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How Barack Obama Sparked the European Refugee Crisis

While the issue of illegal immigration is rocking the presidential elections in the United States, across the Atlantic a refugee crisis of biblical proportions has started. Hundreds of thousands of desperate people are taking to fragile boats and are attempting to flee the war-torn regions of North Africa and the Middle East to what they think is the sanctuary of Europe. The Europeans, who have economic problems of their own, are faced with the task of rescuing these people in the middle of the Mediterranean as they try to make it to Italy or Greece and then housing and feeding them afterwards.

The Associated Press reports that the death toll has been horrific, with 2636 people known to have died trying to cross the sea in 2015, from Libya and Turkey into Europe, with likely a lot more having drowned out of sight of any other human being. In 2014, 219,000 people managed to get to Europe alive. Thus far, in 2015, the number is in excess of 300,000. The refugees are at the tender mercies of human traffickers who are not very attentive to their safety and well-being once they have been paid.

The influx of refugees, which is straining the resources of already cash-strapped European countries, has sparked a wave of anti-foreigner sentiment. The hostility is even taking place in Germany, which is still the richest country in Europe. Most European countries harbor significant populations of unassimilated immigrants from Muslim countries. The resentment, long simmering, has started to boil over.

As with many disasters of the past few years, the refugee crisis in Europe can be laid squarely at the doorstep of the Obama administration. A number of foreign policy blunders have set a torch to North Africa as well as Syria and Iraq. People caught up in the fighting, suffering the monstrous oppression of terrorist groups such as ISIS, have an understandable desire to be elsewhere.

In the wake of the Arab Spring, a rebellion broke out in Libya against the rule of Muammar Kaddafi. Seeing a chance to rid the world of a long-standing thorn in the side of civilization, the Obama administration supported the rebellion with air strikes from America’s NATO allies. In the fullness of time, the rebels swept into power, and Kaddafi met with a well-deserved, grisly end.

However, instead of a peaceful, pro-western government taking power, Libya was plunged into chaos. Terrorist militias, many controlled by ISIS, roam the desert, fighting it out. America’s ambassador to Libya, Chris Stevens, was murdered in the town of Benghazi along with three companions under murky circumstances. The chaos has spread to neighboring countries in sub-Saharan Africa.

In the meantime, in 2011, President Obama boastfully withdrew all American troops from Iraq, thus ending American involvement in the most contentious war since Vietnam. Plans to leave a 10,000-person residual force to stabilize the country and support the new Iraqi government were scrapped.

Finally, the regime of Bashar al-Assad in Syria faced an open revolt, The Obama administration dithered over the question of supporting pro-western elements among the rebels, perhaps still smarting over the experience in Libya.

Now, a large part of northern Syria and northern Iraq has been overrun by ISIS, a terrorist army whose atrocities are so barbaric that they defy description. Thus far, the Obama administration seems uncertain what to do about the rise of this new threat, outside of a few pinprick air strikes and ineffective support of the Iraqi Army. The United States government has stayed away, for the most part, from the one group that is putting up an effective fight, the Kurdish militia.

Thus, the next president, whoever that person turns out to be, will have the unpleasant task of trying to bring order to chaos, without too much expenditure of blood and treasure. The lesson is that Americans should consider with care who they elect to be the leader of the free world. Choose unwisely, and it will inevitably end in tears.

Will Jackson Hole Guide Us To A Rate Hike?

Central Bankers, policymakers, academics and off course economists from across the globe are gathering in Jackson Hole, Wyoming these days.

The Annual Symposium in its Mountain Resort is regarded as a key event which in particular gives a guidance on the line of thought of central bankers. Although Fed Chair Janet Yellen is not present, there are a lot of other speakers which will most likely deliver some interesting quotes. Since the theme of this years’ symposium is “Inflation Dynamics and Monitory Policy”, we should brace ourselves for high impact news. Luckily, the most important discussions are after Wall Street’s close on Friday, so we have at least Sunday to digest.

Who will steal the show?

There are a number of panelists who are worthy to take a close look on their discussions. However, most attention will go out to Swiss National Bank Chair Jordan (Friday 10.25 a.m. EST) in the Discussion “Central Bank Perspectives on Inflation Dynamics, and Bank of England’s Carney, ECB’s Constâncio and Fed’s Fischer in the discussion on Global Inflation Dynamics (Saturday, 10.25 a.m.). Let’s take a close look on each participant and on what the current situation is and on which subject we should monitor their words closely:

Thomas J. Jordan (SNB)

