It’s about time we have a president to take EU to task over NATO spending

I have to tell you again, that it is so refreshing to have a president go over to the EU and call them out for their hypocrisy.

Case in point: The US pays on average 67% of NATO’s defense spending and where is a majority of that spending still directed too? Defending the EU against Russian aggression.

In 2017, NATO countries contributed $917 billion for defense, the US portion of that bill was $618 billion. Only three EU members contributed the recommended level of 2% of GDP to the alliance. Greece, UK and Estonia along with the US, which chipped in the most with almost 3.6% of our GDP.

Germany’s Angela Merkel was in President Trump’s sights over their energy spending with Russia.

“Germany, as far as I’m concerned, is captive to Russia because it’s getting so much of its energy from Russia,” Trump said. Turning to Jens Stoltenberg, the NATO secretary-general, he said: “Explain that.”

“We’re supposed to be guarding against Russia and Germany goes out and pays billions and billions of dollars a year to Russia.”

If Germany wants to do an energy deal with Russia, then that’s probably a bigger deterrent to hostilities then lining up tanks on the Crimea border. But don’t thumb your nose at US energy companies and then expect Americans to pay for your ease of mind.

Listen allies are one thing and surely if any act of aggression took place on the continent the US would come to their defense. But NATO is a Cold War relic, designed to syphon money from the US to Europe in a 60-year extended Marshall Plan.

If the Europeans and Germans in particular, are so concerned for their safety, then why is Germany only spending 1.2% of its GDP on NATO defense. Because it’s a ruse, a relic and no longer needed in this day and age.

And it’s about time we have a president to hammer that home to Europe.

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Market get mixed message from central banks

Most markets are looking for direction as central banks moved the goalposts over the last 24 hours.

Yesterday Fed chief Janet Yellen said that the central bank now sees an additional rate hike needed for next year as its policies appear to be working.

Laugh at that. The reason Yellen & Co are seeing improvement is because of the expectations of the Trump Administration’s pro-growth business policies.

And just Thursday morning, Bank Of England chief Mark Carney said the central bank will unexpectedly hold rates at 0.25% and will proceed with an $88 billion program of bond buying program because the outlook is far from rosy.

So who is right? Yellen or Carney? Neither?

Dollar strength will rule the day in 2017. So until that plays out growth in the US and globally will be curtailed as China, Japan and other export countries suffer the slings and arrows of currency revaluation.

The UK by beginning the Brexit talks with EU next year will be buffeted by a pound trading lower against the greenback.

The euro could also be trading below par with the dollar in early January as the ECB takes on a two-front war between the UK and its southern flank of Greece and Italy.

So King Dollar will rule the roost during the Trump’s Administration’s honeymoon period, which could hamper the push to keep jobs here in the US.

This makes the need for tax policy reform so much more critically important to get done soonest to stem the call for exporting jobs.

Investors flock, while leaders flee

I’m having a difficult time figuring out what the markets see, that I don’t.

Yes we have President-elect Donald Trump coming into office in 6 weeks or so. The perception of regulation easing and increased infrastructure spending have many sectors soaring.

But we have other heads of state running for the exits this week: Italy, New Zealand, Bulgaria governments are in flux over these seemingly separate decisions to leave office early.

We also have the fall out of Brexit, Italeave and as always, Greece to deal with in early 2017.

Change and upheaval are not the things that put the Volatility Index near an all-time low and US indices both broad and narrow are hitting all-time highs.

Perceived regulatory rollback is the driver here in the US, but the demise of the euro could be on the table in early 2017, and that’s not in the market at all.

As I have often said the Dow is not the economy and like now, don’t march in lock step.

With ECB head Mario Draghi giving the market a mixed message this morning with further easing through 2017, but reducing the monthly stipend after March, we see the struggles within Europe.

Next week we have Janet Yellen and the Fed raising rates 25 bps, which could take some of the wind out of the markets, but the year-end window dressing for portfolio managers should stem the downward flow until early 2017. Just the same as last year’s market action.

 

Did Kaepernick quarterback a Trump win?

What does the Donald Trump win mean in the greater world economy?

First you had Iceland in 2008 telling the London banking system to go to hell, we are not crippling our nation to pay tribute to them with IceSave for rigged bets that City of London fostered upon the national bank of the tiny nation and backed all the savings accounts of depositors in a new bank.

Secondly, we had Brexit earlier this year. The British people voted to begin exiting the European Union.

These two nationalistic moves set the table for a Trump campaign. The campaign’s planks of secure borders, trade pacts and tariffs to bring jobs back to the country and immigration reforms all play into a move away from globalist’s agenda.

As an aside this huge nationalistic bent in the US can be witnessed by stories on the decline of the NFL ratings due to San Francisco 49er’s quarterback Colin Kaepernick’s taking a knee in protest  during the National Anthem. Now whether that is the reason for diminished viewership is not the question, it was the sentiment expressed by people questioned in many stories, which shows the changing intent of the people. 

Moving ahead, we may see more movements towards nationalism. A further break up of the EU could be on the table as southern tier countries and regions. Yes the PIGS could rise up, but there are regions in these countries such as Catalonia in Spain are already actively seeking succession after years of rhetoric and hand wringing over the idea.

So the markets are reacting to this move in the quickest way it can. Sovereign bond prices have crashed as the yields climbed to yearly highs. According to bond market stats, there was $1.2 trillion in price losses last week after the election. While most people look at stocks prices going up is good for the US, this bond rout will have far more lasting effect.

The strengthening dollar is also playing havoc on Asian markets. The strong dollar will allow the Fed to raise rates in December, which means we could see a repeat of last year where markets are buoyed by year-end window dressing by Wall Street and then cratering stocks come January.

Apple wins back-to-school cash grab

Retail sales for the back-to-school season came in lighter than analysts projected 0.2% vs 0.3%.

The lowered expectations was far off last year’s season, which was 0.5%.

To say seven years of near-zero wage growth and no savings interest has the American consumer squeezing every dime is no exaggeration.

The global economic slowdown is coming ashore from reduced China exports (due to falling demand) and European malaise, not to overlook the desperate economic conditions in South American.

All the while crude oil prices have been cratering this summer on diminished demand and OPEC price wars.

The US retail picture is so bad that a bankrupt surfing clothier is taking space in a liquidated electronics firm — Radio Shack — in a vain attempt to boost sales.

Perhaps all those kids going back to school were given a choice, new jeans or new iPhone? Judging from the news out of Apple, Abercrombie & Fitch should be worried.