Quarterly Global Geopolitical Macro Outlook: Turkey entering the EU; Security & Immigration drive US Elections, Elections could be postponed

By Christian Takushi MA UZH, Switzerland,

Dear readers

In my former quarterly Outlooks and Updates I have stated my cautious Outlook and why the world is in a historic Transition, where we should ready Contingency Plans for disruptions of operations and security. Also a time to prioritize Capital Protection over Capital Growth. This Transition also favors seasoned traders with disciplined risk budgets over the traditional buy-and-hold approach with fully-invested portfolios.

I am posting this comprehensive Quarterly Outlook following the tragic Brussels events. I’m also bringing forward our research on Turkey by 3-6 months. As usual, I focus on what Consensus is missing or underestimating:

Turkey on EU’s threshold: the fruits of 12 years of assertive Turkish Security & Foreign Policy are bearing fruits and weighing on Europe too. This encompasses Turkey’s forceful push to join the EU and the current security threats in Europe. In the geo-strategic competition of nations, Turkey has performed superbly – outsmarting an unprepared EU, used to manage & regulate rather than think ahead strategically. Turkey is projecting influence but also conflicts, impacting Europe way beyond its weight of 4.3% of EU’s GDP.  The attacks in Brussels are in our analysis not just a sign of EU’s lack of strategic foresight and the proliferation of radical Islam, but Turkey’s destabilization.

Unsettling US Elections during most vulnerable time for the world since 1941: We maintain since Q3 2015 that consensus is underestimating Mr. Trump. He could become the GOP nominee and even possibly the next US President-elect, even if not in 2016. But he has his own party fighting him. Markets underestimate the possible impact of Trump on future US Politics, Foreign Policy, Trade and Corporate Earnings. Mr. Trump has shuttered the Political Correctness that made discussions about difficult topics taboo – that is like a seed that needs time to yield a harvest. Because the GOP establishment has fought the GOP frontrunner ferociously, the Republican Party will go into the race against the Democrats utterly weakened and divided. If the GOP has its way, I expect millions of Trump supporters to revolt, deny the GOP their vote in November and possibly riot. I wouldn’t be surprised if analysts underestimate Trump again after the GOP denies him the nomination. Mr. Trump is new to US politics, but knowing how angry he is about the way politics is done in the USA and his vitality, he is likely to want to stay involved in politics to clean up Washington. We have been warning that US Elections 2016 are taking place during a highly vulnerable Transition Period for the world. Thus, we reiterate our warning that President Obama may have to postpone the US General Elections in November. 

On the Democrats’ side I expect Hilary Clinton to overcome the superb campaign of Mr. Sanders. At this point in time we can expect Mrs. Clinton to win the General Elections. The problem of Mr Sanders and Mr. Trump is that they are running against the two party’s establishments. Something they are not fully prepared to do. Both US parties have built in many rules, exceptions and pits to get rid of anyone that is not the party’s choice. Independent-minded leaders like Trump or Sanders realize they need to establish a separate party to be able to run for presidency.

Here an outline of our content:

1. Global Risk Assessment – We have updated our two key models and run simulations

2. Geopolitical-economic impact of Turkey joining the European Union – Turkey’s superb geostrategists outplay EU bureaucrats

3. US Primary Elections enter final phase – Security & Immigration the key to drive Trump and Republicans in 2016

4. Precautionary suggestions 

A foreword on Turkey’s deteriorating security situation – why it is pushing to join the EU now:

