The new rules are more-likely-than-not going to set off a new phase of the debt crisis and nurture it into a Financial Pandemic

The EU Bad Loan Crisis to Get Much Worse – The Solution = Financial Pandemic

Posted Dec 29, 2017 by Martin Armstrong

The bad loan (“non-performing loan” (NPL)) crisis in Europe is well known and many have been calling for this issue to be addressed. In Italy, the bad loan crisis has reached 21% of GDP. While NPLs dropped to 4.8% of all loans in the EU as a whole during the first quarter of 2017, they remained well above 40% in Greece and Cyprus, at 18.5% in Portugal, and 14.8% in Italy according to the European Banking Authority.

Now comes the bureaucrats with zero experience to save the day – or is that to create a financial pandemic in the EU? The EU Commission (EUC)  along with the European Central Bank (ECB), want to ensure that banks promptly sell real estate, stocks, bonds and other assets that serve to collateralize loans according to their Mid-term Review of the Capital Markets Union Action Plan.  Member States are required to adopt laws that facilitate the central directive. At this time, any bank cannot just sell a property that secures a loan. The problem is, all loans, whether secured or not, are valued the same.

Once again, all we have is the ECU and ECB desperately trying to prevent a banking crisis as loans in default rise. However, this project is totally incomprehensible for now a well-secured loan which does not pose any particular credit risk in traditional banking can find its collateral sold. Any loan cannot liss a payment in difficult periods even when fully collateralized. This puts the European economy in a serious crisis for if banks begin to sell off collateral, then the entire market will move into crash mode forcing asset values to decline undermining the collateral of other loans. This regulatory logic is just totally insane and is concerned only with EU fiscal policy that does not want to support the banking industry and thus the economy.

All loans have been rated the same in Europe for a long time, no matter if the collateral fully secures the loan or is not even present. If a borrower encounters any problem, the loans are to be downgraded in terms of creditworthiness and must be underpinned by more capital that must be added to the bank reserves. This applies even if the borrowers are economically sound and have sufficient assets but encounter cash flow problems because of the overall economic condition, they can find their collateral being sold off in a manic fashion. The new rules mean that a loan quickly becomes an NPL and banks are to liquidate the collateral ASAP.

If an NPL is equipped with collateral, the bank is now directed foreclose and sell the real estate, securities, and any other collateral according to the EUC and ECB. This means people will be thrown out of their homes if they become unemployed and cannot make a mortgage payment. The loss of a source of income will cause the loan to be classified as an NPL and sold even if the home has just 10% of its value outstanding. The bank must act as if the family were bankrupt and the loan uncollectible.

If a small business experiences a decline in sales because of the economic deflation in Europe, the business is classified as a higher risk. The existing securities used to collateralize the business loans are sold and the current account credit is repaid as “NPL”. Many small businesses pledged the owner’s home to back the business. Under these new rules, the small business will be liquidated and the owner will lose their homes as well. The implication of these rules means that a small business will not be able to expand and hire people when the risk is far too great. Economically, the new rules will undermine the economy even more and send Europe into a deeper recession while causing collateral values to decline.

Under these rules, a massive sale of land and real estate would most likely result. Asset values will decline as was the case during the Great Depression as banks would generate lower revenues from the realization of collateral only further causing the banking crisis to spiral downward into a complete debt crisis in Europe.

The crisis gets even worse where there are family members who co-signed for a mortgage. The friend or family member who co-signed the loan is now required to make all the payments and if they do not, then their assets will be seized and sold as well. What these bureaucrats fail to comprehend is that assets will collapse rapidly because other banks will be unwilling to finance loans for someone else to buy the property being sold off at auction. During the Great Depression, farmland fell to even less than 10% of its value because the only buyers were those who had cash.

The banks are supposed to sell NPL, but under a massive force liquidation, asset values will collapse. They assume that such a sale would be one property at a time that would not impact the overall market. Under these rules, we will see the deleveraging of private debt in Europe on a grand scale.

