FRA Co-founder Gordon T. Long delineates political developments and their consequences on the global economy with Martin Armstrong, founder of Armstrong Economics.
Martin Armstrong began his studies into market behavior when first becoming fascinated by the events during the Crash of 1966. He pursued his studies of economics searching for answers behind the cycle of boom and busts that plagued society both in Princeton and in London. He began to do forecasting as a service to institutional cash market players in gold that included Swiss banks.Armstronghad the unusual background in computer science in hardware and software and was perhaps the first to begin to apply his diverse knowledge from two fields together. He began creating a global model in the mid-70s and was publishing the results from about 1972.
Armstrong began providing forecasts for clients generally three times during the course of each trading day, it began on a closed-circuit telex system – a forerunner to the internet among professional dealers. As a consequence Princeton Economics International, Ltdwas born. Armstrong became the chairman focusing on the research while the partners became the managing directors around the globe. By 1985, Armstrong was certainly one of the top premier Foreign Exchange analysts in the world. He stepped up in 1985 when James Baker was convincing President Ronald Reagan to create the G5 (Group of 5 now G20) nations to manipulate the currency values to affect the trade deficit, which became known as the Plaza Accord.
Armstrong’s work has become world renown. This model has successfully pinpointed not merely major specific days who events well in advance, but it has provided one of the most consistent guides for understanding the turning points in the global economy and thus the business cycle not merely within a domestic economy, but within the global economy on a collective basis. This has been demonstrated by numerous articles.
CHINA AND CURRENCY DEVELOPMENTS
“Pegs do not work and they always break because of politicians setting the value of something for private agendas.”
The Chinese are trying to maintain a controlled economy but they are losing the grip of it. Many people misunderstood the economic statistics because they do not understand what is happening. You had many companies in Hong Kong borrowing in dollars, converting it back in and paying 1% then funneling it into China and collecting 5%-8%. People perceived this as the Chinese getting lots of capital inflow, and the economy doing good, but it had nothing to do with the economy. Following this, shadow banking was shut down and then it was perceived that the economy was going down, but it’s been going down since 2007. We have China in trouble, Japan’s currency is really a closed economy and these pegs are starting to go because the dollar is the only viable currency. You can’t park in China, they don’t trust the bonds yet, can’t go into Russia, and essentially all of Europe; therefore it’s been dollar by default.
“The dollar is the most liquid and the least ugly. It is the prettiest of the 3 ugly sisters. It is the rise in the dollar which will create the change in the monetary systems.”
A change will occur sometime around 2020, the whole thing with negative interest rates and quantitative easing just does not work. Economies are just much more fluid today. Emerging markets began expanding debt to more than 50% of US debt and they did this because they issued their debt in dollars because of low interest rates, and pension funds needed high yields so they went and bought all this emerging market debt. The money supply that supposedly the Fed increased did not stay here. If you look at real estate, the Chinese are the #1 buyer of real estate in the US, and the IRS is also buying lots of real estate in New York and Miami. It has been all foreign money coming in and it’s shown in the US stock markets. When the Japanese came in what did they do? They bought the high profile stuff, Rockefeller Center etc. Foreign money goes into the Dow, so the Dow lead the market all the way up, the other markets only began to overtake only when foreign capital began to subside.
“International capital flows are really what drives everything, but unfortunately it is something they don’t teach in school and not many pay attention to it.”
ECONOMIC CONFIDENCE MODEL
The economy peaked in September of last year on a global scale. Everyone is pretty much in recession, the US rallied a bit but you drive down a street and you see every office building has ‘space for rent.’ The business cycles do a good job in showing you where things are developing. The last peak was in real estate in 2007, but what is important about that is many of these markets peaked back then, and to this day markets have not surpassed that peak throughout the world.
The US is realizing that there is a problem here. The Fed has been lobbied by the IMF not to raise interest rates because of international concerns and not domestic concerns. They realize that with the dollar as a reserve currency, they are losing the power to control their own economy.
