European Tradition of Cancelling the Currency

Posted on June 4, 2014 by Martin Armstrong

QUESTION: Mr. Armstrong; I have never heard of cancelling a currency and replacing it where the old notes are worthless. This is routine in Europe?

Thanks

ANSWER: Yes. The old 50 pound notes in Britain are cancelled as of April 30th. Then in 2016, Britain will cancel all its currency again coming out with plastic notes abandoning paper.

First there were the British White Notes between 1694 and 1955. These are all cancelled as well.

In 1914 there were Treasury notes that were cancelled in 1928. Typically, notes have been cancelled every 17 years (2 x 8.6). Very interesting.

There is no legal obligation to actually redeem old notes. The rest of Europe follows the same procedures. Bank notes are just routinely cancelled and this PREVENT then from being a real reserve currency used around the world as the dollar.

China- property price controls

Observation From China

Posted on June 5, 2014 by Martin Armstrong

A reader in China has contributed this observation:

COMMENT: 

Hi Martin,

Just a personal observation for you. Turns out governments think the same.

Prices in real estate has been dropping here in Hangzhou city, Zhejiang, China. A combination of factors have caused a lower confidence in the real estate market in the city. Developers have also been cutting prices to encourage sales so as to get their money back for cash  flow, further contributing to the lower of confidence and setting the expectation that prices will drop.

However, when prices drop to a certain level, for example 8000 – 12000 RMB / sqm in some districts here in the city, or around 5000 RMB / sqm in nearby areas, the first time home buyers do swoop in and purchase the units.

The government, though, fearing a “collapse” in prices, hurting their sole revenue stream by selling land use rights (with the estimated revenue from land rights sales contributing 95% of this year’s operating budget), have imposed “price decline limit” policies discouraging dropping of prices by developers.

This in effect is cutting out the “shorters/buyers” who provide a base support at the market’s bottom, further endangers smaller developers who can’t sell units at lower cost to replenish cash flow, which leads to these developers running out of town and leaving unfinished units to the banks becoming bad debts, and further cutting capital available for the economy, which will cycle back to have even less appetites for units with prices at an artificially supported level. All these while available monies and credits are sitting on the sidelines in the accounts of those who are looking to buy their first homes at an affordable price.

DAX Passes 10,000

Posted on June 5, 2014 by Martin Armstrong

QUESTION: Marty; I attended the Berlin Conference where the …. central bank attended. You said that a closing above 8100 in the DAX would result in the index breaking the 10,000 level in 2014 and perhaps reach 11,400-12,000 by 2015. Well, congratulations. You got another one right. Are we headed into that high now for next year?

ANSWER: So far, it appears to be on track. The skepticism in the US about the US share market is still very high. This warns we are nowhere near the final highs yet. The DAX, though, will have a 13 year high from the lowest annual closing in 2002 and 12 years up from the 2003 low. The middle ground resistance was 9700. If that now provides support, then we can run up to test the next area in the 11400 zone. The key support lies now at the 9000 level and holding that on a monthly closing basis will keep the DAX firm. There can be a scare come September. That is where we have to target support carefully.

The vast majority of analysts have been wrong because they are focused on the traditional fundamentals that do not apply in a Sovereign Debt Crisis. People are scared of what is coming where a fool and his money will be easily parted. First we have to identify the trend, then correlate the investments carefully. If the DAX were to exceed 12,000, then we are in a real Phase Transition to the upside and you better pay VERY CLOSE attention to what our computer forecasts next.

Negative Interest Rates Coming to USA

Negative Interest Rates Coming to USA – But Wait! Banks or You?

Posted on June 6, 2014 by Martin Armstrong

QUESTION: Martin,

Continued blessings for publishing your remarkable insights.  Will the banks pass on their negative interests rates to the depositors?

What will be the effect of depositors removing their cash from the banks?

Thanks

M

ANSWER: In the US, the talk behind the curtain is to impose negative interest rates on the consumer. Banks have huge deposits at the Fed collecting 0.25%. They are quite happy to collect that and we are talking about more than $1 trillion in “excess reserves“. The Fed is under pressure not to close that facility.

Like airlines who turned against their customers with huge fees to cancel tickets adopting the predator tactics of the money center banks that always traded against clients, the US version of negative rates will be your bill. We are more likely to see “fees” rise on accounts with zero rates of interest or 0.01% without calling it negative. The US banks will scream and claim they will be unable to sell government debt if rates to them go negative. This is a negotiating problem and everyone is pointing the finger at you.

The ECB cut their rates to banks – a bit more direct. However, keep in mind that because the EU failed to create a consolidated debt, the banks cannot threaten the EU that they will be unable to sell their bonds and will thus the EU will collapse. So the structure is different. The US relies upon banks as primary dealers to sell their debt and hence need the banks under that system. The banks have used this to their advantage in a crisis claiming unless they are bailed out the Feds will collapse.