I am surprised at the level of the discussion around Turkey and Europe: 90% of the focus is on the migrant swap, maybe 10% on the concessions to Turkey on EU Membership. Zero % on Turkey’s complex security conflicts now casting their shadows over Europe. Just as the media focuses on Muslim communities in Belgium and France, allow me to highlight what they are missing: Alone in German-speaking Europe there are some 1’947’000 Turks – but our latest data shows the divide underneath: there are some 1’027’000 Turks and roughly 950’000 Kurds (most of which are registered as Turkish citizens). European governments failed to keep systematic records despite their conflict. Their tensions were rekindled by the war President Erdogan is weighing on Kurds in Turkey-Syria-Iraq. Just what the ISIS, Al Qaida and Al Nusra fighters returning from Syria–Iraq to the European front are now exploiting. The good news is that Germany is a prosperous and dynamic economy and the majority of Turks and Kurds are well integrated into the economy. But despite the reported Western political narrative spread by our media, many Islamic terrorists are well educated and even well-off citizens. Thus, economic integration is not sufficient to secure against radicalization. The Turkish-Kurdish conflict is a geo-strategic conflict, that has become more complex due to the radicalization of many regional forces. Turkey along other states don’t want to grant the Kurds too many rights for fear of losing territory to a future Kurdish state. The Western Powers failed the Kurds when they drew the border lines at the end of WWI. They left them state-less. Turkey understandably doesn’t want to share its territory with a future Kurdish state.

While Turkey’s dream of EU membership started in 1987, the assertive Foreign Policy unfolded in 2003-2009 when Turkey began to enter alliances & strategic arrangement with every single major player in the Middle East to maximize its influence. Apart from the long standing alliances with the USA, Israel and Egypt it entered new “deals” with Russia, Hamas, Kurds, Iran, Syria, Saudi Arabia .. and many maintain with ISIS, too. To be fair to Mr. Erdogan, the two Obama administrations advised by the State Department tolerated many excesses by Ankara and Teheran – part of Obama’s near unconditional support to prop them up as the new Regional Powers as Obama-Kerry reshuffled the Middle East. In our analysis, the massive surge in US gas and oil production was part of that – it allowed for oil revenues to evaporate, forcing all regional powers including Russia to accept the Middle East Reshuffle. Iran and Turkey enjoyed a free hand that grew only stronger. We have to acknowledge though that Obama showed understanding for Turkey’s legitimate security concerns and the need for some cooperation with those fighting the Kurds.

Was this a failure by the Obama administration alone? I believe President Obama saw the urgent need to provide a back-up source of energy for Europe, that is Iran. One of Europe’s many strategic failures.  Strategic foresight is one of Europe’s worse shortcomings. Too many EU institutions are led by excellent administrators and managers – that in itself a contradiction. Strategic thinking and visionary leadership is lacking. Turkey has brilliant strategists, some of which have advised Erdogan.

The embrace of Iran could only work if Turkey was behind it. No future Iranian gas or oil (pipes) could ever reach Europe without crossing Northern Iraq, Northern Syria and Turkey, But the Obama-Kerry shield for Turkey’s Foreign Policy began to crack last November when President Obama announced to the world that “ISIS was contained”. Obama’s most humiliating moment as US President –one that will enter history. His detachment from reality exposed. Why? That was the day before the Paris massacres. In the following weeks an utterly embarrassed Obama-Kerry team forced Turkey to put an end to Turkey’s tolerance for ISIS. The embarrassment at the U.S. State Department was only augmented by Russia’s bombing of long oil convoys from ISIS to Turkey. Having had camps hosting fighters in Turkey for several years, allowed ISIS to infiltrate some of those fighters in the refugee streams to Europe.

To be sure, Turkey’s conflictive interests caused one alliance after the other to collapse: first the relations with Israel, Saudi Arabia, Kurdish party, then Russia and now ISIS. But when Mr. Erdogan was perceived as braking up the peace process with the PKK to secure a new presidential term (which he secured with methods, perceived in the West as autocratic or repressive), President Obama and Secretary Kerry intervened. Ankara yielded to their pressure to cut off any tolerance for ISIS, to which ISIS has violently reacted with terror attacks. Now Turkey is facing retaliatory Kurdish and ISIS suicide bombers. In all fairness the increasing isolation and distrust towards Turkey in the region could not happen in a vacuum. The USA is equally distrusted in the Middle East. As Mr. Cruz put it: “our allies no longer trust us, and our enemies no longer respect us”. It should be said that Mr. Erdogan maintained he was forced to fight the PKK, because it had radicalized and threatened the security of Turkey.

