Doug Nolan

(Email from reader T.B.) “These various stages of capitalism, or finance, are interesting and descriptive. But I think the progression is rather simply explained as an ongoing perversion of capitalism caused by inflation: credit expansion or any kind of money-supply inflation.

Have you seen Henry Hazlitt's colorful statement about the consequences of inflation? If not, just consider this: “It [Inflation] discourages all prudence and thrift. It encourages squandering, gambling, reckless waste of all kinds. It often makes it more profitable to speculate than to produce. It tears apart the whole fabric of stable economic relationships. Its inexcusable injustices drive men toward desperate remedies. It plants the seeds of fascism and communism. It leads men to demand totalitarian controls. It ends invariably in bitter disillusion and collapse.” Henry Hazlitt, Economics in One Lesson, page 176

Isn’t this a nearly perfect short description of what is happening to us?”

Yes, it is. Henry Hazlitt (1894-1993) was a brilliant thinker and prolific writer. He was a noted journalist throughout the “Roaring Twenties” and Great Depression periods. Hazlitt learned his economics from some of the masters. He was friends with Benjamin Anderson (“Chase Economic Bulletin” and “Economics and the Public Welfare”). From Wikipedia: “According to Hazlitt, the greatest influence on his writing in economics was the work of Ludwig von Mises, and he is credited with introducing the ideas of the Austrian School of economics to the English-speaking layman.”

As an admirer of Hyman Minsky, I view “Minskian” analysis as the authority on critical aspects of financial evolution and institutional and Capitalistic development. At the same time, when it comes to economic analysis more generally, I am an “Austrian” at heart. Minsky seemed to hesitate when it came to discussing the profound impact finance and financial evolution had on the underlying economic structure. From the standpoint of my analytical framework, this void is filled superbly by Austrian thinking. When it comes to understanding the nature and destructive capacities of inflation, the “Austrians” put the “Keynesians” to shame.

A couple conventional definitions: “Inflation is a sustained increase in the general price level of goods and services in an economy over a period of time.” “Inflation is a process of continuously rising prices, or equivalently, of a continuously falling value of money.”

Yet a rise in consumer prices is just one of myriad possible inflationary manifestations. Mises viewed inflation as a general increase in the money supply. Simple enough, except for the layers of complexity inherent to both money and inflation. What comprises this so-called supply of “money”? We’re surely addressing more than just currency, but how much more? Bank reserves? Deposits? How about “repos,” money market funds or perhaps even liquid short-term debt instruments more generally? Then what about highly liquid funds invested in equity and bond instruments? Derivatives?

Mises, viewing monetary inflation in broad terms, wrote of “fiduciary media,” or instruments with the economic functionality of “narrow money”. In our age of globalized digitized/electronic finance, I’ve always taken the view that “money is as money does.” Generally, the broader the definition the better. And we must accept that contemporary “money” is certainly not what it should be; it’s not what we wish it were.

I was introduced to “Austrian” economic thinking back in 1990, when I began my monthly ritual of studying “The Richebacher Letter.” It was love at first reading. Then I had the good fortune to work with the great German economist, Dr. Kurt Richebacher, assisting with his publication from 1996 through 2001 or so. It was an especially rich period for financial and economic analysis – S.E. Asia, Russia, LTCM, “The Committee to Save the World,” “The New Paradigm,” the “tech Bubble,” etc. Contemporary finance – with it’s unfettered “money” and Credit – was wreaking increasing havoc. Central bankers and others seemed to go out of their way to misdiagnose the problem.

From Dr. Richebacher and my own analysis, it became clear that contemporary inflation was really a Credit phenomenon. Expand (inflate) Credit and monitor for consequences. These might include a rise in aggregates of consumer and producer prices - traditional “inflation.” But the creation of new purchasing power also inflated asset prices. “Austrian” analysis becomes even more powerful with the understanding of how Credit inflation feeds through to the real economy. Inflation begets distortions in spending and business investment - and over time exerts increasingly deleterious effects upon the underlying economic structure. Inflation and Bubbles redistribute and destroy wealth. Inflation alters decisions, perceptions and behavior, including the nurturing of subtle mayhem throughout saving and investment, the bedrock of Capitalism. You’d think by now the entire world would have adopted “Austrian” thinking.

Dr. Richebacher argued that of all the various consequences of Credit inflation, the rise in consumer prices was one of the least pernicious. With sufficient determination, policymakers could (Chairman Volcker did) tighten financial conditions and break inflationary processes and psychology. Expect an attentive constituency when it comes to reining in destabilizing CPI.

But how about asset price inflation and Bubbles? Well, there is a powerful proclivity for letting asset prices run. An inflationary bias in asset markets certainly “makes it more profitable to speculate than to produce.” And the larger the speculative Bubble the more powerful the constituencies that arise to demand government involvement, intervention and manipulation to sustain Bubble Dynamics. Misguided policymakers will endorse destabilizing asset inflation as confirmation of sound policies (Greenspan, Bernanke, Draghi, Kuroda…). In one of financial history’s most misconceived policy blunders, central bankers specifically targeted asset inflation as the primary mechanism for system reflation.

Let there be no doubt, Credit Bubbles are an inflationary phenomenon. Having badly mismanaged domestic Credit, the U.S. proceeded to export asset inflation and Credit Bubbles to the entire world. And as the global Credit inflation aged, broadened and became deeply entrenched, the consequences evolved. Limitless cheap finance on a global basis ensured a historic investment boom and resulting overcapacity in just about everything. Meanwhile, the myth persisted that central bankers were in control of a general price level. As such, monetary stimulus had to be ratcheted up to counteract downward price pressures and insufficient aggregate demand. With the protracted inflationary boom having reached the point of acute financial and economic fragility, desperate global central bankers embarked on unprecedented “money” printing that only exacerbated asset Bubbles and speculative excess.

It was the evolution to securitization and market-based finance that fundamentally – and fatefully - changed inflationary dynamics. For one, the tantalizing New Age Credit apparatus was inherently unstable. This ensured increasing government meddling. Government guarantees and backstops further incentivized speculation, exacerbating speculative leveraging and Bubbles Dynamics. Faltering Bubble mayhem then fostered QE, where central bankers intervened directly in the marketplace place with massive buy programs. Central bankers then became hostage to unwieldy global Bubbles dependent upon ongoing massive monetary stimulus.

Inflation Dynamics have created a world of record high securities prices, including $13.4 TN (per FT) of negative-yielding government bonds. The most hopelessly indebted governments in the world now borrow at a cost of about nothing. Negative yields in Japan. Italian 10-year yields ended the week at a record low 1.04%. In blow-off dynamics that rival Internet stocks and subprime CDOs, “money” is flooding into bond ETFs. Meanwhile, U.S. stock prices are at all-time highs, with real estate prices essentially back to highs.

