The Myth of Fair Value

Armstrong Economics Blog/Understanding Cycles Re-Posted Mar 13, 2023 by Martin Armstrong

QUESTION: If the metals are not trading at a fair value relative to everything else, then does that not prove they are manipulated?


ANSWER: Your problem is the assumption that everything must be trading at some fair value. That is up there with the theory of random walks.  ALL markets trade for periods where they remain well below fair value. That was the entire takeover boom of the 1980s which they also blamed on me because I was advising many of the takeover players. I simply showed these charts back then which show in terms of book value, the Dow Jones bottomed in 1977. The market was grossly undervalued because you could buy a company, sell all its tangible assets, and double or triple your money. Michael Douglas’ famous speech in that movie about “greed” would not even be possible if everything always trade like some mythical robot at fair value. Everything overshoots and undershoots.

The metals are NO DIFFERENT. Every market swings between grossly UNDERVALUED and then grossly OVERVALUED. This is part of the business cycle. If there were no periods of gross undervaluations, there would not be a sudden boom either.

This is what you have to come to grips with. There is such a thing and the business cycle. Our cyclical analysis would not be possible if everything was trading at a flat line of fair value. This nonsense in metals is made up of people who have been wrong, and need to blame someone else. It is like blaming climate cycles on CO2. This notion of fair value is rooted, I hate to tell you, in Marxism, because he too did not understand  the business cycle.

The Fed & the Misinformation

Armstrong Economics Blog/Central Banks Re-Posted Jan 11, 2023 by Martin Armstrong

QUESTION: Marty, I was there at your Berlin conference when one of the attendees openly admitted he was from the Bundesbank. He was very open about it. There have been other central bankers at your WEC. I suppose they have to attend just to get a whiff of the trend. Powell has come out and asserted the Fed’s independence and it will not make policy based on climate change. That was very refreshing.  The bulk of analysts still cry about the creation of money at the Fed are insisting that a recession is coming because when the Fed stops printing, we will see a correction worse than 2008. Some call this a confetti party. Many claims to be fed watchers, but have never stepped inside their door. Meeting the people I have at your WEC events, you are always in the center and I can see it is not your opinion but Socrates that they want to listen to for an unbiased view. So will there be a huge correction when this party is over or have the fed watches been talking sophistry with no real insight?


PS: What about a Dubai WEC because the world imposes vaccine passports?

ANSWER: I know, This is the typical myopic domestic view that the Fed is in a very dangerous situation and a wrong move in any direction could cause a financial system meltdown worse than 2008. The argument is that since we have a debt-based monetary system if the Fed stops increasing the money supply this will lead to an economic withdrawal process that will be worse than 2008-2009. Once more, this is only looking at the domestic economy. They live with blinders on and do not see the world around us with respect to the globalization policies that are all in chaos.

Even at Davos in 2003, Alejandro Toledo, then President of Peru, urged the participants to listen to the voices of those protesting outside and to build a bridge with the participants of the Porto Alegre anti-globalization conference. “We must give a human face to the global economy and globalization,” he said. “Managing the economy is not an end in itself, but a means to improve the quality of life. Globalization is meaningless if it does not contribute to reducing poverty all over the world. “ Schwab preaches equality but at the price of Authoritarianism and the loss of individual rights.

The Fed is not between a rock and a hard place domestically. It just made it clear that it is not like the ECB and is not in the climate change business. The Fed is INDEPENDENT and will not be bullied by Biden. The Fed understands that it has become the world’s central bank and its actions in raising rates have had a far greater impact externally particularly in emerging markets because so many other nations issue their debt in US dollars.

The focus is not entirely on the nonsense of the domestic number of the money supply. If a foreigner buys property in the United States, they convert their currency to dollars, and in effect that increases the domestic money supply for that capital now free up cash domestically. The Fed has no control over that aspect and central banks have become aware of this effect which is not taught in economics class and not factored into the doomsday forecasts all based on the same reasoning forever.

All the analysis is constantly based on the Quantity Theory of Money which no longer works in our global economy. That was the foundation of the money theory that emerged with Sir Tomas Greshan who was the agent for the British crown. He saw that when Henry VIII debased the coinage, the value declined in Amsterdam when the exchange rate was solely based upon the metal content of the currency.

All we have ever heard is that the Fed has the power to create money out of thin air. They never explain why the Fed was given that power. You cannot have a fixed money supply as the population increases, then you end up with DEFLATION which is the rise in the value of money. They are married to the argument and nothing you can do will deter them from that saying. During the Great Depression, people hoard their money and do not spend it. That was why the ECB went to negative to try to force people to spend money. You can DOUBLE the money supply but if the people hoard it, you will never create inflation.

Because people hoard their cash, there was a huge contraction in the velocity of money. This resulted in massive shortages and it led to over 200 cities issuing their own money to try to enable a local economy to still function for there was not enough cash to even pay anyone for services.

