Farmers going Bankrupt – A Prelude to a Boom?


Part of the cycle for a commodity boom is typically preceded by a commodity depression in which the productive capacity is reduced. We are witnessing that in the agricultural sector. Additionally, extremely cold weather continues. Bankruptcies in the farming sector have been on the rise since 2014. These are the pre-staged events that are required to create a commodity boom for the next cycle — the reduction in supply.

Student Loans – The Economic Time Bomb


Trump should reverse what the Clintons did to student loans. He should RESTORE the right to go bankrupt. This huge problem was created by the Democrats who exempted student loans from normal protection for consumers. In addition, the bankers then exploited the entire issue by getting parents to co-sign. The entire argument for eliminating the right to go bankrupt was that they had no collateral. The FRAUD here is the bankers managed to get the Democrats to hand students to them on a silver platter. Then they then pulled a fast one by demanding parents co-sign. That way, they can take their parents’ house.

The scary thing is that the generation of Americans over 60 years of age is on the hook for worthless degrees, owing $86 billion in student loan debt. True, some of these people owe for degrees they themselves obtained in hope of getting a better job. They have discovered that the degrees mean nothing and their age tends to scare companies because of pensions. The bulk of these people in the 60+ group had their kids late in life and co-signed for their children of which 40% are still living at home. Interest rates are not cheap and run from 5.05% to 7% annually. Compound that out and you will nearly double the cost of a degree by interest in 10 years.

A number of major companies NO LONGER require a degree. Here are just a few. BTW – neither do we.

  • Google
  • Ernst and Young (EY)
  • Penguin Random House
  • Costco Wholesale
  • Whole Foods
  • Hilton
  • Publix
  • Apple

 

LIBOR v SOFR Interest Rates


QUESTION:Dear Martin:

Do you have any concerns for the equity markets from the upcoming conversion from Libor to SOFR (the secured overnight financing rate). A recent article from Business Insider highlighted the following:

“Libor, linked to about $350 trillion worth of financial products, will be replaced by an alternate pricing benchmark for everything from mortgages to credit cards.”
“Replacing Libor will be lengthy and problematic, and is one of the key themes to look out for in 2019 as financial services and asset managers start transferring to new systems.”
“Thousands of existing contracts will need to be renegotiated causing a huge operational and financial burden that will consume legal teams for months.”
“Market structure experts cite the need to amend existing contracts to include “fallback” clauses which which specify what happens when Libor disappears. This is comparatively easy for loans, but for derivatives, swaps, and options, amending existing contracts could potentially lead to legal battles.”
This conversion seems like it could get awful messy.

Regards,

ML

ANSWER: Ever since the London Interbank Offered Rate (LIBOR) scandal, there has been one faction that has sought to eliminate the powers of banks to manipulate the LIBOR rate. This is similar to ending floor tradings in financial markets. Yes, LIBOR has been used to price trillions of dollars’ worth of loans, derivatives, and a lot more. The Federal Reserve moved to actually intervene and prevent a handful of banks to fix the interest rates. The Fed created a group in response, known as the Alternative Rate Reference Committee (ARRC), which has created a new benchmark dollar interest rate. This new rate is known as the Secured Overnight Financing Rate (SOFR). Actually, since April 2018, SOFR has been used for a growing number of bond offerings by large institutions including the World Bank, MetLife, and Fannie Mae. Europe is also moving to create a new benchmark rate that includes the Bank of England, Central banks in Europe with the ECB, Japan, and even Switzerland. This new group is also constructing new benchmark rates. However, there is another reason the Eurozone is taking this giant step. This is a major effort to take the dominance of trading away from Britain in light of BREXIT.