August 12 – Financial times (Robin Wigglesworth and Eric Platt): “The value of negative-yielding bonds swelled to $13.4tn this week, as negative interest rates and central bank bond buying ripple through the debt market. The universe of sub-zero yielding debt — primarily government bonds in Europe and Japan but also a mounting number of highly-rated corporate bonds — has grown from $13.1tn last week… ‘It’s surreal,’ said Gregory Peters, senior investment officer at Prudential Fixed Income. ‘It’s clear that central banks are dominating markets. There’s a race to the bottom. Central banks are the main drivers of this, it’s not fundamental.’”
August 12 – Financial Times (Joe Rennison and Eric Platt): “Investors have poured more money into US fixed income exchange traded funds so far this year than for the whole of 2015, as the hunt for returns intensifies with nearly $13tn of global bond yields trades below zero. US fixed income ETFs have attracted more than $60bn of money this year — outstripping 2015, when the funds lured just under this year’s current total, according to… Deutsche Bank. International investors seeking fixed rates of return via bonds are targeting the higher yields on US government and corporate debt via fixed income ETFs, which track bonds and trade like a stock price on an exchange… Large bond ETFs like the iShares Core US aggregate bond fund, which gives exposure to US investment grade debt, have outstripped inflows to larger equity ETFs.”
This week’s tiny move in the S&P500 masked what was ongoing global market instability. It appears short squeeze dynamics remain in force, although they now shift around the globe and between markets. Global financial stocks rallied sharply this week. Hong Kong’s Hang Seng Financials surged 5.3%. Japan’s TOPIX Banks Stock Index jumped 3.9% (Nikkei 225 up 4.1%). The STOXX Europe 600 Bank Index rose 3.2%. Italian Banks surged 4.0%. Overall, European equities were strong. Germany’s DAX surged 3.3%, with major indices up about 2% in France, Spain and Italy. EM markets were on a tear. Mexican equities jumped 2.5%, with Turkish stocks up 2.8% and the Shanghai Composite 2.5% higher. The Mexican peso surged 2.6%.

It’s ironic. As market participants and global central bankers over recent decades fretted the prospect of deflation, global debt and asset markets experienced history’s greatest inflationary Bubble. It’s my view that global markets are these days dominated by a historic dislocation in debt trading. There are hundreds of Trillions of interest-rate derivatives outstanding. And global bond yields have done this year what no one thought possible. As was the case with previous derivative-related melt-ups (i.e. mortgages 1993, SE Asia 1996, Nasdaq 1999), these types of dislocations foment extraordinary underlying leverage (i.e. levered bond holdings as hedges against derivative exposures).

This leveraging creates marketplace liquidity, while spurring self-reinforcing short-covering and speculation. These kinds of speculative blow-offs also tend to take on a life of their own. 

The squeeze that propelled U.S. stock indices to record highs has now fully engulfed corporate Credit and EM more generally. A couple of Friday evening FT headlines make the point: “Record-Breaking US Stocks are a Sideshow Next to Bond Bonanza” and “Emerging Market Monetary Conditions Ease Dramatically”.
It is not hyperbole to posit that global securities markets are in the midst of a historic short squeeze and the greatest ever market dislocation. And it’s not unreasonable to suggest that this is a sadly fitting climax to the world’s most spectacular inflationary Bubble.

Yet through the façade of unprecedented perceived global wealth, one can begin to more clearly identify the the Scourge of Inflationism: “It tears apart the whole fabric of stable economic relationships. Its inexcusable injustices drive men toward desperate remedies. It plants the seeds of fascism and communism. It leads men to demand totalitarian controls.”

It’s been akin to a wreaking ball. We’ve seen the general population unknowingly surrender wealth to Inflationism. In the face of so-called disinflation, millions have suffered at the hand of inflating costs for housing, health care, tuition and insurance, to name a few. We’ve seen these serial booms and busts take a terrible toll on many workers, families and communities. We witnessed many lose much of their retirements – and faith in the markets - in two major stock market busts. Millions lost much of their life’s savings during the collapse of the mortgage finance Bubble. Millions of students have taken on tremendous loads of debt to finance higher education and vocational training. Millions have been lured by (years of) low monthly payments into purchasing homes, automobiles, vacation properties, recreation vehicles, etc. that they cannot afford.

Inflationism has seen real wages for much of the workforce stagnate or worse over the past decade. Inflationism and his accomplice malinvestment are the culprits behind pathetic productivity trends and declining living standards. Worse yet, Inflationism and his many cohorts are fomenting disturbing social, political and geopolitical turmoil. And reminiscent of the Weimar hyperinflation, central bankers somehow remain oblivious that their operations are of primary responsibility. If people don’t these days trust central bankers, politicians, Wall Street, and governments and institutions more generally, just wait until the Bubble bursts.

The NAFTA Debate

Those for and against free trade are often motivated by political agendas.


There is no definitive evidence illustrating NAFTA’s impact on the U.S. job market, though the debate over whether the agreement has helped or hurt the U.S. economy has been around since its implementation in the early 1990s. The lack of decisive evidence is due to the fact that both sides of the debate provide numbers to support their arguments that are at best estimates given the complexities of the economy and shortfalls in modeling.

The 2016 U.S. presidential campaign has brought renewed focus on the agreement and evolved the debate from whether it hurts jobs to what extent it should be changed to protect U.S. jobs.

The Mexican government has already responded, saying it would be open to possible renegotiations and has presented some preliminary ideas on what that may entail. NAFTA’s geopolitical relevance goes beyond domestic U.S. politics in that the agreement’s future will also impact two growing global trends: the nation-state reasserting itself and the exporters’ crisis.

• The future of NAFTA is now in question. It is as much an economic question as it is a political one in the U.S.

• The initial expectations regarding NAFTA’s impact on the U.S. job market do not align with modern assessments.

• The complexities of the U.S. economy and international trade make it extremely difficult to show direct causality between NAFTA and the U.S. job market.

• Potential renegotiations of NAFTA may involve adding modern elements to the treaty, exiting the treaty and having other trade agreements supersede NAFTA.

U.S. presidential candidates Donald Trump and Hillary Clinton have raised the possibility of renegotiating the North American Free Trade Agreement (NAFTA) between Canada, the United States and Mexico. While campaign speeches should often be considered political white noise, the core issues being addressed sometimes have geopolitical significance. The future of NAFTA is one of these core issues. It currently serves as the framework that dictates how the U.S., the world’s largest economy, carries out trade with two of its top three trading partners. It also encompasses the three major economies of the Western Hemisphere, distinct for its stability while much of Eurasia is in crisis.

NAFTA’s impact on U.S. employment is the main point of contention inspiring calls for a renegotiation or even an end to the agreement. This debate over the cost of more open trade to U.S. jobs is nothing new. The balance between the benefits of trade and accompanying adjustments in the U.S. job market has been a divisive issue in U.S. domestic policy for decades.

In a 1962 message to Congress, President John F. Kennedy noted: "The burden of economic adjustment should be borne in part by the federal government.... [T]here is an obligation to render assistance to those who suffer as a result of national trade policy."

Controversy over whether NAFTA, which was implemented in 1994, has helped or harmed the U.S. economy dates back to the early 1990s when the agreement was first being negotiated. In the U.S. Congressional debate over NAFTA, the question of employment featured prominently.

Of the 141 statements against NAFTA in the House of Representatives and Senate, 112 asserted that NAFTA would destroy jobs. Meanwhile, 199 of the 219 pro-NAFTA statements argued it would create jobs. And the debate has continued ever since.

