On Saturday, March 5, 2016, at 1:00 pm there will be a showing in Calgary, Canada, at The Globe Cinema (617 – 8 Ave SW). This will be a private screening of “The Forecaster” movie. If you are interested in attending, you will need to preregister here: http://integratedwealthmanagement.ca/events/

Cost is a $10 (or greater) cash donation to the Calgary Food Bank, which will be collected at the door.

 

 

 

Mary Lou Marzian, a politician in Kentucky, introduced a bill that has really raised some eyebrows. The bill proposes to ban men from accessing Viagra and other similar drugs unless they have a signed note from their wife and a sworn promise to only use the drugs with their spouse. This is clearly way over the top. But in all fairness, she is trying to make a point.

Marzian is also a registered nurse, and she told the Guardian that she wanted to highlight the difference in politics between men and women’s health regulations. She said that the new laws signed last week by Governor Matt Bevin make it even more difficult for women to access abortions. What she is trying to do is interesting. Religion is behind the anti-abortion movement, so why not outlaw premarital sex as well? Personally, I cannot imagine killing a child, but in a free society I have no right to impose my beliefs upon others or others would have the same right against myself.

We had an office party once in New York and staff flew in from around the world. One girl and two young men came over from the London office. While checking out in the hotel lobby, she heard the two men stayed up all night running around New York and taking pictures. She turned to them and said rather loudly in an indignant tone, “Why didn’t you both come knock me up? I would have loved to do that?” Everyone turned and began to look at her. She sensed something was wrong. I told her she could not say that here as “knocked up” means becoming pregnant. She thought I was joking and questioned the meaning.

In London, it is common for someone to say, “I will knock you up at 7pm.” It refers to knocking on their door. It appears that clause has evolved in the States to mean, more or less, “I knocked her up and you know what happened.”

So Marzian’s point is that the anti-abortion laws are one-sided. They should just ban sex somehow. Curious logic. The problem has always been laws do not change behavior. Prostitution is illegal but it exists as do drugs. Outlawing abortion will only drive it into the back allies with the drug dealers and end any chance of creating clinics to at least counsel women or arrange for adoption.

At St. Joseph’s hospital in Berlin, Germany, they have the “baby hatch” or Babyklappe where mothers can anonymously leave unwanted newborns instead of throwing them in some trash bin. Records indicate that this particular baby hatch is used about twice annually. Mothers have eight weeks to change their mind, and after that time the baby is put up for adoption.

Meanwhile, people who simply disagree assume banning such baby hatches would somehow change humanity. They have no possible means to prevent mothers from abandoning their unwanted children in the elements to die. Lawmakers from the nationalist party Liberal Democratic Party of Russia (LDPR) have proposed a law banning the practice of so-called baby boxes or hatches.

Law will NEVER change behavior. We must deal with the problem. Outlawing something never prevents it. They outlawed booze because too many men drank, and sure, it made sense. The law would correct the behavior of men. However, it did no such thing and instead created the mafia in America. That is where many mafia members, like Al Capone, made their money.

Outlawing anything also makes it immediately tax-free. This actually creates a viable business model. If you really want to stop the drugs, make them legal. That will change the politics south of the border and end the incentive to import. Kids attracted to selling drugs to get rich just might have to find another avenue to riches.

After a slightly nervous start to the Asian trading day all core equity markets made solid gains of between 1 and 2%. A slight comfort was assumed in China after PBOC Governor Zhou claimed the renimbi is balanced but then made ground on the news that the head of the regulatory body was changing. The Shanghai market closed up over 2% with the Hang Seng index up 1%. The Nikkei recovered the 16k benchmark closing up 144 points.

In Europe all the talk focused on the news over the weekend that the BREXIT vote and date had been announced. As soon as trading opened in Asia the balance trade was on (lower currency higher equities). All core indices rallied as both the euro and Sterling were sold. DAX, CAC and FTSE all closed around 2% higher on the day. Miners and energy performed whilst HSBC (-1%) and Bovis (-4%) dragged FTSE lower. Oil was supportive but the news appeared late that International Energy Agency stated production could fall by as much as 600k bpd. Initially, prices jumped 8% at one stage supporting an already hyped stock market. By the close of cash the DOW, S&P and NASDAQ were all up around 1.4% on the day.

Given the confident rally in global equity markets, we saw profit taking in gold (-1.5%) and also sellers in the US Treasury market. US 10yrs traded in a tight 1.74 – 1.78% range closing around mid-range at 1.76%. Italy 10yr closes 1.52% (-4bp), Greece 10yr 10.28% (+28bp), Turkey 10’s 10.52% (-12bp) and UK 10yr Gilt 1.39% (-2bp).

