NSA is Way Out of Control
In a satellite deal between France and UAE, it was discovered that they included US components that would allow the US to intercept all communications with the satellites. The USE demands the components be removed or a $ billion deal isscrapped.
Divine Design
QUESTION: Dear Martin,
Following your your posts has become a favorite hobby of mine. I just graduated with a degree in economics but it is your work that has led me to the research I am dong now. Unfortunately I had to approach the physics department to research deterministic chaos. Regardless, I am so happy you are out of prison and back at doing what you do best. My question is simple. When scaling your forecast, how do you forecast out with such precision considering sensitivity to initial conditions. I understand that your model is proprietary and I respect that. I will happily accept any answer.
Respectfully,
BJ
ANSWER: One of the most fascinating aspects I came to understand was that it is far easier to predict the long-term than the short-term. The reason for this is the trend set in motion is not easily changed if not impossible. The short-term is noise. If the Dow closes up 100 points or down 100 points tomorrow, it really does not matter regarding the overall trend. Much of what I discovered when you simply open your mind and do not ASSUME I know everything, was that the overwhelming majority of theories are dead wrong because they try to create so-called maxims of economics and market analysis. These theories tend to be a slice of a small piece of time and then people try to extrapolate that fragment as some sort of fixed relationship applied in perpetuity, Therein lies the problem and the most fascinating aspect is that everything will gyrate back and forth between two opposites. It is simply the way everything functions within the universe. Start with that as the divine design and build from there. There is no relationship that is ever fixed or etched in stone.Not even gold and silver will always trade together. Absolutely nothing is permanent. It is always flowing on a cyclical aspect as is the case with everything in nature.
1000s Protesting in Hong Kong for Democracy
Literally tens of thousands of people have come to protest in Hong Kong against China’s attempt to control the outcome of a planned direct election for the city’s leader in 2017.The protesters are demanding free elections and democracy. This is again showing the rising tide with the turn of the model in 2014. There seems to be no region in the world that is immune at this time from this trend in rising civil unrest.
Separatist Movements are Also Alive in the USA – Goodbye California?
I have reported how there are separatist movements cropping up all over the place. We will see Scotland come to a vote this year in 2014 about separating from the United Kingdom. As taxes rise and finger-pointing increases, the rising trend is to separation. The building resentment in Southern Europe to break away from the Eurozone is gaining support in Greece, Italy, Spain, and Portugal. The only thing they got out of the deal besides higher debts was import-duty-free German cars and French wine. Most restaurants in Rome will not even serve French wines. Even in Switzerland the bias is toward Italian wines.
The separatist trend is also alive and well and we will see this movement gaining popularity with the Bible-Belt looking to separate from the USA leaving the Democrats to themselves. If the Democrats won in 2016, there might be civil war. This separatist movement exists even in Texas, but now it is rising higher in California. There, it is primarily North v South, but there is an argument to divideCalifornia into 6 states. This is all part of the decline and fall of socialism. Obamacare has been a total disaster. Even my personal insurance went up by 20% and others a lot more or cancelled. It would have been cheaper to just pay the medical bills for the 1.1 million people and leave the rest of us alone. But no possible way. The government has a policy. If it ain’t broken – break it. And if it is broken – try to screw it up so bad you can blame someone else. If it does work well, there must be something wrong.
My only question to California – if you do break up into 6 states, who takes Diane Feinstein? I would donate if you made her a State Senator rather than Federal.
Creating a Natural Hedge
QUESTION: Sir,
like many others I was fleeced with the gold as money story and took my losses and moved on, particularly as I ingrained the principles of investing and practise the discipline of day trading – that of obeying the buy/sell signals and not falling in love with the trade. As a resident of Switzerland I can see reason in monitoring and if a signal is generated (particularly in EUR/USD), buying US dollar denominated securities and perhaps finally a bit of gold and silver again, should currency flows shift and the SNB and the Franc be punished by the market for pegging itself to the Euro.
