Tag Archives: The Forecaster

May 28 2019

Fannie & Freddie to go Public in 2020?


Armstrong Economics Blog/Interest Rates

Re-Posted May 28, 2019 by Martin Armstrong

QUESTION: Hi Martin ! always wondered What would be the outcome of Fannie/ Freddie going private ? they have been trying this for years, but now looks like they are giving it another try and may be successful under the guise of ” protect the taxpayer ” …. what do you think will be the ramifications especially for real estate REITS and MREITS as well as homeownership going forward .

Thank you

JD

ANSWER: Fannie Mae and Freddie Mac are two companies that are in the longest conservatorship perhaps on record. Because the law governing these agencies is separate from banking conservatorship law, judges have largely done nothing about Fannie and Freddie shareholder complaints to date. The government’s 2012 net worth took all of the money that they said was worthless back in 2008-2011 that was on the balance sheets. Keep in mind that FHFA was acting as conservator when this was all agreed.

Fannie Mae and Freddie Mac will be allowed to retain capital, but the Senior preferred securities purchase agreement will be amended and the lawsuits will be settled in order for the companies to go to the public markets and raise new money via selling new equity to investors. They would like to do an IPO by 2020. After the balance of the senior preferred gets written off, the warrants will be exercised and the junior preferred will likely equitize some or all of their shares to help facilitate the recapitalization of Fannie Mae and Freddie Mac. There will be risks that include higher capital requirements, a shorter timeline to recapitalization, more CRT/STACR deals, more regulation and/or lower guarantee fees.

Moreover, we face a period where the interest rate is going to enter a major divergence. Central banks will be forced to create interest rate caps on sovereign debt, assuming people will buy them at these low rates of under 3%. This all hinges upon confidence. When we begin to see economic stress in the sovereign markets, such as in Europe with the ECB unable to stop QE, sovereign rates will become merely artificial and irrelevant. The ECB moved to negative interest rates but that did not lower private interest rates.

Expect divergences as we move forward into the next cycle which will peak in 2024. Expect wild movements ahead on the yield curve as well.

May 28 2019

World Trade & Competitive Advantage


Armstrong Economics Blog/World Trade

Re-Posted May 27, 2019 by Martin Armstrong

QUESTION:

Hi Marty,

I was surprised to see this post. While I can understand from a dollars and cents perspective you may be for global trade and globalism itself, the American worker and American domestic businesses have suffered greatly in the last twenty years since jobs and companies moved to China and then sell us cheap stuff with zero tariffs.

Case and point, wages have stagnated. You don’t feel that because you are wealthy. Any job attached to a computer has fled to China and also India in search of cheap labor – leaving us unemployed. I have been laid off 6 times, and no there was nothing wrong with my performance. I am an overachiever and my performance reviews have always been glowing.

I don’t think it is worth the sacrifice of Americans lives and our economy, the sacrifice of the middle class, the throwing of millions more into poverty so China can have some of our jobs. Let them figure themselves out how to grow their own economy. They will have to discover the rule of law and individual freedoms more if that is to happen because from what I have read the people in China cannot afford to buy the products they make in their own factories their wages are so low. They have to enable their own people to afford to purchase things to drive their own economy vs stealing from us.

I support Trump in the trade war. The war has been going on a long long time Marty, you failed to acknowledge that. China has been taking us to the cleaners for a long long time. Why didn’t you state this fact?
I was surprised by how you did not even mention that in this post.

Perhaps you need more coffee to wake up? 😉

Thanks for the blog
A

ANSWER: I understand what you are saying but at the same time you are looking at only one side on the coin. Keeping products artificially higher means that the consumer is asked to subsidize that extra cost and that lowers their standard of living. If we really care about jobs, address the fact that we are overtaxing labor. Address the healthcare costs, not with something stupid like Obamacare which was a Ponzi scheme to force the youth to buy insurance they did not need or want. You can easily lower healthcare costs by addressing tort reform. Even Bernie’s ideas sound nice, but they will blow up in everyone’s face. He compares the US to systems overseas but neglects to point out that the doctors are public employees and there are no crazy lawsuits. If we want an even playing field, then address the over-taxation of labor and the cost of healthcare.

Even the Post Office hires part-time workers, for if they work less than 40 hours a week, they are not entitled to benefits. If you try to grow lettuce in the desert and it costs $10 per head, do you prevent the people from importing that for 50 cents?

