California Government is Blocking Our Publications


COMMENT: Your emails are now blocked when I try to read your blog on my work computer. I work for a CA state government educational institution. The warning says it is a malicious URL and a web reputation policy violation was detected.

K

REPLY: Very interesting. So our blog is not blocked in China, but in California, they curtail the freedom of speech. That is really a dramatic contrast.

The Quantity Theory of Money & the Disaster it Has Caused


QUESTION: You say that the reason why gold went up when the stock market crashed in 1929 is because gold was money back then. But what if you have it the other way around, and the reason why the USD was strong was because it was backed by gold back then? Now the USD is a fiat currency backed by nothing. Maybe the springboard bounce in prices will be in commodities?
RR

ANSWER: Gold acts completely different under a gold standard than as a commodity. You really have to stop looking at money as having to be backed by some tangible item. It is backed by the CONFIDENCE in the people. China, Japan, and Germany, all rose from the ashes without GOLD. How was that possible without some backing? The value of any currency it the total productive capability of its people. China rose to the 2nd larges economy because of its people. Russia was oppressing its people and thus did not boom despite all the resources which others did not have. Under your theory, Russia should have the strongest currency.

The dollar rose ONLY because of the Sovereign Debt Crisis where most of Europe, Asia, and South America defaulted on their debt in 1931. You must look at everything and in the context of the period.

This is why some hedge fund have lost 20% in a week. As long as people are living in the past they will lose every single time. Open your eyes to the real world. Commodities will rise WHEN the people lose confidence in the government. It has nothing to do with backing. That is so old school from the days of a barter economy. So you are worth nothing unless you have gold? Your labor is worth zero?

The Fed Makes a Fool of Itself – There is no Santa Claus


This is the very essence of a financial crisis. Despite the fact that Trump cheered the Fed and they cut rates to ZERO, the risk was what would happen if the market continued to fall. Another steep sell off took place which resulted in the halt of trading again on Wall Street as Monday opened. This is undermining the entire confidence despite the Federal Reserve’s emergency actions to lower interest rates and pump more money into the economy to combat the impact of the coronavirus. The Fed on Sunday slashed interest rates by a full percentage point to zero and said it would buy $700 billion in Treasury securities in a massive emergency move to protect the U.S. economy from the pandemic. President Trump said on Sunday that investors should be “very thrilled” by the move. This has revealed that Trump is too old school like Ray Dalio who at the World Economic Forum and on the turn of the Economic Confidence Model on January 18, 2020, proclaimed that “cash is trash” for which he will now be remembered in history (his interview was Jan 21, 2020).

The S&P 500 quickly plummeted more than 8% after the opening bell, triggering an automatic temporary halt in operations for the third time in the past six trading days. The Dow Jones Industrial Average lost 9.7%, or more than 2,200 points before trading was suspended for 15 minutes.

HELLO! Is the world listening?

Only a fool tries to catch a falling knife. We have the end of the quarter coming due. The losses among those who have been using the Quantity Theory of Money will be staggering. Those who keep touting this is Quantitative Easing so the dollar must crash and gold will soar, fail to understand the dynamic of the economy and how we all connected. I covered in detail at the 2017 World Economic Conference that the Quantity Theory of Money was the root of all evil. It has not just misled the goldbugs, but central bankers, right down to Trump.

We have warned that we were facing a Central Bank Crisis by 2020, which would then lead into the Monetary Crisis Cycle. We can see this thing coming but the majority MUST always be wrong. This is simply the energy needed behind the business cycle.

What the Fed has done was foolish. They have no real power to control the economy and now people are going to begin to realize, there is no Santa Claus.

Europe Melting Down – Central Bank Chaos


The European markets are crashing from the currencies to the debt – even the Bunds. The smart capital is realizing that this is the end-game. Central Banks are in a state of absolute crisis. We are looking at the extreme volatility that is required to eventually create the slingshot. As we head into the end of the quarter, hedge funds are selling everything to raise cash. All those who have been listening to forecasts all based on the Quantity Theory of Money, including the central banks, are losing everything because they have utterly failed to comprehend the global economy and how it truly functions. You would think after 6 years of negative interest rates in Europe, the ECB buying the bonds because there is no free market left, they would realize that their forecasts of “cash is trash”were so old school from the days of the gold standard and fixed rates.

