Economic Outlook

Trumponomics – The New Hope

Following the election, the market has surged around the theme of “Trumponomics” as a “New Hope” as tax cuts and infrastructure spending (read massive deficit increase) will fuel earnings growth for companies, stronger economic growth, and higher asset prices. It is a tall order given the already lengthy economic recovery at hand, but like I said, it is “hope” fueling the markets currently.

As I discussed on Tuesday:

“First, the market has moved from extremely oversold conditions to extremely overbought in a very short period. This is the first time, within the last three years, the markets have pushed a 3-standard deviation move from the 50-day moving average. Such a move is not sustainable and a correction to resolve this extreme deviation will occur before a further advance can be mounted.Currently, a pullback to the 50-day moving average, if not the 200-dma, would be most likely.”


“Secondly, as discussed above, the advance to ‘all-time highs’ has been narrowly defined to only a few sectors. As shown the number of stocks participating, while improved from the pre-election lows, remains relatively weak and does not suggest a healthy advance.”

….continue to see all the charts and analysis HERE



Fidel Castro’s Cuba vs Lee Kuan Yew’s Singapore: A Tale of Two Economies

On Friday, November 25, Fidel Castro died at age 90. The former revolutionary and hardline dictator of Cuba was among the 20th century’s longest-serving leaders, third only to Elizabeth II and Bhumibol Adulyadej, the King of Thailand, who passed away in October.

Castro’s death comes at a pivotal moment in U.S.-Cuban relations. With trade between the two countries on the path to normalization, and with U.S. airlines making scheduled flights to Havana for the first time in more than 50 years, President-elect Donald J. Trump has pledged to reinstate many of the Cold War embargos that were lifted by President Barack Obama.

“If Cuba is unwilling to make a better deal for the Cuban people, the Cuban/American people and the U.S. as a whole, I will terminate deal,” Trump tweeted on November 28.

In light of Castro’s passing, we are rerunning this Frank Talk from March 2015, in which Frank compares and analyzes the widely divergent economies of Cuba and Singapore under their now-deceased leaders, Castro and Lee Kuan Yew. 

Lee-Kuan-Yew-Fidel-Castro 03252015

It would be nearly impossible to find two world leaders in living memory whose influence is more inextricably linked to the countries they presided over than Cuba’s Fidel Castro and Singapore’s Lee Kuan Yew, who passed away this Monday at the age of 91.

You might find this hard to believe now, but in 1959—the year both leaders assumed power—Cuba was a much wealthier nation than Singapore. Whereas Singapore was little more than a sleepy former colonial trading and naval outpost with very few natural resources, Cuba enjoyed a thriving tourism industry and was rich in tobacco, sugar and coffee.

Fast forward about 55 years, and things couldn’t have reversed more dramatically, as you can see in the images below.

Cube in 1950, Singapore in 1950, Cuba today, Singapore today

The ever-widening divergence between the two nations serves as a textbook case study of a) the economic atrophy that’s indicative of Soviet-style communism, and b) the sky-is-the-limit prosperity that comes with the sort of American-style free market capitalism Lee introduced to Singapore.

Sound fiscal policy, a strong emphasis on free trade and competitive tax rates have transformed the Southeast Asian city-state from an impoverished third world country into a bustling metropolis and global financial hub that today rivals New York City, London and Switzerland. Between 1965 and 1990—the year he stepped down as prime minister—Lee grew Singapore’s per capita GDP a massive 2,800 percent, from $500 to $14,500.

Since then, its per capita GDP based on purchasing power parity (PPP) has caught up with and zoomed past America’s.

Lee Kuan Yew's Singapore Flourished while Fidel Castro's Cuba Floundered
click to enlarge

Under Castro and his brother Raúl’s control, Cuba’s once-promising economy has deteriorated, private enterprise has all but been abolished and the poverty rate stands at 26 percent. According to the CIA’s World Factbook, “the average Cuban’s standard of living remains at a lower level than before the collapse of the Soviet Union.” Its government is currently facing bankruptcy. And among 11.3 million of Cuba’s inhabitants, only 5 million—less than 45 percent of the population—participate in the labor force.

Compare that to Singapore: Even though the island is home to a mere 5.4 million people, its labor force hovers above 3.4 million.

