Dictators need money to pay troops to maintain control. When the money runs out, so will their support.

When Does Buying Gov’t Bonds Support Corrupt Governments?

Posted May 31, 2017 by Martin Armstrong

The president of Venezuela’s opposition-run Congress led by Julio Borges came out and accused Goldman Sachs of “aiding and abetting the country’s dictatorial regime” after a report that Goldman had bought $2.8 billion in bonds from the cash-strapped country at 31 cents on the dollar. They paid $865 million.
There have been two months of opposition protests against President Nicolas Maduro in which almost 60 people have been killed. The collapse of the country’s socialist economy has left millions of people struggling to even eat. This is the problem with “socialism” that it is incapable of managing the economy from any centralized government. They hate people who make money, but government is just incompetent to manage anything. It takes an individual on the front lines to manage any operation.
I personally experienced this in my own company. When I first began to open offices overseas, it was a disaster. It was impossible to manage the offices from the United States. I had to switch to partnerships where people had to put up money and run offices in different countries. When their own capital was on the line, then they managed their local operation efficiently. Even the same centralized planning does not work in corporations. This is why big corporations die. They become inefficient and too bureaucratic just like governments and die.

“Goldman Sachs’ financial lifeline to the regime will serve to strengthen the brutal repression unleashed against the hundreds of thousands of Venezuelans peacefully protesting for political change in the country,” wrote Julio Borges in a letter to Goldman Sachs President Lloyd Blankfein.

“Given the unconstitutional nature of Nicolas Maduro’s administration, its unwillingness to hold democratic elections and its systematic violation of human rights, I am dismayed that Goldman Sachs decided to enter this transaction.”

Julio Borges is absolutely correct. But this is not unique to Goldman Sachs. Everyone who buys government debt is helping to sustain the socialistic agendas of the major Western countries and will pay dearly for this support since historically they are the one who are wiped out in the end. Goldman may think it is getting a great deal at 31 cents on the dollar. They assume if there is a revolution they will still get paid. They are dead wrong. You can buy plenty of government bonds that were defaulted on. They make great reminders that government debt is UNSECURED and becomes worthless.
Venezuela has been a country that historically has been a serial defaulter. Defaults have taken place in 1826, 1848, 1860, 1865, 1892, 1898, 1982, 1990, 1995–1997, 1998, and 2004. The likelihood of another default is EXTREMELY HIGH.
Goldman assumes they will have access to the White House to freeze Venezuelan assets in the USA to get paid. If there is a revolution and the the army finally switches sides because they see their own future is doomed, then everything will change. Dictators need money to pay troops to maintain control. When the money runs out, so will their support.

Every Administration has wanted a lower dollar to increase exports.

Shari’ah Standard on Gold to Replace the Dollar? Really?

Posted May 29, 2017 by Martin Armstrong

QUESTION: Mr. Armstrong; I have read where some people are claiming this “Shari’ah Standard on Gold” will become the new “reserve currency” and this seems really just nuts. I understand there are 2 billion Muslims in the world, but they seem to forget that this is once again wild speculation. Any thoughts?

OP

ANSWER: No. This is really rather absurd. First of all, not even the Euro could displace the dollar now the Japanese yen, Chinese yuan and yet some meager 2 million average citizens will do so? I really hate to burst these people’s bubble in La-La-Land, but I have been in meeting and there are people in Washington who are trying to figure out how to get the dollar to be replaced somehow. The last failed attempt was the Plaza Accord in 1985 intended to push the dollar down and the Euro was born there and then. This is when James Baker encouraged Europe to create a single currency to “PLEASE”compete with the dollar. Every Administration has wanted a lower dollar to increase exports. Trump is no different. Sorry – they ALL HAVE FAILED!!!!!!!!!!!!!!!!!!!

Secondly, this is really nuts and the very same hype I recall from 1975 when Americans were for the first time legally going to be able to buy gold starting January 1st and that is when gold futures began as well in New York. What happened? The hype drove the price of gold up to nearly $200 and on January 1st, 1975, it began a crash by almost 50% into 1976 for 21 months. They said the same thing about China and how the Chinese demand would make gold soar. Then they said the same thing about India and now its the Muslims. They keep switching groups to sell people gold like some used car salesman. In any other field it’s called consumer fraud.

Gold will rally ONLY when people begin to see that governments are failing. I am not talking about my readers. We all see what is coming. I am talking about the AVERAGE person on the street. Then you will see the gold breakout. We are getting closing. Patience is required when it comes to gold.

Catalonia - we should see the separation is by 2022.

Catalonia to Separate from Spain?

