CNN Money is reporting the headline “A top JPMorgan Chase executive is warning that stocks could fall as much as 40% in the next few years.” CNN reports that Daniel Pinto, JPMorgan’s co-president, said on Bloomberg Television he believed that market gains should continue for the next year or two. However, he added that investors were nervous could result in a “deep correction” of between 20% and 40%, “depending upon the market values at the time the downturn starts.”

Indeed, this was the pause we were looking for from January. We did not see a collapse as in terms of 1987. Instead, this is simply the transition period where the marketplace must come to grips with a Sovereign Debt Crisis and that means rising interest rates will devastate the bond bubble. So exactly how does that equate to a 40% decline in equities?

What is clear is that the initial stages of this consolidation period involved the marketplace coming to grips with the shift from PUBLIC to the PRIVATE rationale. In other words, inflation, rising interest rates, the rapid rise in interest rates, explosion in public debt, and the inability of governments to fund their never-ending deficit spending at the federal, state, and local levels. Then as the economy begins to worsen, this will also historically lead to trade wars.

This is good news. We need the majority of analysts to turn bearish in order to restore the upward bias we have enjoyed for the past 8 years. We can see that our Energy Models are not in a position for a major high. They have been rising, not declining as new highs were made. This strongly suggests we will still see higher highs in the years ahead. The more analysts we get back to bearish, the strong the breakout to the upside later on.

Canada is the largest exporter of steel to the United States. The decline in the Canadian dollar has helped this trend in particular. Trump is clueless when it comes to the impact of currency on foreign trade. If he wants to do tariffs, they MUST be indexed to the currency. Failure to do that will cause serious consequences as the dollar rises on the world financial markets in the years ahead. He will create a trade war globally and politicians on both sides remain ignorant of foreign exchange and its impact upon trade numbers.

I have stated many times that the entire system of trade is in a state of confusion. Following Bretton Woods, currencies were fixed to the dollar which in turn was fixed to $35 per troy ounce of gold. Therefore, the accounting system ONLY measured the amount of currencies moving back and forth. It was assumed that you imported more goods if the amount of outflow of dollars increased. Consequently, the way we measure trade today has NOTHING to do with the actual amount of product moving internationally. If you spent more dollars but the dollar decline in value by 20%, then even an increase in imports measured in dollars at 20% was no change in the actual product

Trump is implementing tariffs against any country that imposes a tariff of American products. This is a tit-for-tat and will be of a like amount. For years, many countries have imposed tariffs on US products when there has been no tariff on their products. The criticism against Trump at Davos was he should put the world economy first not America. They talk a lot but do not play by the same rules.

His announcement this week that he is imposing tariffs on steel and aluminum was the excuse to justify the consolidation period of the stock market. Trump said his administration would impose a 25% tariff on steel imports and a 10% tariff on aluminum. It was not immediately clear whether Trump would exempt some countries from the tariffs, as his national security advisers have urged him to do to avoid hurting U.S. allies. The big problem is that Trump FAILS to understand how the economy truly functions. Imposing tariffs on foreign imports because they can produce something more efficiently is NOT protecting American jobs – its is imposing higher costs on the American public. If America cannot compete against foreign steel and aluminum, the answer is not tariffs, but TAX REFORM and UNION REFORM. If unions fail to understand that demanding higher wages in an uncompetitive manner will only lead to the loss of jobs, then end result cannot be prevented by tariffs.

Once upon a time, New York City was the largest port in the United States. Because of unions and outrageous demands, little by little they killed their own jobs. Shipping moved to New Jersey, Philadelphia, and Virginia. What used to be a viable industry today is just a shadow of what it once was. No matter what the field, everything is subject to competition. Imposing tariffs is simply subsidizing overpaid jobs and higher taxes.

