The Proposed Euro Bond Issue to Bailout ECB


COMMENT: Well Mr. Armstrong, perhaps you are wrong at last. It looks like your meetings in Brussels that quite a few people noted you shuffling around town did have an impact. Looks like your constant warning about the structure of the euro’s failure is being corrected. Looks like you did make a difference. So congratulations on being wrong I suppose.

WH

ANSWER: Perhaps. But it has taken 20 years to make this point. Granted, the recent proposal to create a debt for the Eurozone is a compromise, but it is still not a consolidation of the national debts of Europe. This new compromise proposal from the EU Commission shows that they are listening at last but not for the reason I have been warning about. However, I would not say I am wrong. What I have always said is only when the collapse becomes eminent do we see the political change. My point is no change comes without the pain and typically only with the crash and burn. People who want to pretend they are advisors to government are usually bullshit artists. Government will NEVER listen to anyone if you try to get them to act without pain. Now this maneuver is not what it appears. It’s a bailout for the ECB.

The EU Commission intends to issue securities that “bundle” the entire Eurozone debt. So in other words, these will be the CDO instruments for Europe. Instead of bundling mortgages and assuming that the collective process will somehow be worth more than the individual parts, that is the compromise here. The securities are to be launched on the market as a “European Safe Asset” in order to attract the euro government bonds to investors. This is not quite what I had proposed from the outset. My proposal was they should have consolidated all the debt at the beginning, thereafter each member state would issue its own state debt as in the USA. But they were trying to sell the idea that a single currency would produce a single interest rate for all. That is what I warned them would NEVER HAPPEN.

This comprise proposal is ​​consolidating government bonds into asset backed securities (ABS). This is intended to pack the national government bonds into securities in order to ensure the financing of the states even after the end of the ECB’s buying-up program. Draghi has created a huge problem buying 40% of the government bonds. Who will buy when the ECB stops?

This is the crash and burn. The EU officials hope and pray that this scheme will increase the demand for governments’ debts of the weaker economies within the Eurozone. They also hope that this will secure the reserves of the European banks where right now a good stiff wind will blow them over. This, they hope and pray, will better diversify bank risks by diversifying their portfolios and ignoring political problems emerging in the south.

This is still a half-hearted measure to move toward federalization of Europe without consolidating the debts, which they fear will still be rejected by the North v the South. Wolfgang Schäuble had said that he no longer opposes a transferunion in principle and this ABS market has dropped sharply post-2007 because it was a subprime crisis. So here the same idea behind the mortgage crisis is being applied to the European debt. What is dangerous here is that the opposite of the original idea behind a single currency will unfold. Originally, they pitched that a single currency would create a single interest rate look at the United States. I warned that was only federally and you had to pick up the rug to see that the 50 states were subject to their own credit rating. Under this scheme, the idea of creating an ABS instead of consolidating the debt runs the risk that countries like Germany will find themselves (1) no longer the target for a capital flight among Eurozone states, and (2) that the overall interest rate will rise because of the lower quality being included. Therefore, you will not achieve the lowest rate for all as initially proposed back in the ’90s, but rates will rise to reflect the risks in Southern Europe.

While this EU initiative is designed to prepare for the time when the ECB stops its Quantitative Easing that has trapped the ECB and Draghi is pleading for help Behind the Curtain. They are hoping and praying that this is the solution to defuse the ECB risk of its absurd policies. Like the worst trader who buys and never defines where he is wrong, Draghi has made that same mistake. There is a major risk that the ECB itself can collapse.

The EU officials are still shaking in their boots with regard to Italy and the Movementso Cinque Stelli (Five Star Movement). If Italy pulls out of the Euro, the ECB can collapse. The EU feels comfortable about Merkel winning the Bundestag election in Germany. They are still concerned about Italy, Greece, and a split in Spain. One goes, and then all will go.

