The Dow – To Be or Not To Be – Blowing Bubbles or Hot Air?
While the amount of bears in the stock market are truly amazing, there are simply countless economists and analysts all claiming this is the all time high and a crash is imminent. They claim the classic feature of a speculative bull market peak is identified by the margin debt on the NYSE. Tracking this indicator, they argue there has been a surge to the highest level in history in of course nominal terms. They cite this is nearly 2.5% of GDP, which exceeds all but two months in 2000 and 2007. This is no big deal and would need to reach 17% of GDP to match a real crisis in debt. Even the 1929 Bubble took place with total Broker Loans at about $6.5 billion against $104 billion GDP in nominal terms. That means 1929 Broker Loans were 6.25% of GDP making 2.5% no big deal. You can see from the broker loans during the 1929 Bubble, there was no retest of former highs. It was a clear Phase Transition, which is by no means replicated by the current levels.
Having long-term databases is essential to map out what is real and fake. Sorry – 2.5% is nothing. To match 1929, we need to get to 6.25%. If we look at real panics in government, now we are at 17%. The historical high in call money rates came in 1899 at nearly 200%. The peak in rates only reached 20% in 1929 BECAUSE of all the foreign capital inflows whereas in 1899 there were capital outflows leaving a shortage of cash in the USA driving interest rates much higher.
The problem with this type of analysis besides being too short-term, it is simply the domestic focus as if the world did not exist. This analysis is also focused on the traditional flight to quality between assets and cash. The ONLY alternative to a stock market bubble is to run to cash and bonds. But government debt is the problem right now and pension funds need 8% to survive. What this analysis is ignoring is how does capital act when the crisis is in government rather than the private sector.
We are not dealing with a mere speculative bubble. The money coming in is institutional and foreign by the overwhelming majority. I speak to stock brokers and it has been unanimous that retail clients are not in the market as was the case previously. Those who invest all the time may be there, but the average person who buys tops when everyone is in is not there yet because the TV financial-evangelists are bearish all claiming to be picking the high.
We will have a report out on this shortly. The issue is the potential for a comingCYCLE INVERSION where everything must flip so that private assets rise with the decline in the ECM rather than decline. The PUBLIC and PRIVATE aspects must flip in a serious economic implosion that we face known as the Sovereign Debt Crisis. This chart illustrates how bonds collapsed with the Sovereign Debt Crisis of 1931. This is the other side of the coin. There are times when the private sector is the problem. However, then there are times when government is the problem. You better understand how capital moves under each scenario.
US Prohibits Production of Physical Bitcoins
I have stated before that the government was allowing Bitcoin to open the door for the coming virtual digital money. Of course, they will shut down Bitcoin once it has served its purpose. They have drawn the line in the sand and now the world’s largest manufacturer of physical Bitcoin coins will no longer accept orders since the U.S. authorities have imposed regulations that cannot be circumvented. The whole thing will center on alleged “money laundering” and what they really mean by that is hiding money from the tax man.
Bernanke’s Speech at the Ceremony Commemorating the Centennial of the FED RESERVE Act
Chairman Ben S. Bernanke
AT THE CEREMONY COMMEMORATING THE CENTENNIAL OF THE FEDERAL RESERVE ACT, WASHINGTON, D.C.
DECEMBER 16, 2013
Concluding Remarks
“I have been asked to close this ceremony marking the 100th anniversary of the signing of the Federal Reserve Act–the law that created the Federal Reserve–by looking ahead to the next century. Given the well-known difficulties that economists have in forecasting even the next few quarters, I will happily point out one important advantage in making a 100-year forecast, which is that I won’t be around to explain why the forecast went wrong. Our ability to make accurate long-term forecasts is limited, to say the least. Nevertheless, I will venture one prediction that I don’t think is too bold, which is this: The values that have sustained and served the Federal Reserve at its best, and have permitted it to make critical contributions to the economic health of our nation during the past century, will continue to serve it and the nation well in the century ahead.”
I dare say it is far easier to predict the long-term compared to the day-to-day. Why? A trend in motion stays in motion until concluded. The markets will rally quickly, but then fall back to follow the trend. So forecasting the business cycle is easy – the closing price for tomorrow – far more difficult. Nonetheless, the single forecast Bernanke just made today about the long-term viability of the Fed I can say will be dead wrong. The Fed 100 years from now is unlikely to exist. Its life expectancy will be severely tested in just 12 years. Yes, you heard right.
When the next ECM Wave turns down, it is highly likely to take the Fed with it. The risk of failure of the Federal Reserve will arise 112 years after its birth in 1913 and that brings us to 2025. So yes – the Fed may fail at that time because it is incapable of doing the job as the politicians have constantly changed its focus and design.
The entire central banking system is in serious trouble. They have manipulated rates lower but fear what happens when the economic pressure forces as rise. Even the BIS was calling for a crash last September, but the share markets rallied to new highs and they remain baffled to say the least. Sorry – Dorothy. You ain’t in Kansas anymore. Not even the Yellow Brick Road can be restored.
Global Market Watch Dec 16th
The Global Market Watch has been posted for the close of December 16th, 2013.
AMTRAK & PEI Reports
COMMENT: Mr. Armstrong: I use to work in Washington and was introduced to you during the 1990s when AMTRAK use to distribute your World Capital Market Reports on the train between New York and DC. I wanted to say that you were absolutely correct on gold and the stock market when no one else was even close. When you said sell gold and buy the Dow back in 2011, I just want you to know, I did. You have more than doubled my retirement money. I followed you because I watched you in action. I realized it is indeed all connected and you push one up and the opposite must go down. Your call on gold would not have been correct if you were also not correct on the Dow. Your teachings have made a huge difference to many of us. Yes. All my friends from the HILL as you say 15 to 20 years ago read you all the time. Thank you so much.
