Can Anyone Really Save The Economy in a Crash?


1998-ltcm-contagion

QUESTION: Mr. Armstrong; Did anyone ever save the world financial system during the 1998 Crash or the 2008 Crash?Also, you said that government will never heed the advice of anyone. You worked on Capitol Hill and testified before Congress and was called upon to form the G5. Yet you say it is impossible to prevent anything for it always crash and burn. Then anyone who claims they saved the economy or markets cannot be telling the truth. Care to comment?

ANSWER: Back in 1985 when I was called upon with the birth of the G5, it taught me a lesson. They will call people in to PRETEND they have consulted experts, but it is just a dog & pony show. They already predetermined what they will do and absolutely nobody can step up and advise them to prevent any such crash. Absolutely no government will ever take a precautionary action in such a manner. Government only responds to event – does not prevent them.

1998-sp500-july-20

There is absolutely nobody who can save the markets or economy in the middle of a crash – NOBODY! First of all, it was a contagion that began in Russia and because they could not sell Russian assets, they sold every other market to raise cash. So I fail to see how any person or any single country could stop a crash that is a global contagion.

Yes, in 1985 they call upon several analysts to pretend they listened but nobody directed them to create the G5. I wrote to President Reagan back then detailing why the G5 would increase volatility and fail. If you want to call me a Presidential Adviser, I think that is a stretch. If you presume you give advise which is then acted upon, there is nobody who can claim to be a Presidential Adviser to prevent anything. Sure I get calls in the midst of a crash, but there is nothing anyone can do to stop a meltdown. They are short-lived and have to play out.

I wrote to Robert Rubin warning about his jawboning the dollar would crate the same crisis as the 1987 Crash. Tim Geithner quickly responded saying they weren’t doing that. The 1997 Currency Crash came within weeks.

Sorry, I do not believe anyone can prevent anything or save the economy in the middle of crash

Dominoes – Key to Economic Survival


Dominos

QUESTION: Marty; Will you be going over the type of monetary reform you see coming and how to position oneself for this and when it should arrive? What do you think about the SDR proposed by some replacing the dollar? Any response as to why you always seem to be right?

Thanks

See you in Hong Kong

ANSWER: I had originally proposed the SDR system to replace the dollar back in 1985 as an alternative to G5 (now G20). (see letter to Reagan). You will also see that reply from the White House rejecting that idea. Today, the IMF has become so corrupt, I would no longer support such a system.

Nevertheless, the world economy is going to explode. Politicians are clueless today far worse than ever before. I could have had intelligent conversations 30+ years ago. Today, they are mostly lawyers and rarely do you encounter anyone with common sense.

Yes we will be going over this at the Hong Kong WEC in addition to markets and how to see this coming as well as the timing. Everything is falling in place and it certainly looks as if we will get the hard landing in Europe after 2017 concludes this year from Political Hell. Beware, the stock market is not in crash mode despite what all these perpetual bears proclaim.

Domino Government Intervention

I have been asked many times, how is it possible to be right on so many markets?  It is easy. I keep telling everyone that everything is connected. So, if you can get the first domino correct, you will get all the others correct as well.

Mistakes come in forecasting when you try to forecast a single market ignoring the rest of the world. The wildcard always comes from the outside and you will be unprepared.

Government intervention has ALWAYS failed. It has NEVER succeeded even one time to change the long-term outcome. They stick their hand into the dominoes and think they can stop that one thing because they too do not comprehend how everything is connected. It is not a question of guessing correctly. That is what these WEC events are all about. If you walk away with the understanding how everything is connected, then you can have the confidence to act only if you understand the sequence. When we forecast that the stock market would rally to new record highs, most thought I was crazy. Barron’s reported the forecast tongue in cheek.

Dominoes-1Just look at how everything aligned. Gold peaked showing that the fear in the collapse of banking subsided as was the case with government. The peak in the Euro lined up with the bottom in the Dow as deflation prevailed. If the trend would reverse, then all three markets had to perform like dominoes.

This sequence is still in motion. My objective in these WEC events is to teach you how to see it, and that inspires confidence, which in turn means you will be able to survive it.

