Monthly Archives: September 2017

Sep 6 2017

“Uncle” – Russia’s Vladimir Putin Calls For “Talks” With North Korea…


Re-Posted from The Conservative Tree House on September 6, 2017 by

More Bigly winning.  This announcement must be contextualized with timing and prior knowledge of discussions between Vladimir Putin and Xi Jinping.   Remember, the BRICS group (Brazil, Russia, India, China and South Africa) just held their economic meeting.

(link) 

Russian President Vladimir Putin has called for talks with North Korea, saying sanctions are not a solution.

Putin made the remarks Wednesday after meeting with South Korean President Moon Jae-in in Vladivostok, Russia.  North Korea says it detonated a hydrogen bomb in its sixth nuclear test on Sunday.

Putin, speaking in China on Tuesday, had condemned the nuclear test as provocative, but said that Russia views sanctions on North Korea as “useless and ineffective.” (link)

During last week’s BRICS forum, Xi Jinping and Vladimir Putin agreed with the larger principle that “denuclearization” of the Korean Peninsular was now an acceptable goal for China and Russia.  However, the U.S. didn’t flinch on announcing the possibility of UN Security Council sanctions beyond the DPRK, specifically targeted toward North Korea’s economic enablers (Russia and China).

That Trump administration approach puts Xi Jinping and Vladimir Putin in a precarious position on the world stage.  They don’t want to be seen voting against sanctions placed upon North Korea – it would remove their enabler masks.  They cried “unfair”.

Adding to the economic pressure, after the BRICS meeting India’s Prime Minister Modi essentially stated he was exiting the assembly due to significant geopolitical conflicts with China.  President Trump and PM Modi have been forming an economic alliance as the U.S. looks to leverage India as a possible economic replacement trade partner for China.

Again, the request by Xi Jinping for “six party talks” (China, Russia, N-Korea, Japan, S-Korea and the U.S.) is the signal everyone should be looking for to determine when China finally acquiesces to the geopolitical economic pressure President Trump has artfully assigned.

This announcement today by Russia’s Vladimir Putin, after meeting with South Korea’s Moon Jae-in, is a strong indication Putin and Xi Jinping have discussed and are likely to make that announcement.  Beijing knows such a call by their President would indicate weakness, and it makes sense China would utilize Russia to break the ice and allow the appearance of their failed economic strategy to fall under the guise of diplomacy.

Accept this call by Russia for what it is, Russia and China crying “uncle”.

President Trump winning.

Remember, China is seeking conquest through economic power. China must be confronted economically. China must be defeated economically. The moment China sees economic defeat, it will act differently. China will eventually call for six party talks.

Communist Beijing has boxed themselves into this inescapable trap.  The reason they keep authorizing Kim Jong-un to take action is simply because China has no alternative leverage to use against President Trump.  China has nothing in their economic arsenal they can use to hit back against President Trump, so Beijing keeps using North Korea in an attempt to create leverage.

However, President Trump doesn’t play along with the bluff, he knows every card China is holding. Trump knows China has no substantive economic leverage against the U.S., and Trump also knows China has boxed themselves into this cycle.  It’s a ridiculous three step process.

¹China tells DPRK to do stupid thing.  ²DPRK does stupid thing.  ³Trump hits China with economic punishment for stupid thing.

This cycle has been ongoing for months now, yet the media apparently doesn’t notice it. Each time Kim Jong-un does a stupid, Donald Trump slaps Xi Jinping.  The only way out of this cycle is for Beijing to concede and lay the DPRK defeat at the feet of Kim Jong-un.  The conceding will evidence itself when Beijing inevitably calls for ‘Six Party Talks‘.

President Trump can play out this action/response dynamic as long as it takes to reach economic victory. There is no substantive downside in the economic battle for the U.S.

Everything is proceeding according to the intensely predictable plan:

AUGUST 13th […]  So we can safely predict that sometime in late fall, most likely before the ASEAN visit timeline in November, President Trump and Rex Tillerson will be engaged in a new round of Six Party Talks, initiated by request of the increasingly desperate China.

China will structure the DPRK talking points to set up the meetings.  This is a part of how China is allowed to save face and sets up the magnanimous Panda narrative.

The six party talks will be essentially a Marshal Plan of sorts for North Korea.  Japan, South Korea, The United States, China, Russia and North Korea will enter into a set of negotiations publicly sold as engaging in diplomacy and reducing tension.

President Trump is going to win this geopolitical battle against China/N-Korea through the effective use of economics as geopolitical leverage to ensure national security objectives.  Trump will also position Xi Jinping as magnanimous panda as part of the plan.