This is why I have continually stated that we no longer need to borrow. This is a barbaric relic from left-over monetary systems that is escalating the entire problem. About 70% of the national debts are composed of accumulated interest expenditures that benefited nobody. This is driving taxes higher to try to support the revolving debt that only rises and never declines. Like Detroit, when the expense to keep the past exceeds the present, the system collapses. Just do the math.

What happens when we hit 100%? Do we go super-deflationary like a super-nova as we extract more and more from the economy transforming us all into simple slaves? Those who keep talking about hyperinflation are blind to this mechanism that destroyed Detroit and all Empires before us. They just assume you print to meet obligations and cite Germany or Zimbabwe yet fail to consider they already defaulted on the debts and cannot borrow. There is the problem of just defaulting and deflationary collapse without trying to pretend you meet any obligations. Spain became a serial defaulter and collapsed into a third world status from being the richest nation in Europe because of all the gold and silver the brought back.

In the USA, we are more-likely-than-not going to get the negative rates directly passed to consumers by the banks who will claim it is the Fed who will do so at the requests of the banks. Larry Summers has set the stage. This is just how it works. He flew the balloon to get everyone ready. This is likely to be bullish for the stock market.

Negative Rates USA -2015.75

Was Socrates Surprised by Negative Rates?

Posted on June 6, 2014 by Martin Armstrong

QUESTION: Will you have to change your/Socrates opinion due to this extraordinary step?

I please you to give as an idea, as Socrates seems to be currently not updated.

ANSWER: We actually have a very comprehensive interest rate database. Above is a picture of world interest rates but based upon capital concentration back to 3000BC. That means it is like a nearest future contract. When one empire fails we pick up with the next to provide a continuous view based upon the largest economy. That has moved from Europe to Asia several times. (World Interest rates 3000BC-500AD)

 Our 1992 Forecast for Negative Interest Rates in Free Market

based upon Capital Concentration

While this is the first time a central bank has created an “official” negative interest rate, it is not the first time in history that interest rates have gone negative in the free markets. They have done so when capital concentrates and tends to hide. It effectively is paying someone to hold your money safely or there is such a concentration of capital people are unwilling to borrow or invest.

Banks began simply as a depository. Only AFTER “merchants” began storing money for a fee (negative rates) did they discover that they could lend money at a fee to someone else and giro banking was born. A giro bank is where money changes hands between two people but the money does not leave the bank. Above is our 1992 forecast calling for such negative rates to hit in the free markets with the crisis starting from 2007.15.

However, the second part of that forecast calls for the low in such rates being NEGATIVE by the conclusion of the 34 year cycle from the 1981 high. That will be guess when! You got it – 2015.75. This is why we previously forecast that the Sovereign Debt Crisis should start its Big Bang when this cycle turns. This is a slide a client saved from our 1998 World Economic Conference.

So was Socrates surprised? No. Interest rates began as negative. You pay merchants to hold your money because they have security and hence rates were negative. Rates fall as capital concentrates. In 1981, the fear was the US would default. Gold ran up to $875 in 1980 and rates kept going into March 1981. Rates fell sharply as capital was then attracted to the USA.

This ECB negative interest rate is historical from a central bank that has emerged really in the 18th century and did not exist previously. There were clearing banks like the Temple in Delos, but they were not used to stimulate the economy by government. The first government bank, Wisselbank founded in 1609, went bust when people discovered they were paying for storage (negative rates) and here the bank was lending the money to its own enterprises – oops! It was the Wisselbank that was the model for the first central bank – the Bank of England in 1689.

No doubt the skeptic will come up and say ya. Where did this 34 year cycle come from? That is 4 times 8.6 and it tends to be dominant in financial markets rather than commodities for the cycle duration is longer. There were even 34 months for the cycle of the crash 1929 to 1932. Don’t forget – this is fractal.

I keep saying that everything is connected. Do not judge what I say as my opinion against someone else. I am not on that personal soap box. ABSOLUTELY everything is connected. Gold had to decline, interest rates had to go to negative, sovereign debts had to crack causing capital to concentrate, the dollar had to recover, and the war cycle had to turn and the banking cycle on proprietary trading 31.4 years had to start to turn. All of these things are just a tiny fraction of the global correlation of how everything functions.

I could care less what someone’s opinion might be. Personal opinions are not worth much these days – that includes mine. This is orchestrated like a ballet. Everything is timed and set in motion to produce the wave of Creative Destruction. The old saying – you can lead a horse to water, but you cannot make him drink. Those that keep trying to turn this into a personal contest have missed the boat. They will never see the whole and are still barking at a tree lost in the middle of a forest.

