Europe Moving Into Meltdown?
QUESTION: Marty, now the OECD is predicting a financial crash worse than the 2007-2009 event in Europe because they say there is over €1 trillion in bad loans that cannot be collected. They seem to be also changing their opinion to fit your model. Where there there in Berlin?
ANSWER: We cannot comment on if the OECD is following our model or who is attending a conference. They are the most widely attended and many just want to know where the computer stands.
We see a massive banking crisis. The European banks are in deep trouble.Deutsche Bank posted a shocking €6.7 billion euro loss with its shares falling10% in a day. HSBC bought Republic National Bank in New York for a bit more than that. Barclay’s in pulling out of all emerging markets cutting 1,000+ jobs.
The collapse in commodities will reek havoc of all emerging market countries, but there is one economy which nobody pays attention to closely. That is Germany. Yes it is the largest economy and main supporter of the Euro. They need open borders and the Euro to maintain their economy which is EXPORT driven. China is advancing more rapidly than Germany and has focused on trying to develop its internal economy. Spain was the richest nation in Europe with all the gold coming in from America. But they failed to develop their internal economy and collapsed. Germany is declining. It cannot be sustain with open borders and the Euro because the rest of Europe is in serious decline. The refugee crisis is a nightmare and now Italy demand taxpayer money to bailout banks fearful that a bail-in will cause a revolution.
Merkel was against allowing in refugees previously, but then changed her position to combat her poor view for the treatment of Greece and then the brilliant idea of bringing in cheap labor again to help Germany. This entire refugee crisis is far beyond control and now the elites are beside themselves for the manipulations.
German Federal Minister Sigmar Gabriel, who is also head of the SPD, warned at the Economic Forum in Davos of a return to border fences and controls. That would be an economic disaster and would be rising unemployment. This is the German EXPORT model – that and the Euro. But it is coming and with it, the further decline of Germany. This will only fuel the dollar rally when Europeans realize that the break-up of the Euro may lead to Deutsche marks, but will they be better? Now even Soros is saying the collapse of the Euro is inevitable. So everyone is now joining the party; a bit late, but as they say, better late than never.
So welcome to the other side of 2015.75. We have a long way to go down into 2020. Here are just the technical projections. They also warn just taking out the 89 level produces a free-fall. This is just looking more and more like a total disaster of political incompetence and total mismanagement.
The career politicians are incapable of saving Europe and instead are the very people pushing it over the edge. All they are focused on is saving their own ass in Brussels with their pension. Jean-Claude Juncker has done such a great job destroying Europe, he was given a retroactive pay increase to more than €32,000PER MONTH. Socrates would do a better job and we would charge based upon performance.
Can a computer be president? Hm. Way of the future?
The Final Straw for Britain?
The Telegraph reported on a shocking new court ruling that may become the final straw that sends the British out of the EU. This ruling has begun the decline into chaos within Britain’s asylum system. This court ruling held that four Syrian migrants should immediately be brought to Britain from what is known as “The Jungle” camp in Calais because they have a right to a family life.
This ruling has very profound implications for it upholds an idea that we are really citizens of the world, and therefore, have a right to live where we want. The borders are maintained politically and through taxes. If we truly recognize human rights in this context, then the power of government should decline.
Greek Rising Civil Unrest
Alexis Tsipras has to implement pension reform in order to get more loans from Brussels. He is betraying everything the Greek people voted for and is pushing Greece over the edge. Brussels is demanding that the Greeks pay for the shenanigans of Goldman Sachs whom helped Greek politicians cook the books.
Protests against the pension cuts and tax increases in Greece are spreading throughout the country. On Thursday, Greek farmers blocked major roads with their tractors. Among other things, the traffic was hampered on the axis linking western Greece with Turkey. The sailors continued a 48-hour strike. Most ferries remained in port and the rail transport was hampered by work stoppages of railwaymen.
