Friday, September 26, 2014

So What Was the ECM September 2014 Turning Point?

The 2014.675 turning point in the Economic Confidence Model seems to have pinpoint the shift in capital flows. The US dollar is rising and this may yet move into a serious rally that will have the politicians in turmoil have some even talking about protectionism again since morons never learn a lesson. You have to understand that a rally in the dollar is NECESSARY to turn down the economy for 2016-2020.

Even gold has fallen for two weeks since the turn in the ECM. Gold’s Benchmark was 9/15 and that producing a low warns indeed we will see lower prices ahead. The second part to the metals report is Silver. This covers silver in all the major currencies, the silver/gold ratio, and the conclusion for the targets in time and price with respect to gold and silver. The third part is Platinum, Palladium, and Copper. The gold promoters just can’t get it through their head, sometimes there are bigger issues to consider like the global economy and where do the metals really fit in.

The Euro is trading at the 127 level and it is sinking rapidly. We have critical support at the 122-123 level and a weekly closing below 122.44 will warn we have serious problems ahead for Europe. The Monthly Bearish Reversal lies at 125.52 and is September closes below this level, watch-out for November. Even a monthly closing BELOW 129.78 will be a sell-signal for Europe.

How Do Empires Die? Capital Flight, Not Hyperinflation

JIM: My guest joining me on the program today is Martin Armstrong from Martin Armstrong Economics.
And Martin, you recently wrote a piece How Do Empires Die? and it’s quite different to what most people think; they think of a collapsing currency and hyperinflation. Let’s begin with your latest piece and discuss why you think the common perception of what happens to empires, such as hyperinflation that we've seen in Argentina and other places around the world, Zimbabwe for example, aren’t exactly the way large empires — whether it’s the US or the British Empire — unfold.
You started with a quote of Adam Smith where he talked about public debt asking why anyone would consider it quality since all governments defaulted on their debt and never paid them off. Reinhart and Rogoff talked about this in their book This Time It’s Different (click here for interview). And yet, Marty, we have investors who are bailing out of stocks and are going into government debt. Let’s just take a look at what happened to the people who bought German bonds a week or two ago; the yields are up. But that’s what’s happening. Let’s talk about that. [1:53]
MARTIN: Well, what some people don’t understand is the flight to quality is not done yet. Because this is more or less what Hoover wrote about. We have to see Europe begin to fail; that sends capital here so our rates go to record lows et cetera and then you’re going to see problems in Japan. Once that is done, then capital will look around and say, well, everybody else has defaulted, I guess the US is next. That’s how it happened in the Thirties. It doesn't all happen at one time. [2:76]
JIM: You know, this is amazing because this sequence, you and I are in almost perfect agreement because I see Europe and then from Europe it goes to Japan. And I think what people aren’t picking up on with Japan—and this is the argument that I’ve always heard Martin—is that well, you know, they own their own debt. That is true, but as the savings rate has fallen in Japan as the debt ratios have gotten bigger, eventually they’re going to have to start tapping the markets. And when they start tapping the markets, this thing begins to unravel in my opinion. Any thoughts on that? [2:59]
MARTIN: Yes, I think we’re close to historically the time length for a depression — a major depression — is generally 26 years. There’s different phases of it, like our stock market bottomed in ‘32, but really you look at when did everything begin to start reversing, it was 26 years after 1929.
In Japan’s case, the government has tried to manipulate the currency, which is why the stock market has continued to plummet towards the downside. What we were doing in Japan a lot of people didn’t quite understand, but it was caused by their accounting rules. Once they had accounting rules that said you can report investment at cost or market value, your choice, not mark-to-market, as the stock market went down and they’re now below your cost they wouldn't sell because if they sell, then they have to report the loss. So they just kept holding and holding and holding.
So what we were actually doing in Japan is we would come in when their leading — I mean this is crazy where the government says, oh, we were [inaudible] money, you couldn't get five bucks to these people, they didn’t have it. They had portfolios. And basically what we were doing was buying a portfolio for cash; we would basically take it and we would sell it, right, and then the note we issued, okay, fine, we will redeem the note at your original cost in 10 years. All right? Interest rates are running at 8 percent so you basically doubled just putting in interest at dollars and so effectively it was the only way out for it. They then had our note that put the note on their books so they didn’t have to report the loss. We bought the portfolio; we actually own the portfolio. We sold it. All right? so we had the loss, they didn’t have it. That’s the way it was in Japan. And it was accounting rules that created that. If there were mark-to-market, they would have, as soon as this started going down, they would have basically gotten out; you would have had your high in 1989 and your low probably in ’92. That’s a free flowing market. Japan wasn’t. So everybody kept holding and holding and holding. And so when they’re holding, what happens is they’re praying for a rally so they can sell. Nobody was a bidder, you know, so the market could never really sustain a reverse trend. And that’s still going on in Japan and it’s dwindling down, but I think that’s why Japan goes into a 26 year lull. [5:48]
JIM: I want to talk about this concept of deflation-inflation and relate that to the US dollar as the core reserve currency and how that makes things different here in the US. As we started this conversation you talked about how this money is coming out of the Euro, it comes into the US dollar and of course we're witnessing record low interest rates. I heard the figure, Martin, I think when we got down to 1.45 that was the lowest interest rate since Jefferson was secretary of the Treasury. I mean going back to the Founding Fathers.
But explain the concept. I think some people in the gold camp miss out on this, that is, the concept of hyperinflation and also, gold will be the recipient of all this excess money. That ultimately it’s going to gold and why in some cases that may not be the case. [6:40]
