Why August 2016 May Be Critical? 1. Lehman x 5 Banking Crisis 2. Turkey-NATO Fracas 3. Trump+Clinton Crises (WikiLeaks)
London, UK - 3rd August 2016, 13:40 GMT
This is the time when most senior executives are either on holiday or about to go away for a few weeks for the summer break with family. This is also the time when things can spiral out of control as we saw in 2007-2008.
Death of Democracy?
The key issues to watch out for are as follows:
1. Three major Italian banks, two major German banks and one major Swiss bank are in a lot of trouble and their share prices are diving to new multi-decade lows this week. Almost half their market capitalisation or more has been lost since the start of the year. In modern finance, this may be the equivalent of triggering a bank run if counterparties stop dealing with any one of them at some imminent point in the near future. At that point we would get close to a Lehman x 5 moment given the leverages and hundreds of billions of euros' derivatives pyramids involved which are many times bigger than the GDP of major EU countries like Germany, France and Italy or indeed smaller European countries like Switzerland. Negative Interest Rate Policy (NIRP) and Zero Interest Rate Policy (ZIRP) has wiped out the profitability of these banks thanks to the European Central Bank and Swiss National Bank. The Non-Performing Loans and Derivatives book of business have exacerbated the problems. When this crisis manifests it will take less than a week to cause global cascading risk which will affect global financial markets.
2. The rhetoric coming out of Turkey in regard to the US and NATO has become more angry and bitter with each passing day since the failed coup. Direct accusations have begun flying in recent days against the US and NATO. The 50+ nuclear devices held at the US-NATO airbase in Incirlik are critical. Incirlik has been denied electric power for days, been circled a few times with thousands of demonstrators, thousands of police and law enforcement forces as well as being accused of being a major contributor to the coup. Erdogan's Turkey is getting more and more beligerent and continues to consolidate power in a dictatorial fashion. The coming fracas in relationships between Turkey and NATO with attendant consequences for Europe and the US cannot be underestimated. If Turkey were to go one step further in 2016 and do to the Incirlik airbase what the Iranians did in 1979 to the US embassy, there could be unimaginable and grave cascading consequences for Middle-Eastern, European, American and Global geo-strategic, energy and financial stability. Let us not forget that Germany and France have recently weathered a spate of Islamist attacks and that situation could yet deteriorate further if relations with Turkey don't return to normal soonest given the proximity of the dreaded and barbaric ISIS in Iraq, Syria and Libya.
3. It is clear by now that Trump does not have the sensitivity to deal with a Muslim family that has lost their son in fighting for American defence forces in Iraq. Senior Republicans have distanced themselves from such transgressions by Trump. The wave upon wave of protest on social media against Trump suggests that he may not be able to sustain momentum after this turning point, which is a step too far into the realms of indecency. In parallel, Wikileaks has leaked a tranche of emails that have led to resignations at the Democrat Party and they demonstrate how Bernie Sanders was stopped from getting nominated. Bill and Hillary Clinton's Achilles heel is the Clinton Foundation and the vast billion dollar donations received along with the actual amount spent on charitable causes which was less than 15% to 20%. In this regard both a documentary movie "Clinton Cash" based on a New York Times best-seller and further Wikileaks are worth noting. As those Wikileaks expose more emails, coupled with the investigation by the Inland Revenue Service (IRS) into the Clinton Foundation, it is plausible that the credibility of Clinton may suffer even more than that of Trump. The US elections may end up descending into total farce and it is plausible that a powerful figure may yet step into the fray as an independent candidate, sensing an opportunity. Who could that be? Time will tell.
Conclusion
Prepare for a very rocky ride ahead in terms of global financial markets, geo-strategy and geo-politics in the Middle-East and Europe, and huge political uncertainty in the US elections as Trump and Clinton both come under fire for different reasons making their positions extremely precarious and potentially untenable.
[STOPS]
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What are your thoughts, observations and views? We are keen to listen and to learn.
Best wishes
D K Matai
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