COMMENT: Marty; I have to say, the forecasting on Socrates in Oil is very impressive. It picked the high and then forecast a water fall in February even though February closed higher. From even a technical perspective, it did not appear that such a sharp collapse would unfold.

Absolutely amazing

KW

REPLY: This is completely a pattern recognition system which is machine learning based so it constantly improves with time. It is writing its own code. Every pattern it discovers across all markets it records and assigns it a specific number. A monthly closing below 5240 will keep oil in a bearish position, but the technical support lies at the 4415 level. A monthly closing below 4200 will signal the reversal of fortune. Otherwise, welcome to the choppy world of market chaos.

This collapse in oil prices is based upon the amount of crude oil in U.S. storage facilities rose to another record high reaching 8.2 million barrels from the previous week, according to the Energy Information Administration. The increase was more than four times what analysts expected.The fact that the computer can pickup these patterns demonstrates that those who have such information begin to trade in anticipation. Picking-up these patterns may be extremely subtle. Nevertheless, the flow of capital is the key to everything

Standard & Poor’s (S & P) is being touted as once again trying to influence political elections as they did in Britain without success. While the US Congress wants to investigate Russia trying to influence US elections, they should look at the US track record of influencing foreign elections by the CIA and also the private credit rating agencies. S&P said Britain would be downgraded it if voted for BREXIT.

S&P’s economist, Moritz Krämer, claims that a victory for the Front National with its top candidate, Marine Le Pen, in the French presidential elections would probably have far-reaching implications for the country’s financiers. This bogus analysis is targeted at the intention of Le Pen to get France out of the euro and reinstate the franc.

Krämer, head of the Standard & Poor’s government bonds section, claims rather absurdly that in such a case France’s insolvency must be declared. He reportedly told the press: “That is clear. If a debtor does not comply with the contractual obligations against the creditors – which is also the currency of the payments – we would declare a payment failure. He added: “Our current AA rating for France, however, means that this is unlikely at the moment.”

The nonsense of this statement demonstrates the total lack of credibility. If France pulled out of the Euro, nearly 40% of its debt is held by the ECB. It would seem that any risk of a French default would send the Eurozone into crisis – not France. The French franc would be an excellent way to reduce the debt and revitalize the French economy away from the deflation imposed by Germany.

I have warned that rates will rise BECAUSE the Federal Reserve will be criticized if they fail to do so when they are faced with a stock market that is rising. However, while one by one, several Fed officials have all signaled in recent days that the Fed is ready to resume raising interest rates as soon as this month, the real crisis for the Fed will be raising rates will strength the dollar and put even more pressure on Europe and emerging markets. Hence, the 64 billion dollar question is will the Fed abandon international policy objectives for domestic?

Janet Yellen speaks today in Chicago on the topic of the Fed’s economic outlook. The pundits will scan ever possible word for any hint whatsoever of how likely the central bank is to raise its key short-term rate after it next meets March 14-15, 2017. Traders in futures markets have put the probability of a rate hike at 75%, according to data tracked by the CME Group. Last week the odds were just 50/50. With the rally in the share market this week, many are now fearing a rate hike.

Many Fed officials are suggesting that the strengthening U.S. economy warns of higher inflation and a surging stock market has confirmed a potential rate hike. On Tuesday, William Dudley, president of the New York Fed, said the case for raising rates had “become a lot more compelling”. Robert Kaplan, of the Dallas Fed, said he thought the Fed would likely raise rates “in the near future.” Then Lael Brainard, a Fed board member, also said she thought the case for another hike was strengthening: “Assuming continued progress, it will likely be appropriate soon to remove additional accommodation.” Jerome Powell, who is another board member, said on CNBC: “I think the case for a rate increase in March has come together, and I do think it is on the table for discussion.”

Back in the 1980s, we would get a phone call that the Fed will raise the rates that day. Banks were not proprietary traders as they are today back then so the calls were really to make sure people did not get hurt. That has become insider trading these days so what we get is Fed officially attempting to choreograph their intention for the very same purpose that the marketplace is not hurt by their actions.

Last December, the Fed raised its benchmark rate by a quarter-point to a range of 0.5 percent to 0.75 percent. It was its first increase since December 2015 following our turning point on the Economic Confidence Model 2015.75 which was October 1st, 2015. When the Fed raised its key rate from a record low back in December 2015, it did so right on target for the change in trend.

Domestic Policy Objectives will win out over International. This will only have the same impact of causing capital inflows for the dollar will rise. Yet the Fed has no choice. To do nothing will invite attacks by the Democrats who will say they are only helping the rich get richer watching the stock market rise irrespective of the economy. What we are facing is asset inflation FIRST. That means Draghi and the ECB will be in even a more difficult position trying to maintain negative interest rates that have completely FAILED to revitalize the European economy. It has been 8 years of a complete brain-dead economic policy by the ECB. The question is will the ECB be compelled to end its failed policy and raise rates itself? Talk from behind the curtain is that Yellen keeps telling Draghi is is wrong.