MARTIN: Well, primarily I mean you have people who believe in gold, you have people who do not believe in gold, but in effect what you have is that at some point in time everybody will respond against the government. So if you really look at when governments collapse, what is, really — makes it so that you can make the transition? And that is basically all tangible assets: real estate; arts; collectibles; antiques; gold. Things of this nature all have a value to them. For example, if you look at the rare stamp market; after World War II, all the rarities that were German et cetera, they were all here. Why? Because people fleeing Europe could buy stamps and coins and stuff like that, put them in their pockets and leave. You couldn't do that with real estate. You may not have been able to get your hands on gold because it was restricted. So there are other areas that also benefit; I mean Rembrandts and stuff like that. Of course, I don’t think that would happen today because most of them are in museums. But any of those types of things various different people will use as a store of wealth to move it from one place to another. So it’s never one single thing. It’s very nice to stand on your soap box and preach about, but that’s not the case.
And hyperinflation, that is possible only in a peripheral economy such as Zimbabwe or Germany. It never happens in the core economy. And it cannot because you would end up completely collapsing everything long before that would happen. One guys says to me, oh, you’re wrong, you know, you could move money to the yuan or to Brazil et cetera. You know, you have to realize that the dollar — we don’t really print dollars, we print bonds. So it is the bond market that is the reserve currency really. All the central banks are holding, they’re not holding physical dollars. The actual paper dollars are just this small tiny fraction, you know, a couple percent. So if you’re talking about a government defaulting on their debts, you’re talking about wiping out the reserves of China et cetera. That’s what made the depression here so bad was in the Thirties because all these foreign governments sold their debt to Americans and the banks sold it in small denominations and it was marketed to the average guy on the street. So that’s what really wiped out most of the banks because the depositors were completely wiped out; that’s it.
And I’ve recently published because apparently a lot of people didn’t realize but there were well over 400 cities that issued their own currency during the depression — this seems to be a great kept secret — largely because there was no cash. People were hoarding gold, banks had failed, there were 9000 banks failed; people couldn't pay taxes. There was nothing to pay with. So they started creating emergency scrip. One-dollar bills, five-dollar bills; Atlantic City — I mean all cities issued their own. [10:08]
JIM: You know, Martin, this happened in my own state of California in a budget crisis where they were issuing scrip here in California and that was not too long ago.
MARTIN: Scrip has been issued in every major panic since 1837. 1907 they issued a lot of it. Now, during the Civil War their were no coins really, they needed the metal for guns and bullets, so you find postage currency where stores were saying, okay, fine, I owe you a dime, here’s a 10 cent stamp. So there’s been plenty of areas over history basically when there is an economic crash that the private sector itself has to step up to the plate and create its own money. And so I think that you know, this idea that we're going to go into hyperinflation, that’s kind of nonsense. What you should be looking at is the fact that when these things happen and what the government is afraid of the most is the underground economy. So things like gold coins et cetera are a store of wealth and you may need them, basically, to survive. Okay? To transact, to buy food, whatever. I mean that’s the way the underground economy works.
But to think that it’s going to just — some of these people say it’s going to go to $60,000 because if you take the national debt and divide that; that sounds wonderful but, okay, what’s it going to do? Then everybody who owns the buck will say, okay, fine, thank you very much, I’ll take the gold. We're right back to where Nixon was in 1971. You know, he shut the window because of that.
So I mean eventually we're just going to end up collapsing and issuing some new currency. They always do this. And that’s what Smith was talking about in that he just makes a perfunctory statement and says, I don’t know why government debt is considered quality because they’ve never paid. And it’s true. I mean every government has basically defaulted. And the way they default is different because when you’re talking about the core economy and that’s what the US dollar is at this stage in the game, we're really looking at most likely we're going to end up with some new type of currency. And my bet is it’s going to be electronic because they are doing everything in their power to reduce the physical, real money supply. If you look at a Google, you’re going to be able to use your cell phone to pay for things, you've got debit cards. I mean I go over to parked car and there’s nobody there, you just take your credit card and stick it in the machine and it lets you in and you’re out and that’s it. There’s nobody even there to take money anymore. It’s wild. [12:50]
JIM: Yeah. You’re bringing up something — I interviewed the owner of the largest private mint in the world and he came back from a mint conference. I guess all the world’s mints get together every two years and they were talking about the very same thing you just mentioned; they were talking about getting rid of all money. [13:07]
MARTIN: Oh yeah. Just look at what they’ve been doing. I mean you had $10,000 bills in 1934; a Cadillac was $600. Okay? The highest bill today is one hundred bucks. I mean you’re lucky if you can get an oil change. I mean they systematically — I mean I don’t understand why people don’t just — hello, open your eyes and pay attention. I mean everybody is using debit cards now; you go to get your gas at a gas station, you just hand them the card, he fills it up, brings it back, you don’t have to sign anything. [13:38]
JIM: You know, the younger generation too with smart phones — in fact, the owner of this mint was telling me he recognized what they were trying to do; the very things you’re talking about, trying to get rid of all forms of money. And one of his younger staff members said, “Oh, that’s cool. I can pay with it with my smart phone?” They thought that was neat. They don’t realize the danger that this is posing. [14:03]
MARTIN: Right. That’s exactly what gold is for. Okay? It’s not going to go to $60,000 because of hyperinflation. It is there basically as the alternative to this so that you can at least basically survive and it would be a store of wealth where your electronic money would not. So that’s where they’re headed. And they’re headed that way for a very clear reason and that is to stop the underground economy, to get every dime of tax they possibly can. If you just look at Greece, there was a billion dollars a day for the week leading into the election being withdrawn from ATMs in euros. Why? Because the people didn’t trust what was going to happen. That’s the way we're going. [14:47]
JIM: This is amazing because Bloomberg did a piece last week prior to the elections and they showed the percentage of the underground economy and it was almost like 24, 25 percent in Greece.
And this is sort of where I want to head next, Martin. In your article on how empires die, in relation to what we've been talking about, the real reason you want to own gold.
