Thursday, May 29, 2014

Is US Economy Turning Down?

The first quarter numbers showed a contraction with first reading of gross domestic product (GDP) coming in at an annualized rate of just 0.1%. This steep decline has been due to weather. Our own office was closed way too often as we were forced to work from home. Once the snow cleared. hotels are full most of the time and trying to get dinner reservations these days at decent restaurants requires more than a week notice. That goes for NYC as well.
Nevertheless, the growth is low yet the US economy is not hurting yet. We are not in a real boom, we have assets shifting on a grand scale. The IRS is now considering taxing frequent flyer miles and any bonus points you get from hotels. Then there is the Obamacare Cadillac Tax coming that will tax all benefits from an employer.
I have pointed out that unemployment before the entire 1929 event stood at 5%. We are nearly 12%. Therefore, when this turns down, we will see much higher unemployment than anyone can imagine and this is likely in real terms exceed the 25% high of the Great Depression.
So the First Quarter number are expected. But keep in mind growth less than 2.5% is not worth writing about long-term anyway.

Money flows

Will the USA Break-Up? Will all assets rise? How does this really work?

Wealth moves in three phases depending upon the severity of the crisis.
If it is a currency inflation, then everything rises across the board from commodities, stock, and real estate.
If there is a threat of invasion, then the stocks and real estate decline and we then see capital move into the movable assets.
If there is a total collapse and we enter a Dark Age, then nothing exists as wealth and we return to GO when it is back to just food.

US Share Market & Corporate Buybacks

Posted on  by 
CSP500-W 5-19-2014
QUESTION:  You have taught us to pay attention to global capital flows to help us assess market directions and movements… Does it matter from where the capital is flowing? I refer to this short article on US companies and stock buy-backs which seem to be contributing to the upward trend in US equities:
Yours in health,
ANSWER: I find it curious how people are portraying the Corporate buybacks as somehow not real and this is the only reason they have been wrong and missed the entire rally. People always have to find an excuse of someone to blame when they are wrong. I keep saying is not a game for personal opinion. Ya – corporate buybacks were at $160 billion for the 1st quarter. I reported on this trend. Big deal. It is part of the cycle.
Corporate buybacks will set the stage for exactly the same crisis that hit in 1929.Corporate cash is at record highs. Taxes are rising. It makes sense for them to reduce their cash positions buying back stock. This is always what helped to create the bubble in 1929 and then made the crash worse. As the stocks fell, companies then bought stock back to try to support their share prices. That was a disaster for then when the cash dried up, their could not get funding and collapsed.
I reported on this trend. The VAST majority of articles still are bearish all expecting the big crash and cannot wait to say I told you so. I have been in this game a long time. NEVER has the majority been right – EVER. It is the majority that fuels the market. Claiming hedge funds are short so that proves they are right is just nonsense.
The corporate buybacks are on time and will ensure there is a shortage of shares and that will send the price up even higher when the MAJORITY realize they are wrong and rush in to buy creating the Phase Transition high.
IBEUUS-W 5-19-2014
Buying will come from overseas trying to get out of the European banks. Look at the Euro. We have elected two Weekly Bearish already – the first since 2012. A weekly closing BELOW 13475 on the cash will signal the euro may at last break. The oscillators are starting to turn. A break in the Euro could send the US share market up into the Week of 06/16. Pay attention. A real bull market takes place ONLY when the market in question RISES in terms of ALL currencies.

Inflation and Deflation

Follow The Money

QUESTION: Hi Martin,
Ok I get the point.  Massive deflation is what awaits us.  But how do you reconcile massive deflation with rises in assets prices?  Shouldn’t it be a decline as people hoard wealth and velocity declines even further?
ANSWER: It is the same as in hyperinflation. If the currency collapses in confidence, people hoard wealth in tangible assets. You have to dissect the economy very carefully. This is NEVER a one size fits all dimension. Follow the thought process and do not listen to the promoters. Reason it out for yourself. If government is broke and they are raising taxes on everything possible, what would you do? I can tell you if Obama raised the income tax to 80%, I retire and go to the beach. I will not work like a slave for him. People stop investing and hoard wealth. That can be cash, commodities, and real estate. If there is a risk of invasion and war, then real estate is out.
1. There is asset-inflation right now BECAUSE people are getting out of banks. This is still not a speculative bubble. The stock brokers I know say their retail clients are not in like before. The high flying stock are down but the quality is rising.
2. Deflation comes from rising taxes that creates cost-push inflation, not the typical boom you get with demand-inflation when everyone is buying like crazy. Deflation also emerges when there are pension defaults like in Detroit. We are also seeing this hit the elderly because interest rates are so low they cannot rely upon savings. At Xmas time I was stunned by all the elderly working behind counters at stores – not 18 years.
This is not just inflation everything up and deflation everything down. Open your eyes and smell the roses. Pay attention to the different components within the economy. It is never the same combination all the time.
When people fear government and banks, they spend less and hoard more.  Follow the money if you want the truth.