The SNB drew attention earlier this year by removing its currency-peg to the Euro. As a result, the Swiss Franc (CHF) surged from 1.20 per Euro to below 1.00. Since then, Jordan has stated several times that the SNB sees the CHF as too strong and that it keeps its options open for interventions. The CHF weakened significant during the recent weeks, and is now in the area of EUR/CHF 1.08-1.09 (USD/CHF 0.96/0.97). The SNB has a negative benchmark rate (-1.25 to -0.25). It also holds a significant amount of foreign assets (CHF 525bn). Switzerland is still battling with deflation (1.2% YoY in July), however this morning news came in that GDP increased 0.2% QoQ, while economists expected a contraction. Question is how does the SNB see current inflation expectations and will Chair Jordan tell us something of the weakening path of the CHF lately. How does he see the interaction of growth and inflation for his country? And off course, does he think SNB or more general Central Banks should be more active in spurring inflation? His views will be important for the currency markets.

Mark Carney (BoE)

Bank of England is seen as one of the few Central Banks who may start with a lift off in rate hikes. The British economy grew 0.7% QoQ in Q2 and Business Investments rose with a better-than-expected 2.9% in the same period. Despite the upward path of the UK figures, the Board’s minutes earlier this month sounded more dovish than expected. Will Carney mention his reservations or will he sound more hawkish? Also his quotes are more important for Forex, since the British Pound (GBP) weakened in the recent weeks.

Victor Constâncio (ECB)

Fellow ECB Governing Council Peter Praet keeps additional measures open for the Eurozone, will Constâncio follow this line? As for now, the actions of China may put pressure on the Eurozone, since especially Germany is an important trading partner of the country. But economic indicators are ok, and this morning preliminary inflation figures for Germany came in a little higher than expected. Is it really time for more action? Let’s see how dovish Constâncio sounds. Does he quote the standard ‘ECB ready to act, within its mandate, if needed’-line? Probably the least ‘shocking’ panelist-member this weekend. However, very dovish words might ignite more rotation into European shares and put pressure on EUR-exchange rates.

Stanley Fischer (Fed)

The star this weekend is Stanley Fischer and his words may be regarded as the highlights of Jackson Hole. Will he sound hawkish, is his door to a rate hike open? Naturally, he won’t say anything clear, but with the next FOMC meeting in 2.5 weeks, this is probably the last real occasion to prepare markets for a lift off. Anything hawkish, any positive mention regarding inflation will be seen as a higher likelihood of a first rate hike by the Federal Reserve. Expect high impact quotes for currency markets, bond market and stock market.

Panelist Bank Topics to watch Field of impact
Thomas J. Jordan SNB CHF-rate, deflation impact on growth Forex
Mark Carney BoE Economy, lift off Forex
Victor Constâncio ECB Additional measures, inflation, China Bunds, Forex, stocks
Stanley Fischer Fed Inflation, growth, lift off Treasuries, Forex, stocks

For now, let’s sit back and wait for quotes. An interesting other panelist is Governor Raghuram Rajan of India’s Central Bank. His words might show less impact on the markets, but he is often very clear in his speeches and words. Probably plenty to read this Sunday, but hey, the NFL season has not started anyway, so what should we do else?

Are Mobile Games One-Hit Wonders?

Yesterday Finnish mobile game maker Rovio, known for its immense popular Angry Birds-game, announced it would send home one-third of its staff. The company commented that it has to focus more on generating profit instead of pursuing many activities. Mobile gamers who are familiar with Rovio may agree that the company indeed launched a large number of similar games in the recent years. However, according to WSJ company profit is steadily declining since 2012. Competition is also getting stronger, especially from makers like Supercell. In addition, according to figures of Flurry Analytics, time spent on mobile gaming decreased 35% in Q2-2015 compared to the same period last year. How solid is the future for mobile games?

Hunting for whales

A large chunk of revenues for the mobile game makers comes from users who are reserving an amount of monthly expenses to be able to play without restraints. A lot of games are free to play, but ask a small payment to advance in the game, for instance to buy coins etc. Some players can resist the urge and want to ‘build’, but others are more impatient. For example in Supercell’s Hayday, a farming simulator, it takes significant time to move up in levels. Spending money for diamonds or coins may reduce time required to build. As a result of this business model, Supercell reported revenues of USD 1.7 billion in 2014. For the whole gaming sector, in-game purchases are expected to increase to USD 23.4bn, according to SuperData Research Inc. in the WSJ. Entertainment Software Association (ESA) estimates that 960 million gamers worldwide are playing on a mobile device. This paints a very bright picture for the mobile gaming industry. It seems that Rovio is simply disconnected with the trend.