Now as for a crisis, no, that is about as likely as Y2K Millennium bug. Borrowing will take place under SOFR without a problem. The issue will be more with past contracts. That will tend to be a court issue if rates rise under SOFR or old contracts are converted involuntarily. The real issue will be concerning the manipulation of SOFR by governments as they have done with Quantitative Easing. The banks were never able to manipulate LIBOR to the extent of changing the trend. Front-running to elect stops etc. were the “manipulation” tactics. With governments involved, then we can see false trends and real manipulation. The banks could never manipulate LIBOR, suppress the rate, or increase it out of competition.

 

Italy Falls into Recession


QUESTION: It is official. Italy is now in recession. Obviously, the Fed is looking outside its own economy. Your Economic Confidence Model is remarkable. I have been following you now for more than 10 years. It has always been correct. Why does the economic community and governments pretend you cannot forecast the economy? You have proven the economy can be accurately forecast.

PV, Rome

ANSWER: Yes, Italy has turned down. The Fed knew what is coming. All these pundits who claim the stock market forced the Fed to change policy have only shown their total ignorance of the true factors upon which central banks will act.

I have probably met with more central banks than anyone.  They all know the Economic Confidence Model. That is one of the primary questions I am asked by them – where does it stand now. They cannot publicly come out an say the economy will turn down now for fear that they will be blamed. Just look at the Russia-Trump nonsense. They want to pretend that Hillary would have been elected BUT FOR the release of the emails which showed he true colors. Our computer was forecasting she would lose BEFORE any emails were released. The trend was already set in motion – anti-career politicians. Just look around the world and you see the same trend. But it is easy to always blame someone else for your failure. Thus, central banks cannot forecast a decline because if it happens, they would be blamed just like the Russians right now for Hillary’s loss. The central banks can only forecast economic growth, not recessions.

As for the academic community maintaining that the business cycle cannot be forecast, this “opinion” is self-serving. To announce that the business cycle is regular means you cannot control the economy and the entire theory of Marx and Keynes is completely wrong. They kill Kondratieff because he warned the business cycle would kill communism. The economic community would not be able to put out theories to manage the economy and they would have no importance if they admitted they cannot control the business cycle. It is just self-interest.

I have been talking with central bankers for months and it has been about the decline into 2020. That is the backdrop to the Fed’s actions – not the stock market. And as for gold, it rallies because interest rates will decline when the Fed said there is less of a risk of inflation? It just seems the reasoning is never consistent.

Economic & Real Estate Bubbles


QUESTION: I work in the construction industry in Phoenix Arizona and there has been a boom in new construction for apartments, condos massive housing tracts and all of the retail that follows this.
When I read about your worldwide property crash forecast the economic forecast for growth in our market is that that there is no end in sight for the next 6-8 years.
Are these guys whistling past the graveyard??
Thanks and keep up the good work!

JW

ANSWER: There are 8 states without an income tax (Alaska, Florida, Nevada, South Dakota, Texas, Washington, Wyoming, and Tennessee). You are in one of them that is receiving NETpopulation growth. There are herds migrating there from California. Now that said, the real estate market will have an undying bid in those states, but that will be specific to particular regions within the state. However, the trend that will cap the real estate is clearly interest rates and banks. The greater the decline in confidence in government, the less likely it will be to find long-term mortgages. The 30-year fixed rates mortgage will eventually vanish.

During the Great Depression, real estate collapsed to 10% for there was no money available for loans whatsoever. On June 13, 1933, President Roosevelt signed the Home Owners’ Loan Act into law thereby creating the 30-year mortgage to try to give people time to buy a home that they otherwise could not afford without having the cash. This is the 86-year cycle due here in 2019. This really implies that we may see a Directional Change whereby the confidence in the future will start to decline because of political instability. Of course, we can now count on Alexandria Ocasio-Cortez to scream about taxing the rich and their property. The Democrats WILL look into creating a major tax increases and this will seriously harm the economy. We will see a collapse in capital investment resulting in money for 30-year mortgages drying up.

Hence, they always say there is no end in sight to all booms. We should still see 2019 provide a peak in new construction as capital becomes scarce to fund such projects.

