Armstrong Economics Blog/BRITAIN
Posted Jul 18, 2019 by Martin Armstrong
Nigel Farage’s new Brexit Party is now the second largest in Britain. The Conservatives still topped the YouGov poll with 24% of the vote, but they were boosted by the prospect of Boris Johnson, who is a Brexit believer, as the next Tory leader. The prospects for Europe remain up in the air as Brussels still refuses to reform and is looking to punish Switzerland as an example for Britain. But trying to exclude the London markets as a place Europeans can invest will cause a major economic decline for Europe rather than London.
This Year’s WEC is extremely important as we now approach the turn in the Economic Confidence Model come January 2020. There were two critical patterns which were possible – 2020 low and rally thereafter, or a 2020 high with respect to the share markets. Meanwhile, we face the biggest Bond Bubble in the history of civilization and the last time something like that took place, it did not end very nicely for civilization.
We are looking at such an important shift this time in the Business Cycle that those attending the WEC this year will also receive ongoing video updates as needed because things are not going to be just a walk in the park. The fact that the Dow has exceeded the 2018 high already, warns that the pattern we face is going to be plagued with a political crisis. Indeed, politics is becoming so polarized, not merely in the United States, but also in Britain, Switzerland, EU, and it is beginning to surface in Asia in Japan and Hong Kong.
The Pi target on the ECM 11/21/2018 was the start of a slingshot where we had to drop sharply, scare the longs, and then rally to new highs. The problem with this pattern is that such moves are more often not sustainable on a broader sense and can warn of trouble ahead depending on who gets sucked into the mix.
We have so many markets at critical junctures as we head into the ECM turning point, this year’s WEC is going to be a critical forecasting event. Most importantly, we have to face not just a Monetary Crisis Cycle which is becoming obvious to everyone as the British pound takes a nosedive, but everything from Energy to Agriculture is in the staging ground for the next ECM along with precious metals.
For these reasons, we have some markets preparing for false breakouts and a critical mass approaching in 2020 on such a global scale. Central Banks (some who have been attending the WEC), are now beginning to lobby the fiscal side trying to warn them of impending doom and how they CANNOT possibly prop-up the world economy this time around. There is also a debate behind the curtain about pegging interest rates (long-term) v Quantitative Easing. We also have a battle brewing over cryptocurrencies as a major push to start eliminating cash in Europe.
Because all of these things are coming together, the attendees of this year’s Orlando WEC will receive ongoing video updates because this is just such a widespread crisis that is impacting every possible corner of the global economy and the ONLY way to survive this is going to be with Socrates because there is ABSOLUTELY no precedent to which we can refer to in history.
There are people calling now for the greatest crash in history, and others are now starting to claim the Dow will test 30,000. The opinions ARE just not going to cut it in this environment. So this year’s WEC will be different, but very critical. So are we Knockin’ On Heaven’s Door or the Big Fake Out as we face the Monetary Crisis Cycle and probably the most polarized political election ever in 2020. So those attending will get ongoing updates as necessary since this is probably the most critical period we face in modern economic-political history.
Armstrong Economics Blog/Pension Crisis
Re-Posted Jul 17, 2019 by Martin Armstrong
We are facing a serious collapse in government that appears to be shaping up on the horizon beginning 2021/2022. Take the city of Chicago for example. The city is buried under a mountain of city employee pension debt and it’s impossible to see how their city could possibly survive. There will be a major financial collapse because those in power are also involved in the very same pension scheme so they have no incentive to do what is required to save Chicago — implement major structural reforms.
The total amount of city, county, and state retirement debt Chicagoans are on the hook for amounts to $150 billion, according to Moody’s most recent pension data. If we look at the city’s one million plus households, that means that each household is on the hook for nearly $145,000 to cover government employee pensions. They can forget their own pensions. One-fifth of Chicagoans live in poverty and nearly half of all Chicago households make less than $50,000 a year. There is no possible way to raise taxes to cover these obligations.
Naturally, the politicians want to hunt the rich. If we then look at the households that earn $200,000 and just tax the “rich” we end up with $2 million in obligation per household. We cannot expect government officials to save the day when they too have personal pensions at stake. This story is being repeated around the nation and in Europe. Nobody is willing to address the problem because they have personal pensions on the line.
