South Africa - major economic crisis going into 2020

South Africa Expropriating White Farmer’s Property

Posted Mar 1, 2018 by Martin Armstrong

South Africa is turning extremely left-wing to the point that it is risking any viable economic future. The Parliament of South Africa on Tuesday voted to expropriate the majority white farmers of the country without compensation. This is how the Russian Revolution took place – the just took everyone’s property. The motion was submitted by the left-wing party Economic Freedom Fighters (EFF) and it was supported by the ruling party ANC (African National Congress). This maneuver is trying to change the constitution. All the work of Nelson Mandella is being gradually eliminated.

Clearly, the topic of land expropriation has been one of the most sensitive issues since the end of apartheid in South Africa. New President Cyril Ramaphosa, in his first major speech after taking office in mid-February, publicly stated that he supported the expropriation of white farmers without compensation. The excuse is that this will lead to increased food production. It has absolutely nothing to do with that. The majority of the agricultural land in South Africa still belongs to the white South Africans even 24 years after the end of apartheid. White ownership has declined slightly from 85% to 73%. However, the idea of a free market in South Africa does not truly survive. The rising chants assert that the “time for compensation is over; now is the time for justice!”

Parliament mandated the Constitutional Commission to report on the issue at the end of August. The ruling ANC party is under pressure before next year’s parliamentary elections, and land seizures of white South Africans could increase popular support in the poor black electorate. Of course economically, when a nation simply expropriates private property, thereafter, it becomes economically a high risk to do business with them.

The hyperinflation of Zimbabwe was in part set in motion by the violent expropriation of white farmers0. Zimbabwe saw a sharp decline in production of food plunging the country into chaos. Zimbabwe was formerly known as the breadbasket of southern Africa. Once it expropriated the farms of white farmers, the country fell into complete chaos. South Africa is risking the very same future. Inflicting vengeance upon the white farmers may make many feel better, but it risks sending the economy into total chaos.

Meanwhile, President Cyril Ramaphosa was part of the original movement in South Africa’s peaceful transition to democracy. However, he has also been criticized for his conduct dealing with firms such as his joint venture with Glencore and allegations of benefitting illegally from coal deals with Eskom. Glencore became a huge controversy because of its business activities involving Tony Blair, former Prime Minister of UK. There is a Directional Change due in 2020. The Apartheid era (1948-1994) lasted for 46 years. The current situation appears moving toward a major economic crisis going into 2020.

Draghi realizes that he is subsidizing the European governments. He is not stimulating the economy

Draghi Admits He Cannot Stop Buying Gov’t Debt

Posted Feb 28, 2018 by Martin Armstrong

Draghi has realized that he has singlehandedly destroyed the European bond market. Besides the fact that it is illegal to short government bonds, he has come face to face with the stark reality that if the ECB stops buying government bonds, there will be NO BID at these price levels. Interest rates will skyrocket dramatically. On the German 10-year bond, once we see a monthly closing above .79, we are looking at a DOUBLING of rates and that is in Germany. Once rates rise above 1.55, then expect it to rapidly DOUBLE again.

Consequently, Mario Draghi has been warned there is a serious problem. He told the Economic and Monetary Affairs Committee of the European Parliament that he would maintain a very loose monetary policy because it was necessary despite the upturn in the euro area. He said that INFLATION remains critically dependent on a strong push using monetary policy. Of course, you would assume that after 10 years of this policy and there is no sign of a major return of inflation, that you would start to question the entire Quantity of Money Theory.

Draghi said Monday that he will continue to include the billion-dollar bond purchase program and he will reinvest expiring bonds exactly OPPOSITE of the policy at the Federal Reserve. While the dollar-bears keep calling to the end of the Greenback, they are deaf, dumb and blind when it comes to international capital flows or monetary policy.

Draghi realizes that he is subsidizing the European governments. He is not stimulating the economy, he simply has them on life-support.  Stopping the bond program will lead to a major crisis when there is NO BID for government bonds. Not only will Draghi keep buying government debt, he will be repurchasing debt as what he already has expired.

Draghi has created the economic NIGHTMARE from which there is no escape. We will be putting together a special report on World Debt market since this is the real crisis we are facing with the Monetary Crisis Cycle that began here in 2018.

When will California break away from the USA? The window opens in 2022

California in Peril

Posted Feb 28, 2018 by Martin Armstrong

California is trying to scheme to circumvent the Trump Tax Reform which limits deductions to $10,000 in state taxes from their federal returns. Of course, the California press portrays this as punishment for voting for Hillary. But they support higher taxes as long as they get to deduct them from the Feds, which has been very hypocritical, to say the least.

