China in crisis? Another credit crunch in the West is far more likely

Comment: William Littlewood is a fund manager who is not afraid to stand out from the crowd. He explains why his biggest bet is that government bonds are hugely overvalued

‘My concern is that while looking for troubles in the East, investors are neglecting unsolved problems in the west,’ says William Littlewood 
 

Bad, yes. But getting worse? Recent movements in stock markets have been dominated by precipitous falls in China. China bears predict that the current issues will deepen, turning into troubles similar to those that caused the financial crisis of 2008-09. I do not think this will be the case.

 

In the past 20-odd years there have been three periods of bubble-like conditions globally: the technology boom of the late 1990s, the credit binge in the mid-2000s and a bubble in commodities in the last decade. The first boom led to overbuilding of cable infrastructure and permanent loss of capital in the technology sector.

 

The second boom led to over-borrowing and the default of several banks. The commodity bubble bursting is likely to lead to the default of commodity-producing businesses – and perhaps of some Chinese banks too – and to a glut of excess productive capacity.

If the primary result is cheap commodities, then many consumers and developing nations (such as India) will benefit.

 

Secondly, while the fragility of the financial system was exposed in 2008-09, I do not expect a rerun: especially in Britain and America, banks are much stronger and have learnt many lessons.

 

Crises rarely repeat themselves exactly, but investors naturally recall the last crisis and re-predict it, even if they almost certainly didn’t see it coming last time. There are too many vocal bears out there now compared with 2008. For example, RBS recently urged investors to “sell everything”. I cannot recall any such warning in 2007 or 2008.

• Time to ‘sell everything’? No, this is when ‘hold everything’ works

My greater concern is that while looking for troubles in the East, investors are neglecting unsolved problems in the west. In the context of poor growth, the high levels of sovereign debt in many developed nations are unsustainable. This has been masked temporarily by the actions of central bankers, who have suppressed interest rates to historical lows and in turn made borrowing costs appear manageable.

Italy, for example, has debts equal to 102pc of its economic output, compared with 87pc before the crisis of 2008‑09. It currently costs the Italian government 1.5pc to borrow money for 10 years. This compares with an average of 4.5pc in the 2000s.

FTSE 100 over five years

FTSE 100 over five yearsFTSE 100 over five years

– Interactive FTSE 100 charts

This implies that if government borrowing costs were to return to their previous average, the state would need to run a budget surplus of roughly 4.5pc just to cover interest costs and keep debt levels constant. This seems nigh-impossible to me, given that the country has consistently run a budget deficit every year for the past 20 years.

These issues apply to a number of countries. They seem insurmountable as the result of poor demographics and of the inherent nature of democracies: politicians are encouraged to increase debt to pay for free healthcare and generous state pensions. As Jean-Claude Junker, now the president of the European Commission, put it when he was prime minister of Luxembourg: “We all know what we have to do. We just don’t know how to get re-elected after we’ve done it.”

• Up 300pc in five years: ‘This investment story is still intact’

And yet the yields on the bonds of developed countries, which move in inverse relationship to the prices of those bonds, are at record lows and nearing zero or even negative in some cases. This is clearly at odds with economic reality but also with common sense.

An interest rate is fundamentally an expression of human “time preference”.Zero interest rates imply that humans don’t care whether they receive money today or in 10 years’ time. Not only is that illogical, but even more so is the concept of negative interest rates.

Take a German five-year bond yielding –0.23pc. This implies that the German government is paid to issue debt. It also implies that investors are willing to pay 100p to receive 99p in five years’ time. This makes no sense to me.

An often cited reason to hold government bonds is an impending threat of deflation (“exported from China”). However, given the enormous burdens of debt in many Western nations, this makes little sense to me.

• How to play the financial turmoil: Telegraph investing ideas

I think about it this way: is a mortgage less or more valuable on a property whose price has fallen? Inflation is a friend to a borrower and deflation is an enemy. For all of these reasons, in our fund the biggest position (99pc of its net asset value) is a “short” on the government bonds of certain developed countries. That is, these positions will provide a positive return if the prices of bonds fall, and their yields rise.