Armstrong Economics Blog/Central Banks
Re-Posted Jul 17, 2019 by Martin Armstrong
Our confidential sources are reporting that the Fed, ECB, and BoJ have agreed to lobby politicians in an attempt to warn them that they cannot continue propping up the world economy. The ECB, in particular, has been keeping the EU on life support and they have no room to lower interest rates to try to support their economies any longer. They are beginning to argue that they need help from governments in the rescue effort, which our computer model warns will fail.
Even in China, economic growth has declined to its lowest point since 1990. The slowing global economic growth has pushed the Federal Reserve, European Central Bank, and perhaps even the Bank of Japan to look at more Quantitative Easing. However, the Fed, especially, wants no part of buying government debt. The cries behind the curtain are that monetary policy alone in the coming months cannot support the economy. There is just less room to act with regard to interest rates than in the past. This has been the pitch in Brussels as the ECB is warning politicians they will need to assist if a downturn takes hold
Re-Posted Jul 16, 2019 by Martin Armstrong
QUESTION: Hi Marty, are the current political events in Hong Kong linked to the turning point for Hong Kong especially with regards to the currency peg?
Thanks for all your work
ANSWER: This turning point in the ECM on January 2020 appears to be the turn in public confidence on a global scale. Much of what I write about from false flags to civil asset forfeitures are all issues that are blending together in undermining the confidence in governments. This next wave should be inflationary. That also means we should be in a position where people lose confidence in government, but the central banks are trapped and the pros are starting to see that as well. With Lagarde replacing Draghi, we will see a shift in confidence in Europe as a whole as well.
The financial market will respond accordingly. This is also why we have gold and equities rising together. I warned that this is what must unfold for the next cycle. I have called this the Great Alignment. These trends are not based upon my personal opinion. That is just not analysis from my perspective. Science is the process of experiment and proof — not conjecture and assumption
Armstrong Economics Blog/The Hunt for Taxes
Re-Posted Jul 15, 2019 by Martin Armstrong
There have been many people who fear the forecasts of the Bible’s Revelations and the sign of the Beast that no one will be able to buy or sell without receiving “a mark on their right hand or on their foreheads, and that no one may buy or sell except one who has the mark or the name of the beast, or the number of his name” (Revelation 13:16-17). Now you would think that someone would be concerned about mimicking that forecast. That does not seem to stop the trend to implant chips in your right hand which is your debt/credit card on a chip about the size of a grain of rice. All you do is wave your hand and you just paid for everything.
Of course, there is a slight problem. The powers that be know who your are, where you are, and you have surrendered all privacy. Perhaps there is no stopping this trend. The governments are is such desperate need of taxation and Quantitative Easing has failed because they argue people withdrew their case from the banks. They have ended bailouts in Europe and the future head of the European Central Bank, Christine Lagarde, is a champion of eliminating money and believes that each country should create their own cryptocurrency and all freedom will come to an end.
This very idea of implanting chips into your hand and eliminating all physical money is a dream come true. I believe it will become one proposal on the table in 2021-2022. Our computer which show major confrontations arising into 2032 which will also involve religion, certainly seems plausible after 4,000 people have accepted chips in Sweden who think this is cool.
Armstrong Economics Blog/Interest Rates
Re-Posted Jul 15, 2019 by Martin Armstrong
First let me thank you for your paradigm shifting blog and the incredible conferences you and your team put together. They really are on a level all their own.
As we approach the next turning points in the ECM it seems that there are tremendous cross currents favoring both inflation and deflation. Given the extremely high debt rates of nearly every country in the world and even a large swath of the corporate world, some degree of moderate to even high inflation coupled with continuing low interest rates seems like the most likely path that central banks and governments will attempt to engineer. This path would avoid the deflation and societal instability that massive defaults would bring while quietly erasing the debt burden. I recognize, this path still leaves the pensions in a crisis, but that is a long slow problem primarily effecting a population group well past their prime years for fomenting revolt.
Of course the historical record shows that inflation is generally, perhaps even always, accompanied by high interest rates in the market.
I was wondering if there has been a historical precedent for moderate inflation (say 8-10% per year) combined with low interest rates on debt (sub 5%). It seems this would be the goldilocks path out of the increasingly ugly position in which the world finds itself. Leaving one to wonder if anyone has ever been able to accomplish such a combination for long? Any ideas how such a strategy would be accomplished, and what the probabilities are that our central bank and government will be able to pull it off?