However, the funny thing is, the media, having paid no attention to how President Trump has utilized economic leverage for months, will be oblivious to how this victory was actually achieved.

Sep 6 2017

The Insanity in Korea – But Is it Logical?


Armstrong Economics Blog/North Korea

Re-Posted Sep 6, 2017 by Martin Armstrong

The South China Post reported that Chinese scientists fear that a mountain in North Korea under which the last five bombs detonated as tests, may collapse crumbling into a crater. They fear that the radiation underground would then leak across region.

Russian President Vladimir Putin has warned that the escalating crisis concerning North Korea’s weapons program is placing the world at risk of developing into a “global catastrophe” with massive casualties. Putin has UNREALISTICALLY said that the only way to resolve the crisis was through diplomacy. For that to be even a possibility, it requires talking. Kim Jong Un has not even met with the leader of China – its once closet Allies.

Let’s put this is perspective. Why is Kim pushing the world to the brink? Kim Jong Un looks at this differently He believes that the survival of his regime depends on possessing nuclear weapons. He is most likely NOT interested in starting a nuclear war for he cannot be so stupid to believe he would win. Yet, Kim also realizes that the prospect of the USA sending a nuke to North Korea is also not likely for that would antagonize China and risk pollution drifting to South Korea and Japan, not to mention China. So with all the saber rattling, Kim is not stupid and realizes that the USA cannot launch a first strike.

Now, why is the goal of Kim? To be honest, Kim Jong Un does not trust the USA for from the outsider perspective, he has watched how American intervention in Iraq ended in the overthrow of Saddam Hussein, his execution as well as family members, and left the country ravaged by war and a puppet of Washington. Obviously, Kim has made the determination that had Saddam truly possessed nuclear power then the USA would never have intervened. This logic is understandable for it creates the stalemate between USA, China, and Russia. The USA invading Iraq, Afghanistan, and Syria with the objective of regime change creates the image that one must protect themselves and this is Kim’s perspective.

Sanctions will never work because Kim would starve his people before giving up his power. Also, as long as he appears to be strong, then there is little risk of an internal coup. If he backs down and appears weak, the prospect of being overthrown becomes probable from within.

Sep 6 2017

The Rising Tone of Private Equity v Public


Armstrong Economics Blog/Stock Indicies

RE-Posted Sep 6, 2017 by Martin Armstrong

QUESTION: Dear Martin,

With the U.S. stock market hits all-time highs, some sources say a lot of smart money is pulling out of the stock market and piling into private equity. One of the reasons being increased regulation making many companies choose to avoid the hassle to go public and stay private.
The thing is, very few small investors have access to private equity. Could the remainder of the Private Wave develop in private equity rather than in stocks?
Thanks for all the advise,
ANSWER: There is a major thrust toward private equity. We have been getting serious offers to come in now asking to hold off on going public. The amount of money in cash looking to go someplace is really staggering to put it mildly. If it were just a question of money, yes it would be tempting. But personally it would require a good fit – not simply money.
With all the buy-backs over the years, there is also a growing shortage of stock. This is one reason why the market has a lot more to go on the upside broader-term, with the near-term correction put aside.
There is no question that we suffer from serious over-regulation and if we were to go public it will be in Asia – not the USA. From a personal perspective, I see where you are coming from. Even the Hollywood movie seems to be a vehicle that is best to open up to investors to finance and many people want to join in for the profits and tax-credits.
Things are changing, indeed. Private equity is rising. Even a friend just sold his small business to a public company who sought to raise funds for the purchase and they were shocked to receive 3 times what they sought to raise in offers. It clearly seems that those who are first get in.
Sep 6 2017

Opening the Door to September


Armstrong Economics Blog/Basic Concepts

Re-Posted Sep 6, 2017 by Martin Armstrong

QUESTION: Mr. Armstrong; I have followed you for many years. I have to say, I am truly amazed at what your computer projects. You have never missed a move yet. Here we have the rally in gold into September, yet the August high stands in the market, and even Korea went nuts on your target date and your next target for the 11th concerning Korea I do not want to think what is going on.

I understand you say you never pursued this research based upon a preconclusion but bumped into this in the middle of the night. My question is this. Do you think what you have discovered is somehow a mysterious force that just compels things to happen on target? It’s hard for me to put into words. Do you have any idea why all these things happen when you forecast they will happen?

Definitely see you in Orlando.

PH

ANSWER: I get this question a lot. I really do not know what is the answer. We clearly respond to events the same today as humans did in Roman times. Politicians never change and are always greedy and will exploit the people. If this was not true, then we should all be speaking Babylonian.