“International interest has taken priority over domestic, keep this going and the Fed won’t be able to do anything to help the US economy.”
Eventually the market is going to raise the interest rate, because we are in a phase now where governments are all in trouble. They are all chasing money, going bankrupt and keep raising taxes; just another reason why quantitative easing is failing. Disposable income is consequently shrinking rather than expanding. This is largely why Trump is doing so well, many people don’t understand it but the middle class has been completely devastated so it is more of a protest vote. The American people are starting to wake up to this problem, and even if Trump does not win we are projecting a congress turnover by 2018 which is similar to what happened in Scotland. This is not a domestic issue, it is happening everywhere.
Younger generations don’t understand the core facts either. The Clinton White House was bought and paid for by Wall Street. The press will never say this because they are afraid it might hurt Hillary, but who basically made all student loans non deschargeable in bankruptcy? None other than the Clintons. In other words all the student loans that are hurting all our youth, it is Hillary that did it.
PRECIOUS METALS AND HARD CURRENCIES
“You can go back and forth in arguments about gold but to the average person it means absolutely nothing.”
Things will only change when these people lose confidence in their government. For example, Republicans are tremendously against Trump, and they rigged the rules in the last convention to sabotage Ron Paul. They made rules that if you did not have enough votes your name couldn’t even be put in to be nominated, but under these rules the only viable person is Donald Trump.
The primary reason why Republicans do not want Trump in is because he is an outsider, he is not owned by the banks or by anyone for that matter; he has funded himself and they do not know what he is going to do. One thing from studying law that I carry with me is, you never ask a question that you do not already know the answer to. Politicians are mostly lawyers and they do not know what he will do.
MAJOR CONCERNS
“A collapse in the confidence of government is incoming, and that is when your markets are going to start responding.”
We are entering a political year from hell. Europe desperately needs Britain and if Britain votes to get out you will see other countries voting for the same thing. They are very much afraid of a contagion developing and the EU collapsing. Everybody criticized Trump for saying he wants to block Muslims from coming in, and what does Cruz say? He is going to implement a bill that all Europeans have to have a visa.
“They are looking at collapsing the global economy and they are destroying it with every breath they take.”
Bill Gross is out with his latest investment outlook and it’s quite the entertaining read.
Why, Gross wants to know, would anyone invest in safe haven assets (like bunds) that yield less than zero, thus locking in a guaranteed loss at maturity? The answer: investors aren’t familiar enough with ancient Greece.
Read below for the details and for more on why central bankers had better get global growth and trade moving – “or else.”
The U.S. stock market is up more than 200% over the past 7 years.
Bond yields are being manipulated to artificially low levels.
Quantitative easing and the federal deficit hang over the U.S. economy.
Geopolitical risks are on the rise.
We are currently seven years into a 200% stock market recovery that began in 2009 – one of the longest recoveries on record – so it’s natural to wonder how much further this bull can run. Additionally, we face unprecedented geopolitical and fiscal risks. In other words, most of us are justifiably concerned, but we don’t want to miss out on future potential gains. I personally moved to defend way too early in 2011. That was an expensive move in both absolute and relative terms. I’ve lost money. Now I can’t change my positions because it would likely be selling at the bottom. I’m locked for now, waiting for a correction. Timing is everything.
Fortunately, it’s not too late for you. You have alternatives for protecting your investments, and you can decide when you want to start. Here are a dozen choices.
A Dozen Ways to Protect Your Portfolio from Losses
We were saddened this week to hear that at least 30 people were killed and many dozens more injured in ISIS-related suicide bombings that targeted an airport and train station in Brussels. The Belgian and European Union capital joins Paris, San Bernardino, Ankara, Jakarta and too many other cities in the past year alone that have come under fire from the Islamic terrorist group.