We as a society seem obsessed with repeating the same mistakes while expecting a different result. Mistakes are supposed to be how we learn, they are not a script for repeating perpetually.

Silver has broken last year’s low. All the European markets have tumbled. The worst possible move was just made. The Fed went all-in and the markets did not respond. Welcome to the Crash of 2020. We have a lot more interesting times just ahead

Why do I Meet With Heads of State


COMMENT: Martin –
I’m glad you had the opportunity to attend the gathering at Mar E Lago and I hope you had a chance to introduce yourself and your economic track record to president Trump. He is an ego-driven person who loves smearing dirt in the faces of his opponents unnecessarily, but he is business-oriented and I do think he less-dogmatic/ideological that many pols, open to practical ideas, and is working hard to try to reinvigorate America to the extent he know how.

My ears perked up last nite when over dinner my brother in-law claimed Trump said that he will move to restructure the national debt. Have events become dire-enough now that the time has arrived for you to offer your debt-equity swap proposition, and has Trump taken it into favorable consideration ? I hope so.
SC

REPLY: I have been meeting with heads of state since 1980. I was simply the largest adviser in currency and understood how things worked globally from a teenager. When I was 13, I traveled around Europe with my family from Sweden to Italy over the summer. I believe that taught me about currency for every country we visited you had to change your currency.  That was, I believe, my introduction to foreign exchange. So when 1971 came and the floating exchange rate began, I was familiar with the issue and simply applied my trading experience in commodities to the currency.

They did not teach currency in school. After all, everything was fixed. So when the first banking crisis hit in 1973, I just happened to know the executive VP and he called me asking if I would take a look at their currency problem. So from then on, I just had a reputation of being the guy institutions would call over currency questions.

I began meeting with the Reagan Administration and was asked for advice informing the G5 in 1985. That is when I wrote to President disagreeing with the proposal of the Plaza Accord. Because I was regarded as the currency expert, I simply was getting called in around the globe. People ask me all the time, how did I become the largest adviser in the world? I just would say as my secretary had a little stickman holding a sign on her desk – Shit Happens.

I was restructuring companies to create natural hedges offsetting currency risks in one country by a counter-trend set of assets in another. I was redirecting where companies should set up operations and what countries to leave. That led to Margaret Thatcher wanting to meet because she heard a rumor that some guy was behind setting up all the manufacturing plants in Britain. I happened to personally know her economic adviser, Sir Alan Walters. He said that was “Marty” and she wanted to meet.

I have been meeting heads of state my whole career. Some people have called me the Forest Gump of Finance. Whatever crisis hit, I was somehow called in. So it was a joke inside the company who would accompany to Mar-a-Largo. Then it has become a joke that with all the controversy that Trump met with a press agent of the President of Brazil who tested positive for coronavirus 3 days later, some of my staff said, of course, you had to be there for that one as well.

I am in contact with many around the world. I try to help wherever I can. I refuse to accept payments from any government. That actually increases my respect for those who are always trying to hand them bills, they also know that they will skew the advice to what they want to hear. With me, they know I am not for sale. I will always speak my mind and that much they know.

Even when I testified before the House Ways & Means Committee, they knew I had under contract the equivalent of 50% of the US national debt. That is also why the bankers have hated me. They try to manipulate markets and when they lose, they blame me because I refuse to join them.

I have enough to live out my days. It will not change my lifestyle. I try to limit what I do, not expand it. I am not 25. What I do is because I do not like what I see for my family. I get to say – Scotty, please beam me up! They are here and have to finish out their tour of duty. So my motivation has never been money. I have been blessed with the talents not to ever have to worry about that common problem.

