The BOJ held rates unchanged in an extremely quiet market until the final hour rally. Eventually, the Nikkei closed up +0.55% even as the currency meandered around the 117 handle for the majority of the day. In late US trading we ventured back above 118 as futures added an additional +0.5%. Shanghai and the Hang Seng both returned small losses as sentiment after the Berlin disaster shock dealers confidence. The Yuan was fixed lower at 6.9468 but the off-shore continues to demand a premium as caution prevails.

After an initial wobble all core European indices made headway to close with strong gains. The best performers were the CAC and IBEX with around +0.65% a piece while the DAX and FTSE both managed around +0.3% improvement. This should also be viewed in with the currencies as both the Euro and GBP lost ground during European trading hours. It was not until late US trading did both currencies recover from their lows but leave them vulnerable for year end closing levels. There was no significant data releases within Europe today and is light again Wednesday also; so we are forced to wait until the end of the week for more data guidance.

US markets followed the European advances having put geopolitical concerns behind them. Again we inched our way towards the DOW 20k mark. We came well within striking distance of the magical marker but it was not to be today! There is a very good chance this is breached and may even close above that number by year end but even with these advances the volume remains low so is feared many investors remain on the side-lines. Lots of talk surrounding the movement of funds from Fixed-Income back into Equities but many believe this has plenty of room to run.

US 10’s returned to their sell-off today with losses of around 4bp at one stage but closing 2bp weaker at 2.56%. German Bunds continue to rally as fears of not being able to cover/repo over year end drives prices. There remains only one key buyer and he does not have to worry about market-to-market or indeed the end game! 10yr Bunds closed 0.26%. Italy 10’s closed 1.83%, Greece 7.05%, Turkey 11.02%, Portugal 3.70% and UK 10’s at 1.40%.

French judges found Ms Lagarde guilty of negligence for failing to challenge the state arbitration payout to the friend of former French President Nicolas Sarkozy. But of course, following a week-long trial in Paris, Largarde was not given any sentence and will not be punished. The benefits of being of the elite class.

QUESTION #1: Dear Mr Armstrong, you recently wrote that if you are in any bond fund, better get out. Do you also mean corporate short-term/medium-term bonds or are those expected to rise when people realise government debt is the real bubble ?

Kind regards.

WL.

QUESTION #2:  Mr. Armstrong- I enjoyed my first WEC immensely! In the blog and other place’s you warned that you should get out of bond funds. I understand government bonds of all kinds should be sold including date certain and funds. I am curious though about high-quality corporate bond funds. Should one get out of corporate bond funds and move to individual issues? The funds are easier for a working person of course.

Thank you,

KO

ANSWER: We are entering a phase of rising interest rates, so bond funds will do poorly. We are not yet at a stage where U.S. government bonds would default or be swapped. Therefore, my recommendation has only to do with rising rates. What you should do is stay short-term, like 90-day paper or less, be it corporate or government. This is just an interest rate play moving into 2018.

As we move into 2018, we will look at corporate vs government shift. That will become the play, but that will most likely unfold after we begin to see serious problems with government debt outside the United States. In Japan, the ownership of public debt by the private sector is in freefall. Debt to GDP held by the private sector before Abe came to power was 177%, which had collapsed to 100% in 2012, and has continued to decline to about 75%. The Bank of Japan through its quantitative easing now owns more government debt than the private sector. Japan is in VERY SERIOUS trouble and there is no possible way to reverse this nightmare.

The European Central Bank now holds 15% of Germany’s national debt. The central banks have been running out of positive-yielding safe-haven bonds. Yes, the Federal Reserve holds $2.4 trillion is less than 10%. The volume of repo loans using Treasury debt as collateral has collapsed from $2.6 trillion to about $1.8 trillion according to Barclays.

Despite all the complaints that QE has failed, we must ask how deep deflation would be without it. True, QE has not produced inflation. It has not stimulated the economies of Europe or Japan because the confidence of the people is not there. The central banks are trapped and politicians, not hedge fund managers, run government. These people are ignorant at best if not outright deaf, dumb, and stupid. They cannot see how this system of government borrowing will continue if the public no longer buys their debt.

This is by no means going to end nicely. So keep the power dry. We are in for a real crisis come 2018.

COMMENT: Mr. Armstrong; I am fairly new to your blog. I was told by two friends that you said not just that Trump would win and Brexit, but that the stock market would breakout to new highs and gold would decline for more than the last two years. I followed most of the big names who all said the stock market was going to crash and gold would rise. I argued against my friends these past years only to see they and you were right.

