Martin Armstrong There will be no choice but to run into equities

Martin Armstrong  There will be no choice but to run into equities      09/09/2016 

There will be no choice but to run into equities. With the European banking crisis looming on the horizon, real estate on the high-end has been targeted by governments around the world passing various laws against foreign ownership from making it criminal in Australia to demanding 15% of the sales by a foreigner in the USA is seized by the IRS, this does not leave a lot of room for big money to get off the grid.

 Then there are the mandates by countries that pension funds MUST be invested in government bonds. This negative interest rate is creating the next major crisis. As a matter of law, these funds cannot even divest all government bonds in many countries. We are looking at a crisis far worse than any derivative or banking crisis. It is the Pension Crisis that nobody talks about. This is the political crisis that is bringing socialism to an end.

 You are correct, gold offers no yield for income, only capital appreciation. That does not provide a base for institutional money to park, besides storage problems. But here to, government are tracking all buying and selling of gold. Only the institutions had to turnover their gold in 1934. Individuals could hold their gold at home in a sock drawer. So this distinction has always existed between big money and individual investors. Gold is for the individual. It cannot satisfy institutional money on a yield perspective and it cannot be protected by an institution. Consequently, gold is eliminated from a major institutional portfolio, which limits that type of investment into directing it into gold stocks for some yield.

 All of that said, you are also correct about retail participation. That remains at historic lows for a bull market. So many people were hurt in 2007 to 2009, that they are reluctant to step back in. There can be ABSOLUTELY no major crash of 1929 proportion despite the choir of analysts all claiming “SELL”for it will go to anywhere from 50% to 10% of current value. Such a move just does not seem plausible.

Nonetheless, our accumulative Energy Models reached the overbought stage that nearly matched our next target objective. That warned that we were getting toppy and a brief correction was likely. Likewise, the accumulative energy in 2009 at the low went seriously negative also warning this was overdone on the downside.

 We will be issuing a special report because 2016 is 7 years up and that warned we could indeed see even a slingshot type of move. That means you have excessive bearishness and the pros will short the market. They are typically trapped and will then panic to get out.

 Despite the claims that the bankers are too big to fail, too big to jail, and too politically controlling in Washington, keep in mind if Trump wins, we may see reality hit the bankers in the face. Without Hillary, they are in big trouble for the next loss may be their’s to keep. The “pros” are not the star traders, they are the political manipulators. The entire Glass Steagall Act was proposed BECAUSE of Goldman Sachs.

 Goldman Sachs got caught up in the whole bull market just like everyone else. Under the leadership of Waddill Catchings who led the firm into joining the hot market by now creating an “investment trust” where he saw that a giant fund could maximize profits by buying and selling stocks. He promoted this as a business that was professional and the profession was investing.

The “investment trust” was sort of the domestic “hedge fund” of its day. Everyone was jumping into the game. Catchings just got caught-up in the whole thing and was very bullish going into the high of 1929. He gave this new entity the name: Goldman Sachs Trading Corporation. The deal was that Goldman Sachs would be paid 20% of the profit and the stock was offered at $104 per share. It jumped to $226 per share, that was twice its book value. This would be the very same mistake that became exposed in the Crash of 1966 when shares in mutual funds were then traded on the exchange allowing them to be bid up well beyond their asset value.

The whole bullish atmosphere was very intoxicating. Just three months into the fund, Goldman Sachs arranged for a merger of the trust fund with Financial & Industrial Corporation that controlled Manufacturers Trust Company that was a giant group of insurance companies. This doubled the assets of Goldman Sachs Trading Corporation taking it up to a staggering near $245 million. This was huge money in those days. The trust now, exploded and the assets under control are said to have exceeded $1 billion back then. Goldman Sachs expanded the leverage going right into the eye of the storm that was about to hit starting on September 3rd, 1929. In the summer of 1929, Goldman Sachs launched two more trusts Shenandoah and the memorable Blue Ridge. The shares were over­subscribed and Shenandoah was offered at just $17.80 and it closed on the first trading day at $36 per share. Blue Ridge was even more leveraged and the partners at Goldman Sachs put pressure on everyone to buy as a sign of support. The leverage was astonishing for with just about $25 million in capital, now there was more than $500 million at stake.

The disaster was monumental to say the least. Goldman Sachs Trading Company, whose shares had stood at $326 at their peak, fell during the Great Depression to $1.75. They fell to less than 1 % of their high value. The loss suffered at Goldman Sachs on a percentage basis was far worse than at any other trust. In fact, of the top trusts, Goldman Sachs had lost about 70% of everyone else’s losses combined.  

So sometimes the bigger they are, the harder they fall.

will-the-dollar-crash-at-the-end-of-september

Gold rises when the confidence in government declines. It does not rise because the quantity of money was increased.