Sunday, May 25, 2014

August 7th - Phase Inversion ?

2013 August 7th What Was it? Nothing or a Watershed Shift?

QUESTION: Hello Mr. Armstrong,
I have been reading almost all of your writings in the past 4-5 years.  I just wanted to clarify or dig a little bit deeper on your blog post today for the Dow and the ECM.  You noted that we must wait until the bottom of the ECM in September this year before we have a better idea of when the phase transition in the Dow might occur.  I know that the 1987 crash occurred on the “minor” top or turning point in the ECM.  However, as you noted that was not the final top and the market rallied significantly into 1989.  However, I don’t know of any major markets that may have topped at the last peak (2013.6).  Is this indicative of the markets starting an inversion process?  If so, are you looking to see if the DOW continues to meander higher into September this year and then put a short-term top in place and declines into 2015.75.  This would mark an important bottom and confirm the cycle inversion, correct?  The other option, would be a correction now into September 3/4th and then see the phase transition top into 2015.75.  It seems that there is not enough time for Europe, Russia, and other capital to panic into the US in the next 1.5 years.
ANSWER:  August 7th was critical from a global perspective. It marked a shift in trend internationally. For example, in gold we have a double bottom in dollars June and December 2013. However, when plotted in a basket of currencies, that is only a dollar illusion. Like the 1987 Crash, dollar based investors were confused as foreign investors sold.
There were numerous shifts that took place. The week of August 5th started the correction. The high formed the week before (07/29) and that target week (08/05) started with a Directional Change. However, that was more important than meets the eye. I noted there was a shift where the S&P 500 took the lead displacing the Dow as the leader after August 7th. This was rather significant because it illustrated the rally was then taking on a broader context. August 7th would not be a Phase Transition high as in 1987 for the currencies were moving opposite to that event providing the underlying support for a continued rally. The S&P 500 cash took out the high made the week of 07/29 the week of 10/14. The Dow closed above that high of the week of 07/29 on a weekly basis the week of 11/04. This demonstrates that how the S&P began to shift and take the lead after August 7th whereas it was the follower all the way up out of 2011.

The oscillators are at the upper end over 90. This is warning that we are getting close to a correction where the talking heads will all come out and proclaim they were right.  This does warn that we can get a June high with a low in the fall and then a rally into 2016. As long as the market does not go into a Phase Transition and peaks by October 1st, 2015, then we should be in good shape for a broader continued rally.
1-ECM 2032
With the yearly model on the US share market NOT lining up with 2015.75, it appears at this time that we are more likely going to deal with a major long-term advance.  The 2016 target will be 31.4 years from the start of the breakout with this new Private Wave – 1985. Therefore, we do have the potential for that Phase Transition. If we then back off into a low for 2020, then a full-blown 13 year rally may unfold and that will take us into the final high in 2032.95.
1927-Secret Cental Bank Meeting
It does not appear at this time that we are headed into an all-time high for 2016. The primary crisis we must face is the Sovereign Debt Crisis and that alone will cause a massive capital flight into the private sector. That came at the end of the last Private Wave that peaked in 1929.75 and unfolded in 1931. However, the capital flows anticipating that default began to shift in 1927. That is what set in motion the first attempt by central banks to deflect the capital inflows by lowering interest rates in the USA. Domestically, people blamed the Fed for creating that bubble. This was not fair because the capital flows were pouring into the USA in any event. Nevertheless, the typical interpretation was only domestic and they argued the Fed was deliberately trying to create inflation, which was rather absurd. The boom into 1929 was caused by capital inflows, not lower interest rates since rates collapsed after 1929 from 6% to 1% with no impact upon saving the market. From this event it was 4.3 years until the Sovereign Debt Crisis of 1931. That was precisely half a 8.6 years cycle.
There are always trends within trends. The world economy is very much like an onion. Layer upon layer of activity comes together to form the whole onion. It is never just a single event.