One might make the argument that if bonds are overvalued, shares are too. I continue to have a cautiously optimistic attitude towards shares and have added to our holdings in recent market falls. As Warren Buffett once said, buy from the fearful and sell to the greedy.

If bond yields do not rise, I would much rather own shares. For example, a company such as Nestlé has a sound record in growing its earnings over time. It currently pays a 3pc dividend yield, which is likely to grow.

By contrast, the Swiss government bond yield is negative up to 15 years. It is clear to me which is the more attractive investment.

• Which funds best protected investors as the FTSE 100 fell?

Rising bond yields should be one of an investor’s greatest fears; they increase the rate at which future profits are discounted. However, we are protected against this by our short position in government bonds and this affords us the possibility to be bullish when others are bearish.

In summary, while most investors are focusing on what happens next in China, I believe that the risks of a sovereign debt crisis should not be forgotten. In my view it is not a question of whether, but when.

Shorting government bonds will prove profitable when that crisis comes, and in the meantime my feeling is that democracy will demand more money-printing. In that environment, rightly or wrongly, stock markets will rise.

William Littlewood manages the £850m Artemis Strategic Assets fund

Editor:  The more we look at the situation the more obvious it becomes, He who owns the gold and silver bullion will be secure and will make the rules. They who depended upon “paper promises to pay” will be among the poor and miserable. My new website will appear in late February.  It’s purpose will be to help YOU prepare for the coming crash and come through it secure and able to be part of the future solution, instead of being one of the victims and part of the problem. 

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The Federal Reserve Just Made Another Huge Mistake

 By Michael Snyder, on January 27th, 2016  The Economic Collapse Blog

The Great Seal Of The United States - A Symbol Of Your Enslavement - Photo by IpankoninAs stocks continue to crash, you can blame the Federal Reserve, because the Fed is more responsible for creating the current financial bubble that we are living in than anyone else.  When the Federal Reserve pushed interest rates all the way to the floor and injected lots of hot money into the financial markets during their quantitative easing programs, this pushed stock prices to wildly artificial levels.  The only way that it would have been possible to keep stock prices at those wildly artificial levels would have been to keep interest rates ultra-low and to keep recklessly creating lots of new money.  But now the Federal Reserve has ended quantitative easing and has embarked on a program of very slowly raising interest rates.  This is going to have very severe consequences for the markets, but Janet Yellen doesn’t seem to care.

There is a reason why the financial world hangs on every single word that is issued by the Fed.  That is because the massively inflated stock prices that we see today were a creation of the Fed and are completely dependent on the Fed for their continued existence.

Right now, stock prices are still 30 to 40 percent above what the economic fundamentals say that they should be based on historical averages.  And if we are now plunging into a very deep recession as I contend, stock prices should probably fall by a total of more than 50 percent from where they are now.

The only way that stock prices could have ever gotten this disconnected from economic reality is with the help of the Federal Reserve.  And since the U.S. dollar is the primary reserve currency of the entire planet, the actions of the Fed over the past few years have created stock market bubbles all over the globe.

But the only way to keep the party going is to keep the hot money flowing.  Unfortunately for investors, Janet Yellen and her friends at the Fed have chosen to go the other direction.  Not only has quantitative easing ended, but the Fed has also decided to slowly raise interest rates.  The Fed left rates unchanged on Wednesday, but we were told that we are probably still on schedule for another rate hike in March.

So how did the markets respond to the Fed?

Well, after attempting to go green for much of the day, the Dow started plunging very rapidly and ended up down 222 points.

The markets understand the reality of what they are now facing.  They know that stock prices are artificially high and that if the Fed keeps tightening that it is inevitable that they will fall back to earth.

In a true free market system, stock prices would be far, far lower than they are right now.  Everyone knows this – including Jim Cramer.  Just check out what he told CNBC viewers earlier today…

Jim Cramer was tempted to resurface his “they know nothing” rant after hearing the Fed speak on Wednesday. He was hoping that a few boxes on his market bottom checklist might be checked off, but it seems that the bear market has not yet run its course.

