QUESTION: Dear Mr. Armstrong: Many times you were warning about CalPERS. What is your scope on 401k via employers, RothIRA, Simple IRA, and SEP that investing in at Vanguard or Fidelity? Should we continue to contribute? Will these types of retirement plans be in peril as CalPERS ? Can our government get involved in these plans? Thank you very much for your expertise and service.

Best Regards

TN

ANSWER: Actually, the way a liquidator would view the task would be – if the funds were deployed into an asset (Vanguard or similar fund) then it is the “clients/accounts money” and not the institution! Therefore, the investment would hold better regulatory standing than if the funds were deployed rather than simply sitting in cash held by CALPER’s!

Additionally, a major fund such as Vanguard or Fidelity would defend their business in court if a state dared to try to seize it. The likelihood of that type of action being successful is somewhere BELOW -1%. The only was a Vanguard or Fidelity would be at risk is should the FEDERAL government go after it – not a state. Again, the likelihood of that is not very high and I would put that at a 15% chance. That would be the type of action taken by a Democrat under the pretense that they are going after the evil rich. But keep in mind, Democrats boast but behind the curtain, they are loading the trunks of their cars with as much loot as they too can carry off. That type of action would be in a major economic crisis that would threaten their political standing.

The bottom-line is that a private fund is FAR SAFER than a state-run fund. CalPERS is partly in trouble because the politician told it to invest in ENVIRONMENTALLY friendly ventures. So the “political” agenda overruled the economic purpose of actually making money.

Politicians should NEVER control investment decisions – N E V E R ! ! ! ! ! ! ! ! ! ! !

The Latvian Financial Supervisory Authority is concerned announcing a resolution plan for the crisis bank ABLV that is threatening a contagion risk of further closures of financial institutions in the country with a predominantly foreign customer base. There is a serious risk of a contagion unfolding that will also force consolidation and mergers in the industry as a whole. The financial system of the Baltic country has seen a run with customers withdrawing about 500 million euros in deposits in recent weeks. There are about ten banks in Latvia who have been serving primarily foreign customers. Concerns and a decline in confidence unfolding in Europe as a whole over the banking system as a whole may force a change in the business model of Latvian banks where they must return to a reliance upon domestic deposits rather than foreign.

Latvia’s third largest financial institution, ABLV, is about to collapse after being accused by the US of being involved in money laundering by customers from neighboring Russia and Ukraine. The bank denied the allegations but simply making those allegations by New York prosecutors can have a devastating impact upon foreign banks. A run on the bank began after the allegations were made public. The European Central Bank (ECB) came to the conclusion that the bank was facing collapse. The European Agency for the Settlement of Marged Banks (SRB) classified the bank as non-systemically important and left it to its fate. In Latvia, loans are provided mainly by Scandinavian banks located in Sweden. Many Latvian banks have specialized in financing themselves mainly through deposits of foreigners rather than domestic Latvian citizens. The crisis brewing stems from the fact that about 40% of Latvian bank deposits come from abroad. Allegations of money laundering by the US authorities have been sending foreign depositors into a state of panic.

The risk that this presents is self-evident from the Banking Crisis of 1931. The failure of Credit Anstalt, which was partly owned by the Rothschilds, sent a wave of panic throughout the entire banking system. Once the rumor was that the Rothschilds had failed, all banks began to get hit. This resulted in the Sovereign Default of 1931.

We can see here looking at the foreign bonds that were listed on the New York Stock Exchange and how they just defaulted going to zero. Therefore, the question is not whether the Latvian banks are essential to the country, a collapse can still have a profound contagion impact simply because people are losing confidence in the banking system as a whole.

There is no such thing as letting these banks go because they are “not essential” with respect to Latvia.

We are dealing with a matter of PUBLIC CONFIDENCE that is just not something that is very solid right now.

The man who is killing the Euro as a viable currency is none other than Donald Franciszek Tusk who is a Polish politician who has been the President of the European Council since 2014. He is the living example why politicians MUST be prohibited from making any decisions whatsoever regarding economics and finance. These people have ZERO qualifications in the field yet rise to the top of politics and then assume positions based entirely upon politics – not economics.

The crisis that is pending for the Euro is all about political control. The desire of British banks to achieve free access to the European Single Market even after Brexit and this was rejected by the EU. Council President Tusk spoke out against maintaining the British-European financial center in London after Brexit. He fails to comprehend that NEITHER the French nor the Germans possess the infrastructure no less the expertise to maintain global markets in the Euro.

Tusk claims that Britain is trying to be like Norway which has free access but pays dues as a member of the EU for free access. On the other hand, Tusk characterizes British desires and trying to blend the Canadian position, which only has a free trade agreement, with full access like Norway but pays no dues like Canada. Meanwhile, France is taking the position that they want to fill the shoes of the London financial markets who have never been able to create deep markets.

This hardline position against the financial markets of Britain remaining as the core trading center for the Euro is extremely dangerous. The Euro holds a minimal position among the reserves of central banks. The exact composition of the foreign-exchange reserves of China is a state secret. Nevertheless, based upon reliable sources, about two-thirds of Chinese foreign-exchange reserves are held in U.S. Dollars. The rest is composed of Japanese Yen, British pounds with less than 15% residing in Euros.

Brussels is far more interested in punishing Britain than in securing a strong and viable market for the Euro. With respect to a banking center, the primary competitors running second and third are Switzerland and Luxembourg. Never the less, France and Luxembourg are seeking to gain from blocking Britain as they seek to strengthen their positions against Britain. Luxembourg has the EU President Jean-Claude Juncker in their corner, who traditionally has a good relationship with the banks in his home country of Luxembourg. Ironically, while Germany is the largest economy within the Eurozone, by contrast, it relies heavily on trade in goods and financing rather than banking. We have a conflict of interests here where Germany actually need the free market in London for trade deals whereas France and Luxembourg are more interested in capturing business from Britain.

Meanwhile, Brussels needs control so they can maintain the outlawing of shorting government bonds and make no mistake about it, they will prohibit shorting the Euro when it goes against them as well. The danger of politics making the decision over such an issue is that any free market in the Euro will suffer. This is becoming a high stakes financial poker game. Even the President of the Swiss bank UBS, Axel Weber, has come out warning against a withdrawal of the euro clearing from London. “We have to be very careful that we do not shoot any own goals on the subject of Brexit.”

If the EU blocks Britain from euro clearing, this will be the end of the Euro. Politics will present far too great a risk for the Euro to survive going forward.

Foreign direct investment into Canada has absolutely plunged during 2017 to the lowest since 2010. There has been an effort to stop the sale of any property to foreign investors mainly from China. On top of that, there has been also a collapse in capital investment into the oil industry. There are fears also rising about an exodus of capital from the nation’s oil patch and worries about the fate of the North American Free Trade Agreement (NAFTA).

Direct investment into Canada declined by a stunning 26% dropping to merely $33.8 billion during 2017, according to Statistics Canada. Capital inflows have declined for the second year with the major high in 2015 in accordance with our Economic Confidence Model. The investment that did take place was from reinvested earnings of existing operations. Net foreign purchases of Canadian businesses turned negative for the first time in a decade. This means that foreign companies sold more Canadian businesses than they bought. The political shift in Canada to the left is also being seen as a political risk for the years ahead. A monthly closing BELOW 7305 on the futures will signal the collapse of the C$ is underway once again.