to deter Russian aggression if it questioned America’s commitment.


Every country has a red line, past which its security imperatives will be threatened and it will be compelled to respond with force. Without a sufficient deterrent, potential adversaries incur less risk when they test where exactly that line is. Introducing nuclear weapons into these calculations, however, forces the aggressor to proceed with caution because the risk of massive retaliation is great.

This is a difficult balance to strike when the addition of nuclear weapons by one party is itself the act that breaches the security imperatives of the other.

The world’s eyes are now set on North Korea for this reason: The United States is in the process of deciding whether recent developments in North Korea’s nuclear program have crossed this boundary and, if they have, what force constitutes an appropriate response.

Though the US is not directly threatened by North Korea’s nuclear weapons (based on the current understanding of its ballistic missile technology), the safety of its allies would be jeopardized by a North Korean bomb. British and French fears that the US would not make good on its nuclear guarantee led to proliferation in Europe. Similarly, if the US’s Asian allies question the credibility of its guarantee, the risk of nuclear proliferation in the region will grow.

We Think This Upcoming Catalyst Could Change The Fortunes Of Precious Metals Investors

by: Hebba Investments 

- Precious metals have stumbled over the past month as the Fed's hawkishness has investors selling gold and silver.

- Silver (represented by SLV) has fallen for 13 straight sessions.

- Friday's upcoming jobs report is the next major event on the economic calendar.

- Based on Federal tax receipts, economics predictions of 185,000 new jobs seems reasonable.

- The one issue is that Non-Withheld tax receipts are down YoY and that could signify economic weakness and a surprise miss this Friday.

After a Federal Reserve statement that was interpreted by markets as bullish statement (and thus hawkish for interest rates), gold continued its recent weakness. While gold's performance has been weak this last month, silver's performance has truly been horrific. Wednesday marked the 13th straight day of losses for the iShares Silver Trust (SLV), which can be seen below in all its glory:
Source: NASDAQ
While we have been surprised with the relentless decline in silver, we cannot say we are surprised at the downward trend for precious metals as we were bearish in last week's Hebba Invesmtents Gold report as well as the previous week's report, in which we were uber-bearish silver. Most of this bearishness on our end was based on the fact that speculators were very BULLISH and that outside of that gold and silver demand was fairly weak.
While it is pretty clear to us this week's COT report will show speculative gold and silver positions at much lower levels, we think there might be an opportunity for some short-term bullishness based on Friday's upcoming US Nonfarm Payrolls report.
Friday's US Nonfarm Payrolls report.
While the Fed's statement was interpreted as hawkish because the Fed viewed the economy's weak first quarter numbers as "transitory", we think things might change with this upcoming jobs report if it shows significant weakness.

While in our view there are plenty of signs of weakness in the US economy (things such as weak car sales and retail bankruptcies come to mind), we will focus in on some numbers we can measure: US Treasury Tax Receipts.
The US Treasury publishes its "Daily Treasury Statement" every weekday which summarizes all the government's deposits and withdrawals for the day, month, and YTD. One of the things that this report shows is "Individual Income and Employment Taxes" the withheld & not withheld numbers - essentially the taxes US employees pay on their salary.
While this number doesn't exactly correspond to the upcoming Nonfarm Payrolls report (which is based on surveys), we think that in general this is a much more real number (you can't escape taxes) and thus we think investors would be wise to use it as a possible barometer of Friday's jobs report.
We did some number crunching and here's what we got:
What this data shows is that according to government tax numbers, income and employment taxes for the "Not Withheld" category dropped by 2.3% YoY, while income and employment taxes that were withheld rose by a chunky 8.2%. This shows a bit of the current dichotomy of the US economy as employees that do not withhold their taxes are usually small businesses and individuals, while employees employed at larger business tend to fall into the "Withheld" category of employees.
So what does this mean for Friday's jobs report?
The net growth in tax witholdings of a little over $10 billion dollars shows that there seems to be jobs growth. But investors need to remember that the base case for the jobs report is growth as economists are predicting 185,000 new jobs growth in April. Based on these numbers, that estimate seems to be fairly attainable.

