Donald Trump and the dangers of America First

The result of the election undermines US global leadership

by: Gideon Rachman

It is symbolic and poignant that the election of Donald Trump was confirmed on the morning of November 9, 27 years to the day after the fall of the Berlin Wall. That was a moment of triumph for US leadership — and ushered in a period of optimism and expansion for liberal and democratic ideas around the world. That era has been definitively ended by Mr Trump’s victory.

The electoral triumph of a race-baiting demagogue represents a profound blow to the prestige of US democracy — and thus to the cause of democracy around the world, which America has championed, on and off, since 1945.

The most eloquent and moving statement of that American commitment was made by John F Kennedy in 1961 — “Let every nation know, whether it wishes us well or ill, that we shall pay any price, bear any burden, meet any hardship, support any friend, oppose any foe, to assure the survival and the success of liberty.”
The generosity, breadth and eloquence of Kennedy’s vision makes a sad contrast with the pinched nationalism of Mr Trump’s proclamation that — “Our plan will put America first.

Americanism not globalism will be our credo.” The difference between these two visions is profound and ominous. It was not just idealism that led America’s postwar generation to commit to the protection of liberty around the world. As Kennedy observed, his generation was “tempered by war, disciplined by a hard and bitter peace”. They make a stark contrast with the generation who have voted for Mr Trump — fattened by fast food and infantilised by reality televisión.

The Kennedy generation had learnt bitter lessons from the Great Depression and the second world war. They knew that “America First” policies — those that sought to isolate the US from the problems of the wider world — had ultimately led to economic and political catastrophe. So after 1945, a new generation of US leaders, both Republicans and Democrats, built an economic and security architecture for the world — based around US leadership and international institutions and alliances, such as Nato, the UN and the World Bank.

Donald Trump’s momentous victory has stunned America’s allies but also delighted populists and strongmen leaders around the world, notably Russia’s Vladimir Putin. Ben Hall discusses the world response with Gideon Rachman and Guy Chazan.

Mr Trump has forgotten these lessons drawn from the experience of the 1930s, if he ever knew them. He appears to have even more contempt for international bodies than for the institutions of America itself. His proposed policies threaten to take an axe to the liberal world order that the US has supported and sustained for many decades. In particular, he has challenged two of the main bipartisan principles that underpin America’s approach to the world. The first is support for an open, international trading system. The second is the commitment to the US-led alliances that underpin global security.

Mr Trump is the first avowed protectionist to be elected US president since before the second world war. He has promised to renegotiate America’s “terrible” trade deals, such as the North American Free Trade Agreement, and threatened to pull the US out of the World Trade Organisation. He has also mooted tariffs as high as 45 per cent on Chinese goods. If Mr Trump were to follow through on these threats, he would spark a global trade war and could well plunge the world into recession — similar to the depression of the 1930s, which was greatly deepened by America’s embrace of protectionism.
What is new is Mr Trump’s overt questioning of the idea that the US will defend its allies from a military attack — come what may. This equivocation — combined with Mr Trump’s open admiration for Vladimir Putin, the Russian president — will raise fears that the US will not oppose renewed Russian aggression in Ukraine or eastern Europe.
America’s Asian allies — in particular, Japan and South Korea — also fear that Mr Trump’s “America First” policies could extend to accepting a Chinese sphere of influence in east Asia.

The temptations of an “America First” policy are understandable for a country that is tired of wars in the Middle East — and that has apparently been persuaded that international trade is the source of its domestic economic problems. The US has a huge internal market to sustain its economy and two vast oceans to protect its security.

In time, however, the US is likely to become a poorer and meaner place if it disengages from the rest of the world. And, as in the 1930s, the security and prosperity of America itself is also ultimately likely to be threatened by a collapse of international trade and a resurgence of authoritarian aggression.

All that, however, lies in the future and in the realm of conjecture. In the present, America and the world faces a simple and depressing truth. The American presidency — an office once occupied by giants like Lincoln, Roosevelt, and Kennedy — has been captured by a shallow huckster. Mr Trump has promised to “make America great again”. But his ascension to the presidency is actually a terrible sign of national decadence and decline.

How Important Is the US President – or Any Leader?

Great leaders did not make history. History made them.

By George Friedman

An election is always followed by the elation and respect of supporters, and the despair and contempt of opponents. This is a natural part of democracy. When Barack Obama was elected, his supporters were rapturous, while opponents were convinced it meant disaster. When George W. Bush was first elected, and then re-elected, the same thing happened. The degree of worship and contempt varies, but it is a constant in not only U.S. democracy, but in most democracies.

This phenomenon is composed of two dimensions. The first is that voters are searching for a solution to their problems and unhappiness and look to the political sphere for solutions. In doing this, they imbue leaders with extraordinary powers. A leader becomes an icon of all the hopes and fears of a nation. The second dimension is that different sorts of leaders draw different sorts of followers. They differ by region, class, ethnicity and a host of other distinctions. Constant hostility very often occurs between these groups because all societies are divided. An election forces a confrontation between these different groups, their competing hopes and mutual contempt. The distinct groups want to elect a leader who will help them and punish the others. In the end, most of the political maneuvering entails convincing enough people that you speak for them and not the others.

The front page of New York City newspapers on Nov. 9, 2016 in New York City. John Moore/Getty Images
The front page of New York City newspapers on Nov. 9, 2016 in New York City. John Moore/Getty Images

Leaders aren’t iconic, they are human beings. The idea that they will rebuild society in a manner that is more just to one group vastly overstates their power. Obama is a case in point.

He was expected to end all wars, end the rage against the United States in the Islamic world that led to terrorism, create jobs and so on. He likely believed in many of these things, and he may well have expected to accomplish them as president. The expectations were global. He was awarded the Nobel Peace Prize merely for his good intentions.