It is against this complex deteriorating security backdrop that Europe’s self-inflicted Migrant Crisis erupted. It couldn’t have come at a better time for President Erdogan. What many perceive as Erdogan’s strong assertiveness in our analysis rather reflects both, Erdogan’s growing security concerns and what Ankara has learnt from dealing with ist neighbors: only tough lines are respected. We see signs that Mr. Erdogan is recognizing his Foreign Policy was over-strecthed. It recently requested a “truce” and support from Israel, but Netanyahu pointed to Ankara’s intervention and support for Hamas in Gaza. Should Ankara let down Hamas to court Israel, that could unleash a violent response by Shiite militants. Turkey is not yet an EU member, but it is affecting Europe more than many had expected.

1) Assessment of Global Risk and Level of Readiness   

There are other topics on our Global Geopolitical Macro radar screen that are blinking and you can be reassured we keep monitoring them:

• The destabilization of the Middle – next battle ground Libya. The USA could launch massive attack in Syria and Iraq if Republicans win. Retaliations could hit Europe badly.
• Iran defies the USA and tests advanced missiles with reach to Europe. Saudi Arabia and Iran are currently procuring nuclear war-heads on several markets (Pakistan, North Korea, India etc).
• North Korea’s acute economic conditions are driving ist dictator to deflect into a more aggressive Military stance against South Korea and Japan.
• The West joins the Global Military Build-Up. France, Japan, Britain and Germany reverse their long demilitarization strategy. Too little to late. Germany to invest USD 140 in massive military modernization. Israel develops new weapons and software as it prepares for next Arab War. Warfare taken to the deep seas and skies.
• Latin America in dangerous transition: Mercosur giant economies imploding (Venezuela, Brazil and Argentina). Argentina “tries” the market economy for 1st time in 30 years. The US strategic economic ally and Russia’s new strategic military ally, Peru, chooses new President next month. Russia trying to embrace US allies, countering US embrace of Iran.
• More nations join the preparations for Martial Law, City riots, political instability & food shortages, Natural disasters .. and mobilize armored troops to specific locations

• Deteriorating Security Situation in Europe: this is happening on several fronts and involves the not just the terror threat, but also political, military (i.e. Nuclear threat), geophysical, food as well energy security.

Our Global Geopolitical Risk Monitor remains elevated

Kindly watch the Factors that are rising and interacting. Instead of embracing the new demographic realities, European governments are resorting to mass low-cost immigration, which is bringing political destabilization.

Picture 1:

Encircled the two clusters of risk factors that are causing the biggest tension build-up at the moment. The top bold circle shows the overall Global Risk edging higher.

Our LEL-AL System advises to maintain “ABOVE NORMAL READINESS”

As you can see in this chart the LEV-AL Warning System remains at Level 4. But since 8 March 2016 an upgrade to Level 3 could take place at any moment – see red arrow.

The 22 March 2016 terror attacks in Brussels have had no impact on the LEV-AL Model. I see them rather as a confirmation,

Picture 2:

2)  Geopolitical-economic impact of Turkey joining the EU – Economic boost along political destabilization as Muslim population jumps by 401% to 112 Mio 

The possible accession of Turkey into the EU is probably the most underestimated “Opportunity & Risk Factor” among European investors, businesses and even political leaders. Overwhelmed by multiple threats and challenges, and lacking Strategic Foresight, the EU maneuvered herself into a geopolitical corner. Just exactly where Turkey has wanted to see Europe in 23 years of humiliating rejections. What started in 1987 with a membership application has become an accession attempt by all means available. We go after the question: what IF it the EU-Turkey merger does take place?

