Market Talk — October 20, 2015
The market talk is that the ECB will continue to discuss bank lending conditions but with doubts of further QE creeping in. The ECB meet Wednesday/Thursday with the announcement followed by the Q+A, all from Malta this time. All main European markets closed marginally lower between -0.12% and -0.65%. The U.S. markets are also having difficulty holding on to the recent rally and the DOW spent most trading around unchanged! The NASDAQ and the broader S&P were both under pressure all day as earnings failed to meet expectations or forecasts were overly optimistic.
The bond markets saw weak trading conditions all day, especially in Europe. After the Christian Noyer comments the 10yr bund in particular lost ground, losing around 6bp to close at 0.64%. The spread TY/RX tightened to close on the day at +142bp. Peripheral bonds all tightened to the core government as all markets traded lower (higher yields) but at a marginally slower pace than the German decline. In the U.S., we saw a parallel shift in the curve with 2s through to 30s all losing around 4bp.
In currencies, there really is not much to write home
about. The euro made ground following the ECB’s Noyer comment but failed
to capitalize on it throughout the rest of the day. Sterling lost what
the euro made, and so we saw the DXY (US Dollar Index) close almost
unchanged at 94.91.
Oil lost a little more ground but in the scheme of its recent activity was really not that much (closed down 0.7% at $45.84).
Immigrant/Refugee Protests Building in Germany
Protests are rising in Germany over the entire immigrant/refugee issue. This is the backdrop to the rumors running around behind closed doors in Berlin. Political rule #1 for an economic crisis: closing the borders for immigration in a downward economic trend leads to violence.
Merkel Under Fire for the Immigrant Crisis
The latest rumor running around Berlin has Merkel resigning and Finance Minister Wolfgang Schäuble taking her place as Chancellor in the Berlin government. It has long been said that they would have to drag her out of office as she would never resign willingly. Nevertheless, Chancellor Angela Merkel is coming under a lot of criticism behind closed doors. Civil unrest is rising in Germany and the dissatisfaction with her open border policy to get the Noble Prize failed and is turning into a political nightmare.
So how do you give her a graceful exit? The rumor is that she should take the position as the new UN Secretary General. This would leave Schaeuble having to deal with the refugee crisis. It is already starting to snow in Germany. This is going to be a very bitterly cold winter and the refugees are going to experience real hardship.
Politics: Trends Begin in Europe Like Fashion
The
major underlying trend worldwide is (1) whoever was in is now out, and
(2) people will always turn against immigrants when the economy turns
south.
In
Switzerland, we saw a turn to the right away from immigration. This
will be the trend to emerge throughout Europe, especially in Germany.
Canada
turned left against the conservatives, but the immigration problem will
only begin to arrive by the end of 2016. During the state sovereign
defaults of 1840, there
was tremendous violence that erupted against the Irish immigrants. This
is what we have to look forward to in North America after 2016. Canada
will join this movement, but it will be to a lesser degree than in the United States. So when the economy turns down, the motto becomes, “it’s the immigrant’s fault.”
So
for now, the turn left in Canada should accelerate this immigrant issue
after 2016. Politics are like fashion. It begins in Europe and migrates
to the Americas. It’s just the way it is. For the 2016 election, the
U.S. is more likely than not going to turn against immigrants as part of
the political issues that rise to the surface. We can see it already
brewing with Trump’s arguments. Bush does not get it any more than
Merkel does in Germany.
Canadian Election: “Sunny ways my friends. Sunny ways.”
The
Canadian elections are on par with the world trend – whoever is in
office, throw the bums out. The election took place on Monday, October
19, the anniversary of the 1987 stock market crash. The Liberals in
Canada toppled the Conservatives as many Canadians saw their Head of
State, Mr. Harper, as a dictatorial heavy-handed politician following
in the footsteps of the U.S. NSA. The Conservatives were reduced to 99
seats from 159 in the last Parliament, according to preliminary results,
and Harper conceded a demoralizing defeat.
Justin Trudeau will be 44 on Christmas day and will become Canada’s second youngest prime minister in history, showing there is indeed a generational shift taking place in politics on a global scale. He is pledging change with the slogan “Sunny ways my friends. Sunny ways.” However, there are those who will remember his name because Trudeau’s father, Pierre Elliott Trudeau, was catapulted to power 47 years ago. Trudeau captured 184 of the 338 seats in the next House of Commons when, to have a majority, one needed 170.
The polls were showing a Liberal lead, but it was marginal. The results at the end of the day were rather conclusion. We should expect the same to emerge in the United States come 2016. We are heading into this period of civil unrest that began in 2014; this trend will manifest in politics as many are upset and separatist movements are growing.