You show in your article a hoard of Roman coins. I happen to collect Roman coins, it’s sort of a hobby of mine, but the reason that you and I, Martin, have access to these Roman coins is the Roman state did exactly what let’s say the US is doing. People began to hoard these coins and that’s why they’re available today for you and I to buy them as collectors. [15:39]
MARTIN: Right. And that’s the counter balance. If you actually look at the cost of production of oil, it’s risen from about $25 a barrel and it’s starting to approach $100. All right? So we've gone up a lot in the last 10 years. And that’s what I’m talking about as far as stagflation. The economy is not growing, but the costs are rising. And most of these costs that are being attributed is cost of government. They are not like the rest of us.
My assistant basically just said in Philadelphia city taxes have gone up over a third just in the last few years. They are out of sync with everything. “Well, we need money so we're going to raise the taxes. You can’t pay? We're going to take your house.”
It’s the ultimate extortion. So your cost of living is going up. I mean 10 years ago the toll on the bridge to Philadelphia was a dollar. It’s five bucks now. New York I think it’s 12 just to go through the tunnel. I mean the cost of government continues to rise exponentially. And it is not connected to the way the economy really works. They look at it, “Hey, we have the law on our side,” that’s it.
Over here in Jersey, they’ve turned the police basically into IRS agents on wheels. They’re not really protecting anybody. They’re after everybody for anything. “Oh, your seat belt is not connected.” I mean fine, this law has been around for 30 years. They never did this. And my assistant just looked at her phone, she’s sitting at a traffic light and a cop wanted to give her ticket for “oh, you’re texting.” She says, I’m not texting. I’m just sitting here at a traffic looking to see what time it was. It’s just amazing.
Everything that they can basically come up with some sort of fine for and this is what — how Rome basically also went; the courts becomes corrupt, everything’s just pathetic. I mean look at MF Global. I mean nobody — everybody else they go after, but if you’re one of them from New York, forget it. “I can take as much as you want, it doesn't matter.”  And they look the other way. [17:58]
JIM: Yeah, it’s amazing that Corzine can’t explain what happened to this 1.6 billion dollars and it looks like more and more evidence points to the top, and yet he’s going out giving $35,000 a plate fundraisers for the president. So I guess he’s an untouchable. [18:16]
MARTIN: Yeah. I mean what’s worse is that the regs said that they were not allowed to touch clients’ money to cover the firm’s loss. All right. I have a lot of clients who sent me emails who had accounts there were not even trading; they just had money sitting there. They’re getting 70 cents on the dollar. Why? Because where did the money go? It went to JP Morgan. Oh gee, we can’t go after JP Morgan. So we’ll make all the depositors pay. [18:46]
JIM: I want to talk about how this ends because and sort of bringing this to a sequence. We have Europe right now; the next place is Japan and then eventually it comes here. And there’s a Latin word suburbian and it relates to people fleeing high tax states and we’re certainly seeing this in California. The idiots here want to raise taxes another 30, 40 percent despite the fact that tax revenues keep falling as businesses leave. And that’s what happened to Rome. People left the cities, they got out of these high tax jurisdictions.
And Martin, we're seeing a second wave of migration. We just lost another major defense contractor out of Los Angeles last year, they moved to Virginia. We've got people moving to Nevada, they’re moving to Texas, they’re moving to Florida. We’ve got four states now that are rushing to become the 10th state that has no income taxes. Ultimately, that is what we're seeing as people leave high tax jurisdiction states like New York, California, Illinois, and they’re moving to Texas, Nevada, Arizona, places where the taxes are low.
But you bring you up something. When this unravels, could we see the United States split up into these sort of free market jurisdictions where the government expenses are in order, they’re low tax, they are business friendly versus the oppressive things that you just talked about that’s my own State of California?
MARTIN: Well, when I speak, I separate personal opinion from fact. All right? I mean nobody’s opinion is really worth much more than somebody else’s. So I have to really look at what is precedent. And the answer to that question is absolutely. That’s when empires break up and that’s how they break up. And that’s how Russia fell apart; they could no longer pay all the bills. In the United States, people would be maybe shocked but actually on the floor of Congress during 1931, they stood up and said “Even a dictatorship is better than what we're going through.”
So in a major crisis like that you have states looking to secede, the country’s breaking up and I think largely you’re having a lot of states competing against each other. And we're told as Americans that we're the greatest in the world, blah blah blah and all this other kind of stuff. We’re also one of the most draconian countries in the world when it comes to taxes. Yes, taxes are higher in Europe. However, what they don’t like to tell you about is that if a European — and I’ve testified before Congress on this because they wanted to know why all the Europeans were getting contracts in China to build the Yellow River dam and no Americans were and the answer is very simple. America and Japan are the only countries that tax worldwide income. Europe does not.
So what would happen is if a German company bids to build a dam in China, it doesn't have to pay taxes on what it earns in China. And secondly, it can send its own workers over there to do it and they’re tax free. Americans if you are born in Zimbabwe because your parents were there and you never came here, you still owe taxes as an American citizen. And you have stamped on you somewhere, you know, “Property of the USA.” And like the guy from Facebook that was resigning his citizenship and going to Singapore, everybody was, Oh, he’s trying to beat taxes. What they don’t realize is fine, that’s very nice. He also has to pay an exit tax to leave the country. So after you pay taxes on everything your entire life, they want a third of your assets, again, just to leave.
New Jersey is now doing that. You’ve worked here all your life, now you want to retire and you go down to Florida. “Oh, sorry, you have to pay an exit tax now.” And this stuff is getting crazy. They look at it that you are basically an economic slave. And whatever you produce it’s theirs; it’s not yours. It’s theirs. If you pay taxes on everything your entire life, why do you owe an exit tax to leave? This is ridiculous. And you know, they don’t talk about this, but this is really why jobs leave the country. Why do corporations move jobs offshore? Because it’s the only way they can be tax free and compete with Europe and the rest of the world. If they do it here, sorry, if you’re over in Timbuktu, you’ve sill got to pay. [23:27]