The Fed’s wishy-washy statement on interest rates today left stocks sinking back into oblivion after a nice rally yesterday,” the “Mad Money” host said.

Without artificial help from the Fed, stocks will most definitely continue to sink into oblivion.

That is because these current stock prices are not based on anything real.

And so as this new financial crisis continues to unfold, the magnitude of the crash is going to be much worse than it otherwise would have been.

It has often been said that the higher you go the farther you have to fall.  Because the Federal Reserve has pumped up stock prices to ridiculously high levels, that just means that the pain on the way down is going to be that much worse.

It is also important to remember that stocks tend to fall much more rapidly than they rise.  And when we see a giant crash in the financial markets, that creates a tremendous amount of fear and panic.  The last time there was great fear and panic for an extended period of time was during the crisis of 2008 and 2009, and this created a tremendous credit crunch.

During a credit crunch, financial institutions because very hesitant to lend to one another or to anyone else.  And since our economy is extremely dependent on the flow of credit, economic activity slows down dramatically.

As this current financial crisis escalates, you are going to notice certain things begin to happen.  If you own a business or you work at a business, you may start to notice that fewer people are coming in, and those people that do come in are going have less money to spend.

As economic activity slows, employers will be forced to lay off workers, and many businesses will shut down completely.  And since 63 percent of all Americans are living paycheck to paycheck, many will suddenly find themselves unable to meet their monthly expenses.  Foreclosures will skyrocket, and large numbers of people will go from living a comfortable middle class lifestyle to being essentially out on the street very, very rapidly.

At this point, many experts believe that the economic outlook for the coming months is quite grim.  For example, just consider what Marc Faber is saying

It won’t come as a surprise to market watchers that “Dr. Doom” Marc Faber isn’t getting any more cheerful.

But the noted bear at least found a sense of humor on Wednesday into which he could channel his bleakness.

The publisher of the “Gloom, Boom & Doom Report” told attendees at the annual “Inside ETFs” conference that the medium-term economic outlook has become “so depressing” that he may as well fill a newly installed pool with beer instead of water.

If the Federal Reserve had left interest rates at more reasonable levels and had never done any quantitative easing, we would have been forced to address our fundamental economic problems more honestly and stock prices would be far, far lower today.

But now that the Fed has created this giant artificial financial bubble, the coming crash is going to be much worse than it otherwise would have been.  And the tremendous amount of panic that this crash will cause will paralyze much of the economy and will ultimately lead to a far deeper economic downturn than we witnessed last time around.

Once the Fed started wildly injecting money into the system, they had no other choice but to keep on doing it.

By removing the artificial support that they had been giving to the financial markets, they are making a huge mistake, and they are setting the stage for an economic tragedy that will affect the lives of every man, woman and child in America.

Gold Is Behaving As Much More Than A Safe Haven

Tuesday January 26, 2016 

The biggest news of the day is the soaring price of gold.

More impressive is that, while some of the gain was generated by a weaker U.S. dollar, most of the advance came via regular trading. That is to say that a lot of people wanted to buy gold.

They also wanted to buy silver (up 2.00%), platinum (up over 2.00%) and even laggardly palladium (up 1.25%). This is classic haven buying, certainly what with volatility still high, but it also might be pointing to a longer-term trend of actually investing in precious metals. One might even describe it as a flight to quality.

Bond face value prices were up today after a successful auction of 2-year paper, but – and this is germane to the allure of precious metals right now – those prices didn’t rocket into space. That tells us that bonds are working on a business-as-usual basis whereas gold, silver, et al, are moving up for deeper reasons.

The strong uptick in gold came on a day that would seem not to be favorable toward investing in precious metals.

The Dow is up at 3PM in New York by 1.75%. The S&P 500 is up 1.35%, while the NASDAQ brings up the rear, moving higher by 1.00%.

A lot of chatter surrounding the crude oil market is driving action in equities. Word has it that OPEC is about to reach an agreement on output and pricing. However, like any big and complicated deal, believe it when you see it. And even then…

West Texas Intermediate rose 3.2%. Brent was up by almost 4.00%. Both the U.S. and world benchmark crudes are operating firmly in the $31+ per barrel range.