Posted May 26, 2017 by Martin Armstrong

QUESTION: Mr. Armstrong, when you were here in Barcelona, you said that Catalonia would vote to separate from Spain. Most thought you would be wrong. I myself confess I was not sure you would be right. Well you were right, or your amazing computer was correct, and the fever to separate only grows bolder. Do you still see this and the ultimate end of the EU?

ANSWER: Yes, but this is a process that is slow. The speed will being to pick up next year and it appears to be increasing in velocity between 2018 and 2022. El Pais ran a story: “Catalonia to immediately declare independence if no referendum held” with the leaked excerpts from what appears to be the Catalonian regional government’s road map to independence. The secret document included a plan where the region would unilaterally break away from Spain if Madrid tried to prevent its citizens from holding a referendum on independence in the fall. The proposed question is straight forward:

“Do you want Catalonia to be a state that is independent from Spain?”

I reported back in 2015 that Barcelona was preparing to issue its own electronic currency. Since then, the city is still moving forward with a plan to introduce its own currency, despite warnings from Spain’s central bank. The new so-called “social currency” would be used to buy local goods and services at a discount while having a one to one parity with the euro. This is plan B in order to set up for separation. Catalonia is the richest region in Spain and is supporting the rest of the country. So it is very much like Margaret Thatcher once warned, that Socialism works until you run out of other people’s money. That is exactly what is taking place in Spain. They have been bleeding Catalonia dry.

The real question is what will Spain do? Spain is the Eurozone’s fourth largest economy. It is distinctly on the verge of breaking up. Spain and the EU seem intent upon not letting that happen. If there is any attempt by force from Madrid under the pretense of a police action, then the gloves will come off.

Madrid will take drastic actions, including that will most likely first attempt to invoke article 155 of the constitution, which will effectively put an end to all forms of Catalan self governance. Will the people tolerate that? This will not merely strengthen the resolve of Catalan separatists, it could very well lead to a civil war erupting between 2018 into 2020, but the latest we should see the separation is by 2022.

The previous Spanish Civil War took place between 1936 and 1939 lasting about 3 years. It broke out when the Spanish army in Morocco led by General Francisco Franco, rose up against the democratically elected Republican government, presided over by Manuel Azaña. Typically, there will be a divergence and split within the military. That is how these things erupt. We may see this in the USA also around 2022, which may be a contagion at that time. The potential for the collapse of the EU looms on the horizon for 2022.

You MUST always have the false move first.

Gold & the False Move

Posted May 19, 2017 by Martin Armstrong

QUESTION: Dear Marty, could the current ongoing deleveraging in China cause Gold and Silver to fall beneath 1000$ (Silver under ?) or is this currently no big deal what`s going on in China? Keep up the good work!

Best regards,

B

ANSWER: There are so many fundamentals out there is hard to predict which one causes what. Combined, they are all a nightmare. What is essential, is if we are going to really rocket up in a major phase transition, you MUST always have the false move first. These are just minor swings creating the false move which is always counter to the ultimate trend. To swing down under the December 2015 low will cause people to capitulate and then you will make a run and swing out to new highs.

With the stock market crash into 2009, this was the PERFECT storm, which was a FALSE MOVE. EvenBarrons as last of 2011 ran a story saying tongue in cheek how I was forecasting new highs. They thought it was a joke. That’s because these people have never been traders or students of the market. The chart patterns are always the same regardless of the instrument because you are plotting human emotion – not really that instrument.

The most powerful move up for gold requires a false move of a slingshot proportion

Fund fees have been reduced to an almost nothing, with money managers taking just 20bp

Dying Shopping Malls and Wealth Managers

Posted May 16, 2017 by Martin Armstrong

People talk about the changing environment. In the financial world around us, things are also changing dramatically. What use to be is no more. There are no real ticker-tape parades any more and future pits are closing opting for online trading. What is changing and why can we not see it? 

The internet has changed the way people shop around the world with the retail sector currently dominated by Amazon, accounting for almost 65% of online sales.   Amazon pasted Walmart (in market cap) back in 2015 and within the past two years has grown in value to be worth twice as much. Large department stores and the more traditional malls are closing but this is happening as retail spending continues to grow. Admittedly, online merchants have made it far easier, tap a button and our goods arrive at the doorstep the next day, but obviously at the expense of shop staff. The more comfortable we get with online retail the more intelligent we are shopping around and doing it ourselves. 

Is having the ease of service and renewed confidence a major influence upon why we are turning to index trackers and ETF’s rather than pay a money manager 2% to do it for us?

