QUESTION: Hi Marty,
Can you help us better understand the dynamics of the sovereign debt crisis as it relates to US Treasuries? I know we are in a global debt crisis, which will also impact US Treasuries but it seems like short treasuries is the current consensus (I believe they are currently at the biggest net short position in recent history). Since most people need to be wrong, does this suggest that as global debt unwinds that perhaps US Treasuries may still have another rally in them before the final crash?

Thank you for any insight into what we know to be the greatest bubble.

Looking forward to the WEC!
SB

ANSWER: We have to always look at markets collectively from a global perspective, and also separating the long-term from the short-term trend. It is sort of the saying you can win the battle, but lose the war. This is the same thing. In the case of interest rates, the long-term is clearly staring at higher rates square in the eyes. However, then we have shifts in trend within the short-term. For example, domestically, you have this pervasive hatred of the stock market and as an evergreen tree, they have been perpetually bearish since 2009. They have not wavered in that forecast because they have blinders on and make forecasts solely upon a flat model limited to patterns and domestic analysis at best. Therefore, there will be these bouts of flight to quality sell stocks and buy bonds. We have NOT yet crossed the Rubicon in interest rates. We still have not yet elected the 4th Monthly Bearish Reversal. When we do, the 30-year will signal the debt crisis is in full gear.

Now we have to look at this market from a Hedge Fund Manager’s world. My decision has to be made on a global scale – not domestic. This boils down to you are a prince and your father compels you to ask one of the three ugliest girls in town for a date for political reasons for the realm. So, you choose the prettiest of the three ugly sisters as they say. This is what happens internationally. You have to have money in debt because you are trying to also be diversified (I do not always agree with that strategy). Hence, the euro looks like death warmed over, political chaos is brewing, so you have to push money out the door to other currencies. Hence, the dollar keeps rising and the political rhetoric against Trump is desperate to hide the trend that his strategies have been working on bringing capital home and renegotiating NAFTA. So with the dollar strong, euro in crisis, you have no choice but to buy Treasuries even if for short-term plays.

Consequently, you can be correct that the long-term trend is UP UP AND AWAY for interest rates. However, the devil is lurking behind every rock along the path. You may be correct on the war, but lose a fortune of the short-term corrections. Hence, we have not yet crossed the Rubicon. When we do, it will be time to shout very loud so our readers will hear. We can see that the chart patterns between dollars and euro in the 30-year Treasuries is as different as night and day.

QUESTION: As an avid reader of your daily BLOG, I’m well aware of the attempt to abolish cash, potential freezing of bank accounts, years of negative or near zero interest rates and “helicopter money” from the government are all likely scenarios in the near to distant future. Without compromising any of your business or proprietary agreements, positions of interest, or ethics, can you suggest or provide some alternatives as to measures to take to avoid this historical “train wreck” we a doomed to experience.
May GOD have mercy on our souls!
BEF

ANSWER: I get a lot of inquiries on this subject. It is much more than I can relate in just a blog post. So I flew to Germany to do another documentary on this subject matter. I believe it will be released in a matter of weeks. I am also putting the finishing touched on a book on inflation and hyperinflation. I am also desperately trying to get this out also before the WEC this November which I hope will put forth a completely new approach to understanding inflation not just for the individual, but to central bankers and politicians as well

We have to come to the reality that from 2019 onward, we are headed into a Pension Crisis that will be serious. Many are starting to yell about the debt crisis. They lump on private debt and yell its a bubble. What they miss entirely is the fact that we face more than a decade of crises that would have been avoidable, had governments been actually managers and central bank had not tried to keep using Keynesian Demand Side Economics that even Paul Volcker warned back in 1978 had failed.

This is by no means prophecies of doom and gloom. Unfortunately, they are prophecies not even of a pessimist, but only facts that are comprehensible simply using a pocket calculator and not even a computer. The Pension Crisis is the end of Socialism. Promises that were made which were never sustainable but were a scheme to win votes. Then the money needed to pay the pension required 8% interest annually. Then the central banks enter the game and mess everything up even more. Instead of DIRECTLY aiding the economy, they lower rates and HOPE that the banks will pass it along. They never did. The banks parked the money at the Excess Reserve Window that the Fed has still not closed.

The cost of pensions is currently stifling Western society beyond belief. Europe itself is ahead of the curve and will crack before the United States. Europe already has between  30% to 40% of the population who have already retired or are about to leave the labor market. They have used the old Roman pension system of the army which was earning an average of 20 years service to qualify for a pension. It was the pensions which contributed to the Decline and Fall of the Roman Empire.

We have to realize that government state pensions are the real crisis. Like California, their solution is always to raise taxes to pay for government pensions. The amount of social insurance contributions and taxes is determined by the cost of providing retirement benefits. The Fed is trying to raise rates, but they fear raising them back to 8% too fast will disrupt the economy. The pressure is building on the ECB in Europe behind the curtain to stop this nonsense of Quantitative Easing that has failed to start with and is now the cause of a massive Pension Crisis for the next 10 years. This condition of a shortfall cannot change immediately and raising taxes to try to solve the problem will only lead to further economic decline.

QUESTION: Hello Martin

I wish all the best for you. The work you make every day to rise up our understanding about the world is amazing and make me feel a huge respect. it is very inspiring. I’m a small customer of your private blog. I don’t know if you answer that kind of request.

I want and I need to understand WHY the dxy was in bull market between march 2000 and feb 2002, from 102 to 113.

you are unbelievable when times come to understand economic history. I can’t find any explanation about this period
M2 supply decreased softly the twin deficit stood around 2% with no hope of getting better and it reversed after 2002 to 8% !!!

Interest rates were declining stock indexes were very bear from the tech turnmoil

Gold was bottoming from 420 to 380 with a reverse pattern during summer 2001. the dxy rise more than 3% after the bottom of gold in 1 year !
how could this DXY get up 10% higher in 2 years ??? what is the secret of history I miss ???? I believe there is something to learn with that period !
kind regards

CD

ANSWER: While the Euro began really in 1999, the physical notes did not come into circulation until 2000. The euro hit its all-time high shortly after its launch at the start of 1999 at that point in history which marked the euphoria of the talking heads on TV and how the Euro would crush the dollar. As always, they talked everyone into buying the high. As we say, buy the rumor and sell the news. That is an INCREDIBLY good market rule.

But The Euro began to slide thereafter, falling to a record low of 82.3 US cents in October 2000. However, both the euro and sterling then recovered at the lows when rumors began that an intervention by the European Central Bank and the Bank of Japan was imminent. In late afternoon trading that day, one euro bought 82.74 and one pound was worth $1.4329. They also spread rumors that Iraq would soon start to price its oil exports in euro and abandon the dollar.

The entire rally has absolutely NOTHING to do with the economic numbers in the United States. The capital inflows to the USA began over FEARS of the Euro. One major central bank was leaking inside info to us to get it out because we were NOT mainstream press and the info was going DIRECTLY to the real institutional money. They were deeply against the Euro because of the faulty design. It was a political creation that nobody in their right mind would have created such a currency under this structure. So the capital fled Europe and this was one of the reasons why the DOT.COM bubble was so big. It was aided by foreign capital fleeing Europe, to begin with.

The economic numbers are nice. But they are NEVER the entire story. Capital can flee one region because of events there and they may be going to a place that is not up to par, but still, it is the best alternative. Capital Flow Analysis which we developed is by far the only way to grasp the full extent of the economy.