 

Markets Cheer a Recession?


The rally in gold and the stock market together is demonstrating that eventually, we will see the alignment as it transforms from Public to Private assets. The most deranged reaction to the Federal Reserve saying they will be “patient” on any further rate moves, is just beyond all reason. But markets are not always rational – they tend to trade emotionally much of the time.

The Fed also said that it would be flexible on the path for reducing its balance sheet. The Federal Open Market Committee’s statement twice refers to “financial developments.” The actual passages Powell read the first one verbatim in his press conference

“In light of global economic and financial developments and muted inflation pressures, the Committee will be patient as it determines what future adjustments to the target range for the federal funds rate may be appropriate to support these outcomes.”

“This assessment will take into account a wide range of information, including measures of labor market conditions, indicators of inflation pressures and inflation expectations, and readings on financial and international developments.”

The talking heads have so distorted reason that the markets interpreted it as complete capitulation. The two-year Treasury yield, the most sensitive coupon-bearing maturity to Fed policy, dropped like a stone 4 basis points to 2.53% percent. The yield curve steepened, as everyone expected the Fed would stop raising short-term rates. Of course, you have the pundits claiming that Powell has yielded to the correction in the stock market. They argue that Powell and other officials made their new posture clear. Additionally, Powell disclosed that the FOMC is evaluating the appropriate timing for the end of the central bank’s balance-sheet reduction and that they would be looking to finalize their plans on that issue going forward.

The pundits seem to ignore history completely. They are touting that the Fed was backed into a corner by financial-market volatility. It is just totally amazing how ignorant these people are when it comes to the global economy and the business cycle.

The Fed ALWAYS lower interest rates NOT because of the stock market, but because of an economic decline. A stock market decline by itself is no big deal. We did not even elect a single Monthly Bearish Reversal. There was no significant damage from that respect. The real issue being ignored here is the entire world is declining sharply into 2020 on an economic level. Lowering interest rates NEVERsupports a collapse in the stock market. The Fed even raised interest rates as the market was falling in 1931 because the dollar was under pressure during the Sovereign Debt Crisis.

 

 

It is so amazing how oblivious pundits are to what is unfolding around the world. Trump is correct. The USA has been the strongest economy. However, the US is starting to slow and overseas is having a very bad dream. Just look at the DAX which not only was a major crash, it closed BELOW the low of 2017. The US market has been the BEST performer. The Fed is NOT taking action based on the stock market. That is absurd.

 

The US share market has outperformed everything in terms of currency from the international perspective. While the pundits had forecast Europe as a great buy two years ago, people simply lost tons of money on that forecast and their buy of Emerging Markets.

We are now going to go down very hard economically into 2020. The Fed is under a lot of pressure from other central banks pleading with it to stop raising rates for they cannot raise rates. The ECM is in no position to stop Quantitative Easing. The Fed’s actions here have ZERO to do with the stock market. This is the culmination of the economic decline into 2020 that began in 2015.

The Fed is not going to lower rates dramatically. While rates closed at 2.5% for 2018, resistance still stands at 2.67% here in 2019 so rates have not broken out just yet. It is unlikely that the Fed will lower rates of more than 1%. That could unfold after May if the election in Europe create havoc over the future. So far everything is on target. Last year was a Directional Change and 2019 is a turning point with 2020 coming in as another Directional Change and 2021 in a Panic Cycle. So hang on tight. We are in for some really confusing good times as we conclude this business cycle into 2020. Sorry – the Fed did not lower rates to help the stock market. It lowered rates because we are in a global economic recession into 2020. All I have been hearing is complaints from central banks around the world. They can see what is unfolding.