This theory of the quantity of money is COMPLETELY AND BLUNTLY – BULLSHIT. Here is gold from 1980 to 1999 when it fell intraday from $875 to under $300 while the national debt rose from about $1 trillion to almost $6 trillion. They will never talk about that and whenever they are forced to say something, they call it a bank manipulation intent on keeping only gold down perpetually to of course support the dollar. Bankers do NOTHING out of the goodness of their heart nor patriotism. If there is a buck to be made, they are there. If not, they will never spend billions to keep gold down with no immediate profit. There was no decline in public confidence between 1980 and 1999. Gold began to rise because “smart money” feared the coming euro. Plain and simple. They would be surrendering their currencies for the euro and nobody new what would happen. The euro fell from par to below 90 cents before it rallied. It was not the quantity of money, but what would be money.

There is absolutely no empirical evidence whatsoever that their theory has EVER been correct. These people have NEVER traded real money. They have no such experience whatsoever and just make up this nonsense to sell stuff for dollars they say will collapse and become worthless. That alone is curious indeed. Why sell newsletters for dollars who then forecast are worthless in a matter of days?

Whatever the IMF stuffs in the SDR (Special Drawing Right), it has no bearing whatsoever on the reserve status of the dollar, which is entirely based upon (1) geopolitical security, (2) political security, (3) depth of the bond and equity markets just for starters. It is total gibberish and honestly not even plausible. All we heard was how the euro was going to end the dollar as the reserve currency. Well, the IMF put that into the SDR. Why is the dollar still the reserve currency?  It is up there with the predictions of YK2 in 2000 to the end of the gold exchanges in New York and London would collapse because China would begin to trade real gold not paper gold in Shanghai. Ya. Good one.

New York is still the main center for gold trading. Shanghai did not end that one either. These people are constantly making up schemes to portray the dollar as worthless. They never look beyond the shores and grasp what is happening globally. They are just ignorant of global events or how the world economy even functions or its not good enough to scare people to buy their newsletter or book. Emerging markets have issued dollar debt nearly equal to 50% of the total US  national debt. Bonds can be issued in dollars without permission of the US government anywhere in the world, which is not true for many currencies like the Japanese yen. That is what makes the dollar the reserve currency. Hop on a plane to Moscow or Beijing and go shopping. Pull out a $100 bill and you have no problem. Go to Starbucks in New York City and try to pay with a €10 bill or ¥100 note from China. Good luck. That is the difference with a real reserve currency. That will not change because of some calculation at the IMF. The US government allowed skids of $100 bills to be sent to Russia. It was called the Money Plane. This was even discussed in Congress after exposed.

Just ask yourself, if the Russia goes into war in Europe, the Middle East erupts in warfare, and China goes into conflict with Japan, where do you want to park your money? When the euro is in complete disarray, the European banking system is really screwed because to be politically correct the banks had to have a piece of their reserves in all member’s bonds since there was no euro central bond, do you really want to hold your money in euro? An SDR they claim is only for the “financial elite” which again is a complete lie. The rich cannot park their money in SDRs, nor can Apple, IBM, Ford, Goldman Sachs, Warren Buffet, Bill Gates, or any corporation. This is purely a fictitious basket used internally at the IMF for loans to governments in trouble. There are other currencies in the SDR including the British pound and adding the Chinese yuan will not alter the world. It is merely an accounting feature and it is simply being done as a political recognition. There are no bonds in SDRs for any pension fund to park money. Give me a break!

These shysters  might as well say send me 10% of your net worth, for it will be worthless anyway, and I will tell you what to do with the other 90% that will be even more worthless if you do not rush and send me the 10% before it becomes worthless. Anyone can stand up on a soap box and preach or forecast whatever they want at Speaker’s Corner in Hyde Park located in London. It’s an old tradition. Do people really take everything as real or is some of it just entertainment?

Look. We are headed into a monetary crisis that will end up resetting the monetary system. There are already proponents in Washington who supportending the dollar as the reserve currency because the Federal Reserve has become the world central bank by default and they have had to surrender domestic policy objectives because of international policy objectives. That means the entire theory of stimulating the economy under Keynesianism has utterly collapsed. If the Fed feels it needs to raise interest rates, the world lobbies against that because it would impact them since they issued their debt in dollars. Hello! That is losing domestic control which is surrender to international policy objectives. This is why many are starting to see the reserve status of the dollar is not always so great.

The IMF has been lobbying to have the SDR as the replacement for the dollar so the USA can turn back to its own agenda. But many are reluctant to hand that power to the IMF, myself included. The IMF is up for sale. It has been highly corrupt and any new reserve basket should be administered by an entirely new agency – not the IMF.

I have been in private meetings behind the curtain around the world arguing for this position. So I know first hand what is going on and who backs what and why. I have met with former board member of the IMF on such issues. The dollar will not collapse because it is not the reserve currency as these fear-mongers predict. These people are engaging in pure sophistry. The ONLY way to make that transition to end the dollar as the reserve currency is to STOP government borrowing, end the public debt, stop the income tax, and do a debt-to-equity swap (see Solution).

Socialism is ending. Governments are broke. Central Banks took rates negative and many pension funds by law must invest only in government bonds. Hello! Anyone smell disaster here? We either default wiping out all pensions, or we make a transition in an orderly fashion. That’s our choice. I am glad I am not 21 for I get to check out of this world and do not have to live in this chaos that will emerge and that is a totalitarian atmosphere. We fix this, or deal with the consequences. This BULLSHIT these people spread only fuel the ignorance of what we are really facing. They only make trying to fix this mess far worse.