However, we appear to be at the start of a shift in the debate. It is no longer about whether it hurts jobs but rather to what extent it should be changed to protect U.S. jobs. Trump has said, if elected, he plans to immediately renegotiate NAFTA so that it is more beneficial for U.S. workers. If such a deal cannot be reached, Trump says he will submit notice of the United States’ intent to withdraw from the agreement. Clinton has publicly said she would like to renegotiate NAFTA to give American workers a level playing field, though she does not foresee ending NAFTA. Rather, she has stated that there have been benefits to free trade, corporations share the blame for lost jobs and globalization is here to stay. Neither candidate has specified which aspects of NAFTA he or she wants to renegotiate. In any case, this issue will continue to be relevant beyond the election.

Impact on Jobs: Initial Expectations

To better understand the current debate over whether NAFTA has been a success or failure, we need to first look back at the initial expectations for its impact on the job market. Many studies were conducted prior to the signing of NAFTA to help determine its potential impact. A comprehensive review of 10 pre-NAFTA impact studies on U.S. jobs was published by the Organisation for Economic Co-operation and Development. Seven used variants of a Computable General Equilibrium model, a class of economic modeling that uses available data to project how an economy might react to changes in policy, technology or other factors. The others used different macroeconomic modeling methods.

Four of the studies determined that NAFTA would have a negligible to little effect on employment. Two concluded in general terms that “gains outweighed losses.” Another two estimated that jobs would increase by 40,800 to 61,000 in one study and 175,000 in the second. The latter estimate (from a study by Gary Hufbauer and Jeffrey Schott) was derived from the forecast that U.S. exports to Mexico would increase by $16.7 billion, imports from Mexico would increase by $7.7 billion and the U.S. trade balance would improve by $9 billion.

Only one study predicted there would be a net job loss, which it put at 1.26 million over a 10-year period. The 10th study concluded that there would be a 225,000 to 264,000 increase or 400,000 to 900,000 decrease in jobs depending on the level of foreign direct investment in Mexico. On the whole, at the time the agreement was signed, these 10 studies expected NAFTA to have a negligible to mild effect (in either direction) on U.S. employment.

Fears over job losses due to NAFTA persisted among those opposed to the agreement; those in favor recognized there would be some job market adjustment period. In response to these fears and with the goal of getting the agreement passed, the Bill Clinton administration and Congress agreed to legislation creating a NAFTA Trade Adjustment Assistance Program (NAFTA-TAA). This program was very similar to other trade adjustment assistance programs that the U.S. had been carrying out since the 1960s. The NAFTA-TAA was designed to provide assistance to all workers who could show that they lost their jobs or that their hours of work and wages were reduced as a result of trade with, or a shift in production to, Canada or Mexico. Since this program was implemented in 1994, 845,000 applicants have benefited from its services, which include job training and help finding a new job.

The Argument Against NAFTA

The arguments on both sides of the debate are important because their assertions would come into play in the event of a renegotiation. The main argument cited by those who believe NAFTA has harmed U.S. employment is that a growing trade deficit means more companies or facilities will be moved or closed. One major consequence of this is a rise in the number of dislocated workers.

According to the U.S. Census Bureau, the U.S. trade deficit with Mexico has increased since NAFTA was enacted. The U.S. had a trade surplus of $1.66 billion with Mexico in 1993, the last year before NAFTA’s implementation. This has turned into a $60.66 billion trade deficit in 2015.

There are multiple estimates of the number of jobs lost because of NAFTA. The Economic Policy Institute (EPI) published a study saying that from 1994 to 2004, 1 million jobs that would otherwise have been created were lost due to NAFTA. The statement is based on EPI estimates that during this time 2 million job opportunities were lost while only 1 million export jobs were created by the agreement. In addition, the U.S. Department of Labor reported that 5 million manufacturing jobs have been lost since NAFTA was implemented. A report by think tank Public Citizen estimates that one in four of these job losses was NAFTA-related. While the Department of Labor’s number is reliable, the department tracks employment on a broad scale. Therefore, the think tank’s calculation of how many of these jobs were lost due to NAFTA is only an estimate.

Trade policy experts employ variations of the same methodology to estimate the number of jobs lost due to an increase in the trade deficit. The models can be designed using sector-specific data. Also, nearly all assume a baseline scenario of full employment. One major issue with these models – as well as the impact studies cited above – is that they do not factor in macroeconomic forces that also affect trade, employment and growth in a given time period.

For example, they would not have accounted for the balance of payments crisis in Mexico that occurred the same year that NAFTA was enacted. One consequence of this crisis was that the value of the Mexican peso relative to the American dollar declined by 60 percent, a factor that greatly affected the price of Mexican goods. A weaker peso makes Mexican exports cheaper and more attractive to foreign consumers. A fluctuation of this nature dramatically impacts the macro-economy, trade flows and deficits but is not always predicted and incorporated into models.

Lastly, there is the commonly circulated figure that 845,000 jobs have been lost as a result of NAFTA. Even former Democratic presidential contender Bernie Sanders cited this. This number is based off the number of people who received NAFTA-TAA services benefits from the U.S. government. The number does not indicate in any way how many of these workers acquired a new job through TAA. Groups like EPI and labor group AFL-CIO argue that the program is insufficient because displaced workers earn on average 11 percent to 13 percent less than they did at their previous jobs. It is also commonly noted that new jobs do not always spring up in the same location as the old jobs and relocation becomes an obstacle.

The Argument in Favor of NAFTA

Those who support NAFTA argue that the benefits of free trade are long term. Preferential trade brings in lower cost imports to a market. Consumers will likely purchase these lower priced goods rather than domestically produced equivalents. This may create some short-term job losses for the importing country. However, in the long term, preferential trade is supposed to encourage specialization, economies of scale and more export-oriented jobs.

Advocates for NAFTA offer both conceptual reasoning and statistical evidence to support their view. The conceptual arguments look at what the job market would be like if NAFTA had not been implemented. The Council on Foreign Relations points out that many economists argue manufacturing in the United States was under stress before NAFTA. It asserts that job losses in the manufacturing sector should be viewed as part of a structural shift in the U.S. economy toward light manufacturing and high-end services rather than jobs lost to cheaper imports.

A 2014 report by the Wharton School of the University of Pennsylvania argues that “without NAFTA, many jobs that were lost over this period probably would have gone to China or elsewhere.” It also argues that job losses due to cheaper imports cannot be blamed on NAFTA because the U.S. trade deficit was and still is bigger with China than Mexico.

Like those opposed to NAFTA, those in favor have published various reports trying to illustrate their view with numbers. They say that NAFTA has not had a large, negative impact on the U.S. job market. Supporters of the agreement accept that some jobs will be lost. As a result, many of their numbers aim to illustrate that the job loss is negligible and leads to better economic conditions and job creation in other sectors, particularly those that are focused on exporting.

The Peterson Institute for International Economics (PIIE) published a report in 2008 that said about 16.5 million people quit or lost their jobs each year in the U.S., which has a total civilian labor force of roughly 140 million. At the same time, more than 18 million Americans acquire new jobs each year. The report also stated that, while the government recognizes that NAFTA results in a gross loss of 100,000 jobs annually, the figure is a mere 0.06 percent of the regular annual turnover in the U.S. job market. An economic study commissioned by the U.S. Chamber of Commerce found that trade with Canada and Mexico supports approximately 14 million U.S. jobs, of which nearly 5 million are supported by the increased trade generated by NAFTA. Like the anti-NAFTA group, the numbers come from modeling and estimates.