 

Thanks to Bankers – Student Loans Are Suppressing our Future & Destroying the Real Estate Market


I have warned that the entire Student Loan Crisis has significantly altered the economy thanks to the Clintons courting the New York bankers making Student Loans the exception to bankruptcy. In Florida, like many other states, if you are in default on your student loans, the medical license to obtained is suspended. The Florida State Board of health has stated that some 900 healthcare workers were in danger of losing their license over the past two years because they were in default of their student loans. The board clarified it worked out repayment plans with most of those workers. It estimates the actual number of health care license suspensions is between 90 and 120 since November 2016. We may yet see the Yellow Vest Movement erupt in the United States over Student Loans.

The situation with student loans has gone from bad to worse. Bankers will try to get the parents to still co-sign for their child – DO NOT DO SUCH A THING!!!!! The degrees are worthless in most fields except health and law. The bankers have circumvented all your legal rights because the student loan is the exception to bankruptcy so they can take your house and you cannot even argue fraud.

Then there is the fact that even death does not relieve a parent of a student loan. Marcia DeOliveira-Longinetti’s son was killed, and after death, the remaining balance of his federal student loans were written off, but not by the state of  New Jersey. The state told his mother, “Your request does not meet the threshold for loan forgiveness.” What the Clintons did to students is really horrible. Even Zillow’s research, the big realtor, has reported that student debt has impacted the real estate market in many ways reducing future buyers.

FOX News reported that the U.S. Marshals Service in Houston was arresting people for failing to pay their outstanding federal student loans. Actually, Paul Aker, the subject of the Fox News report, failed to appear in court so the court sent U.S. Marshals to his home where he was arrested for a $1500 federal student loan he received in 1987. Of course, when they arrest anyone, the reason is irrelevant. Everyone is treated the same. If he ran, they would have shot him in the back and killed him on the spot and they would NEVER be prosecuted.

After seven U.S. Marshals burst into Aker’s home with guns drawn, they took him to federal court where he had to sign a payment plan for the 29-year-old school loan. Thank you, Hillary. I honestly do not know how anyone could have possibly voted for her. This is totally insane. The judge could just as easily thrown him in prison on contempt of court and not release him until he pays the $1500. It’s all about a judge’s power to act as if he still represents a king.

The Student Loan Crisis is serious. The US census showed that one-third of children over 30 were still living with their parents. This is also taking place in Britain thanks to rising taxes which lower disposable income. There are greater odds of your children living with you until they are 35. The real shocking number is that 40% of millennials are still dependent on mom and dad. The excuses seem endless. Student Loan debt can make buying a home IMPOSSIBLE! This is part of the reason real estate has been in a bear market since 2007 when we look at the average home.

realestate

The entire Student Loan Crisis has altered the real estate market significantly. While the High-End rallied into 2015 as capital was trying to get off the grid, as one friend in the real estate business put it, if prices ever got back to 2007, 50% of the State of New Jersey would go up for sale. The average market for homes has been declining overall. There are pockets where houses have risen, but these upon close inspection are the destinations where people are fleeing to from states like California, Illinois, New Jersey, New York, and Connecticut among others.

The real estate profile has another weight dragging it down – TAXES. Real Estate is IMMOVABLEand as states go broke, they keep raising property taxes. The states with NET declines in population because the smart people have been fleeing, leaving behind people who are not paying attention and become trapped because there are no buyers. One friend here in Florida moved from New Jersey and rents out his home back there because he cannot sell it. He rents it at this stage just to pay the taxes.

The states with no income taxes are a net migration seeking refuge from other places. Florida seems to get New Jersey, New York, and Connecticut. Nevada and Texas are getting those fleeing Illinois and California. Nonetheless, the overall view of real estate looks rather grim into 2032 insofar as scoring REAL gains over the depreciation in the purchasing power of a currency. Then add the rising interest rates and you will discover that bankers are no longer willing to lend money at fixed rates for 30 years.

 

When is Printing Money Deflationary rather than Inflationary


QUESTION: It seems the Left Wing Progressives in the US House (opponents of Pelosi) have adopted the Money Market Theory of Prof. Stephanie Kelton of U of MO.-Kansas City to justify unlimited deficit spending of the US Govt. OK as the Govt. can finance its deficits by unlimited currency printing.

