It was World War I and II that raised the USA to the richest country in the world by 1950

Am I Certain About the Strong Dollar?

Posted Sep 12, 2017 by Martin Armstrong

QUESTION: Dear Mr. Armstrong,

I have been reading your blog for over a year now. Your posts are a superb read and one of the first things I check every morning before leaving for work! Although I admire your work and writings a great deal, I’m sometimes surprised by the level of certainty you seem to have about how things will unfold in the future. You stated multiple times now that ‘only a rising dollar will break the world monetary system’, but with more and more countries trying to bypass the dollar system, how will the dollar ever get to the strength that is needed to do so? Will the world monetary system break for sure, or is there an alternative ‘softer’ transition possible on a global scale?

Thank you for your insights!

B (from Belgium)

ANSWER:

All the governments of the entire world can try their best to create some new currency to dethrone the dollar. They will fail just as Europe has failed with the Euro, You can denominate oil to peanuts in some other currency but that still will never put a dent in the dollar. Why? It is capital flows than count and trade is minimal. When you cash out of your commodity, where do you put your profits? Oh back into dollar denominated instruments?

The failure of Europe was to create a single debt. Instead, capital must still pick and choose between the Eurozone members and who do they trust more to buy their bonds. Just look at the interest rate differentials. They are all denominating their debt in Euros, but their credit ratings differ just as they do among the States that compose the USA. Germany wanted a single currency for trade, but they did not want to consolidate all the debts in Europe. Hence, we ended up with a single currency that could never become a major currency with no central core.

China will replace the dollar but only AFTER 2032. Until then, they must still work on establishing the Rule of Law so that capital will park in yuan with confidence. Denominating oil in yuan or euro means nothing. Where will you park your cash? That remains dollars for major institutions. There is no alternative. Even the Japanese yen is not a free currency because the government retained control over anyone anywhere issuing and debt in yen without government approval.

In general, Europeans are still trapped in World War II thinking that a stronger currency means economic boom. When all the currencies were wiped out by the war, politicians used the currency value in Europe as a reason to prove they were doing a good job. So the historical bias in Europe has been dominated by the perspective. The USA was a third world country during the 19th century. It was the “emerging market” for European investors. It was virtually bankrupt in 1896 and it was World War I and II that raised the USA to the richest country in the world by 1950 holding 76% of the total world gold reserves. That was accomplished not by Marxism, political economic manipulation, or anything any politician enacted. It was create SOLELY and EXCLUSIVELY by capital inflows because of Europe running around destroying itself.

Above is a chart of the capital flows from 1960 to 1990. It was the US net investment that rebuilt Europe – not Marxism adopted by European Politicians in response to the Russian Revolution in 1917. The capital concentrated in the USA and then moves back to Europe as investment. It was the USA that rebuilt Europe – plain and simple.

We have reached a 5000 year low in interest rates. The ECB owns 40% of all Eurozone government debt. If any central bank is in danger of collapsing it is the ECB. Raising rates will create a huge whole in their balance sheet. Then the true cost of QE will be exposed. Why do you think Draghi is dragging his feet. He knows stopping to buy the debt will cause rates to rise because the governments will be forced to find real buyers. Only a complete fool would rush in where the ECB is withdrawing.

There is no one who wishes this forecast will be wrong than me. Then I can retire, say goodbye to the world and fade into the sunset. Everyone knows I do not need the money. We do not even sell advertising on this blog. We do not force you to register and then bombard you with endless emails trying to sell you something. I too have family. I fear for their future – not my own. I would much rather say its time to Beam Me Up Scotty than having to deal with nonsense I cannot prevent. This is not my personal opinion. The ONLY time we get monetary reform is when the dollar RISES, not declines. Hey, if the dollar declines, then interest rates will continue to travel negative, gold will collapse, the stock market will implode, and Trump will emerge as the best president in history creating massive new American jobs exporting everything not just blue jeans, rock & roll, and US corrupt law. Emerging markets can keep borrowing dollars with no end, dumping commodities than are at excess supply, and everyone will be perpetually happy – the euro will be strong at last and magically the ECB can just keep European governments on life support without end.