The ETF market has ballooned since the early 2000’s and is now worth approximately $2.5tn. With this “online” competition, the rumours are that the fees have been reduced to an almost nothing, with money managers taking just 20bp on the fund in the hope that they can make additional returns on the bid/offer spread. One of the problems we could face however, is that the derivative (ETF) becomes more liquid than the underlying. The relationship will work fine in an orderly market but will be tested in extremely or volatile conditions. The concern should be when will Market-Makers widen their spreads so just ensure you are not the last one to see the problems.

Georgism, which is a variety of Marxism whereby the State should own all the resources derived from land

Macron & His Socialist Agenda

Posted May 16, 2017 by Martin Armstrong

Macron’s funding reveals that elite Socialists were really behind him changing the label to sell a centrist agenda, but in reality, to maintain their agenda. Macron was able to raise funds from French abroad with the promises of change, and this targeted particularly the French who fled Hollande living in London and New York. He did a photo-op with Nobel Prize laureate Joseph E. Stiglitz before journalists who is critical of the management of globalization, against  laissez-faire economists who he classifies a “free market fundamentalists”, as well as international institutions such as the International Monetary Fund (IMF) and the World Bank.  Stiglitz is an American economist and a professor at Columbia University and is a former senior vice president and chief economist of the World Bank. He was also a former member and chairman of the Council of Economic Advisers under Bill Clinton and supported Hillary over Obama saying she is more “liberal” (socialist) than Obama. Stiglitz believes in Georgism, which is a variety of Marxism whereby the State should own all the resources derived from land which is an old Physicocrat idea that wealth is derived from land. In this way, all natural resources should belong to government from mining to energy just for starters as if government operated industries ever ran efficient. He also supported a single tax for all an believes that, while people should own the value they produce themselves with everything derived from lkand should belone to government characterized as belonging equally to all members of society.

Joseph Stiglitz criticized Obama publicly saying that the Trans-Pacific Partnership (TTP)  trade deal should not be about “who makes the trade rules—China or the United States?'” Stiglitz said  “I think the big issue is, this is about who makes the rules of trade—the American people, our democratic process, or the corporations? And who they’re made for, which is, for the corporations or for all of us?”

Stiglitz is a core Marxist, which is why he is liked in France where where Communism began and convinced Marx this was the way to go. In 2015, Stiglitz wrote two books, The Great Divide andRewriting the Rules of the American Economy, which are based upon select years for research. Each book highlights a series of problems he maintains have led to the current state of economic inequality with the gap between the rich and the pour. Stiglitz merely maintains that taking from the rich in greater proportion is necessary to even the playing field and this somehow will make everything better ignored the fact that as government crows, its consumes the wealth of a nation rather than raises the standard of living. He thus blames everything on a faulty tax code that rewards the rich and hampers the poor, an increase in behavior that boosts the economic gains of only a few while extracting more capital from the majority, and a misplaced focus on altering the economy in a way that benefits shareholders, executives, and investors, but not the average worker.

Macron publicly wanted to be photographed with Stiglitz who is a popular socialist in France. In total, he collected around 15 million euros, all from private individuals. 1.7% of the donors gave 45% of the funds. He collected €1.9 million when he was still an economic minister illustrating that he saw the collapse in popularity of Hollande, and decides to repage the same old agenda pretending it was now centrist. EVen Stiglitz believes the Euro is a failure and should be split into a “flexible” euro creating separate groups within Europe, whicvh by default would also be the end of the European Central Bank

Bit coin. Longer-term, this technology may be the future after the crash and burn. Not now.

Two-Tier Monetary Systems & Local Alternative Currencies

Posted May 14, 2017 by Martin Armstrong

QUESTION: I very much look forward to reading your blog every day and feel that I am learning much. I don’t know much about BitCoin but I note that it has almost doubled since the beginning of the year. Does your model have any insight into the future of cryptocurrencies like BitCoin.

MR

ANSWER: The problem with BitCoin is precisely that. It is akin to the problem that existed when the bubble burst in 1966 with mutual funds because they were listed back then. The value of BitCoin can change at a volatility rate of 10x that of the dollar, making it a highly dangerous instrument as a store of wealth. It is solely a trading vehicle until they way it is valued is changed.

In 1966, investors bid the mutual funds up beyond net asset value so during the crash, people lost everything when they thought it was a secure investment. The net underlying assets may have dropped 20%, but they paid 20% over net asset value and then sold at 50% of net asset value. Many mutual funds crash 70-90% where the Dow drop was 26.5%. Ever since, mutual funds are no longer allowed to be listed. You go in and out at net asset value. BitCoin must change its structure or it will never become a valid currency with a stable store of value which is supposed to be the whole point. It is just an asset class of high volatility.

