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“We have to have the conversations our governments can't.”
~ James B. Donovan

Economy & Financial Markets

Rising Dollar; Falling Commodities

There was just one word for financial markets in 2015 and central bankers spent all year trying not to use it – deflation.

One thing was clearly rising. The US dollar was up by 9 percent in 2015, following on its 12-percent rise in 2014. That was bad news for US exporters as well as US companies consolidating a large percentage of their earnings from abroad. This was a major headwind on S&P earnings in 2015, with expected earnings for 2016 looking softer still.

The financial markets spent all year waiting for the Fed to raise interest rates, with market rates rising in anticipation. One of the things that baffled me during 2015 was the expectation of the Fed leadership that the US economy would come out of recession and, in so doing, help sustain global growth.

Whether attacking people domestically with global spraying, student debt, zero savings rates, Obamacare, common core and false flag operations or internationally with mass migration, financial and Russian sanctions, covert operations and mercenary armies, why the expectation that the general population will be eager to expand, invest and take investment and financial risk?

Centralization was choking animal spirits in North America and Europe throughout 2015.

Which explains one of the reasons behind mass migration – new waves of populations eager to work hard and to start businesses.

The fall in commodities is powerful evidence of a global slowdown. By playing the oil card against Russia, the United States has clearly contributed, with the OIL ETN down by 50 percent for the year. A US deal with Iran means more supply to come on the global market in 2016.

Slower growth in China was clearly a factor. China’s growth for many years – and the resulting demand for commodities – was fueled by the United States fueling a false prosperity. Development of a Chinese consumer market is still slow going. If you have not listened to our interview with Stephen Roach or read his book Unbalanced: the Codependency of America and China, I recommend it as an excellent overview of the evolution of the relationship between the United States and China.

With the U.S. working to reduce Europe’s dependency on Russian oil and gas, one of the most sensitive moments of the year was European media reporting that ISIS was financing its mercenaries by marketing oil to Israel through Turkey. The story was “whited out” by the San Bernardino mass shooting.

The greatest pain for fossil fuels was coal. Despite the fact that coal remains the single largest source of energy globally, three of the four largest U.S. coal companies experienced decline in their stock prices of between 77 to 95 percent. The fourth went bankrupt.

This is creative destruction at work, reflecting the implementation of new fracking technology and increased U.S. oil and gas self-sufficiency. The United States is essentially switching from coal to abundant amounts of natural gas.

Falling commodities prices have translated into enormous pain in areas of the world that depend on commodities for income. In North America, falling revenues for commodity producers translated to falling income for farm producers – expected to be down by 38 percent in 2015. Falling revenues in the oil patch translated into falling income for the railroads and fallout in the high-yield junk bond market, down by 12 percent. The greatest pain was in the emerging markets where falling revenues meant increased difficulty of servicing debts denominated in more expensive US dollars.

The signs of recession showed up in Wall Street business flows. Mergers were up, stock buybacks continued to support the stock market and IPOs were down. It seemed like companies with cash were doing everything but growing their basic business.

From satellite systems, to payment systems, to international agreements, the BRICS nations worked overtime in 2015 to build financial liquidity and independence around the dollar, with China finally winning inclusion in the IMF SDR.

The financial story of 2015 was not that the dollar was strong. It was that underneath a rising price, the dollar market share continued to deflate, raising serious questions about its long-term status as global reserve currency.

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II. The U.S. Budget Hot Potato

The US Speaker of the House is the presiding officer of the US House of Representatives. The House has exclusive powers to initiate revenue bills, to impeach officials and to elect the U.S. President in case there is no majority in the Electoral College. The Speaker is second in the US presidential line of succession, following the Vice President.

John Boehner, elected Speaker in 2010 when the Republicans won the majority in the midterm elections, announced his resignation in September 2015, effective October 30. His successor, Kevin McCarthy of California, was knocked out in short order, to be replaced by a reluctant Paul Ryan of Wisconsin, an expert on the federal budget.

The clear message was that almost no one wanted the job but “the powers that be” needed someone who could handle both the mechanics of the budget issues as well as the politics of a country in serious denial about the fundamentals of our situation.