The election really became an East vs. West confrontation. The Western region of Canada tends to be more conservative than the East, and Harper was seen as a Western Conservative who only focused on their concerns. Harper’s hometown is Calgary. There was a scandal over the Conservative senator’s expenses for anti-terrorism measures that made Harper look like a stooge of the U.S. NSA. He even attempted to ban the wearing of face veils, known as niqabs, during citizenship ceremonies. Harper even committed the Royal Canadian Air Force fighters to the multinational campaign against the Islamic State. Harper pushed for Canada to adopt the same U.S. law that they can throw anyone in prison without lawyers or a trial, which was championed by Lindsey Graham in the USA.
Then there was the growing pension crisis, the economic collapse following commodities with nosediving oil prices, and let us not forget Harper’s handling of refugees and the Trans-Pacific Partnership trade pact. This pretty much sums up why Harper’s support simply collapsed. It would be nice to see the same thing in the USA for those nut jobs who follow the same path. All of this fused with Harper’s control of even the election process. He spent most of the campaign delivering standard speeches to invitation-only crowds to maintain the image that all was well.
Looking at the stats on the Canadian election, we can see our model was correct in forecasting a rising percentage of people participating in the election. Our model has been projecting that same trend for the USA come 2016. More and more people will come out to vote because of the declining economic conditions in the U.S. In Canada, the turnout fell to as low as 58.8% during the 2008 election and was in an uptrend reaching 61.1% in the last parliamentary elections during 2011. This election has shown a huge jump: 68.5% of the country’s 25.6 million eligible voters participated in this election. Once again, we are showing this trend on a global scale. As the economy turns down in the USA, this will be the last nation to join the global recession that began in 2007.
Stephen Harper’ policy and performance has been so off-the-wall goose-stepping with Obama, he had little choice but resign as conservative leader as he asked his party’s national council to reach out to the new parliamentary caucus to appoint an interim leader and implement a leadership contest. He was so off the mark with respect to the trend globally, it is hard to imagine how disconnected he was from reality.
Harper’s hard line approach was very anti-Canadian as there appeared to be a lot of eager, nostalgic liberal talk about returning Canada to a nation of peacekeepers, neutral conciliators, not to mention environmentally concerned moderates. For years, if you were an American traveling overseas and you encountered anti-Americanism, all you needed to say was that you were Canadian and a smile appeared on your opponent’s face. You just had to finish every sentence with “ahey!”
The sunny days, unfortunately, will not appear. Canada is part of the global community and it cannot turn its economy up when the world is pointing down.
When we look at both the futures and the cash on the Canadian dollar, it does appear that there will be a shift in trend next year more likely than not with the Commodity Cycle.
Gold & Politicians – Getting it Right For Once
QUESTION: Mr. Armstrong; I heard you on Infowars. I understand how the gold standard would not solve anything for the problem is politicians and not what we call money. Some think that you can create a floating gold standard so gold would be money but not fixed. I really have a hard time seeing where this would solve anything for you still would have loans then in gold and you end back at the same spot with paper gold. This is really getting confusing. That was the question I wanted to ask.
Thank you
P
ANSWER: It really does not matter what we use for money. It is only a medium of exchange. Before 1934, private loans always had a gold clause. So yes, you are correct. People ended up owing more gold than actually existed. This is fundamental to any credit system.
The problem is that people are arguing over what should be money as if it really matters. There were defaults under a gold standard just as there were under paper. This is akin to blaming your wife because she failed to compel you to take out the trash.
The problem is not money; as long as people focus only on money, assuming a return to a gold based system would magically convert all politicians into saints, then we are doomed to repeat history. This nonsense is arguing at the surface and ignoring the fact that governments and monetary systems have collapsed for countless millenniums. The list of empires, nations, and city-states that have collapsed are countless since the beginning of recorded history, regardless of what money was. The common denominator that existed for EVERY collapse was abuse of credit and politicians. How about the Athenian Crisis of 354 BC. Just replace the names and you have 2007. Or how about the Roman Financial Debt Crisis of 53 BC when interest rates soared because the politicians were borrowing so much to bribe people for votes. Or how about the Roman Debt Crisis of 49 BC, which ended in revolution. In all cases, money was gold and it failed to prevent any crisis.
Swiss Elections Turn Right
The SVP won the elections in Switzerland, moving the nation a bit to the right and
anti-immigration. This is becoming a global trend that we are
monitoring in every country around the world. As the economy turns down,
domestic populations ALWAYS turn against immigrants no matter what country it is. The Swiss are no different.
Will Illinois Be the First State to Go Bankrupt?
The state of Illinois is in real trouble. The state employees have been bleeding the state dry and are demanding that they raise taxes so they can get theirs. This is the poster state for government employees expropriating private assets. Illinois must pay $560 million in November and they have said they will have to delay the payment to its pension funds. They will also delay payments due in December. We are on the verge of watching state bankruptcy. Once Illinois goes, others will follow to escape pension payments to former state employees.
Market Talk – October 19, 2015
The
economic data released from China earlier this morning has been the
most talked about economic topic across almost every trading desk
today. China’s Q3 GDP resulted in a small beat at 6.9% (expected 6.8%),
and the September Retail Sales also slightly better at 10.9% (expected
10.8%) and then finally September Industrial Production released
5.7% against an estimated 6.0% expectation. All rather disappointing
really – well, as far as the markets are concerned that’s for sure.