It is not JUST wages that cause companies to move and import goods. The US tax code historically looks like the brainwave of a Schizophrenic.  The Democrats come in and taxes rise as high as 94% and the Republicans come in and they go back down. There is absolutely no permanency to the tax code. Consequently, business leaves even when the issue is not wages so much. They leave just to be able to have consistency.

Would you rent an apartment where the lease said the landlord can raise your rent any time he desires if he needs more money to pay something else? This is the entire problem. The Democrats always pitch to tax business and the rich. The biggest shareholder of American public corporations has been the California pension funds (CalPERS) so who actually owns the majority of public companies? It is the people through their retirement funds.

Every time the Democrats raise taxes, they destroy American jobs. So it is NOT entirely the simple matter of wages. First US protective tariffs on washing machines and solar systems were imposed and now on aluminum foil. The US said that aluminum foil from China was being dumped at low prices. Trump imposed measures against some companies from China claiming that American workers and businesses should not be affected by unfair imports.

QUESTION: Hi Martin,

Yesterday the Swedish Riksbank Chairman Stefan Ingves went on prime time TV expressing fear that public authorities are losing control over the Swedish currency! He also on prime time TV asked rhetorically -We have asked our self what is money?! Can you believe that!?

What the heck is going on? The Chairman of the WORLDS OLDEST CENTRAL BANK goes on prime time TV expressing fear for the public to lose confidence in the Swedish KRONA! Also saying that private companies are taking control over the currency and that cryptocurrencies are a threat.

I know the Swedish Krona is a small currency but one of the oldest still alive today. What does Socrates say about the Swedish Krona?

Stefan Ingves also yesterday published a long article in Dagens Nyheter, a national magazine expressing the same fear. A large finance paper published an article yesterday about this issue. Here is the link.

ANSWER: Sweden is the oldest Central Bank. That is where it all began. The first true banknotes for circulation appeared in Sweden, and these were actually used by the government to support its wars with Germany. In 1661, the government established a 30-year monopoly for its Stockholm Banco to issue these banknotes known as “letters of credit” that were to be payable in Swedish copper plate money that was extremely heavy weighing almost 15 kilos. It was not very practical for actual circulation. However, this practice was abused and ended up supporting the king. This led to the first banking panic in 1663 when there were more obligations than money to now redeem the notes. The bank was forced to close in 1664.

South Africa is turning extremely left-wing to the point that it is risking any viable economic future. The Parliament of South Africa on Tuesday voted to expropriate the majority white farmers of the country without compensation. This is how the Russian Revolution took place – the just took everyone’s property. The motion was submitted by the left-wing party Economic Freedom Fighters (EFF) and it was supported by the ruling party ANC (African National Congress). This maneuver is trying to change the constitution. All the work of Nelson Mandella is being gradually eliminated.

Clearly, the topic of land expropriation has been one of the most sensitive issues since the end of apartheid in South Africa. New President Cyril Ramaphosa, in his first major speech after taking office in mid-February, publicly stated that he supported the expropriation of white farmers without compensation. The excuse is that this will lead to increased food production. It has absolutely nothing to do with that. The majority of the agricultural land in South Africa still belongs to the white South Africans even 24 years after the end of apartheid. White ownership has declined slightly from 85% to 73%. However, the idea of a free market in South Africa does not truly survive. The rising chants assert that the “time for compensation is over; now is the time for justice!”

Parliament mandated the Constitutional Commission to report on the issue at the end of August. The ruling ANC party is under pressure before next year’s parliamentary elections, and land seizures of white South Africans could increase popular support in the poor black electorate. Of course economically, when a nation simply expropriates private property, thereafter, it becomes economically a high risk to do business with them.

The hyperinflation of Zimbabwe was in part set in motion by the violent expropriation of white farmers. Zimbabwe saw a sharp decline in production of food plunging the country into chaos. Zimbabwe was formerly known as the breadbasket of southern Africa. Once it expropriated the farms of white farmers, the country fell into complete chaos. South Africa is risking the very same future. Inflicting vengeance upon the white farmers may make many feel better, but it risks sending the economy into total chaos.