The EU’s policy of classifying all loans for the slightest problem as a risk explains why bank overseers are talking about €800 billion to €1 trillion euro in NPLs exist among the European banks. There is no distinguishment between fully-collateralized and non-collectible loans. Nor do bureaucrats comprehend the true meaning of a “non-performing loan” that is temporary and one that could never be repaid. Bureaucrats are not capable of understanding the economy nor do they comprehend that the entire economy is leveraged. Most people buy their home on credit, not cash.

Bureaucrats also fail to understand that NPLs since the financial crisis of 2008/2009 are not exactly the crisis they assume. In truth, irrecoverable loans would have to be written off long ago since the bank balance sheets under current auditor rules. Therefore, the current NPLs are generally good loans that can be serviced according to the usual banking practice that are experiencing cash flow problems. The EUC is demanding banks sell all NPLs, secured or unsecured.

Under these rules, there is little interest in the secondary market for the purchase of NPLs from banks, which are typically sold off at a discount. With no viable secondary market, Member States are to set up so-called “Asset Management Companies” (AMCs) to buy and sell NPLs. State subsidies are recommended – “of course only insofar as they do not contradict the EU prohibitions on state subsidies”. How to resolve this contradiction, the commission does not say. It also calls for the creation of service companies to service the loans. This is taking a problem and turning it into a crisis with more bureaucrats making decisions.

Back in 2008, banks sold off loans which were called “asset-backed securities” (ABS). This only accelerated the crisis because the loans were managed by computers that automatically defaulted on the entire loan with the slightest delay. The result was clear. Many families lost their homes without necessity and small businesses had to close. Then the banks were sued in legal proceedings for selling damaged loans. Here too, we have a strict rule that someone behind on a mortgage will be immediately declared an NPL.

The NPL agencies and service agencies for loan management envisioned by the EUC and ECB will effectively take over the portfolios of the banks in a forced ABS. The banks will, therefore, outsource the risks to government-run agencies. This will be the official institutionalized ABS structure. The scheme is that these bureaucratic institutions will somehow be better at managing loans and will magically require no capital since they will sell the assets and then pay the bank. In this way, the allocation of new loans should be made possible in their mind. As always, the government does not understand the marketplace or the economy and assume that asset prices will not decline in the face of incompetent government sale of assets.

This scheme has failed to address the problem that when selling loans, the selling bank will still retain part of the risk of a loss in capital based upon the sale price achieved by the government. This is replacing banks with experience with bureaucrats yet the banks will suffer the losses taken by the bureaucrats.

The NPLs are far greater in the southern region of the EU. This measure will only intensify the call for separatism. The new rules are more-likely-than-not going to set off a new phase of the debt crisis and nurture it into a Financial Pandemic

Why Was Jesus Crucified?

Posted Dec 28, 2017 by Martin Armstrong

QUESTION: Mr. Armstrong; You are clearly a Roman scholar.  Is it true that the Romans used crucifixion only for political crimes and that the two who were crucified with Jesus were not thieves but rebels? There has been some debate on this subject. I would like to hear your views.

Thank you

WR

ANSWER: Jesus’ crime was really sedition and not blasphemy. The high priests may have seen this as blasphemy, but Jesus would never have been put to death by the Romans for such a local issue. The Romans practiced freedom or religion. They allowed the provinces that they had conquered to retain their own gods. Even the Roman Emperor Elagabalus (218-222AD) was an heir to the throne being of the Severian House. He had been a priest in Emesa of the sun god, which is the modern city of Homs in Syria today. He worshiped a black meteor that had fallen from the sky and a temple had been built for this stone of god (see above). When Elagabalus became emperor, he carried the Stone of Emesa to Rome and built a temple there. After he was murdered, the Romans respectfully returned the stone to Syria as to not offend any god. As for the Black Stone of Emesa is concerned, it was most likely smashed to pieces when the temple was converted into a Christian church at some point during the 4^th Century AD by the Byzantines.

