China - should see the first political shake up by 2021/2022.

Financial Capitol of the World & Its Migration

Posted Sep 30, 2016 by Martin Armstrong

QUESTION:
I am a great admirer of your Socrates model, but there’s one thing in your personal pronouncements that seem to contain a contradiction. On the one hand you are predicting a decline of the U.S.A. and other western economies, mainly caused by excessive government interference in the economy. However, on the other hand you are predicting a rise in the prominence of China occurring simultaneously with the decline in the Western economies, yet the Chinese economy is still dominated by State-owned enterprises (SOEs) and that is unlikely to change anytime soon. Can you please explain this apparent contradiction?
Also, you (perhaps justifiably) continually put the boot into Western governments for their excessive involvement in their economies and yet you rarely, if ever, criticise the Chinese government’s heavy involvement in the Chinese economy. Why the double standard? Is Socrates is actually predicting a near-term decline in Chinese government involvement in their economy? And is there an allied Socrates prediction for increased democracy in China in the near-term?
Thanks for your great service,
Andrew.

ANSWER: You are missing the timing and overlap. It is true that the Chinese government is still trying to manage its transition to a free economy. Ultimately, that will happen. However, the difference between the former communist regions such as Europe, Russia, and China, in comparison to Western Europe, such as North America, Australia, New Zealand, and Japan, is significant whereas the former region has people who do not depend on government and the latter still expects government to be there to take care of us until we die. A collapse in government in the former communist regions will not be as devastating to the common people and it would be in the Western developed world. China and Russia learned that Marxism failed. It is simply our turn in the West to experience the same as they did with the collapse of socialism.

After 2032, the financial capital of the world will simply migrate to China. It always migrates. You are assuming that the government of China will survive in its current form. They too will change and alter. In the West, governments are not interested in reform. They are only interested in holding on to power. This is simply how empires, nations, and city-states have always historically failed.
China is moving through its reform stage that began in 1989.95. We should see the first political shake up by 2021/2022. That is simply how long it will take from the beginning in 1989.95. They are simply at a different point in their own cyclical history

Funds that have been rushing to lend into Africa should be sold now.

The Hunt for Taxes is Unleashed in Africa

Posted Sep 24, 2016 by Martin Armstrong

Nigeria has begun the hunt for taxes as they target 700,000 firms as the country is desperate to look for more revenue as its income from oil has collapsed. Nigeria is Africa’s biggest economy and it has entered its first recession in more than 20 years as overspending produces only higher taxes, not economic reform. The current President is Muhammadu Buhari, since 29 May 2015. Politics began to change in Nigeria also going into 2015.75 turning point for government worldwide. The 2015 election marked the first time in the history of Nigeria that an incumbent president actually ever lost to an opposition candidate in a general election. So the ECM is truly a global model and not based solely upon a single country or trend.

Africa was the fastest-growing continental economy on the planet going into 2015. However, the one thing that was growing faster than the economy was of all is debt in every category from personal and corporate in the private sector to government. In 2015 Africa’s debt reach an untenable level and not the hunt for taxes has begun. In 2014 countries such as Senegal, Côte d’Ivoire (less than five years after a previous government-debt default), and Zambia all placed bonds worth as much as $1 billion into the market and these issues were oversubscribed because of the collapsing interest rates in developed countries. Kenya’s record-breaking sale of $2 billion in debt back in 2014 was also oversubscribed four times over.

Currently, Nigeria is struggling to fund a record $18.6 billion 2016 budget (6.06 trillion naira) that, following Keynesianism, is expected to stimulate growth by tripling capital expenditure. These measures are failing of a worldwide basis. Nevertheless, government are all following the same play book despite the fact it never works.

According to the IMF, back in 2009 the entire of sub-Saharan Africa raised almost $5 billion issuing bond, which included both private and sovereign issues. By 2013, that debt issue had grown to $14 billion and it exploded to about $20 billion by 2014. Africa’s total debt-to-GDP ratio dropped sharply to 30% going into the economic crash 2008-2009 only because of defaults and debt forgiveness. However, in some countries, this debt-to-GDP is exploding back up towards 70% or higher.

Rock stars had helped convince the international community to write off more than $100 billion of African government borrowings back before 2010. This time, the debts are back and have been exploding. It just seems as this debt-forgiveness never works for it hides the crisis and fuels them to do the same once again. it’s getting tougher for countries to pay them off.
Mozambique was indeed one of the biggest beneficiaries of debt forgiveness when its debt was written off by 86% of GDP back in 2005 to just 9%. The debt simply has grown all the way back to 61% of GDP. One has to wonder how stupid people are to lend government money.
Ghana’s debt was 82% of GDP back in 2005. Their debt was forgiven by 50%. It too has seen its debt climb all the way back up to 73% of GDP. However, back in 2003 terms, its debt was $7.5 billion. Today, the debt is now $25 billion.