It is called comparative advantage (see David Ricardo). We should import what China can produce more efficiently and we should encourage people to seek education and employment in a field in which we have a competitive advantage. Shipping out computer development overseas works in some areas, but others it results in far more development time, granted at a lower per hour cost. But most of that takes place because there is a shortage of talent in the United States in these areas.

It is important to look at this also from the consumer’s viewpoint – not just union labor.

May 28 2019

The Shift from Public to Private Assets in Europe


Armstrong Economics Blog/Economics

Posted May 27, 2019 by Martin Armstrong

QUESTION: Marty, at the Rome WEC you put up that chart that showed historically private sector yields have gone below public. That really demonstrated your point on this shift from public to private. Now with Deutsche Bank on the ropes, here in Denmark, even mortgage bonds are going negative. Is this the real panic you were speaking about with the EU elections?

I’m coming to Orlando too. This is getting really dangerous here.

KA

ANSWER: Yes. Just look at this from a practical standpoint. If the government is the culprit and the crisis in banking is driven by this policy of Austerity, then you want to put your money where you just preserve it. This is what I was talking about. When confidence in government collapses, people turn to the private sector. It makes perfect sense that some capital will shift domestically into private mortgages for they are at least backed by property. If they go bust, you get something. If government defaults, you get nothing.

At some point, the government must address the structural reforms I outlined in the report we handed out – the Fate of Europe.

May 28 2019

Day #3 Schedule – President Trump State Visit to Japan….


Re-Posted from The Conservative Tree House on May 27, 2019 by 

Tokyo Japan is 13 hours ahead of U.S. Eastern timezone. As a result, much of the diplomatic activity for the final day of the state visit happens in the late night hours.

Today is the final day of the official visit which included the first state visit hosted by the Emperor Naruhito and Empress Masako to celebrate the new imperial era of “Reiwa”.

The visit has been a resounding success for Japan and the United States of America.

Today, the President and First Lady will honor the military.  Specifically and purposefully the President will showcase the strategic U.S-Japan military alliance, and deliver remarks to commemorate Memorial Day.  At the conclusion of events the President and First Lady will bid farewell to our good friends in Japan.

9:15am (Tokyo) / 8:15pm (U.S. EDT) THE PRESIDENT and THE FIRST LADY participate in a Farewell Call with Their Majesties the Emperor and Empress, Tokyo, Japan

9:35am (Tokyo) / 8:35pm (U.S. EDT) THE PRESIDENT and THE FIRST LADY depart the Palace Hotel en route to the Hardy Barracks Landing Zone, Tokyo, Japan

9:45am (Tokyo) / 8:45pm (U.S. EDT) THE PRESIDENT and THE FIRST LADY arrive at the Hardy Barracks Landing Zone, Tokyo, Japan

9:55am (Tokyo) / 8:55pm (U.S. EDT) THE PRESIDENT and THE FIRST LADY depart Hardy Barracks Landing Zone en route to JS Kaga Landing Zone, Tokyo, Japan [JS Kaga (DDH-184) is a helicopter carrier (officially classified by Japan as a helicopter destroyer) and the second constructed ship in the Izumo class of the Japan Maritime Self-Defense Force (MSDF)]

10:20am (Tokyo) / 9:20pm (U.S. EDT) THE PRESIDENT and THE FIRST LADY arrive at JS Kaga Landing Zone, JS Kaga

10:20am (Tokyo) / 9:20pm (U.S. EDT) THE PRESIDENT and THE FIRST LADY visit JS Kaga with Prime Minister Shinzo Abe of Japan, JS Kaga

10:45am (Tokyo) / 9:45pm (U.S. EDT) THE PRESIDENT and THE FIRST LADY depart JS Kaga Landing Zone en route to USS WASP Landing Zone

10:55am (Tokyo) / 9:55pm (U.S. EDT) THE PRESIDENT and THE FIRST LADY arrive at USS WASP Landing Zone, USS WASP [USS Wasp (LHD-1) is a United States Navy multipurpose amphibious assault ship, and the lead ship of her class.]