Would you please comment.

Thanks and keep up the good work.

MP.

ANSWER: Actually, there would be no issue if the government simply created money to fund its normal expenditure. Historically, that will produce very modest inflation. The crisis is when you borrow to fund that deficit spending. In 2019, interest expenditures may now exceed the cost of defense. It is far cheaper to create the money needed than borrow and keep rolling the deficits forever. Then the cumulative interest keeps rising and crowds out all other expenditures. This is what is happening.

The process underway creates DEFLATION, not INFLATION, because the governments keep raising taxes to fund the deficits and that reduces the disposable income. This is why we see riots in France. Yes, people earn more, but they are being left with an eroding disposable income base. Governments need to fund themselves so they raise taxes. But the interest expenditures keep rising and consume all other areas of spending. It becomes a self-defeating process that leads to the crash and burn.

 

The British Press


Armstrong Economics Blog/Opinion

Trump & China Trade Deal – Cyclically On Target? When Mexican Coins Traded at a Premium to America’s


QUESTION: Marty; Are there any cycles dealing with the trade dispute with China that are relevant?

OP

ANSWER: Actually, yes. The United States created a two-tier monetary system in 1873 to accommodate trade with China who was on a silver standard rather than gold. The actual timing is 17 intervals if the 8.6-year frequency of the ECM, which brings us to 2019.2 (March 19th, 2019). The US began to mint two types of silver dollars. The “Trade Dollar” was used to make payments to China for their standard was different from the West. The idea was promoted by the silver miners because the price of silver began to decline due to increased mining efforts in the western United States.

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The silver miners effectively donated huge money to the Democrats to support the price of silver, which ended up nearly bankrupting the United States by 1896 and gave the Democrats the name “Silver Democrats.” It was the presidential election of 1896 in which William Jennings Bryan, the Democratic candidate for president, made his fiery speech that the cancelation of the silver mandates during the Panic of 1893 placed the United States exclusively on a gold standard. The Democrats stood against gold and sought to overvalue silver to satisfy the silver miners who were funding the Democrats back then.

The first trade dollars were struck in 1873, and the majority of the coins were sent to China. Curiously enough, as they began to flood the economy, the coins were officially demonetized in 1876 becoming the first US currency to actually be canceled. Nevertheless, the coins continued to circulate. The actual production ended in 1878. The trade dollar was re-monetized when the Coinage Act of 1965 was signed into law. The main coin in world trade had been the Spanish 8-reales. This became the basis of the American dollar. The Chinese had grown accustomed to the Spanish silver coins and this became their standard. Lacking the true ability to read Western languages, the Chinese were very sensitive to any changes in the coin’s design. Therefore, they were reluctant to accept any coin that was unfamiliar to them. The American silver dollar, 7.5 grains (0.49 g) lighter than its Spanish pillar dollars, which made them unacceptable in Asia. This was the reason for American merchants who had to trade only in Spanish coins during the 1800s which were carrying a premium to American coins.

It was in 1866 when the monetary system in Asia went into chaos. Maximilian I (1864 – 1867) was the only monarch of the Second Mexican Empire. He was a younger brother of the Austrian emperor Franz Joseph I. Maximilian traveled to Mexico and declared himself Emperor of Mexico on April 10th, 1864. He changed the monetary system from reales to peso. The historic 8 reales suddenly became 1 peso in 1866 with his portrait in the European tradition. This altered the Mexican pieces that were recognized in trade to a premium over even the US dollar. Therefore, starting in 1866, this design change caused widespread nonacceptance of the Mexican coins in China. This simple design change altered the coin which had been accepted throughout Asia as the standard.

This is the backdrop to how the Financial Capital of the World slipped through the reign of power from the Spanish to America. Most people have no idea that Mexican coinage was more valuable than America’s prior to 1866.