Europe was able to take advantage of the optimism in oil (short lived as it may turn out to be). The DAX, FTSE and CAC all turned positive. The CAC led the way with a full 1.00% gain.

Asia was not so lucky. Markets there closed before oil began its rampage up.

The Nikkei and Hang Sen were both down significantly but not enough to call out the National Guard.

Shanghai was devastated, though. It fell 6.38% There is also worry in China that the Fed will issue a statement tomorrow that will be unfavorable to the Chinese economy.

Our feeling is that the Chinese economy will be hurt regardless of what the Fed might say regarding interest rates in the near to middle-term future. China is in a fragile state, economically.

Years of state-controlled economics may well be coming to a rocky end sooner than we think.

Economic Activity Is Slowing Down Much Faster Than The Experts Anticipated

By Michael Snyder, on January 25th, 2016

Locomotive - Public DomainWe have not seen global economic activity fall off this rapidly since the great recession of 2008.  Manufacturing activity is imploding all over the planet, global trade is slowing down at a pace that is extremely alarming, and the Baltic Dry Index just hit another brand new all-time record low.  If the “real economy” consists of people making, selling and shipping stuff, then it is in incredibly bad shape.  Here in the United States, the dismal economic numbers continue to stun all of the experts.  For example, on Monday we learned that the Texas general business activity index just hit a six year low

Economic activity in Texas keeps getting worse.

The general business activity index out Monday from the Dallas Federal Reserve for January was -34.6, a six-year low and much worse than economists had expected.

The forecast for the monthly index was -14, following a December reading of -21.6 (revised from -20.1) that was also worse than expected.

One could perhaps argue that this is to be expected in Texas because of the collapse in the price of oil.

But what about the very unusual things that we are seeing in other areas of the country?  In Erwin, Tennessee, a rail terminal that had been continuously operating for 135 years was just permanently shut down, and hundreds of workers now find themselves without a job

Follow notice

 

The last coal train to leave Erwin rolled slowly out of town just after at 3 p.m. Thursday, less than eight hours after CSX Transportation employees heard the news that rocked all of Unicoi County.

“Its a hard pill to swallow,”  county Mayor Greg Lynch said. “Of course, we heard rumors that something was coming down. But never in my wildest dreams did I imagine they would just shut down and leave town.”

CSX delivered the news of its decision to immediately close Erwin’s 175-acre rail yard and abruptly end the employment of the facility’s 300 workers in a series of meetings with employees conducted at the start of their morning shifts.

It has been said that if you want to know what is really happening with the U.S. economy, just watch the railroads.

 

And right now, rail traffic all over the nation is falling to depressingly low levels.

One of Steve Quayle’s readers says that rail traffic in Colorado has slowed down so much that hundreds of engines are just sitting there on the tracks

With regard to the train freight article this morning, we have in Grand Junction, CO., literally hundreds of engines sidelined on the tracks. They are three deep on some tracks and easily number over 250. I have never seen this many engines on the tracks before and I feel this is just another indicator of the slowdown in shipping.

In case you are tempted to think that this is just anecdotal evidence, I want you to consider what is happening to the largest railroad company in the United States.

According to Wolf Richter, operating revenues for Union Pacific were down 15 percent last year…

Union Pacific, the largest US railroad, reported awful fourth-quarter earnings Thursday evening. Operating revenuesplummeted 15% year over year, and net income dropped 22%.

It was broad-based: The only category where revenues rose was automotive (+1%). Otherwise, revenues fell: Chemicals (-7%), Agricultural Products (-12%), Intermodal containers (-14%), Industrial Products (-23%), and Coal (-31%). Shipment of crude plunged 42%.

So Union Pacific did what American companies do best: it laid off 3,900 people last year.

And of course we can see evidence of the emerging economic slowdown all around us pretty much wherever we look.  Sprint just laid off 8 percent of its workforce, GoPro is letting go 7 percent of its workers,  and Wal-Mart just announced the closure of 269 stores.