I can see that is you do X then Y will always follow. But this is some strange complexity that is far beyond what people are willing to expect. The government simply said I manipulated the world economy. Now that’s really nuts. All I have done is comprehend the inter-connectivity and mapped it out with TIME.

There is a very interesting regularity to everything and it is truly predictable. Yet the majority still prefer to blame me (messenger) rather than stop and explore that there is a mysterious order of complexity far beyond comprehension. The consequence of that (Invisible Hand) runs contrary to politicians who try to manipulate society in the spirit of Karl Marx. So if I am right, that means a politicians can not keep their promises for they cannot control the world economy.

Sep 5 2017

Bigly


Re-Posted from The Conservative Tree House on September 4, 2017 by

Bigly

Sep 5 2017

Looming Economic Sanctions Split China and Russia From U.N. Approach – Geopolitical Economic Warfare Increasingly Likely…


Re-Posted from The Conservative Tree House on September 4, 2017 by

As you might remember, in response to a thermonuclear atomic weapons test by North Korea Treasury Secretary Steven Mnuchin is now in the process of writing additional sanctions he will guide into the hands of U.N. Ambassador Nikki Haley.

Ambassador Haley will then create a U.N. Security Council resolution containing further economic sanctions toward North Korea using treasury department guidance.

However, as a direct result of the escalation from the DPRK, we can easily predict the final draft will not just target North Korea, but will more substantively target North Korea’s economic enablers.

This is where things get super interesting because all prior U.N. action has built upon itself to these specific ‘enabler’ state sanctions.

Through two rounds of Security Council resolutions both China and Russia have supported the economic sanctions, knowing they would use various workarounds to continue their duplicity.  However, now those sanctions become a risk to the economies of China and Russia because Secretary Mnuchin is likely to use the weight of the dollar in trade contracts as the trigger for sanctions against China and Russia.

Here’s where the real fun begins.

There’s no way China is going to stop supporting their proxy province, North Korea.  The entire Beijing approach (to fighting Trump’s economic battle against them) has been through the use of Kim Jong-un to try and gain some economic leverage.

As a consequence there’s no way China will support sanctions against DPRK enablers; that would essentially be against Beijing itself.

So now, with sanctions anticipated to target the enablers, China must break away from supporting the Security Council; but they can’t break away freely without running the risk of dropping the panda mask.  So they need Russia to keep up pretenses on their behalf.

New York – The United States on Monday flatly rejected a proposal from China and Russia on how to lower tensions on the Korean Peninsula, which is likely to make it difficult for the United Nations Security Council to agree on a response to North Korea’s hydrogen bomb test over the weekend.

U.S. Ambassador to the U.N. Nikki Haley said the U.S. would be circulating a proposed resolution on North Korea this week, and would push for a vote next week.

While it’s not clear what that language will say, both China and Russia made it clear they were unlikely to support more sanctions, and instead played up their joint call for North Korea to stop its military aggression in return for both South Korea and the U.S. to stop their military exercises.

Haley called that idea “insulting.”

“The idea that some have suggested, a so-called freeze for freeze, is insulting,” she said. “When a rogue regime has a nuclear weapon, and an ICBM pointed at you, you do not take steps to lower your guard. No one would do that. We certainly won’t.”

Instead, she hinted at the idea of tough sanctions that would be imposed on any country that does any business with North Korea.

But after she spoke, both Russia and China made it clear they don’t like that idea. (read more)

“Halp”

Communist Beijing has boxed themselves into this inescapable cycle.  The reason they keep authorizing Kim Jong-un to take action is simply because China has no alternative leverage to use against President Trump.  China has nothing in their economic arsenal they can use to hit back against President Trump, so Beijing keeps using North Korea in an attempt to create leverage.

However, President Trump doesn’t play along with the bluff, he knows every card China is holding. Trump knows China has no substantive economic leverage against the U.S., and Trump also knows China has boxed themselves into this cycle.  It’s a ridiculous three step process.

¹China tells DPRK to do stupid thing.  ²DPRK does stupid thing.  ³Trump hits China with economic punishment for stupid thing.

This cycle has been ongoing for months now, yet the media apparently doesn’t notice it. Each time Kim Jong-un does a stupid, Donald Trump slaps Xi Jinping.

The reason this Trump economic approach is so effective is because there’s an endless supply of economic things President Trump can do to punish China (closer economic ties and better trade deals w/ India; removal of China’s MFN trade status; recognition of Taiwan; increased economic relations with ASEAN, etc.), and yet virtually nothing China can do economically in return.

