Weak Demand at Long-Term Treasury Auction

The Treasury Department saw the weakest demand since August 2011 in a sale of 30-year Treasury bonds today. The demand for long-term bonds that has driven interest rates well below the old benchmark of 8% has been the rise in demand for pensions. As the Baby-Boomers were getting closer to retirement, the bid for “safe” lock-it-in long-term yield kept rising. The Fed cannot control the long-term rates and hence tries to influence them indirectly – ie buying in mortgage debt. I warned before with QE1 and QE2 that the Fed was making a very serious mistake buying in the 30 year debt trying to increase the demand for long-term to support the mortgages. China said thank you and sold its long-term holdings in QE1 and QE2.

The weak demand for 30 year Treasurys reflects the entire problem with debt markets. Pensions go broke at these yields and are being forced into corporate debt and shares. This is one reason why the US share market remains in a good position long-term despite the herd of analysts calling for the Great Crash.

The greatest question we have that must be answered soon, will be what do we see 2015-2020? If we have a full-blown Sovereign Debt Crisis with municipals collapsing and sovereign debt in a crisis in Europe, capital will shift to the private sector. At some point we will see the FLIGHT TO QUALITY shift from government bonds to private sector assets. This will result in stocks rising rather than bonds.

Will will most likely have one more correction and that will not be too steep. But it will be a buying opportunity. We have to understand capital flows for things change depending upon where confidence moves.

Legalization of Marijuana Right on Schedule

Posted on May 8, 2014 by Martin Armstrong

Reply

QUESTION: Mr. Armstrong, I know someone who attended your 1985 Conference in Princeton. He said you illustrated the huge volatility, and forecast there would be the Crash in 1987 and 1989. He said you forecast the G5 would be the source of that volatility, and that there would be a Sovereign Debt Crisis that will begin 2010. But the most amazing forecast he said you bluntly stated that marijuana would begin to be legalized in 2013. How could you have made such a forecast?

The legalization of marijuana is precisely 43 years after it was made illegal following the 1969 Supreme Court decision that led to the Controlled Substance Act that began in 1970. The legalization of marijuana takes place simply as forecast because they need money – it is linked to the Sovereign Debt Crisis. The very same pattern took place with alcohol. Turn the economy down, the government legalizes what is illegal to make money. Casinos are now everywhere.

The marijuana tax was really being used to criminally prosecute Mexicans who were widely seen as taking American jobs during the hard times. In 1967, President Johnson’s Commission on Law Enforcement and Administration of justice opined, “The Act raises an insignificant amount of revenue and exposes an insignificant number of marijuana transactions to public view, since only a handful of people are registered under the Act. It has become, in effect, solely – a criminal law, imposing sanctions upon persons who sell, acquire, or possess marijuana.”
In 1969, the Supreme Court overruled the tax in Leary v. United States, It held that part of the Act was unconstitutional for it violated the Fifth Amendment by forcing a person seeking the tax stamp would have to incriminate him/herself. Congress then passed the Controlled Substances Act as Title II of the Comprehensive Drug Abuse Prevention and Control Act of 1970. The 1937 Act was repealed by the 1970 Act. Hence, 1/2 of 8.6 is precisely 4.3.

Make cigarettes expensive and you will reduce their use and sales. Now they want to tax electronic cigarettes simply because they are losing taxes from real tobacco.
Interesting facts behind taxes has been raising taxes on the “rich” (household income of $250,000 in USA C$150,000 Canada), will somehow not reduce the economy and result in fewer jobs. They realize raising “sin taxes” did reduce the use of cigarettes. So why will raining taxes not reduce the economy as well? Political thinking is never logical nor consistent because they lie out of their self-interest – not to help the people, With them, government is just the legal means of robbing the people while claiming you care so much.

 

The forecast was rather simple. 4.3 is half of the 8.6 frequency times 10. Hence, 1970 plus 43 years brings us to 2013 and that was 2 years after the Sovereign Debt Crisis begins. That target 2010.29 was the Pi target and that was the start of the crack with Greece. That same target was the World Trade Center attack – 911 (2001.695)

 

A Significant Change in Trend

 

Posted on May 7, 2014 by Martin Armstrong

Reply

The U.S. monthly international trade deficit decreased in March 2014 according to the U.S. Bureau of Economic Analysis and the U.S. Census Bureau. The deficit actually  decreased from $41.9 billion in February (revised) to $40.4 billion in March as exports increased more than imports. This recovery in the US economy is showing signs of shifting trends that are rather significant for the rest of the world. The goods deficit decreased $0.6 billion from February to $60.7 billion in March; the services surplus increased $0.9 billion from February to $20.4 billion in March. This is reflecting the capital shifts on a global basis as services are now rising.


