 Good day comrades. Now saying that Europe is getting communist is a pretty heavy statement but in this video I want to elaborate on it. So first let's start with what communism is. One of the definitions of communism is the following. A theory or system of social organization based on the holding of all property in common actual ownership being ascribed to the community as a whole or to the state. So if the state owns or influences producing assets, influences the economy, the market, we can say that the environment is more communist than other. If the state gets involved into politics influencing democracy and political outcomes then we are also saying it's more oriented towards communism. So let's see what's the situation in Europe in the political field and in the corporate field and what's the impact of the state onto that. Of course in the last eight years all central banks have done really significant asset purchases but the Fed bought only treasuries while Europe and the Bank of Japan went one step further buying corporate bonds and buying stocks ETFs in Japan. I'll focus on Europe in this case. So as the target was to increase inflation to at least 2%, the ECB European Central Bank increased their asset purchase program so that they buy bonds, asset backed securities, public sector bonds and corporate sector bonds. And their buying was at the monthly base of 60 million at first and then increased to 80 billion. So 80 billion per month adds up to 960 billion per year compared to the European GDP and you can see from where does the European economic growth come from. Let's get a little bit deeper. Let's check the political impact of ECB purchases. That's very easy. In April there was the French election, there were some fears that another candidate will win which is not European Union and what did the ECB do? They significantly increase purchases of French bonds in order to stabilize the situation, in order to lower the financing costs for France and keep the situation as is from a political perspective. Just look at the discrepancy between the buying of French bonds in March 2017 and German bonds. So the ECB is intentionally buying the bonds of the countries where the political situation is questionable or that represents a threat to the European Union. So when you have an ECB that has an incredible amount of money and can buy whatever they want, they buy bonds, lower interest rates and the situation in the country looks immediately better. Do they impact democracy? Of course, because what they have been doing is certainly not fair because they should buy according to market cap or according to whatever, not according to the current political situation or elections coming up or not. So they are impacting politics and democracy. So a step closer to communism than capitalism. An even stronger impact is on the corporate sector. Up to 2015, from 2010 to 2015, people were pulling out money from the European Union. The demographics are negative, the companies are not that competitive and there was a recession and everything was going pretty badly. So in the long term, there are much better opportunities to invest across the world. Then the ECB said, oh, we have to buy everything what we can in order to change the situation in Europe. So the change didn't come from an improvement in productivity, from an improvement in knowledge, in research, in competitivity. The change came because the ECB started to buy assets in order to put more funds into the euro area. And you can see here how the asset purchasing program changed the capital flows in Europe. Suddenly, there was plenty of money in Europe, but this is not thanks to any change in fundamentals. So when you have a bank that's putting in money, not caring about the fundamentals, people became complacent. Companies know they can get them as much money as they want. Companies are not allowed to go bankrupt because that would shock the system, which is very, very fragile. And putting more money is just hitting the can down the road. So eventually, the system will break. I was born in a communist country. I have seen this pattern and it's repeating itself. Putting more money, more money. At one point, inflation breaks out. At one point, nobody wants the euro anymore. And then all hell breaks loose. Nevertheless, it shouldn't be a surprise that when ECB started with their intensive purchase program, the GDP finally picked up. And now it's from 1.5 to 2% growth per year. When you have somebody pumping in a trillion euros per year, it's normal that it grows at 1.5 to 2%. If it wouldn't, then it would be a complete disaster. I think it should grow even more. Digging deeper into the corporate world, the ECB up till now, about 96 billion of corporate bonds, which is extremely important in a market that's large 1.5 trillion. So if they are buying 96 billion, so practically they are buying almost everything that they can buy in the corporate market. This leads to the fact that 15% of euro corporate debt has a negative yield. So imagine that you are a corporation and you can borrow money at a negative yield. So you don't have to think about being competitive, about improving, about improving your creativity, about doing something new. You just take the money, enjoy, spend it on buybacks, spend it on dividends, push up the share price and everything looks well. No wonder Apple, Facebook and all the new technologies are coming from the US. Not that much from Italy, Spain or Greece. Look at the chart. We'll show you which bonds are being bought from what companies and you can see from NL, BMW, Daimler, Deutsche Bahn, Orange, Air Liquid, whatever. And this means that those companies have a really significant advantage in comparison to other companies and they are not allowed to perform in a free natural market environment. Therefore, it looks more like communism than capitalism to me. Just as an example, Deutsche Bahn recently priced a 330 million five-year bond to yield negative 0.006%. Try to compete with that or say that it's not market distortion. However, the euro spiked in the last few weeks really significantly against the dollar. So what's going on? Well, in the fundamental part, nothing happened. It's just Mario Draghi, the ECB chairman that said we are going to look how to cut the purchases without roiling the economy. That's something that they can look at, but it's impossible that they do because they need productivity, competitiveness, global competitiveness which Europe is definitely losing, especially with the negative demographic trend. Europe is definitely losing in comparison to emerging markets and the rest of the world. So they can postpone the inevitable, but the focus should be on the things that hurt, knowledge, research, creativity and those things, not on just pumping in money and hoping that the outcome will change. That's according to Einstein's insanity, doing the same over and over again and expecting a different result. Just to look at Moody's global bank stress test levels, you can see how Europe is pretty orange with severe and extremely severe vulnerability to external shocks. Therefore, Europe, no matter what happens to the euro now, is under a severe threat that one shock that hits Italy, Spain, Greece, can roil the complete continent politically, economically, inflationary and the ECB. So there is a high risk of black swan happening to Europe. Therefore, if you are an international investor, try to avoid Europe. There are much better markets, much better fundamentals and in the long term you will do much better than to invest in Europe now, especially as the assets are a little bit overpriced for the risk. So we have seen, it's not really communism, but we have seen how the impact is pretty significant on governments, on corporations and the yields, the interest rates are kept artificially low. If interest rates go up, we have Greece, we have Croatia, Italy, Spain, Portugal, all those countries go bankrupt like this. And that can only be postponed by putting more money. That cannot be changed without severe reforms. Those things are not happening, everybody's happy. Let's build new bridges to develop the country that have no economical viability and things like that. I could talk hours about what's going on. Just the message is, if you are an international investor, don't think Europe is a stable environment. Please stay in the US dollar, look around the world into emerging markets, you will fare much, much better and you run much lower risks of running into black swans. I want to finish with a message to Mario Draghi, the ECB president. I know you're watching Mario, so this is for you. I'll see you in the next video.