Thursday, May 22, 2014

Dow & the Future

Posted on  by 

QUESTION: Hello Mr. Armstrong,
 I am a big fan of your work. I read ALL of your blogs and have purchased some of your materials. You truly opened my eyes to how the world really works. I am unfortunately one of those public workers you talk about. I first hand see how my employers are having trouble finding the funds to pay us. I also realize that i won’t touch my pensions when my retirement will come around like the baby boomers have been doing. So i am investing in the market to create my own pension mostly thanx to your guidance.
My questions for you is concerning the dow jones. Do you still see it go up till 2016 or might it go up till a later date. Last question is do you still believe the price range of mid 25000 still feasible by 2016…
Thank you very much for your time and god bless you.
ANSWER: I fully appreciate the idea of working for the government. I have friends that do. The problem is whatever government does really should be privatized for then you would get the pensions you were promised. Government can violate everything and never get prosecuted. Doing what they have done to their workers is deplorable. What they are doing to the Vets is typical. They are just not trustworthy, period.
That said, your question probably cannot be answered until after this next turning point on the ECM. We are coming up to September 3/4th, 2014. There is the traditional business cycle that would imply a high in 2016. However, that would also imply the traditional flight to quality (government bonds) when the economy turns down.
The question requires capital flow analysis because we have two major turning points 2016 and 2020.
1.  If we get a Phase Transition into a major high for 2016, then we may see the traditional crash into 2020. 
2. However, if we make a new high into 2015 that is marginal and not a doubling effect of a Phase Transition and a decline into 2016, then the cycle inversion will move forward and the high will come 2020.

That can be created by two converging trends. 

First there is the cycle of war with its first big target 6 years after 2014 and that is 2020. This would send capital fleeing into the USA. 

Second, we have the economic side of the Sovereign Debt Crisis. This also will unfold in Europe and send capital into the dollar. The flight to quality then shifts from bonds to tangible assets and that will be primarily MOVABLE assets of which equity is in that category. We should also see gold rally WITH stocks.
DJIND-M 1970-1985
Here you can see that the Dow rallied during the 1970s basically following the same cycle as gold reaching a high in 1980, although this was not a Phase Transition as was gold doubling in value the last 6 weeks. Hence, a rally in stocks and gold is not unusual.
We will be addressing this issue shortly. We are finishing the computer systems to get everything up and running in time to resolve these questions – not by opinion, but by analysis.

Republics are the WORST form of government

The End Goal

COMMENT: Marty, the blog has been spot on recently… thanks so much for your efforts.  As time goes on, it may be beneficial for you to re-share both lesser and more well known historical examples for how society has instituted meaningful non-violent political change.  Perhaps later down the road readers could somehow coordinate by geographic location (some type of social media I guess) since that could form a basis for a like minded grass roots groups.  A time is coming when we’ll have to move beyond writing and phoning our politicians, and showing up at city counsel meetings.  Let’s hope for peaceful solutions saving the day. Thanks again.  Jeff
REPLY: I would like to see something like that happen. However, we must keep in mind that we require the crash and burn. Society moves through waves of Creative Destruction. We must see the system collapse and that will then set the stage for a rebirth. The object is to be there when that happens. This will be the moment of truth. Society will swing either toward more authoritarian or toward real democracy.
We need the true checks and balance of the people divorced from career politicians. Eliminating direct taxation will eliminate the corruption and lobbying of politicians to carve out exclusions. Republics are the WORST form of government for they ALWAYS become the most corrupt. Even a king is better for he is either a madman or a saint – he cannot be bribed on the whims of people or chance.
Eliminating direct taxation, which the founders of the US did originally, it will eliminate the need to hoard cash offshore. Eliminate direct taxation and you will lower the cost of labor. Eliminate unions that serve no functional purpose and only promotes higher wages without improving skills. To get ahead, people have to keep pace with technology or be outdated in the workforce watching their labor value depreciate. If people understand the technology cycle they will grasp the idea that they must increase their value by expanding their skills.