While the leadership can probably kick the can down the road until after the 2016 election, we likely face a significant reengineering of the US federal credit and budget in 2017. The potential to impact global cash and credit flows in addition to federal, state and local programs is significant.

The United States has never had an honest conversation about the budget, largely because so much government credit, cash flow and assets are tied up in secret projects and secret financial mechanisms. To help inspire an honest conversation, two years ago I wrote an article to explain why the denial and politics of the US budget and appropriations had become so ridiculous, and about the issues that need to be faced.

Denial regarding the fundamentals of the US budget continued to be one of the top stories in 2015, not because of the attention it received but because of the manner in which it impacts global asset values and financial markets.

If you see your Congressman during the 2016 elections, please ask him or her to arrange for the US budget and financial statements to be made accessible on a place-based basis where anyone can see the sources and uses of contracts, appropriations, credit origination and assets and asset sales by Congressional District and county.

Transparent financial statements and online participatory budgeting would improve the economics and reduce the silly politics and media by a great deal. In theory, the opportunity to generate local income and employment are significant.

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III. Global 3.0 Rocks Our World: Here Comes Artificial Intelligence (AI), Robots, Smart Phones, & Breakthrough Energy

In the 2013 Annual Wrap Up, I focused on the shift from an industrial economy (Global 2.0) to a networked economy (Global 3.0). We have continued to explore this powerful economic divergence in our wrap ups in 2014 and 2015.

This shift accelerated in 2015. However, the greatest impact is yet to come. Watch for applied technology and globalization to continue to cause shifts in employment and income.

Look for opportunities in 2016 to learn more and add to your skill set and toolkits.

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IV. Reengineering Local Functions: Education, Health Care, Enforcement and Municipal Operations

In the United States, the information technology and financial sectors have unleashed an effort to reengineer and centralize what remains of local economies. Think of this as publically traded stocks attempting to suck up every last bit of economic juice they can find.

Testing requirements and Common Core standards provide the main push to reengineer education. Obamacare and federal requirements to digitize records is leading the way in health care. One of the goals is to squeeze trillions of labor costs out of education and health care using new technology. This process will accelerate in 2016.

If the Republicans win the Presidential campaign, both Obamacare and Common Core could be in trouble. Because health care has been one of the sectors carrying the S&P 500, keep a close eye on what this does to the equity markets.

Whichever party wins, don’t be surprised to see a concerted push in Congress to convert K-12 education to vouchers, which come with federal curriculum requirements attached. The legality will be dubious at best given that vouchers would be attaching federal mandates to control and direct local funding.

Municipal operations are also managing change. In 2015, a major media effort targeted local police. While illuminating some dreadful corruption at the local level, the goal is not so wonderful. This is laying the ground work for ever greater centralized powers by the federal government through the Department of Justice and continued efforts by the White House to implement gun control by executive order and administrative action.

Strong locally controlled enforcement and a well-armed population is your best protection against centralized powers. If you have not already, get to know your local sheriff and community policing efforts in 2016. Also, get trained to own, carry and apply your weapons of choice – whether pepper spray, martial arts, prayer or guns. Recession and immigration will lead to an increase in covert and gang operations in many locations.

Municipalities are also struggling with budgets, debts and pension liabilities, including retiree health care costs. From Puerto Rico to Illinois, expect more headlines regarding municipal financial woes in 2016.

I recommend that you push for place-based financial disclosure and participatory budgeting with your municipal officials as well. There are a lot of opportunities to improve services and lower costs and taxes if we reengineer across federal, state and local budgets. Only a well-informed citizenry can make this happen.

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Geopolitics

V. The Shift to the Multi-Polar World

It was inevitable with the rebalancing of the global economy that G-7 economic dominance would diminish as the percentage of global GDP generated in the emerging and frontier markets grew.

How this economic shift would translate into a complimentary geopolitical shift of power and responsibility has always been unclear. The nuts and bolts of such a shift are complex.

