QUESTION: Mr. Armstrong; I can see your warning about Big Bang and the bonds markets would crash after 2015.75 going into the bottom of your business cycle on January 18, 2020. However, it seems that the negative interest rates have created your bond crash not in price but in participation. There is no viable bond market outside the United States with small exceptions of Britain, Canada, Australia, and New Zealand. Is there any way to come back from this destruction? Do you see the bond markets ever reviving or is this destruction permanent?

HC

ANSWER: If there was a free market, then you would have witnessed the bonds crash price and interest rates rise as people perceived risk. The introduction of negative interest rates which began in late 2014 going into 2015.75 and Quantitative Easing, shifted the risk from the free market to the central banks. This is what I mean that they are now TRAPPED! If interest rates rise, their portfolios crash in value (price). Such an outcome would raise the question of will the private sector return to the government bond markets when they see there is a rising risk factor? Our model shows that this will not be the case. In other words, the Sovereign Debt Crisis has taken place and to prevent the PRICE crash, the central banks became the buyer to hold interest rates down and bond prices up.

Some would think that the forecast was wrong simply because the prices have not crashed. We have had the Bank of Japan saying they will buy government bonds on an unlimited basis. This is NOT a free market. It has “crashed” from the perspective of participation.

It is like the creation of the Euro. Yes, it effectively eliminated the volatility in the currency markets between the Eurozone members. However, it really only transferred the volatility from the currency market to the spreads between the bond markets of member states. Obviously, Greece and Germany both use the Euro. The volatility which would have been reflected in the currency simply moved to the bond markets.

Now we have a serious crisis that has shifted from the bond markets exclusively to the central banks. This is now part of the crisis unfolding in the REPO Market. There does not appear to be any recovery on the horizon. Politicians are undermining the confidence in government, to begin with, and that will influence bond buyers.

We have received many inquiries about the 3rd edition. We have added some text and an index. It is going to print this week. With respect to those asking if we can reserve a copy or those asking if they can buy a quantity at a discount to redistribute, we do not get involved in selling the books. It really is a big project having to handle shipping even internationally.

Amazon picks up the books directly from the printer. So they do not even come to us in the process. With respect to selling quantities, we would have to make an inquiry of the printer if they can even make independent shipments and if so what would be the minimum quantity.

All we know is that there were people who bought multiple copies from Amazon. A number of people purchased multiples to send to third parties based upon emails we received were usually friends or politicians. There was a group that sought to purchase one for every member of Congress but there were not enough left to accomplish that goal.

We will make inquires of the printer to see if they could make individual shipments. I would suspect it would be probably a minimum lot of 20 books. We will let everyone know.

With respect to autographed copies, I will always be glad to do that at conferences only

Anyone who has been traveling these past few years will notice the changes in tourism. Back in the ’90s, the number one tourist group was clearly Japanese. As their economy imploded thanks to government mismanagement, the next group was the Russians. When I was in Venice a year ago, there are a couple of performances that alter back and forth in St Mark’s square at night. They were still playing Russian songs when the only tourists there were Americans and Chinese. When I asked them why they were still playing Russian songs, he responded he would play New York, New York. I replied you don’t go to Venice to eat McDonalds.

The Chinese tourists outnumber Americans at least 2 to 1. There were no Japanese and I never saw any Russians there either. The #1 tourists around the world are always from the hottest economy. So with the coronavirus, Chinese tourism has come to a complete halt. This will have a negative impact on the economies dependent upon tourism.

QUESTION: Hi Marty,

Yes, the political situation in our country is out of control and you are right, there is no turning back.

But this truly pales in comparison to what is happening in the financial markets today. It looks to me like the Fed has aided and abetted this ridiculous surge in stock prices. The phase we are in started back in early 2016 when we were plumbing new lows. The blinked. Then as they tried to raise rates in 2018, the marked puked and once again, they blinked. Less than a year later we have the REPO Crisis which you have discussed many times. At your WEC in Orlando, you stated one of the problems today is “the paradox of solution”, which I found brilliant…every solution to a crisis produces an even worse result later. Then you mentioned this: That politicians in office today have even less experience, that those in the know are leaving letting those in charge impose solutions that don’t work.

Marty, all of this is adding up to those in charge of debt and rates, the Fed, now being incapable of dealing with reality. To me, it’s worse than politics. The markets seem to be telegraphing an inflation ahead and a collapse in debt markets at some point. But you have always used the 1920’s as a sort of analogue to our times, claiming at some point the Fed will be forced to raise rates, realizing too late they have goosed markets and are now losing control. I just don’t see it. Nothing in the current makeup of the Fed indicates they understand the issues. Not them, not anyone in government will let weak companies fail, banks even less. There is no will in this country anymore. No one can take the pain. The Fed seems like they want to bail out everyone.

Your thoughts?
M

ANSWER: I understand that the traditional view states that cheap money means people will borrow to buy stocks. That entire theory is very naive. However, when we actually look at the data, that market myth evaporates in sunlight. We have been making lower highs in broker loans, which shows what I have been saying all along — this is the MOST Hated Bull Market in History! We are nowhere close to the highs of 2007.

The market has risen NOT because of cheap rates but on a capital flight from just about everywhere into the US dollar. The Fed has been baffled because they initially were looking at that market myth. But they see there is no validity to that theory. They are focused on the problem that negative interest rates in Europe and Japan have created. The slightest uptick will be devastating to those economies, not to mention the losses on the outstanding long-term bonds which negative yields.