One of the more striking results of our Independent Analysis is that “Turkey in the EU” would have a positive impact on Economic Growth, Trade, Inflation and Interest Rates. It would further rejuvenate Europe’s fast aging Labor Force, improving EU’s Dependency Ratios (old to young). The EU Muslim population would also jump from 22.4 millions* in 2015 to 112.5 millions by 2020. While the economic & fiscal impacts could be positive, the social and political impacts of a de facto Christian-Muslim Union could be challenging to destabilizing. Mainly because the integration is being perceived as pursued mainly by one party, not both. Yet more territorial expansion by the EU could further boost the current popular movements to preserve national identities and sovereignties after 20 years of somewhat forceful integration – not only fueling an already polarized political landscape but possibly igniting an identity crisis. In principle, the coming together of different cultures is a positive thing that can leverage on the advantages and synergies. But unless this “coming together” is equally desired by both sides, enjoying broad support in the public, it will rather exacerbate the fears, disadvantages and discrepancies. Thus, people on both sides need to be ready for this and wanting it. Then it can succeed. Ankara may be getting what it wants, but the perceived means of its assertive strategy may undermine the very great potential of such an integration.   

Shifting Politics & Security in a Turkey-enlarged EU. Given the growing polarization in the political landscape of advanced democracies, the Muslim representatives in Strassbourg may have to pull together to protect their interests, yielding an influential political coalition. The jump in the Muslim population to 112 millions and the rise of the probably 3rd largest block in the European Parliament could reshape European politics, and some civil rights such as freedom of speech may “de facto” suffer. Already now few German journalists dare to openly criticize the treatment of leading Turkish journalists by President Erdogan. 

Learning from the West’s strategic errors in China. Recent political and economic history has shown that it is naive to think that more integration brings democracy: those who said China would become increasingly democratic if we offer it Free Trade with no conditions attached to democratic and civil rights, have been proven wrong. After welcoming the dramatic concentration of the Western Production Base & Supply Chain on her soil, Bejing toughened its autocratic and repressive course, and furthered its aggressive expansion in the Asian region by building man-made islands in the South China Sea. With the West’s crucial IT Supply Chain in her hands, Beijing is even using this as powerful geostrategic tool against the West. Beijing has clearly outsmarted the West.

A self-reinforcing negative cycle: While conservative anti-immigration parties could gain yet more ground as they weaken the already “thinned” established Center Parties, Europe’s security challenges could practically sky-rocket. The already elevated terror threat in Europe could be overlaid by Turkey’s multiple alliances and the bitter conflict between Turks and Kurds, along the conflict between Kurds and IS. After the backfiring of Erdogan’s Foreign & Security Policy, radical Islamists among Sunnis and Shias are taking their sides in the Turkish-Kurdish conflict. With roughly 1 million Turks and almost 1 million Kurds in Germany-Austria-Switzerland alone, the center of gravity of racial-religious tensions could shift to Germany. The belief that economic integration will shield Germany from tensions and radicalization may prove illusive. A more complex security landscape could strongly reinforce anti-immigration parties, further weakening the Traditional and Center Parties. In turn weakening the ruling coalitions in Germany, France etc and their ability to handle the multiple challenges with a steady balanced hand. This could escalate in a political-social-security crisis of unprecedented dimensions. The exodus of tourists could be joined by the exodus of investors, entrepreneurs, security-minded families and Europe’s brain.

(* EU sources say it is close to 19 or 20 Mio, but we found discrepancies and data biases, thus we built our own database. Our estimate for that population in 2015 is close to 22.4 million)