INFLATION is actually the decline in the purchasing power of the currency as measured against assets. DEFLATION is the rise in the value of money and the decline in the value of assets. The way the term “inflation” is handled today, the government puts the blame on the private sector. During DEFLATION we are blamed for not spending our money.

All this talk about bail-ins and bail-outs misses the point. They act as if they in the end really matter. HYPERINFLATION will never arrive based on increasing the money supply. It arrives with the collapse of CONFIDENCE in the government. Germany imposed a forced loan and confiscated 10% of everyone’s assets in December 1922. Germany lost the war and in 1918 there was a Communist Revolution that led to the creation of the Weimar Republic. The money supply increased 10 fold during 1922 when they were struggling to meet the reparation payments. That undermined the confidence in the government. But it was December 1922 when they confiscated  Note that the hyperinflation took off in 1923 after that forced loan. It was no longer safe to have assets in banks.

This idea that we are headed into so black hole all because the Fed creates money is insane. That misinformation that the German Hyperinflation was all because of printing money was totally absurd and a lie. Once the government stole 10% of everyone’s assets, that was the final straw. They then had to print just to try to cover costs and meet reparation payments.

The Lesson of Germany is seriously distorted and has inflected the view of money supply and inflation which ignores the actions of the government. That is the real issue.

Why I Look at the Dow First

Armstrong Economics Blog/Economics Re-Posted Nov 28, 2022 by Martin Armstrong

COMMENT: Why do you focus on the Dow over the S&P 500 and others?

ANSWER: New analysts claim that the S&P 500 provides a better picture of the markets compared to the Dow. Although the S&P 500 obviously has a larger catalog, the Dow is a direct reflection of international capital flows. Look toward the Dow to see where big money is moving.

The S&P 500 is domestic-oriented, and fund managers and institutions tend to focus on this index. The NASDAQ typically reflects retail, often tech-heavy, and usually does not peak at the same time. Each index offers a completely different perspective. The Dow Jones Industrials is the big money. You will notice that this index leads the way. It is the first out of a key low because it is typically the foreign capital based on currency. You will also notice the Dow tends to top out first because the big money tends to pull out first also due to currency.

Capital is flowing like never before, and the smart money is on the move. Socrates users have access to our capital flow heat map that shows where money is moving in real time. The USD remains the last safe haven, and money is pouring into the US. Look to the Dow for the best international perspective.

Interest Rates Rise will Not be Slow

Armstrong Economics Blog/Interest Rates Re-Posted Nov 13, 2022 by Martin Armstrong

This interview with FXStreet is from 2015. Some are surprised at the consecutive rate hikes, but our models have been indicating for a very long time that rates would rise rapidly. There would be no soft landing. Central banks maintained artificially low rates for far too long and were backed into a corner. They created a problem long ago, and it will cause pain for “some time,” as Powell usually states, for the situation to be under control.

2022 WEC: In the Dollar We Trust

Armstrong Economics Blog/World Economic Conference Re-Posted Nov 8, 2022 by Martin Armstrong

At the World Economic Conference in 2021, the Armstrong Socrates model predicted that 2022 was going to be volatile and chaotic featuring a strong US dollar, a huge move in interest rates, a major bond market decline, fertilizer and food shortages, as well as escalating geopolitical tensions in Ukraine.

What now? Socrates forecast that 2023 will be more volatile and chaotic, featuring violent moves across all markets as monetary and geopolitical tensions and debt problems intensify.

At this year’s World Economic Conference, November 11-13, Martin Armstrong will talk about what’s next for the US dollar and other currencies, the liquidity/credit crisis, as well as price targets for oil, gold, stocks, bonds/interest rates, and stocks.

Give yourself an “unfair” advantage over the markets by joining us at this year’s conference remotely or in person. Meet Martin Armstrong – have your questions answered and get the best roadmap for 2023 and beyond in the investment business.

Halloween Spending Amid Inflation

Armstrong Economics Blog/USA Current Events Re-Posted Nov 1, 2022 by Martin Armstrong

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The National Retail Federation estimated that 172 million Americans spent $10.6 billion on Halloween this year, or $100 per person. Around $1.2 billion went into costumes for children, not to be outdone by adults spending $1.7 billion on their own costumes. Around $710 million was spent on pet costumes as well. Around 67% of consumers handed out candy, 51% decorated, 47% wore a costume, 44% carved pumpkins, and 26% participated in a Halloween party. Halloween spending is back to pre-pandemic levels, but inflation is to blame.

Food, candy, pumpkins, décor – all of these items cost significantly more in 2022, but Americans are still willing to spend. Candy alone is up 13.1% from last year, surpassing food inflation at 11.2%.

This is foreshadowing for the Christmas season, which historically is the most lucrative time for retailers and a big boost for overall GDP. Around 25% of all retail spending occurs in November and December each year, but many have already begun holiday shopping as stores are forced to offer more appealing sales. Retailers who fail to profit in the remaining months of 2022 will be forced to downgrade their forecasts and re-evaluate their businesses in the current economy. Layoffs and store closures are likely, and many retailers have already halted hiring. Americans do not have more disposable income to spend on the holidays, but those who can are willing to pay inflated prices to participate in age-old traditions.