As a working fella with a mortgage in the local real estate market – purchased by fortune in 2002 before massive currency inflows inflated prices by some 50% – the one variable I cannot see or calculate is how far the Swiss real estate market could plummet should those capital flows shift out of country and continent. I have not used the price gains on paper as an ATM to finance personal spending as has been much the case in the US and to a lesser extent my country of origin Australia. The interest only mortgage has been a boon (and perhaps a
trap) in allowing us to live well in what is an expensive country and I now go through our own household version of austerity so as to be able to pay down some of the mortgage in order to improve that buffer of safety if housing prices should slump.
But this is our home and not a trading instrument that I wish to offload at a potential market top, so I need to have some understanding of the potential downside that could be inflicted. Do you have historical data that could help me better understand this phenomena and the cycle of price and time?
Sincerely and with much appreciation for your efforts.
LR
ANSWER: You have some time before real estate cracks in Switzerland. The new construction especially in office space there is indicative of the classic boom bubble. When real estate crashed after 1987, in Canada there were actually demolishing some building to reduce taxes.
I will doing a detailed piece of creating a NATURAL HEDGE for the trading seminar. Creating a Natural Hedge is what I was doing for many of the people who were taking over companies in the 1980s. Effectively, I would input a portfolio of assets (companies and real estate) based in each currency of location. Next, I would take this portfolio and run it through the model. Some portions will rise and others fall. I would then restructure companies based upon the model selling off assets in one country and buying others in another. The object was to create a natural hedge constructed from immovable assets and any residual would then be actually hedged in the market. In this manner, I could hedge a trillion dollars without having to try to enter the markets that could not handle the size.
The only real risk to remaining in Switzerland beyond the currency would be limited to geopolitical. The danger is Europe and its committing economic suicide by destroying its economy with high taxes, expanding government, which historically invites the predator. Europe is imploding with its own Marxist stupidity. Once Brussels was created, that becomes an entity of self-interest that willNEVER consider anything it does as the problem. The culprit will always be someone else. With Russia back in the Empire Building Model to regain its pride. Russia is still old world and believes territory equal might rather than an efficient economy. Japan is tiny from a territorial perspective yet to rose to the second largest economy before it blew itself apart.
Europe is rapidly disarming itself thanks to socialistic economics. Europe has to learn that an inefficient government does not work and that is what really broke the bank of Communism. This creates the geopolitical risk that cannot be ignored and historically reveals the pattern of how EVERY empire falls, and nothing, including the USA, will prove to the exception historically.
The best thing will be to create a Natural Hedge as much as possible. The people who were so gun-ho on gold and how it was money are now at it with Bitcoin. They have applied the same stories of hating the dollar and preach Bitcoin will have ATMs everywhere and displace the dollar becoming the new world currency. This is just the same gibberish. Just look at the tax-straddles of the 1970s where people discovered buying next year’s contract of gold and shorting the nearby this year allowed them to tax losses now and move profits forward. The IRS cam out with mark-to-market, fined the brokerage house for selling those deals, and then hit the people with interest and penalties retroactively. I knew people who lost everything at the end of the day back then.
NOTHING will be allowed to displace any government when it comes to taxes. They will always give people as much rope as they want to hang themselves. If they did it before, they will do it again. What we do has to be straight up – no schemes. There is no tax-free escape hatch these days.
This is what I did and ended up getting blamed for creating the takeover boom. I simply used currency and showed clients how to buy companies using a currency that depreciated. In this manner, I was able to convert debt into a performing asset. They could figure out where the profits were coming from. Sometimes we made more money on the currency than the asset.
It still works with the model.
Are They Really Going After Everyone?
They have now turned their focus in Spain on the Royal family. Yes, Princess Infanta Cristina has been summoned into court over money laundering and fraud. Today, hiding money from the government is Money Laundering and it carries a maximum of 20 years in prison.
