Actualidad - Cluster Family Office

Fasten your seatbelts…

It is clear that Trump’s emergence on the world stage is a game-changer in a landscape where central banks and Eurocrats had lulled us into complacency. And his rise to the presidency coincides with other turning points which, in their own right, would already warrant our attention as investors. Thus, Trump is fuelling and accelerating processes such as Brexit, the rise in US dollar interest rates and the resulting sell-off of US sovereign debt, with the consequences that this entails for the currency reserves of the world’s major powers.

And as if that weren’t enough, behind Trump is Steve Bannon, which makes Trump’s vehemence look like a drop in the ocean. The position created specifically for Bannon – Chief Strategist – lends him the air of a strongman, a very powerful figure within the President’s inner circle. It is no coincidence that he was initially due to be appointed Chief of Staff, the most influential post in the White House, but pressure from the Republican Party ultimately led to Bannon being passed over in favour of Priebus.

Well, Steve Bannon, contradicting Vice-President Pence’s official version, discussed the matter with the German ambassador in Washington, the the need to strengthen bilateral relations between Germany and the US whilst bypassing European dialogue. Sources at Reuters revealed the content of these conversations, and they claim that Bannon and the German ambassador spoke of the EU as a failed project with very little future. Needless to say, this view is entirely in line with that of the German Finance Minister, Wolfgang Schäuble.

Furthermore, Trump and Bannon will take Brexit to levels that would have been unthinkable until now. And capitalising on the US President’s excellent relationship with the British Royal Family, The possibility is even being considered that the USA joins the Commonwealth. An unprecedented show of support for this union of states, most of which were once part of the British Empire. And, of course, a further blow to the ailing EU, which is steering the pre-Brexit negotiations towards a climate of threats and hostility – perhaps in a rather unstrategic manner.

And against this backdrop, the impending rises in US interest rates are already triggering massive sell-offs of Treasuries by central banks which, until now, had accumulated vast quantities of them. This marks a radical shift from the situation over the last decade. And the consequences are unpredictable, particularly given that one of the largest holders of US sovereign debt is China. Yes, that very same giant (among many others) against which Trump intends to wage a trade war that is nothing short of reckless. This is particularly true given that the Chinese have the power to open or close the tap on their massive reserves of Treasuries, depending on strategic requirements regarding USD/RMB exchange rates or the political threats that we are bound to see in the coming months.

Furthermore, another political bombshell could go off in May and Le Pen could come to power. This is a much greater possibility than the most prominent markets (the stock market and bonds) seem to be pricing in, at least That is the forecast being made today by Bloomberg: «If tail risks are to be believed, the risk of a Frexit is greater than is currently assumed«. And let’s not forget that Germany is also set to hold unpredictable elections in the coming months.”. Fasten your seatbelts and take safety precautions. Particularly those investors who believe that the Eurozone will remain the Eurozone, and those who are confident that the euros in their current account will continue to be worth the same as those held by Germans.

The beginning of the end of the debt bubble... and its consequences.

News, Crisis, Finance
12/14/2016

It seems that Trump's victory, coinciding in time with the start of rate hikes by the US Federal Reserve, has - at last - given the starting signal for the bursting of the debt bubble we have experienced over the last decade - and this is paradoxical, given that Trump has always been the king of debt with his real estate and business empire - However, this bursting is only visible where the economy seems to be emerging from the hole of deflation and anaemic growth, namely in the US.What happens is that when the Treasury sneezes, long-term debt in Europe and Japan gets pneumonia. And that, the unwary fixed income investors of the last few years should have been well aware of.

So we are already seeing how portfolios of pure fixed income (bonds) that had been promised so happily with the infinite debt rally served up on a plate by the central banks, are beginning to incur losses that surprise their long-suffering and poorly advised owners. The losses they are going to suffer are and will be directly proportional to the greed for yield they have sought, since the vast majority of advisors have preferred to increase maturities rather than reduce the rating of issuers. In other words, in order to obtain a meagre 2% yield, they have preferred to buy long-term bonds from issuers with investment grade ratings rather than to look at shorter-term issuers that are more solvent but less well regarded by the rating agencies (yes, they have been able to buy bonds with a higher rating than those with a lower rating), those same prostitutes who, obeying the voices of their political-financial masters, led us to collapse in 2007).