Brussels-Berlin needing Turkey

In Spring 2016 the EU was overwhelmed while Ankara was geo-strategically in a formidable advantage: It controls the flow of migrants. Ankara offered Mrs. Merkel a saving hand in the EU Migrant Crisis … against concessions for Membership Negotiations and swift Schengen access. A history of empty promises to play on time now catches up with the EU: Aware of the past, Ankara has set conditions & a time frame to make sure Turkey would get swift access to Schengen and start fast-track EU Accession Negotiations. Should the EU “procrastinate”, Ankara could open the gates again and let migrants flow towards Europe again. Up to 1’900’000 additional refugees are still on Turkish soil. The unfolding human catastrophe this time could bring down Mrs. Merkel’s ruling coalition of CDU-CSU-SPD and the EU.  The Bavarian coalition party, CSU, is not far away from leaving the coalition on serious disagreements with Merkel’s immigration policy. The EU commission won the support of Poland, Greece and other nations that strongly oppose the accession of Turkey by threatening to cut their EU subsidies and transfer payments. But these nations could “time” their revolt with the CSU (Christliche Soziale Union) and the AfD (Alternative für Deutschland) if the refugee flows resume in the Spring-Summer. The horrible Terror Attacks in Brussels this March 2016 are a serious blow to the EU and Mrs. Merkel. Thousands of refugees remain unaccounted for in Germany and according to US sources at least 5’000 ISIS fighters are in Europe. The AfD’s entry into German state parliaments as 2nd or 3rd largest force has positively changed the landscape for the conservative CSU to resist what it sees as a too-rapid “alienation” and “security degrading” in Bavaria and Germany as a whole.  

Mrs. Merkel, under attacks for “selling out” the EU and visibly weakened after the big losses of the coalition parties in recent state elections, replied “it will take a long time until Turkey is in the EU”. But, German political analysts have seen the change of fortunes of Mrs. Merkel.  She is fighting on three fronts: Brexit, the Migrant Crisis and the revolt of the CSU. We no longer can rule out that the CSU will not leave the government coalition (CDU-CSU-SPD) or at least shake up the government. Something few outside Germany are aware of.   

The path has been set and this time Turkey won’t be fooled so easily. Merkel and Juncker need a miracle to cancel the wedding (merger with Turkey) without breaking down the EU or losing Britain. An immediate pacification of Syria and Iraq is needed, so the flow of refugees would stop without Turkey’s help. That is indeed a miracle.

To advance this research on EU-Turkey we had to combine our resources in statistics, economics and politics. The Executive Summary is in picture 3 – the current stage of this “work in progress” is here and we kindly ask for your kind understanding if some relevant aspect has not yet being included.

(We remind our readers that we do not believe in Conspiracy Theories, nor do we work based on ideologies. We respect every nation with their cultural-religious setup, and believe all nations pursue their national interests with the means at their disposal. We note that some nations are better than others at combining their limitations, comparative advantages and their resources. In a way we could commend Turkey for being able to outsmart the EU geopolitically. Just as the EU has in the past advanced her interests at the expense of other nations. This is not Turkey’s fault, rather the EU’s utter negligence of Strategic Foresight. Turkey cannot be made responsible for the EU’s failures: a colossal Fortress over-managed and under-led. A Union in relentless expansion that has promoted top bureaucrats, able administrators and top managers, but shun visionary strategists.)

Picture 3) Our analysis focuses on how the EU will be impacted when Turkey joins.

Commenting the results of our independent Turkey-EU research:

Ankara has been treated with contempt by Europe before and it is well aware “while it is not really wanted, time and trends are on her side“.  Mrs. Merkel only conceded Schengen and EU membership under the big pressure of Turkey to get Ankara’s help to bring the Refugee Crisis under control. But the access to the vast Schengen Area in 3 months will help set the dynamics in motion. 78 Mio Turks may have access to the European Schengen Area and Ankara will set her formidable economic & trade machinery across German-speaking Europe in motion – it has already a strong base there. I personally sense Turkey will enter the EU through the back door, possibly though an external crisis during the long negotiations. Ankara’s geo-strategists foresee Turkey in the EU de facto making Europe a Christian-Muslim union, leveraging their political-economic expansion in the Middle East. Will Europe yield?