Steve Mnuchin is Not Pretending, States U.S. Economy is Already in Recession

Posted originally on the conservative tree house on October 26, 2022 | Sundance

A lot of people didn’t like Steven Mnuchin as Treasury Secretary, I did.  Secretary Mnuchin was an inside player, a billionaire himself, who worked for the outside team.  He already had a full bank account and carried ‘f**k-off’ money.   That, combined with Wilbur Ross having the same ability, was exactly what we needed to execute the America-First MAGAnomic resurgence.

The U.S. middle-class saw and felt the benefits.  Economic security is national security, at a nationwide and even individual level.  Mnuchin, Ross and Lighthizer constructed that economic outcome guided by the larger strategy of President Donald J Trump.

RIYADH, Oct 26 (Reuters) – Former U.S. treasury secretary Steve Mnuchin said on Wednesday he believed the United States was in a recession and said this would continue.

Speaking at Riyadh’s flagship investment conference FII, he said: “I think we’ll probably see a peak of 4.5% 10-year rates.”

“I think you are going to see inflation in the U.S. begin to come under control, it will probably be a two-year period,” he added.

He said the U.S. and China must learn to co-exist. He added that the Middle East’s economic issues need to be dealt with regionally. (link)

Major Merger Announced, Kroger and Albertsons Announce Merger Deal Worth $24.6 Billion

Posted originally on the conservative tree house on October 14, 2022 | Sundance 

Not that long ago, I would have said to allow the free market to decide if a merger or acquisition was valuable for the consumer.  However, in the era where massive multinational corporations, investment groups and financial institutions have now used corporatism to merge their interests with government, the massive multinationals need scrutiny.

Two major food retailers, Kroger and Albertsons, have announced their intent to merge into one massive company in a deal valued at $24.6 billion.  The majority stakeholders in Kroger are institutional investors Vanguard ($3.72 billion/11.29%) and Blackrock ($3.02 billion/ 9.17%).   The majority stakeholder in Albertsons is institutional investment group Cerberus ($3.90 billion/28.54%).

In the past few years, food has surfaced as a growing national security issue.  Foreign companies and large multinationals continue to expand their control over U.S. farm production and export U.S. farm products (Big Ag).  A major retail level move like the merger of Kroger and Albertsons creates a weaker competitive environment and gives a larger potential footprint to price control.

CBS – […] Together, the companies will have more than 710,000 workers and operate nearly 5,000 stores, along with roughly 4,000 pharmacies. Kroger, based in Cincinnati, Ohio, operates 2,800 stores in 35 states, including brands like Ralphs, Smith’s and Harris Teeter. Alberstons, based in Boise, Idaho, operates 2,220 stores in 34 states, including brands like Safeway, Jewel Osco and Shaw’s. 

“Albertsons Cos. brings a complementary footprint and operates in several parts of the country with very few or no Kroger stores,” Kroger CEO Rodney McMullen, who will lead the expanded company, said in a statement.

Kroger will pay $34.10 for each share of Albertsons stock, a 19% premium from the closing price on Thursday. As part of the purchase, Albertsons will issue a cash dividend of up to $4 billion to its shareholders, which the companies said is expected to be about $6.85 per share. (read more)

Sometimes bigger is just bigger and more controlling, not better.

That said, with economic volitivity continuing to increase, the food sector is a safe harbor for massive investment shifts.

Russian Oil Revenue Returns to Pre Sanction Levels in May

Posted originally on the conservative tree house on June 16, 2022 | Sundance 

Western sanctions against Russia have been used primarily to obfuscate the cause of western inflation and keep the citizen pitchforks from reaching various government offices.  So far, the strategy -assisted by western media- has been mostly successful.

However, the International Energy Agency (IEA) is reporting that despite the western sanctions against Russia, the Russian energy sector is having no trouble finding customers for its oil sales.  With global oil prices at their highest rates in years, in part driven by the energy policy of the same western leaders who triggered the sanctions, Russia is getting just as much economic benefit as it was before the sanctions regime was triggered.

(EU FINANCE) – Russia continued to rake in oil revenues in May despite a global boycott from companies and most countries following its invasion of Ukraine, a new report has shown.

The International Energy Agency (IEA) said the Kremlin’s oil-export revenues surged to around $20bn last month, an 11% increase from the month before, despite shipping lower volumes.

Its latest monthly report, published on Wednesday, said this takes Moscow’s total revenue for shipping oil and crude products roughly back to levels before the invasion of Ukraine. Russian exports fell by about 3% due to lower oil-product flows, the Paris-based agency estimates.

Meanwhile, crude shipped during the month grew by nearly 500,000 barrels a day compared to the start of the year, largely thanks to higher deliveries in Asia.

“China and India, which have both sharply increased crude oil purchases from Russia, are net product exporters and have no need to lift Russian products,” it said. (read more)