Assets v Currency


QUESTION: Hello Mr Armstrong. I read your blog daily, and i can t say thank you enough.
on interest rate, you say market rallied when they got the rumors of roosevelt devaluating the dollar creating a currency inflation. am i wrong when i understand they feared losing money so they bought tangible assets?
best regards from France

M

ANSWER: Correct. Tangible assets are always the hedge against a decline in the currency. This is why gold has been rising more so in other currencies than US dollars.

M

The Fed’s Real Crisis – To Cut or Not to Cut


 

QUESTION: Mr. Armstrong; You seem to be the only person who distinguishes private interest rates v public. Has the marketplace gone insane along with Trump demanding 100 basis point cut by the Fed? I find it curious how they only quote the same people in the press who seem to preach the government position all the time. They constantly try to ignore you in the press and even Wikipedia distorts everything and fails to mention the banks pled guilty and had to repay your clients. Just so biased. Now they say deep negative rates are no problem. They only say what the government wants them to say. Will this all end very badly?

KN

ANSWER: There is ABSOLUTELY no historical evidence that negative interest rates will ever stimulate the economy no less are they even viable. This wipes out pension funds where many around the world are obligated by law to buy government paper. Social Security in the USA is 100% in government bonds. It is beyond comprehension where all these people cheer negative rates as if this is a good thing. The US share market declined with the rate cut, it did not rally.

People are convinced that an INVERTED YIELD CURVE foretells of a recession. They have no idea about capital inflows. Even in Thailand, which has benefited greatly from the China-US Trade War shows that its currency has been the RARE exception rallying against the dollar. That may change now if the dollar closes above the July high here at the end of August.

I am in Asia right now. The greatest fear is that China will send in troops to squash the protests in Hong Kong. Many fear this will be another Tiananmen Square. I would not go that far. The solution would be a political one and to repeal the extradition order. People do not fear that a wanted Chinese will flee to Hong Kong and be protected, but that they could be extradited to Beijing and put on trial for things they did or said in Hong Kong.

This is sending capital to the USA and the same capital flows from Europe and doing the same thing. That capital is now incentified to buy US debt looking for more rate cuts and their bonds will appreciate. It takes a sublime idiot not to see this trade. They are punting – not actually buying negative yields for the long-term. This seems to be coming to an end in 2020.

As I have stated many times, DO NOT EXPECT the official rates to rise outside the USA. All other central banks are trapped. They cannot afford to allow rates to rise and blow up government budgets. This will widen the gap between public and private debt. Back in the ’30s, as governments defaulted, smart money fled to private AAA corporate bonds. We will see the same trend here again, but at the same time, banks will look to the future with tremendous uncertainty and will NOT be lending so easily. Expect rates to rise on credit cards where they make their money and long-term mortgages. If the banks cannot resell the long-term debt mortgages, rates will rise widening the gap with the government.

Chairman Powell is not is a nice place. He cut rates NOT for the USA, but because the rest of the world is imploding and Europe shows no signs of reversing their policy. If Powell lowers the rates 50 or 100 bp, domestically people will be taking this as confirmation a recession is coming and the stock market will continue its decline.

Powell is in a no-win situation. This is the FIRST time in history the Fed cut rates at the top of a market and instigated a decline rather than cutting rates in response to a decline. This only proves the Fed’s actions are concerned NOT for the domestic economy, but primarily for Europe and Asia second.

This going to make for a HIGHLY unusual WEC this year. We are breaking historical ground. There no way for this to end but VERY badly. They do not want people to read this blog. They want to keep people accepting the government narrative.

 

ECB Will Lend to Banks Long-Term in Hopes They Will in Turn Lend Again


Come September, Draghi at the ECB will make loans to Eurozone banks on a long-term basis at rates less than the short-term lending window. The objective is to encourage banks to lend money to businesses. Nobody thinks about letting businesses bypass the banks mainly because the banks are in such a vulnerable state because Europe never took the toxic assets out of the banks as did the USA. To do that would have meant that some countries would have been bailed out more than others so they cut rates and hoped for the best which never happened.

The world economy is crashing BECAUSE of negative interest rates. These insane people have REFUSED to consider that this entire idea of lowering interest rates to stimulate the economy will NEVER work. You are wiping out pension funds and the elderly who are a vital part of the economic base. They keep using the same theories that are decades old and have ALWAYS failed each and every time.

Just look at the Great Depression. Lowering interest rates FAILED to reverse the decline. The market rallied when the rumors proved correct that Roosevelt would devalue the dollar creating currency inflation. Lowering interest rates has NEVER worked even once, yet they keep trying the same theory over and over again because they cannot think of anything else to try.