Pro-NAFTA groups often cite a 2015 U.S. Congressional Research Service report that says economists estimate that 40 percent of U.S. imports from Mexico and 25 percent of U.S. imports from Canada contain components that originate in the U.S. This figure is notably higher than the average of 4 percent for imports from China. The argument is that imported products can help sustain U.S. jobs because they contain material that was made in the U.S.

Lastly, there is emphasis on the fact that export-related jobs pay 7 percent to 15 percent more than jobs that focus on the domestic market. Those in favor of free trade foresee import-related jobs switching over to specialized export jobs as market production shifts to acknowledge competitive advantages and economies of scale.


As is commonly the case with contentious issues, critics and advocates of NAFTA have their respective leading experts who are associated with institutions that support a particular position. Gary Hufbauer and Jeffrey Schott are both affiliated with PIIE, which has published numerous reports in support of NAFTA. Meanwhile, Robert Scott at EPI is almost always the source of the latest information on NAFTA’s negative impact on the U.S. job market. About a quarter of EPI’s funding comes from union groups while about 44 percent of PIIE’s funding comes from major corporations. Given that rising nationalism in the United States is coinciding with an election year, those with political agendas and interests are pushing their agendas and framing the debate in favor of their interests. In the case of NAFTA, the debate will be centered on jobs.

In the U.S.’ advanced, complex economy, it is very difficult to isolate one particular element that contributes to the larger picture and make sweeping conclusions. It is also impossible to know with certainty the course of an alternative history – in other words, what the U.S. economy and job market would have looked like today if NAFTA had never been implemented. There will always be reports on such issues that seek to buttress both sides. In the end, the public perception of free trade will determine the future of NAFTA. Presently, there is a strong anti-free trade sentiment in the U.S. A Pew survey showed 55 percent of those polled were against free trade agreements because they are bad for jobs. There was little to no recognition of the fact that exports generate jobs as well.

While the evidence is inconclusive, there is growing public pressure through the U.S. presidential campaigns to renegotiate NAFTA to protect U.S. jobs. There are several avenues through which this can take place but no specific information at this time of what concrete changes in NAFTA would look like. A renegotiation of the actual treaty would require participation from Canada and Mexico, who could bring their own proposals. On a purely domestic front, the government could seek to make changes to the NAFTA-TAA to better support workers, though adjustments to this domestic legislation have not yet figured prominently into the presidential campaigns.

Equally important is the fact that the U.S. may not be alone in wanting to renegotiate the agreement. On July 25, Mexico’s Secretary of Foreign Relations Claudia Ruiz Massieu said that Mexico would be open to modernizing NAFTA should the U.S. and Canada bring forth the idea. Mexico's Secretary of Economy Ildefonso Guajardo Villarreal said that NAFTA could be updated through the implementation of the pending Trans-Pacific Partnership.

Bear in mind that NAFTA originally started as a free trade agreement between the U.S. and Canada. When the trilateral group formed, the new agreement superseded the previous bilateral agreement. Mexico’s former Secretary of Trade Jaime Serra Puche said that NAFTA should first incorporate new measures like e-commerce and anti-corruption measures not included in the original treaty before thinking about changing the existing treaty. Puche served as Mexico’s principle negotiator in the original NAFTA negotiations. The Canadian government has yet to state its stance on whether it would be willing to renegotiate NAFTA.

All this matters because NAFTA’s geopolitical relevance goes beyond domestic U.S. politics, as the agreement now intersects two major geopolitical trends underway. First, we have been tracking the rise of nationalism, especially in the United States and Europe. We see the nation-state reasserting itself as the primary vehicle of political life. Multinational institutions like the European Union and multilateral trade treaties are being challenged because some believe they are not in the national interest. Additionally, the world is currently in the midst of an exporter crisis that will have an impact on export sales. NAFTA members have access to both the Atlantic and Pacific oceans, which gives them an advantage in global trade. For these reasons, the future of NAFTA – and its potential renegotiation – matters both on a geopolitical level and for U.S. domestic politics.

Why Don’t We Trust Our Leaders?

Ngaire Woods

Newsart for Why Don’t We Trust Our Leaders?

OXFORD – In developed democracies today, political leadership is increasingly up for grabs. Voters, clearly tired of the status quo, want change at the top, leaving even major parties’ establishments struggling to install leaders of their choosing.
In the United Kingdom, Labour Party MPs have been stymied in their efforts to unseat Jeremy Corbyn as leader. In Japan, the ruling Liberal Democratic Party’s preferred candidate for Governor of Tokyo, Hiroya Masuda, lost in a landslide to Yuriko Koike. As for the United States, the Republican Party wanted virtually anybody except Donald Trump to win the nomination for the presidency; yet Trump it is. And while the Democratic Party is being represented by the establishment choice, Hillary Clinton, her competitor, Bernie Sanders, put up a much stronger fight than virtually anyone anticipated.
The message to the establishment is clear: we don’t trust you anymore. But some of the leaders voters do trust could pose a very real danger – to their supporters, their countries, and the world.
Trump – with his admiration of dictators, unabashed racism and sexism, ignorance regarding the issues, and mercurial temperament – stands at the top of this list. Those who led the British campaign to leave the European Union – such as Conservatives like Boris Johnson (now the country’s foreign secretary) and Nigel Farage, the right-wing populist leader of the UK Independence Party – are similarly disparaged for recklessly jeopardizing the future of the UK and the EU alike.
If mainstream leaders want to change voters’ minds, they should look carefully at what leadership really means. Here, it is worth recalling the insights of US General George C. Marshall, who contemplated the topic as he worked to rebuild the US military in the 1940s.
Marshall argued that leadership is a matter not of rhetoric, but of character. In particular, leaders must display three key qualities to win the trust needed to lead effectively: purpose, impartiality, and competence.
Purpose, in his view, meant putting the greater good ahead of one’s own interests. This kind of leadership still exists. A shining example is Jo Cox, the young British MP who was murdered during the Brexit campaign, whose leadership in advocating for the rights of refugees was recognized across party lines.
But, in many cases, politics has become a matter of self-promotion – and a race for ratings. In today’s celebrity culture, politicians must be “personalities.” They campaign like contestants on a reality TV show. Trump, with his clownish looks and showbiz resume, is probably the ultimate example of this shift. (The Huffington Post even decided last summer to publish coverage of Trump’s campaign in its entertainment section.)
The problem is not only that this can lead to the election of utterly unqualified leaders. It is also that, once elected, even qualified leaders can struggle to shed the personal elements of their decision-making, and serve the country impartially instead.
The slippery slope is exposed in a memo – recently disclosed as part of the UK’s Chilcot Inquiry – written by former British Prime Minister Tony Blair to former US President George W. Bush in the run-up to the Iraq war. The note begins, “I will be with you, whatever.” He was talking about leading his country into war. Yet his language suggests that his personal bond with Bush somehow took precedence over his duty as Prime Minister.
Leading with purpose, rather than personality, is closely related to the impartiality that Marshall thought essential. Once in office, leaders must act with fairness and candor. They must resist the temptation to use official power to benefit themselves, their families, or their cultural identity group, and refuse enticements, however powerful they may be, to offer special access or protection to friends, funders, and lobbyists.
Maintaining a high standard of impartiality is not easy, but it is far from impossible. President Pedro Pires of Cape Verde was awarded the 2011 Ibrahim Prize for Achievement in African Leadership, for transforming his country into “a model of democracy, stability, and increased prosperity.” Pires retired from office without even a house to his name; he worked for the people, not to amass personal wealth.
The third criterion for good leadership – competence – is not just a matter of how much knowledge a leader already possesses. As Marshall noted, it also consists in leaders’ capacity to learn from their mistakes and to prepare themselves and those around them for important decisions. Chilcot’s verdict on Britain’s lack of preparation for the Iraq War and its aftermath is damning in this regard. So is the Brexiteers’ lack of any plan whatsoever for how to proceed after the referendum.
It is time to revitalize good leadership. Voters need to see candidates who show purpose, impartiality, and competence. If they don’t, they will continue to vote against the establishment that they believe has failed them – even if it means voting for turmoil in Europe or a reckless narcissist in the US.

