Archive for September, 2017

US Tax reform

Posted: September 29, 2017 in Uncategorized

Finally President Trump presented the super-leaked new tax reform proposal.

There is a lot of internet coverage – so I just make a few points.

-The tax plan is still unfunded – and some estimates point to USD3 trillion costs over 10 years – it is justified by greater growth – but it will irk some Republicans.

-It is quite skewed to the wealthy – this means that it will have quite a few Democrats  against – and wealthy are not likely to spend their tax cuts as much as the poor (if you earn $400,000 you will not spend more because you have a 5% discount on taxes).

-While it is true that the US Corporation has the highest corporate tax of the OECD at 35% – there are a lot of deductions – so much that the Treasury Department estimates a corporate tax rate of 22% if not less (between 2008 and 2015 100 Fortune 500 companies paid zero tax for at least one year). The new rate under the Trump plan is 22%.

So my take is that:

  • It is likely that the Tax Plan will not pass in this form – probably there will be a watered down version of the plan.
  • Even if it passes in this form the real impact will be minimal (between 0.25% -0.5% of GDP…or even negligible)
  • As the market, in this period, like to see the glass half full the stock market will not majorly be affected.



Above all fears

Posted: September 26, 2017 in Uncategorized

The war of words between North Korea and the US is reaching peak level.

North korea has just issued a statement that the words of the US are tantamount to a war declaration and any aircraft that fly near the North Korean space could be targeted as hostile.

To tell you the truth – I can understand the point of view of Kim Yong Un. If they say that the they will kill me and I am the leader…that sounds like a declaration of war – maybe not formal, but it is.

Again mostly is escalating pressures as not the North Korean nor the Americans changed their military asset positions.

But what it is increasing it is the potential of miscalculation.

What if a warning shot is misinterpreted?

In 2001 a North Korean airplane trying to intercept a US aircraft actually collided with it, but in 2001 there was no tension.

Also Kim promised a hydrogen bomb test in the Pacific. To be sure there is no damage probably will be a high altitude test in the direction of the US coastline to make a point.

Something could go wrong. The US could try an intercept.

So again – while nobody really wants a war the probability of an error are rising exponentially.

As Dr Strangelove cum Trump would put it

Capture Trump Dr Strangelove

Spain-dark side of Europe

Posted: September 23, 2017 in Uncategorized

Spain, with the Catalan referendum, is showing the reality of Western democracy. All is democratic and respected until you behave sheepishly and follow the Government rules.

As the Catalan seccession referendum is not wanted by Europe and Spain, politicians have been arrested and riots are exploding.

Now, forget the name Spain and substitute it let’s say with Argentina or Chile or China. Then you would hear the Western media going on a rampage and Trump wanting to intervene to restore US mandated democracy.

And this is just an example that is replicated everywhere. Started with the Greek referendum anti EU (won but subverted by the government).

And it is also in the society. The generic hate of Muslims. The pro gay marriage debate (whatever your position is, if you try and post on FB something against gay marriage you will be insulted).

And it finishes with Apple X. A facial recognition software to open your phone that most probably feeds directly to CIA database is so Orwellian is scary.

Fascism is rearing is ugly head and we are sliding into it.

Think, don’t just listen.

North Korea, orange alert

Posted: September 22, 2017 in Uncategorized

Kim directly challenged the US President and this is the new normal.

The North Korea Foreign Minister announced that they are considering a live test of an hydrogen bomb in the Pacific (translation …putting an hydrogen bomb on a medium range missile and make it explode in the middle of the Pacific). This is serious escalation.

Wow…for all the rally in the world…not so rally in Australia

ASX200 (ex dividend) -1.37% and US just slightly up if you invest in AUD.

Moreover the classic ASX20 where everybody is -3.5%

And this is if you are doing indexing or like-indexing (most financial planner are active…but practically mimic an index).

Not so for our clients – but interesting with all this positive bull market talk (still valid for the US – but even there only Tech and Health delivered).

As I wrote in March (Hunger game Newsletter)….pay attention to your choices.


The Fed proceed steadfast

Posted: September 21, 2017 in Uncategorized

Fed’s chairman Yellen confirmed the hawkish position, notwithstanding the lack of inflation (which herself said it is a bit of mystery – very candid answer).