The ONLY solution is to exit the euro. Brussels is totally insane and their actions are designed only to maintain their own jobs. Merkel created this entire refugee mess by trying to show she was human while denying anything to Greece, despite Greece forgiving the German debt after World War II.
It is ironic that Merkel refused to bend for the Greeks, yet she let in hordes of “refugees” who are tearing Europe apart and have resulted in passports checks between member states.
Reversals: Resistance & Buy Signals
QUESTION:
Hi Martin,
I have been a loyal reader since your early writings from prison and
greatly appreciate all you do for society and the “common man” at least
those willing to learn. Thank You.
greatly appreciate all you do for society and the “common man” at least
those willing to learn. Thank You.
We (a couple of loyal followers comparing your analysis) are a little
confused on your recent Jan 19th coverage on oil. You state: We follow the 2016 low support targets of $25 and $16.
confused on your recent Jan 19th coverage on oil. You state: We follow the 2016 low support targets of $25 and $16.
You state in running what-if scenarios to try to forecast where the
Yearly Bullish Reversal (buy signal) will be generated from either low
of $25 or $16 it ends up with $40-$41.50 This seems like it would be a sell signal instead of a buy signal??????? since $40-$41.50 clearly becomes the major resistance moving forward. Could you please clarify because we do not understand?
Yearly Bullish Reversal (buy signal) will be generated from either low
of $25 or $16 it ends up with $40-$41.50 This seems like it would be a sell signal instead of a buy signal??????? since $40-$41.50 clearly becomes the major resistance moving forward. Could you please clarify because we do not understand?
Thank You for your time.
Sincerely,
RP
ANSWER: The Reversal System is always calculating the counter number to the move. In other words, the system will generate the Bullish Reversal from a low and that must be elected to signal at least a temporary low.
In this case, the current Yearly Bullish stands at $82. This break to new lows should bring in a lower number in the $49-$42 area. This would be interesting symmetry since the Yearly Bearish elected was $41.25.
That would be the major resistance. I have explained before that in 1998 the dollar/yen rallied to test the Yearly Bullish at $147. We were running out of time, so I sold against that number and then placed a stop just above. We did not get through that Yearly Bullish Reversal.
This would be no different. It is showing us that a reversal in trend would require a yearly closing say above $42 (in general) before you could say a bull market would emerge.
Market Talk – January 21st, 2016
All core Asian Indices suffered as concerns surrounding the oil price continued to drive market sentiment. Late rumours that Saudi’s, Aramco, were in talks with Hong Kong’s Sinopec of possible refinery investment within China. This news certainly helped their share (Sinopec +1.8%) but was too late to aid the broader markets or indeed the price of oil. With the Nikkei, HSI and Shanghai all closing weak (-2.4%, -1.8% and -3.2% respectively) it was left to the ASX (Australian Stock Exchange) to be the sole ray of sunshine closing up 0.5%.
European trading was a game of two halves today. As per usual it was down to screen watching ahead of the ECB announcement (unchanged rate as expected) but it was the statement and Q+A that woke everyone up. Announcing renewed worries surrounding growth Mario Draghi expressed concerns about emerging market participation despite his confidence that measures already taken are indeed working. With claims that the ECB will review its monetary policy at the next meeting the EURO sold off and stocks rallied but the biggest confidence booster was that oil saw a significant rally encouraging short-covering to force a close up over 6% back to the $30 mark. US stocks also had an encouraging rally to close the day higher. Off of the days highs but in fairness it did not really matter, as many dealers we spoke with just feel that sentiment changed today and are just looking forward to the weekend. Dow closed +116pts (+0.75%), S+P +0.5% and NASDAQ up (but that is all that mattered).
The US Treasury market lost all of its recent safe-haven bid to close 10’s at 2.03% whilst Bunds closed 0.45%. This moves the spread back to +153bp with Mr Draghi taking all unwanted paper. The Italian 10yr closed today at 1.56%
Crude – Equities – Euro
We will post a 35-minute video update to the World Economic forum (see “Helpful Video” thread) that will cover key markets.
