The ECB on the Verge of Collapse?


 

The European Central Bank (ECB) will NOT aid Italy with an EU rescue program if the country or its banks are in financial turmoil. The Italian government is taking the view that Italy has become an “occupied” country and that Germany has conquered Europe imposing austerity and its view of inflation upon the whole of Europe without firing a shot. While the spin is that the ECB is making Italy a test case to demonstrate that Europe and its mechanisms work, in reality, it is a realization that the ECB cannot save Italy’s financial institutions because austerity has created the greatest economic depression perhaps in economic history.

The new five-star Movement in Rome and Lega have been on a confrontational course with the EU Commission, as they plan a higher level of new debt to fulfill election promises. The EU Commission, on the other hand, is calling for less spending and the implementation of austerity as demanded by Germany. Italy is already sitting on a debt of around 131% of GDP. The financial markets are nervous for they see a confrontation that could tear Europe apart at the seams. Italy now has to offer investors significantly higher interest rates when placing its government bonds in order to raise money. In addition, the gap to the yield of German government bonds widened. But in reality, stopping the ECB’s Quantitative Easing will result in interest rates rising by at least 300% very rapidly. Italy is getting ahead of the curve BEFORE everything comes crashing down.

The EU rules prohibit the ECB from helping a country unless it has agreed to a rescue program of EU partners. Then, for example, the Euro-watchdogs could buy up Italian government bonds in order to contain a rise in yields. This provides for a monetary policy emergency tool adopted in 2012 – called “OMT”. However, this has never been used before. The ECB, behind the curtain, fears that if they try to use this mechanism and it fails, as our model warns, then the CONFIDENCE in the entire EU system will collapse.

It Ain’t Interest Rates – It’s the Elections Stupid!


Jeff Bezos of Amazon loses about $80 million for every dollar the stock goes down.  No billionaire was hit as hard by the drop this week in the share market than Jeff Bezos. During the Wednesday selloff alone, the Amazon founder and CEO lost more than $9 billion. This is how they measure people’s worth by the value of shares they hold which is NOT cash. If he ever tried to sell everything, the share price would also crash. At the peak, his net worth reached $160 billion, according to Forbes.

 

The Bloomberg Billionaires Index shows Bezos total net worth is $145 billion, comfortably ahead of Bill Gates, who sits second at $96.3 billion. Gates lost more than $2 billion, while Warren Buffett lost nearly $4.5 billion. When we look at the Arrays, the week coming up as a key target has nothing to do with interest rates – it’s the elections STUPID

Currency War – The Misguided Understanding of the FOREX Markets


 

While the IMF chief Christine Lagarde has come out expressing her fear that not only a trade but also a currency war may emerge that could dampen the growth of the global economy, there are some serious issues that need to be addressed.  The problem with misunderstanding currency and its role in the floating exchange rate system can easily engulf even bystanders in this clash of the titans – US v China.

 

The background behind the smoldering trade dispute between the world’s two largest economies, the US and China, demonstrates that there are serious misconceptions of the role of currency. President Donald Trump has fanned these flames for he too fails to understand the FOREX markets. Trump accuses China of unfair trading practices and theft of intellectual property. The People’s Republic is also accused of devaluing its currency against the dollar, which tends to widen the already high US trade deficit.

 

The dollar has been rallying against the yuan since the March low here in 2018. Clearly, the dollar is going to rise further for a trade war will hurt China more so than the USA. While we see critical turning points in January and March in 2019 followed by May, we must keep in mind that this pattern of a dollar rally is impacting the entire world. Trump FAILS to understand Capital Flows and his accusations against China is manipulating its currency to beat the USA in trade is NOT justified. Our models are showing the capital flight from China but also from Europe overall which contributed to the US share market rally into October basis the Dow Jones Industrials, which foreign capital buys looking always for the trophies.

We have tremendous Panic Cycles throughout 2019 and we see even the yuan is lining up with the targets concerning BREXIT. This is by no means a Chinese manipulation. What we see ahead in 2019 is anything but a nice steady market projection.

IMF Warns Their Forecast Was Wrong


COMMENT: It really does appear that the IMF is following you and repeating your forecasts. They first said the world economy was booming at the start of the year for the next several years. Now they have revised that forecast and saying we are at risk of a decline. Any comment?