11:00am (Tokyo) / 10:00pm (U.S. EDT) THE PRESIDENT and THE FIRST LADY participate in a Memorial Day address to the troops aboard USS WASP, USS WASP [Likely Broadcast Live]

12:05pm (Tokyo) / 11:05pm (U.S. EDT) THE PRESIDENT and THE FIRST LADY depart USS WASP Landing Zone en route to Haneda Airport, USS WASP

12:20pm (Tokyo) / 11:20pm (U.S. EDT) THE PRESIDENT and THE FIRST LADY arrive at Haneda Airport, Tokyo, Japan

12:30pm (Tokyo) / 11:30pm (U.S. EDT) THE PRESIDENT and THE FIRST LADY depart Tokyo, Japan, en route to Washington, D.C., Tokyo, Japan

2:15pm (Tuesday, U.S. EDT) THE PRESIDENT and THE FIRST LADY arrive at Joint Base Andrews, Joint Base Andrews

2:25pm (U.S. EDT) THE PRESIDENT and THE FIRST LADY depart Joint Base Andrews en route to the White House, Joint Base Andrews

2:35pm (U.S. EDT) THE PRESIDENT and THE FIRST LADY arrive at the White House, South Lawn

~ Japan State Visit Concluded ~

I will say without reservation, the bond between both nations has grown closer than ever before in our history. President Trump and Prime Minister Abe have also expressed a very visible geopolitical and strategic economic alliance.

The nature of the Trump-Abe engagement over the past several days extends far beyond trade and regional politics.  Through deliberate and open messaging each nation has affirmed the principles of sovereign respect, the value of freedom, and a purposeful Indo-Pacific alliance.  The entire region was paying close attention. This is big stuff.

This was a very consequential visit for the region.

Without directly noting the purpose of confronting communist China, the joint-alliance message was very clear.  Remarkable things will begin happening as a result of this purposeful strategy; and by extension the Southeast Asia region of allies will benefit.

This commitment to joint values, including trade and commerce, will enhance the scale of respectful influence; and a successful outcome will produce prosperity in Japan and in the United States.

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May 28 2019

Canada Begins First Steps Toward USMCA Ratification….


Re-Posted from The Conservative Tree House on May 27, 2019 by 

Chrystia Freeland has presented the initial procedural process for  the Canadian Parliament to take up a bill to pass the USMCA.  However, the Canadian window is short, if they don’t ratify the trade pact by the end of June, the Canadian parliament will go into legislative recess until after the general elections October 21st, 2019.

OTTAWA (Reuters) – Canada took a first step toward ratifying the new North American trade agreement on Monday just three days ahead of U.S. Vice President Mike Pence’s trip to Ottawa to discuss the passage of the treaty.

Foreign Minister Chrystia Freeland presented what is known as a “ways and means motion” to the House of Commons, which opens the way for the formal presentation of a bill.

The United States struck deals on May 17 to lift tariffs on steel and aluminum imports from Canada and Mexico, removing a major obstacle to legislative approval of the new U.S.-Mexico-Canada Agreement (USMCA), the trilateral trade deal to replace the 25-year-old North American Free Trade Agreement. (read more)

It will be interesting to watch what happens.  Factually and ideologically, throughout the entire trade discussion, the Trudeau administration has put anti-Trump politics ahead of the Canadian economy.  The economic stagnation in Canada is a direct result.

On-one-hand Princess Freeland and Prince Sparkle Socks need to get their economy back on track; however, that means proceeding with ratification of the USMCA which is against their ideological interests.

On-the-other-hand Freeland and Trudeau do not want to support President Trump in any manner or form. The hatred of Trump is palpable and visible. Their hatred of Trump, and public pronouncements therein, is also part of their re-election strategy.  They want to run for re-election using the “orange-man-bad” resistance approach.

However, with the scale of investment withdrawal from Canada if they don’t ratify the USMCA Trudeau won’t have much of an economy left to manage…. And that becomes a problem for Justin/Freeland and their ideological best friend Nancy Pelosi.

After all the 2017 and 2018 shenanigans pulled by Freeland and Trudeau; and specifically after their G7 stunt last year; President Trump is essentially done with them – I doubt President Trump would even take a call from Justin from Canada.  And forget about USTR Robert Lighthizer…. he’s a thousand times more angry than Trump.

The U.S. relationship with Canada is fundamentally fractured, destroyed, unrecoverable, so long as Trudeau/Freeland are present and pushing their elitist, globalist, multinational agenda. The relationship is so bad, if a hostile nation was to threaten Canada, it would take some convincing to get President Trump to express any intent to defend.

As a consequence, once Trump arrives back in DC (Tuesday night) Vice President Mike Pence will go to Canada on May 30th to act as an emissary.

Speaker Nancy Pelosi doesn’t want to give Trump a win.  Trudeau and Freeland don’t want to give Trump a win.  However, if Trudeau and Freeland don’t quickly ratify the USMCA they’re screwed come October (elections). As a result, ratification in Canada will put Pelosi in a pressured pickle…. and would likely lead to the U.S. House taking up similar ratification.