Unfortunately, governments are broke. They are hunting people with any money at all and that creates a disincentive to invest, rising unemployment, and civil unrest turning the poor against the rich instead of the poor asgainst the politicians who have created this mess. The negative interest rates harm the poor and middle class where the rich can export their money and invest outside their country to preserve wealth.

No, I am said to say this is the net result of merging all global trends – not my opinion or preferred outcome. I am not even making this forecast just to scam you into buying some book by hyping the situation. My only incentive is to save my own family. As I said, if this was just for me, I would quite now and go enjoy life while I am still in reasonable shape to explore the world.

The Crash & No Bid

Posted Sep 5, 2017 by Martin Armstrong

QUESTION: Hey Marty,

Love your blog and the insight you have given all your readers. However I am wondering that when you say the markets are going to become more volatile – how does that effect the trigger that sets off the dominoes ??

what i mean is, if the economy around the world hits rough water; what is the rogue wave that sinks the ship? is it a quantity/ volume of capital money that shifts, or is it a short circuit due to political turmoil?

I read that the whole 2008 “crash” was triggered by 500 billion dollars, which is minuscule amount of the total USA GDP. But i have also read from your blog that Germany has 5X its GDP in synthetics on the book !

*IF the markets are more volatile, does that mean there is LESS threshold due to a minor tremor in the gov or markets?

your insight on how volatility increases with regards the tipping point, and WHY the tipping point may happen would be of great interest.

N From Canadaor

ANSWER: 

Markets crash when the majority are long and anything can spook them because there is a lack of new buyers coming in to carry the market higher. Some longs try to sell and they find a lack of bids. The crash comes when you hit the no bid and market-makers withdraw. That is the sharp increase in price volatility that is different from volume volatility. With price volatility, there need not be major volume – just a gap and a lack of bids. The event need not even be real – just a rumor.

The panic unfolds because of price movements rather than volume. When large gaps appear WITHOUT supporting news, even professionals sell because they cannot make a decision in a vacuum.

Yuan : road to Reserve Currency

Gold – Oil – Dollar

Posted Sep 4, 2017 by Martin Armstrong

QUESTION: Mr. Armstrong; At the cocktail party in Hong Kong I am the one who asked you how China should proceed to make the yuan a reserve currency. You said the rule of law must first protect property and surprisingly you said to issue commodity contracts redeemable in gold. Well, everyone knows whatever you seem to advise China does and very fast. The news is they will now do exactly that. Start a oil contract redeemable in gold. Can you explain why you took this position? You were surrounded at that moment and did not explain in detail why oil should be redeemable in gold.

DK

ANSWER: It was not based upon the rise or fall of gold. The objective is to establish the yuan as a reserve currency until we reach the Monetary Crisis Cycle conclusion. The logical step is to try to boost the yuan as a redeemable reserve currency with stability. You either PEG it to the dollar (unwise for political reasons) or you “LINK” it to gold – but do not PEG it to gold. If you attempt to PEG the yuan to gold, that would fail for you are making the same mistake as Bretton Woods. The only possible way is to “LINK”  it to gold but on a floating exchange rate. That way you are encouraging confidence in the yuan allowing it to be redeemed on a floating basis with gold. Hence, the political risk of the currency is reduced for it could become possible that the currency system breaks apart and politically currencies could be politically frozen and non-redeemable.

This is a long-term structural reform. Do not expect it to be a real game-changer just yet. There will be hype, of course, but we are looking at structural reforms that will take some time. Naturally the hype will claim this is the end of the “petro dollar” for they will use any excuse to call the dollar down. They do not understand that ONLY a rising dollar will break the world monetary system. A lower dollar will buy everyone a lot more time because most foreign borrowing is in dollars. They also are living in the past. The USA is not a net exporter – not an importer.