Tuesday, May 20, 2014

India - major high form in 2017


India Reserve Banks 3
QUESTION: Mr Armstrong, first let me thank you for the wonderful service you are performing to common people like me. I used to be strong believer of conspiracy theories and a gold bug but something did feel right until you came along and explained how things really worked.
I’m an Indian software professional working for one of the conservative NY banks. I can see that the bank is laying off a lot of people quietly and I can see your many observations about the market and the investment banks are indeed true.
My question is on the Indian elections which happened recently. Mr Narendra Modi has won by a landslide and this is kind of victory margin was only possible due to the unfettered corruption of the previous government.I can clearly observe your theory of people raising against corruption everywhere, in this election verdict.
India is expecting Mr Narendra Modi to work economic miracles. But as you had mentioned Emerging markets are going to slide further into economic depression so has India already turned the corner, or are is it going to slide further. What are the options for investment in India for the next 5 years.
INDIA-Y 2013-2017
ANSWER: India is following the forecast we made 2 years ago in Bangkok. I pointed out that there was a double top and that India would breakout to the upside. The government has been way too corrupt and the central bank has been following the traditional nonsense misreading the capital flows and trying to stem the tide. As a nation begins to prosper, it ALWAYS begins to import goods and it also invests its income outside the home country. This causes the current account to decline into negative territory yet it is reflective of a boom, not a bust. The same mistakes were made by Australia in the 1980s. They expected the currency to decline because of a current account deficit yet it rallied. They were totally confused by this development. The Australian Associated Press did an article on me at that time bluntly stating that I was teaching Australia about its current account and how it really functioned.
We distinguished India from the rest of Asia including China. This market should have risen and it has done so. We may yet see the major high form in 2017. I will actually be speaking there in Mumbai come this September 2014. BTW – Indian is my favorite food.

Thursday, May 15, 2014

China - Property market will crack after 2015.75

China’s Hard Landing Is the Envy in the West

TO GO WITH THE STORY OF China-economy-pr

There is growing evidence that  the Chinese property market will crack after 2015.75 when public confidence drops sharply worldwide. The first signs of deterioration are evident today. China has been the envy of developed nations with real GDP growth averaging almost 10% for the last quarter century, only dipping below 5% briefly with the Japanese crisis in 1989-90. Developed countries would rejoice with what the Chinese classify as a “hard landing”.
While the market appeared to shrug off China’s first corporate default by Shanghai Chaori Solar, defaults among Chinese property development and trust companies could reverberate throughout the economy. Given capital controls, the Chinese have limited investment opportunities thus citizens have invested savings in real estate and high yielding trust products.  Generally, real estate accounts for about 33% of fixed investment and 16% of GDP growth. Trust companies have provided financing to companies unable to obtain loans from the banks: real estate development and coal miners.
As in any market, prices are dependent upon investor confidence. Nothing will cause the housing market to crash faster than investor losses that fuel the human reaction of a decline in confidence. Sales dropped 5.2% yoy during the first quarter according to the National Bureau of Statistics. Residential housing sales dropped 18.4% month on month in April, down 18.1% yoy according to Homeline, one of China’s largest real estate agencies.
There is a widespread pessimism starting to surface in China about the housing industry because of weak sales. The Guang Real Estate Group, based in Shenzhen City, Guangdong Province, has admitted that the company failed to deliver some projects to homebuyers on time due to financial pressures.
Trust product maturities accelerate this year.  Over the past years, trust assets have risen 50% annually, to an estimated $6 trillion. Chinese trust companies have supplied credit outside of the banking system largely to coal miners and solar developers. Many coal miners have debt ratios exceeding 100%, and weak coal prices have hurt profitability. A couple of miners have already experienced financial difficulties meeting maturities. China Cinda Asset Management, an SOE established to buy back bad loans from big banks, warns trust defaults could “explode.” The mainland’s bad debt is on the rise. China Cinda Asset Management is warning that a default peak season for its gigantic trust products sector is approaching after years of rapid yet questionable growth.
Tightening credit costs are raising debt costs for companies. SOEs formerly able to obtain financing at a discount are now a premium to the PBOC rate. Small rate rises could have significant impact given high leverage and short duration of Chinese companies. The Chinese renminbi has depreciated almost 3% since the first of the year.
At the same time corruption allegations of executives have risen, some related to the bad loans. With every downturn, the borderline deals go bad and this creates the image of fraud even when it is not, which in turn fuels the crisis even more causing capital to decline.