Therefore, the only possible way that Jesus would have been crucified was for a civil crime, not a religious one, and the penalty had to be only for sedition, which is conduct or speech inciting people to rebel against the authority of a state. It is rabble-rousing, incitement to rebel, subversion, troublemaking, but not a religious issue. Therefore, the high Jewish priests took Jesus to the governor and had to make their case that he was inciting a rebellion against Rome by claiming to be King of the Jews. Pilate interrogates Jesus:

 “You are a king, then!” said Pilate. Jesus answered, “You say that I am a king. In fact, the reason I was born and came into the world is to testify to the truth. Everyone on the side of truth listens to me.

 “What is truth?” retorted Pilate. With this he went out again to the Jews gathered there and said, “I find no basis for a charge against him.”

Rome’s punishment only for a political crime was a crucifixion, which was a public display that was painful, and a visible warning to others. There is no possible way that the two men crucified with Jesus were common thieves. The sentence of crucifixion was only something that Rome could order. The two men who were killed along with Jesus are identified in the Gospel of Nicodemus as Dismas and Gestas.

Luke 23:39-41 says, “One of the criminals who hung there hurled insults at him: ‘Aren’t you the Christ? Save yourself and us!’ But the other criminal rebuked him. ‘Don’t you fear God,’ he said, ‘since you are under the same sentence? We are punished justly, for we are getting what our deeds deserve. But this man has done nothing wrong.'”

Matthew refers to Barabbas who is released by Pilate in place of Jesus only as a “notorious prisoner” and that would never imply a common thief. Mark and Luke further refer to Barabbas as one involved in a στάσις (stasis, a riot), probably one of the numerous insurrections against the Roman power who had committed murder. The translation as “thieves,” however, the word can also mean “insurgents,” and it is more-likely-than-not that the two were co-conspirators of Barabbas rather than thieves. This is the only possibility that would support the sentence of crucifixion, which was a political weapon used to send a message to those still living: Do not engage in sedition or this will be your fate.

Crucifixion was an execution that was severe and reserved for political crimes, not common thieves. The more common method of execution in the Roman Empire was by strangling. Even the leader of the Gauls, Vercingetorix, who was an adversary was put on display in a triumph of Julius Caesar and then strangled – not crucified. This was simply a captive of a conquered nation or group who had not been under Roman rule and thus did not warrant crucifixion.

Spartacus (111-71BC) was a Thracian gladiator who escaped and became a slave leader during the Third Servile War, a major slave uprising against the Roman Republic. Crassus crucified 6,000 of Spartacus’ followers on the road between Rome and Capua pictured here in the 1878 painting by Fyodor Bronnikov. Again, the punishment of crucifixion is employed for rebellion. Even Karl Marx listed Spartacus as one of his heroes and described him as “the most splendid fellow in the whole of ancient history” and a “noble character, real representative of the ancient proletariat”.

Therefore, from a historical perspective of Roman law, Jesus would then have been crucified ONLY as a rebel and not for blasphemy. Giving a choice to the crowd between Jesus and Barabbas would not have been plausible unless they both stood for the same type of offense of sedition. This to me is clear evidence of the political nature of Jesus’s execution and was not merely a local religious issue but was a crime of sedition against the Roman Empire.

The number of days in an 8.6-year cycle was 3,141 which was Pi. That, of course, was the perfect cycle.

Did the Economic Confidence Model Pick the Trump Tax Reform?

Posted Dec 20, 2017 by Martin Armstrong

It is very interesting how the 2017.9 (Nov 24/25) turning point on the Economic Confidence Modelhas marked a most interesting political event. The House passed their version of the Trump Tax Reform on Thursday, November 16th, 2017 just 8 days before the ECM target. Then on November 29th, 2017, the Senate passed a procedural vote on the Trump Tax Reform bill that allowed debate to begin on the measure with a final vote which came on Saturday, December 2nd, 2017, which was 8 days after the ECM turning point making it the dead center between the two votes.