For me, it is important to see how various heads of state act in response to various events. What is their thinking process for that to me leads to where they will take us in the future and what path we are walking down. I do not like the press. They often write without regard to what is really going on and are far too often biased in their view of people based upon political dogma. I prefer my own research not filtered by someone who I have to figure out their motive.

 

Fed Announcement – Speaking in Tongues


QUESTION: Marty, you recently said that there was a shadow repo market. Nobody has ever heard of this. In the Fed’s statement, there is a curious announcement that’s talking about coordinated swap lines. They also said: ” both a collateralized and uncollateralized basis, to support the provision of liquidity to households and businesses and the general smooth functioning of payment systems.” Is this the commercial paper you are talking about?

ML

ANSWER: Yes. They call this “coordinated swap lines” between central banks. It is the shadow uncollateralized Repo Market. They are now coordinating this with the Bank of Canada, the Bank of England, the Bank of Japan, the European Central Bank, the Federal Reserve, and the Swiss National Bank. In other words, the Fed is providing liquidity to other central banks. I have said before. They actually had red phones connecting the central banks after the Plaza Accord. I was sitting there in the room when one of those red phones started to ring. I just call it the shadow Repo Market.

The “uncollateralized” loans mean commercial paper other than government treasuries

Never Let a Good Crisis Go to Waste


QUESTION: Do you think there is some single plot behind this Coronavirus scare?

SH

ANSWER: No. It seems that there are a lot of people using this Coronavirus for personal political agendas. Illinois Tollway is now using it to implement All-Electronic Tolling as Precaution Against Spread of Coronavirus. You have others in Europe saying they should be nationalizing companies since they cannot be bailout under EU rules. Others are using it and blaming Trump as if any government can really prevent such a pandemic.

I do not think this is a single-minded plot. However, history also demonstrates that they will always take advantage of a good crisis. In Europe, the central bank is already at negative rates. There is nothing left for them to do. This is now turning to emergency political measures. The drive to use this as the excuse to eliminate paper currency is a side-benefit on their wish list and this does provide the excuse to justify that action.

Whatever measures you see, they rarely ever reverse. They tend to be permanent.

2015 Berlin Interview with Martin Armstrong


Chaos, Viruses & Cash is Not Trash but King


QUESTION: Marty; first I want to thank you for Socrates. It called the crash in stocks, gold, currencies, and Bitcoin when everyone else was foaming at the mouth. The rumor was that $16 billion in gold was dumped. Was this just trying to crush the goldbugs, or was this more what you said at the WEC about this would be like the LTCM crisis of 1998? Does the coronavirus have any real impact or is this just the excuse for the 20% correction you forecast at the WEC in October coming in January?

GS

ANSWER: I won’t mention your name, but your initials are not for Goldman Sachs.  The market was ready for the crash. The Coronavirus is really just the excuse. It would have been whatever. The markets were going down. It was like our forecast that a third-party candidate could win in 2016 when we made that back in 1985. That was just the timing. It was not a forecast of who it would be. The fundamental seems to emerge to fit the timing.

As far as Coronavirus is concerned, it is just an excuse. December to February the 2018-2019 flu season according to CDC, they estimated that 16.5 million people went to a health care provider last year for the flu and more than 34,000 people died. That was 5% of the American population. The proportion of outpatient visits for influenza-like illness increased slightly to 1.7%, which is below the national baseline of 2.2%.

The flu has results generally in 9.3 million to 49 million illnesses each year in the United States since 2010. That means that 5% up to 20% of the United States population gets the flu. Why all this craziness over the Coronavirus seems to be fed to people who love to spread conspiracy theories for the wilder this gets, like 911, the government can justify more power. In Germany, the finance minister is proposing to NATIONALIZE companies because the rules do not allow bailouts. So are these people knowingly spreading these conspiracies and creating a major panic deliberately, or are they being fed a story the Deep State knows they will use to paint the end of the world? To what purpose? If the death rate is 2% or 7%, so what? Biological weapons like Antrax have a death rate of 60%+ and the Black Plague killed 50% of the population. We are not at such a dire level yet they have scared the hell out of everyone. Others are trying to use this to overthrow Trump. Why? Are they closet Communists?

