Armstrong Economics Blog/The Hunt for Taxes Re-Posted Apr 2, 2021 by Martin Armstrong

COMMENT: Well it looks like the coronavirus is going to cause a major problem because everyone will be deducting their home offices.

HL

ANSWER: You better check with your accountant. It is my understanding that if you are a W2 employee, you cannot take a home office deduction. Currently, you need to have self-employment income to benefit from home office deduction. This is going to cause real problems now that so many people are forced to work remotely. I seriously doubt the Democrats will allow a deduction for working remotely.

Armstrong Economics Blog/Economics Re-Posted Apr 2, 2021 by Martin Armstrong

COMMENT: Hi Marty,

Your post today on inflation(when people see it coming) reminds me how things have changed from the 1970s. Then, the inflation we saw came from oil rising(Opec raising prices), unions demanding wage increases, and currencies untethered to the abandoned Bretton Woods agreement. Governments then seemed clueless how to stem this rise, with interest rates rising relentlessly, pressuring bonds and eroding earnings of still largely manufacturing-based economies. Globalization was not an issue as half the world still lived under communism.

Today, it seems central banks have “learned” how to rig interest rates by flooding markets addicted to debt. What is different today is governments now, instead of fearing inflation, actually want it. In fact, desire it to bring about the Great Reset. They appear to want to drive oil prices higher to such levels that this makes Green Energy cheaper and helps to accelerate the conversion over to electric cars. All at the expense of the consumer. On top of this, taxing old tech, principally oil and gas, only helps to fuel shortages, since companies have cut back on oil exploration. When you force people to stay home, the demand for energy shifts from driving to people staying home, more demand for computers, more energy required to supply the grid, more companies delivering products to the home. What has been accomplished? People fleeing high tax states to ones that remain open, those with no state income taxes, those in the south. The burden shifts to northern states, the advantage gained by southern states.

Today, governments are deliberately fueling these shortages…encouraging them, to expedite the transition away from globalization to one centrally controlled. No longer do they need access to debt markets, they can supply guaranteed income without fear of inflation or failed bond auctions. This is truly diabolical. And with Big Tech doing their bidding, people too stupid to grasp what is happening, it appears today’s inflation is by design, intended to destroy a private business, which can’t compete with large companies, jobs destroyed, inflation today used as a weapon against private enterprise. This is pure evil, which stands out against the market-based inflation of the 1970s.

MS

REPLY: You are correct that it was a period of unions demanding more, but it was more than just that aspect. There were two other major developments. First, there were rising prices with lower economic growth. This became known as STAGFLATION. This took place because COSTS were rising from an external price shock that rippled through the economy, which was created at the same time as an economic recession. That never took place before because previous recessions were entirely confined domestically, so prices declined with lower demand.

It was more than simply the collapse of Bretton Woods. It was the in-your-face collapse of Keynesian economics. Still, it was Paul Volcker who followed Keynesianism and raised interest rates into 1981 simply because he had no other theory available. I had a conversation with Volcker at the IMF Dinner in Washington. I did not bash him over his head with his mistake, he was so tall it would have been hard to do so, but we did have a frank discussion of the changes in the global economy.

Today, the central banks are still trapped by the same Keynesian economic theories. Now, they have painted themselves into a corner with artificially low interest rates that they cannot escape without a drastic alteration to the debt markets as a whole. Volcker could at least correct his mistake by lowering interest rates. Today, the central banks cannot raise rates without blowing up their own portfolios. It is a very different type of crisis they face today than what it was during the 1970s.

Armstrong Economics Blog/Inflation Re-Posted Mar 29, 2021 by Martin Armstrong

COMMENT: Dear Mr Armstrong,
I wanted to write in to affirm your observation of regular people buying now rather than waiting (The Bull v Bear in the US Markets). I had to buy a new dryer earlier in the year. It took 6 weeks to get the one I had ordered. I wanted to buy a new computer recently. Lenovo showed delivery in 12 weeks for the one I wanted! Another company I looked at was taking pre-orders for delivery beginning the end of May. I paid a little extra and went with a small manufacturer that could deliver within 10 business days. I bought an extra freezer so we can stock up. I actually tried to buy a freezer last year and couldn’t get one at all, so I snapped one up as soon as they were available back in January.
My wife just asked me if I wanted to get a new grill for Father’s Day. I said, ‘Let’s buy that right now and put it aside. Who knows what will happen by Father’s Day.’

