QUESTION: Mr. Armstrong, I remember Obama promising to eliminate income tax on seniors. They always just say whatever gets them votes and never do anything they promise. Hillary is doing the same. It’s just more lies on top of lies.

HS

ANSWER: Correct. Obama promised: “[We] will eliminate all income taxation of seniors making less than $50,000 per year. This will eliminate taxes for 7 million seniors — saving them an average of $1,400 a year– and will also mean that 27 million seniors will not need to file an income tax return at all.”

One of Obama’s 2008 campaign pledges was to end taxes for seniors making less than $50,000. When he submitted his budget in 2009, that wasn’t part of the tax cuts in the economic stimulus bill, also known as the American Recovery and Reinvestment Act. This promise was a total lie. It wasn’t even in Obama’s first budget outline, which was approved by Congress on April 2, 2009. He never even bothered to try to make any tax legislation proposal!

This is why we are in a global trend of anti-career politicians. Abraham Lincoln said, “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.”

Private Blog Updates for the Dow & Gold for month-end closings

As we enter the BOJ meeting, messages are very mixed. Many are hoping the package exceeds expectation JPY 28tln ($266bn) whilst others, anxious the BOJ may shoot too soon, possibly more easing at a time when they feel it will not work; so Asia could be interesting tomorrow. Today the Nikkei lost some of yesterday’s gains ahead of this evening meet. Shanghai and Hang Seng were little changed today but the rumours continue that China Banking Regulatory Commission is considering restrictions on “risky” wealth management products – details a little sketchy so far!

After a rather uneventful Asian session, Europe had little to trade off of and went on the latest banking results. Despite better than expected forecast results both Credit Suisse and BNP shares finished lower on the day. UK banks shares saw a similar story. Although numbers were not that bad, the outlook remains concerning with job losses a reason Q2 numbers were better than expected. Not much could turn sentiment in today’s trading even with better than expected German employment and inflation releases. It’s just one of those markets where all news is seen as negative and there is not much one can do other than accept that rallies will be sold! Late tomorrow (after US markets close) we will hear of the results of the European bank stress tests. In 2014, they tested 124 banks but this time it will be only 51. Interestingly though, Italian banks will be eagerly watched (keep an eye on tier 1 ratio’s). Anyhow, we will have the weekend to think it all over before markets reopen on Monday.

We opened weaker in the States and spent the rest of the day recovering back to unchanged. Much data out tomorrow at the end of the month, so watch for month-end numbers. It is doubtful we will move too much on economic news tomorrow (ahead of European bank stress test results) unless the data is way out of whack. Expectations are already buoyant both for GDP, the Chicago PMI, and the Michigan Sentiment Index so would have to be way out of line.

A quiet day also for bonds with 2/10 small steepening (1bp) closing +80bp. US 10’s closed 1.50% with German bunds closing -0.09% that puts the spread at +159bp. Italy 10’s closed 1.19% (-1bp), Greece 7.90% (u/c), Turkey 9.48% (-15bp), Portugal 2.93% (-3bp) and UK Gilts 0.71% (-2bp).

With terrorism raging in Europe, Prime Minister Viktor Orban of Hungary came out and publicly stated that the anti-terrorism proposals of Donald Trump make him the better option for Europe and Hungary. More and more people I talk to in Europe are silently in Trump’s corner. The more intense the attacks, the stronger their support grows for Trump.

Meanwhile, Eastern European countries are openly criticizing the European Commission quite bluntly. They are warning that the EU has learned nothing from the exit of Britain. They are now demanding reform and that local parliaments should have more say in the direction of their countries. Hungary also is now calling for a radical change of refugee policy in the EU. We are witnessing the fragmentation of Europe. The refugee issue has been the defining moment. The complete failure of Merkel to have consulted other members demonstrates that one person can seriously impact all of Europe and that defeats the federalist mode.