Singapore Had Third-Highest GDP Based on Purchasing Power Parity (PPP) Per Capita

Because of the free-market policies that Lee implemented, Singapore is ranked first in the world on the World Bank Group’s Ease of Doing Business list and, for the fourth consecutive year, ranked second on the World Economic Forum’s Global Competitiveness Report. The Heritage Foundation ranks the nation second on its 2015 Index of Economic Freedom, writing:

Sustained efforts to build a world-class financial center and further open its market to global commerce have led to advances in… economic freedoms, including financial freedom and investment freedom.

Cuba, meanwhile, comes in at number 177 on the Heritage Foundation’s listand is the “least free of 29 countries in the South and Central America/Caribbean region.” The Caribbean island-state doesn’t rank at all on the World Bank Group’s list, which includes 189 world economies.

Many successful international businesses have emerged and thrived in the Singapore that Lee created, the most notable being Singapore Airlines. Founded in 1947, the carrier has ascended to become one of the most profitable companies in the world. It’s been recognized as the world’s best airline countless times by dozens of groups and publications. Recently it appeared on Fortune’s Most Admired Companies list.

Singapore AIrlines

We at U.S. Global Investors honor the legacy of Lee Kuan Yew, founder of modern-day Singapore. He showed the world that when a country chooses to open its markets and foster a friendly business environment, strength and prosperity follow. Even on the other side of the globe, the American Dream lives on.

The Global Competitiveness Index, developed for the World Economic Forum, is used to assess competitiveness of nations. The Index is made up of over 113 variables, organized into 12 pillars, with each pillar representing an area considered as an important determinant of competitiveness: institutions, infrastructure, macroeconomic stability, health and primary education, higher education and training, goods market efficiency, labor market efficiency, financial market sophistication, technological readiness, market size, business sophistication and innovation.

The Ease of Doing Business Index is an index created by the World Bank Group. Higher rankings (a low numerical value) indicate better, usually simpler, regulations for businesses and stronger protections of property rights.

The Index of Economic Freedom is an annual index and ranking created by The Heritage Foundation and The Wall Street Journal in 1995 to measure the degree of economic freedom in the world’s nations.

Holdings may change daily. Holdings are reported as of the most recent quarter-end. None of the securities mentioned in the article were held by any accounts managed by U.S. Global Investors as of 9/30/2016.

All opinions expressed and data provided are subject to change without notice. Some of these opinions may not be appropriate to every investor. By clicking the link(s) above, you will be directed to a third-party website(s). U.S. Global Investors does not endorse all information supplied by this/these website(s) and is not responsible for its/their content.

Consumer Confidence Rebounds in November

557a3e141676a6f061683c1eecfc01fcThe latest Conference Board Consumer Confidence Index was released this morning based on data collected through November 15. The headline number of 107.1 was an increase from the final reading of 100.8 for October, an upward revision from 98.6. Today’s number was above the consensus of 101.2.

Here is an excerpt from the Conference Board press release.

“Consumer confidence improved in November after a moderate decline in October, and is once again at pre-recession levels,” said Lynn Franco, Director of Economic Indicators at The Conference Board. (The Index stood at 111.9 in July 2007.) “A more favorable assessment of current conditions coupled with a more optimistic short-term outlook helped boost confidence. And while the majority of consumers were surveyed before the presidential election, it appears from the small sample of post-election responses that consumers’ optimism was not impacted by the outcome. With the holiday season upon us, a more confident consumer should be welcome news for retailers.”                                                                          Click for larger charts

Putting the Latest Number in Context

….continue reading HERE


Look what’s happening to Treasuries

ECB Warns There Is “Significant Risk Of Abrupt Market Reversal”

One week after the BIS issued an unexpectedly stern, if completely ignored warning, that the surge in the USD is leading to an abrupt tightening in financial conditions around the globe, making the repayment of trillions in USD-denominated cross-border debt increasingly more difficult and suggesting that the Dollar index itself is the new “fear indicator”, overnight another central bank, the European Central Bank warned that the risk of “abrupt” global asset market corrections “have intensified” on the back of rising political uncertainty, posing a threat to banks, stability and economic growth.

ECB FSB chart 1 0


….read more HERE


As The Monetary Madness Continues, What Is Happening Is Stunning…

The De-porter in Chief

This weeks shocking stat: With all the outrage about Donald Trumps plans to de-port criminals, there is a President that has de-ported more in 8 years than all Presidents to date. The numbers are in the millions. Care to guess who?

