Real estate during economic declines

City Dwellers At Greatest Risk

Posted on June 12, 2013 by Armstrong Economics

History stands as witness that those who live in cities are at the greatest risk as we move forward. This is why we see population increases in cities as the economy expands and then it contracts as the economy declines. City living becomes the most dangerous because everything has to be imported from water to food. As the economy declines and civil unrest rises, the worst place to live will be living in a city. That is also where real estate will collapse the most when economic stability declines.

The population of Rome is indicative of the entire crisis. We are moving toward the break-up of cities as taxes rise and the chase out people who take their wealth leaving behind the least intelligent who end up losing everything.

Weimar Republic

Wiemar Republic & Gresham’s Law

Posted on June 7, 2013 by Armstrong Economics

Reply

QUESTION: Hello Mr. Armstrong,
Thank you for taking the time to address the questions that I and many others who follow your work have asked.
In your most recent answer to a readers question, you state, “Therefore, it was the complete lack of CONFIDENCE in the government that (1) caused the hoarding, and…..”
From what I have read about The Weimar Republic, as soon as people would have fiat in hand they would rush out and spend it before prices would increase, often requesting a bill at the start of a meal to prevent having to pay a higher price upon completion.
How does hoarding play a role where people could not get rid of fiat fast enough?
When you say, “Because people were hoarding real money so there was none to be deposited in banks…”, by “real money”, are you referring to fiat or some other form of capital?
Your clarification would be mush appreciated.
ANSWER: The Wiemar Republic was a 1918 communistic revolution following the 1917 Russian Revolution. The extremists even wanted to invite their fellow communists in Russia to come take Germany.

Whenever you have war, wealth is hoarded. In the case of the WWI and WWII, the gold fled Europe and moved to USA so the US that was broke and needed J.P. Morgan to bail it out in 1896 emerged with 76% of the world gold reserved by the end of WWII, which is why the dollar became the reserve currency.
In Germany, wealth was hoarded because of WWI to start with. Therefore, the German banks were cash poor by the end of the war. With the communists seizing control, that wealth remained hidden. With gold and silver hoarded, there was nothing to create money to restart the nation. This is why the Wiemar Republic went into hyperinflation. (1) real wealth was hoarded (meaning gold and silver coin both domestic and foreign), and (2) nobody in their right might would lend to a communist government that defaulted on all bonds anyway. This resulted in the total collapse in CONFIDENCE in the government and hence all they could do was to print money. They were crazy revolutionaries with no respect for capital or assets.

Gresham’s Law thus applied. Bad money drives out Good Money. So the inflationary notes took place because nobody would hold those and they spent that as fast as they could hoarding anything of international value. The Japanese government did a similar thing where nobody trusted the money of the state and refused to accept it. Hence, Japan recognized coins from China as well as rice. But the Japanese government had with each new issue of coins valued them at 10 times what was in circulation. That meant you could not SAVE money for it was constantly being devalued. This eventually led to the people not accepting the coinage and it thus vanished for 600 years.

The money hoarded in Germany were gold and silver coins of Germany and foreign nations. As the prospects of the war began to look quite dim for Germany, people hoarded foreign coin as well. This is why there was hyperinflation – the complete collapse in CONFIDENCE in government. This is precisely what followed the fall of Rome where gold vanished and was not coined again in Europe until the 13th century. Japan also experience the complete collapse in trust of government and this is essential to creating a dark age.
This is also why I say those buying gold or silver for a hedge, should buy coins rather than bars. With government on the prow and these people willing to do anything, this time they have the data to come knocking on your door asking for the ten 1 ounce coins you bought from the Mint or some dealer they seized all his records. They couldn’t do that in 1934.

You should also understand the reason FDR made an exception for collector coins is because Teddy Roosevelt was a big ancient coin collector. It was Teddy who wanted the mint to strike coins as beautiful as the Greek in high relief. They minted the 1907 $20 St Gaudens in high relief, but they could not in large quantity. So FDR understood that aspect of collecting since it was in his family. Will government respect that again? Who knows? They seem to respect absolutely nothing right now.

It’s Always A Confidence Game

 

Posted on June 6, 2013 by Armstrong Economics

QUESTION: I don’t understand the page 11 comments about German Hyperinflation and that it took place because capital was being hoarded and there was no lending?????
Can you clarify how price hyperinflation occurs if no one is spending or lending.
RESPONSE:
Because people were hoarding real money so there was none to be deposited in banks and thus there was a shortage of internationally accepted money. The Wiemar Republic was a communist revolutionary government that did not have the ability to borrow for who would lend anything to a government that was rejecting capitalism? Therefore, it was the complete lack of CONFIDENCE in the government that (1) caused the hoarding, and (2) caused the complete lack of credit preventing any bond issues. Consequently, the government could ONLY print money.
But the KEY that is overlooked is CONFIDENCE. All we hear is how the US will go into hyperinflation because of the Fed’s monetization. That is gibberish. Ask the average American if they trust government and the answer is still YES! Hyperinflation requires the wholesale collapse in the CONFIDENCE of government. That is not likely. We must crash and burn before that will happen. It is not what YOU believe, it is what the MAJORITY believe and they are NOT on board yet with the full collapse in CONFIDENCE in government.