JIM: It’s amazing because California used to tax your pension. Let’s say you spent 30 years here working for Northrop Grumman, General Dynamics and then you decide you know what, it’s too expensive to live here, I’m going to go to sunny Florida to retire; it’s cheaper to live. California used to tax your pension even though you left the state. Now, I think it was 1998, somebody took California to the Supreme Court and California lost and [you] no longer have to do that, but how many individual citizens have the wherewithal to take something like this to the Supreme Court. So it sounds like it’s starting again. [24:03]
MARTIN: Oh yeah. I mean it will cost you. You’re lucky if you can get away with it for half a million dollars.
JIM: Martin, is New Jersey doing the same thing the government’s doing like with Saverin where he paid like a 30 percent tax or something — some say he might have overpaid the tax given what’s happened to Facebook, but is it something like that? [24:23]
MARTIN: Yeah. I mean it’s the same thing with your pensions. They will tax you higher here than anywhere else. Your counsel will tell you, do not retire in New Jersey. If you have your house here and you try and sell it and try to move, unless you’re buying a house in the state, again, there’s going to be an exit tax applied. [24:44]
JIM: Wow!
MARTIN: It’s just the way it is. They look at you like, you know, a piece of meat. And unfortunately — what people don’t realize is that’s what this country revolted against. When you have what they said, you know, you were the subject of the king. What people don’t realize is what that really meant. And if you, for example, were in Paris and you killed somebody in a fight, the Parisians could not punish you. They would put you in chains and send you back to your owner, the King of England, let’s say. He would then punish you.
So there was a debate. Jurisdiction was according to who owned you. And when this country revolted, Thomas Jefferson stood up and said, “What are we going to do? If someone from Britain comes here and violates our law, do we put him in chains and send him back to his king who we do not recognize?”
What developed with the American Revolution was the concept of jurisdiction. In other words, it doesn't matter where you were from, if you were a Parisian and you came here and you killed somebody in Washington, DC, you’re punished in Washington, DC for killing that person. So the idea was that a foreigner is entitled to all the rights and privileges as any citizen while he is here, but he also must obey all the laws as any citizen while he is here. And that was really a revolutionary concept of law. [26:13]
JIM: Martin, as you look at this scenario and we’re describing how this is sort of unfolding right now, the dollar is the world’s reserve currency and that’s why money is fleeing here and we're seeing problems in Europe and I don’t think this election last weekend is going to solve the issue. Once it begins to unravel from Europe, then it’s going to go Japan, then it’s going to come here. From a macro point of view, let’s say I was one of your clients, I’m a large hedge fund or a large institution, how do you play this? [26:46]
MARTIN: I basically will be moving them to tangible assets. What will survive is largely for example stocks. I’m not talking about the stocks that are basically you’re buying something on a gamble if something will happen. I’m talking about tangible, physical companies like GE et cetera. If you look at a lot of the companies, they are actually paying between three to some of them as much as seven percent in dividends, and this is the same thing as in 1925.
What made capital begin to leave the bond market and to go to the private sector? And a lot of that was the fact it was I could earn a reasonable dividend which was two, three, four times what I could at a bank. All these people we were talking about how, “oh, it’s hyperinflation, it’s QE1, it’s QE2,” pull the rug back a little bit. What’s really been going on? Go to a bank and ask what they’ll give you for three years money in a CD: 0.7 percent if you’re lucky. Ask them for a three years secured car loan. They typically want three-and-a-half to four percent. That is the biggest spread between cost of money and what they’re charging than I have ever seen in my entire life. At the peak in 1981, when interest rates at the Fed were at 14 — apply the same ratio — that’s as if they were charging 9700 percent interest and paying 14. So this nonsense about QE1, QE2, oh, it’s going to be inflationary. It’s not. It hasn’t worked. Why? Because the Fed lowers the rate, absolutely. It’s not being passed on. The biggest margins ever in history are being earned by the banks right now. [28:39]
JIM: Yeah. I’m just looking at my Bloomberg screen and I’ve got a one year T bill at 18 basis points; less than 30 basis points for a two year bill; less than 40 basis points for a five year bill. And I guarantee if I went out and got a five-year auto loan today I’d probably be paying between 3 ½ and 4 percent.
MARTIN: Oh absolutely. I mean I’ve never seen the spread between the bid and the ask on anything as great as it is here. So the banks are not passing on the reduction in the interest rates to the consumer. So that has got a brake on this so-called inflationary, “oh, we’re going to go to hyperinflation,” blah blah blah. Sorry. It’s not really manifesting itself that way. Secondly, the bank is not going to lend you any money unless it is secured. [29:31]
JIM: You know, the surprising thing about this is you said what you would advise people is to put money in tangible assets stocks like companies like an Exxon or General Electric where your dividend yield is going to be better than what you get in a 30 year Treasury. But Martin, that’s not what people are doing. I listen to financial channels on the weekend; they’re telling people to go into bonds, they’re telling people to go into fixed-debt instruments at rates below the inflation rate. I’m absolutely floored by this, but that’s what the public’s doing. [30:00]
MARTIN: Well, you know, largely I think those are people who, honestly, don’t have much experience. And it’s just really baffling. I mean I would certainly never recommend that. You’re buying the high. I mean this is like buying the Nikkei at 40,000. Fine, everybody’s out there saying that’s what you do. Well, in Tokyo in 1989 everybody would say, “Oh just buy the Nikkei, it’s going to go to 100,000.”
We’re reaching a point of absolute insanity. And the only reason interest rates are where they are is because we have capital concentrating here from overseas. Milton Friedman if you look at what his criticism was of the Federal Reserve, he talks about how all the gold came over here from overseas. They were fleeing other countries because they were defaulting. He criticized the Fed for not monetizing — for not increasing the money supply with all the international capital that was coming here. The Fed is looking at the gold and saying, “well, we’re going to restrict coins? It’s probably going to flee here anyhow, so we’ll just leave it there.” But look at what Milton Friedman explained what he saw going in the Great Depression of that period. And Milton was correct. This is the same thing here. We have all this cash coming here. True. Interest rates are going down, so the bond markets are practically going through the ceiling. But as we were just talking about, the spreads at the banks are not matching. They are not increasing the money supply. From that perspective the Fed has turned a blind eye and allowed the banks basically to build a war chest. And that’s what’s going on. It’s not being passed on to the consumer; that’s why the economy is not you know, that’s why we're not into a big inflationary spiral. Everybody keeps looking at the increase in the money supply and they say, “it’s got to be inflationary.” It’s just not. We're still having asset deflation; we're having capital concentration and we're having stagflation. So the cost of everything is rising, and that cost is going to continue to rise regardless. It’s not driven by demand. It’s driven by government’s demand for money, but not demand from the private sector. [32:19]