For this reason, BitCoin is not ready for prime time. However, that is a separate and distinct problem from the technology. For now, BitCoin represents a threat to governments for it is used to get money out of places, avoid taxes, and is an alternative currency. Throughout history there have been alternative currencies and as long as people accept them, at times, they have become the major currency when government does the crash and burn. (see Two-Tier Monetary Systems & Local Alternative Currencies)

Longer-term, this technology may be the future after the crash and burn.

IMF: " a tax of about 10 percent is needed for households with a positive asset"

IMF Proposed a Capital Levy – Tax on Money in Bank Accounts & Raise Property Taxes

Posted May 12, 2017 by Martin Armstrong

The International Monetary Fund (IMF) is always the cheerleader to raise taxes to support government they are instructing Germany to raise taxes and also talking about just imposing a 10% tax on all money on deposit in banks throughout Europe. Yes – you read that one correctly.

The IMF has told Germany it should raise its property tax, cut social welfare contributions and invest more to reduce income inequality. The demands are contentious in an election year. Once again the IMF has demanded higher taxes on savings deposits in Germany. Germany must do more for to raise taxes to impose more socialistic ideals to somehow tax the rich to create a broader participation of all citizens in the fruits of economic growth, if somehow raising taxes actually ever creates economic growth. The IMF warns that there is a relatively high tax burden on lower incomes with a comparatively low burden on assets.

The IMF argues for higher taxes on property are in fact necessary and that the government should demand higher wages to also give impetus to the growth in Germany, yet this is magically creating no inflationary impact. Years ago, Italy simply imposed a tax on money in one’s account. This was called a “capital levy”. This was a one-time charge as an exceptional measure to restore the sustainability of the debt. The IMF is also suggesting that measure be invoked to help the coming Sovereign Debt Crisis. The attractiveness of such a measure is that such a one-time tax can be levied before a tax evasion can even occur, especially if cash is eliminated and money can only exist in bank accounts. This requires the belief that this measure is unique and never repeated.

The IMF has already calculated how much the measure would cost every Eurozone citizen:

“The amount of the tax would have to bring the European sovereign debt back to the pre-crisis level. In order to reduce the debt to the level of 2007 (for example in the euro area countries), a tax of about 10 percent is needed for households with a positive asset. “

As you can see, there is NEVER any discussion about reducing taxes or the size of government. The solution is always to raise taxes and to not even look at the old Italian trick of a 10% seizure of all cash in your account. We highly recommend to diversify to assets that are MOVABLE and not subject to taxation merely to possess.

Macron is European nationalist but Germany needs open markets to retain its current account surplus

Brussels & Berlin Reject the Core of Macron’s Political Campaign

posted May 12, 2017 by Martin Armstrong

Emmanuel Macron has shown just how inexperienced he is when it comes to international trade. Both Berlin and Brussels have rejected Macron’s central platform in his election campaign that all government purchases should be made from exclusively European companies. They realize that while Le Pen cheered “France First”, Macron called that nationalist, he proposed European Nationalism. Germany needs open markets to retain its current account surplus. Without that, Germany fears its economic power will collapse. Macron’s proposals are rejected already behind the curtain. Hence, the French people will find he is their Obama – great expectations for change, but no leadership leads to the same old status quo.

Macron’s “Buy European Act” was his a central promise during his campaign. Macron’;s entire plan was to solve unemployment with protectionism but not exclusively for France, but for Europe. Macron’s formula was to be that only companies that have settled at least half of their production in Europe would qualify to sell goods to the government. He call this the plan for that would protect Europe in this new age of globalization.

At the end of the day, the difference between Le Pen and Macron was a sense of power. Le Pen realized the authority of the president ended at the French border. Macron, though he really would have a say in Brussels and Berlin. Ah, what fools we mortals can be

The first opportunity for a major dollar high is 2018 and after that comes 2020/2021.

The Dollar Remains King

Posted May 8, 2017 by Martin Armstrong

QUESTION:  Hi, I’ve read your blog for a couple of months now and it clearly opened my eyes. But I’m wondering if I’m getting crazy now.. I can see a pattern between rising Chinese yields (despite weaker growth), parked Chinese money in the Canadian & Australian housing bubble, plunging commodities (very bad for Australian and Canadian people who have to pay of their massive mortgages) and why all this will lead to a rising dollar. Am I looking in the right direction? A.S.

ANSWER: Yes. The only way to reach the economic crisis that forces political change is to put on the maximum amount of pressure. It does not even require that what people BELIEVE will happen, happens. Human nature is such that we all act in anticipation of events. Sure the Euro has bounced on belief that BREXIT is a passing phase. But the election of Macron was the worst possible outcome as it should have been for it in the Euro that will crumble as Brussels now tried to federalize everything to secure it own survival against the people of Europe.