China turnaround in 2020

Liquidity Collapse – FATCA, Manipulations, or Both?

Posted on June 5, 2014 by Martin Armstrong

QUESTION: Marty; do you think that the decline in liquidity is linked to all the manipulations that you fought against are now being exposed? You warned that with the decline in liquidity volatility will rise. It is interesting to watch the lower gold goes the more these people seem to hate you.

Thanks

AM

ANSWER: There is hardly a market the money center banks have not manipulated with the trend. They were warning Congress that preventing them from trading will collapse liquidity. Yes, perhaps cutting their wings on proprietary trading has contributed to the sharp decline in liquidity, but the introduction of FATCA has probably done the lion share of damage causing the real collapse in liquidity that has NEVER recovered since the collapse 2007-2009. Liquidity remains at about 50% of what it use to be and this means when we turn down next, VOLATILITY will rise.

One client in Switzerland wanted to open a brokerage account with one of the major US firms to deal with a broker who was familiar with our model. They would not allow that and stated he could only trade through their international desk. The true story, you cannot even select your own personal broker because the big firms need to comply with snitching on everyone reporting back to their various countries what they are doing. Needless to say, the account was not opened.

There is one man fighting against the FATCA trend. The settlement of the tax dispute between the U.S. and Switzerland has been blocked by Senator Rand Paul once again on Wednesday. This includes ratification of five control agreements, which includes the one with Switzerland. The agreement is intended to make it easier for Swiss banks to provide names of American tax evaders to the IRS and FBI. To settle the tax dispute, the Obama Administration has required customer names be turned over in addition to outrageously high fines.The US authorities have been targeting about a dozen Swiss banks, including Julius Baer and the cantonal banks of Zurich and Basel.

Paul explained his refusal centers on the concern that foreign governments would be simply in control of Americans worldwide. “We must not forget the innocent Americans that do not break the law and have a right to privacy.” Paul is demanding that the arrangements for the exchange of information be deleted from the agreement.

Rand Paul is effectively standing up against FATCA, but one man alone cannot save the world economy. The fact that he is standing tall on this issue deserves tremendous applause.  Nevertheless, liquidity has collapsed and there is no putting this back in time to prevent the downfall that lies ahead.

Paul insists that the relationship of a citizen to his state, including his tax affairs, is a matter of constitutional privacy. Control of that information is highly dangerous and unconstitutional. Unfortunately, far more serious on the horizon remains the control information among countries. Citizens have not made a partnership agreement with the world community, yet are losing their privacy and have obligations imposed upon them by everyone. The G20 decided that this control information is automatically passed among nations in the future and have embarked upon the technical preparations to do so. The citizens of all countries have no democratic say in the G20 – this is purely a dictatorial consortium of governments sharing info to hunt down capital everywhere because they are incapable of running their operations legitimately or within the bounds of their fiscal responsibility.

It is a combination of these trends that is destroying the world economy, not just the manipulations of the money center banks that have been going on from controlling storage to fixing prices in commodities and interest rates. Of course, there will be those who hurl all sorts of names at me because they cannot articulate any truthful facts other than their self-interest in promoting some agenda. It is the oldest game in the book. If you really cannot argue the message even with fake data, you attack the messenger. I cannot imagine how these people can say I am wrong, the markets are manipulated so gold will decline unfairly, but that’s ok, still buy more. Who are they being paid by to get people to buy in a declining market?

Even if you look at the stock market. Here you have the majority of talking heads constantly saying the market will crash. Others just write nonsense that Wall Street is always optimistic and is ready to crash. Talk to brokers and you find that the “retail” players that typically rush in and buy the highs in stocks are not there. This is part of the sharp decline in liquidity. We are clearly not in a Phase Transition in the share market. Nonetheless, they desperately try to trash the rise in the share market as false to justify as always buying gold.

Nevertheless, you have an overwhelming amount of gibberish that speaks the same traditional relationships like a broken record. Things have changed. If the stock market crashes today, where do people run to? Bonds as always? But if governments are the problem, what then? The gold promoters keep saying the same thing since 1971. They preach the dollar will collapse and only gold will rise, but we have been waiting for that more than 40 years now. You would think they would give up. but no, there seems to be a fresh crop of people to keep selling the same story to over and over again.

We are in a very difficult period where the old relationships are changing because the real problem is on the government side – not the excess of the private sector. All of these manipulations have been within the trend – they have not altered the global trend at all. The Sovereign Debt Crisis has been set in motion after World War II and governments have been borrowing constantly with no expectation of paying anything back ever. It is one giant Ponzi scheme rolling over the debt continually. This is like an aircraft carrier. You cannot simply change course and turn around like a speed-boat.

