QUESTION: Dear Mr. Armstrong,
I have a question that might interest not just me but also other blog Readers:
In your blog Posts you write that you expect that we will have a hard landing going into 2020.
My question is: What does that mean for the Dow? Do you expect the dow to correct into 2020 more that 20%.
Thank you for your work and best Regards,
A

ANSWER: The hard landing is economic and will have its greatest impact outside the USA. While central banks have sold US Treasuries in an attempt to keep the dollar down, the private sector has been pouring assets into the USA and particularly the Dow. Our capital flows have tracked a significant shift in global capital flows into the USA especially from Europe. That should come as no surprise given the chaos in BREXIT as well as the May elections.

We still do not see a major correction in the Dow. We have been undergoing a shift from public to private assets on a global scale. Therefore, the hard landing will be more economically based and central banks will try to do something, as in lowering rates, but they have run out of bullets. The Fed has tried to back off on rates after buying into the problem of a hard landing outside the USA. The ECB has been on its hands and knees, pleading with the Fed not to raise rates when they will have to continue their QE programs or face sovereign debt defaults.

The EU has been unable to agree on taxing the internet. As a result, Austria went ahead and passed its own digital tax this week on revenues earned by online companies in their country. The entire problem with this type of taxation is the burden of accounting. This means that the online world will be forced to file taxes in every country with a matrix of tax rates and specifications. Small business will be the ones impacted the most and they will more likely just ban their products for sale in various countries.

Governments are going broke. They will never stop to look at the ramifications their actions have caused within the global economy.

The German economy is what holds up Europe. The data on the industrial sector in Germany is out and it has disappointed everyone once again with production dropping 0.8% month-on-month in January 2019. January’s contraction was driven by a steep drop in capital goods output and a fall in intermediate goods production. However, consumer goods production did manage to increase moderately.

On a year over year basis, industrial output fell 3.3% in January, which was an even sharper contraction than December’s revised 2.7% drop (up from -3.9%). These numbers are clearly in line with our model showing a hard landing into the bottom of the Economic Confidence Model in early 2020. A no-deal for Britain will impact the German economy even more as car sales, which are already declining, will come into question.

The Pi Target (2018.89) marked the dramatic shift in capital flows. In the Dow, it marked the beginning of the correction and the bottom in Energy came 5 weeks later. Everything we have checked seems to have shifted at that point in time, setting the stage for the hard landing. The economic numbers all began to decline noticeably in the fourth quarter of 2018.

QUESTION:

Hi Martin–

Thank you for your daily blog. I read it first thing each morning.

Regarding the bank liquidity problems with the Eurozone banks: would it make sense to put assets in precious metals as a hedge against problems in the banking sector (i.e., getting capital out of the banks and into a safe harbor of sorts)? Do you see this liquidity problem impacting major brokerage houses in the U.S.?

Thank you

Jack

ANSWER: The only problem with precious metals is that governments are targeting the bullion industry, and by regulation they can also create a real nightmare from a liquidity perspective. They are targeting dealers and compelling them to report on their clients. There used to be a big international coin show in Paris. The government demanded the dealers report everyone who sold and bought at the show. They shut it down and moved. Back in 2015, France targeted gold coins, and they also targeted the ancient coin show in Paris. The French government forbid cash sales and they threatened dealers with fines and imprisonment for failure to report on buyers/sellers who were their clients. The major rare coin show in Paris left as dealers refused to comply with such reporting. The French were driving to Belgium to deal in gold and the French government was complaining about that.

While we could sell some coins from hoards to people who attended our conferences in the USA, we cannot bring such materials to Europe or even Canada. You will find that gold bullion will also get caught up in a liquidity crisis in Europe where you will be unable to sell it even if you have purchased it with cash after taxes. The hunt for taxation is really destroying the world economy. The best hedge is to have it outside of Europe. Even Singapore or Hong Kong is ok as long as you DO NOT have a bank with offices in Europe. They are fond of telling banks to turn over lists of clients who belong to their jurisdiction. Germany did that by paying bribes to Swiss bankers to expose lists of German citizens with accounts in Switzerland. Perhaps the best hedge is paper dollars that you hide someplace.

Gold will survive long-term. But don’t count on it being available during the period before the crash and burn.