People have asked me constantly how in the world did I ever discover such a model that has worked amazingly? I have written before how I discovered this list of panics while doing research in the Princeton University Firestone Library. The time span was 224 years and the number of events was 26. I sought to simply see what the average was and that came out to be 8.61538461538. I had absolutely no idea how significant that number would prove to be.

As I observed this cycle, I was blown away by how accurate it had been. It was even accurate to the very day. That to me, seemed very unlikely and strange. AT first I believed it was just a stroke of luck – a coincidence. But the more I observed the repetition to the day was taking place around the globle. The number of days in an 8.6-year cycle was 3,141 which was Pi. That, of course, was the perfect cycle.

I will be republishing my work on this astonishing discovery. For now, the amazing regularity of this model is simply there for all of us to observe and wonder at the regularity of the world around us.

If a market knocks on the door 3 times, it is going to go through

Swiss Market Index – Third Time a Charm?

Posted Dec 20, 2017 by Martin Armstrong

QUESTION: Mr. Armstrong; I attended your 1992 Zurich Institutional Seminar when the Swiss Market Index was trading just below 200. You gave your projection for the high in 2007 would be 9500.0. We sold that high at the bank and the market peaked at 9548.1. The market rallied back to 9537.9 in 2015 and we sold it again. I left the bank as you know and have retired with your turn in 2015. You have always said that if a market knocks on the door 3 times, it is going to go through. My question is, do you think this will hold true in Switzerland?

Keep up the excellent work. The world really needs you.

ABR

ANSWER: Yes. The next resistance target will be 11000-11200 level if we break through the 2007 high. Enjoy your retirement. Of course we never really stop thinking about the markets and the world. I suppose it is a curse of the trade.

As far as “The world really needs” me; that’s what I am afraid of. Getting drafted at my age.

Good fortune.

Roosevelt's socialist agenda shifted power of interest rates to Washington DC. Fed raises interest rates to stop market bubbles in NY but harms the commodity regions

The Separatist Movements in Canada

Posted Dec 15, 2017 by Martin Armstrong

Many people are aware of the various attempts of Quebec to separate from Canada. What they are unaware of is the supporters of the Western Independence Party of Alberta. There has been an undertone of the separatist movement in Alberta which actually stems from the Great Depression usurpation of the Federal Reserve by Franklin D. Roosevelt.

Why is Western Canada separatist movement caused by Roosevelt’s usurpation of the Federal Reserve? Everyone looks to the United States and assumes whatever structure they adopt must be correct. The Euro was crafted because the USA has a single currency. They did not consolidate all the debts and that has created a nightmare.

So what is the link with the structural usurpation of the Federal Reserve? When the Fed was created, it was the solution to the Panic of 1907, which was set in motion by the disruption of the internal domestic capital flows caused by the San Francisco earthquake of 1906. The insurance companies were in New York. Consequently, the cash flowed to the West and a shortage developed in the East.

The original structural design of the Fed was to establish 12 branches to manage the capital flows domestically. Interest rates would decline where there was an excess of cash and rise where there was a shortage. This, they believed, would cause capital to move between the branches to balance the national capital flows and economy.

When Roosevelt comes to power, he wanted to control the economy for his socialist agenda. He usurped the power of interest rates to Washington DC. He, therefore, abandoned the structural design of the Fed and ever since the capital flows have been concerned internationally, not domestically.

As a result, the regional problems have resurfaced. The central bank raises interest rates to stop real estate or stock market bubbles in New York and that harms the commodity regions. When commodities have boomed, the financial regions are normally suppressed. We have called this the Texas-New York arbitrage.