Funds that have been rushing to lend into Africa should be sold now. Their investment rush into Africa reminds me after the 2005 debt forgiveness efforts of George Bush trying to figure our the fool me once line. How many times will these fund manager buy public debt that always ends up that they have to forgive it?

If theproperty cycle become extensive and people migrate just walking away

Germany About to Raise Property Taxes Significantly                 

Posted Sep 24, 2016 by Martin Armstrong

The greatest problem with real estate is you cannot pick up and leave. The Federal Council in Germany is planning to re-evaluate the approximately 35 million homes in Germany. It is now expected that the result is likely to be a significant increase in the property tax. Administrative expenses for the state fund-raising action is very significant and more than 50% of municipalities were in financial trouble BEFORE the refugee crisis.

This is the final stage of property - before capital begins to shift to equities. The significant difference appears before a major crisis or Dark Age event. The property becomes the target of taxation and as taxes become insane, property values decline. The end game is people just leave. This is how what use to be vibrant places to live become ghettos. If the cycle become extensive and people migrate just walking away, you go through the phase such as Detroit and move on to situations like Rome. They have no choice but to abandon the property.If the cycle become extensive and people migrate just walking away.

Mark Twain who put it best during the last century: “If voting made any difference, they wouldn’t let us do it.”

The Coming Dark Age

Posted Sep 20, 2016 by Martin Armstrong

QUESTION:

Mr. Armstrong,

Thank you for the time you are spending to educate the public about what it really going on. I have followed your work for years, from before you were released from prison. Over the years you have made several comments about directional changes and have alluded to the idea that a crossroads is coming in that we will either enter another Dark Age or we will see the light towards greater liberty and freedom. More recently, you mentioned the year 2032 as a critical year in this regard.

In addition, you have mentioned that Trump winning the election would postpone the inevitable chaos, but that HRC winning would speed it along.

In terms of the distal effects of the November election on 2032, does either Trump or Clinton winning increase the likelihood of entering a Dark Age over something more hopeful? Should we be attempting to kick the can down the road or should we get it over with?

Thanks again for your service.

HA, Ph.D.

ANSWER: Hillary is just corrupt and rotten to the core. She represents everything that is wrong with our political economy. Politicians no longer care about the people. Every election promises “change” in some variation. That is admitting something is broken, but it always comes down to the same thing – it’s just about them.

Indeed, it was Mark Twain who put it best during the last century: “If voting made any difference, they wouldn’t let us do it.” We must understand that this has been an age old battle between the rulers and the people. In Athens where Democracy was born, they constantly fought to seize power back and even made Pericles stand trial. Government has always sought to bribe the people creating a welfare state. The Romans knew that the way to power was to promise everything but give them bread and circuses (sport games) and they could maintain power. It was Decimus Iūnius Iuvenālis, commonly known as Juvenal, who was a Roman poet active in the late 1st and early 2nd century AD that wrote that phrase:

… Already long ago, from when we sold our vote to no man, the People have abdicated our duties; for the People who once upon a time handed out military command, high civil office, legions — everything, now restrains itself and anxiously hopes for just two things: bread and circuses

[…] iam pridem, ex quo suffragia nulli / uendimus, effudit curas; nam qui dabat olim / imperium, fasces, legiones, omnia, nunc se / continet atque duas tantum res anxius optat, / panem et circenses. […]

(Juvenal, Satire 10.77–81)

Nothing has changed. Many people can name every person on some sports team but cannot name their political minister, congressman, or whatever lofty title they call themselves. The judge in a courtroom demands to be called “honorable” as do all public servants. They make a mockery of the very word.

We are approaching the grave danger of a Dark Age beginning from the aftermath of 2032. Hopefully, I will be gone by then and will not have to face this horrible event. Yet Dark Ages are reoccurring events throughout history and in all cultures. The Greeks endured their between the Homeric Age that marked the end of the Mycenaean civilization around 1100 BC, to the first signs of the Greek cities (poleis) rising again in the 6th century BC (508–322 BC). It was during the 9th century BC (900-801BC) that we begin to see the rise of great cities outside of Greece including Carthage, which was founded by the Phoenicians.