JIM: And of course the government is the big beneficiary of this. If I can issue debt at less than 20 basis points and then —
Martin, in essence, aren’t they recapitalizing the banks by allowing these spreads? [32:31]
MARTIN: Oh absolutely. The worst thing they ever did was repeal basically Glass-Steagall. And that was done by Rubin; Clinton signed it. And Rubin was the head of Goldman Sachs and then he went off to go and advise Citibank. You wouldn't have these losses; we wouldn't have had the mortgage debacle, we wouldn't have had just this, you know, few billion dollar loss at JP Morgan.
I mean I was in the gold business back in the 80s and I saw, Okay, fine, gold is going to go down for about 19 years, so I decided to retire. But I was actually one of the market makers —probably one of the top three in the country, so actually refining all the gold and selling it in Hong Kong back then. I looked at it and I said, Gee, what if I — gold is going to go down and at that point I looked at it and said, Do I need all these people, armored car runs, all this insurance, whatever, if I have to speculate in order to pay the bills. And I concluded I’m retiring because if I have to speculate I might as well sit home and trade my own account.
And unfortunately, the banks haven't gotten to that conclusion. Instead of being a bank, they want to be traders with other people’s money. So they lose it. And then you’ve got MF Global and all this other kind of stuff going on. Stay in the banking business. Stop trying to be insurance companies, derivative and proprietary traders. That’s a hedge fund.
In all honesty, if you invest in a hedge fund and they lose, tough, that’s your loss. Invest in JP Morgan. They lose two billion, don’t worry, the government will cover. You’ve got a stop loss and they won’t go to jail. Hedge funds, ah, lock the guy up. Head of JP Morgan, oh, terrible, terrible, we’ll bail him out. No problem. [34:21]
JIM: So as we summarize here, we see a sequence of events unfolding: Europe first, Japan second, and third the United States. But in the meantime, as a result of that, the United States is the recipient of all this capital which is why we're experiencing this extra-ordinary low interest rates. But there is a real danger here for the consumer if they get in on this because they’re buying at the peak of the market. You’d recommend moving to tangible assets such as stocks and if you own gold, it’s a store of value, but you’re not buying gold because you’re expecting hyperinflation. Does that pretty much summarize it? [34:56]
MARTIN: Yeah. I mean look, I think gold will probably go up to $5000 when you’re looking around 2017. But you have to also realize I think the way some of these people paint this stuff, like gold is going to go to 60,000 and creating the image that that 60,000 today you’ll be able to go buy two Chevys. No. Because the two Chevys will probably be 300,000 or something. Everything will go up if that were to be the case. It’s not just gold goes up. And I think largely if you look at when and how these things develop, capital will begin to move away from the public sector and into the private sector. So the stock market will benefit and that was the part of the boom going out of 1925 as well. The stock market rebounded out of ’32, going into ’37. Why? Because they confiscated gold, they basically also were devaluing the dollar. So the assets rose in proportion to the devaluation of the dollar. Everything has a certain international value to it. And it will rise in proportion to whatever that change is going to be. So right now, I would say gold is probably going to — I would expect it to see at least the $5,000 level by 2017.
Could it go much higher? Possibly, but everything else would too. And then it becomes, really: What are we talking about? What is the actual purchasing power of what you’re getting at that stage? Is it no different than what it is today because everything else is proportionately just as high? It’s hard to say. But I do think that the worst fault that we’re going to see, probably starting at the end of 2015 is going to be the debt market. I mean you definitely don’t want to be in government, municipal bonds, any of that kind of stuff.
And don’t listen to the nonsense. The city of Detroit, they’ll say, Oh nobody ever really defaulted. The city of Detroit in 1932 suspended all payments on its debt. Yes. It made it good in 1963 and they used inflation to pay you back in nominal dollars. So if you’re looking to retire and that’s with money you’re going to count on, don’t put it in any government bonds. [37:17]
JIM: Martin, sound advice. I couldn't agree more. But unfortunately, the average guy in the street that’s not what he’s doing. So — but once again, that’s why government is able to get away with what they’re able to do because the average guy isn't educated in these matters.
Martin, did I understand you’re writing a book right now; is that correct?
MARTIN: Yes. There will be one out very shortly on most of this stuff for the Great Depression, including a chapter on all the cities that issued their own scrip, the sovereign debt defaults of 1931. I’ve dug up a lot of stuff that basically has never been really fleshed out or explained and I went out and bought a lot of this scrip myself so I could take pictures of it, so you could see what it really looks like. You can find some of it if you go to eBay, put in “depression scrip.” It’s not with a ‘t’, it just ends in a ‘p’. But you’ll find it. [38:12]
JIM: Well, when your book comes out, let me know because I’d love to not only get a copy of it, but have you back on and let’s discuss it. You also have some other things coming out.
MARTIN: Well, we have actually four books that I’m doing. We also have — we’re going to hold a conference in San Francisco. It probably looks like it’s going to be the third weekend in September. After that I’m off to do one in Bangkok and then around the world that would be at the end of October. And at the end of November we’re doing one in Berlin. And then back to the States. [38:48]
JIM: Well, all right. Hopefully some day I can talk you in to get one in San Diego.
MARTIN: San Diego is where we always used to have them. One of my favorite cities is San Diego.
JIM: Well, we’d love to have you back.
Well, listen, we’ve been speaking with Martin Armstrong. If you’d to follow Martin’s work, it’s very easy. You can go to
Martin, I want to thank you for joining us on the Financial Sense Newshour and being so generous with your time.
MARTIN: Thanks a lot and good luck to everybody. This is going to be an interesting few more years ahead. [39:22]

