US Share Market – Still Up or Correction?

QUESTION: Marty you warned previously that an April high would have the potential to create an important temporary high with a decline into 2018 and then a slingshot up. Is that still a possibility?

ANSWER: Yes. We have the S&P500 and the NASDAQ Composite making new highs but NOT the Dow. This raises some concern that a correction is still possible. The Dow needs to make new highs above April intraday and on a monthly closing basis. This is a tall order right now. This will warn we are consolidating sideways and preparing for the breakout. The support on the Dow remains at 20,000 on a Weekly Closing basis. The majority has to be wrong for they are the fuel that drives the market. We have had nothing but bearishness in the bull market which has exceeded the 2007 high by nearly 50% yet throughout the rally everyone is bearish. This has been the fuel that made it rally. You even have people touting short the S&P500 and buy Emerging Markets. That has to be a suicide mission. Then you have people touting Europe is a wonderland and the Euro will be fine because Macron won. Of course these are Americans who obviously do not have clients in Europe nor do they visit often. Sure the Euro will rally for the key resistance is still in the 113-114 level.

We will be releasing a special report after the HK World Economic Conference just on the Dow, S&P500 and NASDAQ with timing. The broader market is rising and the Dow has flattened out. This is in part due to people assuming the Macron victory relieves the bearishness for Europe.

On the other hand, our risk is Trump. If Trump ever gets his act together and stops making stupid decisions that hand controversy to Democrats and ruthless pretend Republicans like Lindsey Graham, who backed the bill to allow the government to imprison people without a trial indefinitely for life and denied lawyers, then maybe we can get the tax cuts. Without the tax cut boom, we still have the chaos of Europe, and rising geopolitical tensions outside the USA. Those issues alone are capable of sending the dollar to the moon – but not yet. That’s still what we need to break the back of this monetary system and those cracks appear likely starting next year.

Lindsey Graham is a disgrace to our government and he is not qualified to dare criticize Trump for anything no matter how stupid Trump is. Graham is just an unconstitutional embarrassment. Graham and McCain are the biggest threats to our political-economy moving forward. They are protecting the establishment and are two people who I do not believe should be in Washington, and certainly do not trust them for a second. McCain would invade Canada to get even for his capture and betrayal of reading propaganda messages for the Vietnamese.

Is Germany Putting Pressure on Draghi? Absolutely!

QUESTION: Hi Martin,

It cannot be said enough: thank you for everything that you do.

While I would love the opportunity to sit down with you as I have a million questions concerning your excellent posts of today, let me focus in on The Coming Central Bank Crisis.

As the Fed begins to unwind its balance sheet this year, will that spur the Germans to demand Draghi stop with his program and unwind the ECB balance sheet in 2018, since the Fed will be successful?  Also, how can that occur if we are in a recession?  (Correct me if I’m wrong, but you are indeed calling for a recession by 2018?)

Thank You,

ANSWER: Wolfgang Schäuble has already been jawboning Draghi to reverse course. Draghi knows he has 40% of all Eurozone public debt. He has lost total control of the crisis and has become the crisis. He is frozen like a deer in headlights. Schäuble wants Draghi to leave, but he has a 10 year term. This will not end nicely. We may see the crisis be the reason the Euro turns back down after testing the overhead Reversals in the 113-114 zone.

We have been in a major economic declining trend ever since the 1950s. Yes there are bouts with booming economic periods, but the growth during such rallies is progressively making lower highs. Once upon a time, we had growth of 8-10%. Volcker raised interest rates to 14% to stop inflation. Today, we celebrate 2% growth. This is a worldwide consequence of socialism. Government have doubled in size since 1950 and people wonder why Trump, BREXIT or even Le Pen won nearly 35% of the vote compare to 5% 20 years ago in France.

So are we in a recession? Economists would say no unless there are two-consecutive quarterly declines in GDP growth. As a trade, you have to say we are on a very long protracted Bear Market in economic growth and the future, for us and our children, rests solely in the hands of this “populist” movement to replace socialism.

Dying Shopping Malls and Wealth Managers

People talk about the changing environment. In the financial world around us, things are also changing dramatically. What use to be is no more. There are no real ticker-tape parades any more and future pits are closing opting for online trading. What is changing and why can we not see it? The internet has changed the way people shop around the world with the retail sector currently dominated by Amazon, accounting for almost 65% of online sales.   Amazon pasted Walmart (in market cap) back in 2015 and within the past two years has grown in value to be worth twice as much. Large department stores and the more traditional malls are closing but this is happening as retail spending continues to grow. Admittedly, online merchants have made it far easier, tap a button and our goods arrive at the doorstep the next day, but obviously at the expense of shop staff. The more comfortable we get with online retail the more intelligent we are shopping around and doing it ourselves. Is having the ease of service and renewed confidence a major influence upon why we are turning to index trackers and ETF’s rather than pay a money manager 2% to do it for us?