This compromise proposal to create an ABS  is being put forth because of the German resistance to Eurobonds. The crisis is coming to a head for when the ECB quantitative easing ends, the interest rates will be substantially higher and the budgets of member states will explode beyond set limits. They are beginning to see that the ECB will soon face difficulties for as rates rise, the value of their bond holdings will drop like a stone. I have warned that the ECB is the one central bank that can collapse thanks to Draghi.

The EU Commission is also working on a proposal to establish a joint budget for the Eurozone, which is the end game of federalization. The aim was to cement the monetary union in place and thereby prevent any more BREXIT nonsense from their view. This has risen to the top of considerations with the French presidential election and the victory of Macron. But France is in trouble. There is no money to fund what Macron promised. This becomes another patch to try to keep a failed system together.

This is why I am holding the July 22nd, 2017 seminar just on the Eurozone at the end of July. The details and tickets will go up for sale this week. This will be reasonable for it is only a half-day. The price of a seat will be $350

People’s Bank of China Moves Against Shorts


It was only last week that the People’s Bank of China (PBOC) was rumoured to be competing in the currency market, which was coincidentally followed by a Moody’s downgrade. The action demonstrated signs that positions have been cut at a loss for anyone who attempted to short the Yuan. The O/N (overnight) and T/N (Tom-next) rates ballooned today which makes running currency short positions extremely expensive to finance. The currency traded from 6.85 down to below 6.77 (off-shore) as dealers scrambled to cover short positions as everyone chased for financing. The rates market moved from around 5.25% to over 21% to cover short-term (o/n and t/n) positions.
This is a popular move often undertaken by central banks if they fear the market is challenging them. The Bank of England when the GBP was forced out of the ERM raised rates to over 15% from then 11%. However, it is interesting that the options markets has (so far) seen this as a temporary move and has priced longer dated trades with only minimal impact. Many are speculating, given the new fixed approach China has taken against the USD, whether this is a friendly move to help a new President address his concerns over currency manipulation and assist a weaker USD

When Does Buying Gov’t Bonds Support Corrupt Governments?


The president of Venezuela’s opposition-run Congress led by Julio Borges came out and accused Goldman Sachs of “aiding and abetting the country’s dictatorial regime” after a report that Goldman had bought $2.8 billion in bonds from the cash-strapped country at 31 cents on the dollar. They paid $865 million.

There have been two months of opposition protests against President Nicolas Maduro in which almost 60 people have been killed. The collapse of the country’s socialist economy has left millions of people struggling to even eat. This is the problem with “socialism” that it is incapable of managing the economy from any centralized government. They hate people who make money, but government is just incompetent to manage anything. It takes an individual on the front lines to manage any operation.

I personally experienced this in my own company. When I first began to open offices overseas, it was a disaster. It was impossible to manage the offices from the United States. I had to switch to partnerships where people had to put up money and run offices in different countries. When their own capital was on the line, then they managed their local operation efficiently. Even the same centralized planning does not work in corporations. This is why big corporations die. They become inefficient and too bureaucratic just like governments and die.

Julio Borges wrote a letter to Goldman Goldman Sachs President Lloyd Blankfein:

“Goldman Sachs’ financial lifeline to the regime will serve to strengthen the brutal repression unleashed against the hundreds of thousands of Venezuelans peacefully protesting for political change in the country.”

“Given the unconstitutional nature of Nicolas Maduro’s administration, its unwillingness to hold democratic elections and its systematic violation of human rights, I am dismayed that Goldman Sachs decided to enter this transaction.”

Julio Borges is absolutely correct. But this is not unique to Goldman Sachs. Everyone who buys government debt is helping to sustain the socialistic agendas of the major Western countries and will pay dearly for this support since historically they are the people/firms who are wiped out in the end.

Goldman may think it is getting a great deal at 31 cents on the dollar. They assume if there is a revolution they will still get paid. They are dead wrong. You can buy plenty of government bonds that were defaulted on. They make great reminders that government debt is UNSECURED and becomes worthless.