….Michael’s featured guest Dr. Michael Berry PhD: The Fed is Throwing Up Its Hands


This Week In Geopolitics: Russia, the United States, and Donald Trump

Screen Shot 2016-11-14 at 1.48.34 PMThe US presidential campaign contained a constant undertone of Russia and President Vladimir Putin. Putin said nice things about Donald Trump, and Trump about Putin. In fact, there is a small faction of Trump supporters that admires Putin for being a strong leader and for his position on gay rights and other matters. They do not see him as a former communist, but rather as a defender of Western civilization.

The US also claimed that Russian intelligence tried to facilitate Trump’s election by hacking the emails of the Democratic National Committee and John Podesta, Hillary Clinton’s campaign chairman.

All of that is done now. Russia is Russia, the United States is the United States, and serious matters must be dealt with. To begin, we need to understand what real issues exist between the US and Russia. And at the heart of the matter is Ukraine.

The Russian view of what happened in Ukraine is that the US engineered an uprising in Kiev that drove out the legally elected government. The US says it did not engineer a coup, but it did support human rights activists opposed to a corrupt government in Ukraine. The Russian response is that the current government is no less corrupt.

The National Security Argument

After the change in Ukraine’s government, the Russians took formal control of Crimea and tried to foment an uprising in eastern Ukraine. It was contained by the Ukrainian military but not crushed. The Americans charged that the Russians were interfering with the internal affairs of the Ukrainian nation. The Russians responded that the US was audacious in making the claim.

In addition, the Russians pointed out that historically, Crimea had been part of Russia and was transferred to Ukraine in the 1960s. The Russians also had a treaty with Ukraine allowing control over the naval base in Sevastopol in Crimea. This base is vital to Russia’s national security. With an anti-Russian government in Kiev, Russia was protecting its rights under the treaty.

As for the uprising in eastern Ukraine, the Russians said it was a predominantly Russian region whose rights had been dismissed by the Ukrainian government. Russia said it wasn’t involved in a movement to establish a degree of regional authority, as had been done by ethnically distinct regions in many countries.

The US claimed the Russians were not only arming and directing the rebellion, but also had military designs on the country. So, the US and Europe placed sanctions on Russia. Russia demanded the sanctions be removed.

All this can be summed up by two charges. The Russians claimed the US was financing activists masquerading as human rights groups in order to destabilize those countries it wanted to control. Russia claimed that the goal of the US was to install pro-US regimes.

The US claimed the Russians were becoming internally more repressive and returning to the dictatorship that had existed in the Soviet Union. To the US, it appeared to be a matter of national sovereignty and liberal democracy. US President Barack Obama and Clinton’s insistence that this was the extent of US involvement was matched by the Obama administration’s fear that Putin was trying to recreate the former Soviet Union with a new ideology. Each claimed the other was aggressive and hegemonic.

Historical Buffer

A level beneath this also existed. Russia had survived for almost three centuries because of strategic depth. Historically, control over the Baltics, Belarus, and particularly Ukraine had been essential for Russia’s survival. Without this buffer zone, Napoleon, Kaiser Wilhelm II, and Adolf Hitler would have destroyed Russia.

The US move into Ukraine was therefore a fundamental challenge to Russian strategic interests (the Russians were less concerned by Europeans). Further, because the US knew it was a strategic challenge, it increasingly seemed that the Americans sought to destabilize Russia itself. A pro-US government in Ukraine (with forces trained and supplied by the Americans) was not acceptable.

For the past century, the US has had a consistent and fundamental strategic interest. If all of Europe united under a single hegemonic power, it would pose a threat to the survival of the US. Russian natural resources and manpower coupled with Western European technology and organization could more than match US power. US national security depended on control of the seas, which permitted American commerce and prevented foreign invasion. The only force that could challenge US Naval power would be a united Europe.

The US intervened in World War I in 1917, when it appeared the Germans had defeated Russia and were about to defeat the French and British to control all of Europe. The US fought in World War II to prevent another German conquest of Europe. The Cold War was designed to prevent a Soviet conquest and amalgamation of Europe. The US had to prevent the re-emergence of Russia as a potential hegemon.

Two geopolitical imperatives collided in Ukraine, clothed in a debate over human rights, national sovereignty, and charges of imperialism. Beneath all of this noise, the reality was that Russia could only regard US actions in Ukraine as an attempt to cripple or destroy Russia. The US was afraid that with Ukraine under Russia’s control, Russia would be able to slowly extend its influence among former satellites, and from there, into the center of Europe.