Leaders inevitably disappoint, because they must claim extraordinary powers, and voters need leaders to have those powers. Their election is followed by great excitement and long periods of growing disappointment. This happened during Franklin Roosevelt’s and Ronald Reagan’s presidencies. As reality collided with intentions and hopes, a sense of betrayal crept in. Opponents felt vindicated, and supporters betrayed.

Roosevelt and Reagan were both regarded by opponents as completely unsuited for office.

Reagan was called an ignorant and evil actor, and Roosevelt was a rich dilettante with an empty head. Abraham Lincoln was likened to a monkey and regarded as an ignorant and uncouth lout who would shame the country. And these weren’t Southerners talking. Supporters worshipped them. But the issue wasn’t about them personally. In talking about candidates, detractors really were talking about the kind of people who supported them.

None were devils and none were miracle workers. Lincoln’s performance in the Civil War was criticized then and now, and had he not been assassinated, our view of him might well be different. Roosevelt failed to end the depression, and the country plunged back into it in 1938.

His erstwhile supporters were the most bitter about his performance. Reagan did not perform an overnight miracle. Over the course of eight years his limited powers, combined with shifting global realities, brought about changes he participated in and didn’t control. And his supporters were most critical of him when he discovered the limits of his powers and the need to compromise. “Let Reagan be Reagan” was the chant of the day by supporters who felt his advisers, not reality, held him back from performing miracles.

From left, former British Prime Minister Winston Churchill, U.S. President Franklin Delano Roosevelt and Soviet Communist Party Secretary General Joseph Stalin on Feb. 4, 1945 at the end of World War II. STF/AFP/Getty Images

In thinking about the presidency – or political leaders anywhere – it is important to distinguish between ambitions and constraints. Giving presidents the benefit of the doubt that they meant what they said during a campaign, it must be remembered that the president’s powers by design are limited. Beyond constitutional limits on a president, reality imposes others. Lincoln did not want a civil war; Roosevelt wanted to end the depression; Reagan wanted to energize the economy; and when he took office, Bush had no intention of invading Afghanistan nine months later. But it really didn’t matter what they wanted. Other forces were at work shaping and undermining their presidencies. Given their circumstances, some could achieve some of their goals, none could achieve all of them, and few could achieve them in the manner they planned.

The U.S. president leads a country of 320 million people. The country’s economy is about 25 percent of the world economy today. Roosevelt and Reagan struggled to impose their will on the economy. That failed. They finally had to align their will to the economy, while struggling with Congress and the Supreme Court. What they accomplished had more to do with the underlying reality of the global system than anything they did. We like to speak of Reagan defeating the Soviet Union. The truth is that the Soviet Union was collapsing regardless of any outside effort. Reagan did not impede the process and certainly contributed to it. What he intended happened, but it was minimally influenced by anything he did. The Soviet Union fell because of internal failures built into the system.

Geopolitics is the study of global, economic, political, military and technological systems. It is the study of vast numbers of human beings going about their daily lives. It is a system that by nature cannot be controlled – it can barely be understood. It is based on Adam Smith’s invisible hand assumption, in which our pursuit of personal ends results unintentionally in increasing wealth. We extend that principle to the political and military realms. People throughout the world pursue personal ends in all of these spheres, constrained by the circumstances in which they find themselves, and create outcomes they don’t anticipate or necessarily want. To a great extent this is an understandable and predictable process, as long as the limits of human desire – the actors and the observers – are disregarded. Individuals’ actions are unpredictable. The actions of hundreds of millions have a certain pattern.

The argument that human beings can consciously shape the future was the foundation of Leninism. His idea of the Communist Party as the vanguard of the proletariat (and its brains) was that it really matters who leads the party and what policies they pursue. I do not think Lenin intended to create the nightmare he did (he spent his life in a hopeless struggle for the revolution), but his intentions really didn’t matter.

U.S. presidents are not Leninists – far from it. But a single will cannot transform the foundation with which we work. Impersonal forces, unintended consequences and actions of others out of the president’s control define his presidency. Lincoln, Roosevelt and Reagan did not make history. History made them. Being wise enough to know that reality could not be resisted, and that leaders must align with reality, made them successful. Those who rise to the presidency do not get there by resisting reality. They get there by understanding it and aligning themselves with it. By the time they take the oath of office, they have learned hard lessons, or they wouldn’t be there.

A presidential campaign eliminates illusions in presidents. One reality they all must face is that to their followers they are the redeemer; to their enemies they are the devil. But this is driven by a dread, the fear that no one is in control. In that sense, conspiracy theories are a comfort.

At least someone, no matter how venal, is in control. The idea that the sum total of human actions transcends the ability of anyone to control is terrifying. One of the things Roosevelt said was, “We have nothing to fear but fear itself.” He fully understood his job was to reassure everyone that he knew what he was doing, even if in retrospect he was as trapped by reality as a hobo on a train.

In my view, the path of this massive edifice of humanity can be understood, and our task is to understand it. But it cannot be controlled, although occasionally it can be shaped. Our craft teaches us that presidents come and go quickly, but the nation is here longer. So we watch the nation, not the politicians. Geopolitics is the craft of understanding the forces at play well enough to generally predict where we are going. But the heart of that craft is that the most important consequences of human action are not intended or expected by the actor.