The ETF market has ballooned since the early 2000’s and is now worth approximately $2.5tn. With this “online” competition, the rumours are that the fees have been reduced to an almost nothing, with money managers taking just 20bp on the fund in the hope that they can make additional returns on the bid/offer spread. One of the problems we could face however, is that the derivative (ETF) becomes more liquid than the underlying. The relationship will work fine in an orderly market but will be tested in extremely or volatile conditions. The concern should be when will Market-Makers widen their spreads so just ensure you are not the last one to see the problems.

Macron & His Socialist Agenda

Macron’s funding reveals that elite Socialists were really behind him changing the label to sell a centrist agenda, but in reality, to maintain their agenda. Macron was able to raise funds from French abroad with the promises of change, and this targeted particularly the French who fled Hollande living in London and New York. He did a photo-op with Nobel Prize laureate Joseph E. Stiglitz before journalists who is critical of the management of globalization, against  laissez-faire economists who he classifies a “free market fundamentalists”, as well as international institutions such as the International Monetary Fund (IMF) and the World Bank.  

Stiglitz is an American economist and a professor at Columbia University and is a former senior vice president and chief economist of the World Bank. He was also a former member and chairman of the Council of Economic Advisers under Bill Clinton and supported Hillary over Obama saying she is more “liberal” (socialist) than Obama. Stiglitz believes in Georgism, which is a variety of Marxism whereby the State should own all the resources derived from land, which is an old Physicocrat (French) idea that wealth is derived from land. In this way, all natural resources should belong to government from mining to energy just for starters as if government operated industries ever ran efficient or were free from corruption. He also supported a single tax for all and believes that, while people should own the value what they produce themselves with everything derived from land should belong to government characterized as belonging equally to all members of society (government).

Joseph Stiglitz criticized Obama publicly saying that the Trans-Pacific Partnership (TTP)  trade deal should not be about “who makes the trade rules—China or the United States?’” Stiglitz said  “I think the big issue is, this is about who makes the rules of trade—the American people, our democratic process, or the corporations? And who they’re made for, which is, for the corporations or for all of us?”

Stiglitz is a core Marxist, which is why he is liked in France where Communism began and convinced Marx this was the way to go. In 2015, Stiglitz wrote two books, The Great Divide and Rewriting the Rules of the American Economy, which are based upon select years for research to support his idea rather than all history. Each book highlights a series of problems he maintains have led to the current state of economic inequality with the gap between the rich and the poor. Stiglitz merely maintains that taking from the rich in greater proportion is necessary to even the playing field and this somehow will make everything better ignoring the fact that as government grows, it consumes the wealth of a nation rather than raises the standard of living. He thus blames everything on a faulty tax code that rewards the rich and hampers the poor, an increase in behavior that boosts the economic gains of only a few while extracting more capital from the majority, and a misplaced focus on altering the economy in a way that benefits shareholders, executives, and investors, but not the average worker.

Macron publicly wanted to be photographed with Stiglitz who is a popular socialist in France. In total, he collected around €15 million, all from private individuals. 1.7% of the donors gave 45% of the funds. He collected €1.9 million when he was still an economic minister illustrating that he saw the collapse in popularity of Hollande, and decides to repackage the same old agenda pretending it was now centrist.

Even Stiglitz believes the Euro is a failure and should be split into a “flexible” euro creating separate groups within Europe, which by default would also be the end of the European Central Ban

Global Market Watch Window to the World Interconnectivity

COMMENT: Mr. Armstrong, I have been on Socrates for about one year now on what you now call your standard edition. I have to say, you have done an amazing job of programming. To have a computer simply provide a comment that is short and to the point that you can look at the whole whole at your finer tips, is the most fantastic tool I have ever encountered. Its calls just on the Dow Jones have saved me countless multiples of the cost of service and I am a small investor. This is what you are expanding to over 5,000 instruments worldwide?

REPLY: Yes. The Global Market Watch was originally designed for hedge fund use and was inspired by one of our major institutional clients back in 1995. They did not have the time to read a written report on everything in their portfolio. They wanted a quick cheat-sheet that was visually a view of their portfolio. We use to sell this for $250,000 annually. However, since we are looking to simply open up Socrates to the world in hopes that it will ultimately help politically manage the economy rather than constantly shooting from the hip, the best way to prove the world is interconnected is to let everyone see for themselves.

Analysis is also changing. You still have the huxtsers who make up flashy headlines to sell stuff that is just opinion. Those days are fading. Under new EU Rules, investment banks charged fees for doing business and they gave you the research free if you did business with them. Indeed, that is how I started. The research was free as long as you were a client back in the days when I was a market-maker. When I retired, the clients still wanted the research. That was the beginning of our firm. Bit reports were delivered by telex so the communication costs would often reach $250,000 annually. That is why we were institutional only. Then came fax. The cost to deliver dropped from $50 to $3. Now we have the internet and the cost to deliver is basically zero.

