QUESTION: I am a bit confused. You have forecast that interest rates will rise but official rates will decline. Exactly how does this materialize?

Thank you

GF

ANSWER: People seem to look at just the official interest rates set by the central bank and assume what I am saying is wrong. They have to look at what is really going on in interest rates. We have witnessed the greatest gap between official rates and private rates in history. While deposit rates are virtually zero, car loans which are secured, are at about 4.5% in the United States (up to 9.5% outside the USA). The Bank of America, N.A. prime rate was 5.25% as of August 1^st, 2019.

In 1981, the Fed’s Discount Rate for banks was 14% at the peak back in 1981. The Prime Rate peaked at 21.5% at that time. This meant that the Prime Rate was 53.5% above the Fed’s Discount Rate. In August 2019, the Fed’s Discount Rate is 2.75% and the Prime Rate is 5.25% or a 90% markup. The spread between public and private rates has nearly doubled.

Official rates can be manipulated by the central bank for it can control the short-term rates, but not the long-term without instituting some form of capital controls. But they close the free markets in government bonds.

The spread on the private rates v official rates has doubled! I am nor forecasting the superficial trend in manipulated rates by central banks, but the real world rates in the private world. I have stated numerous times, the bankers have NOT passed on the lower interest rates to the people. The spreads have doubled – not declined nor did they even stay the same. If the spread was the same as it was in 1981, then the Prime Rate should be 4.2% instead of 5.25% and a secured car loan should be 3.4% instead of 4.5%.

QUESTION: The Thai baht has been very strong for some time now. It doesn’t seem to be affected by the China – US trade war. Is the Thai baht a safe haven in your opinion?

MW

ANSWER: Thailand has been benefiting from the China-US trade war as manufacturing has been moving to Thailand from China. Thailand’s automotive industry has contributed to 12% of the GDP with more than 1.94 million vehicles produced. Thailand is now ranked as the largest automotive producer in Southeast Asia and 12th in the world. Many people now call it the “Automotive Hub of Asia.”

On top of that, you have countless Americans who have gone to Thailand to retire on their visa program. Americans can even open bank accounts in Thailand, unlike in Europe. Many have moved out of Bangkok to the southern region in Cho Brui.

People from Cambodia, Laos, and Myanmar, also known as Burma, often move to Thailand to find work. The Thai economy has been stable and a magnet for foreigners. The culture is one of the friendliest in Southeast Asia, more akin to Japan than Hong Kong. The Thai even take their shoes off at the door as do the Japanese.

As far as the currency is concerned, July fell and bounced off of an important Monthly Bearish Reversal for the dollar. As long as the July low holds, the dollar may now begin to rise simply because of the tensions in Asia as a whole.

QUESTION: Martin;
What was the tipping point in your investing infancy that flung you to believe you could invest for others?

If so can you tell us the trade? And did you mortgage your house for it?
For it appears that the best in the business made it on their own first.

Apprehensive at this point in time;

RH

ANSWER: No. There was no trade. I was very young and was really trading bullion as a dealer in the cash markets prior to 1975. One of my clients was a senior executive at a major New York bank. The floating exchange rate system began in August 1971. There were no courses to take. He knew I understood how to trade and called me in to look at a foreign exchange loss involving the Italian lira. After that, institutions with FX problems would call me more or less saying get that guy that helped the other bank.

That is why by 1985 I was called by Congress for the G5. I was regarded as one of the top forecasters in foreign exchange. I realized that I was called into a dog and pony show where they had already made up their minds to create the G5 and just wanted experts to testify to pretend they relied on someone other than themselves. I protested and wrote to the president warning that lowering the dollar by 40% would cause a panic in 2 years because the Japanese would sell US assets since they would lose a fortune after buying 1/3rd of the US national debt.

The White House had to respond. I suppose that opened the door to governments. Ever since I have been called into just about every single major international event from China to Europe and the Middle East.

As far as trading was concerned, people were soliciting me all the time. I declined to manage money for individuals. Post-1985, I managed money only on an institutional level. I also tended to specialize in crisis management whereas I would be called in to manage a particular market crisis and get them out of some crazy trade.

I was asked by Deutsche Bank to manage a public fund that would be a hedge fund but onshore in Australia, which would be the first regulated hedge fund. I also manage funds for Magnum.