But we do have to note that there is that dichotomy we mentioned earlier between small businesses and larger corporations, with the former experiencing a seeming decline in employment taxes paid. That is not what you see in a healthy economy as small businesses tend to be the backbone of economic growth.
Conclusion for Investors
Market expectations are for a decent Nonfarm Payrolls report this coming Friday, and based on the Fed's statement, we also think that the Fed believes that first quarter weakness will be replaced by second quarter strength. If one looks at the Federal tax receipts then that conclusion makes sense as they seem on target for a slight increase over last year's tax receipts.
But we do not like the fact that it seems that small business receipts are actually declining. In our view, that suggests that the economy is not particularly healthy as small businesses are like the canary in the coal mine when it comes to recessions - larger businesses tend to react much slower to economic changes.
While precious metals have suffered handily over the past month, we think that market expectations of a good Nonfarm Payrolls report are the economic base case, while weakness in non-withheld tax receipts suggest that we could see a weaker than expected report. While that isn't our base case either, we think this risk-reward situation favors a strategic short-term investment in the precious metals.
Thus short-term speculators may want to take advantage of this and take a bullish wager on a weaker than expected jobs report. For those who have sold positions in precious metals over the past month, we think now is the time to start nibbling at re-establishing short-term gold and silver positions (SPDR Gold Trust ETF (NYSEARCA:GLD), iShares Silver Trust , and ETFS Physical Swiss Gold Trust ETF (NYSEARCA:SGOL), etc).

Creating Another “Crash of 1929”

by Jeff Thomas

Regarding the Great Depression… we did it. We’re very sorry… We won’t do it again.

– Ben Bernanke

Waiting too long to begin moving toward the neutral rate could risk a nasty surprise down the road—either too much inflation, financial instability, or both.

– Janet Yellen

In his speech above, future Federal Reserve Chairman Ben Bernanke acknowledged that, by raising interest rates, the Fed triggered the stock market crash of 1929, which heralded in the Great Depression.

Yet, in her speech above, Fed Chair Janet Yellen announced that “it makes sense” for the Fed to raise interest rates “a few times a year.” This is a concern, as economic conditions are similar to those in 1929, and a rise in interest rates may have the same effect as it did then.

So let’s back up a bit and have a look at what happened in 1929. In the run-up to the 1929 crash, the Federal Reserve raised rates to 6%, ostensibly to “limit speculation in securities markets.” As history shows, this sent economic activity south rather quickly. Countless investors, large and small, who had bought stocks on margin, would be unable to pay increased interest rates and would be forced to default. (It’s important to understand that the actual default was not necessary to crash markets. The knowledge that investors would be in trouble was sufficient to send the markets into a tailspin.)

Mister Bernanke was quite clear in 2002 when he stated that the Fed would not make the same mistake again that it made in 1929, yet, then, as now, there’s been a surprise victory by a Republican candidate for president. Then, as now, a wealthy man who had never held elective office was unexpectedly in the catbird seat and had the potential to endanger the control of the political class, at a time when that political class had been complicit in damaging the system by creating massive debt.

Then, as now, conditions were ideal for the Deep State to create a solution to all problems: An economic crash was inevitable; therefore, create a trigger for it to occur and blame the collapse on the conservative political outsider. Demonstrate to all that the collapse was due to the greed of the outsider and those who were of like mind. Use that leverage to demonstrate to the hard-hit populace that what was needed was the opposite of what the outsider had proclaimed. Recommend far greater control by a new government that was staunchly liberal—a government that would change the political landscape in such a way that all those who suffered would be saved by a benevolent collectivist government.

And, of course, when it’s stated that way, it’s an easy sell. In 2017, it will be an even easier sell than it was in 1929, as the new president has already set himself up for a fall. In his inauguration speech, he focused on a single topic—the return of power to the people and away from Washington’s bureaucracy.

Beginning by decrying Washington for what it truly is, he stated that “for too long, a small group in our nation’s capital has reaped the rewards of government while the people have borne the cost. Washington flourished—but the people did not share in its wealth.”

He then went on to describe that his presidency would bring about a metamorphosis:

I will never, ever let you down. America will start winning again, winning like never before. We will bring back our jobs. We will bring back our borders. We will bring back our wealth. And we will bring back our dreams. We will build new roads, and highways, and bridges, and airports, and tunnels, and railways all across our wonderful nation. We will get our people off of welfare and back to work—rebuilding our country with American hands and American labor… We will reinforce old alliances and form new ones—and unite the civilized world against radical Islamic terrorism, which we will eradicate completely from the face of the earth… We will not fail. Our country will thrive and prosper again.

Of course, new presidents are prone to making big promises when they first take office.