Markets have a fairly quiet Tuesday, with just German GDP (unchanged 0.3% estimated) and later US Consumer Confidence (97 estimated) but it will be anything but quiet on the BREXIT front! Sterling lost 1.8% against the USD today whilst the Euro gave back 1%; helping to close the DXY 0.9% higher at 97.45. There are already rumors that the ratings agency will not look favorably if the voting poles appear to be swaying towards an exit outcome. The one thing markets do not like is uncertainty and this will unnerve ratings agencies also! We can expect more of the same for the next two months with both sides airing fears of perpetual doom.

QUESTION:

Dear Martin Armstrong,

I appreciate very much your economic analysis and read your blog nearly daily although I disagree with some of your political statements.

In your last blog about Schengen you mention that “Everything is connected and nothing takes place in some isolated vacuum”.  Obvious.

According to me, and many others re-known economists like Joseph Stiglizt or Paul Krugman, one of the problems in the current world is the exponential increase of social inequality and  massive collection of wealth in few hands.

How is it possible that barely the 60 richest people can have the same wealth as half of the population (3.6 billion)? Is this acceptable? What would be the solution in your opinion? Because just free markets will reinforce not decrease the actual trend and you seem to be “socialist”-averse although some sort of redistribution of wealth should be done, I suppose, but how?.

Thanks for your great work

BR

ANSWER: This is a Marxist diversion. It focuses only on the “rich” and ignores the fact that government continues to expand and consume wealth. The “wealth” that everyone points to for the richest people is by no means a product of WAGES, rather it is created on paper valuations of investment. At the same time, that “wealth” dropped $1 trillion just in the January decline this year. It is NOT actual “money” in that sense. It is no different than your home being worth $500,000 one day and then $200,000 a month later.

“Social inequality” remains the headline grabber, yet the larger government becomes, the lower the economic growth. The OECD itself illustrates this. Higher taxes reduce economic growth, plain and simple. Then we have the average person who is robbed by about 50%+ between income taxes (federal and state), property taxes, fees, tools, and sales taxes. All of this goes to sustain government; it does NOT raise the living standard of the average person. Europe is even worse.

I tried to save Social Security on Capitol Hill. I argued to convert it to a wealth fund and allow it to invest exactly as the “rich” employ their money rather than stuffing it with depreciating government bonds. When I DONATED my time on Capitol Hill, the Dow was 1,000. That would now be 17 times more and amply enough to retired on. Social Security goes bust next year, and with interest rates manipulated lower you will get nothing.

Then the government charges payroll taxes on the average worker. Sure, they hand you a refund check at year-end. So they are borrowing from the average person and NOT paying them any interest. The government robs your ability to save and grow “rich” by stuffing your money in government bonds under Social Security.

Government creates “social inequality” by robbing the poor and middle classes while pretending to care. If we eliminated government federal income taxes, most people would take home at least 30% more.

The problem is NOT that the “rich” make money from investment; it is that the rest of society is DENIED the right to invest to get ahead because the government is bleeding everyone dry. Take all the money from the “rich” and we end up with communism, which will not improve your life in the least. So you do not stand a chance of surviving the future unless we start looking at the real culprit here. This is like a baseball game: the pitcher only focuses on the batter while those on base are stealing the next one unnoticed. We need to pay attention before there is no future for our posterity. Thank God I am not 18. I really do not want to live in a world run in this manner. This is not like Star Trek: “Scotty. Beam me up PLEASE!“

QUESTION: Hi Marty, I have been following your blog for several years and attended your “Cycles of War” presentation in Philadelphia. It has been rewarding and very educational. My question, is there any one investment that is a safe haven in the chaos that approaches? I recently sold my company and placed the proceeds into “Certificates of Deposits” at several large FDIC banks laddering over several years. Are these safe or will it all be for naught? Meanwhile, I look forward to utilizing Socrates “traders” software when it comes available.

Thanks,

RZ

ANSWER: Certificates of deposits are ok for now.  Keep in mind this will change probably in 2017, but by 2018 for sure. The risk is government paper where they can by decree convert short-term to long-term. The USA is probably less likely to do that compared to Europe. But with people like Larry Summers shooting off his mouth, all bets on that are a 50/50 game.

There is no investment that survives. If you look at the Great Depression, absolutely EVERY asset class was hit. Nothing survived intact. This means we will have to stay on top of this more closely than ever before because liquidity is also declining and that means volatility will increase, which is often what hurts people. The vast majority assume whatever trend in motion will stay in motion. They are incapable of seeing the turns.

We still show that equities will probably be the safest place moving forward insofar as they are recognizable and liquid. Cash is still king, but the war on cash itself is disturbing. Silver coins will be useful, perhaps even more so than gold, since they are tracking gold but not old, common date, silver coins. This may replace cash, which they are desperately trying to destroy.