Sincerely;
JK
REPLY: Thank you. If you understand the inter-connectivity and stop fighting the trend, yes it is true – money will grow on trees.
All the best
NSA Destroying American Business?
Obama and Congressional support of the NSA is so brain-dead, you really have to wonder do any of these people understand you cannot spy on the whole world and expect them not to react. Germany has warned its citizens not to useWindows 8. NASA itself has abandoned Windows because of the security problems. Now Russia is considering banning US made smartphones because they may be prone to be listening devices for the NSA. China was tapping into Blackberry phones of those going to negotiate deals in China. Unless someone with a brain steps forward here, American technology may be unsalable overseas very rapidly in the years ahead.
WEC & Training Seminars March 23, March 25-26 Princeton, NJ
The Dates & Venue Are Now Fixed for Princeton, New Jersey – Nassau Inn
Sunday – How to Trade Session – March 23rd, 2014
Tuesday-Wednesday – WEC – March 25-26, 2014
We are working on the Venue for Friday March 21, 2014
Sovereign Debt Crisis & Cycles of War – Philadelphia
—————
Please Register – Seating Will be of a First Come – First Serve Basis
2014PEIconferences@gmail.com
Gold Panic Cycle Update
Yes this week was the target for a Panic Cycle in gold. The primary resistance stands at 1301.30. Therefore, we have plenty of room to retest resistance at this time. There is also resistance at the 1294-1296 area. We need a closing above 1243 just to suggest we should press a bit higher near-term,
When they Hang Bankers – The New “Financial Terrorists”? Beware!
In Iceland, they actually imprisoned the top four bankers that some call the“financial terrorists” that ruined the country. This is establishing a trend that we will indeed see materialize even in the USA after the 2016 Presidential Elections. Riots against bankers have been frequent throughout history. I have stated before that the term Black Friday comes from the Panic of 1869 in the USA where they were dragging the bankers out to the streets and hanging them.
Riots against bankers have been very common especially when international lending has led to economic chaos. When Edward II (1307-1327) of England was captured, riots broke out in London. The mobs attacked the Italian bankers who had extracted huge interest payments from England. The famous Italian bankers at the time were the Bardi family. The English mob attacked their London office in 1326 illustrating the age of nationalism and protectionism that was festering during the 14th century. As much as things appear to change, they remain very much the same at the root core
Those who think the Gold Standard brings stability must also believe in the Tooth Fairy. There was a huge CONTAGION that became widespread because of debasements during the 14th century. The silver to gold ratio was disrupted everywhere in Europe thanks to French debasements. The ratio stood at 13.1 in Florence compared to 12:1 in France during 1316 who was trying, like the Silver Democrats of the 19th US Century to overvalue the price of silver. By driving the price of silver even higher relative to gold, they forced the ratio in France down to 5:1 in 1343, setting off riots in Florence. Silver was being drained from the local economy flowing to France where it was over-valued and this created a sharp recession in Florence with the shortage of money (silver) for domestic use.
Why? For you see, wages and local commerce were conducted in silver. Gold was used only for international trade. Driving the price of silver higher raised the cost of production which simultaneously reduced the value of trade and even outstanding loans made to individuals and sovereigns alike. This caused a drop in production and rising unemployment. Hence, the first riot came in 1343 whereby the French Debasement had contributed to the impatience of the population. Switzerland did the same thing pegging the franc to the euro because the franc was rising and manufacture threatened to leave. Hence, Switzerland has imported massive inflation raising the cost of living and doing business there to TWICE that of the United States.
The Political-Economic Revolt of 1343 in Florence may have had its roots in corrupt government as we are also seeing in Europe and Ukraine, but it was set in motion by the economic events driven by over-valuing silver. There was an uprising of workers that erupted on September 24th, 1343. The people stormed the palaces of the rich merchant-banking families located in the Oltrarno quarter of the city that was on the left bank of the Arno River. This was where the palaces of the Bardi, Frescobaldi, Rossie, Nerli, Mannelli, and many others were located. The rioters barricaded the bridges and on the 25th, and they captured the palaces of the Rossi and Frescobaldi. They also stormed the Bardi palace forcing the members of that family to abandon their fortress and flee for their lives. The mob then sacked the Bardi Palace and set it on fire. Contemporary accounts tell us that the Bardi lost that day 60,000 florins in the destruction that took place in Florence – truly a vast amount of money that would be in the tens of millions of dollars today.
The Florence monetary system was a Two-Tier system whereby gold was usedONLY for settling international trade and silver was used for domestic commerce. Those who simply think because coins were precious metals and thus were not “fiat” yielding some land of Utopia where the value of money was constant while assets rose and fell, cannot grasp the simply concept that assets rise and fallONLY in terms of purchasing power of the currency regardless what you use for money be it gold or St Patrick’s discovery of Slave Girls that were the unit of account for money in Ireland.
The bankers better beware. They will be dragged from their lofty towers and dragged onto the streets. This is NORMAL and it ALWAYS unfolds over and over again. You can cheat the people sometimes and get away with it, but you cannot cheat them day-in-and-day-out perpetually. There is a price for such conduct. It is called a riot.