Asian,
European and U.S. equity markets all traded sideways on an unusually
quiet day, which is very unlike most October markets. Oil, on the other
hand, reacted much more to the Chinese numbers as concerns continue to
mount about the global slowdown. With Brent closing below the
psychological $50 at $48.71 and TWI at $46.07 is -3.43% and
-2.52% respectively.
We
failed to see much activity in many markets. Precious metals traded
heavy falling over 1% for gold and 2% silver. Currencies were also quiet but
we did see improvements for the U.S. dollar against commodity based
currencies but below average for October trading. US Dollar Index (DXY)
closed higher by 0.5% at 94.98.
Today was one of those days that had the potential to build on last week’s gains but
dealers say the market structure is being discussed more than prices
and economic data – especially given Deutsche Bank’s restructuring
announcement earlier this morning! We will be talking more about this in
coming blogs as this will not be an isolated incident.
Socialism v Capitalism
The
debate for socialism is simply that they regard it as unfair when
anyone has more than another does. The solution is always to rob someone
else to improve your own life. If you take this philosophy as your own,
then you rob others because they have more, which is no different than
robbing someone on the street or breaking into their home (a crime
resulting in you living tax-free in prison). However, if you vote for
politicians to degree the very same act as law, it
somehow makes robbing other people legal. If they complain or assert
rights, then they are greedy capitalists who worship their money more
than your desire to rob them in claims of fairness.
Socialism violates the Ten Commandments which
prohibits anyone from coveting what their neighbor has. Well, God must
have had a bad day for he does not understand what is fair. If someone
is smarter than others are, that is OK and God’s Will, but he should not
have more material things. God obviously cannot be all knowing since
Marx must be right. God clearly can’t understand what is fair. It was
Julius Caesar who said man will believe only what he wants to believe. There is no changing his mind.
Europe
has a death wish. Since World War II, they have been infected with
socialism that is reflected in the unemployment. The highest
unemployment is confined to nations with the highest degree of
socialism. If you attack investments, you do not create jobs, and the
end result is rather bleak. People are not getting married because they
cannot find employment or earn enough to fund a family. When will we
wake up to this hatred of the so-called 1% and realize it is an excuse
to keep politicians rich in tax revenues?
So why do we put up with taxes anymore when
they are only necessary at the local level and not federally? It is
time for a major readjustment in this plague that has torn the world
apart at the seams ever since Marx created the Progressive Era that
manifested in Socialism and then Communism. I suppose it is like killing
someone. If a cop does it, it’s OK. If you do it, it becomes a crime. Government clearly has replaced God. That’s the only explanation.
Democratic Debate: Hillary Made Student Loans Non-Dischargeable in Bankruptcy & Bernie Wants More Taxes
QUESTION: Marty, any comment on the Democratic debate?
ANSWER: The debate was boring, pandering, with no vision or reality! Everyone said Hillary won. Bernie Sanders is
a fool and wants to make everything free at the expense of the 1%, as
if they could fund the entire government and population. When I was in
Vermont for the TED Talk, I pointed out that the top 1% began at
$299,000 — not billionaires. First of all, the income of the top 1% is
mostly INVESTMENT income; not wages. Sanders wants to tax Wall Street to
pay for education, which will reduce jobs that the youth already cannot
get, as 60% cannot find work in their field of study. Degrees are
pretty much worthless scraps of paper anyhow. Most jobs only care that
you have a degree in something; it could be basket weaving. You cannot
get a degree as an analyst, hedge fund manager, or investment adviser.
These are on the job schools — not college courses.
Education
is broken. The academics know this and they get paid without actually
having to perform in the sense of making sure kids are qualified to get a
job. As long as student loans are made and Bernie wants to hand them
more money, then there is no hope of reforming education to be
affordable, no less practical. They have to get off the protected gravy
train.
As for Hillary, just more rhetoric. She is hopeless. The Clintons are in the pocket of the bankers. They repealed Glass Steagall and
made student loans non-dischargeable in bankruptcy. Then she wants to
pretend she is for the middle class after renting a beach house for two
weeks at $150,000. Come on. Where is the truth here?
It should get a bit more lively after Joe Biden gets in.
Australian School Recording
Video Player
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01:19
Gold Coins
QUESTION: Hi Martin, What advice can you give for buying gold coins? Rare coins can have a small or large premium based on all sorts of metrics. How do premiums perform in crisis? Are very rare coins a good strategy? What percent of net worth would you advise in metals?
Thanks for a great blog,
RH
ANSWER: Stay away from premium dates and high grades. If you are buying U.S. coins, stay with common dates and circulated is just fine. No MS65 stuff and try to stay with $5, $10, and $20 coins. Premiums will decline with rising gold prices and expand with declining prices.
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