We are getting closer to releasing the Trader Version. We are still working out the final bugs, but there are a lot less bugs right now than there was even three months ago. It is a huge project to port all this code and retest everything to ensure the translation made it between platforms correctly.

QUESTION: Mr. Armstrong; I attended your May 1999 seminar in London. I am the person who asked you when would Britain exit the EU. You said not before 2016. Can you elaborate on how you could have possibly foreseen this event coming in June? You have won my full attention. By the way, this is now all anyone talks about in London. Exiting the EU which is overrun with Islamic terrorists.

Cheers

BCM

ANSWER: Well, it is fascinating how the fundamentals fit the forecast. They are not trying to forecast the fundamentals. I believe it is like good news in a stock in a bear market. It still declines and the excuse is that it was not good enough. Fundamentals are interpreted by the mood of the trend. It is wrong to assume you need to forecast the fundamentals to get the trend. It is all about the mood and how the public receives it.

Britain entered the EU in 1973. Half the 8.6-year cycle is 4.3. It was lining up with our forecast back then that 2016 would be the first shot at a potential third-party emerging or an anti-establishment trend. That forecast gained perhaps the most attention since we warned that Ross Perot 2.0 would be coming in 2016. Again, nobody could predict that it would be Donald Trump. Donald Trump is not really the issue as it could have been anyone. It is the timing that makes such a message resonate with the population.

Additionally, if you add 86 years to 1973, you will see that there was no possible way Europe could have lasted that long until 2059. That will probably be a major political turn for Britain, once again. However, it is hard to say what will unfold from this distance in time. I would suspect that it will be some sort of reorganization of Europe that could be the redrawing of borders and dramatic changes in politics that could even threaten the royalty.

Therefore, adding 43 years to 1973 brings us to 2016. Britain’s exit simply lined up with everything and was part of the “Big Bang” we forecast to start 2015.75. Everything was lining up to start with 2015.75 from the 17.2 years post-launch of the euro to the start of the War Cycle. Here is the slide from the 1998 world conference tour.

 

 

 

Trump took South Carolina with less than 40%. Bush just has the wrong name and should give up. The real reasons to worry are Cruz and Rubio, as both would differ little from electing Hillary. Nothing would pass their desks on taxes that they would not sign next year. So we are in a war of the lesser of evils. Hopefully, Trump is pandering to the crowd when he talks of boycotting Apple. These people think that crime cannot be solved without surrendering all privacy. He should read the history of the Fourth Amendment. Perhaps then he would wake up and say — oh shit! A judge demanding they turn over source code is what I faced. There is a line and you cannot cross it without surrendering the fact that we are no longer a free society. Free speech means we must tolerate what others say when we disagree. Otherwise, we must lose our own right to speak freely. All rights have a line you cannot cross without losing your own.

QUESTION: Hi Martin !
In a globalized interconnected world where we see stock markets falling 30% and more from their recent high entering bear market territory how can it be that the S&P 500 is losing ground far less? Especially considering key economic data like the ISM that reveals a rather negative view on the U.S economy.
All Best,
M

ANSWER: Even if the economy declines, does that mean you rush and buy government debt? Your question assumes stocks only rise with rising corporate profits based upon the domestic economy. That is so untrue that it is laughable. There are two reasons: corporate will make more from overseas than domestic, but more importantly, if government is the one in trouble, capital will park in equities just to preserve itself. Your line of thinking will cost you everything you own. Markets and economies do not function in that one-sided manner.

QUESTION: 

Dear Martin ,

I had been following the the various gold bug theories since 2009 but became disillusioned after 2011 until I came across your site . What you say makes sense and something I trust , however there is still one issue I am struggling to understand . When gold spiked during the Great Depression and then also again 1980 , the ratio of gold to the Dow was almost 1:1 in both periods of history .However , this time , although gold bugs are forecasting this ratio to materialise again in the coming years , it would appear that you are not , in that gold may go to say US$ 5000 but the Dow to about US $ 35,000 ( 7:1 ) . What I am not clear about is that if Gold only increases when there is a loss of confidence in Government , did this not happen in 1930 and also 1980 ? Or are you saying that in 1930 and 1980 this was a loss in confidence of the private sector but in those days gold was a safe haven , hence the reason gold went up as the Dow went down and therefore because this time is a loss of confidence in the public sector we will not see the ratio of 1:1 as both gold and the Dow will go up ?

I really hope you can answer this point as I think it will really explain the big difference in how you are interpreting gold now compared to 1930 and 1980 ,

I have been following his prediction for the coming slingshot with great interest and would like to ask Martin if he feels that finally within the coming months it would be smart to move cash out of the banks and into large cap gold mining shares which must surely now be at or around the bottom . As Martin says , the low for gold may not be in just yet but in principle , once he feels this is the case would large cap miners be one of the best investments in his opinion ( given that many other shares are at least fairly or possibly over valued ).