Communist China’s geopolitical economic relationship with the U.S. can be replaced with Democratic India and/or a host of ASEAN allies (S-Korea, Japan, etc.)

Remember, China is seeking conquest through economic power. China must be confronted economically. China must be defeated economically. The moment China sees economic defeat, it will act differently. China will call for six party talks.

President Trump can play out this action/response dynamic as long as it takes to reach economic victory. There is no substantive downside in the economic battle for the U.S.

Beijing is referencing what has worked for them in the past without realizing they are not up against the same adversary. The resulting economic damage in this cycle hurts China more each time by weakening Beijing’s economy.

Sep 5 2017

Hurricane Irma Update – South Florida, Both Coasts, Pay Close Attention…


Re-Posted from The Conservative Tree House on September 5, 2017 by

The latest update from the national hurricane center lists Hurricane Irma as a strong category 4 storm with wind speeds of 150 MPH.  However, strengthening is anticipated and Cat 5 scale begins at 157 MPH.   At 5:00am the eye was located at latitude 16.6 North,
longitude 56.4 West, moving West at 13 MPH. –ADVISORY HERE–

Due to the severity of this storm and the uncertain forecast track, all Florida Residents South of I-4 on both coasts should be checking every update and begin verification of their  Hurricane supplies, hurricane plan and be paying close attention to local officials.

There is no cause for immediate alarm, and the storm’s path is likely to change and become more certain in the next 36/48 hours.  However, most models and forecasters are predicting a sharp turn to the right (North) sometime during the life of this storm; and with that in mind the timing of that turn will be critical for Florida residents.

If the storm does not turn North until later in the week, Irma could move up the East Coast (I-95 area), the center of the state, or the West coast (I-75 area).

If anything like that path is actually the end forecast direction of a Cat 4 or Cat 5 storm, the difference between 10 to 20 miles east or west will be extremely important.  I have led numerous Hurricane recovery teams, within multiple hurricane areas; this one is concerning.

Circulation is counterclockwise and Florida is a Peninsular with width of 90 to 120 miles in the South.

  • If the storm tracks North on the East Coast of Florida (I-95) the top of the storm will bring the surge, and the backside will push the outflow.
  • If the storm tracks North on the West Coast of Florida (I-75) the top of the storm will bring wind toward offshore, but the back side will bring in a massive storm surge from the shallow coastal Gulf of Mexico.
  • If the storm tracks North through the center of the state, both coasts will see coastal storm surges albeit with lesser severity.

Both SW (gulf side) and SE (Atlantic side) Florida coasts have large population centers and thankfully neither coast has seen a lengthwise hurricane path in many decades.  The worst case scenarios for Hurricane impact are within those possibilities.

♦Hurricane Andrew was a well-known catastrophic Cat 5 storm that hit the Homestead area South of Miami-Dade in 1992.  However, that storm –  as terrible as it was – was from East to West crossing the state and exiting in the Gulf of Mexico.  Florida has not had a South to North full impact hurricane in your lifetime.

♦Hurricane Charley was a lesser known strong Cat 4 storm (150 MPH) which tracked into the Gulf of Mexico and crossed the state from West to East in 2004.  Charley made initial impact through Upper Captiva Island (actually splitting the island in two) and hitting the mainland around Port Charlotte.  However, despite it’s Cat4 power Charley was a tight and fast moving hurricane and the damage was severe but narrow in path.

I’m providing those two references to highlight that South Florida has not had a South to North path hurricane in multiple decades.  There were probably less than two million residents in Florida the last time it happened; now there’s approximately 21 million.

For our friends in the Westward Keys and Southern Gulf Side (South West Florida), please pay particular attention to this current storms path.  Unlike the Eastern coast of Florida the South West coast (Gulf Side) is primarily made up of recently populated “shallow water” Gulf barrier Islands.  A Category 5 storm that skirts the Western coast of Florida, from Ten Thousand Islands Northward to Sarasota, and maintains inflow energy from the Gulf of Mexico, is a topography changing event.

Repeat: “A topography changing event.”

Shallow Water Coastal Vulnerability

In a scenario where Cat 5 Irma continues West or Northwest (current track), then takes a sharp right turn, Northward up the Southwest coast of Florida – before turning Northeast – the coastal vulnerabilities are almost too staggering to contemplate.

Beginning in the area of Everglades City and Ten Thousand Islands; northward through Marco Island, Naples Beach, Bonita Beach, Fort Myers Beach, Estero Island, Sanibel Island, Captiva Island, Upper Captiva Island, Useppa Island, The Caloosahatchee River inlet, Pine Island, Cape Coral, Bokeelia, Matlacha, Boca Grande as far North as Siesta Key and into the intracoastal waterway would be almost unfathomable in the scale of how the coastal topography would change.

