On this Independence Day we are seeing a world in chaos politically, socially and economically. Starting in Europe we see increased social and political turmoil. With recessions deepening from a prolonged reign of austerity, the future of Europe is gathering storm clouds once more. The hot spots are still Greece and Portugal. In Greece the governing troika of the Euro zone is demanding that Greece show actual numbers of layoffs and privatization. Otherwise they are threatening to withhold further bailout monies.
In Portugal we have both political and social chaos. This past week two senior ministers resigned, including Victor Gasper, chief Finance Minister. The president, Anibal Cavaco Silva, is telling the Euro zone troika to back off and loosen their grip on the country’s financial activities. Portugal’s 10 year bonds reached a whopping 8%. Unemployment in both Greece and Portugal are at record levels with no sign of improving.
If you are visiting Paris don’t expect too much night- life. Starting July 1st, the lights on billboards and offices will be turned off. Taxes will go up also.
It seems that when governments get into a bind, they raise taxes. That is the worst thing to do. It will only create more unemployment and social unrest.
Believe it or not the once dominant Germany is now in recession. There is plenty of financial trouble as well. When once we thought Germany was untouchable, now we see German banks in trouble. The big Deutche Bank does not have enough capital to cover its liabilities. S & P downgraded Barclays and Credit Suisse which everyone thinks are rock solid. When all of these hidden troubles hit main- stream media, we’ll probably see a slowly crumbling Europe along with the euro. Investors will start fleeing in herds and most likely will choose the US dollar as their safe haven. Unemployment throughout Europe just hit 12% and rising.
Moving to other parts of the world, In Egypt there is a rumor that president Morsi is under house arrest with the military ready to take power. Egypt was the first mid east country to experience a revolution only to have those who overthrew president Hosny Mobark now are ready to be overthrown. It is reminiscent of the French revolution when one political faction overthrew the previous one that had the King and Queen beheaded. Iraq is still experiencing suicide bombers in the continuing sectarian violence in that country. Syria is in all out civil war again fighting over sectarian ideologies. China’s economy is slowing spreading uncertainty in the far- east. In South America, Brazil coping with inflation and political instability as well.
The political and social unrest is being reflected in markets throughout the world from Hong Kong to Europe to the United States. The US Federal Reserve has stated that they plan to taper bond and mortgage backed securities purchases later this year, adding to the worldwide turmoil. We are entering a holding pattern, waiting to see how all of these events play out. Large investors and hedge funds are either selling a portion of their holdings or using various hedging strategies to weather any extended downturn. For the individual investor it is prudent to stand aside the markets at this time and wait until the dust settles on some of these bigger problems, especially in Europe. We could see this extending well into next year.