In 2015, Chinas GDP surpassed that of the United States. China proceeded to launch the Asian Infrastructure Investment Bank and successfully lobbied for inclusion of the Yuan in the IMF Special Drawing Rights (SDRs).

The United States responded with an aggressive effort to finalize the Trans Pacific Partnership Agreement to tie our allies back into a US-centric system.

The Solari Report team spent a lot of time trying to understand proposed trade agreements, publishing two special reports and publishing a shocking interview with Congresswoman Marcy Kaptur regarding the tactics being used to bully Congress.

There was more than a little covert economic and political warfare throughout 2015, from dishing the dirt out on Volkswagen, to explosions in China that nearly tanked the global stock markets to legal attacks on and suspension of the FIFA Chairman who made the mistake of scheduling the 2018 and 2022 World Cup in Russia and Qatar. (Qatar would be the first Arab state to host a World Cup.)

The road to a multipolar world is a “bumpy one.” Perhaps one of the causes of deflation is too many manmade speed bumps of the kind we experienced during 2015. The state of affairs inspired WSJ author Bret Stephens to write one of the most coherent comments on the presidential campaign:

“The central foreign policy challenge facing the next president [of the United States] is how to re-establish American credibility with friends who no longer trust us and enemies who no longer fear us.”
~Bret Stephens

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Solari Report on Trade Agreements:

 

VI. Tearing Up the Treaty of Westphalia

The Peace of Westphalia of 1648 is credited with establishing principles of international law operating through a system of sovereign states. One of the ramifications of that principle was that sovereign states would maintain a monopoly on force. Thus ended the Middle Ages.

In one of our recommended books for 2016, The Modern Mercenary: Private Armies and What They Mean for World Order, Sean McFate argues that:

“The reappearance of private armies is a harbinger of a wider trend in international relations: the emergence of neomedievalism….The erosion of the taboo against mercenarism heralds a shift in this world order, from the state-centric Westphilian system back to the status quote ante of the Middle Ages. The medieval system was not dominated by states but was polycentric in nature, with authority diluted and shared among state and non-state actors alike. States were just another actor on a crowded state, an no one had a monopoly of force to enforce their will. Instead, there was a free market of force, and actors – kings, popes, princes, city-states, rich families and so on – commonly employed mercenaries to settle disputes in contract warfare.”

The US sponsorship of private intelligence, security services and armies has blossomed with extraordinary expenditures for those services in the Middle East. This has created a significant private capacity to bring force to bear and to wage war. Four significant trends are now underway:

While the next round of military automation is still young, drones, robotics and cyber-hacking will place significant capacity into these private hands.

The growth of private armies will significantly impact global geopolitics and economics and increase the ability of governments and private investors to keep secrets. Richard Maybury recently wrote that US policy appears to be specifically designed to "maximize blowback." Perhaps the greatest source of blowback will be the previous twelve years of outsourcing force in the Middle East and around the globe.

Which raises the question, who is ISIS, really? I suspect this group is a gathering of mercenaries in an area of high unemployment in which oil will provide a rich flow of funds to pay for violence which serves multiple purposes.

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VII. Demographic Derby: Mass Migration, Falling Life Expectancy & Social Engineering

In 2015, mass migration continued to be unleashed on a grand scale in the Middle East, Europe and North America. One of the best descriptions of what is happening comes from Kelly Greenhill’s book, Weapons of Mass Migration: Forced Displacement, Coercion, and Foreign Policy:

“My central claim is that coercive engineered migration can be usefully conceived as a two-level, generally asymmetric, coercion by punishment strategy, in which challengers on the international level seek to influence the behavior of their targets by exploiting the existence of competing domestic interests within the target state(s) and by manipulating the costs or risks imposed on their civilian population(s). In traditional coercion, these costs are inflicted through the threat and use of military force to achieve political goals “on the cheap.” In coercive engineered migration, by contrast, costs are inflicted through the threat and use of human demographic bombs to achieve political goals that would be utterly unattainable through military means.” ~ Kelly M. Greenhill (2011-06-23). Weapons of Mass Migration: Forced Displacement, Coercion, and Foreign Policy (Cornell Studies in Security Affairs) (Kindle Locations 106-113). Cornell University Press.