Venezuela has been a country that historically has been a serial defaulter. Defaults have taken place in 1826, 1848, 1860, 1865, 1892, 1898, 1982, 1990, 1995–1997, 1998, and 2004. The likelihood of another default is EXTREMELY HIGH.

Goldman assumes they will have access to the White House to freeze Venezuelan assets in the USA to get paid. If there is a revolution and the the army finally switches sides because they see their own future is doomed, then everything will change. Dictators need money to pay troops to maintain control. When the money runs out, so will their support

Beware the Muni Bond Bubble


 

Municipal Bonds are in trouble in Europe as well as the United States. The local level cannot print money, nor are they ever capable of managing their economies. The general view is when short, just raise taxes. Everything comes to an end and we are looking at the end of a Muni-Bond Bubble. The strongest possible recommendation is get out before it is too late. Sure, not every municipality or state/province is in trouble – YET! Once the muni bond bubble bursts, there will be a contagion so even the ones that are not yet insolvent will tip over.

In the States, sell California and New England. The higher the tax rate, the deeper their debt will fall. Connecticut, for example, is hopeless as is New Jersey, New York, and just about all New England States. I was flying home from Hong Kong and upon landing in Newark, the next leg was back to Florida. I sat next to a woman from Connecticut who was going to visit her brother. She had a 1950s house 1600 square feet with taxes over $8,000 and could no longer afford to stay there for retirement. She was leaving as most people these days in what I call the Great Migration.

Connecticut’s general-obligation bonds are in deep trouble. The state’s tax collections are collapsing as people are getting out of town. Their debt is being downgraded and a $2.3 billion budget deficit is beyond hope. Tax receipts for the current fiscal year ending in June will be about $451 million short of estimates. Here too, it is the government employee pensions that are blowing everything apart at the seams. Public employees at least agreed to accept a 3-year wage freeze and to contribute more for their pension and health-care benefits under a tentative deal that would save more than $1.5 billion over the next two years. But that is just not enough.

The taxation has never been ending. Hedge fund managers are permanently relocating to Florida have been leaving New Jersey and Connecticut. When you count on taxing the rich, then one man can move out of and put the entire state budget at risk. Taxing the rich has its limits.

The motto of make the rich pay doesn’t work when the rich pick up and leave. You do not want to be the one still sitting. This game works opposite of the musical chairs game as a kid. This time, the one still sitting will have to pay the taxes for everyone who left. Then they will be unable to sell their house and leave because nobody wants to buy it because of the taxes.

Oil & Pegs


QUESTION: First question: Disappointed I have not heard an opinion concerning OPEC’s continuation of reducing oil out put. Can the US shale drillers fill the void and or can the Canadian and Mexican producers ramp up any shortfall into the US

Second Question: What is your opinion on the Chinese Yuan being pegged to the US dollar. In the past you have always stated that “pegs can’t survive” i.e Swiss Franc to the Euro.

ANSWER: Supply really has little to do with the price. The real issue is demand. Electric cars are coming rapidly. I have a BMW hybrid I8 sports car and it is fantastic. It is the fastest sports car I have ever owned off the line. It has two engines a gas and electric and this technology is being expanded to all models. My neighbor has a Tesla and that is fine for local use. Tesla vehicles are currently the only battery electric cars you can buy in the that have an official range of more than 200 miles per charge. When I went to Amsterdam, the taxis are Teslas. Europe is moving toward electric cars faster than the States.

Most major automakers, including GM and Volkswagen, have vowed to roll out more than one fully electric car by 2020. In Europe, the average emissions level of a new car  2015 was 130 g of CO2 per kilometre (g CO2/km) and those sold in 2016 was down to 118.1 grams. By 2021, this has to be down to 95 grams of CO2 per kilometre.

Sales of electric cars totaled over 315,000 units in 2014, up 48% from 2013 reaching 565,00 units in 2015. In the U.S. alone, 542,000 electric cars have been sold to date. Granted, that is still small in comparison to the overall number estimated to be 263.6 million cars registered in the United States in 2015. Nevertheless, the trend is in motion. Does it by itself kill oil? Not yet! This is why oil did not elect any yearly long-term bearish signals on our model.