However, Mister Trump has, in his brief speech, effectively declared himself the enemy of the Washington bureaucracy. In so doing, he’s left himself wide open to be the fall guy if the economy does not rebound, if the average American’s lot does not improve, and if the US does not dominate the world through an expanded military.

In short, the Deep State and their cronies, who were instrumental in creating the economic, social, and political house of cards that now exists, have the perfect opportunity to bring on the collapse and blame the new president for it.

Were Mister Trump to have honestly stated that the US is effectively a house of cards and that he’ll begin the laborious job of trying to salvage what’s left of it and begin to rebuild it, he would have provided himself with a justifiable excuse when the house of cards does collapse.

However, by making such lofty claims to “Make America Great Again,” he’s lost this opportunity.

In the last year, whenever I was asked who I hoped the Americans would elect as their president, I replied, “Bernie Sanders.” To those that were shocked by this answer, I would add, “An economic collapse is inevitable. No one, no matter how capable, can prevent it. The best that can happen is that the collapse occurs under a president who’s an avowed socialist. That would ensure an eventual return to smaller government and more conservative economics.”

As unfair as it may be, a nation’s people almost always blame whoever is on watch when a collapse occurs. It matters little who or what is actually at fault. People need a “face” to vilify for the disaster and the sitting leader is almost always spontaneously chosen by a nation as that face.

And, of course, the opposing party invariably makes the most of the situation. Just as in 1929 and for years thereafter Herbert Hoover received the lion’s share of the blame for a Wall Street crash and the subsequent Great Depression, even though he was not at fault, so too will the US come to blame the new president who made promises that were far beyond what he could deliver.

The die is cast. The patsy-in-chief is now installed. The media will do all they can to discredit Mister Trump and civil unrest will be funded by his opponents. The US economy is more debt-laden than any country in the history of the world and, historically, this has always resulted in economic collapse. At present, there are scores of triggers that could bring about collapse. Any one of these black swans could do the job, but it’s entirely possible that the Federal Reserve will serve once again as the trigger, as it did in 1929.

This is unquestionably the smart way to play the game. Rather than wait for a random occurrence, if a date is set for a controlled collapse, those connected to the Deep State will have a brief time to disconnect their wealth from the system, as was done in 1929.

The trigger would be pulled by the Fed and the US economy would go down in as controlled a fashion as Building Seven in the World Trade Center.

When is this likely to occur? Herbert Hoover was given just under eight months. The date for the next collapse could be earlier or later. But the question is not when that date might be, but whether we’ve prepared ourselves for the eventuality.

The Danger in China’s Dual Debt Cycle

Cleaning up ballooning debt will strain the financial system, and ordinary consumers will feel the pain

By Anjani Trivedi

Predicting the evolution of corporate debt cycles is always tricky. In China it’s doubly hard—because there are two cycles in process.

Most concern about the speedy rise of credit across China’s economy is focused on the sheer scale of corporate leverage, now close to 166% of GDP. Less noticed is that parallel debt cycles in the public and private sector are running at different speeds.

It means that as Beijing attempts to rein in mushrooming risks by raising borrowing costs, it must contend with two balance sheets—one for state-backed companies, accounting for over half the credit in the system, and the other for private companies, accounting for about a quarter. Data from Deutsche Bank suggests that private companies’ debt problems are being cleaned out quicker—over the past five years, about 13% of all their loans have been deemed nonperforming. The ratio for state-owned firms is just 1.3%.

The two-track cycle is of Beijing’s own making. While struggling state-owned companies have been kept afloat by their state banking peers, weak private companies have been forced to refinance at higher interest rates. Some have tapped shadow banking; others have closed down altogether. One corollary is a pileup of unproductive debt: Evergreened credit—loans, mostly to state-owned firms, to pay off older debts—now amounts to almost 9% of all credit, according to Deutsche.

Cleaning all this up will strain the financial system. China’s banks have been the main financiers and will surely have to suffer more. But it’s also likely that much of the bill wall fall indirectly onto ordinary Chinese consumers.

A rising portion of the credit is being provided by the shadow-banking system through a ballooning number of new forms of finance—like peer-to-peer loans and wealth-management products wrapped in other-wealth management products—sold to retail investors eager for higher returns for their trapped household savings.

These wealth-management products, along with China’s national social security funds, provided around 80% of the funding in the debt-to-equity restructuring of state-backed Wuhan Iron & Steel. As China works through its debt problems, there will likely be more such episodes. As the process grinds on, it seems likely that Beijing will once again rely on the Chinese people to bear the brunt.