The World Is Undergoing Historic Change

Beginning in 1946, the US helped Europe and Japan to be resurrected and democratic governments to be established. The US, through the Marshal Plan and other foreign aid programs, funded a lot of the rebirth of the world not under Communist control. Thus, we then had the cold war. All during this period Europe was rebuilt, its economies restarted and its governing institutions grew into the EU, the ECB, and NATO, along with numerous other institutions which ran Europe for decades. Over time, Germany once again became the predominant economy and power in the EU, and Merkel, who was able to be reelected four times, became the defacto President of the EU. Germany was able to inflict its economics and politics onto the EU and ECB, and Merkel was able to push her agenda through for the most part.

Brussels become the Washington style bemouth where the bureaucracy become its own power unto itself, and answerable to only Germany in essence. Although each member nation had a veto, the small countries really had no real power.  Over time Brussels and Merkel and the Bundesbank dictated what the rest of the EU did. Just as we saw in the US in 2016, eventually the people and the smaller nations, grew to resent being told what to do, and how to think, and who to allow into their countries. Resentment grew and it was the massive influx of Muslim refugees that became the tipping point.  Crime increased and politics and cultural norms were becoming threatened by these outsiders. Then Merkel decided herself to force the EU to accept well over 1 million Muslims, and while at first that was accepted by most, it quickly became a threat to what EU citizens perceived as their way of life, wages, and security. In addition, the crash made the economic life of most EU voters very unpleasant, and they were not getting raises or any increase in living standards.  In fact, life was becoming less pleasant, living standards declined, and now there was this huge influx of cheap labor taking their jobs, with Merkel saying suck it up. This was a recipe for revolt, and so we saw in Netherlands, Austria, Hungary, Poland, France and now Italy, a hard right push in politics.

Europeans have had centuries to create their respective cultures and Christian religious culture. Since Hitler essentially wiped out Jewish culture and life, Europe was a Christian region. They were coming off 8 years of economic collapse and extremely high unemployment, reaching over 20% in places like Spain. To pay for the massive socialistic entitlement programs, many countries took on levels of government debt that were unsustainable given the declining economies and high unemployment. France, the Netherlands and Belgium were forced, due to their colonial roots, to take in huge numbers of Muslims. By 2016, the Muslim populations in these countries had reached a tipping point where in the case of the Netherlands they will be majority Muslim in 10-15 years. Crime south of Paris became very bad. Riots in these areas become more common. Living standards during the past eight years declined. And through all of this there was Germany and Brussels EU headquarters dictating that they had to take in another one million plus Muslims who they viewed as outsiders taking their jobs and their cultures. A shift to the far right was inevitable. It is analogous to what happened in Germany in the thirties.

So now here is the world faced with political upheaval and continued high unemployment in Europe, a huge political shift and dangerous extreme partisan threats from Maxine Waters, and others on the far left in the US, China becoming the second largest economy in the world, the destruction of the Soviet Union, and the mess in the Mideast brought on by horrendous foreign policies of Obama, and now a very unusual US president undoing the diplomatic and institutional norms and cultures developed over decades. There are earthquakes all across the globe. The established norms and governing people are rapidly being undone. We are therefore at a world tuning point. Trump is in, Merkel is soon to be out, the UK is about to be out of the EU, the far right is taking positions of power in the EU, China and the US are in a massive competition for economic, military and political power, Putin is sticking his oar in with military threats and cyber actions, and Iran is destabilizing the Mideast just to add to the chaos. Then we have N Korea threatening the US.

Bottom line, the next few years are going to be very unstable across the world as all of this plays out, and we transition to whatever the new normal geopolitically turns out to be. Politics in the US is also in major transition. With the economy remaining very strong, the far left taking over the Democratic party, Maxine Waters and Pelosi being the faces of the party, the anti ICE rhetoric, and what may become the new Watergate scandal when the whole FBI /DOJ anti -Trump story comes out, it is highly likely the Republicans will keep control of Congress and increase their seats in the Senate, and Trump will be reelected. With the Court becoming much more conservative, especially when Ginsberg is replaced, there will be a very long period in the US of conservative political power materially offsetting what we just experienced under Obama. This will be matched by similar right wing political policies in the EU and the UK.

So, for CRE investors, the US is the safest, best risk adjusted return place to be. The EU is going through massive changes the outcome of which is hard to predict. The Mideast is likely to see a Sunni/Israel vs Iran war, or a new revolution in Iran in the next year. China and the US will battle on to reach trade peace and a modus operandi for the sharing of military and political co- existence in Asia. Investment capital will continue to flow to the US as other parts of the world destabilize. The US economy will continue to thrive for at least another two years, and maybe longer. Stay home and keep your capital safe.

The views expressed in this column are the author’s own and not those of ALM’s Real Estate Media Group.