Subjectively the debate might have been about other things. Sometimes, political leaders don’t realize the stakes and proceed on an automatic path of action and response. Sometimes, they understand the issues quite clearly. In either case, as in economics, there is an invisible hand in geopolitics. Putin dismissed the human rights claims and saw Americans engage in making Russia incapable of defending itself. The US dismissed Russia’s claim that it had violated Ukrainian national sovereignty and focused on the potential threat that Russia could pose to Europe.

The US began working with Poland and Romania to build a defensive line. The Russians began an expensive process to create a more powerful military force. Then oil prices collapsed, and Russia faced an even deadlier situation.

Russia failed to develop a modern economy after 1992. It remained, like the Saudis, an energy exporter. And when the price of oil crashed, the Russians faced an economic crisis. The Soviet Union collapsed when defense expenditures rose and energy prices declined in the 1980s. That same configuration confronted Russia again, and Russia faced an existential crisis.

Putin first had to maintain national morale. He had to demonstrate that regardless of economic problems, he had made Russia a great power. He was not in a position militarily to wage war in Ukraine, but he was in a position to appear powerful. Engagement with American and European aircraft and ostentatious military exercises near borders increased the sense of Russian power at home and abroad.

This was the key to Russia’s involvement in Syria, which had no strategic value to the Russians. The US could easily isolate or destroy a naval base there, and Bashar al-Assad meant nothing to Putin. But the intervention in Syria allowed Putin to appear to be engaging the US on equal terms… in a place where the likelihood of a clash appeared great but had little chance of happening. Putin needed to buy time for his military to mature, or oil prices to rise, or both. Neither was likely to happen quickly.

An unofficial truce took hold in Ukraine. The Kiev government remained in place, Russia held Crimea, and fighting in the east was reduced to a low, yet constant, level. A reality had been produced. For Putin, this was not an unreasonable basis for an agreement.

Mutually Beneficial Agreement

A formal agreement would recognize the current Ukrainian government and accept its Western orientation. It would also bar US military aid and troops from Ukraine. The Russians would withdraw support for rebels, but they would be granted a degree of autonomy. Crimea would be a postponed issue (or one of those eternal diplomatic processes designed to appear that a problem is being addressed without actually addressing it). Russia would redeploy forces away from a threatening posture toward Ukraine, something it would be happy to do given Russia’s military constraints.

In effect, Ukraine would be neutralized, Russia would have made major concessions, and the US wouldn’t have to be concerned about a Russian move to the West. If either side broke the agreement, there would be time to respond. Ukraine is large. The problem is that the Obama administration was content with an informal reality and had no desire to give Putin the appearance of a victory.

Putin read this move as a desire to bring him down. That may have been on the administration’s mind, but distrust of Russia coupled with a lack of urgency meant endless conversations between US Secretary of State John Kerry and Russian Foreign Minister Sergey Lavrov, with no progress.

Putin’s interest in Trump derived from Trump’s lack of interest in foreign adventures and indifference to creating liberal democracies around the world. Trump’s argument is that the US needs an overriding interest in an area to engage. Given this position, he likely would acknowledge that Russian hegemony over Europe is unacceptable, but he would not plan to engage so early and so deep in a region of Russian interest. For Trump, a neutralization of Ukraine would be acceptable. The personal dimension, Putin hoped, would eliminate Obama’s desire to see him fall.

Beneath the jabber of the campaign (to which Trump contributed far more than his fair share) and the mutual public charges and counter-charges, the situation between the US and Russia can be explained. The basis for a mutual agreement emerges from that explanation. The reality is that Russia is not in a position militarily to conquer Ukraine, nor is the US in a position to defend it. As long as the Russians don’t return to the Carpathian Mountains and the US doesn’t go east of the Dniester River, no alarm bells need to be rung. Both sides know that conflict in the future is possible, but neither is ready for it now.

Trying to figure out Trump’s and Putin’s thinking is not easy. Intentions are buried under layers of bluster. But intent is clearer than many might think. It would be a quick success for both sides and would strengthen two weak political hands.

George Friedman
George Friedman
Editor, This Week in Geopolitics
Mauldin Economics

….related from Ozzie Jurock & Michael Campbell: The Good Bad & Ugly For Real Estate From a Trump Presidency