The average tax paid in California amounts to $18,438 for 6.1 million returns of state residents who itemized deductions in 2015. And that adds up to a mountain of money — 6.1 million multiplied by the lost $8,438 in deductions is $51.5 billion. So we will, at last, see just how generous Californians really are in their Democratic beliefs that everyone should pay higher taxes.

The dishonesty of politicians in California knows no bounds. Naturally, there is no discussion whatsoever of reducing the tax burden for residents by reducing the cost of government. OMG! How dare someone even utter those words in a state that wants to tax per mile a space launch travels above the state.

State Senate President Pro Tem Kevin de León, D-Los Angeles, proposed to set up a state charity named the California Excellence Fund which would allow taxpayers to donate to it get a 100% credit on state income taxes. Since Trump’s federal taxes doesn’t impose limits on charitable deductions, the scheme would, in theory, allow Californians to lower their federal tax obligations while paying the same amount in state taxes. Ah! Brilliant!

The problem would be that this could alter the definition of charity and result in the Feds eliminating real charities to circumvent California’s latest scheme.

The truck rental business is a leading indicator of net migration. There is a shortage of trucks for rent to get out of California. The rates can be 300% higher to rent a truck for one-way trips out of California v trips into the La La Land of endless taxes.

Seven U.S. states currently don’t have an income tax: Alaska, Florida, Nevada, South Dakota, Texas, Washington, and Wyoming. And residents of New Hampshire and Tennessee are also spared from handing over an extra chunk of their paycheck on April 15, though they do pay tax on dividends and income from investments. The number one place Californians are migrating to is Nevada with the truck rental ratio at 16.4:1 leaving California.

Real estate is starting to decline in the high tax states and it is flat to rising in non-income taxed states. California has surpassed some of the most socialistic taxed countries in Europe and they get even less. So where does the money go? Into the pension for state employees. CalPERS is still underfunded, and it is a $345 billion pension fund has been collecting more money from employers. In 2016, CalPERS paid out $20.5 billion in benefits – $4 billion more than it earned, according to its annual financial report.

Sacramento Mayor Darrell Steinberg, seen here delivering the State of the City address on Jan. 18, wants to raise sales taxes to cover pension costs that are rising. The pension crisis will simply bankrupt the State and politicians refuse to address the problems.

Gov. Jerry Brown and Treasurer John Chiang have cooked up an idea to borrow $6 billion from the state’s Pooled Money Investment Account and spend it on an extra payment to the CalPERS — that is, make an advance payment to CalPERS for pensions. The idea was aired by Brown in his May 2017 budget proposal. In January 2017, Jerry Brown wanted a 42% increase in gas taxes to bailout CalPERS.

All of these schemes are only to help government employees – not the poor on the street in some magnanimous social caring effort. The question becomes, when will the sheet be pulled off the Democratic agenda laced with class warfare pretending this is for the people when it is for the government? A real Democrat is not a Donkey – it’s a Zebra, like Hillary who said you say one thing publicly and another privately.

California became a State on September 9th, 1850. When will California break away from the USA? The window opens in 2022

Our models tend to reflect that Turkey will see a complete monetary collapse during the 2021/2022 period.

Turkey – Default or War?

Posted Feb 26, 2018 by Martin Armstrong

QUESTION: Mr. Armstrong, My father was ______ the banker who commissioned you to do the Turkish lira hedging project in 1983. He passed away as you know. I found this material in his files on Turkey that you apparently published back in 1985. Some articles are saying that Turkey is the epic center of debt. I do not get that sense here and I figured you were really the authority my father always quoted. Can you shed some light on this subject?

Thank you

__

ANSWER: Yes, I remember your father well. You have my sincere condolences. I remember that project for it was very challenging. I had to create a hedging model for the Turkish lira when nobody would make a market. That was one of my earliest synthetic creations.

The Turkish lira continues to move into hyperinflation and it has nothing to do with the fiscal policies of the government. Plain and simple – even its own people do not trust the government nor the currency. Hyperinflation takes place not because of the quantity of money, but because of the collapse in public confidence.

Turkey is BY NO MEANS the epic center of the debt crisis. That is really an absurd statement. Turkey has sold Dollar-denominated foreign debt like all other questionable emerging market countries. That is how they all have sold debt by taking the currency risk on to themselves.

I have been warning that as the US rates rise, this puts pressure on the $9 trillion of emerging market debt issued in dollars. The risk of a major debt crisis starting in Turkey is a very myopic view as we are facing a contagion of a Sovereign Debt Crisis among all emerging markets.