The Creative will be rewarded

As with most products, producers who are able to present fresh products and / or continue to improve their games which please customers, will be ahead of competitors. Furthermore, companies who stick to their core business and are relentless in focusing on successful products may continue to show strong results. For example Supercell pulls the plug for products which are less popular with gamers in an early stage, and instead continues to improve its hits “Clash of the Clans” and Hayday. This might be the problem for Rovio, it lacks a focus and pursues to many side activities, such as movies. Are Angry Bird gamers really eager for a movie of the feathered heroes? In 2016, this movie will premiere, but one could doubt its success. Well, time will tell…

Playing the game

Rovio and Supercell are certainly interesting companies within a noteworthy sector, but are not listed on a stock exchange. However, there are a number listed on NASDAQ: pure mobile players Gluu mobile (GLUU) and Zynga (ZNGA) and the general computer gaming companies Electronic Arts (EA), Take Two Entertainment (TTWO) and Activision Blizzard (ATVI). The latter 3 companies have a broad portfolio of games which are also available offline, so are less impacted by declining interest for one of its products. Also GLUU and ZNGA have a broad portfolio, but are heavily depended on the success of one or a few games.


Investors should be careful with shares of these companies and should follow the ‘buzz’ around their games closely to see whether the games are still popular. In addition, the quality of the products and new inventions should also be monitored. The best way is to do ‘mystery gaming’: are the games fun to play? Are there smart ways to earn money from you, the player, or is it just a payment to prevent annoying advertisements? When the games are no fun, neither will be the investment.

Relief Yes, But the Bears May Not Be Done Yet


Wow, what a difference a day makes. Tuesday night, we were staring at the edge of an abyss. After four days of substantial losses, with every rally failing miserably, the market appeared to heading straight for a chasm.

Wednesday, however, was a total change of pace. The market again shot higher overnight, bled down all morning, but unlike previous days, this time it launched skyward into the close of the day. By the time the buying rampage finished, the Dow found itself more than 600 points higher. It ended up being the strongest up day in four years!

And prices weren’t the only thing that reversed on a dime. Pundits who had been profoundly pessimistic just yesterday suddenly have refound their optimism. By the end of day, various folks on CNBC and other outlets were ready to say “all clear”. Supposedly, the bears have gone to hibernate, and it’s again safe to buy stocks with reckless abandon.

To which I say: Not so fast. Sure, I’m as glad as anybody that the market recovered strongly Wednesday. Things were getting close to the precipice, and it’s good to see an immediate disaster has been averted.

But, this correction, unlike past ones during this 2009-15 bull market, has the potential to run a lot farther. Since 2012, almost all the falls in the market have been caused by lightweight transitory matters.

Be it Greece (over and over), the debt ceiling, or the Ebola threat, the market kept dropping on fairly unimportant causes. Greece’s GDP is smaller than many US states’ GDPs, its failure simply isn’t broadly significant to world markets in general, or the US in particular. The debt ceiling panics have had an artificial air to them, completely avoidable problems caused by political grandstanding rather than anything substantial. And the market plunged on the threat of Ebola though it never it even arrived to the US. Just silly.

The current correction is, by contrast, based on concerns that come from a much deeper root. China is the world’s second biggest economy, and one of the US’ key trade partners. More than that, as the predominant source of rapid growth in the sluggish post-2009 world economy, China has literally been the marginal bid for just about everything, from US treasury bonds to copper and grain stocks.

Now that China has seen its market crash and its economic growth stall out, the ramifications have been immense. Sure oil has crashed, that’s important and one key effect. But it’s not just oil: gold, copper, food commodities, US treasuries, steel, China has stopped buying, and in many cases is actively unloading these assets. Commodity indices are close to 15 year lows now in the wake of the unrelenting oversupply.

The damage has been enormous. All the countries that had been growing by supplying China are facing severe economic strain. Developed powers like Canada and Australia have seen their currencies devalued 30% seemingly overnight. And the previously overheated housing markets in both countries now are heading downhill rapidly, threatening to set off another 2008-style real estate driven bad loan contagion.

And in emerging markets, things are even worse. Countries that rely on selling oil and minerals have come totally unglued. Just look at markets like Peru and Colombia, which are down more than 50% and 70% off recent highs. Emerging market currencies are breaking left and right, from Kazahkstan to Argentina, Turkey to Russia, emerging market currencies are straight-on collapsing.

For these countries, which often have substantial debt loads payable in dollars, the budgetary pressure is dramatic. We appear to be heading toward a major emerging markets debt crisis. Unlike Greece, US banks are very much exposed to this now-toxic paper.

The closest parallel to our current market appears to be 1998. In that year, Russia blew up, unexpectedly defaulting on its debt and causing hedge funds to collapse stateside. The US market fell 20% over the course of a month or so, with a 6% one day plunge to (seemingly) finish the selling. The market rebounded strongly the next day, and folks started to relax.