Many many thanks for all your outstanding work . So much appreciated and by so many ,

Nick

 

ANSWER: The problem with trying to create some sort of fixed ratio reveals the lack of understanding about markets and the global economy. This is typically an amateur approach to analysis, which demonstrates a lack of the analyst’s experience more than anything else. This amateur approach to forecasting is why big money, no less government, will never take such people seriously. They make connections that are as primitive as saying everyone who has ever eaten a carrot has eventually died and therefore carrots are lethal. It is a true statement, but the connection between death and a carrot is obviously a very amateurish approach to analysis.

In this context, the fatal flaw is they try to create a similar one-dimensional relationship with the Dow, inflation, or even the quantity of money. This is a tiny slice of reality and it is seriously flawed. In medicine, they used the same approach and assumed all disease was introduced to the body from some external source. Thus, they linked smoking to lung cancer. But there are people who have smoked like a forest fire their entire life and die without a trace of lung cancer. That simple fact proves the analysis is wrong. What DNA research has proven is if you have the gene for lung cancer, smoking may accelerate the event, but not smoking will still not change the outcome. This is why when you see a doctor they ask you about your family’s history. If everyone died in your family of a stroke or heart attack, your genes may be carrying your own fate and the cause is not external.

For example, James Fixx (April 23, 1932 – July 20, 1984) was the American who authored the 1977 best-selling book The Complete Book of Running, which has been credited with starting America’s fitness revolution. He popularized the sport of running by claiming it would build your heart and prolong your life. Fixx had a family history of dying from heart attacks so, in theory, he came up with the idea that if you ran, you would build muscle in your heart and that would defeat the disease. Fixx died of a heart attack while jogging at 52 years of age. It was a nice theory, but it did not overcome his family genetics.

So let’s begin with your assumption that gold rallied in both 1930 and 1980 because people lost confidence in government. This was absolutely a FALSE statement. During the 1930s, the dollar RALLIED; it did not decline as in the 1980s. Why? Because the collapse in confidence was external and not internal. Most of Europe defaulted on its sovereign debt, so did China, and South America as usual. As other countries defaulted, capital flowed into the dollar as the safe-haven. Gold actually declined and fell below the official gold standard value of $20.67. Gold did not rise: it was the dollar rally, not gold, which went to a premium. The jump in gold to $35 was Roosevelt’s FIAT devaluation of the dollar, which was actually government declaring the value by decree.

 

Markets are highly complex. Gold declined for 19 years from 1980 into 1999. The 19-year decline in gold also clearly established that the quantity of money theory and inflation had no validity at all, which is why gold has declined despite quantitative easing. Here is the U.S. national debt for the 19-year bear market in gold. The debt rose from almost $1 trillion to nearly $6 trillion when gold declined. You cannot ignore this fact and claim gold will rise based upon the theory that the quantity of money will cause inflation. Both assumptions are totally incorrect.

These theories sound entirely logical and are based upon the original theory of supply and demand created by the Scotsman John Law (1671-1729). It took a trader to comprehend the difference between money with confidence being the driving force. “I have discovered the secret of the philosopher’s stone it is to make gold out of paper,” John Law said in The History of an Honest Adventurer by H. Montgomery Hyde.

 

As you can clearly see, there is no such perfect relationship between the Dow and gold. It moves back and forth within a three-dimensional space with more than a single one-on-one ratio. It entirely depends upon the circumstances and the dynamics of the global economy at that instant in time.

 

There is also no direct connection between silver and gold either. Here we have seen wild swings with the ratio moving from 120:1 to 8:1 throughout history. There have been times when silver became scarce, setting off riots because silver was the domestic money and gold international, as in Florence. Naturally, the promoters also pick the lowest point and base their forecasts upon that as well. They pray for the collapse in the Dow to raise the Dow-gold ratio. This is all very amateurish analysis, which becomes sophistry.

Of course it was the silver to gold ratio that became the presidential election topic in 1896 and virtually bankrupted the country because government by decree overvalued silver at 16:1 Here are the words of William Jennings Bryan:

 

Then there is the classic inventory scam. They convince people inventories have collapsed, implying there is a shortage so prices will rise. They moved silver from the U.S. to London to pull off the Buffett Rally. That removed silver from the U.S. inventories and they spun that as justification for the rally. There is no such correlation between inventory at COMEX and price because it has been typically manipulated to impact price. Here was a taped call during that market manipulation between one of the bank dealing desks and myself.

This is the reality of trading. Some say trading is composed of largely boring periods interrupted by moments of sheer terror when suddenly your classic theories are proven totally wrong. Perhaps, I suppose, if you believe in the standard theories it can be a total confusing upset in the middle of a panic.