And now we will continue our craft and apply it to the world as a whole.

miércoles, noviembre 16, 2016



By: Captain Hook

Say what you want about the guy, like Scotsman William Wallace of Braveheart fame, Donald Trump has started 'a movement' of the common folk in America like no other since it's founding. He has seized the moment with Hillary's 'deplorables' - you know - America's hard working and honest people - two things she knows nothing about. And while it's true Trump was born with a silver spoon in his mouth, which normally would alienate him from this constituency, at the same time he knows how to talk to people, coming across as being genuine on real concerns affecting a now besieged public after eight-years of intensifying Cloward and Piven Strategy, Neoconservatism, Globslism, and general oligarchy proliferation under the Obama Administration, which will be his legacy.

We know this because the national debt has doubled, banks still run the show, and America is still blowing up everything that moves in the Middle East - and is in the process of attempting to goat Russia into a real shooting war - that could go terribly wrong.

Understandably then, it's this lunacy that the Clinton machine intends to continue if she is elected that has empowered Trump, because the American public is waking up to the political elite's disdain for its subjects (like in Braveheart), where it's getting both increasingly obvious and serious these days.

So again, it's easy to understand why Trump is going 'rock star', a phenomenon that is going global.

He's one brave SOB that doesn't back down from anybody or anything, which is his appeal in the hero department, again, like Wallace. And while a comparison to George Washington, and what is being deemed a second American Revolution, is perhaps more fitting from a US centric perspective, Braveheart is sexier - no? George Washington is just not sexy like The Donald.

But we shouldn't get too far ahead of ourselves here of course, because let's face it; the shadow government will remain intact until the entire edifice comes crashing down, and that's not yet.

What's more, being the bold assholes they are, it wouldn't be surprising to see these people attempt to place Hillary in power anyway in spite of the worst scandals and 'official crimes' in American history, stuff that makes Nixon look like a choir boy. Because as pointed out last week, the status quo has nothing to lose at this point, so the 'plausibility' game is still being played, right to the end. The headlines from last Friday read, "Goldman Sachs Still Expect Hillary To Win The Election" and "Hillary Clinton Regains 2 Point Lead In Latest ABC/WAPO Poll". If you're an idiot and only follow far left media, you might still think Hillary is a shoe-in.

So again, don't be surprised if Hillary is pronounced President tomorrow thanks to a little mind control and fraction magic. And again, if that doesn't work, and Trump gets in somehow (heaven knows getting the popular vote is not enough these days), don't get too excited about Hillary doing jail anytime soon (think pardon), or things fundamentally changing along the Beltway just yet. The Donald hasn't been taken into the backroom for that talk JFK ignored yet, so who knows - right?

Assuming he gets in however, which on the surface looks like the 'shoe-in' at this point, still, it will be interesting to see how Trump handles the rank corruption in Washington and bloated petards in New York. He sure puts himself out as an action man - but then so did Obama - and look what happened there.

That said, one must remain optimistic - no? Donald is not stupid. He sees what the embedded bureaucrats are doing to Europe, and more specifically France (Paris - there goes the tourist industry), and wants no part of such lunacy - this I believe. His true measure will be how well he fends off the globalists, with special attention on the (crazy) Chinese. Why are the Chinese crazies? Well, just look at them. If one is good for you and me - the Chinese need twenty - or a billion. It seems their greed has no bounds, which makes them extremely dangerous from a longevity perspective. You can't eat smog; or drink sand; or manufacture prosperity with ghost cities. But hey, don't tell that to the Chinese ruling class that is attempting to install authoritarian control in America now - that's why they are buying up the propaganda machine.

Going full circle then, how well Trump does will depend on how he deals with the 'deep state' (embedded bureaucrats) at home, which will in turn directly affect his ability to clamp down on the 'shadow government' - our corporate and foreign masters - the New World Order (NWO). Is he really a 'Braveheart'? I hope so, don't you? Heck, I'd be happy with a boring old George Washington at this point - no? Because 'We the People' need a genuine hero at this fragile time - not another liar - we need our FREEDOM. America would not survive another self-serving shit-bag in the Oval Office, that's for sure. Trust is a rare commodity these days. 

And once trust is broken - it's a bitch to get it back. Personally, I am not optimistic in this regard.

Personally, I wouldn't be surprised to see America broken into pieces in coming years as the financial ruin spun since the Clinton's unleashed their wrecking ball on the world finally comes home to roost. So if Hillary is going to jail, and there's a good chance she is (pardon or no pardon), then I hope they keep her on ice for a while, because it will take a few years to see the totality of the fallout that is coming thanks to all the double dealing, self interest, and lies all these years. It's the decentralization process I've been talking about for years now that's the natural reaction when one is under attack. The globalization story sounds logical and attractive on the surface because it's a clever one, with the assault on your liberties, pocket book, and very existence has been subtle enough to either recruit or fool the masses for years, but that's over now. (See Figure 1)

Figure 1
Silver:SPX Monthly Chart

All we need is to see the Silver/S&P 500 (SPX) Ratio to break above .010, the Fibonacci 34-monthly exponential moving average seen above, and then continue through the 'trend definer' (155-month EMA) at .013, to know the globalists have lost control of the macro, and uncontrollable money printing is underway. Because silver is the status quo's kryptonite. It's the ultimate signal and most heavily manipulated commodity on the face of the planet. Unlike gold, silver is a much smaller market and trades in locales because it's very expensive to move around due to its weight. So long ago, the globalists decided to go off the Silver Standard, and ever since then they have been managing the price, which is why it's the only commodity in existence still trading under 1970's prices, when the great inflation kicked off with the elimination of the Gold Standard. (See Figure 2)

Figure 2
Weekly Silver Chart

Technical Note: The weekly chart is shown above to display how indicators and stochastics have rolled over, and the moves appear to be incomplete. Like precious metal shares, in the initial stages of a 'deflation scare', which could develop post election, silver could take an additional hit due to its association with its industrial uses.