Connected-Gold-Dow-Euro

Trump’s Tax Survey – Already Predetermined


TAXES-TEXT

  1. In order to achieve the American Dream, Americans must be able to keep more money in their pockets and increase after-tax wages.
  2. We must work to simplify the tax code by reducing the number of income brackets.
  3. Income Taxes are no longer necessary when money is not tangible. See solution on YouTube
    We must discourage corporate inversions in order to grow the American economy.
  4. We must make America a globally competitive nation again.
  5. Our plan must be fiscally responsible in order to not add to our already staggering debt.
  6. We must eliminate the death tax.
  7. We must reduce or eliminate deductions and loopholes that only benefit the very rich.
  8. Simplifying the tax code and cutting every American’s taxes will boost consumer spending while encouraging savings and investment.
  9. We must cut the corporate tax rate and allow the United States to compete internationally.
  10. Corporations must no longer be able to defer taxes on income earned abroad.
  11. Our lower tax rate must also apply to small business, allowing entrepreneurs and freelancers to grow and prosper.
  12. Our lower tax rates will provide a tremendous stimulus for the economy, significant GDP growth, and a huge number of new jobs.
  13. Our tax code overhaul must return power to the states.
  14. We must eliminate the marriage penalty and the Alternative Minimum Tax.
  15. We must allow working parents to deduct childcare expenses for up to four children and elderly dependents.
  16. We must reduce or eliminate the capital gains tax.
  17. We must have import tariffs from other countries at the same rates as those countries that impose on U.S. products.
  18. We must change the border-adjustment tax so companies can no longer deduct imports as costs.
  19. We must pass tax reform legislation in order to ‘Make America Great Again!’

The Dow Jones for the Close of April 2017


DJIND-W 4-28-2017

QUESTION:  Mr.Armstong in the past you talked of a down trun in the market in May.Since Trums TAX you have gave the impression everything is ok till 2018 is that correct?

THANK YOU

SM

ANSWER: There has not appeared to be a condition where one would warn of a crash in the stock market. The decline into May has been more of a sideways consolidation. The high remains the week of February 27th, 2017 at the 21169.11 level. In cycle analysis, what you look at is the direction. That forecast would have been wrong if the market made new highs above that of the week of 02/27/17. Moving sideways is still a cycle low rather than a high. The key point was the 20,000 level on the Dow. I have stated that a serious correction would only happen with a weekly closing beneath that level.

Today, a Weekly Bullish stands at 20970. We are currently trading at 20954. A close above that level will warn this is starting to firm up. You can see our Energy Models have been declining rather than rising. This has indicated the consolidation and it warns we are not at the precipitous from which a major crash is likely.

On the monthly level, here too we see 20975 as the important resistance and 202881 as the support for the close today. Everything is showing this 20770-20975 level as critical. The failure to exceed that level for the close today warns that the consolidation is not yet complete. Last month’s low was 20412.80. A closing below that would be technically bearish and confirm a drop into May.

We will lay out the longer term in a more detailed published report.

30Y Treasury Yield Jumps Near 3.00% Despite Dismal GDP Growth


Tyler Durden's picture

Nothing says sell bonds like the worst quarterly growth for a Fed rate hike since 1980

 

but that’s what is happening…

Here’s why – Treasuries under pressure after 1Q employment cost index rose 0.8%, largest gain since Q1 2007, a sign of inflationary wage pressures as both pay and benefits accelerated

US GDP Collapses To 0.7%, Lowest In Three Years; Worst Personal Spending Since 2009


Tyler Durden's picture

The Atlanta Fed was right once again, and slashing its forecast over the past 3 months today the BEA confirmed that in the first quarter US economic growth tumbled to just 0.7%, down from 2.1% in the last quarter and below the 1.0% expected, and the lowest print in three years going back all the way to Q1 2014.

Broken down by components, the disappoing number reflected increases in business investment, exports, housing investment, offset by a big slowdown in consumer spending. The increase in business investment reflected increases in both structures and equipment, notably a significant increase in mining exploration, shafts, and wells.