Keep in mind there are a lot of new discoveries also in gas. Cars make up 51.4% of oil consumption and jet fuel is 12.3%. Historically, demand drops with the economy as people drive and travel less. That is clearly the trend we see ahead.

With regard to pegs, none will stand and that includes China, Hong Kong and Middle East. What will break the peg is the dollar rally for that will import deflation to those nations with dollar pegs.

 

Analysis of Global Temperature Trends, April, 2017, what’s really going on with the Climate?


The analysis and plots shown here are based on the following two data series. First NASA-GISS estimates of a global temperature shown as an anomaly (converted to degrees Celsius) as shown in their table Land Ocean Temperature Index (LOTI) and shown in the following Chart as the red plot labeled NASA. This plot is shown as a twelve month moving average to minimize the large monthly swings and better show trends; the scale for the temperatures is on the left. Second NOAA-ESRL Carbon Dioxide (CO2) values in Parts Per Million (PPM) which are shown in the following Chart as a black plot labeled NOAA. This plot is shown exactly as the data from NOAA is presented and there is no need for a moving average the scale for CO2 is shown on the right.

NASA published data as stated in the first paragraph is shown as an anomaly, but what is a temperature anomaly?  An anomaly is a deviation from some base value normally an average that is fixed. There were two problems with the system that NASA picked which were number one there is no “actual” global temperature and two since climate is a variable there cannot be a real base to measure from. NASA known for its science and engineering expertise back in the day thought it could get around these issues and created a system to do so. First they developed a computer model which took readings from all over the planet and made significant adjustments to them called homogenization and came up with the estimated global temperature. Second they picked the period 1950 to 1980 (30 years) and averaged the values and came up with 14.00 degrees Celsius and make that their base.  Then they took the calculated temperature and subtracted the base from it which gave them the anomaly. The problem is that both the base and the anomaly are arbitrary.

Now that we have a base to work with we are going to add to the previous Chart three things. The first is a trend line of the growth in CO2 since that is the entire basis for climate change according to the government through NASA and NOAA. That plot is superimposed over the black plot of the actual NOAA CO2 values as the cyan line labeled as the CO2 Model and one can see there is a very good fit to the actual NOAA values so there should be no dispute about its validity.  This plot allows us to make projections as to future global temperatures according to the level of CO2. The second added item is James E. Hansen’s Scenario B data, which is the very core of the IPCC Global Climate models (GCM’s) and which was based on a CO2 sensitivity value of 3.0O Celsius per doubling of CO2. This plot is shown here in lavender and is part of a presentation that Hansen showed to congress in 1988 when the UN was about to set up the International Panel on Climate Change (IPCC) and this plot is labeled as Hansen Scenario B which Hansen stated was the most likely to happen based on his theories’.  The third item is the current plot of the most likely temperature of the planet based on the growth of CO2 published by the IPCC. This plot is shown in Red and is labeled as IPCC AR5 A2 as that is the table where the data was found. This plot is a GCM computer projection of the planets temperature based to the complex relationships developed on the levels of CO2 by the IPCC primarily though NASS and NOAA.

It can be seen in this Chart that the lavender plot and the Hansen plot are very close from 1965 to around 2000 after that, from 2000 to 2014, there is a very large and growing deviation reaching close to .5 degrees Celsius in 2014, which is not an insubstantial number.  Also of note is that there doesn’t seem to be a good correlation between the growth in CO2 and the increase in the planets temperature. The CO2 is going up in a log function and the Temperature was going down in a log function until recently where it reversed in 2015 and is now going up in a log function. That unexplained and major change in temperature direction appeared to have occurred between 2013 and 2014 and is the subject of this monthly paper.