Because the idea is if they can keep silver under control, they can keep gold under control too, where they have been very successful in this regard for many years now, as again, silver has a small and easily manipulated market - especially with all the greedy bulls playing it trying to 'get rich quick'. And these guys, who are primarily hedge funds, who show up as the Large Speculators on Comex, are the dumbest traders on the face of the planet, whose pockets are regularly picked by the Commercials, better known as the banks. Like now, where large speculators are accumulating paper gold and silver due to the election, once bearish news comes out, Large Speculators are forced to liquidate their positions, making Comex a self managing system, one the bankers only need topple over occasionally, allowing these knucklehead to do the rest. (See Figure 3)

Figure 3
Monthly Gold Chart

So its no coincidence gold has been stopped by the Commercials at $1300 again, which as pointed out previously, is key resistance. Once gold makes it over $1300 on a lasting basis, which would be signaled with two consecutive closes over $1380, it would likely run back up to $2000 very quickly, and beyond. The monthly plot from the Chart Room pictured above looks much more constructive than the weekly silver chart, so let's hope gold doesn't close back below the 'swing line' (21-month EMA) anytime soon, which would turn the energy flow back down. As you can see above, a close back below $1250 would be bearish, bringing in the possibility of a move all the way down to recent lows at the large round number of $1,000. Such a move would not be a good thing because it would raise the possibility we just completed a b-wave in a larger degree corrective affair, meaning it could take years for the bull to return.

This is not probable however, because it would mean central planners would not react to such conditions (deflationary), which is not likely, even with Trump as President. Supporting this view, we have his choice for Treasury Secretary, a former Goldman Sachs partner and Soros employee, Steve Munchin, working closely with the Fed to stave off deflation should it occur.

And it should occur if the bond market gets away on central planners, which would signal a deleveraging crash in the economy/markets. You will remember, margin debt levels are still at record highs, which like 2000 and 2008, must be purged before another growth cycle in the markets could emerge. And this includes precious metals stocks. Bullion not so much, however gold, and especially silver, would not escape a severe deleveraging episode if history is a good guide.

Good investing all.

A Snapshot of How Trump's Election Affected Gold Commodities and Major Markets Last Week

By: Sam Broom

Donald Trump’s election, combined with Republican majorities in both the House and Senate, clearly marks a new direction for U.S. government policy. Given that U.S. government policy and actions are a dominant factor in the world economy, it's important to take stock as to how the policies of Trump’s presidency might affect markets and, therefore, your investments and speculations.

Firstly, let’s examine how markets reacted immediately following Trumps election - below is a snapshot of how certain commodities and major markets moved last week:

Dow Jones up 4.5%, copper up 10%, Nickel up 13%, Oil about even, Gold down 5.5%, Silver down 5%, and the 10-year Treasury yield up 20%.

Many of these weekly percentage changes are significantly greater than average weekly variations. Some of these moves may provide meaningful indications of what might occur as Trump’s policies take effect, while others are probably short-term head fakes and less indicative of longer term trends. 

It will take time for the dust to settle and the longer term implications to become clear, however in the meantime here is a snippet of short-term action in the gold market:

If you followed the gold market last week, you’ll have noticed gold’s negative reaction to Donald Trump’s election (contrary to what the vast majority of analysts expected). On Friday, the gold price punched below the technical support level of $1,250 which initiated a chain reaction of stop losses, further exacerbating the decline. Gold closed the week at $1,225.

The charts now suggest a strong possibly gold experiences a test of $1,220 to $1,200 (see the chart below), a very key support level where we have seen significant buying in the past. $1,200 is a level that warrants close attention:


As a result of the selloff in gold, mining stocks have suffered in a similar fashion and a key support level at $22 on the GDX was broken to the downside. There is strong multi-level support between the here and $19, so investors should watch to see if signs of accumulation/buying support eventuate here to confirm the technical case that $1,200 may provide the low on this corrective leg we have been experiencing since mid-June.


After a week like the one we’ve just experienced, it’s also pertinent to step back and look at the bigger picture, as shown below in the weekly chart. It’s important to keep in mind that if $1,200 is hit on this down leg, gold would still be up 15% from the yearly lows of $1,050 we experienced just 10 short months ago.


Furthermore, history tells us that in the gold market it is quite common to experience sizable corrections (often 50%) following first leg of a new bull market. The classic example is the major bull market of the 1970's, where gold initially rose from US$35 in 1970 to an initial peak (in terms of a monthly close) of $183 in 1974 before correcting a perfect 50% to $109 by mid-1976. After this correction, gold went on to reach a height of $850 before the bull market was done, almost 680% higher than the $109 low of the 1976 corrective leg.

Source: Chart from Annotations by the article author. 
Interestingly, although the time frames involved are different to the 1970’s move, $1,200 represents an almost perfect 50% retrace from the yearly high of $1,370 we saw in July of this year.

The gold market is starting to look extremely oversold, so what does this mean for gold focused investor? For those with a more aggressive investment philosophy, a stomach for buying dips at support levels and a strong conviction that gold is going higher in the long term, the next few weeks may offer up a good buying opportunity. For those with a more conservative approach, waiting for confirmation of a low in this down leg is a more suitable approach.

Beyond gold, there have been some strong moves over the past week in base metals (a subject which deserves its own dedicated Sprott’s Thoughts), with copper and nickel both experience double digit percentage gains. Keep a lookout over the next few weeks as I hope to release my thoughts on the sector technicals in due course.

Only winners of the Presidential Election Are

By: Chris Vermeulen

HSBC, (, is projecting gold to rise to $1,500 an ounce, since the 'real-estate magnate' triumphed up from behind in the election results (http:/ It is protection against everything!