These positive contributions were offset by decreases in private inventory investment, state and local government spending, and federal government spending.

The increase in exports reflected an increase in nondurable industrial supplies and materials, notably petroleum. Also on trade, imports, which are a subtraction in the calculation of GDP, increased in the first quarter of 2017. As the chart below shows, the dramatic drawdown in trade as a result of the soybean export surge giveback is now over, and net trade contributed a modest 0.1% to Q1 GDP.

But the biggest culprit for the atrocious GDP print was the collapse in consumer spending, which rose at just 0.23% annualized, the lowest increase since 2009, and reflected an increase in services offset by a decrease in motor vehicles and parts. In short: for whatever reason, spending in the first quarter imploded.

Elsewhere, looking at PCE, prices rose 2.6% Q/Q, above the 2.3% expected, and higher than last month’s 2.0%. Core PCE rose 2.0%, in line with expectations.

Once again, the bulk of the PCE growth came from rising healthcare service prices, with the rest barely registering.

Food prices increased in the first quarter following a decrease in the fourth quarter of 2016. Energy prices increased in the first quarter of 2017 following a larger increase in the fourth quarter of 2016. Excluding food and energy, prices increased 2.3 percent in the first quarter of 2017, compared with an increase of 1.6 percent in the fourth quarter of 2016.

The Confidence Game – The Next Crisis


Confidence-wide

QUESTION: Martin, I started following your models shortly after college in 2000 when I entered the financial advisor world. I soon realized how clueless this industry was and formed a hedge fund in Tampa in March 2007 to short retail and housing, largely based on your models & my understanding of cycles. I reached the top 1% in Morningstar through Sept of 2008 right up until the government banned shorting. I could not receive quotes from my Goldman Sachs trading platform and I lost a lot of money in a few short hours. I eventually had to shut down the fund and my investors took losses. It was this period where I learned the error in my thought process, I underestimated the length to which the Government & politicians would go to kick the can further down the road and underestimated the big banks inside influence on the “free markets”.

Your recent post regarding inflation and the end of Quantitative Easing had me thinking, wouldn’t the moment the politicians realize there is a recession on the horizon and inflation begins to cripple the housing followed by retail, etc, wouldn’t they re-institute QE and expand the balance sheet further regardless of the future implications? It seems politicians will do whatever it takes to avoid the worst and continue to kick the can down the road to save their own careers.

Thank you for your provoking thought and mindful awareness while everyone else buries their heads in the sand.

R

credit-anstalt

ANSWER: The outcome always depends upon confidence. It is what you believe that counts rather than the facts. When Credit Anstalt went belly-up in 1931, why did an obscure bank in Austria set in motion the 1931 Panic and Sovereign Debt Defaults that made a recession into a Great Depression? The answer was found in the name. One of the owners was the Rothschilds. When people heard the Rothschilds went bust, they began selling all the banks because if they went down, everyone else surely would. They were the Goldman Sachs of the day.

Hoover - Loose Cannon

I suggest reading Herbet Hoover’s Memiors from 1931. This is a confidence game. Just because QE appeared to work before does not mean it will work a second time. The middle-class lost money and their living standards were sharply reduced. Retail investment in equities has not yet returned to even 50% of 2007 levels. Most people who lost their homes were those who could never have bought one before. Yes, the middle-class who borrowed more against their house were put under stress. Home equity loans dried up so industries like selling pianos dropped by more than 50% since people borrowed using home equity to fund expensive things like a piano.

Fed v Congress

Energizer-BunnyThe difference this time is the fiscal budget. Back in 2007, the Fed only had to worry about its policy and the contracting economy. The problem they created is that government just keeps going like the Energizer Pink Bunny – it never stops spending regardless of the level of interest rates.

The Fed cannot neutralize the Fiscal spending of government. This is deeply entrenched. Just look at the table below on the annual deficits since 2007. This has increased about 364% since the 2007 crisis began.

Government has become addicted to cheap interest rates. If rates go back just to 5%, we are looking at a fiscal deficit explosion the Fed cannot overcome.

