Things are certainly heating up and we head into the close of 2016. It almost sounds like a James Bond action thriller, but sadly these events are actually taking place and all at the same time.
In just the past few days, we’ve had the assasination of the Russian ambassador to Turkey, the natinoalizatin of Ukraine’s largest bank in order to avoid a financial meltdown, Donald Trump officially securing the necessary electoral votes to take office, a terror attack in Berlin that killed 12 and injured 48 people and China seizing a U.S. submarine drone that is said to have been operating in international waters.
Assassination of Russian Ambassador to Turkey
The gunman who assassinated Russia’s Ambassador to Turkey, Andrey Karlov, shouted “Allahu Akbar” (God is great) and “don’t forget Aleppo! Don’t forget Syria!’ after carrying out the deadly attack. Karlov was speaking at an art exhibition in Ankara named ‘Russia as seen by Turks’ when he was fatally injured.
Some are already speculating that the assassination was a false flag event or could be a new “shot heard around the world.” Russian President Vladimir Putin said in televised comments that the “blackguard” assassination of Russia’s ambassador to Turkey “is obviously a provocation aimed at disrupting the normalization of Russian-Turkish relations and the failure of the peace process in Syria.” Putin said the attack was aimed at derailing the Syrian peace negotiations. The Russian president also ordered security at Russian embassies around the world to be stepped up, and stated that he wants to know who directed the killer’s hand.
The US has said it stands “ready to offer assistance to Russia and Tukey as they investigate this despicable attack.” Meanwhile, Obama is deploying 4000 troops to Poland in a demonstration of strength aimed at Russia.
Nationalization of Ukraine’s Largest Bank to Avert Financial Meltdown
While we are discussing the Baltic region, Ukraine announced they will nationalize their largest bank, PrivatBank. Under Western-backed banking reforms, Ukraine is meant to shut lenders that cannot meet capitalization targets, but with nearly $6 billion in private deposits – 36.5 percent of Ukraine’s total – PrivatBank is considered too big to fail. Probaby time for a name change?
Speculators are running wild with this news as well. Some believe the nationalization may be a desperate attempt to stave off a financial crisis within the Ukrainian banking system and prevent bank runs.
In other financial news, International Monetary Fund Managing Director Christine Lagarde was found guilty of one count of negligence by a French court. She was accused of failing to prevent a massive government payout to businessman Bernard Tapie eight years ago, while serving as France’s finance minister, but most surprising, she will face no fine or jail sentence.
Donald Trump Wins Electoral College Vote to Become 45th President
Despite well-funded efforts to dissuade the electoral college for electing Donald Trump as President, it appears that he has been confirmed. While it is yypically just a formality, this year’s Electoral College vote attracted massive media attention after a group of mostly Democratic electors made a late push to block Mr. Trump’s path to the White House.
They claimed that Russia interfered in the election to help Trump win and that there should be a do-over. They argued that the Electoral College had a constitutional duty to act independently of the will of the voters in extraordinary circumstances such as this. Left-leaning protesters gathered in several state capitols across the country to encourage electors to reject Mr. Trump, still unable to accept defeat. In the end, there were a few faithless electors that switched, but it wasn’t quite what Clinton supporters were hoping would transpire. As the WSJ reported:
Four Democratic electors in Washington state broke ranks—with three casting ballots for former Secretary of State Colin Powell, and one for Native American activist Faith Spotted Eagle. In the vice presidential vote, the Washington vote was even more unusual, with electors casting votes for a trio of female U.S. senators: Elizabeth Warren of Massachusetts, Maria Cantwell of Washington and Susan Collins of Maine. Another elector cast a ballot for Winona LaDuke, an environmental activist.
Several other attempts by electors to cast ballots failed. The Associated Press reported that attempts by Democratic electors in Colorado and Maine to vote for Vermont Sen. Bernie Sanders failed. In Maine, the elector was ordered to vote again, while in Colorado an elector was replaced.
Terror Attacks in Germany Kills 12, Injure at Least 48
Meanwhile, Germany is reeling after a truck plowed into a Christmas market in western Berlin, killing 12 people and injuring dozens more in a suspected terrorist attack. Two people were inside the truck at the time of the attack. One was captured and later died. Another suspect was discovered nearby and taken to a police station. Police believe that the surviving suspect was the driver.
One would think the uptick in terrorist attacks would encourage the world’s major superpowers to come together in an effort to defeat these groups. Unfortunately, it is just wishful thinking.
China Confiscates U.S. Undersea Drone
Not only is the United States pushing dangerously close to war with nuclear-armed Russia, the U.S. government is also battling China over the disputed South China Sea islands. The Chinese military confiscated a undersea US drone last week and has yet to turn it back over the United States. The Pentagon said a Chinese naval vessel unlawfully seized the drone Thursday while the USNS Bowditch was attempting to collect it about 50 nautical miles northwest of the Philippines’s Subic Bay. As Bloomberg reported, “the incident showed how quickly tensions between the nations could escalate as China challenges U.S. naval supremacy in Asia.”
China has signaled that it plans to return the drone, but I am sure they are taking their time studying the design in order to reverse-engineer any superior technology. The United States had repeatedly sailed military vessels through waters near the disputed islands, despite China warning them not to.
So, the U.S. is now provoking both Russia and China, the two most advanced militaries in the world, both with enough nuclear weaponry to wipe out a good percentage of mankind.
Russia has pushed back against the U.S./NATO surrounding them with military bases and missile-defense systems by intervening in Crimea, Syria and potentially in the U.S. elections. China is pushing back by dumping U.S. treasuries and now seizing a U.S. submarine drone that was not even in their Chinese-contested waters. What could go wrong?
The Contrarian Investment Play
All of this news should be bullish for safe-haven assets such as gold, yet the gold price remains at its lowest level since early 2016.
I suspect the next major economic shoe to drop is going to be a massive economic crash in the United States. There are massive bubbles in the equity markets, bond markets, real estate markets and derivatives markets. It is downright eerie how these bubbles are going ignored, as if investor recall is capped at 7 years. It seems they don’t recall the crisis 7+ years ago or the one 7 years before that. The cycles are ignored in favor of the hot stock of the day on CNBC.
Many argue for long positions in equities and short positions against gold now that Trump has been elected. They are greatly over-estimating the power of the President to impact the short or medium-term trajectory of the markets. Even assuming Trump’s plans are the economic remedy the markets need and he follow through on them, he still needs a cooperative Congress, obedient FED and support from a sustained rally in global markets.
Godspeed to him, but those expecting Trump to immediately right the ship and generate positive growth are detached from the economic and political realities. He is inheriting an economy that is $20 trillion in debt, with 95 million Americans out of work. The markets have been propped up with near-zero interest rates and stimulus. What happens when rates rise and the stimulus goes away?
No matter how you slice it, stocks are very overbought and precious metals are now severely oversold. Contrarians wait years for moments like these and then most of them lack the courage to follow through on their convictions and buy when there is blood in the streets.
I believe this is an opportune time to be long gold and short equities.
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