The next Chart is developed from the raw data from NASS and NOAA as shown in the first Chart.  This plot was made first by adding ten years blocks of temperature and CO2 as indicated in the Chart and diving by 120 to give an average for each.  Then the average Temperature was divided by the average CO2 to give degrees of temperature increase per PPM of CO2. After that was plotted it appeared that there were two different curves the first was from block 1965-1974 through block 2004-2014 shown as Black Dots and the second was from block 1995-2004 through block 2005-2016 shown as Black Dashes. When trend lines were added they were both almost perfect fits to the raw data and so you cannot see the data points very well on the Chart.  These blocks were picked to represent the entire period of time where we had both NASA temperature data and NOAA CO2 levels.

On the following Chart are two sets of color coded information. The first is Cyan plot and the Cyan box with the equation in it along with the R2 value of 1.0 are for the first series from block 1965-1974 through block 2004-2014. The other is the Red plot and the Red box with the equation in it along with the R2 value of 1.0 which are for the first series from block 1965-1974 through block 2004-2016. We can speculate on how this change has happened but it cannot be said that the plot change is not real; however additional data over the next few years will be required to actually prove that something has changed.

In summary the Cyan data set indicates a diminishing effect of CO2 on global temperature for about 54 years and the Red data set represents an increasing effect of CO2 on global temperature for the past 2 years. Since both data sets have an R2 value of 1.00 the trend lines cannot be in question.

Before we get into a possible explanation to the drastic change from the Cyan data to the Red data that occurred in 2014 we need to consider other factors than CO2 on Climate change.  The fault that occurred in the work that was done in the 1980’s was in assuming that there was an optimum or constant global temperature and therefore any change that was being observed was from the increasing amount of CO2 in the atmosphere.  There may have been correlation but it was never proved that there was causation (high R2 value) between CO2 and global temperatures. With that assumption, which limited options, we moved from true science into the realm of political science.  True science has an open mind and finds relationships that work in matching observations with predictions.  Political science changes history and/or facts to match the desires of the politicians. Since the politicians control the money political science is what we get; which means that what we get may not be technically correct.

A decade ago when I started looking at “climate” change the first thing I did was look at geological temperature changes since it is well known that the climate is not a constant; I learned that 52 years ago in my undergrad geology and climatology courses in 1964. The next paragraph explains currently observed patterns in climate related to this subject and is historical accurate.

Ignoring the last Ice Age which ended some 11,000 years ago when a good portion of the Northern hemisphere was under miles of ice the following observations give a starting point to any serious study on the subject of climate. First, there is a clear up and down movement in global temperatures with a 1,000 some year cycle going back at least 3,000 to 4,000 years; probably because of the apsidal precession of the earth’s orbit of about 20,000 years for a complete cycle. However about every 10,000 years the seasons are reversed making the winter colder and the summer warmer in the northern hemisphere. 10,000 years from now the seasons will be reversed again. Secondly, there are also 60 to 70 year cycles in the Pacific and the Atlantic oceans that are well documented. These are known as the Atlantic MultiDecadal Oscillations (AMO) in the Atlantic and as La Nina and El Nino in the Pacific. Thirdly, we also know that there are greenhouse gases such as carbon dioxide that can affect global temperatures. Lastly the National Academy of Sciences (NAS) estimated that carbon dioxide had a doubling rate of 3.0O Celsius plus or minus 1.5O Celsius in 1979 when there were only two studies available and one for sure and maybe both were not per reviewed.

The result of looking objectively at the three possible sources of global temperature changes was a series of equations based on these observations that when added together produced a sinusoidal curve that seemed to follow NASA published temperatures very closely when first developed in 2007.  Since this curve was based on observed temperature patterns it was called a Pattern Climate Model (PCM) which has been described in previous papers and posts on my blog and since it is generated by “equations” many assume it is some form of least squares curve fitting, which it is not. It does seem to be related to ocean currents where the baulk of the planet’s surface heat is stored.

