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A Singular Viewpoint

A Singular Viewpoint

John Hsu
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Global Overview , October 12 2017

As always, it is a case of the glass being half-full or half-empty. This is certainly true of the global geopolitical landscape as well as the economic picture. In Europe, in addition to Brexit, which implicitly is a very complex set of negotiations, we now have Catalonia and the age-old desires of many Catalonians to exit Spain and form an independent state.

The so-called “Balkanization” has always been a simmering issue attempting to break-out, but Catalonia for one is real and immediate. It is also an issue that is anxiously tracked by other European states. As an example, general elections are scheduled for Italy next year, and Northern Italy has often been mentioned as a possible breakaway region.

Unlike the U.K. with a separate currency from the euro, Catalonia, in the context of a breakaway, is also more complicated due to the fact that Spain overall is joined at the hip with the European Union through a common currency, the euro.

In Asia, we have the ongoing confrontation between the United States with its allies, South Korea and Japan, versus North Korea. NoKo, as much as it is isolated, still has the support of China and Russia. Implicitly, the Chinese and the Russians have their own agendas, and NoKo, whether geographically or politically, serve their agendas well. Therefore, we believe that NoKo, as a frustrating, nerve-numbing confrontation, will probably go on.

As for the Middle East, it is most likely that the entire focus of attention will shift towards the U.S. / Iran issue. Clearly, it is key as to whether the U.S. can keep at least our European allies in-tow in an ongoing confrontation.

Speaking of allies, two of our closest, Germany and Japan, have scheduled elections coming up shortly. Both have strong leaders who have been considerably weakened by recent events, although both are expected to retain their leadership.

So apparently, on a geopolitical basis, uncertainty abounds across much of the entire global landscape. Yet, at least in the near-term, in matters financial, global markets chose to focus on the half-full aspects of the equation. It seems that global financial markets prefer to focus on the coordinative efforts by central banks to bring inflation back to 3%, and restart global growth.

In the U.S., we have witnessed numerous missteps by the Trump Administration and the GOP in Congress whereby the only accomplishment so far has been the seating of a new Justice on the Supreme Court. Nevertheless, all major market indices have set new all-time highs. Investors are overwhelmingly focused upon tax reform, Border Wall building, possible infrastructure revitalization on a national scale, and other job-creation on President Trump’s agenda.

In conclusion, the overall success ratio by the White House in achieving this agenda is key to the overall well-being of financial markets.
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