Amid all the chaos, there’s an apex predator guy who thrives in the fray.  His world-leading economy is firing on twenty-trillion cylinders…. and he’s lining up tankers of boost.

Funny that.

May 28 2019

President Trump and First Lady Melania Attend Imperial Palace State Dinner Hosted by Japanese Emperor Naruhito and Empress Masako…


Re-Posted from The Conservative Tree House on May 27, 2019 by 

President Donald Trump and First Lady Melania Trump become the first guests of Japanese Emperor Naruhito and Empress Masako at the Imperial Palace.

The formal state dinner is the first of the era of Reiwa and intended to highlight an even stronger bond and alliance between the United States and Japan.  The formal dinner included toasts from each nation and the Imperial Household Orchestra playing the ceremonial anthems of both nations.

The dinner menu: •First Course – Consommé a la Royale, •Second Course – Turbot a la Meunière Sauce Tomate, •Third Course – Cote de Boeuf Rotie, •Fourth Course – Salade de Saison, •Fifth Course – Glace Mont Fuji, •Sixth Course – Dessert of melon and grapes.

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During remarks by U.S. President Trump he called the unique relationship between the United State and Japan a “treasured alliance” and quoted ancient Japanese poetry.

“It also reminds us that in times of change, we can take comfort in our inherited traditions. In the fifth book of the Manyoshu where the term Reiwa originates, the writings of two poets offer important insights.”

Potential and possibilities of spring.

“The second poem, a good friend of the first reminds us of our solemn responsibilities to family and future generations. Both are beautiful lessons passed down from ancient wisdom. Today we embrace the limitless potential before us.

We also remember that our lives [are] a rich inheritance, that we must pass onto our children just as the sons and daughters of Japan … In the spirit of beautiful harmony may we celebrate the many possibilities, and may we protect the cherished bond. Thank you and our very best wishes to you, the imperial family and all of Japan for a peaceful and prosperous reiwa era.”

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“In the spirit of beautiful harmony may we celebrate the many possibilities, and may we protect the cherished bond. Thank you and our very best wishes to you, the imperial family and all of Japan for a peaceful and prosperous Reiwa era.”

Perfect!

May 28 2019

President Trump and Prime Minister Abe Hold Joint Press Conference…


Re-Posted from The Conservative Tree House on May 27, 2019 by 

A fascinating press conference from the standpoint of President Trump and Prime Minister Shinzo Abe’s united position toward the dynamic of North Korea.

It is obvious that Trump and Abe have a strategy for the next step in engagement with Chairman Kim Jong-un.  Notice how PM Abe gives prepared remarks specifically about direct talks, face-to-face talks, with Chairman Kim, facilitated by President Trump opening the door:

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Obviously President Trump trusts Prime Minister Abe as a strategic ally; and a big component of this state visit is the two leaders coordinating regional security issues. China confronted/contained, and simultaneously both partners working on the hostage rescue of Chairman Kim is incredibly consequential.

The strategic value of this state visit is much more than surface appearances.

May 28 2019

President Trump Memorial Day Address – USS Wasp, 10:00pm Livestream…


Re-Posted from The Conservative Tree House on May 27, 2019 by 

President Donald Trump and First Lady Melania Trump will be visiting U.S. service members stationed aboard the U.S.S. WASP today as part of their Memorial Day remembrance.  The President is scheduled to deliver remarks at 10:00pm EDT:

UPDATE: Video Added

White House Livestream – RSBN Livestream Link – GST Livestream Link

 

Embedded video

U.S. Forces Japan@USForcesJapan
A huge crowd of Marines and Sailors are ready for the arrival of their Commander in Chief @POTUS @realDonaldTrump aboard the @USSWaspLHD1
🇺🇸🇺🇸🇺🇸
Catch it here LIVE at 1100 JKT

18.6K

May 27 2019

Why is BREXIT Important to USA?


Armstrong Economics Blog/Politics

Re-Posted May 26, 2019 by Martin Armstrong

QUESTION: Why is Brexit important to USA?

HN

ANSWER: Besides the fact that the political turmoil in Europe has been sending capital fleeing to the USA making the dollar king, the political trends in Britain has always been linked to the United States. Margaret Thatcher was first elected in 1979 and that trend appears in the USA during 1980 with the election of Ronald Reagan. Tony Blair was elected the Labour Prime Minister of the United Kingdom in 1997 and served until 2007 while Clinton was elected in 1992 and served from 1993 until 2001. The trends between the USA and Britain have been deeply linked from inception. Therefore, it is wise to pay attention to politics in Britain more so than most other nations.