Decline of Empire: Parallels Between the U.S. and Rome, Part III

by Doug Casey

Wars made Rome. Wars expanded the country’s borders and brought it wealth, but they also sowed the seeds of its destruction, especially the three big wars against Carthage, 264-146 BCE.

Rome began as a republic of yeoman farmers, each with his own plot of land. You had to be a landowner to join the Roman army; it was a great honor, and it wouldn’t take the riffraff. When the Republic was threatened—and wars were constant and uninterrupted from the beginning—a legionary might be gone for five, ten, or more years. His wife and children back on the farm might have to borrow money to keep things going and then perhaps default, so soldiers’ farms would go back to bush or get taken over by creditors. And, if he survived the wars, an ex-legionary might be hard to keep down on the farm after years of looting, plundering, and enslaving the enemy. On top of that, tidal waves of slaves became available to work freshly confiscated properties. So, like America, Rome became more urban and less agrarian. Like America, there were fewer family farmers but more industrial-scale latifundia.

War turned the whole Mediterranean into a Roman lake. With the Punic wars, Spain and North Africa became provinces. Pompey the Great (106-48 BCE) conquered the Near East. Julius Caesar (100-44 BCE) conquered Gaul 20 years later. Then Augustus took Egypt.

The interesting thing is that in the early days, war was actually quite profitable. You conquered a place and stole all the gold, cattle, and other movable property and enslaved the people. That was a lot of wealth you could bring home—and then you could milk the area for many years with taxes. But the wars helped destroy Rome’s social fabric by wiping out the country’s agrarian, republican roots and by corrupting everyone with a constant influx of cheap slave labor and free imported food. War created longer, faraway borders that then needed to be defended. And in the end, hostile contact with “barbarians” actually wound up drawing them in as invaders.

Rome’s wars radically changed society, just as America’s have. It’s estimated that at times 80-90% of the population of the city of Rome was foreign born. It sometimes seems that way in many U.S. cities. I always look at the bright side, however: after every foreign misadventure, the U.S. gets an influx of new restaurants with exotic cuisines.

The stream of new wealth to steal ended with the conquest of Dacia in 107. The advance in the east stopped with the Persians, a comparable military power. Across the Rhine and Danube, the Germans—living in swamps and forests with only tiny villages—were not worth conquering. To the south there was only the Sahara. At this point, there was nothing new to steal, but there were continuing costs of administration and border defense. It was inconvenient—and not perhaps just coincidental—that the barbarians started becoming really problematic just about when Christianity started becoming popular, in the 3rd century. Unlike today, in its early days Christianity encouraged pacifism… not the best thing when you’re faced with barbarian invasions.

Remember, the army started out as a militia of citizen soldiers who provided their own arms. It eventually would accept anyone and morphed into a completely mercenary force staffed and led largely by foreigners. This is pretty much how the U.S. armed forces have evolved. For all the “Support Our Troops” propaganda, the U.S. armed forces are now more representative of the barrios, ghettos, and trailer parks than of the country as a whole. And they’re isolated from it, a class unto themselves, like the late Roman army.

Even though the Roman army was at its greatest size and cost in the Dominate period, it was increasingly a paper tiger. After its rout at the Battle of Adrianople in 378, the Western empire went into a death spiral. The U.S. armed forces may now be in an analogous posture, comparable to Soviet forces in the 1980s.

Although the U.S. has won many engagements and some sport wars, it hasn’t won a real war since 1945. The cost of its wars, however, has escalated hugely. My guess is that if it gets into another major war, it won’t win, even if the enemy’s body count is massive.

Recall Osama bin Laden’s plan to win by bankrupting the U.S. He was very astute. Most U.S. equipment is good only for fighting a replay of WW II—things like the $2 billion B-2 bomber, the $350 million F-22, and the $110 million V-22 Osprey are high-priced dinosaurs. The Army lost 5,000 helicopters in Vietnam. How many Blackhawks can the U.S. afford to lose in the next war at $25 million each? World War II cost the U.S. $288 billion, in 1940 dollars. The pointless adventures in Iraq and Afghanistan are guesstimated at $4 trillion, a roughly comparable amount in real terms.
In the future—unless it completely changes its foreign and military policies—the U.S. will likely be confronting scores of independent, nonstate actors, rather than other nation-states. We won’t really know who they are, but they’ll be very effective at attacking hugely expensive infrastructure at near-zero cost, by hacking computers. They won’t need a B-2 when a stolen Pakistani nuke can be delivered by freighter. They can take out a $5 million M-1 tank with an essentially zero-cost improvised incendiary device. While the U.S. bankrupts itself with defense contractors whose weapons have 20-year development times, enemies will use open-source warfare, entrepreneurially developing low-cost, unconventional weapons with off-the-shelf components.

This is actually analogous to what Rome confronted with invading nomads. Let me relate an anecdote offered by Priscus, a Roman ambassador to the court of Atilla in about 450 AD. While there he met a Greek who had joined the barbarians. This will give you a flavor of the story he tells Priscus. I’ve put some words in bold because they’re especially relevant to other aspects of our story.

After war the Scythians live in inactivity, enjoying what they have gained, harassed very little or not at all. The Romans, on the other hand, are very liable to perish in war, as they have to rest their hopes of safety on others, and are not allowed, on account of their tyrants, to use arms. And those who use them are injured by the cowardice of their generals, who cannot support the conduct of war. But the condition of the subjects in time of peace is far more grievous than the evils of war, for the exaction of the taxes is very severe, and unprincipled men inflict injuries on others, because the laws are practically not valid against all classes.

Wars destroyed Rome, just as they’ll destroy the U.S.

But what about the barbarian invasions that Gibbon perhaps correctly pointed out were the direct cause of Rome’s downfall? Do we have a present-day analogue? The answer is at least a qualified “yes.” It’s true that the U.S. will bankrupt itself by fighting the ridiculous and chimerical “War on Terror,” maintaining hundreds of military bases and operations around the world and perhaps getting into a major war. But from a cultural point of view, it’s possible that the southern border will present an equally serious problem.