These manipulations can increase the volatility but they can never transform a bull market into a bear market simply because everything is connected. Of course the gold promoters want to pretend they were right and the manipulations are why they are wrong. Sorry – it is the analysis that is wrong. If China did not peak in 2007 and the place was still expanding, they would still be a buyer of commodities and there would be no bear market in many. But capital began to shift from South East Asia into China in 1994 when those markets peaked. That resulted in the classic 13 year rally into precisely the peak of the ECM 2007. Now a 13 year decline in the economy points to the low in 2020. Sorry – it is precisely on schedule.

Then there are the Baby-Boomers. If they do not exist, then there would not have been a continued bid to lock in fixed long-term income for retirement and 30 year bonds would have remained at the old 8% benchmark. However, everything is connected.and the overall trend of everything dictates the future.

People can argue against me with opinion all day long. Nonetheless, the trend is the trend and manipulating LIBOR or the gold fix does not alter the global trend of everything combined. Even oil trade is under $4 trillion and gold in 2013 adding up all exchanges and ETFs (which is including some duplication), we end up with just under a $200 billion market. According to the World Gold Council, the breakdown is:

• 50% jewelry,
• 18.7% investment,
• 17.2% official holdings,
• 12% other, and
• 2.1% unaccounted.

That makes the size of investment just under $40 billion – a tiny fraction of even the Fed’s quantitative easing at the monthly level of $85 billion. Yet to listen to the gold promoters, you would think the entire world is somehow in conspiracy against a market that is such a tiny fraction of the world economy estimated at about $85 trillion annually. Yet the entire world is wrong – they are right. According to them the entire world is manipulated to ensure gold declines despite the fact that gold is only .00000235294% of the world economy. I’m sorry. I like gold. I give $20 gold coins as gift to children for birthdays. But the truth is the truth. Gold will rally when everything is lined up.

With the economy turning down, jewelry demand declines sharply. It is only natural for the price to decline as the demand for gold declines. Despite all the protests, by no means is gold only for investment. Gold has its place and its role within the global economy. It is a hedge for individuals against government – not inflation nor is it suitable for institutional beyond a capital play since it yields no income. Those who hate my guts claiming the decline in gold is all manipulation are just to biased. They remain blind to the big picture and refuse to see gold and its place within the world economy. Gold will rise – for nothing goes down forever nor does it rise forever. Everything is connected and the sooner you get to see the world through clear glasses, the sooner you will make money.

So what is this all about anyway? Proving a theory that the world will collapse and only gold will survive? At times it seems to rise to the level of a gold religion. This is about surviving the economic storm that is on the horizon? Quite frankly, I could care less what the instrument is to preserve wealth be it gold, soybeans, or plastic jars. The purpose of analysis is to survive – not sell an idea to prove you alone are right.

Institutions will hold gold shares but not gold

Gold & Institutions

Posted on June 5, 2014 by Martin Armstrong

QUESTION: Hello Mr. Armstrong,

First I wanted to thank you for your continued education and telling the truth about how things really work.  Seems we have been taught a load of cr-p.  I too am below water having listened to the gold promoters, who either are blatantly lying or have delusioned themselves to their false beliefs.

My question relates to Institutions not being able to invest in gold.  In the scenario that appears to be coming in the not too distant future, as institutions find their sovereign bonds imploding,  why won’t they diversify increasingly to investments that are doing better including gold?  Won’t the appeal at that time, convince institutions to finally give in to the pressures that abound and aren’t Sovereign Wealth Funds like China holding gold already?

Thanks again for all the invaluable work you do and for helping the little guy understand the complexity of the world we live in.

DK

ANSWER: From the institutional perspective such as pensions, they need something that pays a dividend. They must have income. They can diversify in going into shares of gold, but holding raw bullion is not an institutional thing and has never been. The risk that they do have is the government could confiscate such assets as they did before. Central Banks have held gold simply because the herd does. It really makes no sense for them to do so unless it is going to be used monetarily. This is really still a throw-back to Bretton Woods without any real foundation in practical use. They no longer need gold as a monetary instrument. It is becoming clear that money is simply confidence.

The VAST majority of institutions are going to lose money. That is just how it has to be. Yes we have a lot of institutions following us and many are starting to shift their portfolios. But this is still a small percentage of the whole. As the markets move against them they will be forced out of their bond positions. Keep in mind that their conservative position has been traditionally 40% bonds. There are almost $20 trillion in pension funds in the USA alone.

They will shift to equities from bonds. This is historically what they always do. You also have to realize that institutions stay with the herd. If they all have bonds or equities and lose, there is comfort in the crowd loses. If they stray outside the norm and lose, that tends to be a career-ender.

You just cannot judge the action of a board running a pension fund the same way you would reach a decision as an individual. These are typically decisions that are by consensus.