In the confluence of geopolitical crises, economic distress and advancing  demographic implosion .. The EU could be swayed by the economic opportunities. European big businesses could benefit from cheaper & younger labor, direct access to the dynamic Turkish economy and her close ties to the MENA region, specially Iran. Currently there is war, but if stabilized, the MENA region would benefit from a demographic “sweet spot” conducive to strong credit growth, massive reconstruction and access to the EU via Turkey. We expect growth rates of 3% to 7% p.a.  And inflation rates of 7% to 15%. The ECB would be very keen in having the superior economic (credit) growth and specially the structurally inflationary Turkish economy in the EU. According to our simulations, Turkey could add 0.2% to 0.4% to the EU GDP growth during the first 3 to 5 years. Possibly more. Turkey could also add some 0.4% to the Eurozone inflation when multiplier effects are considered.

Note on statistical work on extended population 

I take into account the 5.8 Moslem immigrants into the population statistics of the EU and Turkey (my most conservative estimate for refugee inflow in this 5 year period), which government source are not accounting for.

3)  US Primary Elections enter final phase – Security & Immigration concerns favor Trump and Republicans in 2016. But Party insiders and delegates are taking over the process.    

The fact that the mastermind of the Paris attacks could live in his original neighborhood – unreported and undetected by the biggest police mobilization in European post-war history are revealing to millions of Americans how dangerous and bizarre the situation is. Fury against “Appeasement and Political Correctness” policies on Immigration and Security is being rekindled. We see this benefitting Mr. Trump and the Republican party the most. This puts pressure on Mrs. Clinton, who is being protected from indictment by the current administration. Just as the Republicans are effectively sabotaging Mr. Obama’s nominee for the Supreme Court, the Democrats in power can sabotage the indictment of Mrs. Clinton. Both parties are using partisan tactics – the kind Americans are tired of.

Here our latest analysis and predictions for the US political process. Looking at the Popular Vote, we see still Mrs Clinton and Mr. Trump with the biggest likelihood of winning their respective nominations. But the revolt vote remains significant, thus whoever wins the White House, will be swayed to change course in America’s Trade & Foreign Policy. But Popular Vote is being systematically frustrated by the Republican Party, and it is likely the GOP will deny Mr. Trump the nomination.

Because the GOP establishment has fought the GOP frontrunner ferociously, the Republican Party will go into the race against the Democrats utterly weakened and divided. If the GOP has its way, I expect millions of Trump supporters to revolt, deny the GOP their vote in November and possibly riot. I wouldn’t be surprised if analysts underestimate Trump again after the GOP denies him the nomination. Mr. Trump is new to US politics, but knowing how angry he is about the way politics is done in the USA and his vitality, he is likely to stay involved in US politics to clean up Washington. We have been warning that US Elections 2016 are taking place during a highly vulnerable Transition Period for the world. Thus, we reiterate our warning that President Obama may have to postpone the US General Elections in November. There are several scenarios overlapping the US election process that could trigger such a decision – which we’ll not elaborate here. President Obama may have to stay in power beyond January 2017. Unprecedented, but not far-fetched if you are aware of the unprecedented confluence of Global Geopolitical & Macro Trends that is taking place during 2015-2018 – and political upheaval in the Republican Party may only add to that. We are monitoring that 10 out of 24 Global Geopolitical Macro Trends are converging already. Aggressive nations and groups are perceiving an overwhelmed world with a weakened USA in retreat – the USA is indeed shrinking its offensive military capabilities and President Obama is in his lame-duck year.

We hope our summary helps you navigate through the final stage of the Primaries.  The biggest “news” lately is that Mr. Trump now has between 50% and 60% support in New York. A possible hint at the general elections, the party elite won’t overlook. More establishment leaders, like Jeb Bush and Mitt Romney, are endorsing Mr. Cruz, but I sense that is net-net a “negative” with so many Americans angry at the course of their nation. The more likely an Open Convention becomes, the more likely it is that the GOP will chose a man from its own ranks as nominee.