QUESTION: Marty – Your computer has been predicting the uptick of a 3rd party candidate. Why do you never talk about Gary Johnson or the Libertarian Party? You have to be leaning that way yourself, no? He’s getting about 8.5% in the polls, on aggregate, he’s suing the presidential debate committee to get into the debates, and they’re the only 3rd party on the ballot in 50 states. So why have you never even mentioned him? I read your blog everyday.
Thanks,

D

ANSWER: This should be an election where the Libertarian Party gets perhaps its greatest percentage of votes. If they focus on expanding their candidates, they will have a good shot in 2018 at Congress. Keep in mind that a Libertarian president without a Libertarian Congress will be very ineffective.

Donald Trump has remade the Republican Party, which is why the career politicians hate him so much. He is raining on their parade. This is actually a good thing for the Libertarians should they join Trump in trying to displace the career Republicans in Congress. This is a political TAKEOVER. Trump at least has the name recognition that Gary Johnson lacks, which is 90% of the battle.

This is clearly turning into a cross-dressing affair. The Democrats are now the party of the rich and famous and are backed by the New York Bankers. The roles have been switched. The minorities have not yet figured that one out, but they are starting to. It was the Clintons who signed legislation that put more blacks in prison than all the presidents before combined.

President Obama’s half-brother, Malik Obama, has come out in support of Donald Trump. He says he is unhappy with his brother’s leadership. Malik was Obama’s best-man at his wedding and has visited him in the White House. Nonetheless, Malik has come out and said Trump’s position against Muslims coming in to the United States was understandable, even to Muslims like himself. He said: “I’m a Muslim, of course, but you can’t have people going around just shooting people and killing people just in the name of Islam.”

Malik further criticized his brother’s record in the White House by saying he had not done much for the American people despite the high expectations that accompanied his election in 2008. This is the very same criticism I have heard throughout Europe. The expectation that things would change with the first black president raised such hopes, only to be followed with great disappointment that it really does not matter — career politicians are the problem. I believe this has been the tremendous event that has been pushing the political world against career politicians worldwide. The “Change We Can Believe In” has proven to be the typical political rhetoric where they say whatever you have to just to win.

More talk that the expected that the Japanese stimulus package could exceed the JPY 20tln and could even be as large as 28tln boosted the Nikkei and sent the Yen back to 104.50 level. Rumours have been circulating for a while and even yesterday stories were that the package would only be a fraction worried the market yesterday resulting in the 1.4% loss. However, all forgiven today and we closed just under a 2% gain for the day. Very much in the vein of “float the rumour” there is also talk of a 50yr Bond, whilst the idea of helicopter money is still on the table. The BOJ begin their two day meeting on Thursday so could be interesting. The Shanghai just cannot break away from this 3k level even though it is more psychological than anything else. Today we closed below it again closing down 2% at 2991.12.

A couple of pieces of news around for Europe today saw UK growth beat expectations (+0.6% against expected +0.4%) but on the flip side we heard that Deutsche Bank and Santander had returned poor numbers. Deutsche reported a near 100% drop in Q2 Net-Income and Santander reported a near 50% drop. Shares had a mixed response though with DB -3.5% and Santander +2%. FTSE did not rally as much as other core but did see a +0.4% gain. Meanwhile DAX, CAC and IBEX all rallied around 1% as all markets waited for the FED’s decision.

As expected the FED left rates unchanged in what can only be described as a summer market. With most indices closing around unchanged it was only the NASDAQ that managed a +0.5% meaningful gain. Late in the day we saw Apple beat expectations and finally saw a major move – its stock gained 7% in after-hours trading. Given the FED’s cagey response many dealers are wondering if a September hike really is the next move! All this uncertainty had little effect on the Bond market but we did see a $20 (+1.5%) rally in the price of gold in late trading.