Friday, September 5, 2014

Warren Buffet and silver manipulations

Are Markets Manipulated All the Time?

QUESTION: Mr. Armstrong; Some people say you will not admit markets are manipulated all the time. Yet you stood up and had all the evidence that would have damned the whole lot of the New York bankers for manipulating markets. This is very confusing how you can be against them in public yet people claim you refuse to admit the markets are manipulated all the time between the central banks and the New York bankers. Can you shed any light on this paradox?
Decline Roman Monetary System Martin ArmstrongEconomics
ANSWER: I am a student of markets. I do not make up bullshit. I am of the school of Adam Smith – assume nothing – prove everything. Claiming markets are manipulated all the time  is impossible. Marx tried that with communism and the free markets still won. This claim is merely a cop-out for admitting someone does not understand how markets function. Sure the banks manipulate markets individually. They cannot and do not do this systemically. Even in LIBOR they rig the game to make consistent profits but that does not mean they are capable of manipulating the entire trend. Even the central can control short-term rates but not long-term. This is why they then buy in long-term paper trying to INFLUENCE the long-term. They have no direct power. They can suppress the short-term like communism but the free markets will blow them out of the water when the Sovereign Debt Crisis hits.
You get mislead people swearing gold will rally to $10,000-$30,000 any day and when it falls out of bed they blame manipulation for being wrong. If the markets are manipulated ever day, then why trade against the trend using theories that purport the world will collapse any day? This is the real paradox to me. How can you say buy gold and when you are wrong you do not admit the mistake but blame manipulation? If it is manipulated then why tell people to buy something that can never rise?
We always tracked manipulations. I knew ABSOLUTELY every single one they did. We monitored the manipulations very carefully. The various manipulators hated my guts just like the goldbugs who will not listen. They tried to get me to join them figuring that when they lost it was because I had more followers than they did and therein started the allegation of manipulating the world economy that I had to defend against a subpoena from the CFTC demanding I turn over all names of clients worldwide so they could prove I was more powerful that the banks they protect. I defeated them in court. My lawyer at the time Chris Lovel stood up and told the judge even if I did manipulate the world, where was the law that said I could not no less how was it the domain of the CFTC?
I have written that written publicly that first PhiBro silver manipulation took place in 1993. They client was Warren Buffet. The CFTC went to PhiBro demanding to know who they were buying silver for. They refused to give up Buffet’s name. The CFTC would have thrown anyone else in jail and out of business. They are owned by the big players and corrupt as hell right to the core. The CFTC simply said ok, no name, then exist the trade.
They desperately tried to get me to join the second silver manipulation with Buffet. I have written stating publicly that PhiBro’s brokers walked across the COMEX pit and showed my floor brokers Buffet’s orders and told me to join. They knew I would never trust these people for how would I know I was not the patsy to buy and they would use a another seller. I would never join them. Hence, PhiBro showed me the orders to convince me to join.
I then reported to our clients “they are back” knowing it was Buffet and PhiBro for a second time. They all got pissed-off at me even though I never mentioned names. The buying of silver was done in London. Therefore, they moved silver out of COMEX warehouses in USA and shipped to London to pretend there was a shortage to justify the manipulation. The Wall Street Journal assisted in the rally.
The manipulators with steering the buffet buying in London to avoid the 1993 problem with the CFTC. This is why AIG trading arm also set up in London. Buying silver in London justified moving it from the NY COMEX and this allowed them to get the manipulation going. COMEX supplies were reported in isolation. Moving the silver to London created the false image of a shortage to justify thye higher prices. The Wall Street Journal was used to plant the story. On September 30th 1997 the stories played headlines – “Silver Prices Hit Six-Month High On Steadily Declining Reserves, By  PALLAVI GOGOI AP-Dow Jones News Service Updated Sept. 30, 1997 12:01 a.m. ET NEW YORK — Silver futures surged to a six-month high at the Comex division of the New York Mercantile Exchange, a move analysts said was triggered by steadily declining warehouse stocks. The rally was boosted by preplaced purchase orders around the $5-per-ounce level…” This was the news created for the manipulation that was constantly played out in the newspapers. The Wall Street Journal again reported on November 17, 1997, “Silver Futures Prices Leap On Hints of Tight Supplies”, and again on December 4, 1997 the Wall Street Journal from London reported “Silver Surges on Strength In Supply-Demand Status By NEIL BEHRMANN Special to The Wall Street Journal Updated Dec. 5, 1997 12:01 a.m. ET LONDON — Gold may be in the doghouse, but silver is soaring like a bird”. The reporting of shortages continued to fuel the rally. The Wall Street Journal reported again December 24, 1997 for the manipulators “Silver Futures Advance As Inventories Plunge”
The interesting point is the manipulators know that if the rally the metals, the retail goldbugs rush in and buy. They then routinely turn around and sell to them at the top and the markets crash. This standard procedure and the goldbugs buy the high every single time.
The “cluib” was pissed-off that I would not join and warned they were back manipulating silver. The got a journalist from the Wall Street Journal to try to discredit me. They told him I was short silver and trying to talk it down. The journalist accused me of this nonsense and we argued on the phone. It got quite heated and frankly I was not retail so could care less what they printed. My clients were the real deal who all knew the truth about journalism. In fact, they did not ever want me to give interviews about market forecasting to the press for their view was hey – we pay for that info.
Nevertheless, the journalist kept arrogantly taunting me and said if silver was being manipulated, then give him the name so I said fine, go ahead, let me see you print it, knowing he never would. The name I gave him was Warren Buffett. He laughed. Told me everyone knew Buffett did not trade commodities I told him that was how much he knew.
The Wall Street Journal published the article. The London newspapers were fed stories by the “Club” that I was now the largest silver trader in the world. This became all a joke to me. It demonstrated how bad the press really was. They were the pawns of the manipulators and probably didn’t even know it.
The mistake made by the “Club” by turning out the press against me, was they actually created such a worldwide story that silver was being manipulated the CFTC was forced to call me – it was public now and they had no choice. They knew I was not the source of the manipulation. Even the CFTC could look at positions and knew I was not the biggest player in silver. The CFTC then asked me, where was the manipulation taking place? I told them it was in London, out of their jurisdiction. The CFTC told me that they could pick up the phone and investigate London. I told them that they had to make that clear decision. I hung up. Never did I expect that they would really do anything. Yet, they never asked me who because the question was jurisdiction.
A few hours later, my phone rang. It was a good source in London who also was helping to monitor the “Club” actions. He told me that the Bank of England had called an immediate meeting of all silver brokers in London in the morning. I was shocked. The CFTC had made the call. But then again, I had given them no names so perhaps in their mind, this was fair game.
Within the hour, Warren Buffett made a press announcement. He admitted he had purchased $1 billion worth of silver, in London . He denied he was “manipulating” the market. Claimed the silver was a long – term investment. Everyone was shocked that Buffett was suddenly exposed as a commodity trader after all. The very next day the Wall Street Journal called me. The writer asked – “How did you know?” I told him it was my job to know! Silver thereafter declined and made new lows going into 1999. So much for Buffet’s long-term investment since he sold out.
When one trader from New York joined our firm, he called Goldman Sachs to ask about us. He has publicly stated on the record that their response was they had butted head with me many times but I usually won.
Exposing the silver manipulation trying to turn the press against me was a huge mistake. The CFTC would have never called the Bank of England just because I reported the manipulation to our clients. That was private. Exposing the issue in the press forced them to respond. My brokers on the floor were Emerald Trading. I routinely traded AGAINST the manipulators and defeated them many times. Just as the goldbugs do not like me, neither do the manipulators and it far too often seemed to coincide when they were trying to goose the markets UP – not down. Contrary to the bullshit, they need people to BUY the metals to create a pool of longs to bury. They are NOT interested in forcing a metal down to compel people to sell. That is not very profitable for they want the emotional traders who buy highs. Of course the goldbugs will say I am wrong but have never been in the same circles and some of them I question if they are not the people paid on the side by the manipulators.
There have been major manipulations of markets such as rhodium and then there was the manipulation of Platinum. I had recorded tapes and tons of documents on every manipulation. This was all seized by the court and I stood up instructing the court that these tapes Alan Cohen was demanding involved criminal activity on the part of the banks. I had it all for years. Alan Cohen then was made a board member of Goldman Sachs yet still remained as the court appointed person to run Princeton Economics. That is totally illegal and a conflict of interest. Law does not matter in New York City. (see Transcripts below).
To say I will not admit markets are manipulated is absurd. To claim they are always manipulated is impossible. Yet the real paradox is when they rally, they never seem to be manipulated. That is always real. They become manipulated only when they decline.
Burns Arthur
Not even the central banks can manipulate everything. Sure people try. But not everything. They target one market and go after that. The central banks have been trying to manage the economy to eliminate recessions. They have never succeeded even once. The central bankers know this is a confidence game just as the market manipulators. You NEED the public to move a trend. They cannot do it alone. If they were all-powerful, then Bretton Woods would never have collapsed.
There is a huge difference from a short-term manipulation within the trend like the Buffet silver move, but the market still fell to new lows with all the movement of silver and buying $1 billion in a tiny market. Where is the PROOF of systemic manipulation. It is nonsense.
TR02072000 Tapes