Europe – What Crisis? DAX At New Highs
Many European shares have been the best performers in 2013 and the general optimism in Europe for 2014 is far more bullish than in the USA. Even Reuters’ poll of more than 350 strategists, analysts and fund managers, shows the expectations are for more gains. Indeed, looking at the Frankfurt DAX, its gains in 2014 were very impressive and the consensus forecast for 2014 puts a continued rally expectation to be another 10% up. At the same time, Reuters’ poll shows most see the Euro as overvalued and that a decline in on the horizon.
The trend in Europe seems to suggest there is no crisis. Rising share prices, as always, is misunderstand and is rarely investigated in-depth. But buying something for the wrong reason can prove to be very dangerous. If you are going to be long equities, you better understand why or when the trend changes, you will be caught entirely off-guard.
There was an initial inflow of foreign capital into European stocks that has supported the euro. But as with all economic declines, it is more capital repatriation that has contributed to the strong euro. Oddly enough, the rise in a currency actually is bearish for we saw that in the dollar during the Great Depression and between 1981 and 1985 with the collapse of the pound to $1,03 in 1985 that sparked the whole scheme of the Plaza Accord and birth of the G5 (now G20)
It is actually the persistent strength in the Euro that also introduces tremendous risk to European investment for when it declines, the foreign capital will sell based on the currency rather than fundamentals. This is rarely understood and was the cause behind the 1987 Crash. The Brady Commission report at the end finally admitted that perhaps the crash had something to do with currency.
The high value of the Euro has a deflationary impact upon Europe for it also makes the value of their exports rise and un-competitive, which is why the Swiss pegged the franc because of capital inflows. The economy cannot recovery in Europe until the euro declines. This was the very advice of George Warren to Roosevelt. However, the German austerity position is the same as Roosevelt’sBrains Trust back in the 1930s and we are seeing the same result – massive rise in unemployment mixed with a decline in economic growth.
From the international perspective, the rising euro makes European share values appear to be a good investment. German cars carved out a market in the USA creating an image of quality that appreciated during the 1970s. I biught German cars back then and they never cost me anything to drive because their value kept rising. It was not the car that appreciated, but the Deutsche mark against the dollar creating the image that the cars were a good investment when it was currency.
A turn south in the Euro will cause foreign investors to dump European stocks just as the Europeans dumped US shares in 1987 when the expectation of a further 40% decline in the dollar was on the horizon. Forget the domestic fundamentals. European stock indexes typically trade at a 12-month forward price-to-earnings ratio and that will get confusing to those relying on domestic fundamentals.
The European stock market rally is also unfolding as a hedge against the rumblings of the IMF proposal to confiscate 10% of all cash in banks. Then the DAX has been driven higher due to the hedge internally against the collapse of the euro with many people expecting to get Deutsche marks if they have German bonds and shares. In the case of Switzerland, they created the peg because the capital was rushing into that economy as the hedge against the euro. When that was pegged, then the capital move into Germany as well but that can only be seen as a rise in share values since the currency is still the euro.
The diverse trends surrounding the euro crisis has resulted in asset price inflation manifesting in Europe’s stock market as capital is just trying to park or is enticed by currency. This is not moving into creating new business or industry for the taxes are far too draconian to create jobs leaving the unemployment staggeringly high. Wages are not rising for their international value is already too high and un-competitive on a global scale. Consumer prices in real terms have not declined, but remain steady within the major economies such as Germany and France, while they have declined significantly in Greece. With rising taxation and stubborn consumer prices, the net standard of living in Europe is declining and this is leading to a rise in civil unrest, which can also have a negative impact on European shares in 2014.
We are seeing some very choppy trends between 2013 and 2015 with key turning points in 2013, 2017, and 2022. A Panic Cycle is showing up for the peak on the ECM in the next wave.
At the very least, 2014 presents very interesting trends with an admixture of tremendous risk and confusion with conflicting international trends driven by capital flows that are at odds with the classic domestic analysis.