HK

ANSWER: Yes, at the start of this year, the International Monetary Fund (IMF) was very bullish. The world economy’s “broad-based momentum” was their call which produced an upgrade to its forecasts for global growth over the next few years. Now, they have admitted that they were “over-optimistic” and they have cut its projections down to where they were last year. They are warning that “the likelihood of further negative shocks to our growth forecast has risen.” What they have completely failed to take into consideration is the economic meltdown in Emerging Markets coupled with the failure of Europe as a whole under the EU

The US Share Market – Dow Closes at 25,052.83


US stocks have plunged this week from the high of the week of 10/01 which has been the biggest rout since February. Meanwhile, investors remain jittery, to put it mildly, and confused as people try to attach a fundamental reason for the decline mixing in the recent jump in interest rates and the potential harm tariffs could cause tech companies. But our sources overseas are more concerned about politics. The Democrats are vowing to raise taxes and lower health care costs which they created in the first place.

The NASDAQ peaked in August and our model had called for an August high would be followed by a low into this period. So nothing unusual has transpired other than foreign buyers have backed off concerned about what happens if the Democrats take the House. The S&P500 peaks in September and the Dow peaked in October with the dollar illustrating once again the international capital flows are different from domestic.

The interest rates have been rising since the 4th quarter of 2015. To suddenly claim that is the reason for the decline merely reflects the problem that they need to point to something to explain a move that cannot be attributed to anything but the political uncertainty on the horizon.

We will update Tonight on the Private Blog with the specific numbers.

When the Market Crashes The Scenarios Make No Sense


Interest Rates have been on the rise since 2015.75 4th quarter. All of a sudden, the headlines claim U.S. stocks took a dump to close sharply lower because investors spooked by rising bond yields sold equities in all sectors. The Nasdaq Composite Index (COMP) fell 315.97 points, or 4.1%, to 7,422.05, its biggest decline of 2018. The Dow Jones Industrial Average fell more than 800 points and the S&P 500 had its worst day since February as technology stocks went into a freefall.

This really begs the question – Did everyone suddenly notice interest rates? No, the market peak on the target week in the Array of 10/01 so it is simply all about the market getting tired. The vast majority are bearish and the most fascinating thing is what happened to the Flight to Quality? Normally, the stock market crashes and you run to bonds. But if the stock market is crashing and bonds are crashing, is this a completely new type of flight?

We will be providing an update tonight on the private blog.

Interest Rates & the Long-Broad Trend


QUESTION: Mr. Armstrong; I cannot tell you how much I respect your work and your computer. It is so obvious that you have been correct on every market. Even last year at the WEC you warned that interest rates would continue to rise and the stock market would not Crash and Burn. My hat is off to you. My question is we are approaching that number —— you gave at the WEC for the breakout in interest rates. We should expect rates to rise despite the fact that Trump has said the Fed is raising rates too fast?

Thank you

See you in Orlando

UT

ANSWER: Everything is connected. You push on one domino and its forces all the others to fall in their time and place. This is the difference between a domestic analyst who forecasts based upon his opinion and a global perspective that is shaped by trends.

Treasury 10-year yields rose the most since February as stronger US economic data added to the case for reduced stimulus measures from the Federal Reserve. Trump’s tax breaks, despite what the Democrats say, are the reason behind the strength in the economy. In fact, a correlation of tax decreases with economic activity increases in growth is 100% spot on. Raise taxes and people have less to spend and then economic growth declines. It does not take a Nobel Prize to figure that one out.

Emerging-market stocks have tumbled 4.5% in the five days last week, which was their worst performance since February. The dollar has rallied despite everyone saying it was crash. Let me make this perfectly clear: The dollar’s rally will continue overall. The Fed will continue its policy of gradual interest-rate increases at least through the end of 2019 and probably into 2020. Meanwhile, the rise in US rates will FIRST cause tremendous problems in Emerging Markets and then in Europe, followed by Japan. There is no getting away from this trend.

Is the Greatest Trade on the Century Knocking on the Door Yet?


QUESTION: Hello Mr Armstrong
I have been following you now for a couple of years, since the movie the forcaster, it showed me exactly whats is happening in the world and how little I know about finaces and trading. I am a blue collar worker in Canada with a small pension, how can I or where should I go to learn how to trade? Better yet how to use Socrates or someone who can help me or invest for me?
Your work has opened my eyes and also scares the hell out of me for what is coming.
Please can you help me and the other little guys who not as educated?
Thank you

ANSWER: What you want is not to short-term TRADE but to be a position trader. People who try to trade back and forth usually get caught up in emotions and end up losing money. What you want is to POSITION TRADE for the long-haul.  Here is what happens just using the Long-term Reversals only – not even every single one. Sure, you leave some on the table. The important thing is to reduce the number of trades and your confidence will increase and you will actually make more at the end of the day.