Wednesday, September 3, 2014

People act in anticipation – never factual trends

The September Start of War

QUESTION: Mr. Armstrong; The fact that you gave us all warning of the turn in the Cycle of War coming in 2014 back at the 1998 conference and at 2011 conference, was truly amazing to watch how this has all worked out. But the stunning realization that you pinpoint Ukraine as the flash point and then said it will turn up in September which has arrived with the Russians openly invading Ukraine, I just do not know how anyone from the goldbugs to government cannot appreciate what you have done with analyzing time. They expose their own stupidity and bias by trying to criticism you on a personal level when you have shown us this is not opinion or just outright ignore you and hope you go away. People should be supporting your work and the sooner you go public the better.
Do you have any idea what makes this all work so precisely? The ECM picks events to the day, but you said this war in Ukraine would turn up starting in September. Your timing is truly amazing.
Thank you so much for showing us a new way to look at everything. I use to attend various lectures on cyclical analysis. But they seemed primitive at best and only concerned about trading some single market thinking they have conquered the world. Nobody has ever comprehended the global connectivity that you show us all the time. I really do hope the government would just for once care about society and listen to what your models really project. So many lives would be saved not to mention money from chasing absurd ideas like global warming that is obviously a natural cycle. It is a shame the analytical community does not stand up and support you rather than trying to compete with you when they cannot even understand the depth to which you have taken cyclical analysis.
Thank you once again for showing us the light.
ANSWER: Thank you. I am very glad that some people are starting to see that this is something very important that could really change the future is implemented. We are trying to take this public to protect everything and then hopefully the technology can be applied to many fields. Ego keeps the industry fragmented. Only when we crash and burn does it appear that there would be any type of unity in the analysis community. They argued Keynes was nuts until the Great Depression hit. This is just how it functions. As for a market forecasters, generally all they are doing is trying to make a buck. They are not normally inspired by lofty goals. They are content trying to develop just trading systems to sell.

NASDAC-Y 8-22-2014

Nevertheless, if you look at a chart of anything, the majority of people never look deeply and just stop at the surface. What you are really looking at is human nature – not the NASDAQ. The Global Market Watch is gathering patterns from all markets and comparing them on all markets. This is not a flat model – it is dynamic. This is why fundamental analysis fails.Far too many people think that such facts move markets. They cannot comprehend that people act in anticipation – never factual trends. If you are standing in front of me and I say see my fist, I am going to count to 10 and then punch you in the face. Will you do nothing until I actually punch you or act before I throw that punch? This is how markets moves – ANTICIPATION.

CSP 1987 -TP - W

The 1987 Crash unfolded because of ANTICIPATION that the dollar would fall ANOTHER 40%, which of course never took place. The dollar had already fallen sharply after the formation of the G5 in 1985 by 40%.  Nonetheless, foreign investors sold and the Japanese took their money home and began to invest domestically.


That shift in capital flows back to Japan attracted worldwide capital. This set in motion the Japanese Bubble. This is the reality of the market movements. Capital buys the high because people ANTICIPATE the market will move higher. I have stated that once interest rates ticked up, people would rush out and buy real estate. The majority will not buy anything that continues to fall in price. Once the general public saw an uptick they then ANTICIPATE that rates will then start to rise.
Government does not understand how the economy moves. This is why FDR confiscated gold because he listened to George Warren who understood that only devaluing the dollar would change the trend and then people would rush out to buy BEFORE the price would rise. We saw that same reaction in Japan in anticipation of the rise in sales taxes. We see the same with all the children being sent to America from Mexico in anticipation of amnesty. People act in ANTICIPATION in absolutely everything!

Tuesday, September 2, 2014

History of Gold

Will Gold Still Go to $5000?