The U.S. Debt-to-GDP ratio is 125% and will be growing. 'Main Street America' has been told that these are measures required to stimulate economic activity, to prevent crises, increase employment, and soothe the financial markets.

There are those who believe that we can keep spending money that is not generated from economic growth by continued borrowing. This "mindset" believes that the debt does not have to be re-paid. It is this mentality that will make gold soar to new unprecedented highs.

The Congressional Budget Office is showing that the interest on our current debt is about $250 billion for fiscal 2016. These annual interest payments will be growing to over $800 billion in less than 10 years. We are on an "unsustainable" path!

The Trump Economy:
President Elect- Trump has promised more spending. The budget deficit will probably balloon by at least $450 billion. The key part of Trump's platform is massive deficit spending on infrastructure and a lot of pro-growth policies Then comes jobs.

There is a better chance that governments could coordinate their timing on a spending plan after the German and French elections in 2017.

While Helicopter money (fiscal stimulus) is not the "sea of cornucopia" to our financial woes, it could complement the ongoing easy monetary policy and potentially generate some real economic growth. In a good scenario, it could help to normalize interest rates. Fiscal expansion could allow the FED to raise interest rates. Vice-chairman Stanley Fischer has suggested that every one percentage point of GDP growth would allow rate rises of 50 basis points.

Global Central Banks will need to continue to purchase their own bonds otherwise, yields will need to rise to attract more investors into the market to purchase up the additional supply.

The clearest message sent by President - Elect Donald Trump was delivered in his election victory speech, a focus on greater infrastructure spending in the U.S. Goldman Sachs Group Inc. analysts said in a Nov. 9th, 2016 report. "Without specific details it is hard to quantify the impact on commodity demand, however such policies would support steel, iron ore, zinc, nickel, diesel and cement."

This week I locked in 20.7% profit on shorting the emerging markets with EDZ, and go long natural gas using UGAZ for another 14% profit in just two days... global indexes and commodity ETFs are going to provide massive opportunities going forward.

Invest In The Next Bull Market!

Fears over US election spur investors' dash for cash. ( The real direction of the market's next move is the most important!

Bull/Bear Market Indicator
Courtesy of Sentiment Trader

There will continue to be sharp price swings in all markets, especially precious metals and currencies, usually up at first and then down towards the end. However, when one begins the other ends, it will be fireworks that last at least a couple of weeks if not longer.

Famous investor, Jim Rogers, calls the U.S. dollar 'the most flawed currency'. The Yen is a ticking time bomb, considering the unmanageable debt of Japan and the actions of the Swiss Central Banks led to large bankruptcies in January, 2015.

This brings us to the final safe haven which has stood the test of time; Gold. It has maintained its value during the last five-thousand years and the current rise in gold during the market collapse is proof that its' safe haven status is intact. Imagine how high gold will go when the real crisis hits the world economies. Gold is money.

Everybody I talk to are holding unprecedented cash positions, they are scared and do not know what to do. So, they believe the only way out right now is to play the stock market. This is an 'illusion' as all hope in a new bull market will not be realized. We have just experienced the second largest bull market in history.

How high can gold go? I believe it can go as high as $5000/oz. during a full-blown financial crisis.

With a limited downside risk and huge profit potential, readers should accumulate gold. In fact, with this week's start of the 5th and final leg down in mining stocks we should have a great opportunity to get long metals and miners shortly.

I will inform my subscribers about the next asset class that will go up, as and when I see a pattern developing. I have advised many times that one wants to set aside cash for future investments as a reserve for liquidity and buying in volatile markets. Let me help you achieve your financial goals.

Bill Gross: Trump Victory Won't Lead to More Economic Growth

By: Bloomberg

Bill Gross of Janus Capital was interviewed by Erik Schatzker on Bloomberg Markets this morning.

Gross discussed market reaction to the U.S. presidential election, telling Schatzker that Trump's victory won't lead to more economic growth.

SCHATZKER: "Well, let's consider those things for a moment. Let's consider demographics. Let's consider some of the structural obstacles. Can you envision a scenario, all of those things considered, in which the economy grows four percent a year, and in which we add 25 million jobs over who knows what period?"

GROSS: "No. If that's the objective or the stated goal of the Trump administration, they are bound to fail. We're in a period of time not just in the U.S. but globally where growth has stunted, for a number of reasons I just mentioned in terms of structural, and the reason that basically our old economist friend Keynes hasn't been mentioned in a number of years. It's all something that relates to infrastructure. If fiscal spending is confined to shovel ready infrastructure, then there's not much to be had in terms of growth. And so I would still stick to the one to two percent growth rate that the IMF and others are suggesting for the U.S. I don't think a Trump victory will really do much there in terms of the policies that he's now advocating."

Courtesy of Bloomberg TV

VONNIE QUINN, BLOOMBERG ANCHOR: For what Donald Trump's election will mean to the bond market now, let's turn to Bloomberg's Erik Schatzker and Janus Capital Fund Manager, Bill Gross, who joins us from Newport Beach, California.  Erik, a big shift in the bond market, a rating change, maybe?

ERIK SCHATZKER, BLOOMBERG ANCHOR: We'll have to see, Vonnie. Let's put these questions to Bill Gross. Bill, good morning to you. Let me begin with this.  What did Bill Gross, American citizen, voter, I presume, investor, philanthropist, think when he saw the results?

Well, I was having a doctor's appointment, believe it or not, and after I finished, I came out, I was driving home, and was certainly stunned by the reversal of the last hour or two. It just wasn't expected to happen. I wasn't stunned necessarily because of the implications going forward. I was stunned by the upset. And we're just going to have to see what the Trump policies pre-election and the Trump policies post-election are in terms of how they come together.