This is the 7th flu season since the low of 2011. We have 156,000 infected and 5800 deaths, but not everyone seeks medical attention. The press which hates Trump is already blaming him to try to influence the election from Vanity Fair to the Washington Post. You can see that those eager to blame Trump are clearly political critics and others just think that if the world crashes and burns, they will be rolling in wealth because they have gold or Bitcoin even if there is no power grid. It’s like trying to flee a hurricane in a Tesla with no hope of plugging in your car.

It is estimated that the flu results in 31.4 million outpatient visits and more than 200,000 hospitalizations each year. The 2017-2018 flu season was one of the longest in recent years, and estimates indicate that more than 900,000 people were hospitalized and more than 80,000 people died from flu. The 2017-2018 flu season saw children dying whereas the 2018-2019 flu season took the greatest toll on adults age 65 years and older. About 58 percent of the estimated hospitalizations occurred in that age group.

I fail to understand why these people must always paint the worst possible scenario. They seem to be the same people touting gold and Bitcoin. Are they spreading this information hoping to illegally benefit from creating fake of exaggerated reports? In equities, that is jail time under the SEC. You cannot talk up your own book.

 

 

As far as the dumping of gold and Bitcoin, yes, this is what I was talking about that this crisis would be a combination of 2008 & 1998. Here the problem is not mortgage-backed securities, but hedge funds were buying piles of US Treasuries and selling the derivatives trying to lock in guaranteed trades as always. The spread has reversed and we have seen massive selling of off-the-run Treasuries which are the older issues. The market is not as deep for the older issues and they normally trade at a slight discount to the current benchmark. Here, they crashed and were trading at 25bp below. This was reflecting panic selling to raise cash.

This is what I meant about a revisit of 1998. Hedge funds get trapped and start selling everything. They tend to group together on the same trades. Hence, those who thought gold was the safe haven were caught on the wrong side of the Quantity Theory of Money philosophy and discovered that “cash is [not] trash”, but KING! Yes, the rumor is one fund lost $32 billion last week. People would not deal with one bank out of fear they had exposure to a certain hedge fund. That forced the bank to come out and announce it had no such exposure.

 

Happy Pi Day – The Crack in the World Financial System


Happy Pi Day

 

I want to wish everyone Happy Pi Day. I would also like to say I have no symptoms and I did not shake the hands of the Brazilian Press Secretary when at Trump’s Mar-a-Largo. Since he tested NEGATIVE, I have no worries. I have been sequestered anyhow inundated with clients around the world as this market has begun its decline.

Thank you for all the emails thanking us for our volatility models which were picking the week of 03/09. We still have not concluded this volatility. As they say, it ain’t over until the fat lady sings in opera (they usually have the best voices). We will release a specialized report for those interested in option volatility. Yes, our models are forecasting volatility and are not the typical implied volatility models which are simply weighted moving averages.

The VIX formula is not forward-looking. It is simply weighted to the current volatility and really projects the same trend will remain in motion. Our volatility models are NOT based upon such assumptions nor are they based upon moving averages. Our models are published on the VIX and the low there was the week of January 13th, 2020 which was the precise turning point on the Economic Confidence Model. This confirmed that we should have been expecting rising volatility and our models were projecting that trend into this period and then rise again for the end of the quarter.

While all the headlines show the widening spread in rates in Europe and capital has been buying Germany and selling others, Spain and Italy outlawed shorting their short-term debt because the spreads have a blow-out. But look at the Bunds. They have been unable to make new highs even in the midst of a traditional flight to quality.

So hang tight. This is not over yet and we are getting some very interesting shifts. I have spent all day writing a very important special report because we are facing a major central bank crisis and this is threatening not just the rest of the year, it is threatening the very existence and survival of our global economy. This should go up for sale tomorrow or Monday at the latest. I have written it on Pi Day and will release it on the Ides of March – Caesar, beware!