The U.S.-Mexican border is a classic borderland situation, no more stable and just as permeable as the Rhine-Danube dividing line was for the Romans. The problem now isn’t invading hordes, but a population that has no cultural allegiance to the idea of America. A surprising number of the Mexicans who cross over to the U.S. talk seriously about a Reconquista, in reference to the fact the Americans stole the land in question from people they presume to be their ancestors.

In many parts of the Southwest, the Mexicans form a majority and choose not to learn English—and they don’t need to, which is a new thing for immigrants to the U.S. Most are “illegal,” as you might say the Goths, the Vandals, and the Huns were in Rome’s final days. My guess is that in the near future, there will be a lot of young Hispanic males who actively resent paying half of what they make in income, Social Security, and Obamacare taxes in order to subsidize old white women in the Northeast. I wouldn’t be surprised to see parts of the Southwest turn into “no go” zones for many government agencies over the next several decades.

Could the U.S. break up the way the Roman Empire did? Absolutely; the colors of the map on the wall aren’t part of the cosmic firmament. And it needn’t have anything to do with military conquest. Despite the presence of Walmarts, McDonald’s, and Chevrolet dealerships across a country whose roads are as impressive as the nearly 50,000 miles of highway laid down by the Romans, there’s evidence the country is disintegrating culturally. Although what is occurring in the Mexican borderland area is the most significant thing, there are growing cultural and political differences between the so-called “red” and “blue” states. Semi-serious secession movements are at work in northern Colorado, western Maryland, and western Kansas. This is a new phenomenon, at least since the War Between the States of 1861-65.

Apocalypse Never

by: Eric Parnell, CFA

- It is a question that is often raised about the second longest bull market in history.

- What exactly will be the catalyst event that will finally bring it to its end?

- Maybe it will be absolutely nothing.

It is a question that is often raised about the second longest bull market in history: What exactly will be the catalyst event that will finally bring it to its end? Some will even take comfort in the sustainability of the bull market by claiming they cannot envision a convergence of events that would end the rise of this relentless bull market. But when it comes to stocks, a bull typically does not meet its demise following some dramatic event. Instead, they almost always quietly pass away one trading day with little notice or fanfare at the time.
A Reflection On Past Major Market Tops
So how do major bull markets typically come to an end? What have been the apocalyptic events that have brought past roaring bulls to their knees and heralded the arrival of a new bear market phase?
A look back on market history is revealing not for the legendary incidents that have marked the end of major bull markets, but the general lack thereof.
September 3, 1929
Let's begin with the granddaddy of all bull market peaks in 1929. Indeed, the bellwether event at the time was Black Monday and Black Tuesday on October 28-29, 1929, a two-day period in which the Dow Jones Industrial Average lost -23.7%, nearly a quarter of its value.
A notable event indeed. But two key points are often overlooked when reflecting on this landmark event. First, the prior Friday, October 24, 1929, did not represent the stock market peak at the time. In other words, it is not as though the stock market had surged to an all-time high the Friday before the weekend only to end up down by a quarter by Tuesday the following week. Instead, the stock market had already been rolling downhill for a fair amount of time by the time the bottom fell out.
In fact, the market peak in 1929 came nearly two months earlier, on September 3. The market moved in a reasonably tight range throughout the month of September amid what at first looked like a garden variety short-term correction in the -3% to -5% range, seemingly nothing more than consolidation of its latest strong move to the upside.

But then the momentum started to gradually pick up to the downside into October. By mid-October, the pullback from its early September highs had increased sustainably beyond the -10% range. And by Friday, October 24, 1929, the final trading day before Black Monday and Black Tuesday, the correction had just crossed over the -20% threshold. Put simply, this was a crash that was two months in the making by the time it finally erupted.
So what were the headline events that took place on September 3, 1929, that served as the catalyst for the dramatic and prolonged bear market that followed? Virtually nothing of note from a financial market standpoint. A typhoon struck the Philippines and a small plane crashed in New Mexico, but that was about it.
On September 5, 1929, two days after what would ultimately be the final peak, business theorist Roger Babson gave a speech during which he now prophetically stated "More people are borrowing and speculating today than ever in our history. Sooner or later, a crash is coming, and it may be terrific." But if I had a nickel for every time someone (including myself) made statements like this during a bull market, only to have stocks soar to new highs, I wouldn't need to bother with investing anymore, because I would be floating on a vast and growing ocean of nickels.
It wasn't until the London Stock Exchange crashed, more than two weeks after the market peak on September 20, 1929, that the situation started to unravel. But once again, how many times have we seen such supposed market traumas during bull markets, including the recent Brexit episode, only to see stocks brush it off and explode to new highs. And even after this 1929 LSE crash, stocks had recovered nearly all of any related losses associated with the event by October 10, 1929.
So what was the apocalyptic event that came to pass at the stock market peak on September 3, 1929, that ignited the relentless bear market that followed? Nothing, as the bull simply passed quietly into the night that evening.

One final point that is also often overlooked about the 1929 market peak and subsequent crash. Sure, the stock market crash of 1929 was dramatic, but markets quickly bottomed on November 13, 1929.
And over the next five months, stocks steadily rallied from these lows, posting a +50% rebound in the process. By April 17, 1930, stocks had made back virtually all of the losses suffered starting with the Black Monday and Black Tuesday crashes in late October 1929. In many ways, it looked a lot like what came after the 1987 stock market crash to that point. And along the way, bulls regained their swagger with calls that the worst was over, which of course has a similar ring to March 2008 following the demise of Bear Stearns.
It was not until April 1930, more than seven months after the bull market peak, that the lights finally went out on the market. What notable event took place then that finally took the market to its knees?
Once again, nothing.
January 11, 1973
While a number of notable market peaks came between 1929 and 1973, it is worthwhile to stick with the big ones to highlight that no matter how big the bear market that follows, the peaks are not marked by any major market catalyst.
The stock market as measured by the S&P 500 Index (NYSEARCA:SPY) reached a new all-time high on a nominal basis on January 11, 1973. Notably from a historical perspective, the stock market at that point was in the seventh year of what many now refer to as a secular bear market period from 1966 to 1982, yet it reached a fresh all-time high effectively right in the middle of this phase that was roughly +30% higher than its 1966 nominal peak (does any of this sound familiar?).
So what exactly happened on January 11, 1973, that sent the stock market reeling into a near -50% correction over the subsequent two years? Once again, virtually nothing. Australia pulled out of the fight in Vietnam, but that was about it. Instead, Time magazine released an article dated three days earlier proclaiming that 1973 was set to be "a gilt edged year for the stock market". The article humorously included the following:
Most Wall Street analysts are convinced that the market will continue to climb smartly in 1973. Brokers looking for a marked increase in trading volume see signs that small investors are beginning to overcome fears instilled by the Wall Street slide of 1970 and return to the market.
Once again, does any of this sound familiar? Analysts "convinced" that stocks will continue to climb?
Cash on the sidelines with fearful investors just waiting to come back into the market?
Sometimes history rhymes. Other times, it just blatantly repeats over and over again.
But wasn't the bear market in 1973 and 1974 sparked by the OPEC oil embargo? It certainly played a part, but it was not the catalyst, as the oil crisis did not fully get underway until mid-October 1973, more than nine months after the stock market had peaked.
Once again, the market peak that came and went in mid-January 1973 was not accompanied by any notable event, much less anything that was apocalyptic.
March 24, 2000
The tech bubble had been relentlessly inflating for five years by the time the March 2000 peak arrived. Stocks had survived and thrived past the Asian debt crisis, the Russian ruble crisis, the near collapse of Long Term Capital Management and Y2K all along the way. So what were the headlines that finally inserted the pin into the massive technology bubble? Absolutely nothing.
The NASDAQ (NASDAQ:QQQ) had peaked at its all-time high exactly two weeks earlier on March 10, 2000, but the broader market as measured by the S&P 500 Index used this occasion to rally by +10% into its final peak. Simply sector rotation out of overvalued technology (NYSEARCA:XLK), media and telecom stocks into a more reasonably valued broader market, right? Not so much, it turns out.

