In the final days of the Obama administration, as the transfer of power gets underway to the new Trump administration, the geopolitical world is as exciting, dangerous, and volatile as ever. The dangers from China and Russia have prompted the incoming Secretary of Defense to warn about the enormous threats to the world order. Fiat Chrysler has been caught cheating on emissions in another market rocking scandal. Hard Brexit fears are rocking the currency world again, and the Turkish Lira has just touched its all time low amid a credit rating downgrade. Gold offers you insurance and protection for your retirement accounts.
Incoming American Secretary of Defense Warns World Order Under Greatest Attack Since WWII
Incoming President-elect Donald Trump’s nominee for Secretary of Defense Retired General James Mattis is not nicknamed the “Mad Dog” for nothing. In his senate confirmation hearing last week, he warned that the world order is under attack. He was not just talking about the usual level of danger either. General Mattis opined, “I think it’s under the biggest attack since World War II, sir, and that’s from Russia, from terrorist groups and with what China is doing in the South China Sea.”
Senate Armed Services Committee John McCain followed up this line of query by asking if he thought there might be valuable lessons from history on how to handle Vladimir Putin, the President of Russia. Among his remarks Mattis mentioned, “Since Yalta, we have a long list of times that we’ve tried to engage positively with Russia. We have a relatively short list of successes in that regard.”
The retired general carried the warning a step further by calling Russia’s meddling a direct threat against NATO and the United States. He added the United States must recognize, “the reality of what we deal with” with Russia and Putin who is busy attempting to “break” the NATO alliance. The general suggested the defense against Russia and the other American enemies will require economic, diplomatic, and military actions in order to defend the country. His revealing and direct comments make it sound like the possibility of future military action in defense of American interests abroad is now officially back on the table.
Fiat Chrysler In Trouble for New Diesel Emissions Scandal
The Volkswagen emissions scandal shook the auto industry around the world and had significant impacts on the stock of the largest German carmaker less than three years ago. Now a new bombshell has been dropped as yet another major automaker has been called to task by the United States Environmental Protection Agency. The EPA accused the Italian-American carmaker Fiat Chrysler of installing software within the Ram 1500 and Jeep Grand Cherokee models which permits them to surpass their allowed pollution levels. While the EPA did not go all the way to call this program another “defeat device,” it did state that the manufacturer did not reveal their existence and purpose in advance.
Fiat’s stock cratered on the news as you might expect. The company is not accepting this lying down, claiming that it does in fact live up to all of the regulations and requirements which apply. It promises to work hand in glove with the incoming President and his administration in order to fight the charges.
The last thing the firm wants is to endure the problems that Volkswagen suffered from lawsuits on every front, including in the European Union, the United States, and Australia to name a few. Back in September of 2015, the German car making giant accepted responsibility for employing such defeat devices in its vehicles. This past Wednesday, Volkswagen finally settled on a $4.3 billion fine which brings the price tag in penalties for the scandal to around $21.9 billion worldwide.
Hard Brexit Fears Crush the British Pound Again
The Brexit slow motion divorce from the European Union is an agonizing process that seems to go away for a few weeks then reappear with a vengeance. The latest episode in the saga came from the Sunday Times report that government officials have told Prime Minister Theresa May that her upcoming comments will lead to more of a market correction. Two different sources have stated the Prime Minister is willing to walk away from the customs union and single market of the European Union if she has to in order to recover British control over both immigration and lawmaking. This forced the British pound sterling to plunge under $1.20 before recovering somewhat.
This drop represented only the first sub $1.20 dip since the now-infamous “Pound Flash Crash” of October. At that time, the British currency notched a full three decade low at $1.1841. The currency is not only in free fall against the dollar. It has suffered at the hands of all its proverbial rivals before this week’s long-awaited speech May will give Tuesday. Gold rose on the news as equities dropped.
To make markets still more jittery, there is a report from Bloomberg that says Her Majesty’s Treasury will talk with the major banks immediately following the landmark policy speech in order to help calm the anticipated market reaction. All that Downing street will say is that the Prime Minister is looking forward to a positive new relationship with its old partner the EU. The government looks to be increasing the toughness of its approach with the European Union despite these comments.
Philip Hammond, Chancellor of the Exchequer, made it clear that the U.K. will do whatever is necessary in order to increase its regional and global competitiveness if the European Union will not allow it to have unfettered access to the single market once the nation withdraws. Markets have seen this as a potential warning that the British will spark a race to the bottom with the neighboring countries by slashing rules on employment and corporate taxes in an effort to retain and attract top talent and major businesses to the U.K.
Turkish Lira Reaches All Time Low Versus the Dollar As Moody’s Cuts Credit Rating
It was not only the British pound taking it on the chin this past week either. The Turkish Lira has made a new historical low of only 3.7790 versus the American dollar this past week, a day after having made a prior all time low. The Lira declined around 17 percent measured to the dollar last year 2016. This made it the emerging market with the second poorest performing currency, behind only the Argentine peso.
Turkey’s problems are complex and manifold nowadays. Most recent among them is the Moody’s credit agency cut to the national credit rating last Monday. The cut was accompanied by a negative commentary on the country’s outlook. The comments from Moody’s stated that the security risks increasing sharply over the last several years has dramatically worsened the nation’s current economic reality and future prospects. They said it will even probably lead to a greater number of bad loans which the major Turkish banks are holding.
The country’s only hope at the moment is that the Republic of Turkey’s Central Bank will ride to the rescue at its upcoming monetary policy meeting to be held on January 24th. Still, analysts are skeptical that this will save the day for the embattled Turkish lira. “The only thing that will arrest the decline of the lira at this point is a sharp hike in the 8.0 percent 1 week-repo rate by at least 200 basis points, or a miraculous turn in investor sentiment. Don’t expect any miracles,” warned SEB’s Chief Emerging Market Strategist Per Hammarlund.