In this instance we are seeing mass migration engineered by political and business leadership to refresh labor pools, create controlled voter pools, and to significantly increase the domestic need for centralized government and enforcement all in a manner that erodes the effective political power of an educated middle class.

Mass migration has caused the European Union to revisit border and travel agreements and put increased strains on the ability of the EU to maintain political coherence.

After a German industrialist stated that Germany needed another 800,000 workers as a result of an aging population, Germany estimated that it had 800,000 immigrants in 2015. Sounds like a supplemental labor force to me.

The EU estimated that immigrants were 70 percent single males between the ages of 17 and 36. This year I read a book on the history of the American slave trade. It described the creation of large plantations in Alabama, Mississippi and Louisiana and the migration of a large number of slaves from the coastal area to supply labor. In the plan, they stipulated that 70 percent would be single men aged between 17 and 36. It appears that the operational manual in use in the 21st century is quite similar to the one used in the 19th century.

Unfortunately, some of the immigrant labor in both Europe and the US may be destined for assignment in underground bases.

After keeping Greece in the EU fold after the Greek government failed to establish authority over the tax collection services and their information systems and software, the country was overwhelmed by mass migration.

One of the big events in 2016 will be Britain’s referendum on membership in the European Union. The outcome will be an important signal for the future of the EU.

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Falling Life Expectancy

In 2015, immigration was only one aspect of the social engineering picture.

The health of the global population is often tracked by life expectancy. This year we saw more reports on falling life expectancy in the G-7 nations. Concerns continue to rise in the United States regarding the deterioration in the quality of food and health care and the rise of environmental pollution.

This trend is likely to continue as the squeeze on retirement savings grows. Expect global statistics to show rising life expectancy as extreme poverty drops in the emerging and frontier markets.

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Social Engineering

One of the most bizarre aspects of social engineering in 2015 was the use of divide and conquer efforts, many of which appeared to continue to declare war on the traditional nuclear family. The most frightening of these were surveys given to young school children (grades 7 to 12) who -without their parents knowledge – were asked intimate questions regarding sexuality and their transgender thoughts.

MUST READ: Bizarre United States School Survey

What looked like a war on African-Americans continued, with more than a few entertainers in the crosshairs.

After her mother Whitney Houston drowned in a bathtub in 2012, Bobbie Brown was found face down in a bathtub in January 2015. Although alive and breathing, it was determined by the end of February that Brown was had irreversible brain damage. She died in July. Searches on Brown ranked at our near the top of the search engines in the entertainment category in 2015. Whether or not it was related, Tina Turner and Aretha Franklin both stopped tweeting in March.

Turner should be safe. She is a Swiss citizen, having married her Swiss partner of many years in 2013, becoming a Swiss citizen and submitting the paperwork to relinquish her American citizen. I understand why someone in Turner’s position would want to ensure that U.S. record companies and tax authorities would not benefit from her death.

No doubt, Bill Cosby who was indicted in December 2015, regrets trying to purchase NBC, having a showing of his art collection at the Smithsonian or failing to move elsewhere when he could. While I make no comment on allegations of his sexual abuse of adult women, I would question why we spent the fall watching the glorification of the Vatican by the President, Congress and United Nations, despite its proven record of billions of settlements (and counting) over pedophilia litigation.

If anything, some equal opportunity smear for the Vatican was in order.

Finally, to make sure that our divide and conquer irritation in 2016 knew no bounds, we had to listen to the glorification of women as leaders throughout the year, once again glossing over real problems and solutions.

This prompted me to write a multipart series called “Promoting Women” and to do a series of Solari Reports with Junious Ricardo Stanton.

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VIII. The Terrorist Shriek-o-Meter

In 2014, the Republicans won the Senate using the Ebola Shriek-O-Meter. So the Shriek-O-Meter was one of our top stories last year.

This year the Shriek-O-Meter got even louder as it shrieked about terrorism and the boogeymen, ISIS.