Why the Remain Politicians Only Speak their Own Self Interest


COMMENT FROM UK: On the subject of Phillip Hammond and Brexit, this is just the latest in a long list of pro-elite politicians who are looking to protect their career interests by aligning with the globalist system.

Blair made hundreds of millions, Brown and Darling bailed out the banks and then went to work in the financial sector and failure that is Nick Clegg is now an exec at Facebook. Theresa May will no doubt have her payday coming. These politicians are selling out their country but seem to think they have morality on their side.

K

REPLY: All of these politicians who are for the REMAIN side, which included Theresa May, all have a self-interest which is counter-trend to their own country. They like the establishment of the political class to be left alone.

This is a chart that speaks 1,000 times that Britain has NEVER received a fair deal since joining the EU. This is data from your own government which I have not altered. The peak in GDP took place in 1973 just before Britain joined the EU. There was a major faction that believed joining the EU would create a global economy that would surpass the USA. That never happened because each member state can veto what any other state tries to do. There are 50 states in the USA. They have no say if Washington wishes to do a trade deal. If every state had a seat at the negotiation table as they do in the Eurozone, nothing would ever get done.

All I can say is the EU is a dictatorship for nobody at the Commission level ever stands for an election. As such, this is a politician’s greatest wish – power without accountability. And then they have the audacity to criticize China or Russia for a lack of Democracy?

The recent polls in Britain show that the people are MORE AFRAID of Labour and Jeremy Bernard Corbyn than they are about BREXIT!

BREXIT & the Yellow Hammer Propaganda Pretend Leak


The report that paints the darkest possible scenario for Britain without ever mentioning that 60% of its trade is outside the EU and that any attempt by the EU to punish Britain will destroy the German economy which is preparing for a very deep recession since Britain is its #1 trading partner in the EU particularly for autos.

This Yellow Hammer report leak is clearly a scaremongering edition and not serious research. It is just a propaganda piece for that purpose. It claims that transport disruption will be 50%-85% of lorries travelling across the Channel may not be ready for French customs. The EU is likely to harass Brits with immigration checks at border posts. Medicine supply chain may be disrupted for up to six months across the Channel. The supply of certain types of fresh food will decrease.

The EU will slap tariffs on British fuel imports so they forecast financial losses and the closure of two refineries resulting in about 2,000 direct job losses. And as far as Northern Ireland is concerned, the UK would impose the “no new checks with limited exceptions” but they report claim this will be unsustainable.

There is no mention that trade negotiations with the rest of the world cannot take place inside the EU because any member can veto a UK trade deal with anyone.

The British pound is still under pressure as the propaganda machine is in full force. A further decline in the pound into October will far outweigh any tariffs the EU could possibly impose. Everyone looks at the dire future for Europe while they fail to look at the EU. Germany is imploding economically. The German economic philosophy has always been the old-school Mercantilist view to sell more stuff to everybody else than you buy.

While Germany is all about austerity, it has over-taxed its people and has declined to create a domestic consumer market preferring the export model which has resulted in the German people having almost the lowest net worth in Europe. While the economy is #1 inside the EU, the wealth does not pass to the people. A no-deal BREXIT will hurt the EU far more than it will hurt Britain and that is the absolute TRUTH!!!!!!!!

The Deep State Reality


QUESTION: Dear Mr. Armstrong
Isn’t the FBI a government agency?
In this case, they are paid with “the people” tax money?
Aren’t they supposed to be neutral, I mean, they should be “incorruptible”?
They should not take a position for the left or the right. They should be there for “Justice”?
Can you explain?
Many Thanks to you and your team for all your teachings.
Have a beautiful day
MF

ANSWER: What you say is the theory of a perfect world. Unfortunately, I believe that ever since Bush Jr was elected, the power shifted from the president to the bureaucracy. I have stated before that I use to meet with people who wanted to run for president for the Republicans as a vetting process. They were told I was there to inform them of the global economy and how it functioned, but in reality, I was told to determine if I believed they could handle the job. Then I was asked to run to Texas to meet with Bush Jr, but I was told this was different. I was told he was really “stupid” and they asked me if I would accept the position of Chief Economic Advisor to the president. I was shocked. I asked, “Why would you make someone stupid president?” Particularly since it was exactly opposite of what I had been asked to do for years. I was told he had the “name” to win.