ANSWER: This is why we really, really, really, really, need Socrates. There is no such precedent to which we can refer to in history because this is the first time post-World War II when governments have operated full-blown in this new age of Keynesian-Marxism. By that, I mean that interest rates were always a free market. It is true that there were usury caps to interest rates as far back as the Babylonian days. There was a distinction between lending in commodities and lending money. The former carried a maximum interest rate of 33.33%, whereas the latter the usury rate was 20% (Robert P. Maloney, “Usury and restrictions on interest-taking in the ancient Near East,” Catholic Biblical Quarterly 36.1 (Jan. 1974): 1-20.).
For whatever reason, there are those in the Deep State controlled by the New York banking oligarchy who really want us to shut off this research. They seem to believe that they can maintain everything as long as we keep quiet. That is absurd. What will be, will be. The free markets always win. We are in a very dangerous game here where the entire world is at risk because of a desperate attempt to manipulate the economy by maintaining artificially low interest rates to keep the government budgets in the West under control. This is going to fail!!!!!!
Instead of trying to reform, they are digging in their heels and attempting to keep a failed Quantitative Easing theory in play even after more than 10 years of obvious failure. As the Economic Confidence Model turns, everything they are trying to do will backfire. I have no doubt they will blame me, and once again, claim they would have succeeded but too many people listened to me. That is such a BS line, it is no longer funny. They can kill me and it will not change anything. The monetary system as we have known it will blow up in their face. This is IMPOSSIBLE to maintain.
You cannot keep interest rates at artificial lows and expect this game to continue. What will happen is there will be a great awakening. Once the serious money realizes the emperor has no clothes, they will lose all confidence of the people. The next 8.6-year wave will be inflationary because of a collapse in confidence. I am sure I will be the scapegoat and the fake news will keep that image in motion and support the Deep State as they always do. As they say, Bloomberg News has NEVER exposed the manipulations of the banking oligarchy. I even sent a copy about the SEC controlled by Goldman Sachs to David Glovin who will never report on the issue because their income is paid for by the same oligarchy. That is why we are on our own
Re-Posted Jul 12, 2019 by Martin Armstrong
Normally, equity valuations reflect the present value of future cash flows that are primarily a function of current cash flows, growth expectations, and then the discount rate. Most fundamentalists will look at the cash flow generation in both the short and long-term. With equity valuations at their record highs, investors, in theory, are showing confidence in short-term cash flows not declining materially. The interpretation normally would be that they are betting on no recession and on stable long-term growth. However, is this analysis just sophistry?
The probability of a recession is much higher than what global equities are currently reflecting. Then there are people pointing to the yield curve and yelling, “See, a crash is coming!” They argue this is a leading indicator, sending the strongest warning signals to investors. Nevertheless, history begs to differ with that analysis for it has often shown a final bullish move in equities despite clear evidence of an oncoming recession. Is this precisely what we are facing? Others point to the Fed, claiming that the first rate cut is often a reliable signal that a recession is coming, which reduces short-term cash flows and raises return expectations as investors become more risk-averse.
There are those who look at all of these factors and then argue that long-term profit growth expectations are way too high. Others argue that corporate debt is too high and we have also reached debt saturation, especially technology companies.
All things considered, we are facing a slightly different future. Doing simple correlations of equities to interest rates reveals that the share markets have NEVER peaked twice with the same level of interest rates because the real issue is the differential between the cost of money and expectation of inflation or future price gains. We are in a similar pattern where interest rates are so low that even a 3% dividend from shares looks fantastic. When we look at the extremes, we also see that the PE ratio hits its extremes, not at speculative booms, but at the bottom. There comes times like in 2009 where capital no longer trusts the banks, governments, and is just looking to get its money back intact. This is when they will buy blue-chip shares without expectation of future profits and cash flow, but the preservation of capital. So while many see the share markets as totally disconnected, perhaps they need to look at the other side of the equation — who do you trust?