As can be seen in the following Chart the PCM has a 69.1 year cycle that moves the trend line up and then down a total of 0.29O Celsius and we are now in the downward portion of that trend (-.01491O C per year) which will continue until around ~2035.  This short cycle is clearly observed in the raw NASA data in the LOTI table going back to 1880. Then there is a long trend, 1036.7 years with an up and down of 1.65O Celsius (.00396O C per year) also observed in the NASA data. Lastly, there is CO2 currently adding about .0079O Celsius per year so together they all basically wash out at -.0039O C per year, which matched the current holding pattern we were experiencing until 2014. After about 2035 the short cycle will have bottomed and turn up and all three will be on the upswing again duplicating what was observed in the 1980’s.  Note: the values shown here are only representative as the actual model uses many more places than what are shown here.

When using the 12 month running average for global temperatures up until 2014 the PCM model was within +/- .01 degrees of what NASA was publishing in their LOTI table since the early 1960’s as shown in the next Chart. Further the back projection of the PCM plot matched historical records and global temperatures going back past the time of Christ. It should also be consider that geologically CO2 levels have reached levels many times that of the current 400 ppm without destroying the planet so the current hysteria over the current small numbers can only be explained by political science not real science.

The nest step in this analysis is to put all of the known data and projections into one Chart which will contain: NASA’s table LOTI global temperature estimates, NOAA’s actual CO2 values, the CO2 model projections, the PCM model global temperature plot, Hansen’s Scenario B 1988 global temperature plot, and lastly the IPCC AR5 A2 global temperature plot. With that done we can look at the results and try to make some sense of what is going on with the various arms of the federal government that are promoting that carbon based fuels be eliminated since they are responsible for the global temperature level  going up.  As previously started when the government pours money into the sciences the sciences respond with technical papers the support the governments views, this is what I call political science verses real science as was done prior to the 1980’s; money talks and BS walks as everyone on the street knows.  This Chart views a good overview of the current situation showing all the facts and all the projections.

This Chart contains no manipulation of the data and the only change that was made was to convert the NASA anomalies back to degrees Celsius to make it more readable to lay people.  This is only a change in units and has no bearing on the look.  A subject not broached here is that of the NASA homogenization process itself and the base period from 1950 to 1980. The portion in the black circle contains the NASA base period of 14.00 degrees Celsius and the reason it’s brought up here is that the Homogenization process causes the global temperatures to move around since the entire data base all the way back to 1880 is recalculated each month.  But since the base has to stay at 14.00 degrees Celsius the program must be set to not allow changes in that period of time. I’m sure the programmers have fun with that. Prior work here has shown how this creates a teeter totter effect with the data plots, some of which have recently been significant.

The next Chart will be a look at the period from 2010 to 2020 so we can see the detail of the past few years where a change in CO2 of only a few ppm has caused a major change in the global temperature way beyond anything previously shown in any published NASA data. There are two black ovals on the Chart one at the top of the Chart which is a black oval around the CO2 levels for 2012, 2013, 2014, 2015 and part of 2016 and it’s very obvious that there has been very little change, maybe 7 ppm or about 1.9%. Then at the bottom of the Chart is another black oval around the NASA global temperature levels for 2012, 2013, 2014, 2015 and part of 2016 and its very obvious that there has been a very large change, almost .50 degrees Celsius or about 3.1%. There has never been such a large increase in temperature from such a small increase in CO2.

By contrast the previous comparable period of the last part of 2010 through 2013 shows about the same increase for CO2 at 1.1% but no increase for global temperature but actually small decrease. Worse it appears that this current strange upward trend will continue as the values shown here are based on a 12 month moving average and the current values being published by NASA have been very high for the past 7 months and therefore I would expect the NASA plot to be well over 15.00 Celsius within a few months and certainly before the end of 2016 and that is exactly what happened. After COP21 the need for Fake Warming was no longer needed and so we are now seeing a downward trend developing. With the new administration we may see the end of data manipulation from NOAA and NASA and a return to real science political science.