I was told at that time they needed to surround him with “good people” and that is how Cheney became the de facto president. Naturally, I declined for I could not continue my business. Ever since that point in time, the bureaucracy rose to power. They took on a mantle of authority that no one has been able to challenge. Trump has tried, but look at what they have done to him. This is what people are calling the Deep State. The idea that we are free is only an illusion. We have no rights.

Coxey & His ArmyThe first march upon Washington emerged at this time from the Panic of 1893 known as Coxley’s Army. This was a group of unemployed men who marched during the depression year of 1894. Jacob S. Coxley (1854-1951) was a businessman in Ohio whose idea was that government should provide employment through creating public works. His ideas were eventually incorporated in Franklin D. Roosevelt’s New Deal and became the WPA in 1935. Coxley set out for Washington on March 25, 1894, with about 100 men and arrived there on May 1st with about 500 more who had joined. Coxley’s First Amendment rights were, of course, violated for they arrested him for walking on the grass and pretended it had nothing to do with his march.


Baum-3

YellowBrickRoadNevertheless, it was this event that became the “Wizard of Oz.” Lyman Frank Baum (1856-1919) was impressed by this movement. Off to see the Wizard was Washington. The Tin Man was industry, the Scarecrow agriculture, and the Cowardly Lion was William Jennings Bryan. The Yellow Brick Road was the gold standard. It was hoped to persuade Congress to authorize a vast program of public works, and restore the repealed Sherman Silver Purchase Act to increase the money supply – the 19th Century version of Quantitative Easing that virtually bankrupted the USA. This movement was all about financing a substantial increase in the money in circulation to provide jobs for the unemployed.

Difference Between Hyperinflation and Currency Inflation


QUESTION: What is the difference between asset inflation and hyperinflation? I believe you are saying that from Jan 2020 we will see inflation which I understand to be asset inflation?
Thanks
FL

ANSWER: Asset inflation is typically a reflection of a decline in the value of the currency, but this can be 50% over the course of one to two years. Hyperinflation typically occurs when confidence in the government itself completely collapses. This is usually in a peripheral economy or often in times of war or major domestic revolution, as was the case with the Continental Currency in the United States and the Assignats of the Revolutionary government in France. Asset inflation can be also caused by an investment boom concentrated within a single sector such as the Dot.com Bubble. The typical definition of hyperinflation is when prices rise by more than 50% per month over a period of time.

Then there is DEMAND inflation, which is typically one of two aspects. It can come in the form of a hot item like Pet Rocks, Cabbage Patch Dolls, etc. The second aspect is a shortage of something such as wheat or corn and the demand forces the price to rise.

What Makes Currencies Rise & Fall in Value?


House-Testimony

QUESTION: What makes currencies rise & fall in value?

CC

ANSWER: Many people want to reduce this to a logical explanation. It reminds me of when I testified before Congress at the House Ways & Means Committee. They had to put me on a panel with academics. I told them to make me last. The Committee was asking about changes in taxes and the impact upon currency. The academics said there should be no impact. When they came to me, I dealt with the truth.

 

Currencies will rise and fall BECAUSE, first and foremost, this is the way international capital gets to vote on the CONFIDENCE in that political government. You see this in the spreads within the Eurozone such as buying Germany selling Italy or Greece for an example. The dollar has been rising of late BECAUSE the confidence in Europe has been collapsing. This becomes self-evident just plotting the Dow Jones Industrials in dollars v euro. If capital perceives a problem, it will flee from that region to another. The dollar rose during World War I and II, but it declined with the Korean War because the former was a reservoir of capital and the latter was not

Wilbur Ross Discusses U.S. Economy, China Trade, Tariffs and Hong Kong….


Commerce Secretary Wilbur Ross appears (in studio) on CNBC to discuss the current state of the U.S. economy, the ongoing issues with communist China, the ‘next step’ trade tariffs and the situation in Hong Kong.

Stunning Day of Economic Gaslighting – Despite All Positive Data, Corporate Media Cheering For Recession…


A “negative yield curve“;  a pending “economic recession“.  These are the obtuse and ridiculous proclamations of the Mainstream Corporate Media today.  So let’s take a moment to discuss how stunningly -intentionally- disconnected they are.

Always remember, there are trillions of dollars at stake; and these media entities have a vested interest in maintaining the Wall Street position, adverse to Main Street USA.

First the “negative yield curve” aspect; where long-term bond rates (returns on investment) are lower than short-term rates (returns).  As Reuters proclaims:

“A key bond market metric turned negative for the first time since 2007 on Wednesday, sending stocks tumbling”…

I must admit, I actually started laughing out loud when I first read that proclamation. Allow me to introduce a radical concept in economics: “supply and demand” !