We have institutions buying access per 100 for employees. For you see, research is changing. Under the new rules, research must be paid for separately. The London FT reported:

“Under draft rules published by the commission, the EU’s executive arm, last month, the fund industry’s decades-long practice of lumping together the fees they pay investment banks and brokers for research and trading will come to an end. Instead, for the first time, asset managers in Europe will have to make it clear to investors exactly what they are paying for.”

We have more people and institutions signing up than anyone would imagine. One bank just took 250 subscriptions for employees. Research has to be separate and accountable. It cannot be lumped in any more. Major institutions do not read the huxtsers who offer just opinion and all sorts of claims for they do not cover markets every day of a major scale. They also do not tell the press what they are doing until AFTER the fact. This is the only product like this in the world.

The Global Market Watch was designed as a wind into the inter-connectivity of the world. It does not matter if you are investing in India or Singapore and Greece. Being able to cover the world in a consistent manner that is completely computer driven so there is no human interaction and opinion is the key to the future. All other analysis will eventually die out and become obsolete. We live in a global economy and this domestic restricted view is primitive to say the least no much different from those who refused the believe that the Earth was not the center of the universe or the the Earth was no fla

Money Rushing in Emerging Markets & Europe – Really?

QUESTION: Martin; it seems the Emerging Markets are back in favor just as interest rates are on the rise and their dollar borrowings have exploded. Is this the final bubble that is unfolding? When the WSJ writes about a trend it is usually the end. They are noting that significant flows of funds are now going out of the US and into Europe. Is this time to sell the emerging markets and Europe? Picking up the rug here in Berlin, nothing seems to have really changed. Any comment?

ANSWER: Yes, the move back to Europe after the French election seems to be the relief rally that is always the case for hot money. The Emerging Market debt bubble is what I wrote about a few days ago that the rush to emerging markets has seen an explosion in new debt offerings. This is very alarming. People act like you should short the US stock market and buy Emerging Markets. You really have to wonder if they understand the global economy at all. The willingness of investors to buy debt securities is rooted in these bearish forecasts for U.S. equities. But the bulk of this is really desperate pensions funds who are in search of higher yields. This is by no means the start of some new Emerging Market boom of prosperity.  It reminds me of Andrew Melon’s comment when the stock market began to decline in 1929 before the bond meltdown in emerging markets back then: “Gentlemen buy bonds!”

The fool will jump in with both feet as always. You need people to buy the highs. The US equities have been in a sideways consolidation since February and their greatest vulnerability is Trump’s stupid firing of Comey that the Democrats are calling a Constitutional Crisis. Trump should have been wiser than this. The danger is this distraction holds off any tax reform for that has been the underpinning to the US equities.

A friend of mine was Chief of Staff in the White House years ago. We went to dinner after he won the position. He was so optimistic that he would be able to accomplish a lot. He knew my view he would never get to anything by the end of the day. After he left the White House we went to dinner. I said nothing. He burst out and said alright you SOB, I never got to a single thing I wanted to change. That is Washington for you. Trump’s greatest flaw is he fails to understand that. Stupid moves like firing Comey are costly. They will eat up time and delay everything if not block tax reform. Congress loves to investigate every leaf that falls to the ground and assign blame even in the middle of a wind storm. That’s just the way it goes in that city. Trump handed them a controversy on a gold platter.

As far as money rushing back to Europe, yes, there was the parking of money here for fear of the French election. But this is nothing more than a short-term knee-jerk reaction. European growth has nothing to offer long-term but higher taxes.

The US share market has been unable to make a significant correction and the numbers remains the same. The surge into emerging markets has been taking place over the past year and this has been the desperate search for higher yields. This is a bubble that is very dangerous and smells like the Russian one back in 1998.

The only way to bring about real economic change remains a rising dollar – not a lower one. That will kill the emerging markets. The US share market remains flat-to-lower and only a breakout to new highs will signal the next leg up. The main area to watch is the 20000 level in the Dow on a weekly closing basis.

Not a single European bank parking money at the Fed through their US branches have reversed that trade. Not a single major player among our clients has been a buyer of Emerging Market debt in this bubble. So the flows written about by the WSJ are indeed the tail-end and not some major brand new trend emerging

The Coming Central Bank Crisis


I have warned that whenever a government creates a solution to any crisis, that solution becomes the next crisis. This is what I have called the Paradox of Solution.The unfolding of the exit of the central banks from the Quantitative Easing monetary policy will become a much more serious threat to the financial markets than anyone suspects. The Federal Reserve has already exited and begun to raise rates while also announcing it will NOT be reinvesting the money when the government debt they bought expires. The Federal Reserve is already shortening their balance sheet. Bills of $426 billion will be due at the Fed in 2018, and again about $357 billion a year later. So the Fed will not repurchase that debt. The US economy is absorbing this because US dollars are effectively the only real reserve currency in the world right now.