Re-Posted Jul 12, 2019 by Martin Armstrong
COMMENT: It is fascinating how your work has been so accurate on forecasting the business cycle, yet you are probably the most ignored by the mainstream media. The only possible reason for this is that they are not interested in someone who can forecast the business cycle when the general belief is that governments can manipulate it.
Keep up the great work
REPLY: You are correct. They are not ready to accept that the business cycle can be forecast. That undermines politics as we know it today.
The OECD’s leading indicators on the global economy are still declining with the latest numbers marking the 19th consecutive monthly decline. The global economy is at its weakest point since July 2008, and the probability of a recession is still elevated and not fully reflected in equity valuations. South Korea, one of the world’s economies most tuned to globalization, is showing significant weakness with its leading indicators declining for 25 straight months to levels not seen since early 2012. The South Korean economy has historically been one of the best indicators for the global economy, so we expect more pain to come in the second half of the year.
The only major economy that has turned positive among the OECD’s leading indicators is China. This is not a big surprise, given the recent major improvement in the credit impulse, although it is still negative. But China’s improved industrial sector is driven by a major national push from the government and is likely driving domestic demand more than global demand. Meanwhile, the country’s car sales (which serve as a proxy for the consumer sector) remain weaker than at the bottom of the financial crisis, highlighting elevated uncertainty among Chinese consumers. In fact, May data shows that sales growth weakened again.
The problem is the entire Keynesian-Marxist agenda whereby governments believe their own propaganda. Nobody is willing to publicly look at our model because it highlights the entire problem with the assumption that governments are in control when they are just aggravating the trend.
Armstrong Economics Blog/Rule of Law
Re-Posted Jul 12, 2019 by Martin Armstrong
QUESTION: I was told that none of the big bankers during the Great Depression went to jail either. Doesn’t the government understand that this is the very image of draining the swamp?
ANSWER: The bankers own the reign of government from the courts to the White House. In the years that followed the 2008 financial crisis, the Securities and Exchange Commission brought charges against more than 150 people and institutions and won $2.68 billion in penalties. The SEC loves big fines. Keep in mind if they charge the individual banker, it will never be profitable. Charge the bank and promise no criminal prosecutions and you get the big bucks. So yes, not one of the bankers went to jail from that financial meltdown that they created which left 8.8 million Americans jobless. It also led to a $700 billion government bailout to save the bankers which never stimulated the economy.
Your question was whether it was this way during the Great Depression. Virtually no bankers were jailed in the wake of the Great Depression. However, they were at least charged but beat the criminal charges.
Beginning in 1932, the Senate Committee on Banking and Currency opened a public inquiry into the stock market crash. The Pecora Commission, as the investigation came to be known, led to indictments for several of the era’s finance giants. However, this was all before the SEC and Glass-Steagall, which Goldman Sachs had the Clintons repeal. Since banking laws did not guard against the kind of speculation that fueled the crash, most escaped prosecution for they did not violate any law.
Charles Mitchell was the president of the National City Bank, now Citibank. Mitchell built the bank into the nation’s largest by splitting it into two branches which fed each other. One half became its investment arm, while the other was its banking arm. Hence, this was the reason Glass-Steagall was enacted. The banks sold investments to clients, often financed with money borrowed from the bank. They also knew, as they did in 2007-2009, that the investments were toxic. When the market crashed, clients lost everything after listening to the advice of the bankers and the banks would often collapse. Mitchell resigned and admitted to the Pecora Commission that he knew his bank was pushing bad investments onto its clients, as was the case many alleged with Goldman Sachs in 2007. Mitchell was indicted for tax evasion but was ultimately acquitted. He paid a $1 million civil fine instead.
Then there was the utility magnate Samuel Insull who also appeared before the Pecora Commission. He fled the country in June 1932, which was about eight months before prosecutors brought fraud charges against him. Insull pioneered the concept of a holding company, in which one company holds partial or complete interest in another company. At the height of his success, Insull controlled businesses worth as much as $500 million in assets with just $27 million in equity. When the crash hit, 65 of his businesses failed, ruining 600,000 investors. Insull was eventually returned to the U.S. nearly two years later but he also beat the charges.
The Pecora Commission went after the individuals. The SEC and Justice Department protect those bankers today. The Securities and Exchange Commission is now controlled by the people from Goldman Sachs. The likelihood of the SEC ever prosecuting anyone from the banking industry is ZERO,