These stupid sales-jobs that the world will end because the IMF will include the yuan in the SDR is just not even worthy of debate. It is just gibberish, but dangerous, since it misleads people as to the truth behind the curtain about to pop out on the stage..

– There will be no choice but to run into equities.

With the European banking crisis looming on the horizon, real estate on the high-end has been targeted by governments around the world passing various laws against foreign ownership from making it criminal in Australia to demanding 15% of the sales by a foreigner in the USA is seized by the IRS, this does not leave a lot of room for big money to get off the grid.
Then there are the mandates by countries that pension funds MUST be invested in government bonds. This negative interest rate is creating the next major crisis. As a matter of law, these funds cannot even divest all government bonds in many countries. We are looking at a crisis far worse than any derivative or banking crisis. It is the Pension Crisis that nobody talks about. This is the political crisis that is bringing socialism to an end.

All of these crazy forecasts of the end of the world have something in common. They are all predicated upon two connected delusions. They typically hate the dollar to start with and this feeds this idea that gold will rise if the quantity of money is increased. This was how they led so many people to lose their shirts from 2011 predicting $10,000 to $100,000 gold all because of Quantitative Easing. Gold rises when the confidence in government declines. It does not rise because the quantity of money was increased.

This theory of the quantity of money is COMPLETELY AND BLUNTLY – BULLSHIT. Here is gold from 1980 to 1999 when it fell intraday from $875 to under $300 while the national debt rose from about $1 trillion to almost $6 trillion. They will never talk about that and whenever they are forced to say something, they call it a bank manipulation intent on keeping only gold down perpetually to of course support the dollar. Bankers do NOTHING out of the goodness of their heart nor patriotism. If there is a buck to be made, they are there. If not, they will never spend billions to keep gold down with no immediate profit. There was no decline in public confidence between 1980 and 1999. Gold began to rise because “smart money” feared the coming euro. Plain and simple. They would be surrendering their currencies for the euro and nobody new what would happen. The euro fell from par to below 90 cents before it rallied. It was not the quantity of money, but what would be money.

REAL ESTATE BOOM AND BUST 

watch the core regions in real estate and you will forecast the rest. Real estate booms and busts always begin in the core regions. As that property rises sharply, people begin to buy what is cheaper the next two over. This is the process of the economic wave in real estate which is very much like putting a drop of water from above into a standing pool of water. The waves will spread from the epic center outward and gradually diminish.

In the United States, the three main regions for this rally in the high-end market has been New York,Miami, and Los Angles. All three markets have begun the decline and we are now watching this slowly spreading outward. Chicago real estate has begun to turn and so has the Vancouver market as well as in London, no less Paris as well as Hong Kong. The outer regions even in Britain never exceeded the 2007 high as was the case for the average market in the United States. In fact, home ownership has fallen to a 51.6 year low from the 1965 high.

Some of the outlying regions are still ok, but that will gradually change. Much of this decline is now the result of changes in taxation. Previously, London and Paris property markets were supported by the fact that 

foreigners did not pay tax on profits. We warned that would change, and did it! Because of the mad rush of foeign investors, politicians went after them with a vengeance. In the United States, if a foreign citizen now sells US property, 15% of the gross is held by the US government for potential taxes. In London, Osbourne changed the tax on property and the first month the crash began by 11.5%.Australia imposed laws against foreign ownership of property making it even criminal. In the States,  IRS targeting NYC and Miami in their hunt for money demanding that title companies pierce the corporate veil on who is behind an LLC buying property. Why? A foreigner would set up an LLC in the States to avoid the 15% withholding upon a sale.

The high-end real estate market boomed and made its high with the rebound in 2015.75. This is an average cycle of real estate market as a whole and it will not match every market specifically since it depends where it is relative to the core represented here. The 2007 peak seems to be correct around the world in the general average home market. The high-end made new highs as capital began trying to just park off the grid and out of banks.

The whole reason Roosevelt created the 30 year mortgage was to try to get people to buy on credit. Property was being auctioned off in the 1930s and it was for cash only. Prices for farmland fell to pennies on the dollar for only cash buyers could bid. The 1955 turning point was really everything. The Case-Shiller index, which suddenly rose from the Great Depression, does not take into account the dollar devaluation that sparked that rise as it did in equities. That was virtually a 60% devaluation of the dollar that moved it from $20 to $35 on a gold standard by FDR. Was that rise “real” or currency related? Sorry, the real rise begins post-war from 1955. That was the real housing boom.

The Case-Shiller does not accurately reflect the changes in currency. One must look at everything in terms of international value before they can see if they really made money or just broke even because the currency declined. From a value perspective, the 1929 high was more than three times that of the 1890s. So the high of the 1890s was purely a rise due to the collapse in the dollar; it was the hallmark of the panic of 1893 and was best expressed in Grover Cleveland’s speech before Congress.

So now we face the overall decline in the core markets and this will spread to the peripheral. However, at the end of day, we need a place to live. If you are talking about where you live and it is not all your wealth, then real estate will help make the transition when it comes time for a swap to a new currency down the road