With the unclear message arising from the FED meeting, the bond market saw its chance to rally. More flattening saw 2’s down just 3bp to close 0.71% whilst the 10yr lost 6bp to close 1.50% (2/10 closes +79bp). Germany also took 10’s more negative closing -5bp at -0.08% closing the US/Germany spread at +158bp. Italy closed 1.21% (-3bp), Greece +1bp at 7.90%, Turkey 9.63% (-14bp), Portugal 2.96% (-4bp) and UK Gilts -8.5bp at 0.73% where talk of possible negative interest rates are starting to spook the market.

When is a stimulus not a stimulus? Talk in Japan that the eagerly awaited stimulus may not be enough (combined with some nervous profit-taking) produced a 1.4% decline in the Nikkei today. At the same time, the JPY saw the flight to quality and rallied over 1%; last seen trading mid 104. The contrast to Japan saw Shanghai and Hang Seng closing over 1% higher the pair.

Although Europe was quiet all core markets (with the exception of IBEX) closed higher on the day even though oil traded heavy. Markets feel as though summer has really has arrived in thin lethargic trading. Bank shares remain a nervous sector and today we saw Commerzbank decline 4.5% after a drop in its capital margin and a drop in Q2 operating profits.

Tuesday we see the FOMC kick-off their two-day meeting and although many people talk the FED should be raising it is not being priced into the market just yet. What many question, however, is that they may “talk” a September rate increase and it being summer trading conditions, could have a larger influence on the markets because of summer liquidity. The DOW closed marginally weaker with S+P and NASDAQ marginally better, so still all to play for.

A quiet day in Treasuries but more flattening with 2’s closing unchanged at 0.75% and 10’s 1bp flatter at 1.56% closing the 2/10 spread at +81bp. 10’s in Germany closed -0.03% which closes the US/Bund spread at +159bp. Italy closed 1.24% (+1bp), Greece 7.88% (-3bp), Turkey 9.77% (+13bp), Portugal 3.01% (+1bp) and UK Gilt 10yr at 0.82% (+1bp).

The European banking crisis is spreading rapidly. There are now concerns in Italy and in Portugal as well. The ECB cannot even understand why people would not want to keep their money in banks with negative rates. They are simply incapable of managing the economy. The ECB is bringing Europe to the brink of a widespread banking collapse. Once this crisis becomes a contagion, there will be no stopping it.

Low rates will NOT encourage borrowing when banks have too much bad debt to begin with. The negative rates are sending savers to hoard cash outside of banks. It is amazing, but the ECB is in complete denial and unable to see that it must reverse its policy to prevent disaster.

Goldman Sachs has been sued for $510 million in New York State Court, which is at least more viable than federal court. The case is Primus Pacific Partners I LP v Goldman Sachs Group Inc et al, New York State Supreme Court, New York County, No. 653885/2016. A shareholder of one of its former clients is suing Goldman Sachs over alleged fraudulent misrepresentations that involve links to the prime minister of Malaysia. The plaintiff previously lost its challenge in the Malaysian courts after seeking to stop a transaction involving a Malaysian company where the courts were not very friendly given the relationship to the head of state. 

Primus Pacific Partners is suing Goldman for fraud and breach of fiduciary duty, alleging that Goldman concealed a conflict of interest with Malaysian Prime Minister Najib Razak when it was advising EON. Goldman Sachs was an adviser to 1MDB, which was a development fund established by the prime minister. At the same time, Goldman was also the financial adviser to EON.

The suit comes as 1MDB also faces huge problems where U.S. prosecutors sued on Wednesday to seize more than $1 billion in assets that they said were tied to an international scheme to launder money that was stolen from the Malaysian state fund, 1Malaysia. The allegations that Prime Minister Najib misappropriated its funds are being investigated.

On top of all this, the New York Times reported that the Federal Reserve is preparing an enforcement action against Goldman Sachs related to confidential government information that was leaked from the Fed to one of its bankers.

Meanwhile, Swiss prosecutors said they were helping the U.S. on the investigation. The Swiss also opened their own criminal proceedings in August 2015, against two formal officials of the fund on a string of corruption charges. Their investigation has since been extended to other officials as well.