Upon reflection, I have concluded that indeed the press is rigged for they put the same people on TV talking about the markets who are never right. The mere fact the major press is not giving you any credit for being the only one out there who has forecast gold, stock market, fall of the euro, and politics flawlessly, made me realize one thing. They cannot possibly be independent in the media or they would be interviewing you and asking how did you do this. That would then lead to a discussion about your AI computer and which would then cause people to think again how do these things really work. So it is obvious. They cannot give you credit without discrediting themselves.  That would mean they do not have the power to manipulate society as they hoped for as illustrated by Brexit and the Trump victory.

Stay safe. You are sweeping the cobwebs from our stale thinking process.

BV

REPLY: Perhaps you are right. The only major press that I do interviews with are outside the USA. Even the Barron’s article back in 2011 that reported we were calling for new record highs did not call me for an interview. I believe it was more of a tongue-in-cheek report because they never expected that forecast to be correct.

Overseas, I was asked to teach at one of the top five universities in the world. When I asked if they were aware of my situation, they said, “Oh yes. We reviewed your case and it appears to have been ‘stitched up.’” in a very British way of putting it. Others said it merely proved that I was not one of the corrupt b*****ds from New York so they knew they could trust me. Still, others said, “How can they keep you in contempt for 6 years after Republic/HSBC pled guilty and received no jail time, provided they returned all the money they stole to your clients?” The simple math shows they could not hold me in contempt when it was impossible for me to owe anything.

The fact that not a single major newspaper in the USA would dare call the banks or government into question when it was so obvious to the rest of the world proves this is not a real free press. Heck, they blocked the movie “The Forecaster” from playing in the USA and Switzerland, which tends to show how in-bed the press really is with government and the banks. The only two countries where the film was blocked is where the banks dominate the government.

The press gave it their best shot to rig the election for Hillary. They lost big time, for they blew all their own credibility on this one. You are right. The mainstream press could never interview me fairly without calling into question their own integrity. We just have to wait until the whole thing collapses and the press is freed from all this corruption. It will come. Let’s see who will be first.

Donald Trump has officially obtained the required 270 electoral votes to become president. Not all state have yet announced, but Texas put Trump over the 270 required. The Hollywood crowd who tried to intimidate electors as well as the nation even offering to pay the fines of electors risking Civil War to get their way, have lost.

State Rep. Christina Hagan, R-Marlboro Township, announced she would resign as an elector when the Hillary supporters desperately filed a lawsuit alleging that the Ohio Constitution prohibits a state legislator from serving as a presidential elector. Hagan responded that she was being subjected to “obvious display of partisan and extreme political bullying” and to resolve any potential frivolous lawsuits from moving forward, she resigned. The deep hatred emerging from the left is astonishing and highly dangerous. Previously,  State Rep. Kirk Schuring, R-Jackson Township, also served as an elector for George W. Bush back in 2004 when he was a state senator. That was not considered illegal or unconstitutional. The Hillary supporters refuse to let this go as every election up to 2016 has proven both sides accept the result and move on.

Today, we saw the first decline for the Nikkei in eleven trading session despite better than expected Trade data (Estimated Y227.4 but actual release Y152.5bn). The Japan Index closed down just 9pts at 19,391 but breaks the winning streak with the currency trading back below the 117 level. BOJ starts its two day meeting today as the currency starts the rebound from recent losses. China’s Shanghai closed modestly lower recording a loss of just -0.15% with Hang Seng closing down -0.85% also on news China is expecting a slower growth rate in 2017.

Europe saw a marginally weaker opening with Deutsche Bank back in the news after talks of cost cutting, bonus retentions and to costs to end government investigations into dark pool trading venues; shares ended around 5% lower on the day. Other European financials in the news was BMPS who’s stock fell 11% today as they continue to raise much needed cash. We eventually saw a mixed close with FTSE and DAX both up around +0.15% whilst the CAC lost -0.2% and Spain’s IBEX lost -0.85%.

In a day where no one market region really shone the US indices did all produce a steady return with the key DOW and the broader S+P, Russell and NASDAQ all following suit. The US Dollar was probably the one driving force for the rallies with the DXY closing this evening at 103.10 (+0.24%). With little key economic data to be released tomorrow (we do have some low level Euro Current Acct numbers; German Producer Prices and USA Redbook) it will be left to watching prices for inspiration and agenda.