SCHATZKER: What are the implications going forward? And, Bill, what message is the market sending with prices where they are now? We've seen an enormous reversal, as you know, in stocks.

Dow futures were off some 800 points at some moments overnight. The dollar was dramatically weaker. Now both are, the dollar, I believe, is a little higher, and stocks are flat.

GROSS: Yes. Well there's two messages, right. The message of the people via the election, and I think that's a Brexit with a capital B in terms of populism versus globalization. We saw that in the Midwest with Wisconsin and Minnesota and the rust belt states that sort of were neglected before the election by both parties, and so I think that movement's alive. I also think because of the triple play by Trump and the executive and Congress that they won't necessarily have a free hand, but they've got a hand to implement policies that are corporate friendly.

We're talking about corporate tax reform and that should favor corporations and profits. It's hard to believe the specifics of it, but it looks like corporations will benefit, and individuals won't, but I would say in terms of the policy that the people voted, that there's unrest and there's the need to, yes, to stimulate growth in order to increase real wages, but I -- I'm still skeptical as to whether Trump or even Hillary could have done that.

SCHATZKER: Bill, with treasuries selling off, the yield curve steepening, that's what we've seen this morning, how's that affecting your portfolio in the Janus Global Unconstrained Fund?

GROSS: Well, Janus Unconstrained had some volatility sales at wide levels for interest rates, and so far, so good. Janus Unconstrained had a risk off type of posture looking for the stock market to go down a little bit and for high yield bonds to widen in terms of spread. That's happening this morning.  So I haven't seen the specific number, but I think Janus is doing well (technical difficulties). I think that has been risk off and that has been currency negative, dollar positive, I think does well in the circumstance, but we're going to have to see, as the day and the Thursday and the Friday wind on, because as you say, lots of volatility, and it was up and it was down and perhaps it goes up again in terms of whatever market you're talking about.

SCHATZKER: Bill, let's look at both ends of the curve. On the short end, does it make sense to you that that's firming with the expectation it appears that the Fed is going to have to move more slowly now that Donald Trump is the president? And similarly on the long end, I'm curious to know, how far do 10s and 30s have to sell off before Bill Gross gets interested?

GROSS: Yes, lots of good questions there. Well, it depends to some extent on the current Fed Chairman, Janet Yellen. It depends on what happens after Trump is inaugurated in terms of how he views the Fed and whether Yellen is his person, so to speak. But I think Yellen has bluffed so much that given financial market stability or relative stability that they go ahead in December.  If not, if markets tank by 5 to 10 percent, then there's not much chance in my view of short rates going up.

Now in terms of 10s and 30s, yes, the curve is steepening significantly today as you mentioned, on the long end, because of potential deficit spending by the new administration. But I would be cautious there as well because as I've mentioned before, it's a global marketplace in terms of bonds, and there are other central banks. The Japanese central bank basically has pinned (ph) their own 10-year at zero basis points and it's close to that level now.

Japanese investors can sell their JGBs and buy treasuries at a decent spread currency hedge, now probably around 40 or 45 basis points. If that curve widens, then the 10-year in the U.S. has a lid, so to speak. I think that's probably around two percent. Anything higher than two percent, it will become so enticing for global investors that they will move into treasuries and out of gilts and out of JGBs and out of German Bunds.

SCHATZKER: Well, we're pretty close, we're at almost 1.97 on the 10 and we're at 2.78 on the 30.

Are they cheap enough for you yet, or does Bill Gross wait?

GROSS: Well, I want to see how the day ends. Not necessarily how the week ends, because opportunities present themselves, but yes, I mentioned two percent.  I think two percent on a 10-year relative to zero percent on a 10-year JGB is a historically, or close to a historically wide spread.

Is it justified under these types of circumstances? Perhaps. But I think the value would be there, around two percent. And so yes, to answer your question, I'd be a buyer of duration, buyer of the 10-year, not necessarily the 30-year, but the 10-year, because it's tucked in a little bit closer to the front end of the curve, and hope for lower rates at some point going forward.

SCHATZKER: Bill, what do you think the market is pricing into these longer yields? Is it growth in inflation? Is it the four percent GDP growth and 25 million added jobs that Donald Trump has promised, or perhaps something less than that? Or is it the expectation that we're going to see additional supply flood the market with deficit spending?

GROSS: Well, supposedly, that goes together, deficit spending and growth, not necessarily.

SCHATZKER: Maybe not coincidentally.

GROSS:  No. Shovel ready types of things. But I do think there's a fear at the moment on the long end that inflation and growth, and sometimes they go together. They usually go together, will force longer rates higher even in the face of a very, very cautious Fed. I think we're approaching, as I said, with a 10-year at 2 percent, a point where the curve doesn't steepen very much further, simply because we have questions as to how much deficit spending, we have questions.

The biggest question, Erik, is to, will these measures, whether they're regulatory, whether they're spending, whether they're tax related, will these measures really make a difference in terms of U.S. growth? To my way of thinking, the structural arguments still hold sway in terms of demographics, in terms of debt delivering, in terms of technology displacing labor, etcetera, etcetera. So it's not necessarily a slam dunk despite the fact that Republicans have all three houses.

SCHATZKER: Well, let's consider those things for a moment. Let's consider demographics.

Let's consider some of the structural obstacles. Can you envision a scenario, all of those things considered, in which the economy grows four percent a year, and in which we add 25 million jobs over who knows what period?

GROSS: No. If that's the objective or the stated goal of the Trump administration, they are bound to fail. We're in a period of time not just in the U.S. but globally where growth has stunted, for a number of reasons I just mentioned in terms of structural, and the reason that basically our old economist friend Keynes hasn't been mentioned in a number of years. It's all something that relates to infrastructure.