The consequence of buying debt durations at such an exorbitant price, now that the bubble is starting to lose air, is none other than the devaluation in the price of that debt. This buying frenzy has reached such an extreme that the holder of Belgian government bonds with a maturity of 100 years (yes, yes, a century) is today losing a whopping -30%! And this with a black-leg (AA) rating and only a sneeze from the US Treasury Bond, as the US 10-year bond is still only at 2.5% interest, and therefore still has a long way to go before it normalises at levels of 4-5%. A death trap if ever there was one, where the poor deceived investor will not live long enough to recover this blow to his wealth. It should also be remembered that we are talking about fixed income (sic), i.e. investments that are invested in this type of asset because their owners do not want/cannot/should not suffer huge losses without putting their physical and mental well-being at risk. Moreover, this death trap has become gigantic in the last 10 years, since it has doubled to 45 trillion (45 Tr) dollars! You can read this article of Gurusblog in which they talk about this disaster announced by few.

No one can say that we have not been warning about fixed income risk in recent years. Warnings to which many other advisors in the sector are now beginning to add their voices. SocGen: «The decade-long party in the debt markets is over (...) Prepare for a serious hangover». S&P: «Trump's unanticipated rise has let some of the air out of the bond market bubble». Bank of America Merrill Lynch: «It's a «stampede» out of bond funds», etc, etc... Needless to say that the fall in bond prices will force many to sell their portfolios, exacerbating the falls, which are no longer bleeding thanks to Draghi and company continuing to maintain a demand that is as astronomical as it is unrealistic.

Expectations of an economic revival in the US brought about by President-elect Donald Trump's idiosyncrasies are fuelling and accelerating economic growth and inflation expectations. For example wages have clearly rebounded in the US labour market. For all these reasons, the fall in debt prices around the world, dragged down by the price of the Treasury, seems to have only just begun. And the worrying thing about this new scenario is how far the seams of hyper-indebted countries with public deficits (i.e. with growing debt) such as Italy, Spain, Portugal, Greece... will hold up before winter arrives...

Against this backdrop, the trillion-dollar question is where to find income when the bond market bursts its bubble? There are some, but certainly far from the traditional fixed income fund circuit, as they have to be sought through alternative strategies that neither commercial nor private banks usually have in their sales catalogues. And of course, no one should confuse dividend stocks with fixed income, as let us not forget that stocks listed in developed markets are not cheap enough to take on such risk.

But let no one get depressed, for it would be a far worse scenario for everyone if the debt bubble burst were to be aborted. For that would signal the failure of the economic recovery and the now desperate pumping of central banks to postpone an inevitable collapse. In other words, we should pray that the debt bubble bursts to reasonable levels even if it brings significant losses to poor, ill-advised savers/investors.

Oh, by the way, Merry Christmas!

Steinmeier will face Merkel in February: Auf Wiedersehen EU

Merkel has had no choice but to accept Steinmeier as the next German President. The political significance of this news is still underestimated by many. It is no coincidence that Frank-Walter Steinmeier is the Foreign Minister who signed the document a 9-page document with its French counterpart, which laid the foundations for what will become the new Franco-German superstate. It is worth noting that this official document had already begun to challenge what until recently had been regarded as sacrosanct principles within the EU, with statements such as: “”We need to recognise that Member States differ in their levels of ambition when it comes to the project of European integration”. Or the unequivocal and damning statement in which he declares the failure of monetary policy: “»The current architecture of the euro is not sufficiently resilient to external shocks or internal imbalances»… ”Surplus and deficit countries will have to make adjustments, as a one-sided alignment is politically unfeasible". Also the EU’s chief Brexit negotiator (and former Belgian prime minister) Guy Verhofstadt, set out six points on which the new Franco-German superstate is to be based. Of particular note is point 4, which states, quite simply: «Set up a central Brussels Treasury», naturally independent of the ECB in Frankfurt. That’s quite something.

Returning to Steinmeier, the Foreign Minister who signed such an unambiguously «Franco-German» document with his French counterpart, as we mentioned, he will be the new President, standing in opposition to the pro-European Chancellor Merkel, from 12 February (in just three months’ time). Furthermore, Steinmeier has declared himself totally opposed to Trump’s idiosyncrasies, which would rather speak to Farage than to May, so the stage is set for a volatile mix.

From this point on, international political stances that once seemed monolithic have begun to resemble the chaos that ensues when an anthill is trampled on: France and Germany are stepping up their military preparations (technically still under some supervision from Brussels) in view of the foreseeable weight loss within NATO's structure. Bulgaria elects a former military officer as president, who declares himself unequivocally so close to Putin as being far removed from Brussels. Because this EU no longer appeals to either the North or the East, and it seems that only we in the South remain under the spell cast by the Eurocrats and the ECB’s endless liquidity. Investment gurus are already recommending to capitalise on the new opportunities opening up for Putin (Steinmeier is also closer to Putin than Merkel.). And watch out, because some hedge funds are already talking openly about their calls for the EU to break up.