The market then rattled around for a month, trading up as much as 10% at one point, but continued to whipsaw. After that month, the market dove again, taking out the previous low by a small amount. Many investors who held or bought near the first low got shaken out by the subsequent further decline. The market then turned solidly higher and resumed rallying into the end of the year.

If we follow that model, things will turn out alright. 1999 ended up being one of the best years in stock market history, particularly if you were involved in the final stage of the internet stock run up. Could 2016 be 1999 again? Sure it could, now, like in 1998, we were in the late stages of an old bull market. Shares were already overvalued in 1998, as they are now. And biotech now, like the internet then, was a hot sector already well into bubble stage valuations.

If this is 1998 all over again, a sudden global panic caused by fears of worldwide economic slowdown and emerging market defaults, then we have more volatility ahead of us. Investors buying now will make out alright, but with more heartburn to come. Unlike the, say, 2014 Ebola correction, this selloff has a good catalyst that’s caused it, and it’s unlikely the market will make a ““V”” and go straight back to the highs.

There’s nothing to indicate we are going into a bear market now either, but this dip seems different from previous ones in this bull market. Play safe and don’t trade with too much margin/aggression. Be careful out there, the wild volatility of the last few days probably isn’t quite over yet.

Increased deflation risks may push Central Banks for more action

This morning, executive Board Member Peter Praet of the European Central Bank (ECB) said that current developments might lead to additional measures. Mr. Praet, who also as the Chief Economist of the ECB, sees a risk in the weaker developments in the world economy and the continuing fall of commodity prices. These developments have the potential to disturb the ECB’s policies in achieving its inflation target of 2%.

ECB ‘Ready to act”

Interestingly, Praet also connected the recent developments with the ECB’s  current QE-program and that the institution could make adjustments in the program. He said: ”There should be no ambiguity on the willingness and ability of the governing council to act if needed “ and continued “The PSPP (public sector purchase programme) provides sufficient flexibility to do so in terms of size, composition and length of the programme.” (source: Reuters) This is highly remarkable, since a number of developments in the Eurozone seem to indicate that PSPP is working. Expanding the program wouldn’t make sense at this moment in time. We could regard Praet’s words as a strong verbal intervention. However, we should note that Praet is regarded as a strong indicator of the ideas within the ECB’s Governing Council (GC). The next monitory policy meeting of the GC will be on September 3. For now, it seems too soon to expect that ECB will decide during this meeting for an adjustment in its QE-program. Nevertheless, investors should closely follow the press conference after the meeting.

What will the Fed do?

The current turmoil, ignited by China’s removal of the Yuan-peg, puts the Federal Reserve in a difficult spot. The decision by the Peoples Bank of China (PBoC) has the potential to cause new deflationary pressure, due to a weaker currency and thus cheaper exports to Chinese trade partners. In addition, it underlines the weakness of China’s economy. Earlier this week, PBoC also cut its interest rates. Globally, the US Dollar becomes once more stronger by the day, fueling further deflationary risks. On the other hand, the US economy seems in reasonable shape, as shown in this Wednesday’s durable goods-figures. In July, durable goods rose a season-adjusted 2.0% MoM, more than expected (-0.4%). Core durable goods rose 0.6% MoM, and thus came in above expectations (+0.3%) as well. As we all know, the Fed’s mandate of maximum employment is close in being achieved. So domestic economic developments don’t put a potential rate hike in danger.

However, let’s regard the issue from another dimension without looking at current rates. With the current inflation of significantly below 2% and a threat of fresh deflationary pressure, would this warrant a rate hike? No, certainly not. One could argue this would even warrant a rate cut! Back to reality, this line of thought may show that a rate hike is certainly far from being a done deal (or even a close call!).

All eyes on Jackson Hole

This Thursday, Friday and Saturday, central bankers will gather in the annual Jackson Hole Symposium. Fed’s Chairwoman Yellen will not attend this year, but Vice chairman Fischer will, as well as Bank of England Governor Carney and Vice-President Constancio of the ECB. We can expect a number of headlines coming from this retreat in Wyoming. But headlines quoting Fischer will be the most important. Will he be more dovish than his recent remarks in a Bloomberg-interview where he pointed to the split in results in the Fed’s dual mandate? Also comments regarding market volatility will be closely watched. Fed member Powell indicated in a recent speech that the Federal Open Market Committee carefully considers  its decisions to prevent taking the markets by surprise. The next FOMC meeting is scheduled at September 16-17, followed by a press conference on the 17th. The Jackson Hole symposium seems like the right moment to bring more clarity about whether or not we should expect a rate hike in September. Once again, the central stage is for the Central Bankers these days…