If fiscal spending is confined to shovel ready infrastructure, then there's not much to be had in terms of growth. And so I would still stick to the one to two percent growth rate that the IMF and others are suggesting for the U.S.  I don't think a Trump victory will really do much there in terms of the policies that he's now advocating.

SCHATZKER: One of the places we might look, Bill, to anticipate policy change is spreads on high yield bonds sector by sector. Today, we see spreads widening in healthcare. Perhaps not a surprise given the widespread expectation that he wants to do something on Obamacare. Is that the kind of place that you and the Janus Global Unconstrained Fund will be prospecting?

GROSS: Yes, I think that's a good sector, a rather certain sector in terms of Obamacare related corporations, to my way of thinking. His incessant attack on Obamacare and Republicans continued attack on Obamacare suggests that there will be substantial changes or an abrogation of the entire program going forward.  I would favor the former as opposed to the latter. These things have to take time. But healthcare is definitely on the chopping block in terms of corporate spread and corporate quality, and so that would probably be the first place I would look.

In terms of other corporate sectors, defense would be very much of a positive, and so I would look for defense corporate bonds. Those are rather high quality, but nonetheless, they can still narrow in spread because defense is seen as a Trump initiative.

SCHATZKER: Bill, what about emerging markets and sovereign spreads in general, given what president elect Trump has said about trade policy?

GROSS: Well, the Mexican peso is being picked upon. It sort of is the best of the emerging markets, and we've seen the peso go up by what, or down by four, five percent. It's above 20.

And their bond market is going down in terms of price. You know, I think it's very attractive, it's just a question of when to jump in. For instance, the Mexican 10-year TIP (ph) yields 3.06 percent versus the U.S. 10-year TIP (ph) at 20 basis points. So you have a 300 basis point spread there, and that's a rather significant spread if you think that Mexican inflation is going to be higher than the U.S.

There have to be selected markets. There's no doubt that emerging market countries have suffered overnight and now this morning because of the Trump victory. Developed countries and developed currencies are suffering mildly, but not significantly. So it will be for a short while a very dollar positive type of move on both ends, I think, and that perhaps is something that Janus will choose to take advantage of over the next few days.

SCHATZKER: Bill, I really appreciate your taking time to spend with us here on Bloomberg Television the day after a historic election result. That is Bill Gross of Janus Capital.

Don’t Believe the Economic Pessimists

Memo to Clinton and Trump: The U.S. economy can and will grow faster with the right policies.

By John H. Cochrane

No matter who wins Tuesday’s presidential election, now ought to be the time that policy makers in Washington come together to tackle America’s greatest economic problem: sclerotic growth. The recession ended more than seven years ago. Unemployment has returned to normal levels. Yet gross domestic product is rising at half its postwar average rate. Achieving better growth is possible, but it will require deep structural reforms.

The policy worthies have said for eight years: stimulus today, structural reform tomorrow.

Now it’s tomorrow, but novel excuses for stimulus keep coming. “Secular stagnation” or “hysteresis” account for slow growth. Prosperity demands more borrowing and spending—even on bridges to nowhere—or deliberate inflation or negative interest rates.

Others advocate surrender. More growth is impossible. Accept and manage mediocrity.

But for those willing to recognize the simple lessons of history, slow growth is not hard to diagnose or to cure. The U.S. economy suffers from complex, arbitrary and politicized regulation. The ridiculous tax system and badly structured social programs discourage work and investment. Even internet giants are now running to Washington for regulatory favors.

If you think robust growth is impossible, consider a serious growth-oriented policy program—one that could even satisfy many of the left’s desires.

Taxes. The ideal tax system raises revenue for the government while distorting economic decisions as little as possible. A pure tax on consumption, with no corporate, income, estate, or other taxes is pretty close to that ideal.

The U.S. tax system is the opposite: By exempting lots of income, the government raises relatively little money. Yet an extra dollar is heavily taxed, greatly lowering incentives and encouraging people to find or create exemptions. This massive complexity and obscurity undermine faith in the system.

Progressives, ponder this: With a sales tax of only 25%, the government would likely have gotten a lot more money from Donald Trump—who has employed complex but legal tax-avoidance schemes—than it did by purporting to tax income at high rates.

Regulation. U.S. regulation is arbitrary, slow, discretionary and politicized. Speak out on the wrong side of the party in power and some federal agency will be after you.

Imagine a deep rule-of-law regulatory reform, along the lines proposed by House Speaker Paul Ryan’s “Better Way” plan. Congress must review and approve major regulations. People and businesses have a right to see evidence and appeal. Regulators face a shot clock—no more years and years of delays on decisions. Agencies must conduct serious, transparent and retrospective cost-benefit analysis.

Imagine a similar deep reform of state and local restrictions including zoning laws and occupational-licensing regulations.

Social programs. When many people earn an extra dollar, they lose more than a dollar of benefits. If we fixed these disincentives, more Americans would work—and fewer would need benefits.

Health. Replace ObamaCare with a simple health-insurance voucher. Deregulate insurance and entry into health care dramatically.

Finance. Replace strangling regulation of financial companies with a simple rule: If you issue enough equity that stockholders bear the risks, you can do what you want. Rep. Jeb Hensarling has proposed such legislation. Hearty competition is the best consumer protection.

Labor. The best worker protection is a worker’s ability to swiftly change jobs. This is more likely if employers do not face a mountain of red tape, complex rules and legal liability.

Immigration and trade. The politically incorrect truth: Allowing Americans to buy from the best supplier and permitting people who want to work and start businesses to immigrate is good for the economy. Trying to impoverish China will not revive America.

Education. Let lower-income Americans get a decent education from charter schools and vouchers.
Energy. Trade all the crony subsidies and credits and regulations for a simple uniform revenue-neutral carbon tax. The country will have more growth and less carbon.