Frustrating the Popular Vote: One thing is clear Mr. Cruz would have to win 98% of all remaining delegates to win the GOP nomination. And barely anybody is reporting about this. Cruz would have to win 769 of the remaining 784 delegates! This means, the GOP establishment has both Cruz and Kasich in the race simply to make it harder for Trump to win the nomination directly by Popular Vote. They want to force the process into an Open Convention in Cleveland, where the Party bosses and the delegates (party insiders) decide who gets elected. Those delegates do not reflect the Popular Vote nor are they truly “unbound”. Mr. Cruz has used his formidable party machinery to put his loyalists in state delegates that Mr. Trump has won by popular vote. A game Mr. Trump is new to.

This means that the political and media establishments are working hard to force the whole Nomination Process away from the Popular Vote back into their hands, an Open Convention. Many Americans realize their Popular Vote is being rendered void and they are fighting an uphill battle. This experience will greatly support the rise of a New Party in the USA in the future. To Americans and citizens all over the world the crude reality of the US democratic process has been exposed. It is kind of ugly and dominated by established parties that have put pits for any candidate that they dislike. In Louisiana Mr. Trump won, but Mr.. Cruz’ lawyers are using their machinery to win back delegates. It is “legal”. Thus the winner may not end up having more delegates than the loser. In Pennsylvania, a Winner-Takes-All state with 71 delegates for grabs, the GOP may only give 17 delegates to the winner. The other 54 delegates might be “unbound”. But insiders know those people are anything but “unbound”. People may ask “what are we voting for?”.  The GOP machinery has populated the delegate lists with party insiders loyal to Cruz, Kasich and Rubio. Thus, even if you win Pennsylvania by big popular vote, the GOP may give 76% of the delegates to your opponents. It is this kind of so called “unbound” delegates (party insiders) that will decide the Convention. You can also look at the Super-Delegates of the Democratic Party, that are party insiders and support Mrs. Clinton. An uphill battle for Sanders to clinch the nomination. Both established parties are not truly democratic and they seem to underestimate the reaction of the electorate.

I believe this gigantic concerted effort by the establishments to frustrate the Popular Vote could backfire badly. The parties may be proud of their old system, but I feel many party and media insiders underestimate that in the digital era, people will NOT take such a system perceived as “rigged or tightly controlled”.  Long term the USA is drifting towards a multi-party system, political uncertainty and possibly riots along the way. 

Picture 4:

The up-hill battle of Mr. Trump is a formidable one. He is not only fighting a gigantic machinery of US political, business and media establishments; even foreign nations have joined the fight against him. Mr. Trump announced recently elements of his tough Foreign Policy: to move the US embassy from Tel-Aviv to Jerusalem, to build a wall on the Mexican border and renegotiate NATO. In his words: “no more accommodating nor appeasing gestures, but a tough stance and unpredictability to America’s foes”.

Further analyses and predictions: Cruz is biggest beneficiary of Trump’s rise ..

a)  Ted Cruz is the biggest beneficiary of the phenomenal rise of Trump. Cruz, the most dreaded man of the GOP, sees vindication as GOP elites now coalesce around him. I’ve been following Mr. Cruz: a devout evangelical Christian, stoic defender of the US constitution (which protects citizens from Govt power), not easily “bought”, clearly pro-business and pro strategic US allies: Israel, UK etc. Cruz has put forward the most innovative Policy Idea in 2016: a FLAT TAX for consumers and for businesses to unleash economic growth. it is superb, but it could put over 140’000 lobbyists, tax consultants, lawyers and IRS staff out of work. Trump and Cruz may need unprecedented secret service protection to make it through the campaign and first 100 days in office if elected.