The dollar rose between 1980 and 1985 on the fears that the USA would default creating a two-tier monetary system with red dollars externally and green dollars internally. The US national debt hit $907.7 billion in 1980 and the Eurodollar market was about the same. The Europeans were convinced that the US would default by adopting a two-tier dollar. Consequently, between 1980 and 1985, Eurodollar deposits fell by about 50% and the Europeans moved their accounts to the USA where they thought they would get green dollars. That was the number one question I would get at seminars and conferences in Europe between 1980 and 1985. It never happened. Yet the “belief” it might moved capital to USA and that sent even the British pound to $1.03 in 1985.

Only the dollar moving to all time record highs in 1985 sparked the Plaza Accord. However, that is where the whole idea of the Euro was born. Jim Baker saw THE PROBLEM AS THERE WAS NO CURRENCY TO COMPLETE AGAINST THE DOLLAR. Baker urged Europe to create a single currency to prevent the dollar from rising, which then reduced US exports.

The national debt continued to rise reaching $2.125 trillion by 1986 and $3.2 trillion by 1990 and now we are at $20 trillion by 2017. The Dow Jones Industrial average was 1,000 in 1980. So exactly how is 21,000 on the Dow today out of like from just the expansion in debt?

You can see the correlation below. Our number remains 23,000 on the Dow where things begin to get interesting. So far, it is just keeping pace with international value. The first opportunity for a major dollar high is 2018 and after that comes 2020/2021.

Govt cannot borrow internationally, so it now wants to confiscate people’s gold using a bond scheme

Turkey to Confiscate Gold in New Clever Way – To Help Citizens Earn Money

Posted Apr 12, 2017 by Martin Armstrong

The dwindling credit of Turkey and significant decline in its currency, has led to the new clever idea of confiscating gold with a smile. The Turkish Central Bank has set up two new investment opportunities for physical gold on behalf of the government. Their objective is to make the private gold stocks of the citizens available to the financial system for themselves, but how to sell that to the people?.

The Turkish central bank is launching two new investment opportunities for physical gold, according to reports in the Daily Sabah . They are issuing a gold bond on one hand and on the other an instrument for the loan of gold and gold jewelry.

The scheme is that the Turkish government is really seeking to use the precious metal in the private sector making it available to the financial industry. This is being marketed as broadening the financial system allowing citizens to earn additional income with their gold reserves under their mattresses by turning it in to the government. The are pitching that this will stimulate the economy according to Deputy Prime Minister Mehmet Simsek .

What the government is really doing with issuing a gold bond is they are issuing a bond in return for your gold. They are promising to pay a certain interest rate during the term of the paper in Turkish lira. This interest rate will be oriented towards the development of the gold price. The gold-covered loan certificate also entitles the holder to receive interest after physical gold or gold jewelry has been deposited with the intermediary bank.

This clever scheme means that the government cannot borrow internationally, so it now wants to confiscate people’s gold using a bond scheme that in the end they will be forced to default. This will be a major test of the saying: You can fool all the people some of the time and some of the people all the time, but you cannot fool all the people all the time.

Changing Cycle Frequencies Produces Different Effects- Discovering the key

Posted May 4, 2017 by Martin Armstrong

QUESTION: Marty, I’m glad that you’ve showed a couple of examples in the past few articles, as per how you apply ECM and volatility cycle waves to events. Yet, can you please explain the methodology and criteria which you use in deciding how to apply them?

What is the criteria with which you choose the starting date of any particular event? Why do you sometimes apply ECM 51.6 time-units, or 72 (volatility), or 31.4 (Pi), or at times intervals such as 2×8.6 vs 34.4, and so forth?

I do understand the arithmetic and the individual cycles, yet I want to understand how your mind combines the right frequencies and adopts the correct cyclical pattern for analysis. In few words, what is the methodology.

Thanks in advance for everything you’re doing.

—

SB

ANSWER: Cycles are identical to light, which always moves in frequencies. Everything within the universe is fractal. So discovering the key then applies in all frames of reference. It is way too complex to answer in a brief note. I promise, I am trying very hard to complete the Geometry of Time. It will take a lot of pages to explain this complex and deep subject.

Nevertheless, with a light wave, alter the frequency length and you get a different effect. Major turning points are the convergence of many cycle frequencies. Each will depart from that same event producing different effects and events in the future. It is all about understanding each wave and what it will produce- like radio waves, microwaves, infrared, visible light, ultraviolet, x-rays, and gamma waves. They are all part of the light wave. Change the frequency and you can watch TV or cook dinner