Interest rates and stock markets

A Normal Market

Posted on June 1, 2013 by Armstrong Economics

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In the normal world of capital flows, bonds decline when stocks rise. The talking heads that claim lower interest rates are bullish for stocks once again try to reduce everything to a single cause and effect that applies to a single frame in a long movie. Here we can see that bonds declined when stocks rallied into 1929 as interest rates ROSE not declined!!!!!!! The explanations that the Dow is rising because of Fed Monetization and the bonds are rising because of a mismatch in quality, sorry, but that just does not cut it. It is capital inflows into the dollar both bonds and stocks as the dollar is being thrust into the single world currency thanks to the brain-dead decisions of Europe.

The capital inflows to the US were creating a cash shortage in Europe during the 1920s. The Fed in 1927 tried to lower rates to deflect capital inflows back to Europe. This led to hindsight blame being hurled at the Fed claiming the lowering of rates created the Bubble. FALSE!!!! The attempted manipulation of the capital flows CONFIRMED there was a problem in Europe, which eventually manifested in the wholesale defaults in 1931 where even Britain was forced into a moratorium on debt payments.

The capital flows were pouring into the USA for World War I and then invested in the USA helping to create the Bubble in 1929 precisely what we saw in Japan for 1989. At Princeton Economics, we invented capital flow analysis. Simply put – follow the money!
The whole idea of raising and lowering interest rates is again domestic myopic attempts to manipulate the markets. It never works. It is more than a single one dimensional relationship. It also includes the currency. If the currency is rising with stocks, you get international capital inflows for it will be profitable for the foreign investors. If the stocks are rising and the currency is falling, that is purely a domestic movement absent international capital inflows as the stocks will rise in proportion to the fall in the currency. We just saw this in the Nikkei in Japan – yen down stocks up.

Gold & Timing

Posted on May 19, 2013 by Armstrong Economics

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Bull markets I have stated many times are 7, 11, 13 or 21.
Gold has three very interesting bottoms. The 1999 is the intraday low. 2000 is the lowest yearly closing. Then 2001 produces the lowest quarter closing. This is an interesting set up that is rare to say the least. So effectively, both the 11 and 13 cycles come into play since the low was not a single event. So we got the 13 year since 2012 was the highest closing but we got the intraday in 2011 as 11 up from the lowest closing. Had both the intraday and the close been unified in 1999, then the ideal would have been 2010 with a max of 2012.
Likewise, on the way down we should have had a 19 month correction but the move up to create the highest annual closing in 2012 extended the cycle. Everything happens for a reason and this may prove to be the currency crisis.


This decline will be no different than anything before. The bulk of the drop always takes place within the first 2-3 years. So just as gold crashed from $875 in 1980 to $293 by 1982, the 5 year bear market prevailed but low was $280 compared to $293. The 19 year low was only $254.
Even if gold declines into 2015, the bulk of the drop will most likely take place during this year as was the case 1980-1982. A lower low in 2015 may be marginal. That depends upon the low we see this time. If it is in the 1150 area, then the worse case should be 875-907.
We still see the phase transition for 2017 time frame and that is normally up to a 2 year event so 2015-2017 does not change anything long-term. The rest will be in the report.

Europe – The Greatest Threat to World Economy

Posted on May 9, 2013 by Martin Armstrong

These politicians always look at things that never see themselves as the problem. So every solution must center around manipulating the people, never reforming government. They speak only of the private sector and carry a very big stick. They cannot see that this “bail-in” leads to the same result as the German Revolution insofar as people, albeit the smart ones, will move their money and start to hoard their wealth keeping only minimum amounts in the bank. This will start the gradual rise in interest rates as more and more capital moves away from PUBLIC investment and shifts toward PRIVATE. This is the dominant trend that has taken place throughout history. Everything has two opposites and we must swing back and forth between the two.

Europeans are now better-of buying assets, especially shares that are at least transportable. Real Estate could be taxed – just look at the USA and Greece where they taxed swimming pools. The smart ones will take delivery of their shares and not even leave them at a brokerage house. The fools will not believe it and are too interested in non-political things so they do not pay attention. That is historically why fools are always separated from their money quickly.

Does "money printing" actually help ?

What Do Central Bankers Really Look AT

Posted on May 3, 2013 by Armstrong Economics

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QUESTION: Can you please comment on the following. I hear incessant talk about the market being supported by Bernanke. The Fed gets the credit for the market going up. (And when it goes down for not doing enough). How much truth is there in this mantra? How much is the Fed actually affecting stock prices by what they’re doing? It is very confusing to hear day after day CNBC commentators point to the fed as the cause for seemingly everything good and bad in the markets and economy.

ANSWER: Absolute nonsense! The Fed is worried about the rise in the stock market for they are as confused as the talking heads. The talking head’s problem is this constant myopic view of the domestic economy as if everything begins and ends here. We are working urgently to get a new book on the globalization of the economy out ASAP that illustrates this problem that plagues not just the TV comments, but the economics taught in schools. The reason why increasing money supply by the Fed FAILED to produce inflation is the complete failure to comprehend the global economy. It is the global capital flows involving debt and capital investment that drives all world share markets and currency values. The Fed does NOT even control the money supply! International capital does!!!!