THE ITALIAN JOB
The big economic and financial development during the last week has been in Italy where the national government reduced its budget deficit target from 2.4% of GDP to 2.04%. This is a major step back for the Italians and it leaves BOOM wondering what the EU offered them in return for this. Rest assured that a deal has been struck to ensure a veneer of stability. This will take the selling presure off the Italian bond market, reduce concerns about the fragility of the Italian banking sector and stabilize the Euro.
On 5th November BOOM wrote — “It looks like Mario Draghi and the boys (they are all boys) at the Bank of International Settlements in Basel, Switzerland plus the Federal Reserve in the US are surely all hard at work arranging a consortium of buyers for the Italian bonds going forward. After all, it is not worth risking the whole of the EU experiment over this. If BOOM can see that, then surely they can too.”
We will never learn what the EU has offered the Italians here. Rest assured, everyone will understand that secrecy is paramount in such matters and Europeans are good at secrecy. Italians, in particular, are always conscious of “Bella Figura” — looking calm, looking good, being stylish. So we can rest easy for the New Year in full knowledge that the potential for immediate financial crisis in Europe has been averted. This should trigger optimism in the financial markets (hopefully) and recent volatility should be lessened.
The withdrawal from Syria of US Troops is another major positive development going into 2019. Trump has re-iterated his opposition to permanent war yet again and this could lead to more stability in the Middle East. Russia, Turkey and Iran will have to come to an agreement concerning the Kurds and Eastern Syria in general. That agreement will be enforced by Russia, agreed to by Syria and peace may then break out.
If this all takes place quickly, BOOM expects the recent volatility in Oil prices to end. If Brent Crude can stabilize around US$ 50 per barrel and West Texas Crude around US$ 45, then that would have a major stimulatory effect for all emerging economies and advanced economies going forward into 2019. Lower energy prices globally cannot be a negative input to economic growth and financial stability. More cause for optimism.
On 3rd December editorial, BOOM wrote a list of the things “that had to happen in order for the global financial markets to heal themselves and move on from the recent negative volatility that has been clearly evident during October and November.”
The list included 6 items
1. The US Federal Reserve must pause in its monetary policy tightening
2. The Italian Government’s conflict with the European Union and the European Central Bank must move towards a pragmatic settlement
3. A Brexit agreement must be reached in the UK
4. The China US Trade War must be settled
5. The Oil Price must stabilize
6. The US Dollar must start to weaken
So what has happened since BOOM wrote that list just 4 weeks ago?
The Federal Reserve has slowed its program of interest rate rises for 2019. The Italian government and the EU have reached a pragmatic settlement. The China US trade war has eased (at least in rhetoric). The oil price has stabilized at a much lower figure (hopefully).
A Brexit agreement has not been reached yet and the US Dollar Index has not yet weakened. But BOOM is expecting both of those to resolve themselves soon. Even a Hard Brexit will be seen as a positive development because it will render certainty to the situation rather than endless uncertainty. And that certainty should be reflected in a relative strengthening of all non US Dollar currencies versus the US Dollar.
RUSSIAN HYPERSONIC WEAPONS
There are reports that Russia has demonstrated their Avangard hypersonic glide missile over the last few days which can fly 27 times the speed of sound towards a target following a zigzag course. If this is true, this is big news in geopolitics. The US military could be defenceless against such a weapon. Perhaps their aggressive approach to global affairs can only be moderated by the realization that they themselves could now be vulnerable. So the push for peace and cooperation with Russia by Trump should now resume course. As usual, pragmatism must rule.
Any move towards peace on the planet is a welcome move as far as BOOM can see. Endless conflict and contrived conflict between the major powers simply serves no ones long term benefit. A global nuclear war would result in the death of millions of people, possibly billions. The old enmities based upon post world war 2 political ideologies of capitalism versus anti-capitalism simply hold no intellectual base these days. The US is rapidly moving more towards massive, dominant deficit spending by government while Russia and China are certainly much more capitalistic than previously. The rigid communism of the USSR is not evident in modern Russia although there is still clearly a ruling oligarchy. And clearly, the United States is essentially ruled by an oligarchic elite who rotate through positions of power. China is a one party communist state but it is also ruled in a similar oligarchic fashion by the people at the top of the communist party structure. Democracy as it is exercised in the so-called “free democracies” is seriously compromised by corruption, nepotism, lobby groups and large corporations. No one pretends that it is pristinely democratic anymore.
There are many moves afoot to reform democracy and re-vitalize it. Sortition is a system of governance where the “elected” representatives are appointed via a lottery process. Such a lottery process can be transparent, trusted and easily instituted at small local levels first. “Citizens Juries” are worth reading about. This trend is growing globally.
Direct Democracy is a form of democracy in which people decide on policy initiatives directly. This differs from the majority of currently established democracies, which are representative democracies. We now have the technology to bring direct democracy forward via mobile phones and software. But the major problem here, however, lies in lack of trust in the electronic medium. Hacking and interference are well known pathways in the cyber world. So direct democracy electronic initiatives are fraught with the prospect of endlessly having to prove their accuracy and reliability.
The earliest known direct democracy was in the 5th century BC in Athens, Greece although it was not an inclusive democracy: women, foreigners, and slaves were excluded from it. The main bodies in the Athenian democracy were the assembly, composed of male citizens; the boulê, composed of 500 citizens; and the law courts, composed of a massive number of jurors chosen by lottery, with no judges. There were only about 30,000 male citizens, but several thousand of them were politically active in each year, and many of them quite regularly for years on end. Modern democracies, being representative, not direct, do not resemble the ancient Greek system. And modern democracies use citizens votes to elect representatives to government rather than lotteries.