ISIS is tearing up the Middle East. ISIS is now in Paris. Now it is coming across the border. It is in your state. Maybe it is coming to your door! The concern is that if you do not play along, the covert ops teams (who indeed are dangerous) will send someone to your door to behead you. Or, more realistically, they will simply have the local drug gangs come to do a home invasion.

The message is: be scared. Be very scared! But, fear is damaging to your immune system. So, the smart thing to do is to be afraid of paying attention to the Shriek-o-Meter instead of what it is shrieking about. It is best to turn off your TV, media and politicians that promote the Shriek-o-Meter.

Here is the logic behind the Shriek-O-Meter. Approval ratings for governments are at or near all-time lows. This means the general population might start to take significant action. Such as:

Surveys show that the same people who give government very low approval ratings are also very concerned about terrorism and feel that government is doing a good job of dealing with terrorism. The surveys show they used to be concerned about jobs and the economy. However, ongoing shootings in Europe and the United States have them more worried about terrorism.

Last month I watched a host on Fox News bully a group of 40 to 50 US citizens about their greatest concerns. If they said, ‘jobs and the economy,’ they were bullied back into immigration and then bullied back into ISIS, ISIS and more ISIS. It was quite remarkable to watch as a lesson on how the progression of fear applied in social engineering works.

And so we will have to live with the Shriek-O-Meter until we stop falling for it.

There is reason to be concerned about organized crime, including crime associated with immigration, false flag operations and covert operations. This is another reason why you should make sure that gun control efforts are stymied and that you prepare and traine to protect yourself and your property.

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Science & Technology

IX. Planet Entrainment

If there was one technology which defined our culture in 2015, it was entrainment and subliminal programming.

Needless to say, entrainment and subliminal programming were working hot, heavy and overtime to make the Shriek-O-Meter go during 2015.

After traveling throughout North America, Western Europe and Australia and New Zealand during 2015, my impression was that “planet entrainment” was much worse in North America. However, it seems to go where the smart phone go, so that means pretty much it will be everywhere.

If you have not yet educated yourself about this technology and its dangers, please do so in 2016.

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X. Weather Wars; Water Wars

Every year we talk about weird weather, the possibility of weather warfare and increasing tensions over water resources.

This year was no different.

Numerous areas around the world are facing migration challenges as droughts continue. Droughts are contributing to deflationary trends. Floods continue to create economic losses and hardship. Climate change means rising sea levels, which raise serious concerns for island nations.

Every year we ask about global spraying and how it relates to weird weather and weather warfare. We will continue to look for answers in 2016 and continue to bring transparency to the issues not yet addressed by global governments on climate change.

In 2016, I recommend that you invest in strategic thinking on your water quality and long-term water supply. It is going to be important.

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The Big Questions

XI. Planet Earth: Governance System

Who leads the governance system on Earth? How does this system work? What does it have to do with what is happening in outer space?

You cannot reform our financial model without understanding our governance system and the nature and allocation of political power.

The Solari Report team will keep digging and networking on this question in 2016 while doing our very best to maintain our sense of humor about living on a planet where everything is a mystery.

 

XII. Economy: Open or Closed Economy?

I discuss this question in the Space-Based Economy in this 2015 Annual Wrap Up.

A senior member of the strategic planning team from the CIA once said to me, “You know what your problem is? You don’t know where evil comes from.”

I would like to know. In fact, I would like for the government officials who have been paid for so long and so well with your and my hard earned money to come clean about this and all the other secrets of the black budget, Where is our money is going and why do things just keep getting weirder?

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XIII. Faith or Fear?

As change accelerates, this is the debate that seesaws back and forth in the news stories of the day and in our minds. Should I live in faith or in fear today?

As we begin 2016, resolve to surround yourself with the people and enterprises that support you in having faith in yourself and in your future.

Have faith in your ability to access intelligence about the world around you and to use it to serve your purpose.

As we seek to understand the world around us, remember the words of James Thurber, “Let us not look back to the past with anger, nor towards the future with fear, but look around with awareness.”

© Solari, Inc. 2016