What is resurfacing is the regional differences within Canada as well as the United States. One-size fits all of the interest rates pits East v West in both Canada and the United States. Farmers and miners are forced to pay higher interest rates when their economies are declining because of speculative booms in Toronto or New York.

This is the root cause of the regional separatist movements we are witnessing in Canada.

Hedging models are either long or short and DO NOT add to positions as they unfold as is the case with Speculation

Trading v Socrates

Posted Dec 14, 2017 by Martin Armstrong

QUESTION: Marty; All of these Robo trading plans are simply a flat model. Socrates is forecasting short and long term rather than just trading a flat model. Am I correct?

PT, Canada

ANSWER: Correct. The approach to modeling is traditionally flat. It will take one market and attempt to create a buy/sell model on that market exclusively to the exclusion of all other markets. This is the reason these flat models will blow up even such things as the Black & Scholls, which won the Noble Prize before it created the Long-Term Capital Management collapse in 1998. That is the subject of the book titled – When Genius Failed.

The flat model approach is a disaster. They will work for a while and the blow up BECAUSE they are incapable of grasping the wildcard contagion. That is what happened in the LTCM collapse. The illiquidity in the collapse of the Russian market led to the selling of all other markets to raise cash. There are plenty of people who are soliciting money claiming they have “mastered” our model. That is absolute nonsense because they are interjecting their own OPINION and that will be a guaranteed loss down the road. This requires NO OPINION and the fact that someone will try to supplement by writing reports on markets shows they are basing their trading on opinion.

Here is the Euro traded by Socrates just using Reversals without cycles from a pure hedging perspective. There is a huge difference between being more active using short and long-term Reversals. Hedging models are either long or short and DO NOT add to positions as they unfold as is the case with Speculation.

The Speculation models also differ depending upon using just the long-term Reversals and if you use both the Short and Long-Term.

In both instances, this is using the Weekly Level of activity. You can step back and use just the Monthly level. The trading performance will vary differently depending on what your objectives are.

Obviously, anyone soliciting model trying to claim they are using Socrates are just not telling the truth. They will inject their own OPINION and that will override everything.

We are reviewing REPUTABLE firms that will use our model WITHOUT interjecting OPINION. During the 1987 Crash when the Brady Commission investigated what they thought was caused by computer trading, the discovered that the computers were right, the traders did not follow them.

EU wants to lower the number and include gold, gemstones, and cash debit cards while travelling

EU To Restrict Movement of Cash

Posted Dec 13, 2017 by Martin Armstrong

The EU is now developing strict rules for carrying cash when traveling to non-European countries and returning to Europe. The revision of the First Cash Control Regulation from 2005, which stipulated that EU citizens should register cash in excess of € 10,000 when leaving the EU or when returning to the customs authorities have to, is what is under review. They want to lower the number and include gold, gemstones, and cash debit cards.

Interestingly, cryptocurrencies are not to be regarded as cash. Why? They are not sure how to detect them. The EU explanation reads: “Despite the high risk emanating from cryptocurrencies like Bitcoin, these are not added to the cash. The reason for this is that the customs authorities lack the technical means to discover cryptocurrencies. “

The customs authorities can now seize any amount of cash less than € 10,000 if they suspect that the money is somehow involved in any criminal activity. This is authorizing the Civil Asset Forfeiture that has been so profitable to the United States. Hence, the EU does not clearly define what suspicion is required to classify as a possible criminal activity. That will be avoiding taxes.

The EU is also extending the new rules to any freight shipment involving cash. Already, one cannot send cash by mail. This is now freight shipments. A friend used the service where you can send your baggage ahead of you for a trip. He was called down and had to remove $2.75 cents that were in a suitcase headed back to London. So there is no amount too small.

The purpose of the rules is now openly being justified to fight against tax evasion, along with moonlighting and terror financing. The government clearly understands that cash is the only way for citizens to protect their savings from access by states and banks and any special levies or wealth taxes. Closing this door merely opens the door to cash investment turning to movable assets particularly shares.