The London Financial Times had reported on our forecast in 1998. The computer projected the collapse and I took major short positions and more more than 60% in a single month. I was then named Hedge Fund Manager of the Year.

The banks lost big on that and from then on it was outright war. They do their best to try to slander me all the time in desperate hopes somebody will listen. As Nigel Farage said at our WEC in Rome, we have become the alternative to Davos.

QUESTION: Marty, you have said this is the historic bond bubble of all times with interest rates at a 5,000 year low. Will you elaborate on the bond bubble at the WEC? It seems like this may be the granddaddy of all shorts.

RK

ANSWER: We have an Institutional Report on the Bond Bubble. We have a lot of pension funds and institutional clients where that is the main focus. Nevertheless, we cannot lay out the future of all markets without diving into the Bond Bubble. It is this which will influence the Monetary Crisis Cycle and dictate the trend in share markets as well as commodities.

QUESTION: You said before you were advising corporates to issue long-term bonds and lock in the low rates. Even the US Treasury seems to be following your advice and are looking at issuing 50 and 100-year bonds. Do you give governments the same advice?

DK

ANSWER: If asked, of course, I advise to issue long-term debt NOW at these absurd low rates. I also advise individuals to lock in fixed-rate mortgages.

Germany just tried to issue negative interest 30-year bonds with a total offering of 2bn€ of which they only sold 824million were purchased. This is showing that this whole theory of negative interest rates as seen its day. The US is now even considering issuing 50-year and 100-years bonds as interest rates plummet.

I have reviewed the buyers of these negative bonds which now amount to $15 trillion outstanding globally. What is actually taking place in the market is really dominated by punters rather than investors. In other words, the people have been buying them to flip assuming rates would just go lower.

The crisis on the horizon is MASSIVE!!!! These punters are going to get caught as they did with the Russian bonds when they collapsed in 1998 which led to the Long-Term Capital Market crisis. This is a game of musical chairs. Nobody thinks twice as long as rates decline. But the appetite for negative yields does NOT exist insofar as people actually investing in them.

Yields have dipped negative on short-term 30 days paper during panics. The 30-day TBills went negative several times from December 2008 onward. The reason was clear. Capital feared the banks so they were willing to park money at a slightly negative rate.

This also corresponds to capital parking in blue-chip equities which created the peak in the PE ratio at the bottom of the crisis.

The trend looks to be getting ready to change when the ECM turns. BUYER BEWARE!!!!
We may yet see the biggest bubble in the modern history of finance explode far worse than the 2007-2009 debacle.

QUESTION: Hello Mr Armstrong. I read your blog daily, and i can t say thank you enough.
on interest rate, you say market rallied when they got the rumors of roosevelt devaluating the dollar creating a currency inflation. am i wrong when i understand they feared losing money so they bought tangible assets?
best regards from France

M

ANSWER: Correct. Tangible assets are always the hedge against a decline in the currency. This is why gold has been rising more so in other currencies than US dollars.

M

QUESTION: Mr. Armstrong; You seem to be the only person who distinguishes private interest rates v public. Has the marketplace gone insane along with Trump demanding 100 basis point cut by the Fed? I find it curious how they only quote the same people in the press who seem to preach the government position all the time. They constantly try to ignore you in the press and even Wikipedia distorts everything and fails to mention the banks pled guilty and had to repay your clients. Just so biased. Now they say deep negative rates are no problem. They only say what the government wants them to say. Will this all end very badly?

KN

ANSWER: There is ABSOLUTELY no historical evidence that negative interest rates will ever stimulate the economy no less are they even viable. This wipes out pension funds where many around the world are obligated by law to buy government paper. Social Security in the USA is 100% in government bonds. It is beyond comprehension where all these people cheer negative rates as if this is a good thing. The US share market declined with the rate cut, it did not rally.

People are convinced that an INVERTED YIELD CURVE foretells of a recession. They have no idea about capital inflows. Even in Thailand, which has benefited greatly from the China-US Trade War shows that its currency has been the RARE exception rallying against the dollar. That may change now if the dollar closes above the July high here at the end of August.