There are at lot of professional traders who really lack the in-depth knowledge of the historical track record of how markets really trade because they have not traded something like this which is similar to 195 blast-off or the bull market into 1929. This is a special type of market and it requires real research to survive plus skills along with nerves of tungsten.

You have bond traders talking  their own books. Bond Traders aren’t pricing in more rate increases but rather moving forward the timing of the next move. The Bond Traders don’t believe the stock market hype about the sudden prospect for a burst of economic growth. Consequently, they remain bearish on stocks expecting a meltdown and bonds to soar. The Bond Traders say that any policy action is not warranted on the mere hint of a possibility of economic gains. They add that even the potential for higher rates from an increasingly worried Fed could create financial instability and would certainly ratchet up the cost of any new federal spending. They remain oblivious to the capital inflows into the blue-chips because of political uncertainty looking in Europe.

While Buffet says we are not in a bubble, there are people like Jeffrey Saut at Raymond James who says he will be on the sidelines, choosing not to participate in something he does not understand. Saut said: “Folks, I have been in this business for over 46 years, and observing markets with my father for 54 years, and I have never experienced anything like what is currently happening.”

This is how REAL bull markets run. They run up because people are not in and they want to buy dips while short players keep getting stopped out.

This is the most difficult type of market to trade because it requires CONFIDENCE and CONVICTION. We will be devoting time to how to understand this type of market at the Hong Kong WEC. Given the possibility of a visa war between the USA and EU, some Europeans may want to consider the Hong Kong session.

It was the speech that most claimed lacked substance that just did exactly what most thought it couldn’t – rally global stock markets. Yes, Japan’s Biz Cap-Ex released at 3.8% compared to the previous 1.3%; that woke markets, then Manufacturing PMI released a smidgen worse but when the JPY started to fall, everyone blamed Trump. The fact that the market has re-priced a March hike from 50% to 80% hardly made the pages. The Nikkei loved  the weaker Yen especially moved were key exporters all adding to the strong 1.5% rally. Shanghai and Hang Seng were small better bid (bit disappointing as China PMI better than expected) but in late US trading the futures market have added an additional 1% across the board.

I find it quite amusing that the pages announcing in Asian time zone “no substance”, lacked detail and disappointing – suddenly claim that $1tln will help infrastructure and defence stocks. Europe benefitted both on data and action as fresh money finally found its way into the market. All core indices saw gains of around 2% whilst both the Euro and GBP traded weaker. Mixed bag of tricks on the data front but probably a tad better for Germany which did see a small sell-off in bunds but then treasuries were down nearly 2pts so probably not that exciting really!

The US market could not wait to open with a 100 point gain seen in the opening minutes. By lunchtime time we were over 300 points higher, breaking both the psychological 21k for the DOW and the 2400 level for the S+P. Data was mixed initially but finished better (ISM 56 forecast was released at 57.7) with most talking FED. Towards the close we are pricing in a 80% chance of a move in March but many may wish to wait Janet Yellen when she speaks Friday. Given the DXY recent performance (now around 101.75), the rise of the S+P (+7% YTD) and 2yr yields their highest in nearly 8yrs the chances are this could be the start of the FED back in play.

2’s closed 1.28% (+5bp), 10’s at 2.46% (+10bp), Bunds 0.0.28% (+8bp) closes US/Germany spread at +218bp. France 0.91% (+3bp), Italy 2.11% (+4bp; can you really believe Italy trades 35bp through the USA!!!), Greece 6.75% (-22bp), Turkey 10.66% (+7bp), Portugal 3.89% (+6bp) and finally Gilts 1.19% (+4bp).

QUESTION: Marty; The Mises Institute said “Martin Armstrong is one of the most famous economic forecasters alive” and others call you the legend. I have watched your numbers and timing targets. I bought the Gold Report in 2016 and to watch gold peak exactly to the day you highlighted years ago and in so many other markets, you have proved your point. This is humanly impossible so you must have discovered a model that reveals the regularity of everything showing there is no such thing as randomness. My question is simply this. The majority of fund managers could not even beat the S&P500. Many funds had their worst year since 2009.  I made more money in the account I traded using your forecast than I did in the funds I gave to managers. Would you consider publishing funds that use you so we would know who to trust since you are not interested in going back to funds management?

PG

ANSWER: We are considering that. As 2016 began, USA Today reported that 66% of fund managers could not match the S&P500. Back in 2014, 86% of investment managers lost money. Studies back in 2013 showed the same general ratio that only 24% of active mutual fund managers outperform the market index. Last year, 2016 was the WORST year for fund managers picking stocks. The London FT reported that active fund managers last September were lagging behind the stock market. Stockpickers in their semi-annual survey found that 90% of all managers fell short of benchmark.

This is a HUGE problem. The crisis in funds management illustrates what I have been warning about. OPINION is your worst enemy. I try on this blog to cover the world range of topics. To be a good hedge fund manager. the first thing you MUST do is be on top of everything unfolding in the world ALL the time. The tsunami waves of market corrections and breakouts ALWAYS unfold from an international perspective. Even the US media never really talked about BREXIT until about 10 days before it even took place. You cannot successfully invest or manage money and be oblivious to world trends.

We will consider licensing our model to firms for public use.