US Deficits 2007-2016

The crisis has to hit before a politician would ever act. Once the crisis begins, you cannot restore confidence. The whole thing will have to play out. Moreover, the crisis in Europe helped to send capital to the USA easing the economic pressure here. This is why the USA is holding up the entire world economy right now and a stiff wind will blow over the European banking system. I seriously doubt that anyone can stop the next crisis and whatever they do will then be seen as a failure.

glassDuring the late 1970s, the IMF held gold auctions trying to stop its advance. The first auctions in 1975-1976 caused gold to drop by 50%. However, then continued auctions had no effect and they were seen as a validation of the bull market they could not prevent. We are looking at the same type of collapse in confidence this time around. The same fundamental act can have different interpretations. It is the glass half full or half empty.

The Euro for Month-End April 2017


IBEUUS-M 4-24-2017

The Euro turning point on our Weekly Models still points to the week of May 8th. As we can see technically, the Euro is well below the Monthly Downtrend Line which stands significantly above the market at 12622. There is no real chance of a reversal in the protracted long-term decline. We really need a Monthly Close above 11060 to signal a sustainable rally ahead and a closing for month-end beneath 10822 will warn that the Euro is still bearish in the broader term. Any rally into the week of May 8th should be sold whereas a decline into the week of May 8th will be followed by a minor relief bounce.

IBEUUS-W 4-26-2017

Turning to the weekly level, we can see the the Energy within this market has peak once again and is in danger of moving back into negative territory in the weeks ahead. We need a weekly closing on Friday above 10855 to raise hop of a rally into the week of May 8th. Therefore, this is becoming very narrowly focuses 10855 and 10822.

The Weekly Bearish lies at the 10715 level. Clearly, we do see a choppy trading people starting the week of May 8th. The computer has selected this weekly target months ago which is interesting how this falls into place with the May 7th French election.

Italy to Raise Taxes to Satisfy Brussels – Why the Euro Will Fail


Gentiloni Paolo

 

ItalyThe European Union (EU) has been pushing Italy for a very long time to reduce its deficit. Of course, governments are never capable of reducing their own expenditure. This results going in only one direction – raising taxes. Prime Minister Paolo Gentiloni had to agree on the concrete measures. The bill is now being discussed in Parliament, which has 60 days to pass. Italy has the second highest debt in the Eurozone after Greece.

This is why the EU is doomed. There will never be any reform that addresses the people. It is always about raising taxes to maintain government power and to hell with the people. The upcoming Germany vote still appears to be fragmented and as a result, Merkel may remain as Chancellor at the end of the day. We will have to run our models soon on the German election.

This is why I have warned that the Euro will fail. Had Brussels consolidated all the debts from the outset, then the Euro would have competed against the dollar. Leaving everyone to hold their own debts only created a single currency and then the fear that if one member expended their debt, it would impact everyone else.

This system is tearing Europe apart and unemployment in each country will turn to civil unrest and point the finger at Brussels. The debts should have been consolidated and the central bank would have then had a single bond issue for reserves. Now, the entire banking system has to be politically correct, owning a piece of everyone. Even the ECB has 40% of all government debt throughout the Eurozone.

It is beyond brain-dead to maintain this system demanding individual countries sacrifice their own domestic policy objectives for Brussels’ demands. In the USA, each state has its own agenda, but their debt is not acceptable as reserves for the banks. The Euro system is simply like being somehow half-pregnant.

The Gold Reports & the Building of Volatility the Precursor to Chaos


Volatility Historical

Our first report will be released on Gold, Guns & War which illustrates how gold has historically reacted to different types of war events, both internationally as well as domestically, as in civil unrest and revolution.  Illustrated here, we can see the historical volatility in gold over decades of interacting with the global economy and war. This chart shows how volatile the instrument is now in relation to a historical all time correlation.

We are witnessing the gradual rise in volatility since the 1999 lows. We are still nowhere near the sharp rise in volatility sparked by the collapse of Bretton Woods. Nevertheless, the timing is setting up on our volatility models for the future. Everything is lining up and we will be reviewing this at the Hong Kong WEC at the end of the month.