It would take an entrenched obtuseness to claim such a program cannot substantially improve economic output and incomes. If you claim such good policy cannot help, then it follows that bad policies do not hurt. Nativism, trade barriers, overregulation, legal capture, high taxes, controlled markets and people excluded from work won’t hurt our slow but positive growth. Don’t give populists cover to try it again.

If you object that such good policy is politically infeasible, then you at least grant that robust growth is economically possible. And small steps help. Current bipartisan proposals to reform taxes, Social Security, immigration, the regulatory state and trade agreements would go a long way to reviving growth. Have a bit more faith in democracy.

On the other hand, the major party presidential candidates’ signature plans—child-care tax credits, college subsidies, higher taxes on people who don’t hire good enough lawyers; threatening a trade war and deporting millions of unauthorized immigrants—cannot revive substantial growth.

So why is there so little talk of serious growth-oriented policy? Regulated and protected industries and unions, and the politicians who extract support from them in return for favors, will lose enormously. The global policy elite, steeped in Keynesian demand management for the economy as a whole, and microregulation of individual businesses, are intellectually unprepared for the hard project of “structural reform”—fixing the entire economy by cleaning up the thousands of little messes. Even economists fight to protect outdated skills.

Mr. Cochrane is a senior fellow of the Hoover Institution and an adjunct scholar of the Cato Institute.

Triangulating Brexit

Daniel Gros

Tory party conference 2016

BRUSSELS – More than 100 days after the United Kingdom voted narrowly to leave the European Union, it remains far from clear what arrangement will regulate cross-Channel trade after Brexit. Political discussions tend to revolve around three key issues: immigration controls, access to the single market, and passporting rights for financial services. Which balance should European leaders strike?
Many in Britain know exactly what they want: to impose controls on the movement of workers from the rest of the EU, thereby protecting the domestic labor market, but without losing access to the single market or passporting rights, which allow British firms to sell their financial services on the continent. That was, after all, the kind of deal many leaders of the “Leave” campaign promised before the June referendum.
But the Brexiteers’ promise remains wishful thinking. As German Finance Minister Wolfgang Schäuble has pointed out, access to the single market is inextricably linked to the free movement of people. Indeed, he has even offered to send Boris Johnson, the UK’s foreign secretary, a copy of the Treaty of Lisbon, where that link is established.
This may sound legalistic, and it certainly reflects political motivations. But basic economic principles imply that free movement is, indeed, at least as important as free trade.
Trade usually benefits both sides. It is thus clear that it is in the common interest of the UK and the EU to minimize the losses from the introduction of new barriers through Brexit. From the point of view of European welfare, it is the size of the trade barriers that matters, not which side is a net exporter or importer. Low barriers typically have low costs, unless very large volumes of trade are affected. But as barriers become higher, the negative impact on welfare grows disproportionately.
The good news for the UK is that it probably wouldn’t face substantially higher trade barriers even if it did leave the single market. After all, the EU has, in general, a liberal trade regime, with low external tariffs. That is why so many studies do not consider the economic benefits of tariff-free transatlantic trade as the primary reason for pursuing it.
Even if the UK faced some additional barriers – such as new customs requirements and certificates of origin – their impact would most likely be relatively small. The case of Switzerland – which is even more integrated into EU production chains than the UK – shows that efficient customs administrations on both sides are enough to keep such barriers to a minimum. In any case, exports of goods to the EU generate only about 6% of the UK’s GDP.
Yet another reason why the introduction of some low trade barriers is unlikely to produce large losses is that the differences in the cost of producing goods in one market or the other are small.

Producing a car in Britain, for example, costs about the same as producing one in Germany.
Barriers to the free movement of labor are a different story. Productivity and income per worker in the UK remains significantly higher than in, say, Poland. A worker would get about €25 ($27.70) for an hour of work in the UK, but only €8.50 in Poland. In other words, not allowing a Polish worker to work in the UK would imply large economic costs for Europe.
Moreover, if British Prime Minister Theresa May follows through on her stated goal of reducing annual net immigration to less than 100,000, the UK would have to implement drastic – potentially costly – measures to close off the UK labor market.
This means that the barriers that EU negotiators are in a position to impose – which largely affect trade in goods – are likely to have a much smaller impact than the UK-imposed barriers, such as quotas on EU workers. But there is one more issue that negotiators must consider: financial services.
While overall trade in services is unlikely to suffer enormously from Brexit – the internal market for services never worked all that well, anyway – finance constitutes a special case, largely because of the passporting arrangements for banks.
Economists are often ambivalent about the benefits of financial integration, not least because large flows of bank credit can have a serious impact on macroeconomic stability. Whereas securitization, for example, can help to reduce risk and increase the availability of credit for risky borrowers under the right framework, the 2008 global financial crisis starkly demonstrated that it can imply huge costs if it goes too far.
But steps can be taken to maximize the benefits of cross-Channel provision of financial services after Brexit. The key is to base decisions not on sustaining the City of London’s role as Europe’s financial hub, but on ensuring that the services provided strengthen Europe’s capital markets. That would require an emphasis on equity over debt instruments, and on market-based financing over bank credit.
From an economic standpoint, the priorities that should guide Brexit negotiations are clear.
Negotiators must focus on minimizing new barriers to the free movement of labor; indeed, this should be an even higher priority than maintaining the free movement of goods. And British financial services should be welcomed in the EU, but only if they help it to move away from its bank-centric system and complete the capital market union.
But politics continues to distort discussions, driving leaders to draw red lines on free movement and adopt mercantilist stances on financial services. It will take some statesmanship on both sides to shift attention to the common good.