But instead of dealing with reality, there are a lot of irrational optimists that insist that things will start bouncing back any day now.  For instance, CNBC is reporting that Goldman Sachs is forecasting that the S&P 500 will end up finishing the year back at 2,100…

Goldman, though, is sticking with its forecast that the S&P 500 will rebound and finish the year at 2,100, a rise of about 11 percent from current levels but basically no net gain for the full year.

It is easy to say something like that, but the actions of the big banks speak louder than words.

Most people don’t realize this, but several of the “too big to fail” banks laid off thousands of workers in 2015

Bank of America and Citigroup reduced headcount the most, eliminating about 20,000 staffers between them, according to fourth-quarter earnings reports from each bank. The respective moves amount to 4.6 percent and 4 percent fewer workers at the banks. JPMorgan Chase reported in its earnings that it employs 6,700 fewer workers than a year ago.

And guess what?

The “too big to fail” banks did the exact same thing just before the great stock market crash of 2008.

When are people going to finally start understanding that we have a major league crisis on our hands?

Since June 2015, approximately 15 trillion dollars of global stock market wealth has been wiped out.  After a brief respite at the end of last week, it appears that the global financial crisis is getting ready to accelerate once again.

On Monday, the price of oil dipped back under 30 dollars, the Dow was down another 208 points, and the Nikkei is currently down another 389 points in early trading.

Somewhere close to one-fifth of all global stock market wealth has already been wiped out.

We only have about four-fifths left.

But in the end, I can talk about these numbers until I am blue in the face and some people will still not get prepared.

Some people have so much faith in Barack Obama, the Federal Reserve and the mainstream media that they would literally follow them off a cliff.

By now, most of the people that believe that they should prepare for the coming crisis have already gotten prepared, and most of those that want to believe that everything is going to work out just fine somehow are never going to get prepared anyway.

What is going to happen is going to happen, and tens of millions of people are going to end up bitterly regretting not listening to the warnings when they still had the chance.

Gold and silver remain at artificially low prices. Get your money out of paper promises to pay and into Real Money. I’ll have more life saving and fortunate saving information for you when my website opens in February.

Turbulent 2016 Start Indicates Gold Prices Must Rise

Monday January 25, 2016

As 2016 opened U.S. stocks plunged over 10% in a panicked and swift correction that may or may not be over. Crude oil prices tumbled below $28 per barrel last week before recovering back above $30. Again, a bottom may or may not be forming in crude oil. And, then there is the U.S. dollar index –up modestly since the start of the year, but overall locked in the same neutral range that has confined the market since March 2015.

All eyes on the Fed: Amid the increased global market volatility and uncertainty, analysts have quickly backed away from forecasts for a rate hike at the March Federal Open Market Committee (FOMC) meeting. Last week, Credit Suisse issued a research report stating they believe the probability of a first quarter rate hike has slipped below 50% and they aren’t alone.

What should we expect for Gold?  As expectations for future Fed rate hikes are ratcheted back—it will remove support for the U.S. dollar index. Sure, the dollar gained in 2015, but the majority of the gains were achieved in the first quarter. Since March, the U.S. currency has vacillated in a large, but neutral sideways trading range. See Figure 1 below, a daily chart of the U.S. dollar index.

Since March 2015, the U.S. dollar has held between 100.39 and then 100.51 on the upside and support at 93.13-92.62 on the downside.

What’s the risk here? If the Federal Reserve finds itself hamstrung on future rate hikes, the U.S. dollar will begin to slip lower within that large range. The U.S. dollar rallied significantly since May 2014 (a low at 78.90) –as the currency “priced in” expectations for future U.S. rate hikes. And, what do we have so far? One .25 basis point rate hike barely lifting the federal funds rate off the zero bound level. If the Fed begins to backpedal away from the expected three to four rate hikes in 2016, the dollar will begin to deflate.

Dollar declines are gold bullish. If the U.S. dollar begins to slip toward the lower end of its large multi-month trading range that would remove resistance for the gold market.