In summary, the IPCC models were designed before a true picture of the world’s climate was understood. During the 1980’s and 1990’s CO2 levels were going up and the world temperature was also going up so there appeared to be correlation and causation. The mistake that was made was looking at only a ~20 year period when the real variations in climate all move in much longer cycles of decades and centuries.  Those other cycles can be observed in the NASA data but they were ignored for some reason.  By ignoring those trends and focusing only on CO2 the models will be unable to correctly plot global temperatures until they are fixed.

Lastly, the next chart shows what a plot of the PCM model, in yellow, would look like from the year 1400 to the year 2900. This plot matches reasonably well with recorded history and fits the current NASA-GISS table LOTI data, in red, very closely, despite homogenization.  I understand that this model is not based on physics but it is also not true curve fitting. It’s based on observed reoccurring patterns in the climate. These patterns can be modeled and when they are, you get a plot that works better than any of the IPCC’s GCM’s. If the conditions that create these patterns do not change and CO2 continues to increase to 800 ppm or even 1000 ppm than this model will work well into the foreseeable future.  150 years from now global temperatures will peak at around 15.750 to 16.000 C and then will be on the downside of the long cycle for the next ~500 years.

The overall effect of CO2 reaching levels of 1000 ppm or even higher will be about 1.50 C which is about the same as that of the long cycle.  The Green plot on the Chart shows the observed pattern with no change in CO2 from the pre-industrial era of ~280 ppm. CO2 cannot affect global temperatures more than 1.500 C +/- no matter what the ppm level of CO2 is. The reason being that the CO2 sensitivity value is not 3.00 per doubling of CO2 but under 1.00 C per doubling of CO2 as shown in more current scientific work.

The purpose of this post is to make people aware of the errors inherent in the IPCC models so that they can be corrected. 

The Obama administration’s “need” for a binding UN climate treaty with mandated CO2 reductions in Europe and America was achieved as predicted at the COP12 conference in Paris in December 2015. To support this endeavor NASA was forced to show ever increasing global temperatures that will make less and less sense based on observations and satellite data which will all be dismissed or ignored.  Within a few years the manipulation will be obvious even to those without knowledge in the subject, but by then it will be to late the damage to the reputation of science will have been done.

In closing keep this in mind. The current panic generated by the government using political science is that the current global temperature of around 15.0O Celsius is an increase of 7.14% from the 1960’s when the global temperature was 14.0O Celsius; and that does seem like a lot. However those views would be in error as the actual increase in thermal energy, as measured by temperature, would be only .35% because we must use Kelvin not Celsius when working with heat energy. When we use kelvin the temperature goes from 287.15O K to 288.15O K which is only .35% not 7.14% about 1/20 of what is implied by the IPCC.

 

Sir Karl Raimund Popper (28 July 1902 – 17 September 1994) was an Austrian and British philosopher and a professor at the London School of Economics. He is considered one of the most influential philosophers for science of the 20th century, and he also wrote extensively on social and political philosophy. The following quotes of his apply to this subject.

If we are uncritical we shall always find what we want: we shall look for, and find, confirmations, and we shall look away from, and not see, whatever might be dangerous to our pet theories.

Whenever a theory appears to you as the only possible one, take this as a sign that you have neither understood the theory nor the problem which it was intended to solve.

… (S)cience is one of the very few human activities — perhaps the only one — in which errors are systematically criticized and fairly often, in time, corrected.

Shari’ah Standard on Gold to Replace the Dollar? Really?


QUESTION: Mr. Armstrong; I have read where some people are claiming this “Shari’ah Standard on Gold” will become the new “reserve currency” and this seems really just nuts. I understand there are 2 billion Muslims in the world, but they seem to forget that this is once again wild speculation. Any thoughts?

OP

ANSWER: No. This is really rather absurd. First of all, not even the Euro could displace the dollar nor the Japanese yen, Chinese yuan and yet some meager 2 million average citizens will do so? I really hate to burst these people’s bubble in La-La-Land, but I have been in meeting and there are people in Washington who are trying to figure out how to get the dollar to be replaced somehow. The last failed attempt was the Plaza Accord in 1985 intended to push the dollar down and the Euro was born there and then. This is when James Baker encouraged Europe to create a single currency to “PLEASE” compete with the dollar. Every Administration has wanted a lower dollar to increase exports. Trump is no different. Sorry – they ALL HAVE FAILED!!!!!!!!!!!!!!!!!!!