The US balance sheet normalization starts in October and the Fed hike for December and next year is in progress (although the markets doubts that with an implied probability of a December rate hike of 64% and higher rates at a lowly 43%).

My personal take is the Yellen did not like to shake the market and she knows that anyway she is up for re election in January.

I am not really convinced that the US economy is so good and I think the need to raise rate is more due to the fact that the FED needs to be able to lower rates when the next recession comes (we are in  longest no-recession periods).


While the markets reacted quite flatly, US Dollar, Treasuries rallied and gold fell to the all important level of $1,300.


North Korea new sanctions

Posted: September 13, 2017 in Uncategorized

North Korea new sanctions are hard, but not crippling and probably will just push North Korea more towards full nuclear armament.

No oil embargo, no crippling blow. But the stop to textile and coal hits 2/3 of their exports. North Korea is resilient – it lasted through a 1994/98 famine that killed 3 million people and last year its GDP grew +3.8% …yes better than most countries from a very low base.

What you will probably see a continuous escalating tensions, but aimed not at blowing over as North Korea is trying to buy time to achieve its nuclear status.

But we personally are in the front line as, to get money, North Korea will attack using cryptocurrencies and wannacry style ransomware (the latest ransomware attack appear to have been of North Korean origin).

But a mega cyberattack could also prompt a physical US retaliation. Even if it is a false flag attack – very easy to produce.

So do not relax your guard .

Listening to  Gen Mattis he said that in an attack to North Korea US will not try to destroy the entire North Korea.

Was this a message to Kim Yong Un – we will make a surgical strike please do not misunderstand and use nuclear bombs?


North Korea and Markets

Posted: September 4, 2017 in Uncategorized

You all know that North Korea had major advance in the development of a thermonuclear device of yield about 100 kilotons (Hiroshima was 20kt).

A few things to add.

-Various sources points at the new advancement is caused by some weapon design from Ukraine – stolen or sold in the period of the US -sponsored Ukrainian revolution (a bit like Iraq…unintended consequences).

-The hydrogen bomb can be variable yield. So North Korea could have also more powerful bombs. But more scarily it could soon arrive to tactical -artillery mounted devices.

-The US is showing a constant underestimating of North Korean capabilities. This also means that a potential US pre-emptive attack has to come soon – if ever. In a conventional battle North Korean Army is circa 1970 as weaponry so does not stand a chance – apart inflicting casualties to civilian population.

-An hydrogen bomb is dangerous as it is so powerful that you do not need precision. And even if explodes in the atmosphere as North Korea did not have perfected the re-entry module at least would fry all technology for hundreds of kilometers as EMP pulse.

Markets will start to take notice of the magnitude of the issue. Already gold futures went up $11 during the weekend.

It will be interesting to see the behaviour of the cryptocurrencies – they are considered a safe heaven too – but they would be fully exposed in a cyber or EMP pulse attack.

But for now the most interesting (and probably unfeasible)  issue come out of President Trump.

He said he is working on a complete ban on the nations that trade with North Korea.

China is the trading partner for 70% of North Korean issue. That would be a halt to over USD650 billion (export 170 — import 480) with massive repercussion on everything.

If you think that most of the things you use come have at least part of it made in China (like Apple), you will understand. Hopefully he realises the issue, but if that happen the market could crash in a blink.

Dr. Strangelove was arguing that nuclear war is good.

Now people believe North Korea will not happen as it is bad. But would it be bad for a current Dr. Strangelove?

Not at all.

For North Korea. Definitely Kim does not want to be dragged shot and hanged like Gaddafi or Saddam. Better a huge majestic ball of fire and a mass cyberattack.

For the US it is not unconcivable.

-Trump, in a war, practically could not be impeached.

-Better millions of South Korean dead than the equivalent in the US.

-A serious war with North Korea would put strain on China as immigration wave and maritime traffic. This is important as China is beating the US on many fronts in the last 4 years.

-South Korea is an ally that, under Moon, is slowly turning to China.

Personally North Korea is a proxy war China/US ( a UN investigation in 2016 showed that salvaged pieces of rockets had Chinese hardware inside).

So Dr. Strangelove theories are still truly alive.