WHY are banks Too Big to Fail & Too Big To Jail

Posted Sep 4, 2017 by Martin Armstrong

There is something much more sinister going on behind the curtain. I have warned that you really are taking you life in your hands doing business in New York City because NOBODY ever wins against the bankers no matter what they do. This begs the question about why are banks paying huge fines, yet nobody goes to jail, and there is never a trial while class action suits are summarily dismissed.

Back in 2003, Judge Milton Pollack dismissed two class action suits against Merrill Lynch for putting out bogue research during the DOT.COM Bubble after the investment bank plead guilty and paid huge fines. He wrote a 43 page decision protecting banks even when they produce intentional fake research.The judge said that investors were eager to take that risk and were to blame for their own losses. Similarly, another judge dismissed suits against Credit Suisse First Boston, Goldman Sachs, and Morgan Stanley.

So how are the banks paying huge fines but then nobody can sue them? An inside source coming from a lawyer who worked internally at a bank, explained that the New York Attorney General simply walks into his office and informs them they will hand over $1.2 billion in fines and he does not care about defenses of the rule of law. The bankers pay these fines because they cannot afford to go to trial and lose for then class action lawsuits from depositors and shareholders will bury the institution. So the judges are in on the scam and class actions are dismissed  and the government makes billions.

Who pays for all these fines? I was told they simply set aside an amount for what is called “protection” money just like dealing with the Mafia. The bankers raise fees to fund these so the consumer is the one paying for these huge fines not really even the shareholders. It is indeed organized crime at the government level.

It is the fool who rushes in assuming he will miss the move before key points are exceeded. Gold at 1362. Dow -23,000

Gold & the Dow

Posted Aug 30, 2017 by Martin Armstrong

QUESTION:  Dear Martin,

I have been following your blog for years now. I am not a trader or financial person in any sense of the word but I take a keen interest in the economy and try to keep myself educated re current science theories for my own interest. I love your blog and your fundamental theory re cycles and how the West thinks differently to the East. I feel you have given me an an insight into how the world functions in a way i couldn’t hope to find else where and you generously put your blog out for free which is a public service that I am deeply grateful for so thank you very much for that. I am English and live in England and I have a very modest amount to invest and i wondered if you would recommend either (a)waiting for gold to change trend and investing in that and or (b)waiting for the Dow to possibly go through 23000 and invest in that.

ANSWER: There is little doubt that we stand at the threshold to some chaotic period ahead. I have warned governments behind the curtain of what is to come. It seems as if at times I am the only person who has ever read a history book. I point out that 99% of all revolutions begin with the abuse of taxes. No matter how many times I show this is the trend and all the countless rebellions in ancient, medieval, and modern times (within the last 309 years) such as the American Revolution (no taxation without representation) or France (let them eat cake), I am just one person and I cannot move a mountain. So I do this blog as a public service realizing that we must crash and burn and thus it is up to us at that brief opening in the clouds to push for the freedom we deserve for our posterity.

We know where the trend changes from gold at 1362 to the Dow at 23,000. We have not yet missed anything. The boat has not left the dock. Patience is required along with a clear head. Never act emotionally. Be clam and poised. Remember there must always be the false move before the slingshot move.

It is the fool who rushes in assuming he will miss the move before key points are exceeded. That is when losses are always the greatest. Rallies in gold are up to the next bank of Reversals as is support in the Dow. Keep in mind that September is a turning point in gold and August was key for the Dow. The two are not yet aligned. That may not unfold until next year.

Is the Stock Market Really Overvalued?

Posted Aug 28, 2017 by Martin Armstrong

All we have been hearing since 2011 is how the stock market is going to crash and then there will be hyperinflation and all sorts of strange relationships that never materialize. They simply focus on the level of the stock market in nominal terms without adjusting it for inflation or showing how it has performed relative to the rest of the economy. Here is a chart of the stock market expressed as the total value of shares traded annually as a percent of GDP. Sorry, this illustrates that the retail market is not in crash mode just yet and it is still nowhere near the overbought levels of 2007.

This chart also reflects the crisis we have in liquidity. The more government tries to also regulate banks, they have been withdrawing from proprietary trading and we find the trading volume has been shrinking.