Didn't the markets go over a cliff once the bubble burst in March 2000? Once again, no. In fact, stocks traded sideways for the next five months, supposedly a healthy consolidation of the robust gains that had come during the second half of the 1990s. And by September 1, 2000, stocks were effectively back at all-time highs. Even the tech heavy NASDAQ had bounced by an impressive +40% from its May 2000 lows and seemed poised to break out once again to the upside.
So what then happened on September 1, 2000, that finally opened the door for the bear market onslaught that followed? Nothing.
October 9, 2007
The last of our stops on our bull market peak tour brings us to October 9, 2007. The financial crisis that followed over the subsequent 18 months was arguably the most traumatic market episode since the onset of the Great Depression. But what exactly was the bell that rang at the market top in October 2007 that suggested the apocalypse was upon us? Yet again, nothing. Instead, the bull quietly expired on an intraday basis just two days after reaching its final closing peak, and the rest from there was history.
But wasn't the market starting to break apart with the onset of the financial crisis? Sure, but this was already unfolding for months ahead of the October 2007, with many market analysts proclaiming that this was nothing more than a manageable problem isolated to the housing sector and its related financing institutions. After all, noteworthy lenders such as New Century Financial had already gone under at the start of April 2007, and the two structured credit hedge funds at Bear Stearns had halted redemptions in June 2007. Yet, those investors that assumed a bearish stance in response to these early warning signs looked like idiots many months later with stocks surging to new all-time highs by early October.

And even after the market finally peaked, many were declaring the worst to be over by March 2008 as mentioned above following the coordinated transfer of Bear Stearns to JPMorgan Chase (NYSE:JPM). This supposedly signaled to the market that the policy maker backstops and bazookas would keep the market humming along. Turns out, not so much in the end.
Indeed, the collapse of Lehman Brothers is widely cited as the catalyst that heralded the financial crisis, but what is often overlooked in its aftermath is that it came in mid-September 2008, nearly a year after the market had peaked. And it did not occur in isolation, as it was accompanied by the near collapse of AIG (NYSE:AIG) and the surrender of both Washington Mutual to JPMorgan Chase and Wachovia to Wells Fargo (NYSE:WFC) in the days that followed. And even with all of this turmoil and amid a bear market that was already running at nearly a year and counting, it took more than two weeks before the markets finally responded to these shock events.
So here we are today, nearly a decade later. The stock market is roughly a third above its previous all-time highs despite the fact that many of the problems that sparked the financial crisis not only remain unresolved, but also in many ways have spread from the private sector to the public sector and compounded to boot. And there have been no lack of New Century Financial and Bear Stearns caliber events to the nth degree that have surfaced in the years since, yet the bull market continues to stride higher largely unfazed.
What then is likely to be the catalyst that finally brings today's bull market, the second longest in history, to its knees? It's not going to be the PIIGS, a "Brexit" announcement, or the latest tragic geopolitical terrorist event. In the end, there is likely to be no catalyst whatsoever.

Instead, today's bull market will likely quietly expire into the night just as it has in nearly every other instance in its history. And it will likely only be well into the aftermath and after so many of the losses have already been sustained before investors will be able to look back and pinpoint the true causes of what finally sent the market over the edge. Of course, for those that are watching closely along the way, it will be no mystery as to why the market has turned to the downside.
Investment Implications
It is not a question of if, but when. We know for a fact that another bear market will come in the future. The key questions are exactly when and from what price level? It could have quietly started on August 1, 2016 (highly unlikely), it could start a month from now, early next year, sometime in 2017 or perhaps three years or more down the road. There is no telling in today's liquidity fueled, policy managed markets.
But what we do know is that the risks underlying today's market are widespread and meaningful. This is not the 1950s into the 1960s or the 1980s and 1990s for that matter. These are markets that are awash with debt overseen by central bankers whose balance sheet flexibility is all but exhausted in a global economic backdrop marked by sluggish growth at best and persistent deflationary pressures. Such an environment has resulted in an increasingly restless general population worldwide that is looking toward more extreme populist and nationalist leaders to enact change on an already fragile financial system that many believe has risen at their expense and failed them as a result. In short, these are unsettled and turbulent times like the 1910s, the 1930s, the 1970s and the 2000s.
So what is an investor to do in such an environment? Sell everything and run for the bunker nestled away in the hills? Absolutely not.
The stock market is still rising. So too is the bond market (NYSEARCA:AGG). And while the commodities (NYSEARCA:DJP) market remains stuck in the dumps, the precious metals market including gold (NYSEARCA:GLD) and silver (NYSEARCA:SLV) is showing new signs of life. And until any of these markets peak, they will continue to rise and it makes sense to participate.

But just because these markets are rising does not mean that an investor should throw all caution to the wind. Participate in the ongoing gains, but do so with a relentless eye toward risk control.
Own stocks, but don't do so with 100% of your portfolio or with leverage. Instead, make it a sensible part of a broader, more diversified asset allocation. And given that we are in the second longest bull market in history, focus on stocks that have demonstrated the ability to hold up well during the early stages of a new bear market if one evening today's bull market finally expires quietly into the night.
Also own bonds. They don't need to be the boring type, but instead can include those that have some price movement in their own right. Just make sure that they move in a price path that is different than that of stocks so that you can get the true diversification benefit. In short, if you're going to own bonds in the current environment to go with your stocks, lean away from high-yield bonds (NYSEARCA:HYG) and toward Treasuries (NYSEARCA:TLT).
Also consider other asset classes. This includes precious metals, commodities, currencies and other portfolio hedges. Use these selectively and in much smaller portions relative to stocks and bonds (unless you really know what you are doing or you have an ultra-high conviction on a specific specialized theme), but use them nonetheless. For while many of these alternatives may be risky in isolation, they can actually meaningfully lower the risk of your overall portfolio when blended into a more diversified asset allocation strategy that includes stocks and bonds given the fact that they also travel on their own unique returns path.
Lastly, remain open to the idea of holding a meaningful allocation to cash at any given point in time if market conditions warrant. After all, if that older fellow from Nebraska that has seemed to do pretty well with his stock investments over the past few decades touts the mountains of cash he is holding at any given point in time, it can't be that bad of an idea. While a +0.01% return may not feel so rewarding when the market is going up +10%, it is much more so when stocks are down -20%.
And it is truly gratifying from an investment perspective than having cash at the ready to deploy after markets have gone through a healthy correction in the names that you would like to buy. After all, who doesn't like a clearance sale.
Bottom Line
Nobody knows when the bull market will finally end. But the final peak is not likely to be marked by a major catalyst event. Instead, it is likely to come and go quietly into the night one trading day.
So stay invested and participate. But also recognize where we are in the current market environment. These remain highly risky times, with pressures building with each passing day.
Stay invested, but use the powers of portfolio diversification to manage against the profound risks that could ultimately turn the market tides in a meaningful way.