Wednesday, May 14, 2014

Inflation – One Size Does Not Fit All

QUESTION: Hello Mr. Armstrong,
I just watched your Greg Hunter interview and had a question that several other commenters had.
How can you say we have no inflation, when simply a trip to the grocery store proves that wrong?
The average price of a home prepared meal has risen substantially since QE began.
How do you reconcile this? 
ANSWER: We are experiencing asset inflation insofar as high-end real estate. But real estate is not in the CPI – they replaced that with renting. The average home is rising only in some areas and that is also caused by a long of foreign capital influx.
The food prices are rising due to straight up shortages and weather. This has nothing to do with QE for if it did, then you would see the metals rise as well.
Monetary inflation under the theory of an increase in money supply is indicative when EVERYTHING is rising in price from wages, housing, commodities, and assets. This was seen during the 1970s and is not yet present in the USA. That does not say we will not yet see that in the future.
3FACESn of Inflation
The point is simply this. The dollar is being now used globally so the supply of dollars is really world-wide and not purely domestic as you would see in Canada or Mexico for example. You have to look at inflation very closely. There are three primary types not just one. I have explained this before. Do not confuse inflation with a single dimension. There is a lot more going on and the implications are greater than meets the eye.

Public bonds will collapse but private assets will rise.

Understanding the New Era we Face – No More General Terms Apply

We were wondering, was that in regards to a crashing market or
crashing Bond market? I thought you said in the past ( since I read
all your stuff) that markets will suffer after Oct 1st, 2015 as well.
ANSWER: This is the way capital moves. HYPERINFLATION is just the extreme movement of capital when CONFIDENCE in government collapses. It is not gold that rises by itself, but ALL tangible assets. I have explained many times that the new currency issued in Germany to restore confidence (Rentenmark) was backed by REAL ESTATE. That was accepted by the people.
When I say this will not be a crash like anything we have seen in 200 years, it is because this will be a flight to private assets – not government. So public bonds will collapse but private assets will rise. We saw the sovereign bonds collapse in 1931. They just went off the boards. However, the USA was not in that category so the US debt survived.

Nevertheless, the spread between US Treasuries and AAA Corporate paper declined. Smart money began to realize that if GM goes bust, there are still some assets there to be divided up. When a government goes bust, there is zero. Why government debt is considered “quality” when no government has EVER survived is one of the greatest con-jobs in history.
Hunt-DecadrahmWe see people buying up real estate at the top end. Collectibles are taking off in price. The famous silver decadrachm of Akragas (modern day Agrigento, Sicily) is a masterpiece of ancient art that was struck at a time of great turmoil in Sicily, just prior to a Carthaginian invasion in which Akragas itself was virtually destroyed in 406 BC. This coin was sold at the Sotheby’s auction of the Nelson Bunker Hunt Collection in 1990. It realized the record price of $ 572,000 at that time. It was sold for 2’300’000 CHF (about $2.5 million) by Numismatica Ars Classica in Zurich at Auction 66 on October 17, 2012.  Today, it would probably exceed 3 million CHF.
People have been asking me if I can offer any high-end coins. Not really. But I have put the word out if there are any hoards found give me a call. Asset Inflation is running high as capital tries to get off the grid. Overall; inflation did not match the expansion in money supply by the Fed as most people think it should have, while food has risen solely due to shortages in supply – not monetary inflation – substantially different from commodities in general (i.e. gold).
Therefore, this will not be a crash where bonds rise and assets fall to dust. We are in a completely different sort of spiral. We do not face inflation in the classic sense. Food is rising due to shortages, general commodities are declining, while assets rise. We have to pay close attention to these distinctions – it is no longer general terms.

Tuesday, May 13, 2014

Dow to new highs after November ?

Will Government Confiscate Assets

Thanks. SD
ANSWER: There is no real precedent for confiscating everything other than communism and the crazy antics of Maximinuswho they killed in rather short-order. Nevertheless, the movement of assets like gold that use to flow between nations may not be possible given the metal detectors and the laws that presume money laundering if you try to take more than $10,000 without telling the government.
The system is going to collapse. This is simply unsustainable. The only question remainsTIMING. You have to understand that the confiscation of gold was to fund the New Deal by the government realizing the profits from its devaluation of the dollar.
The US share market is breakout out to new highs again. This is reflecting the shift in capital. The more analysts keep calling for a crash, the higher it seems to move. There remains the question if we will move back to new highs after November or invert into a cycle low for 2015.75. If that were to happen, then the entire bull market will be extended and we will see the total confusion of bond defaults. For now, the market remains poised for new highs into at least June as we explained at the conference.