Yes – to answer a lot of questions. We still see the future rally in gold reaching the $5,000 level. Keep in mind this requires an asset rally. Those who tout the German Hyperinflation omit the fact that ALL tangible assets rose not only gold and the replacement currency people accepted was backed by real estate not gold. So the rally in gold will be part of an asset rally – not gold by itself, which has never taken place even once in history.
The current special report on the metals provides the targets and the timing for the high in gold and silver with the projections in price and time for the low prior to the rally. As for those who insist gold in money, let me make this point very clear. Money is ONLY a medium of exchange it has NEVER been a store of value for money has NEVER retained a specific buying power from one day to the next EVER! I understand people hate me for saying this for they just have to cling to their myths and theories to justify their losses. Some people cannot admit they are wrong and those are typically the people who cannot trade and why most people who try to trade lose money.

This argument that gold is money has been around since the late 19th century. It was the battle between the Silver Democrats and the Conservatives. The governments starting with Germany dropped silver as money. The USA followed and the silver promoters called it the Crime of 1873. This was a return to a gold standard only. It was then argued that a gold standard created deflation so they wanted to create inflation like Europe right now to pump-up the economy. This was instigated by the silver miners (promoters) who needed government to buy their production. This led to the flood of silver dollars that drove gold out of circulation. This became Gresham’s Law – bad money drives out good. This was the result of the silver miners promoting that silver should be raised in value relative to gold. The US foolishly then tried to force the rest of the world to adopt their silver/gold ratio. But instead, the silver poured into the USA and the Europeans took home gold since the Americans were overvaluing silver.

The US was on the verge of bankruptcy in 1896 flooded with silver as the gold migrated to Europe. This Crisis led to the Presidential Election and William Jennings Bryan’s famous speech – thou shalt not crucify mankind on a cross of gold. The Wizard of Oz was written as a political satire portraying the gold standard as oppressive and deflationary. The tin man was industry, the scarecrow was agriculture, and the cowardly lion was Bryan. They were off to see the Wizard who was Congress to complain about the unemployment following the yellow-bricj road symbolizing the gold standard.

So these arguments are very old and the debate between austerity (gold standard) and inflation has never ended, albeit the gold promoters keep up the same stories regardless of the facts. They have turned from silver to paper money assuming that it is now paper money rather than a flood of silver dollars that is the great evil. Silver became rehabilitated after it was freed in the 1960s with the collapse of the silver standard.  After that, the tax on silver imposed in 1934 was abandoned.
This idea of returning to a gold standard is still argued more than 100 years later with nothing new to add to the debate. A return to the gold standard would create deflation and high unemployment for it would introduced austerity. If a gold standard were truly implemented it would shrink the money supply and economic growth would decline as we see in Europe with these same ideas of austerity. Europe is now being forced into massive deflation because of the austerity policies they did not understand.

The problem with gold that turns off the MAJORITY of investors has been these wild stories. They sit well with the die-hard goldbugs, but they fail to convert the masses and thus will not increase the buying power of the advocates. Unfortunately, I can find no such historical support for that idea that gold is either a store of value different from anything else that fluctuates in value or exclusively money when the majority of society disagrees and that is all that counts. The business cycle cannot be defeated – even Paul Volcker admitted that much.
Latin Monetary Union

Governments are moving to electronic money and will never return to a gold standard. That is reality. Gold standards have been attempted countess times but have always failed because there is a business cycle that cannot be manipulated.

I have warned that if society implodes too far, we end up with the Mad Max outcome. What is that? It is where the only medium of exchange becomes food – not even gold. It is returning the cycle to its beginning. Money began as food (cattle), moved to sheep skins for clothing, then to bronze that was cast in large ingots the shape of the medium of exchange it was replacing – sheep skins. The four pointed edges were the legs. Neither silver nor gold served as money. They were both luxury items and that has NEVER provided a medium of exchange until the basics are in place. So if we are headed into a Mad Max event, sorry, stockpile food.

Gold ONLY became a medium of exchange when it became common. For thousands of years Gold was restricted for the use of kings. It did not circulate as money. We find kings buried with gold from Philip II of Macedon to the Pharaohs of Egypt. Agamemnon’s gold death mask has survived. Gold was not some inherent form of money from day one. Its value increased only as a function of DEMAND – people liked it. That was all.
As gold became more common, it then migrated down to the aristocrats in the form of jewelry. Only with the discovery of gold in Turkey in vast quantities did it finally emerge as a medium of exchange based solely upon agreement by the people who saw it as desirable. That means DEMAND. It was something only kings could afford. The same thing took place with PURPLE dye that was restricted to only Roman Emperors. That is what the term refers to saying someone assumed the PURPLE. In the Catholic Church, the vestments during lent are still PURPLE symbolizing that Christ is King.
During the Middle Ages as trade was resurfacing, the bankers were called “Peppermen” because the spice pepper was MORE valuable than gold by weight. This reflects the entire issue. The medium of exchange depends ENTIRELY upon demand. It it what people find desirable at that moment. An example of this is looking at the fine art of Rubens. The women he painted were always robust – not the model type of today. Why? A skinny woman was a poor woman. If she was rich she had weight to her. In Russia, having decade teeth was a show of wealth for you could afford sugar.
This insistence that only gold is money has no foundation in history. They are distorting history to fit a predetermined agenda they do not even understand. This idea that is money is tangible then there will be no inflation is without any support in history whatsoever. Spain was the richest country in Europe after bringing back all the gold that created massive inflation throughout Europe. Like Bretton Woods, it did not prevent the collapse of Spain, which thanks to becoming a serial defaulter successfully converted itself from the richest nation to the third world pauper status. Spain became a serial defaulter on its government debt starting in 1557 followed by 1570, 1575, 1596, 1607, and 1647 ending in a 3rd world status. By the end, nobody would lend them anything. They destroyed the Italian banks and then wiped out all the German bankers. Only a fool buys government debt.
Gold did not save Spain nor did the gold standard postwar world with Bretton Woods! Why? BECAUSE IT DOES NOT MATTER WHAT THE MONEY IS – THE PROBLEM IS FISCAL MISMANAGEMENT OF GOVERNMENT.  Returning to a gold standard will NOT make politicians honest. Sorry – we need real reform for that one and that does NOT center upon what we use as money.
This should be about making money – not supporting a predetermined idea because that is what someone would like to see happen. No matter what evidence is presented, there are those who will refuse to believe anything other than what they want to believe. That is life. They have to learn the hard way.