Switzerland is a rare example of a country with instruments of direct democracy (at the levels of the municipalities, cantons, and federal state). Citizens have more power than in a representative democracy. On any political level citizens can propose changes to the constitution (popular initiative), or ask for an optional referendum to be held on any law voted by the federal, cantonal parliament and/or municipal legislative body.
In economics, things work until they don’t. Until next week ………… Make your own conclusions, do your own research. BOOM does not offer investment advice.
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EMAIL: gerry [@]
PRICE PULSE DOMINANCE CHANGES DURING LAST WEEK Ended 31st December 2018:
NO CHANGES DETECTED
Return to the BOOM Main Website – BOOM Finance and Economics at http://boomfinanceandeconomics.com/
PRICE PULSE RISING — (RED ARROW UP DOMINANCE)
# US LONG BOND PRICE (TLT) — UP Arrow Dominant
# AGGREGATE US BOND PRICES (BND) — UP Arrow Dominant
# GOLD PRICE (in Aus Dollars) — UP Arrow Dominant
# INDIAN STOCKS — UP Arrow Dominant
# NATURAL GAS (SPOT PRICE) — UP Arrow Dominant
# BRAZIL STOCK INDEX — UP Arrow Dominant
# PALLADIUM PRICE — UP Arrow Dominant
# ARGENTINA STOCKS — UP Arrow Dominant
# US INFLATION PROTECTED BOND PRICES — UP Arrow Dominant
# US UTILITIES STOCKS — UP Arrow Dominant
# RWR (US Real Estate REIT Fund) — UP Arrow DominanT
# VALE STOCK (Iron Ore) — UP Arrow Dominant
# US 3 MTH T BILL YIELD — UP Arrow Dominant
# LIBOR — UP Arrow Dominant
PRICE PULSE FALLING — (RED ARROW DOWN DOMINANCE)
# SWISS STOCKS — DOWN Arrow Dominant
# US DOW STOCK INDEX — DOWN Arrow Dominant
# US BIOTECHNOLOGY INDEX — DOWN Arrow Dominant
# JAPAN STOCKS — DOWN Arrow Dominant
# WEST TEXAS OIL PRICE — DOWN Arrow Dominant
# US TRANSPORT INDEX — DOWN Arrow Dominant
# US INSIDER SENTIMENT (KNOW) — DOWN Arrow Dominant
# SOIL (POTASH ETF) — DOWN Arrow Dominant
# QUAL (Quality ETF) — DOWN Arrow Dominant
# MTUM (Momentum ETF) — DOWN Arrow Dominant
# RUSSELL 2000 INDEX — DOWN Arrow Dominant
# TRIM TABS US FLOAT (TTAC) — DOWN Arrow Dominant
# US HIGH GRADE CORP BONDS (LQD) — DOWN Arrow Dominant
# EMERGING MARKETS ETF (EEM) — DOWN Arrow Dominant
# FINANCIAL SECTOR ETF (XLF) — DOWN Arrow Dominant
# US KBW BANK INDEX — DOWN Arrow Dominant
# NASDAQ COMP INDEX — DOWN Arrow Dominant
# US JUNK BOND PRICES — DOWN Arrow Dominant
# COMMODITIES INDEX (USCI) — DOWN Arrow Dominant
# SWISS FRANC (AGAINST $US) — DOWN Arrow Dominant
# FRANCE STOCKS — DOWN Arrow Dominant
# AUSSIE ALL ORDS INDEX — DOWN Arrow Dominant
# THAI SETI INDEX — DOWN Arrow Dominant
# GERMAN DAX — DOWN Arrow Dominant
# TAIWAN STOCKS — DOWN Arrow Dominant
# FVL — VALUE LINE — DOWN Arrow Dominant
# YEN (AGAINST $US) — DOWN Arrow Dominant
# DENMARK STOCKS — DOWN Arrow Dominant
# COAL ETF (KOL) — DOWN Arrow Dominant
# TED SPREAD — DOWN Arrow Dominant
# COPPER PRICE — DOWN Arrow Dominant
# INDUSTRIAL METALS ETF (DBB) — DOWN Arrow Dominant
# YUAN (AGAINST USD) ETF — DOWN Arrow Dominant
# HANG SENG — DOWN Arrow Dominant
# SOUTH KOREA STOCKS — DOWN Arrow Dominant
# SINGAPORE STOCKS — DOWN Arrow Dominant
# AUSSIE DOLLAR AGAINST US DOLLAR — DOWN Arrow Dominant
# CANADIAN DOLLAR AGAINST USD — DOWN Arrow Dominant
# BRITISH POUND AGAINST USD — DOWN Arrow Dominant
# EURO (AGAINST $US) — DOWN Arrow Dominant
# NOMURA HOLDINGS — DOWN Arrow Dominant
# PLATINUM PRICE — DOWN Arrow Dominant
# SHANGHAI STOCKS — DOWN Arrow Dominant
# BITCOIN INDEX $NYXBT — DOWN Arrow Dominant
# DEUTSCHE BANK SHARES — DOWN Arrow Dominant
# FOOD INPUT PRICES (DBA) — DOWN Arrow Dominant
# EURODOLLAR INDEX ($XED) — DOWN Arrow Dominant
PRICE PULSE UNCERTAIN — NON-DOMINANCE OF RED ARROW –
# GOLD PRICE in USD —NO Arrow Dominant
# RUSSIAN RTSI STOCK INDEX — NO Arrow Dominant
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