Government manipulates the statistics to always try to reflect that everything is OK and they are doing a fantastic job. Here is the ECB’s assessment of liquidity trying to pretend it’s back to normal. Real liquidity is HALF that of 2008 yet the ECB’s the Financial Market Liquidity Index is a complete fraud for it simply measures the spread between bid and ask and not the volume traded. The Index combines eight individual “liquidity” measures based upon their definition. Three of them cover bid-ask spreads: (1) on the EUR/USD, EUR/JPY and EUR/GBP exchange rates; (2) on the 50 individual stocks which form the Dow Jones EURO STOXX 50 index and; (3) on EONIA one month and 3 month swap rates. Three others are return-to-turnover ratios calculated for: (4) the 50 individual stocks which make up the Dow Jones EURO STOXX 50 index; (5)

Honestly, the bid ask spread can narrow and let a panic start and that will quickly vanish as market-makers withdraw. There is far less depth to the markets today than before back in 2007. A return on investment also means nothing with respect to liquidity.

So as long as we have analysts relying upon government statistics without thinking about their construction, this is really the blind trying to lead the blind. What a joke!

The Overlooked Cost of Electric Cars by EU Gov’t

Posted Aug 25, 2017 by Martin Armstrong

Governments first imposed taxes on alcohol and cigarettes under the claim that they were trying to make people stop for their own good. But as always, as the governments became addicted themselves to the tax revenue. Now they have taken the same theory and applied it to tax soft drinks in Philadelphia naturally because they care and are trying to prevent people from drinking too much sugar. New York State has tried to them impose a tax on  electronic cigarettes,  where the Democratic Governor Andrew Cuomo lived up to the Democratic motto – if it moves or does not moves tax it, and if it died, tax everything it possessed. Only the fact that the Republican-controlled Senate in New York, rejected Cuomo’s plan to tax the liquid used in  electronic cigarettes. Government always pretends to be raising taxes to help people, but it is always a huge lie for its boils down to just grabbing money.

Now all the fuss over the environment and the push to electric cars has a tremendous problem in cities such as how does someone pug in their car when they live in a tall apartment building? But the other side of this coin has another problem. Governments have been faced with declining revenues from cigarettes so then they want to tax the alternative to make up for the shortfall in taxes. The same is happening with gasoline and diesel tax revenue. They will start to raise taxes on electricity using the cars as the excuse.

It seems that nobody publishes a simple statistic to reflect how much taxes on fuel is represented in the total budget of the European Union. There is plenty of information on how much tax on fuel countries charge. But when it come to how addicted government is on those fuel taxes seems to be something nobody wants to reveal.

Average price of oil for the last 20 years is 0.98 Euro per litre. In the EU average consumption of petroleum is 12,530,000 barrels a day in 2016. Therefore, taking this very low average price we arrive at the following:

1 BBL = 158.99L

Therefore multiplying this together we get the amount of litres of consumption of petroleum products per day.

1,992,144,700

Multiply this by 365 to give the yearly total

727,132,815,500

Multiplying this by 0.98 (conservative figure of the average price of oil for the last 20 yrs)

712,590,159,190 Euros of sales of Petroleum.

Multiplying this by the average tax rate of approximately 60% of the pump price is taxation, we then arrive at EU countries recoup approximately €427,554,095,514 per year in TAX revenues from fuel. Now let us take that as a percentage of total tax revenue in the EU and we arrive at €427,554,095,514 TAX on petroleum products within €5,877,506,000,000 in total 2015 Tax revenues of all 28 member states, and we finally arrive at 7.27% of total TAX revenues comes from the tax on gasoline and diesel.
The cost of going Green to the state budgets is going to be huge. This will lead to tax hikes in other areas to make up the shortfall most likely on electricity. We can expect electricity to rise in taxation dramatically and this will impact people in their apartments in cities who do not even own a car.

Then add the rise in interest rates and we are looking at the next 4 to 5 years of a true crisis in funding government