Secondly, this is really nuts and the very same hype I recall from 1975 when Americans were for the first time legally going to be able to buy gold starting January 1st and that is when gold futures began as well in New York. What happened? The hype drove the price of gold up to nearly $200 and on January 1st, 1975, it began a crash by almost 50% into 1976 for 21 months. They said the same thing about China and how the Chinese demand would make gold soar. Then they said the same thing about India and now its the Muslims. They keep switching groups to sell people gold like some used car salesman. In any other field it’s called consumer fraud.

Gold will rally ONLY when people begin to see that governments are failing. I am not talking about my readers. We all see what is coming. I am talking about the AVERAGE person on the street. Then you will see the gold breakout. We are getting closing. Patience is required when it comes to gold

US to Sell Off its Strategic Emergency Oil Reserves


The US government plans to sell half of the Strategic Emergency Oil Reserves and gasoline. The days of OPEC embargoes of the 1970s are now long past. The government plans to increase its budget for the financial year by $500 million. Therefore, over the next decade, the government wants to increase financial leeway by as much as $16.6 billion. With the US at a net exporter level and the shift toward electric cars, it becomes questionable if we need the Strategic Emergency Oil Reserves any more.

We still see support at the $32 level on a yearly closing basis. To stabilize, we need Crude to close above the 2016 high of $54.51. Both the oscillators as well as our Energy models imply that the high is in place for the near-term in real value. As long as Crude hold above the $32 level on an annual closing basis, then moving forward in time, new highs in nominal terms becomes possible but not in real value terms.

Schiller Cyclically Adjusted PE Ratio (CAPE) – Real or Mislead?


QUESTION: Hi Martin,

Long time… perhaps you can reflect on the indicator of the Shiller CAPE ratio?
Not that it is a predictive sell/buy signal in itself, but it is an indicator showing history
R

ANSWER: The Shiller Cyclically Adjusted PE Ratio known as CAPE,  is a particular PE ratio invented by Robert Shiller of Yale University. Unlike his index on real estate, this one tracking the period of 1870 to date is not very good. True, on will arrive at one of two conclusions that either the CAPE today is near the same level as in 1929, or it is higher today than it was just before the Panic of 2008. Does this really mean anything? Absolutely not!

When we filter this purely domestic view through the currency and capital flows, these two events are exactly opposite of each other. In 1929, the capital inflows were pouring into the USA whereas in 2008 then were exiting. The 2000 Dot.COM Bubble took place with a capital inflow.

The important difference is always the currency. Great bubbles unfold only when foreign capital is pouring into a domestic market. This is when the Japanese Nikkei Bubble took place in 1989. The capital left the USA as the Plaza Accord was pronouncing they wanted the dollar down by 40% to help trade. The swing in capital back to Japan looks like the brain wave of a real crazy person.

There is a risk of correction in the US Share Market after May. But this has nothing to do with the PE Ratio. We are looking at capital flows and that is the real key. The attempt by the Washington Post and New York Times to stir up a coup to oust Donald Trump will have far greater impact on the dollar and US assets than the PE Ratio, which is a very myopic domestic view.

Research – Where to find it


QUESTION: Mr, Armstrong; I read the research you provided for the Hong Kong WEC. I tried to see if I could find some of the Harper’s Weekly articles you photographed and perhaps others. They are not on line. May I ask, where do you get access to such material?

ANSWER: I have a very extensive library of bound volumes of newspapers from the USA as well as Britain. This has enabled me to conduct real research and see the thinking process and how it has evolved with the markets. First of all, I have to use the original source. Far too often when you dive into it, you find that people have made up quotes to support a predetermined agenda. This way, I can quote directly and not rely upon others.