Japan went through its Dark Age, which also lasted about 600 years and the same impact was endured in Europe with the collapse of Rome in 476AD. Dark Ages seem to come in units of 3 so they are 300 or 600 years. The cause is always political corruption.

In the case of Japan, each new emperor devalued the money in circulation with a decree that it was worth 10% of his new coins. There was no intrinsic value since they were bronze or iron. This process led people NOT to hoard money. Chinese coins were sought after since they would not be devalued. Eventually, nobody would accept Japanese coins and they ceased to be issued for 600 years. People used Chinese coins or bags of rice.

The Roman Monetary Crisis that saw silver vanish by 268AD, was naturally followed by  an attempt to restore the monetary system. A new bronze coin was introduced in 295AD known as the Follis. Again, one 52 year cycle saw its collapse from over 16 grams to under just 2 grams.

By the time you come toward the very end of the Roman Empire, you rarely find any bronze and when you do, it is less than an American penny. Coinage is debased because of the corruption in government. Those who think restoring the gold standard would do anything are wrong. Such monetary reforms appear repeatedly throughout history with little lasting impact. The system as we know it is always doomed to failure simply because we are satisfied as a whole with bread and circuses and let politicians run wild in their greed. Hillary is the example for everyone to see.

I will gather all the accounts and this is on my bucket-list of books to complete. We do have a choice. We can understand what is coming and WHY, and perhaps take that first step out of darkness and move into the light of a realistic political system that ends the bribing of citizens and this eternal battle of political corruption. We need a REALdemocracy without career politicians. Only then can we hope to advance as a society.

2016 is 7 years up and that warned we could indeed see even a slingshot type of move

Can the Dow Crash with Little Retail Participation?

Posted Sep 18, 2016 by Martin Armstrong

 

QUESTION: Hi Martin,

thank you for your great work with Socrates and especially for presenting the Indicators for us whom are still outside of the Trader Level.

I have some question about the recent sell off in the DOW. True, it was really time for a correction/drop. But the retail investors are still on the side-lines and the interest rates are lowest ever in history. To sell off the DOW on fears of increased rates and slower GDP growth is one thing, but then what? Where to run? Interest rates are close to zero. Bonds will loose much of their value when interest rates go up. Gold does not yield. Real Estate has already topped.

You are so right that the hunt for yield will soon be transformed into the hunt for preservation of value.

So we are back to the DOW anyway, right?

Do you see in Socrates Indicators that this Phase Transition may emerge already in the end of 2016?

Kind regards,

HJ

ANSWER: You are correct. There will be no choice but to run into equities. With the European banking crisis looming on the horizon, real estate on the high-end has been targeted by governments around the world passing various laws against foreign ownership from making it criminal in Australia to demanding 15% of the sales by a foreigner in the USA is seized by the IRS, this does not leave a lot of room for big money to get off the grid.

Then there are the mandates by countries that pension funds MUST be invested in government bonds. This negative interest rate is creating the next major crisis. As a matter of law, these funds cannot even divest all government bonds in many countries. We are looking at a crisis far worse than any derivative or banking crisis. It is the Pension Crisis that nobody talks about. This is the political crisis that is bringing socialism to an end.

You are correct, gold offers no yield for income, only capital appreciation. That does not provide a base for institutional money to park, besides storage problems. But here to, government are tracking all buying and selling of gold. Only the institutions had to turnover their gold in 1934. Individuals could hold their gold at home in a sock drawer. So this distinction has always existed between big money and individual investors. Gold is for the individual. It cannot satisfy institutional money on a yield perspective and it cannot be protected by an institution. Consequently, gold is eliminated from a major institutional portfolio, which limits that type of investment into directing it into gold stocks for some yield.

All of that said, you are also correct about retail participation. That remains at historic lows for a bull market. So many people were hurt in 2007 to 2009, that they are reluctant to step back in. There can be ABSOLUTELY no major crash of 1929 proportion despite the choir of analysts all claiming “SELL” for it will go to anywhere from 50% to 10% of current value. Such a move just does not seem plausible.

Nonetheless, our accumulative Energy Models reached the overbought stage that nearly matched our next target objective. That warned that we were getting toppy and a brief correction was likely. Likewise, the accumulative energy in 2009 at the low went seriously negative also warning this was overdone on the downside.

We will be issuing a special report because 2016 is 7 years up and that warned we could indeed see even a slingshot type of move. That means you have excessive bearishness and the pros will short the market. They are typically trapped and will then panic to get out.