The real problem lies with the European Central Bank (ECB) and the Japanese central bank and when they exit their Quantitative Easing programs, their economies are not the reserve currency and lack a solid bid from international capital. The end of QE will lead to a sharp increase in yields on the bond markets, and thus the financing costs for the states will explode far more rapidly today than at any time in past history. It is also possible that other sectors of the financial system, such as the stock markets and the foreign exchange markets in peripheral economies to the USA, will be cast into turmoil experiencing great difficulties without the financial support of the central banks.

Since 2008, the Bank of Japan recorded an increase of 107 trillion yen. The ECB has more than doubled its balance sheet from EUR 2 trillion to EUR 4.1 trillion and holds 40% of member state debt while tensions rise against the EU. The crisis emerges when governments, who are the ones who have been subsidized since 2008, find no bid for their paper. This will really send rates upward at a rapid pace.

As central banks appeared as omnipotent purchasers of government bonds to the un-savvy trader, the yields of the debt by no means reflect the risk of a default in the country’s payments. The decline in yields masked the rising risks from fiscal mismanagement that has been widespread.

While the Federal Reserve had recently announced that it would no longer reinvest its gains on government bonds that had matured into new US securities, the US bond market will need to find new buyers to absorb the additional supply. That may not be a problem right now, but as other government debt moves into crisis, we will see the capital flight from bonds to equities unfold.

The balance sheets of both the Japanese central bank and the ECB are unlikely to follow the Fed just yet. A withdrawal of the ECB’s purchases of securities could produced the most widespread damage in Europe since the Dark Ages.

BitCoin & Alternative Currencies

QUESTION: I very much look forward to reading your blog every day and feel that I am learning much. I don’t know much about BitCoin but I note that it has almost doubled since the beginning of the year. Does your model have any insight into the future of cryptocurrencies like BitCoin.


ANSWER: The problem with BitCoin is precisely that. It is akin to the problem that existed when the bubble burst in 1966 with mutual funds because they were listed back then. People bid the funds up beyond net asset value so when the crash came, people lost everything when they though it was a secure investment. The net underlying assets may have dropped 20%, but they paid 20% over net asset value and then sold at 50% of net asset value. Ever since, mutual funds are no longer allowed to be listed. You go in and out at net asset value.

In this way, BitCoin is not ready for prime time. However, that is a separate and distinct problem from the technology. For now, BitCoin represents a threat to governments for it is used to get money out of places, avoid taxes, and is an alternative currency. Throughout history there have been alternative currencies and as long as people accept them, at times, they have become the major currency when government crash and burn. (see Two-Tier Monetary Systems & Local Alternative Currencies)

Longer-term, this technology may be the future after the crash and burn

California is Highest Taxes State in USA and should join the EU

Governor Jerry Brown never saw a problem that could not be solved by just raising more taxes. This time, the state pension fund is going broke as we have been warning with the building Pension Crisis thanks to mismanagement and low interest rates thanks to Larry Summers. California has already increased its gasoline tax by 50% in the past decade. Now to bailout the state employee Pension fund,  Gov. Brown has proposed a 42% increase in gasoline taxes and, get this, a 141% increase in vehicle registration fees. Nobody talks about cutting government employee pensions. NEVER! Why when you have a population to milk like the cow

Interrogation By Bankers to Do Anything With Your Money

QUESTION: A bank manager at a local bank called and began asking questions about a wire transfer to Panama that we had some difficulty sending. We are purchasing a small house and land in Panama and this was the earnest money of $16,000. She was asking why I was buying the land, when I planned to move there, where I got the money, (I have several business accounts at this bank with large sums of cash in some of them). Do I have an obligation to give her the info? What are the repercussions if I refuse to answer her questions. The interrogation lasted for 25 minutes.


ANSWER: The hunt for money is getting really bad. Everyone is now simply guilty and you must prove you have nothing to hide. It is getting really insane. We have 3 accounts at a major bank. I went to open another for a local company. I was told I had to mail a letter addressed to myself to our legal headquarters in Delaware to prove I received it and then mail it back to myself. When I pointed out that was just the incorporation address and this was a registered Florida company, it made no difference. When I pointed out we already had three accounts with them, they said that did not matter and they could not look at that and must treat every account as if they did not know who the person was. I just walked out and went to a different bank.

Everything these people are doing is just nuts. We cannot sell 1 year subscriptions anymore despite the fact we have done so for 40 years. Some person in the back office is making up rules they think are to prevent the bank from any liability and are filling files on everyone as a cover-your-ass requirement. The rules differ from bank to bank,

The repercussion are not legal. They will just close your current accounts.