Does Gold Continue Its Bull Market Towards $1500 or Crash?   

My analysis shows that gold will be implemented to protect ‘global purchasing power’ and minimize losses during our upcoming periods of ‘market shock’. It serves as a high-quality, liquid asset to be used when selling other assets would cause losses. Central Banks of the world’s largest long-term investment portfolios use gold to mitigate portfolio risk in this manner and have been net buyers of gold since 2010.

Investors should make use of gold’s lack of ‘correlation’ with other assets which makes it the best hedge against currency risk.  There was a huge trend change in U.S. gold investment last May 2016.

Switzerland is now a major source of U.S. gold exports. The tables turned back in May 2016 as the Swiss exported a record amount of gold to the United States. There has been a huge increase in gold flows into the Global Gold ETFs & Funds.  Something seriously changed in May 2016 as the Swiss exported more gold to the U.S. in one month than they have every year for several decades.


Though we are in for a period of great financial turmoil, investors can safeguard themselves by investing smartly in gold. Do not be left behind and see your dollar assets lose value. Invest in gold!
It is in these conditions gold is the only investment that will appreciate in time.

The world including Russia, Syria, Libya, North Korea, the South China Sea, Venezuela and social discord from Europe to the U.S., it is difficult to make the case for any good news.  Gold will continue to perform its role as a “safe haven” in these times of crisis which appear to be never ending.   The metals surge of as much as 8.1 percent on the day of the “Brexit” vote last month is an indicator that its’ luster of safety is undimmed in the current market. There’s little to be gained from arguing whether such beliefs are right or wrong: “The market can stay irrational longer than you can stay solvent”.

The list of prominent hedge fund managers backing gold is lengthening.  Paul Singer, of Elliott Management Corporation, is the latest name to lend his support. It is likely that more investment institutions will turn to gold as the logical way to countervail the effects of many years of quantitative easing.

“It’s a glaring warning sign of deflation. We’ve never really had deflationary fears throughout such a widespread part of the world before,” said Phil Camporeale, a multi-asset specialist at JPMorgan Asset Management.

These accommodative Global Central Bank policies has lead to monetary easing policies that have been adopted globally. It is not so much that the U.S. Dollar has become strong the last few weeks. The “systemic” uncertainty of the recent “Brexit” vote in the U.K. resulted in the U.S. Dollar became a “safe haven”.

The FED is doing everything in its power to prevent a rise in the dollar. They are willing to “orchestrate” any scenario where the stock market continues to soar and people will feel a “wealth effect” from new stock market highs and fight the argument that the economy is “contracting”. The FED is getting everything it wants in this regard and will continue to do so. 

The number one priority of the FED is “debasing” the U.S. Dollar. Gold can rise even if the dollar continues to rise.

Investors of all levels of experience are attracted to gold as a solid, tangible and long-term “store of value” that historically moved independently of other assets clases.

Golds’ importance even in today’s environment was clearly visible during the massive rally during the start of the year, when all other asset classes were tanking. Investors piled on gold on a scare of a likely financial crisis in the world.

Investors should make use of Gold’s lack of ‘correlation’ with other assets which makes it the best hedge against currency risk.

Though we are in for a period of great financial turmoil, investors can safeguard themselves by investing smartly in gold. Don’t be left behind and see your dollar assets lose value. Invest in gold.

It is in these conditions that one of the best investments is gold.

Talk of further “unconventional” monetary policies globally has increased. Japan has reached the limit of what negative interest rates and quantitative easing have achieved. The Bank of Japan may adopt a policy of so-called “Helicopter Money”.

Dr Loretta Mester, President of the Federal Reserve Bank of Cleveland and a member of the rate-setting Federal Open Market Committee (FOMC), signalled direct payments to households and businesses to stoke spending was an option Central Banks might look at in addition to interest rate cuts and quantitative easing.

However, back in April 2016, if you have followed my recommendation, you would have maintained that once gold crossed the $1190/oz. levels, it was destined to go higher. Above the downtrend line, which acted as a resistance from 2013 and onwards, the trend altered and it appears to be extremely highly unlikely that it will reverse downwards, at all!

However, the head and shoulder formation tested my resolve to buy into gold, as it is a most reliable bearish pattern, but, once a bearish pattern fails, it becomes very bullish which is what has happened in this case. I was quick to alert my subscribers to buy as soon as the pattern was triggered.


“We’re always assessing tools that we could use,” Dr Mester said in response to a question about the potential use of “Helicopter Money”. However, Dr Mester signalled that in the event of another shock or economic downturn that most likely option would be more quantitative easing-style money printing.

Global rates are at zero too negative, money will continue to chase gold and U.S. Treasuries for the higher yield. This will continue to push yields lower as the global economy continues to slow. What would cause this to reverse? It would require either an “economic rebound” or a complete “loss of faith” in the U.S. to pay its debts such as a collapse of the U.S. Government.

The total amount of government bonds in the world that have negative yields are currently $13 trillion, according to Bank of America Merrill Lynch. Given that there were almost zero negative-yielding bonds just two years ago, the rise is “incredible”. Do not be surprised to see $15 trillion to $20 trillion worth of negative-yielding government debt by the end of this year. 

The yield on short-term government include Switzerland,  Belgium, Denmark, France, Germany, Japan, and the Netherlands which are all sub-zero. Even short duration U.S. bond rates are barely above zero. 

Bonds are not fixed-income assets anymore now as fixed-outgoings once were ones.  Investors are currently buying them for their ‘capital appreciation’ rather than their ‘coupon payments’.

Gold is currently in a correction. In this upcoming August of 2016, gold is set to surge much higher and surprise ALL.  As you can see from the chart below, I am targeting 135 level on GLD.


Global Central Banks have yet to ‘manufacture’ inflation!

 This trend will continue to grow for now, until, just like in 2008, the bubble bursts in “cataclysmic fashion. ”

The Central Banks are manipulating the fabric of price-time by reversing the flow of time via negative interest rates. Therefore, the global financial system no longer possesses the “productive capacity” to generate any income to sustain current equity asset values.

My own economic outlook is “invaluable” and is a must have if one wishes not only to save their wealth to profit themselves handsomely from this current “gloomy” crisis that is only worsening behind the scenes.  There are many ways to survive, protect, and grow one’s financial position in this prolonged economic downturn.

The end of the Great “Keynesian” Experiment is upon us. Follow my lead as we navigate through the various financial markets using cycle price forecasting, technical analysis, my secret pre-market price spike intraday trend indicator for accurate swing trades and long term ETF investment positions.