Turkish President Recep Tayyip Erdoğan is an autocratic strongman. The far greater risk is his rising threats against Greece and others to start a war. He has threatened the Kurds with war as well asGreece. He has threatened to extend the Afrin military operation to Manbij.

Yes, it is true that Turkey owes foreign creditors $ 450 billion, of which $ 276 billion is denominated in dollars and euros. The Turkish private sector has about 36% foreign-currency based debt. Because of the decline in the lira, interest rates on domestic loans has risen from 6% to 12%.

The lira has depreciated against the dollar dramatically since August 1970. It was trading at 9 to the dollar back in 1960 according to our database.

1960 — 1 U.S. dollar = 9 lira (TL)
1980 — 1 U.S. dollar = 0.0001 lira (YTL)
1988 — 1 U.S. dollar = 0.0018 lira (YTL)
1995 — 1 U.S. dollar = 0.0611 lira (YTL)
1996 — 1 U.S. dollar = 0.1075 lira (YTL)
2001 — 1 U.S. dollar = 1.4396 lira (YTL)
2004 — 1 U.S. dollar = 1.3421 lira (YTL)
2008 — 1 U.S. dollar = 1.21 lira (YTL)
2009 — 1 U.S. dollar = 1.6 lira (YTL)

2012 — 1 U.S. dollar = 1.81 lira (YTL)
2016 — 1 U.S. dollar = 2.94 lira (YTL)
2017 — 1 U.S. dollar = 3.77 lira (YTL)
2018 — 1 U.S. dollar = 3.75 lira (YTL)

As interest rates rise, Turkey will certainly find itself in trouble. However, to say that Turkey will just default is one thing. The real risk is that Turkey will start a war to maintain its dignity and suspend all debt payments overseas both public and private.

Our models tend to reflect that Turkey will see a complete monetary collapse during the 2021/2022 period.

The people do not trust the Turkish lira. They are hoarding currency of just about any other country but their own.

Adapting Machine Learning for Medicine

Posted Feb 21, 2018 by Martin Armstrong

One project I want to move into after we finally get Socrates up for all levels of service is to turn toward medicine. Google’s AI algorithm predicts heart disease by scanning your eyes. They have used machine learning to accomplish what a doctor would do by traditional methods including blood work.

Medicine suffers from the same problem as financial analysis. It is dominated by opinion and that depends entirely upon (1) your experience and (2) the current situation. For example, a small child of about two was running a high fever. She was taken to the doctor who was flooded with flu patients. She was checked for the flu, found to be negative, and sent home. Day three, the fever was still there. Again, the little girl was taken back to another doctor. The same thing took place. After day four, the fever persisted and once more she was taken back to a doctor and the same thing took place.

Finally, the mother noticed she was not urinating and the child simply responded that it hurt. A fourth trip ended up admitting her to a hospital with a urinary infection that had by now started to impact her kidneys.

Medicine, like analysis, is dominated by opinion. If the doctor does not think of anything else to test, nothing takes place.

Machine learning can be used with a full body scanner and much more accurate results can be obtained. We need a machine that will also do a full body ultrasound scan, a simple pinprick for a drop of blood, and the machine could come up with a lot more information at a far lower cost than what we see today.

They sell new debt to pay off maturing debt

India Enters the Sovereign Debt Crisis

Posted Feb 22, 2018 by Martin Armstrong

I have warned continually that the Sovereign Debt Crisis will unfold not so much by people selling government debt, but by the lack of people buying new debt. The greatest peril is when there is NO BID for the new issues because all governments are operating a PONZI scheme. They sell new debt to pay off maturing debt. Currently, holders of Indian government debt have been dumping 4.7 billion rupees ($73 million) of government bonds on average every day this year, according to data from the Clearing Corp. of India. Last year, their net daily sales totaled 368 million rupees.

The Sovereign Debt Crisis emerges when the government is unable to raise enough cash to pay off the maturing debt. India has crossed that threshold so as we have warned, the Sovereign Debt Crisis will begin from outside the USA and spread to the core. This is how all Empires, nations, and city-states collapse

The Way of the Future

Posted Feb 5, 2016 by Martin Armstrong

One of the more vital technological advancements has been developed locally in Philadelphia. They can grow all the necessary food without farmland from inside a warehouse that is completely free from genetic tinkering or chemical whatever. The owners of Metropolis Farms actually grow fresh produce all year long. Those interested in survival of the fittest, well here it is.