For the time being, bond prices have begun to fall, despite the fact that the ECB’s ‘pompers’ continue to pump money and solvency into the system at a furious pace to prevent the end of its induced coma. Meanwhile, investors who fail to prepare their assets and wealth for the scenario of a break-up of the monetary union will be left at the mercy of the winter we’ve been talking about for a long time now. Germany is certainly already preparing for this new scenario by electing a President such as Steinmeier and selecting a select group of economically compatible countries as partners in the new United States of Europe. Goodbye, EU.

Democracy Changed the World: More America and less Europe.

News, Strategy, Family Office, Reflection
11/10/2016

In just a few months the world, or at least the Western world, has turned 180 degrees. And it has not been caused by any particular war or cataclysm, but rather by the result of two votes. That is the way it is, whether we like the decisions taken or not, Democracy has changed the world. Indeed, who else would be best placed to change the course of the world's most influential countries? Both votes have set the stage for what will be a turnaround as dizzying as it is unmistakable: More America and less Europe.

The first vote was held on 23 June, in which 17,410,742 The British decided to leave the EU, thus breaking all the schemes that up to that moment the Eurobureaucrats still defended tooth and nail, i.e. the Troika and the single currency. Even though it proved to be economically and politically unviable, the slogan of the European leaders was, until that very moment, more Europe, more Union and less sovereignty for the member states. Let's say that Brexit - against the realisation of which the defenders of an impossible EU are still fighting - opened the eyes of many leaders and also the ban on officially saying and planning such things as these o these, without being branded as pariahs or losing their positions. Because regardless of the timing and the traumas of Brexit, the break-up of the EU into at least two sub-unions of states is not only an officially recognised prospect, it is the only viable one. You can read more in «Europe's USA is taking shape«.

The second vote took place across the pond the day before yesterday. The reality of the ballot box was, once again, stubborn. Y 59,692,974 of people have voted for Donald Trump despite fierce opposition from virtually the rest of the world. The president-elect is still a melon to be opened, as his racism, homophobia, sexism and other Hitlerian leanings during the campaign may well be moderated to mere vehemence and political heterodoxy during his term in office. The reason is simple: from the very moment he was elected he no longer needs to ask for anyone's vote. And this will lead him to show the real Trump president, which time will tell if he is worse or better than the Trump candidate shown in the campaign. His uncertain policies have even Republicans themselves on edge. And his personal relationships with other presidents such as Enrique Peña, Merkel, May, Putin or Xi Jinping have the whole world on edge. But his nationalist, protectionist and authoritarian idiosyncrasies go in the unmistakable direction of the «More America» or «Make America Great Again» concept. And that is a radical departure from the openness/modernism/globalism of the Obama era.

Notice that in both the Brexit referendum and Trump's presidential election the result of the ballot box was against the odds. Curious, isn't it? Perhaps it is not that the polls are so shoddy or that the respondents are lying, but that they are pre-cooked by the establishment: Politicians and Euro-bureaucrats here; and politicians and Democrats (and even part of the Republicans) there. Faced with the risk of groundbreaking results that would annihilate the current (bad, yes, but familiar) course of the developed world, the mobilisation of the media to prevent Trump and Brexit has been enormous. It is clear that this establishment intended at all costs generating opinion among the population and not generate information for the population. But they have failed. And today the world is different on both sides of the Atlantic.

A priori, a more inward-looking USA and a more Europe split in two, The two sides do not have to be loser scenarios, nor do they have to be winners. In any case, one winner is indisputable: Democracy. Only time will tell whether those 17 million Britons and 59 million Americans will have led us to a better or worse world. Because their sovereign decision will affect us all, and very much so. That's the thing about influential economies in a globalised world.

The two-speed EU is here.

To put us in perspective, it is worth re-reading the article entitled «The secret Franco-German Super-State project«, in which we highlight the radical change of plans that the leaders at the heart of the Union (sic) have planned for those states that cannot keep up with the economic pace of the more advanced EU countries (read periphery and centre). You can also read the devastating document This was the original text drafted by the French and German foreign ministers last June, in reaction to Brexit, which was leaked very discreetly to some second-tier media outlets. (more…)

Selective debt writedown.

A few months ago we wrote an article entitled «The Big Writedown« in which we warned of the possibility that the impasse of massive debt in which the whole world is mired could be circumvented in an imaginative way.

This formula is none other than the selective elimination of debt issues that are almost entirely in the hands of the respective central banks.

In this way, the loss that any default entails would be accounted for on the only balance sheets in the world that can be squared by making money out of thin air and moulded like chewing gum, namely the balance sheets of central banks.