I am in Asia right now. The greatest fear is that China will send in troops to squash the protests in Hong Kong. Many fear this will be another Tiananmen Square. I would not go that far. The solution would be a political one and to repeal the extradition order. People do not fear that a wanted Chinese will flee to Hong Kong and be protected, but that they could be extradited to Beijing and put on trial for things they did or said in Hong Kong.

This is sending capital to the USA and the same capital flows from Europe and doing the same thing. That capital is now incentified to buy US debt looking for more rate cuts and their bonds will appreciate. It takes a sublime idiot not to see this trade. They are punting – not actually buying negative yields for the long-term. This seems to be coming to an end in 2020.

As I have stated many times, DO NOT EXPECT the official rates to rise outside the USA. All other central banks are trapped. They cannot afford to allow rates to rise and blow up government budgets. This will widen the gap between public and private debt. Back in the ’30s, as governments defaulted, smart money fled to private AAA corporate bonds. We will see the same trend here again, but at the same time, banks will look to the future with tremendous uncertainty and will NOT be lending so easily. Expect rates to rise on credit cards where they make their money and long-term mortgages. If the banks cannot resell the long-term debt mortgages, rates will rise widening the gap with the government.

Chairman Powell is not is a nice place. He cut rates NOT for the USA, but because the rest of the world is imploding and Europe shows no signs of reversing their policy. If Powell lowers the rates 50 or 100 bp, domestically people will be taking this as confirmation a recession is coming and the stock market will continue its decline.

Powell is in a no-win situation. This is the FIRST time in history the Fed cut rates at the top of a market and instigated a decline rather than cutting rates in response to a decline. This only proves the Fed’s actions are concerned NOT for the domestic economy, but primarily for Europe and Asia second.

This going to make for a HIGHLY unusual WEC this year. We are breaking historical ground. There no way for this to end but VERY badly. They do not want people to read this blog. They want to keep people accepting the government narrative.

Come September, Draghi at the ECB will make loans to Eurozone banks on a long-term basis at rates less than the short-term lending window. The objective is to encourage banks to lend money to businesses. Nobody thinks about letting businesses bypass the banks mainly because the banks are in such a vulnerable state because Europe never took the toxic assets out of the banks as did the USA. To do that would have meant that some countries would have been bailed out more than others so they cut rates and hoped for the best which never happened.

The world economy is crashing BECAUSE of negative interest rates. These insane people have REFUSED to consider that this entire idea of lowering interest rates to stimulate the economy will NEVER work. You are wiping out pension funds and the elderly who are a vital part of the economic base. They keep using the same theories that are decades old and have ALWAYS failed each and every time.

Just look at the Great Depression. Lowering interest rates FAILED to reverse the decline. The market rallied when the rumors proved correct that Roosevelt would devalue the dollar creating currency inflation. Lowering interest rates has NEVER worked even once, yet they keep trying the same theory over and over again because they cannot think of anything else to try.

COMMENT FROM UK: On the subject of Phillip Hammond and Brexit, this is just the latest in a long list of pro-elite politicians who are looking to protect their career interests by aligning with the globalist system.

Blair made hundreds of millions, Brown and Darling bailed out the banks and then went to work in the financial sector and failure that is Nick Clegg is now an exec at Facebook. Theresa May will no doubt have her payday coming. These politicians are selling out their country but seem to think they have morality on their side.

K

REPLY: All of these politicians who are for the REMAIN side, which included Theresa May, all have a self-interest which is counter-trend to their own country. They like the establishment of the political class to be left alone.

This is a chart that speaks 1,000 times that Britain has NEVER received a fair deal since joining the EU. This is data from your own government which I have not altered. The peak in GDP took place in 1973 just before Britain joined the EU. There was a major faction that believed joining the EU would create a global economy that would surpass the USA. That never happened because each member state can veto what any other state tries to do. There are 50 states in the USA. They have no say if Washington wishes to do a trade deal. If every state had a seat at the negotiation table as they do in the Eurozone, nothing would ever get done.

All I can say is the EU is a dictatorship for nobody at the Commission level ever stands for an election. As such, this is a politician’s greatest wish – power without accountability. And then they have the audacity to criticize China or Russia for a lack of Democracy?

The recent polls in Britain show that the people are MORE AFRAID of Labour and Jeremy Bernard Corbyn than they are about BREXIT!