Bonds were strong today with US Treasuries finally seeing a little appetite for long dated paper. $12bn were auctioned with average yield of 3.152% but the most discussed topic was that indirect bidders took 63.9%; almost 2% more than the previous auction. 10’s closed this evening at 2.54% as 2’s closed 1.22% flattening the curve 3bp. German 10’s closed 0.24% closing the US/Germany spread at +230bp. Italy closed 1.81%, Greece 7.05%, Turkey 10.97%, Portugal 3.72% and UK Gilts at 1.39%.

IMF chief Christine Lagarde found guilty of ‘negligence’ over huge payout to business tycoon,  but of course there is no jail time. Because of her position, the court chose not to punish her or give her a criminal record. She had faced a one-year term and a €15,000 (£13,000) fine. Many assume this is why she wanted to remain as the head of the IMF to prevent jail time. However, the questionable way the court dealt with her appears far too political and this may yet derail her from becoming the first woman ever to become finance chief of a Group of Eight (G8). An IMF spokesman said they would meet soon to consider the outcome, but the IMF previously said they stood by her that she did no wrongdoing and even this looks to be more like another political-white-wash. To rise in power to this extent means you are also exempt from the law and any accountability. Anyone else would have received one year in prison and a criminal record.

The Australian federal government is planning a full assault on the black or underground economy by appointing a taskforce who will consider the future of the $100 note and bans on cash payments over a certain level. Australia, like everyone else, is facing a monetary crisis whereby the current system of taxes and social programs with pensions are colliding and will simply collapse. This idea of perpetual borrowing cannot be sustained. Instead of reforming the system, they prefer to attack the people, as always — we are just the enemy.

The Australian black economy of unrecorded economic activity that is untaxed by government is estimated to be worth $21bn or 1.5% of gross domestic product. Even if they got all the taxes that they think they deserve, it would still not solve any problems. We are simply doomed and the longer governments postpone real reform, the worse the collapse will be.

Former KPMG Global Chairman Michael Andrew will head the new underground economy taskforce, which I suspect is one reason to think twice about KPMG. It will also include the Australian Tax Office, Reserve Bank of Australia, the Australian Securities and Investment Commission, the Australian Transaction Reports and Analysis Center, and immigration and human services departments. They plan on considering the continued use of the $100 note of which there are $30bn in circulation. They are also looking to France, a fantastic role model, where the government banned cash payments of over €1,000.

The taskforce is looking at putting a limit on cash transactions, and they are no doubt keeping one eye on how India’s cancellation of currency with no notice works out. Indian Prime Minister Narendra Modi told the nation that the cancellation of the currency would protect the interests of “those citizens earning honestly and with hard work.” Modi’s actions are sending probably more than 400,000 people into unemployment while shops have closed as they are unable to collect money or pay workers.

Hillary told her donor base at Manhattan’s Plaza Hotel last Thursday that Russian cyber attacks were both “a personal beef against me” and meant to undermine “the integrity of our democracy.” Of course, absent from the speech was anything realistic acknowledging that there is a global trend against corruption that is unfolding worldwide. Hillary will blame everyone and everybody but herself. She also skips over the fact that the DNC files merely revealed her own attempt to manipulate the Republicans. So while she is mad at the Russians, how about what she did? Obama skips over that entirely. How about a Congressional investigation into the Hillary & Press conspiracy to manipulate the Republicans to ensure Trump would be he opponent who she thought would be easy to beat?

Obama in his press conference is trying to address the contradictions surfacing when Clapper told Congress there was no evidence of a Russian hack on November 17th.  Obama now says when he saw Russian President Vladimir Putin in China in early September, he told him to “cut it out” and that there would be some serious retaliation if he didn’t.” Obama now says that after of that meeting, the government did not see further tampering of the election process. The Wall Street Journal says Obama goes off the Hillary script.

Yahoo reported the Fox Poll showing that 59% of Americans did not think the claimed Russian Hack had any effect. The remarkable aspect of this is that the entire story is simply about the DNC files, not voting machines. So I really do not get this saying Hillary would have won but for the Russian Hack. Well if Russia even did the “hack” (of which there is no evidence at all), then well done, for it exposed the internal corruption of the Democrats right on time with our model – 2015.75. The Real Clinton Conspiracy Backfired where she conspired with the Press to elevate Trump as the nominee and then tear him down so she could win. This demonstrates that her own supporters should be MAD AS HELL with her and her corrupt ways. Saying she would have won if that was not exposed is like saying a thief should get to keep all your stuff robbing you home even if caught. It is really brilliant how Hillary has manipulated this whole criminal act of trying to manipulate the Republicans and the press are so corrupt as well, nobody will report this issue.

Guess she proved the saying valid,  which is usually attributed to Abraham Lincoln, but predates him to Jacques Abbadie who was a French Protestant:

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.