(more…)

Deutsche Bank: The Big Short.

Edward Misrahi, manager of Ronit Capital, ex-partner at Goldman Sachs and Eton Park, recently stated in an interview with Businessinsider.com that his number 1 choice to hedge a portfolio against a generalised fall in the markets would be Deutsche Bank shares. He warns that any European bank has a very uncertain outlook, whether it is Portuguese, Italian or British, affected by Brexit. But his preferred insurance policy in the event of a tail-risk would be to sell the shares of this German bank, for which he predicts a forthcoming nationalisation as the only way out to avoid a general banking collapse. (more…)

The secret project of the Franco-German Superstate.

The foreign ministers of France (Jean-Marc Ayrault) and Germany (Frank-Walter Steinmeier) have bilaterally agreed on a series of proposals that radically contradict the model of the European Union that Euro-bureaucrats have been selling us for decades. The million-dollar question is to whom they are proposing this new Europe, and whether this declaration of intent is just that or rather a full-blown announcement of the new path that the hard core of European countries, starting with the Franco-German axis and adding Benelux and Italy (more for its founding history than its current economic state, obviously), will embark on. (more…)

If Bremain had won.

The analyst John Mauldin, The EU is facing profound changes after the result of the British referendum. It remains to be seen whether the exit finally takes place that the people have demanded of their leaders, since politics in general, and the EU in particular, are specialists in disregarding the will of the people even if there has been a transparent and official vote count. It is not for nothing that the Euroschizophrenia seems endemic for as long as the Old Continent has existed. In any case, even if the UK did not end up leaving the EU, the problems that Brussels would face are and would continue to be enormous. So let us number some of the burning issues that Mauldin believes the EU would still have on its hands even if Bremain had won: (more…)

Only Democracy wins.

Brexit has happened and nobody knows how it came about. The bureaucrats on both sides of the English Channel had everything under control – except the ballot boxes. The trouble is that a «madman» called Cameron decided to bet the farm on black again, just as he did with the Scottish referendum, only this time red came up. And of course, when a leader wins a referendum, he becomes the hero of democracy in the eyes of the whole world. But when he loses – and the result of the vote harms many, as seems to be the case with Brexit – he becomes a villain who has put others at a risk that is as unnecessary as it is reckless, all because of his gambling-addicted ego. In such cases, democracy takes a back seat and no one remembers that this result reflects the will of the majority of the people, nor that this is the very essence of our political system.

Although for many the line between the two may be blurred, the economic interests of the financial system should not take precedence over the political system – that is to say, over democratic decisions – even if those decisions are unfortunate or reckless. Europe should not succumb to the temptation to govern the EU according to economic rather than political guidelines, determined democratically. But the reality is that we have an EU whose president is not the result of an electoral process such as that in, for example, the US. And there are extremely powerful lobbies (the Troika) which exert unbearable pressure and which, in practice, wield more power than the unelected president (Juncker). (more…)

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Category: Actualidad

Fasten your seatbelts…

The beginning of the end of the debt bubble... and its consequences.

Steinmeier will face Merkel in February: Auf Wiedersehen EU

Democracy Changed the World: More America and less Europe.

The two-speed EU is here.

Selective debt writedown.

Deutsche Bank: The Big Short.

The secret project of the Franco-German Superstate.

If Bremain had won.

Only Democracy wins.

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Cluster Family Office

Do you need help in capital and wealth management?

How can I avoid the negative effects that my fortune may have on my children?

How and when should I talk to my children about family wealth, and what relationship should they have with money throughout their adolescence?

How can I measure the real risks of my investments and protect my assets adequately?

Do I have sufficient liquidity and stable income to cover my needs on a permanent basis?

(+34) 93 626 47 75

(+34) 91 794 19 82

Category: Actualidad

Fasten your seatbelts…

The beginning of the end of the debt bubble... and its consequences.

Steinmeier will face Merkel in February: Auf Wiedersehen EU

Democracy Changed the World: More America and less Europe.

The two-speed EU is here.

Selective debt writedown.

Deutsche Bank: The Big Short.

The secret project of the Franco-German Superstate.

If Bremain had won.

Only Democracy wins.

Shall we help you search?

Cluster Family Office

Do you need help in capital and wealth management?

How can I avoid the negative effects that my fortune may have on my children?

How and when should I talk to my children about family wealth, and what relationship should they have with money throughout their adolescence?

How can I measure the real risks of my investments and protect my assets adequately?

Do I have sufficient liquidity and stable income to cover my needs on a permanent basis?

(+34) 93 626 47 75

(+34) 91 794 19 82

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