It is by no means creating future inflation. What it is creating is a future collapse in confidence with respect to the governments actually being in charge of the economy. This is why I wrote that book, “Manipulating the World Economy.” This is all coming to an end. We are looking at, not inflation, but a massive shift in investment strategy from public to private. The Fed cannot raise interest rates to prevent a rally without undermining the sovereign debt globally. The game has changed. The politicians will brow-beat the Fed because the Democrats are really Marxists and will scream at the Fed because their low rates are benefiting the rich. They are beyond brain-dead. The politicians are incapable of understanding the problem and they have become so confrontational that we can guarantee there will be no understanding reached because they are absorbed by this class warfare

QUESTION: Marty, do you happen to know what type/kind of shekel coins Jesus was most likely betrayed for?

Thanks,

A

ANSWER: The Biblical account makes no mention of shekels for they were not the coin of currency. Thirty pieces of silver was the payment for Judas Iscariot’s betrayal of Jesus, according to an account in the Gospel of Matthew 26:15 in the New Testament. The Roman Emperor at the time was Tiberius (14-37 AD). The exact date of his crucifixion is not known. Most scholars have provided estimates for the crucifixion to be within the range 30–33 AD, with perhaps April 7, 30 AD to be the majority of consensus. The pieces of silver would have been of the silver denarius. The amount of coinage under Augustus (27 BC-14 AD) was massive. The coinage of Tiberius was very frugal.

The only local coinage was that of tiny bronze coins for small change. To put this in perspective, the wages of a Roman foot soldier in 30 AD was 900 sestertii annually. A silver denarius was worth 4 sestertii. Therefore, 30 pieces of silver was about one and a half month’s pay for a Roman soldier. It was not a huge amount of money, but it was respectable for an average Jew.

The Roman denarius weighed about 3.7 grams in reality when its theoretical weight was supposed to be 4 grams. When the Jews revolted against Rome, that is when they over-struct or melted down other coins and issued their Shekel which was a Sumerian unit of weight. This was the dominant system from Babylon to Carthage throughout Northern Africa. The Shekel was by no means simply a Jewish standard of weight or coin.

COMMENT: Marty; the books you handed out at the WEC are spectacular. One first edition just sold for $2,000 on eBay. The second edition is going for $300 on eBay but there aren’t many of those either. I just wanted to say thank you for your generous gift to the attendees. The book is worth the price of the ticket, lol. I hope you get the time to do the next one.

DF

REPLY: I am trying to have another book for this year’s WEC. I have collected books my whole life. I know the Greatest Bull Market in History from 1986 goes for $2500 to $3000 on eBay. I only have one copy of that myself. One of those was presented to President Reagan back in the day. So First Editions are always worth a lot more. The second edition of Manipulating the World Economy was amazing. It sold out in less than 3 hours. That is the one that some members of the press got their hands on. Not the first edition. We will have a 3rd edition but that will not have the same value as the 1st and 2nd. If that book becomes a major classic when the economy turns down, then its value should rise even more. Keynes first published his work in 1921 despite the fact he wrote it before WWI. His book: The General Theory of Employment, Interest and Money was published in 1936. They will bring $3,000+. Even a 1799 edition of Adam Smith still brings over $2,000.

I am finishing up two books I really want to get out this year before all my time evaporates. I am trying for the Geometry of Time and the Economic Confidence Model, which is the proof back to the inception of recorded time. I know a lot of people are waiting for the 3rd edition of Manipulating the World Economy. We are working on that too.

QUESTION: Do you agree with Bridgewater’s Bob Prince that the Boom-Bust Cycle is over? Have they made an offer to buy you out yet?

SH

ANSWER: Absolutely no way. His theory is that the tightening of central banks all around the world “wasn’t intended to cause the downturn, wasn’t intended to cause what it did.” Prince explained, “I think lessons were learned from that and I think it was really a marker that we’ve probably seen the end of the boom-bust cycle.”

That is an interesting take, but it reflects the typical investment manager focus. They tend not to pay attention to history and always assume that the financial world started as far back as maybe 1971 if not 1990. The boom-bust cycle that he refers to has been the classical economic expansion and contraction in economic activity. However, the very book I just published, “Manipulating the World Economy,” deals with this issue of central bank intervention. He seems to think that since the financial crisis and monetary easing has disrupted that cycle, that it has fueled the longest-running bull market in stocks.

This is why Bridgewater has had a terrible year in 2019. They have completely misunderstood the market and do not grasp the capital flows and how they drive markets. Indeed, Bridgewater Associates, the world’s largest hedge fund firm, had a very difficult 2019 because of this view. The firm’s flagship Pure Alpha strategy was essentially flat in 2019, with Pure Alpha 18%, the more leveraged version, falling 0.5% for the year, according to an investor in the funds. It has been this fundamental focus which is why they missed the bull market.

The repo market is already proving the idea that the boom-bust cycle is dead. Interest rates are pushing higher and the Fed is desperate to try to prevent that rise. You cannot defeat the business cycle. Even Paul Volcker admitted that much (Rediscovery of the Business Cycle). Many people have thought that governments have killed the business cycle. They have ALL BEEN PROVEN to be wrong!

No, I have never met Ray Dalio that I remember. If I did, it was just in passing perhaps at some cocktail party. Bridgewater is not a client so the idea of some offer is not even plausible. It is one thing to take in a partner, it’s something entirely different to sell everything to some private firm which would then have exclusive use. That is not my goal and I would not live long enough to spend some mythical billion-dollar sell-out. Sorry, that is not my agenda. I would like to see Socrates help to better manage the world economy, not make money for a bank or hedge fund exclusively.