Meanwhile, President Cyril Ramaphosa was part of the original movement in South Africa’s peaceful transition to democracy. However, he has also been criticized for his conduct dealing with firms such as his joint venture with Glencore and allegations of benefitting illegally from coal deals with Eskom. Glencore became a huge controversy because of its business activities involving Tony Blair, former Prime Minister of UK. There is a Directional Change due in 2020. The Apartheid era (1948-1994) lasted for 46 years. The current situation appears moving toward a major economic crisis going into 2020.

Draghi has realized that he has singlehandedly destroyed the European bond market. Besides the fact that it is illegal to short government bonds, he has come face to face with the stark reality that if the ECB stops buying government bonds, there will be NO BID at these price levels. Interest rates will skyrocket dramatically. On the German 10-year bond, once we see a monthly closing above .79, we are looking at a DOUBLING of rates and that is in Germany. Once rates rise above 1.55, then expect it to rapidly DOUBLE again.

Consequently, Mario Draghi has been warned there is a serious problem. He told the Economic and Monetary Affairs Committee of the European Parliament that he would maintain a very loose monetary policy because it was necessary despite the upturn in the euro area. He said that INFLATION remains critically dependent on a strong push using monetary policy. Of course, you would assume that after 10 years of this policy and there is no sign of a major return of inflation, that you would start to question the entire Quantity of Money Theory.

Draghi said Monday that he will continue to include the billion-dollar bond purchase program and he will reinvest expiring bonds exactly OPPOSITE of the policy at the Federal Reserve. While the dollar-bears keep calling to the end of the Greenback, they are deaf, dumb and blind when it comes to international capital flows or monetary policy.

Draghi realizes that he is subsidizing the European governments. He is not stimulating the economy, he simply has them on life-support.  Stopping the bond program will lead to a major crisis when there is NO BID for government bonds. Not only will Draghi keep buying government debt, he will be repurchasing debt as what he already has expired.

Draghi has created the economic NIGHTMARE from which there is no escape. We will be putting together a special report on World Debt market since this is the real crisis we are facing with the Monetary Crisis Cycle that began here in 2018

QUESTION: Mr. Armstrong; The goldbugs are saying that China, Russia, India are “rogue” rising economic powers that are rogue nations. They cite David Stockman who preaches the U.S. economy is in deep trouble thanks to its “massive indebtedness” and they seem to ignore what you have pointed out that the USA is in the best shape. They also cite that there is a “massive global infrastructure” that will connect Asian nations with countries rich in natural resources and they are selling off U.S. debt. They keep calling this a petrodollar that replaced a gold-backed dollar which means the dollar is vulnerable to collapse. Is any of this stuff ever valid?

LMM

ANSWER: This is just sophistry. Any reduction in US debt holdings is negligible and the “massive indebtedness”  of the USA is a joke compared to the outstanding world debt As the interest rates continue to rise, the debt servicing costs are simply going to explode. As a whole, Europe is over 100% of debt to GDP with respect to just Public Debt on average compared to the USA at about 73%. Global government public debt has exceeded $60 trillion. As far as David Stockman is concerned, he has been preaching the same thing since the 1980s.

The Silk Road Economic Belt and the 21st-century Maritime Silk Road, also known as the One Belt and One Road Initiative, (OBOR),  is a development strategy proposed by Chinese Government that focuses on connectivity and cooperation between Eurasian countries. This is clearly going to build China to become the new Financial Capital of the World. However, that does not come into play until AFTER 2032.

I have explained that there is no PETRODOLLAR. This is completely bogus. I really do not understand how they can keep saying this factually incorrect information to get people to hand them their life-savings. The oil and gas drilling sector make up between 4.6% and 6.5% of the global economy. That is it. How can you call this a “PETRODOLLAR” by any rational means?