Market turbulence, economic uncertainty and fewer rate hikes could trigger a corrective unwind in the U.S. dollar as traders begin to “deprice” expectations for the number of rate hikes already baked into the cake.

Bottom line: Keep an eye on the dollar. Fresh weakness ahead could prove to be gold supportive. In any case, don’t worry about the immediate. Buy gold coins while the prices are low. Prices will rise suddenly. Gold is not a stock, it’s real money. Don’t think of it as if it is a stock. You’ll lose your proper perspective! Gold coins are intended to be purchased and held. When the major war brewing now breaks loose in the Middle East your gold coins will appreciate in value markedly and your buy and hold strategy will be justified.

 

 

Robots are coming for your job sooner than you suspect

Millions of jobs across the US and UK To Be Eliminated by robotic machines over next 15-years

British high streets and factories will be transformed over the next two decades as millions of jobs are replaced by robots, a new report warns.

 

Eleven million jobs across the UK economy are at high risk of being automated by 2036, with the retail and transport sectors most vulnerable, according to Deloitte.

 

It came as Sir Roger Carr, the chairman of BAE Systems, warned that humans could become “mere spectators” to their destruction unless governments do more to police the development of autonomous weapons.

Deloitte, one of the “Big Four” accountancy firms, said rapid advances in technology and the popularity of online shopping meant more than 2m jobs in the wholesale and retail sector – or almost 60pc of the current retail workforce – had a high chance of being automated by 2036. U.S. jobs will suffer similarly, of course.

Experts warned that self-checkouts and shelves stacked by robots would become a common sight in UK shops, with the pace of automation “likely to accelerate”.

 

Factory workers also face being replaced en-masse, the report said. A total of 1.5m jobs in the transport sector – or 74pc of the current workforce – are at high risk of automation in the next 20 years.

The research, which builds upon Deloitte’s work with Oxford University in 2014, showed that few sectors would escape the rise of the robot, with the impact already being felt in several sectors.

Analysis of Office for National Statistics (ONS) data showed almost 750,000 net jobs had been lost in manufacturing since the turn of the millennium, while the wholesale and retail sector saw net job losses of 338,000.

However, the authors highlighted that millions of new roles had been created to meet changing demands.

German Chancellor Angela Merkel and India's Prime Minister Narendra Modi hold bionic ants German Chancellor Angela Merkel and India’s Prime Minister Narendra Modi hold robotic ants

More than 1m extra jobs in health and social work had been created since 2000, the majority of which have a low chance of automation, Deloitte said.

Education and information and communication sectors were the most sheltered from future automation, it added.

Angus Knowles-Cutler, vice-chairman of Deloitte, said millions of new jobs in sectors such as technology, as well as creative and caring professions, were likely to be created over the coming decades.

However, he said it remained uncertain whether the pace of job creation could compensate for the roles that were likely to be destroyed.

“The big question is if the pace and adoption of technology accelerates, would we be in new terrotory?” he said.

Andrew Haldane, chief economist at the Bank of England, warned last year that middle income jobs could be “hollowed out” by machines, leaving only low-paid and high-paid jobs behind.

David Sproul, Deloitte’s UK chief executive, said early adoption of technology and support for displaced workers was the key to avoiding mass unemployment.

BAE Systems essentially ruled itself out from designing advanced robotic weapons

“It is essential that business, government and educators all work together to plan for this and put measures in place to build the skills needed for the future. With this, we can be more confident that technological change can work for us, not against us,” he said.

However, a line needed to be drawn when using robotics in the defence market, Sir Roger said.

He essentially ruled BAE out from designing such weapons, adding that they would have “no emotion and no concern and no sense of mercy or even identification of friend or foe”.

Autonomous weapons were “fundamentally wrong”, he said.

Editor: There has been considerable discussion about genetic manipulation and replacement of humans with machines, animals made to be intelligent, humans made into cyborgs and so forth — and all of this technology is moving along at a nearly secret high speed pace.

How can millions of jobs be replaced with machines and leave any opportunity for people to earn their living? This no one answers, nor will they. Truth is, not only will jobs be eliminated, so eventually will huge corporations reduce “excess population.” Our future generations will be born into troubled times and a few may wonder how it all happened. Only prayer and the return of the true and living God can rescue us.