Right now, we are still in this consolidation phase, yet this is still a cycle inversion. We have not elected any Monthly Bearish Reversals at all so you just stay with the trade. The exit point keeps rising as the market rises. You can use the Weekly to Exit after a long bullish run. But for now, just hang tight. We may have the greatest trade on the century knocking on the door very soon.

It’s the Inter-connectivity that is the Key


QUESTION: Hello Mr Armstrong,
I read your blog since many years (i live in France) and i’m really impressed by Socrates … You have said that the $ will going to rise against the € and it’s exactly what’s happened !!
You have said that the Dow Jones will rise into 26 000 points and will go on into 40 000 points and the Dow rise since the elction of Trump and we are going to live what Socrates has predicted !!
INCREDIBLE because all the interview and news that i have seen were going to explain that it will be the contrary. Is it the slingshot which is going to happen ? Are we waiting the rise of the Gold before to have the final signal ?
You have always said that the Gold, the $ and the Dow will rise together when the slingshot will begin … are we to this moment ? or is it too early ?
Thanks Mr Armstrong and good things to you and your team.

LB

ANSWER: Absolutely everything is connected. If you get one right, then the rest must follow. It is really impossible to have one market moving opposite of everything else. It is sort of like the world is in a Great Depression and it is impossible for one politician in one country to reverse the trend of the world. So the world economy is very much like a set of dominoes. It is impossible to reverse the trend and it just has to play out. We are not yet ready on the gold. As you can see, gold has been declining in dollars as well as euros. The markets have been consolidating waiting as people are trying to figure out if this the big crash or not. The majority keep calling for the end of times. This has been the MOST hated Bull Market in history. They keep calling for the crash ever since 2009.

Bonds & The Record High Short Position Can Majority Be Wrong?


 

QUESTION: Hi Marty,
Can you help us better understand the dynamics of the sovereign debt crisis as it relates to US Treasuries? I know we are in a global debt crisis, which will also impact US Treasuries but it seems like short treasuries is the current consensus (I believe they are currently at the biggest net short position in recent history). Since most people need to be wrong, does this suggest that as global debt unwinds that perhaps US Treasuries may still have another rally in them before the final crash?

Thank you for any insight into what we know to be the greatest bubble.

Looking forward to the WEC!
SB

ANSWER: We have to always look at markets collectively from a global perspective, and also separating the long-term from the short-term trend. It is sort of the saying you can win the battle, but lose the war. This is the same thing. In the case of interest rates, the long-term is clearly staring at higher rates square in the eyes. However, then we have shifts in trend within the short-term. For example, domestically, you have this pervasive hatred of the stock market and as an evergreen tree, they have been perpetually bearish since 2009. They have not wavered in that forecast because they have blinders on and make forecasts solely upon a flat model limited to patterns and domestic analysis at best. Therefore, there will be these bouts of flight to quality sell stocks and buy bonds. We have NOT yet crossed the Rubicon in interest rates. We still have not yet elected the 4th Monthly Bearish Reversal. When we do, the 30-year will signal the debt crisis is in full gear.

Now we have to look at this market from a Hedge Fund Manager’s world. My decision has to be made on a global scale – not domestic. This boils down to you are a prince and your father compels you to ask one of the three ugliest girls in town for a date for political reasons for the realm. So, you choose the prettiest of the three ugly sisters as they say. This is what happens internationally. You have to have money in debt because you are trying to also be diversified (I do not always agree with that strategy). Hence, the euro looks like death warmed over, political chaos is brewing, so you have to push money out the door to other currencies. Hence, the dollar keeps rising and the political rhetoric against Trump is desperate to hide the trend that his strategies have been working on bringing capital home and renegotiating NAFTA. So with the dollar strong, euro in crisis, you have no choice but to buy Treasuries even if for short-term plays.

Consequently, you can be correct that the long-term trend is UP UP AND AWAY for interest rates. However, the devil is lurking behind every rock along the path. You may be correct on the war, but lose a fortune of the short-term corrections. Hence, we have not yet crossed the Rubicon. When we do, it will be time to shout very loud so our readers will hear. We can see that the chart patterns between dollars and euro in the 30-year Treasuries is as different as night and day.