J

REPLY: I remember the 70s well. Because of OPEC, not just gasoline was rising, but suddenly everything made of plastic was rising. For those who do not know, plastics are made starting with raw materials, such as natural gas, oil, or plants, which are refined into ethane and propane. Ethane and propane are treated with high heat, in a process known as cracking. This is how they’re converted into monomers such as ethylene and propylene. The monomers ethylene and propylene are combined with a catalyst to create a polymer “fluff,” which looks like powdered laundry detergent. Then the polymer is fed into an extruder, where it is melted and fed into a pipe, and the plastic forms a long tube as it cools. So when oil rose in price, so did everything made of plastic. That was much of the inflationary boom between 1976 and 1980.

Everything was rising in price which led to the realization that it was cheap to buy today because it would only cost more tomorrow. I ordered a new refrigerator in December. It finally arrived in March. We are entering a period of shortages so prices will be moving higher as supply is constrained and demand will rise. The other side-effect of lockdowns and the destruction of offices with people working more remotely, everyone is out remodeling or expanding their homes. The construction industry is booming. Just look at the price of lumber.

Welcome to the inflation cycle our computer has been projecting would be built upon shortages

Armstrong Economics Blog/Stock Indicies Re-Posted Mar 28, 2021 by Martin Armstrong

While the general overview of this market by most technicians has been bearish simply based upon how high the market has risen, we are also in an interesting position where the fiction of vaccines is providing some underlying support. Based upon RELIABLE sources, this entire Build Back Better motto and a scheme were developed BEFORE COVID took place. This virus has been one of convenience and I know people were warned to sell stocks and bonds because a virus was coming and that was Jan/Feb 2020. That leaves only two possibilities.

(1) This is really the Fauci virus since this was the precise research he was doing and was told to shut down so he sent it to Wuhan

(2) They knew a natural virus would appear seasonally and they would exploit it as extremely dangerous

While Europe is still trying to push the Great Reset and destroy as much of the economy as possible that is reliant upon fossil fuels, there is no question that this virus has been greatly exploited and exaggerated for political purposes. In the United States, because the power has resided with state governors, it has been more difficult to accomplish the economic contract that we see in Europe especially in Britain where Boris Johnson is in bed with Bill Gates.

Consequently, the US will not see the economic devastation that we are witnessing in Europe because Trump was in charge and made no effort to lockdown the entire country. Additionally, politics is so corrupt they rely on corporate donations and they have been getting a lot of resistance.  On the private blog, I warned that the Biden Administration, according to reliable sources, was looking at putting a tax per mile that you drive in addition to the gasoline tax. That would create an army of new government employees and a nightmare of enforcement.

That all said, the real impact of all of this nonsense has been to seriously disrupt the supply chain in everything from food to electrical appliances. These shortages have already led to rising prices and consumers are starting to realize that it may be cheaper to buy today because whatever it is will be more expensive tomorrow. That is the REAL stimulus to inflation – not the increase in money supply which has been exponential since the 2007-2009 Financial Crisis with no inflationary impact. As long as the consumer does not trust the future, then they hoard their cash. Inflation emerges ONLY when they see that it is no longer beneficial to hoard their cash. That is the psychology we are now entering.

While our near-term target in the Dow Jones Industrials remains in the 36,000-37,000 range, we are still in a position to test the 40,000 number on a broader-term. What you must keep in mind are the capital flows. Because we had Trump, that one year of refusing to join this Build-Back-Better agenda was critical in keeping the US economy much stronger compared to Europe, yet neck & neck with China, which will put in a stronger growth pattern number in 2021. The Dow has been making new record highs which the NASDAQ peaked in February on target with our timing models. This disparity is reflecting the international capital flows for foreign money always go for the blue-chips.

To see the future, we must look at the entire world. Analyzing a single market based upon what comment the Fed will make tomorrow is for amateurs. We live in a global economy and it is time we open our eyes to the real world that surrounds us.

It has always been critical to look at everything from a global perspective. Gold declined for 19 years from 1980 into 1999 and the domestic analysis was always wrong. They looked at gold only in dollars. Yet when we looked at gold in a basket of currencies, what looked like a bull market in dollars was really a bear market in world currencies. This is why Socrates looks at everything in all currencies – not just domestic.

Those that keep calling to the collapse of the dollar because of debt have not bothered to look outside the United States. The US sovereign debt is about $28 trillion out of nearly $59 trillion globally. However, add in state and local government with private debt, as we are approaching $300 trillion. This is why US federal debt is still the golden parachute in the world and the fact that US long-term rates are not being manipulated as they are in Europe only offers a greater incentive for capital inflows. We are witnessing US rates rising and this will further attract international capital in the face of the US economy doing far better than Europe.