Until then, those who have turned their fortunes into REAL MONEY will be able to survive and dodge the coming troubles. Those who invested in paper promises will find themselves trapped in poverty and finally desolate.

Watch this blog for directions to a website dedicated to helping guide you to personal and financial safety and prosperity — coming in February.

 

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“Invisible Hand” Looms Large Over China

Armstrong: “Invisible Hand” Looms Large Over China

 

“Capital tends to concentrate in certain areas…and everybody gets their 15-minutes of fame. China basically had it and they ended up with the largest reserves of any country recently…but all these things tend to peak out and then the trend reverses.”

“(They are now) in an economic decline that will probably not bottom out until around 2020…and just last year up until November the capital flows from China have been over $850 billion, which have left and come over here. So this is part of the issue of keeping the dollar strong; it also helps in perpetuating the trend toward deflation…and the markets are just trying to figure it all out—we’re still in this major contraction as capital is trying to figure out which way to go.”

“Right now, we’re probably going to see the bottom in deflation and a lot of commodities in 2016—the market will move back and forth—but the problem with China is that once you start trying to pretend that you can support the market, then you raise unrealistic levels of expectations that the iron fist is more powerful than Adam Smith’s invisible hand and, I’m sorry, but Adam Smith always wins. So when people realize that China can’t stop a decline, then it’s going to go really down—that’s the problem with China right now.”

Armstrong has been a longtime proponent on the importance of tracking global capital flows to understand market behavior. He uses a computer model called Socrates for specific short-term forecasts on various markets and commodities and his longer-term Economic Confidence Model, which is mysteriously based on pi (see Wikipedia entry below the chart), for determining major turning points in global markets.

economic confidence model

Wikipedia: The Economic Confidence Model is an economic cycle theory by Martin A. Armstrong. Armstrong proposes that economic waves occur every 8.6 years, or 3141 days, which is approximately Pi X 1000. At the end of each cycle is a crisis after which the economic climate improves until the next 8.6 year crisis point. The model has been profiled in The New YorkerTime magazine, Financial Times and Barron’s due to what appeared to be accurate predictions.

Many of Armstrong’s forecasts and views go against mainstream thinking, as you’ll read below, and there was even a highly-praised documentary recently made about him called The Forecaster, which LA Weekly wrote, “convincingly weaves multiple financial collapses, the ouster of Boris Yeltsin and the rise of the Putin oligarchy around Armstrong’s life’s work — a mathematical model that predicts market peaks and collapses and, allegedly, the wars that accompany both.” Click to hear a preview of his recent interview below or scroll down to read more.

Armstrong: “The Fed realizes that they have to normalize interest rates—they just have to. If they don’t, you’re basically going to have a tremendous financial crisis, which I think is coming anyhow and that is largely because most of the pension funds need 8% to make money. You have CalPERS in California which came in at 4.5%. Everybody is below what they need to make to fund pensions globally. You have the same problem in Europe. In Europe you have some countries that actually have regulations that pension funds must buy government bonds by 70 or 80%. Okay, you now lower interest rates to negative. What are you doing?! You’re really hurting the economy tremendously and interest rates have to go up. If they don’t, we are going to have such a huge economic crisis on the pension side and I think that’s going to hit in 2017.”

“Trump is rising in the polls because everyone knows that something is wrong. If you put in Hillary or you put in Bush, are you really going to get anything changed? I mean, nothing. If it’s a career politician, it’s the same old story and I’ll tell you why—both sides know…Social Security, Medicare, everything goes into deficit starting in 2017. So they are going to continue raising taxes because that’s the only thing they know how to do. And the more they raise taxes, the more the economy turns down. They are like a black hole sucking in everything because they do not know how to manage anything.”

“When people realize—and we’re not there yet—but when the vast majority of people begin to realize that the governments are seriously in trouble…then you have a flight of capital away from government bonds and into equities…gold, tangible things—anything of that nature (will rise)…”