Either Trump or Cruz will choose a moderate figure as Vice President ticket. Someone less feared by vested interests that could finish the job if necessary and that could run for office in 2019. We already have seen Mr. Trump reaching out to Mr. Carson as key policy adviser, and Mr. Cruz reaching out to Mr. Rubio. I think Mr. Rubio may become US President in the future.

b)  Our independent demographic-economic analysis across counties indicates conditions are conducive for the RISE OF A 3^rd PARTY down the road. As I have written before: mass immigration has been the main tool by centrist-liberal parties to grow their electorate; and by conservatives to lower wages. Big businesses have for years smartly financed both sides of the aisle. Increasingly, millions of voters on both sides of the Atlantic say “the old liberal and conservative parties no longer represent our interests”.

c)  If the GOP elite takes away the nomination from the revolt-leaders Trump and Cruz, there could be riots in the USA, the GOP will break down and US elections could be postponed.

Party insiders are preparing for a Convention in Cleveland – but how can the GOP put forward Rand Paul or Mitt Romney, and infuriate the voters behind 77% of pledged delegates?

The old playbook says it is allowed, but America has evolved and I doubt that voters would accept “back room tricks” to stop the man or men with the biggest voter support.

d) Conservative voters are literally taking back their Party. Should the Party frustrate the Popular Vote in a way that voters feel the process has been stolen away from them, the formation of a Third Party is likely.  The fall of the old GOP poses Political Risks for the USA and big S&P-500 names. Although we are 100% pro business, we have to admit the collusion between Big Firms and Washington had become rampant. When businesses become so powerful that they shape legislation, Democracy is hijacked, and the excesses could bring about a threat to Free Markets. Short term, the revolt poses big risks for multinationals’ earnings, but longer term a course correction could lead to a more balanced & sustainable economy. Mid-seized domestic oriented firms could fare the storm much better. 

Mid-sized firms are less exposed to targeted legislation, while they would benefit from a rise in wages and local production. US cost competitiveness would decline first, but the boost to private incomes would allow for the Economic Rent to be more evenly distributed in favor of “Labor”. The boost to the middle class would reduce political instability.

4) Out of my Outlook flow these precautionary suggestions ..

1. Focus on countries with superior Wealth Accumulation per capita instead of GDP growth => more stable environment for investments.

2. Avoid illusion of Currency Gains: remember the paper currencies USD, EUR, Yen .. are debased.

3. Favor nations with superior Geography (i.e. grid of rivers are key post-war); Germany, Holland, USA, Russia, Argentina-Uruguay-Paraguay.

4. Prepare for more supra-national action & integration (super states), Centralization & Currency Reforms. Also martial law and city riots.

5. 2015-2018 is more conducive for Active Trading than Buy & Hold. Paradigm shift from “FED-guaranteed capital gain” to “capital protection”

6. Do not rely on past Correlations, and trust Variances over Mean Estimates

7. Avoid unnecessary risks and unnecessary air travel

8. Have ready Contingency Plans for possible disruptions and crises

9. Diversify away from the Northern Hemisphere, discretionary consumption, health care and counterpart sensitive assets (structured products, derivatives..)

What I wrote in my Update earlier this March as conclusion stands firm:  

” Thus, I conclude for now that Political Risks could compound already elevated geopolitical & Geophysical Risks to weigh on real economies and financial markets.

My latest risk model simulations show Global Risks remain elevated and Investors should be ready for “disruptive events”, hence the need for extended contingency plans. “

Kind regards

Christian Takushi, MA UZH, Macro Economist, Switzerland.

General Disclaimer: Global Macro and Geopolitical Analysis are highly complex and subject to sudden changes. No analytical method is without certain disadvantages. We may change our 3-pronged outlook within less than 3-6 hours following an event or data release. Global macro analysis can be extremely time-sensitive and the first 24 hours after an event are critical for the response of a corporation, investor or pension. Only qualified investors should make use of macro reports and treat them as an additional independent perspective. Every investor should weigh different perspectives as well as “opportunities & risks” before making any investment decision. Not all our reports, research and intelligence is published here. Only our clients have the full and instant access to it. What we release here is delayed and adapted. The research & views we post here for public access are to help decision makers adapt their long term & strategic planning to changing realities, not for short term decisions. If you are not a qualified or professional investor, you should get professional advice before taking any investment decisions.