President Jack Griffin developed this technology and has been doing a bang-up job. It would probably not be a bad idea to set one up in a basement for the years ahead. As he explained, “The innovation here is density, as well as energy and water conservation.” Griffin continued, “We can grow more food in less space using less energy and water. The result is that I can replace 44,000 square feet with 36 square feet. When you hear those numbers, it kind of makes sense.”

This is the way of the future  — fresh food coming from your basement.

Volatility – What is It ?

Posted Feb 19, 2018 by Martin Armstrong

QUESTION: Dear Martin,

In the private blog you mentioned a few times that the volatility will rise again in the week of the 12th. When you mention volatility, do you mean volatility as measured by the VIX index?

So far the VIX has lost around 1/3 this week so I suppose you mean something else?

Thanks!

JWD

ANSWER: The VIX is not a true indicator of volatility. We have three main volatility measurements and each is different.

(1) you have the traditional measurement of close to close. That is interesting, but it does not truly capture the concept of volatility.

(2) Then there is intraday volatility which we measure and simply the percentage movement between the high and low of that session. You can have a 1,000 point swing in the Dow intraday yet close nearly unchanged. The first volatility measurement would never even show a blip.

(3) The third measurement is overnight volatility. This is measured from the previous close to the open of the current day session. For example, Monday, February 5th the Dow opened at 25337.87 compared to Friday’s closing of 25520.96 gapping down.

Our indicators are intended for trading, unlike the VIX. In our Arrays, you will see Overnight Volatility, Intraday Volatility, and Panic Cycles, which are extreme moves in one direction or an outside reversal which exceeds the previous session high and penetrates the previous secession low.

The VIX is a convoluted formula that does not reflect trading but more of a trend lending itself to manipulations. Hence, the VIX is not very reliable. The VIX is a measure of expected volatilitycalculated as 100 times the square root of the expected 30-day variance (var) of the S&P 500 rate of return. The variance is annualized and VIX expresses volatility in percentage points.

where var = (365/30) x Expected 30-day variance.

The 30-day variance is the sum of squared standard deviations s_t (“volatilities”) of the S&P 500 rate of return at every point in time t during the 30 days:

Electing all FOUR Monthly Reversals to change a trend from bullish to bearish or bearish to bullish is by no means an easy accomplishment.

The Third & Fourth Reversal

Posted Feb 2, 2018 by Martin Armstrong

Many have asked for some clarification on the Reversal System and how we use it to ascertain changes in real trend. As stated previously, trend changes ONLY on the Monthly Level of time. The Daily and Weekly levels are the noise. This is where most people lose their money trading because a correction may appear to be a change in trend but it will suck them into a false move and the reverse again. Only at the Monthly level can we determine the true character of a market be it bearish or bullish.

We can see that there were periods in the Dow that provided brief corrections. The challenge was to determine if those corrections changed the trend. On our model, we can draw lines in the sand that if crossed provide the identification that the trend is actually changing. The trend is changed by electing all FOUR Monthly Bearish or Bullish Reversals. What is typical is the fact that we elect the first two and hold the third. This is a strong correction which typically moves the majority to assume the trend has changed when it has not. This is how the market traps the majority and cleans out their pockets making them pay their dues for learning.

All FOUR Monthly Bullish Reversals were elected in the Dow on the close of September 2012. There was one-month follow-through, a pull-back to retest the reversal, then it simply took off.

In the case of Gold, why have we been optimistic that gold will turn around and rally when the Monetary Crisis Cycle begins? When we look at the Monthly Reversals, gold has pushed through the first THREE reversals yet stopped before the FOURTH both on the upside and downside. From the major high, we elected the first THREE Monthly Bearish but not the FOURTH at $903. This is why a dip below $1,000 remains possible but unlikely to elect that reversal. Such a move would be enough to trap the majority and set the stage for a rally that is at last not believed as we have seen in the Dow. We have had the most hated bull market in history going on for 9 years now and the retail public is still not foaming at the mouth. Analysts are only now starting to consider it will continue and that is based only on Trump’s tax reform.

Then from the 2015 low, gold rallied and again moved through the first THREE Monthly Bullish Reversals stopping at the FOURTH. We have the perfect balance that is often the character of markets – equal opportunity for each side.

The major TREND is determined ONLY at the Monthly Level. Electing all FOUR Monthly Reversals to change a trend from bullish to bearish or bearish to bullish is by no means an easy accomplishment. Never get fooled by short-term moves on the Daily and Weekly level. So many people immediately call for a change in trend based upon just a few days price action. These are the people who are easily separated from the money rather quickly and will blame everyone else but themselves.