The long-term borrowing rate for return on investment dropped momentarily lower than the short-term borrowing rate of return on investment because massive numbers of foreign investors were rushing to buy long-term U.S. bonds.   Wait… what?  Yes, a ‘negative yield curve’ is what happens when everyone wants to buy bonds in your long-term economy.

There weren’t enough long-term bonds to fill the demand of those who wanted to purchase them.  Ergo, the return rate of interest dropped because there was no need to have an incentive to sell them…. everyone wants them.

So the yield drops, because the U.S. doesn’t need to incentivize the sale… because everyone is lined up to buy them.  See how that works?

Do lines of people wrapping all around the world trying to get to the U.S.A Bank and buy U.S. treasury bonds sound like the USA economy (underlying the bond) is weak or in trouble?

It’s OK to laugh out loud.

No, really, it’s ok.

Yes, Alice, it’s true.  The financial media would have you believe that customers lined-up around the building to purchase your products means your business is about to close because of a lack of customers.   THAT my friends is the stupidity of it.

The U.S.A economy is so strong, so healthy, and forecast to remain so with such intensity, that everyone wants to purchase dollars because it is the world’s highest predicted rate of return for investment….. And somehow the media can spin that into a bad thing.

No, really.  That’s the narrative of today.

Now let’s look at the second stupid “A looming recession“:

First, a “recession” is two consecutive quarters of negative GDP growth.  That’s how you define a recession.  So to start a recession you need need one quarter of negative GDP growth right?  Well, duh, it hasn’t happened, and there is not a single economist who is predicting a negative Third Quarter growth rate (July, Aug, Sept., ’19).

First Quarter GDP growth was 3.1%. [Beating all expectations] Second Quarter GDP growth was 2.1%. [Again, beating all expectations]… and somehow the Third Quarter is suddenly going to be negative growth?   It’s OK to laugh again.

So how does CNN et al  “warn of a looming recession” when there’s not a single economist forecasting a negative GDP for the third quarter?   Well, they make shit up that’s how.

Think about it…. if the economy was contracting, people would not be getting hired right?  Employers would be laying people off right?  Businesses would be selling off assets right?  Wages would be dropping right?

Do you see any of these things happening?

No?  Why not?

Because it ain’t happening, that’s what !!!

The U.S. economy is not shrinking.  Main Street is strong, and getting stronger.

Go back to point #1, would the world be rushing to buy dollars if the U.S. economy was on the precipice of collapse?  Think about it.

Now, that said, there are some economies that are shrinking; and they all have something in common.  The manufacturing export dependent nations are in trouble because President Trump is starting to limit their access to their most desired customers, the USA. And President Trump is telling companies that operate in those export nations that it would be in their best interests to come to the United States to make their goods.

Germany, the economic engine for the EU, is a manufacturing export dependent nation, and it is contracting.  China is a manufacturing export dependent nation and their manufacturing is contracting.  But the U.S. is strong, because we are not dependent on exports.  In fact the U.S. consumes more than 80 percent of what we produce; we are a self-sustaining economy.

Our U.S. economic strength is why Asian and European investors are rushing to buy dollars (US Bonds); and why the U.S. treasury doesn’t need to provide high yield rates as incentives to buy them (hence the negative yield curve).

Stop me when any of the U.S. economic data has even the slightest implication of a slowdown, or “looming recession”.

Our last jobs report showed 164,000 new jobs created in July (yeah, like two weeks ago).  In addition 363,000 people moved from part-time to full-time employment… does that sound like a weak economic outcome?  Current blue-collar wage growth is in excess of 3.4%, and current overall U.S. worker income is growing at a rate exceeding 5.4%.

Does any of that sound like what you see just before a “looming recession”?

(BEA Data Source – Link)

Every actual data result exceeds expectations.

Every measurable KPI in the U.S. economy beats every forecast.

Show me data that supports this “looming recession” claim.  Guess what; you can’t because it is a manufactured bucket of nonsense.  Abject stupidity created in the basement of media narrative engineers and pushed into the U.S. mainstream talking points in an effort to create something that doesn’t exist.   You know the word for that? “Gaslighting” !

Why?

Why are the financial pundits doing this?

Because the engine for the U.S. economy is the U.S. consumer.  The Wall St./Media pundit goal is to erode consumer confidence, instill fear, and hopefully get people to sit on those high wages…. thereby creating a self-fulfilling prophecy.

This my friends is the battle behind Wall Street -vs- Main Street.

There are trillions of dollars at stake.

[You Can Read More Here]