I was in Brussels most recently three years ago for an International Crisis Group meeting, and I was stunned by its beauty and elegance, highlighted with gold-trimmed architecture and vibrant flowers. In August, the city will celebrate the 20th anniversary of its Flower Carpet, which makes jaw-dropping use of over 600,000 begonias.
By all accounts, George is living the American dream:
He’s had a successful career. Owns his own home free and clear. Married to his high school sweetheart and has two children.
However, George has always felt that something was off with the world.
A 19+ trillion dollar deficit. Record levels of debt. Stocks trading at obscene valuations. Constant printing of money by the Fed. Banks with cash-to-deposit ratios as low as 3%. NSA spying. 50+ million people on Food Stamps in the Land of the Free.
“This isn’t the country I grew up in,” George realizes.
Eventually, George sees the writing on the wall.
He understands the trend. And he knows that it’s going to be his kids and his grandkids that will suffer the greatest consequences of all this profligacy.
George knows that he doesn’t have to be a victim.
He can take charge and take steps to put himself in a position of strength.
He decides to create his Plan B.
He moves a portion of his savings to a foreign bank account that’s 10 times more capitalized, 20 times more liquid and pays 50 times more interest than a traditional Western bank.
This way, if there’s ever a problem with the dollar or his bank in the US, his wealth will be protected.
He establishes a second residency in Latin America for him and his family, just in case. It’s also a nice place to spend some time with his family during vacations.
He also stores some gold overseas in one of the safest precious metal storage facilities in the world. This way, even if confidence in the dollar erodes and his neighbors lose purchasing power…he’ll have an asset that’s historically proven to hold its value.
When George talks with his friends about these things, they all say he’s crazy. His neighbors ridicule him for his overseas gold storage and for thinking banks in the US aren’t safe.
Then one rainy Thursday afternoon, the media reports that the Russian government has decided to dump its holdings of US Treasuries.
By Thursday evening, the Chinese follow suit.
Suddenly trillions of dollars come flooding back into the United States. The dollar sinks immediately. Global stock markets begin a massive selloff. Gold soars.
The President calls an immediate crisis meeting at the White House to try to figure out what to do. They have to prop up the Treasury market somehow.
Friday afternoon, after the close of business, the announcement comes.
The government declares that 70% of all retirement accounts in the United States will be converted into US government bonds.
They claim that government bonds are much ‘safer’, so this is for the good of the people. Of course, it’s the weekend now, so there’s nothing that people can do.
But this fails to calm the situation. By Monday morning, the dollar plummets again, and people run down to their local banks to start making withdrawals.
By 12pm on Monday afternoon, the federal government declares a “bank holiday”, shuttering all banks in the country.
That evening, they announce ‘temporary’ measures to freeze people’s accounts above $25,000.
Banks are to remain closed for the rest of the week, and National Guard forces are deployed across the country to protect bankers from the rioters that are already gathering in the streets.
By Tuesday morning, George decides that he doesn’t like where things are headed. So he and his family pack a suitcase and head down south for warmer weather to their beautiful property in Latin America.
George buys a plane ticket, easily, because he has access to cash through his foreign account. Plus, he already has a place to go.
As they’re pulling out of the driveway, his neighbors are in the street, looking at George with astonishment. “How the hell did he know that…?” they all wonder.
For a small minority of rational, thinking people, George’s story is a common history of things to come.
There are some people who see the writing on the wall, and who are willing to take action by diversifying abroad.
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FRA Co-founder Gordon T. Long delineates political developments and their consequences on the global economy with Martin Armstrong, founder of Armstrong Economics.
Bill Gross is out with his latest investment outlook and it’s quite the entertaining read. 
A 19+ trillion dollar deficit. Record levels of debt. Stocks trading at obscene valuations. Constant printing of money by the Fed. Banks with cash-to-deposit ratios as low as 3%. NSA spying. 50+ million people on Food Stamps in the Land of the Free. 
