2017 – A Year of Turbulence But “The Good Times Are Coming” – Week 8

Flashpoint 4: European Economy

Will 2017 be the year that the European economy has its day of reckoning? Here are the pieces that are falling into place:

  1. Brexit – which was not expected to pass in June of 2016 but did. Pundits said that the British look stupid. Keep breathing, the British will look brilliant.
  2. Italian banks – the Italian government has finally acknowledged that they are going to have to bail out their banks. There are multiple countries that have major banks that are in distress, as the banks in Europe were not forced to clean up their balance sheets, as the banks in America did years ago.
  3. Quantitative Easing is now $150 Billion per month (ECB and Japan). Because the ECB cannot buy government bonds, they are buying bonds of private companies. We are now seeing companies that are going to Europe in order to issue bonds knowing that the ECB is willing to buy them at a ridiculously low interest rate and amazing durations in order to try to influence the European interest rates. This is a market distortion of $1.8 Trillion per year.
  4. Social unrest because of mass immigration – Everyone is interested in seeing people that are in distress receive what they need in terms of care. At the same time, importing millions of “immigrants” who have a cultural, educational, social mores, and religious background different than the countries where they are going, one has to expect that there is going to be turmoil. This threat is heightened by ISIS using it as an opportunity to infiltrate into Europe to create terrorist events.
  5. Euro – Sooner or later, the market will recognize that the euro is worth less than the Dollar. When that comes about, European manufacturers and exporters will have an advantage over the United States. The real question is if the distorted European economy can hold together during the descent. Logic says “no”.