However, if we peel back the vernier that has so convinced many the dollar will be reduced to dust, we see that consumer spending grew at an annualized, inflation-adjusted rate of 3%, however,. Imports of consumer goods declined at a 5% rate. Typically, such moves are often really just currency fluctuations. However, we can see that the dollar has been steady since 2010. Therefore, digging deeper reveals some interesting trends.
Looking at 2011 through the first quarter of 2014, the interesting aspect is we see that imports of consumer goods have grown at less than half the rate of corresponding measures of domestic spending. This is showing several important trends.

(1) the rising level of taxation (including state and local) is reducing disposable income among those who really do consumer cheaper imported goods;
(2) Manufacturers have been bringing their production back to the USA reducing the amount of goods that would otherwise be classified as imports.
(3) the economic recovery has been driven by

(a) the upper class that consumes less and

(b) institutional that consumes even less.

Why is this important? The only thing that is holding up the world economy is the US consumer. As taxes rise and their disposable incomes declines, so will consumption. We can see from the chart on the US Trade Deficit, the trend ended with the 2007 high in the Economic Confidence Model that is reflected also in emerging markets. This is putting flesh on the bones of our outlook for a 13 years decline into 2020. Up until 2007, the trend was clear that a 1% growth rate of consumer spending was historically accompanied by nearly a 3% growth rate of spending on imports of consumer goods. There has been a significant shift since 2010 whereby a  3% rise in consumer spending  has been matched by a 5% decline in imports. Consumers are clearly buying less imports as the chart illustrates. We are in the shift that is often seen in the latter part of the 51.6 year Wave that is due to peak in 2032. As imports decline, the dollar has a secret underlying bid on a global scale. This also explains why the Fed can increase the money supply yet it is being absorbed on a global basis – not domestic

Decline into 2020.

The rest of the world peaked in 2007 and is on schedule to decline into 2020. This is the same pattern as the Great Depression whereas the major high in commodities was 1919 and the low was 13 years later at the bottom of the US share market in 1932. This is the same set up with the US and world markets turning point coming in 2020

Why interest was banned – the Protestant Reformation, funded by would-be bankers, to create the new age of banking

Government around the world are collapsing. The municipal governments are headed into massive waves of bankruptcies. Shamokin, Pennsylvania, is about 120 miles northwest of Philadelphia, and with only 7,000 residents, they have $800,000 of unpaid bills. No bank will even lend them money anymore. Shamokin is so broke, the gas service to city hall was temporarily cut off last month.

This is typical of all government. They are incapable of actually running in an efficient manner. They have built their empires assuming the well for taxes will never run dry. The owe far more than they are capable of funding. On the other side of 2015.75, we should expect widespread economic disruption as municipal governments start to collapse in the US and Europe. We do not need conspiracies to end the world. All we need is career politicians – that is good enough. No group is powerful enough to even stop the process in motion. We need to just crash and burn. This is how society regenerates historically. This is why interest was banned following the fall of Rome. It became a sing of “usury” in the Catholic Church and the Arabs had the same position. It was the Protestant Reformation, funded by would-be bankers, to create the new age of banking. This is why interest was banned – government never knows when to stop the borrowing.

US Share Market Update

Posted on May 1, 2014 by Martin Armstrong

The Dow Jones Industrials have in no way made a major all-time high despite all the prognostications of a major crash. As stated at the World Economic Conference, yes we see a correction near-term with volatility starting to rise in June into next January. The oscillator is at the top and is starting to turn.

May is a Directional Change so we are still on alert to a near-term correction. We have a Weekly Bearish Reversal at 15665 level followed by 15284.00. The Directional Change begins next week and the target week in June is the week of the 16th. A Daily closing BELOW 15824 will signal weakness ahead. Key support lies at the 15665 ares followed by 14700. Only a monthly closing below 12288 would suggest a continued decline.

Gold – Update

May 1, 2014

While the gold promoters continue to argue this is wrong and gold will soar to thousands of dollars, the trend is not yet ready for prime time. On a nearest futures basis, a monthly closing below 1251 will signal a drop is at hand. Our support still lies at 1155 and 904 so nothing has changed as of yet. We are still looking at June for a nearby target. The Directional Change starts next week. A weekly closing BELOW 1280 should start the decline. Our Daily Bearish Reversal remains intact at 1253.

Technically, the oscillator is still in a bearish mode as is the trading pattern that has held very nicely within the Break-Line Channel. The bottom of that channel lines up with the $904 target area and the Uptrend-Line sits at about the $1155 area. Therefore, the technicals line up with the Reversals.