These Islands, while they may not be familiarly referenced as “barrier islands”, simply because decades have past and populations have developed them, are exactly that “Barrier Islands”.  These shallow water gulf areas along the coast have not had severe storm surge disturbances for 60+ years.

The tenuous coastal and barrier island ‘ground‘ is crushed shell and sand, and their entire topography is subject to change as the shallow and severely churned gulf waters carry in sand/silt and excavate the same.

Just like 2004’s Hurricane Charley split an entire island in less than 15 minutes, so too could entire coastal communities be split or covered in sand within a few hours. Bridges rising from mainland on one side could disappear into the new coastal Gulf of Mexico on the other, with the barrier island completely removed.   Nature is a powerful force.

If you live in South Florida, please pay attention to Irma’s path.  There are millions of people in these coastal communities and only two basic Northern Interstates available for evacuation: I-75 (West Coast) and I-95 (East Coast).

If you live in South Florida West of I-75 or East of I-95, this might be the first storm you should consider *NOT* trying to ride out.

Sep 5 2017

EU Refuses to Honor Solidarity to Share Expenses of Refugees


Armstrong Economics Blog/European Union

Re-Posted Sep 5, 2017 by Martin Armstrong

The EU has been dictating to the member states but has failed to shoulder common costs for the refugee crisis they did not create. The EU denied Italy to subtract the cost of feeding refugees from their budget restrictions imposed by the EU. Now the Hungarian Prime Minister Viktor Orban called for a payment of €400 million for the Hungarian border fence. What is clear is that “European solidarity” is a one-way street. Everyone must do as the EU commands and pay up to support Brussels, but Brussels will not share the costs of the crisis they have created. This is tearing the “solidarity” apart because it is clearly a one-way arrangement.

Sep 5 2017

The Crash & No Bid


Armstrong Economics Blog/Uncategorized

Re-Posted Sep 5, 2017 by Martin Armstrong

QUESTION: Hey Marty,

Love your blog and the insight you have given all your readers. However I am wondering that when you say the markets are going to become more volatile – how does that effect the trigger that sets off the dominoes ??
what i mean is, if the economy around the world hits rough water; what is the rogue wave that sinks the ship? is it a quantity/ volume of capital money that shifts, or is it a short circuit due to political turmoil?
I read that the whole 2008 “crash” was triggered by 500 billion dollars, which is minuscule amount of the total USA GDP. But i have also read from your blog that Germany has 5X its GDP in synthetics on the book !
*IF the markets are more volatile, does that mean there is LESS threshold due to a minor tremor in the gov or markets?
your insight on how volatility increases with regards the tipping point, and WHY the tipping point may happen would be of great interest.
N From Canadaor
ANSWER: Markets crash when the majority are long and anything can spook them because there is a lack of new buyers coming in to carry the market higher. Some longs try to sell and they find a lack of bids. The crash comes when you hit the no bid and market-makers withdraw. That is the sharp increase in price volatility that is different from volume volatility. With price volatility, there need not be major volume – just a gap and a lack of bids. The event need not even be real – just a rumor.
The panic unfolds because of price movements rather than volume. When large gaps appear WITHOUT supporting news, even professionals sell because they cannot make a decision in a vacuum.
Sep 5 2017

Wyoming’s Money Grab Against VW Dismissed


Armstrong Economics Blog/Germany

Re-Posted Sep 5, 2017 by Martin Armstrong

A Federal Judge Breyer ruled against Wyoming and in favor of Volkswagen (VW) dismissing the claim that because of VW’s manipulation of diesel emissions, they caused environmental damage and should pay damages to the State in addition to individual car owners. Judge Breyer stated that despite the fact that VW was indeed responsible for manipulation. However, since these were carried out during the production of the diesel cars, the Congress had decided that the EPA, rather than the individual federal states, was in the best position to deal with damage regulations.

VW had agreed with Wyoming and most other states in the controversy about claims from buyers. What this suit was focused on getting fines in the billions of dollars from the company based upon alleged environmental damage. This was clearly a political decision because if Wyoming was allowed to proceed, every state and local country would jump on the free lunch and claim they too are entitle to damages that could never be proven since the air is not stagnant over any single State or county.

VW had already agreed to pay $2.9 billion as punishment for the increased pollution caused by its diesel cars. The company had committed $25 billion to meet claims from buyers, dealers, environmental authorities and federal states. In addition, the company has offered to repurchase half a million diesel vehicles. If every single jurisdiction then sued VW, they company would go into bankruptcy.