Despite the claims that the bankers are too big to fail, too big to jail, and too politically controlling in Washington, keep in mind if Trump wins, we may see reality hit the bankers in the face. Without Hillary, they are in big trouble for the next loss may be their’s to keep. The “pros” are not the star traders, they are the political manipulators. The entire Glass Steagall Act was proposed BECAUSE of Goldman Sachs.

Goldman Sachs got caught up in the whole bull market just like everyone else. Under the leadership of Waddill Catchings who led the firm into joining the hot market by now creating an “investment trust” where he saw that a giant fund could maximize profits by buying and selling stocks. He promoted this as a business that was professional and the profession was investing.

The “investment trust” was sort of the domestic “hedge fund” of its day. Everyone was jumping into the game. Catchings just got caught-up in the whole thing and was very bullish going into the high of 1929. He gave this new entity the name: Goldman Sachs Trading Corporation. The deal was that Goldman Sachs would be paid 20% of the profit and the stock was offered at $104 per share. It jumped to $226 per share, that was twice its book value. This would be the very same mistake that became exposed in the Crash of 1966 when shares in mutual funds were then traded on the exchange allowing them to be bid up well beyond their asset value.

The whole bullish atmosphere was very intoxicating. Just three months into the fund, Goldman Sachs arranged for a merger of the trust fund with Financial & Industrial Corporation that controlled Manufacturers Trust Company that was a giant group of insurance companies. This doubled the assets of Goldman Sachs Trading Corporation taking it up to a staggering near $245 million. This was huge money in those days. The trust now, exploded and the assets under control are said to have exceeded $1 billion back then. Goldman Sachs expanded the leverage going right into the eye of the storm that was about to hit starting on September 3rd, 1929. In the summer of 1929, Goldman Sachs launched two more trusts Shenandoah and the memorable Blue Ridge. The shares were over ­subscribed and Shenandoah was offered at just $17.80 and it closed on the first trading day at $36 per share. Blue Ridge was even more leveraged and the partners at Goldman Sachs put pressure on everyone to buy as a sign of support. The leverage was astonishing for with just about $25 million in capital, now there was more than $500 million at stake.

The disaster was monumental to say the least. Goldman Sachs Trading Company, whose shares had stood at $326 at their peak, fell during the Great Depression to $1.75. They fell to less than 1 % of their high value. The loss suffered at Goldman Sachs on a percentage basis was far worse than at any other trust. In fact, of the top trusts, Goldman Sachs had lost about 70% of everyone else’s losses combined.

So sometimes the bigger they are, the harder they fall.

Real estate tends to peak out 2 years before the more liquid assets such as equities

Swiss Real Estate Turning Down

Posted Sep 15, 2016 by Martin Armstrong

It was inevitable that the Swiss market would turn down once it surrendered its banking advantage. The flight from the euro help to mask that decline and transformed it into speculation. Now in Switzerland, we have reach record highs for the past 15 years in vacant single-family houses and apartments reaching 56,518 according to the Federal Statistical Office (FSO). This is an 11% advance since last year alone. This is further evidence that the real estate tends to peak out 2 years before the more liquid assets such as equities. So far, everything seems to be in line. We warned that 2015.75 should produce the 26 year high in Swiss real estate. We wrote: “We also ready see real estate peaking in Switzerland with this turn in 2015.75 that will be a 26 year high.” That now appears to be on schedule.

No Matter What Century, It’s Always Politics

Posted Sep 3, 2016 by Martin Armstrong

If you look at the calendar, the months that have 31 days are January, March, May, July, August, October, and December. The only two months with 31 days back-to-back are July and August. Why? July was named for Julius Caesar. Augustus, meaning “father of the nation,” died on August 19, 14 AD, and was probably poisoned by his wife. So they named August after him before his death. But of course, August had 30 days and that would be slighting Augustus relative to Julius who had 31 days. So the solution was obvious. They took the extra day from February which was only named for a feast day known as the Februarius or Februa, the feast of purification, and renamed the month with 31 days equal to July.
January was named for the god Janus and March was named for Mars. You certainly didn’t want to make them angry. May was named Maius taken from the Greek Maia, or the goddess of spring. June could not be touched since that was named after the goddess Juno, the queen of the gods. July’s original name was quintilis or the fifth month in the early Roman calendar, so renaming that for Julius Caesar did not offend anyone. August was originally named sextilis or the sixth month in the early Roman calendar. September was the seventh month in the early Roman calendar and October was the eighth. November was named the ninth month and December (decimal) the tenth month.
Therefore, February was an easy month to take days from since it was named after a feast and nobody had to offend the gods.