We have warned that January looked like a correction all around. Wall Street rallied after a hesitant start on Thursday as oil prices led the way after surging with a big gain. ECB President Mario Draghi raised hopes of further stimulus, which has done nothing anyhow. This is becoming like a person who gets married for the fifth time expecting ever-lasting love — the ultimate triumph of hope over experience.
Nevertheless, our models on oil were reaching critical major support for the year. The oscillators (stochastic) were also at extreme lows. Our Global Market Watch warned of a Waterfall the week of January 11. This global model will be available on the Trader version of Socrates. The Investor version is gear to long-term investors and the Global Market Watch will appear for the monthly to yearly levels, limited to the region of the subscription.
This is beyond artificial intelligence — this is a full-blown machine learning model since it does everything on its own. Socrates is monitoring patterns of everything globally while differentiating the slightest divergences among markets. I personally believe that this model will ultimately prove to be the end of human analysis since it does what it would take an army of analysts to do, and even then someone would still have to merge at the top all the analyses from individual markets. That seems to be beyond human ability.
The Global Market Watch on the Dow picked the May high last year and the key low at 15370 on the monthly model, but the last month is DYNAMIC so that comment will change as the final period unfolds. Once complete it no longer changes. So as of last week, the monthly level warned of new lows under 15842.
The weekly level went into crash mode the last week of December. So again, this has done a pretty good job from a pattern recognition perspective.
So far, all 10 major S&P 500 sectors rallied with a 3.2% rise in energy stocks. All but two Dow components were higher as well. This is starting to show something we have been warning about which remains on the horizon. As CONFIDENCE shifts from government to the private sector, we should begin to witness an alignment where all private assets begin to rise against government.
The European Central Bank kept its main rates on hold as Mario Draghi said the central bank would “review and possibly reconsider” its monetary policy as early as March. Many analysts had not expected a rate cut before June. They still have not figured out that lowering rates to try to stimulate borrowing wipes out savers and reduces their ability to cope with the deflation. This is like some medieval doctor bleeding a patient who he is killing because he keeps taking more blood out until he revives.
Therefore, the crude was overdone short-term and would only confirm a temp low with a daily closing above $32.20. Oil prices bounced, rising up more than 5 percent (just shy of $30 a barrel) after U.S. crude stockpiles did not rise. This mixed with Draghi’s comments lifted U.S. and European stock markets. Nothing but ANTICIPATION.
The Draghi-led rally is touted for the bounce in global stocks that had been set in motion by a relentless drop in oil prices. This is linked to the crisis in emerging market debt, rather than cheering a decline in oil’s cost of production in the reverse process of the OPEC actions of the 1970s. Of course, fears of a China-led slowdown in global growth are real for they will not be building the infrastructure they have, and that will not help emerging markets in any event, regardless of the direction of oil. Our Global Market Watch simply is not impressed with the long-term viability of the euro.
China to Move to Electronic Currency
The People’s Bank of China held a seminar yesterday to discuss the
issuance of a digital currency. The Chinese central bank said issuing a digital
currency would have positive implications as it would reduce the high printing
and circulation costs of traditional cash notes, make economic transactions more
convenient and transparent, reduce money laundering and tax evasion, and
strengthen the central bank’s control over money supply and circulation. The
Chinese central bank pledged to issue China’s own digital currency as early as
possible.
issuance of a digital currency. The Chinese central bank said issuing a digital
currency would have positive implications as it would reduce the high printing
and circulation costs of traditional cash notes, make economic transactions more
convenient and transparent, reduce money laundering and tax evasion, and
strengthen the central bank’s control over money supply and circulation. The
Chinese central bank pledged to issue China’s own digital currency as early as
possible.
The Dow
The Dow has fallen back to retest last year’s low. The number we gave is weekly, not daily. So that comes into play for Friday’s close.
Why Pegs to the US$ Will Break
Speculation is, at last, starting to rise that the HK$/US$ peg could break. The all-powerful governments are suddenly being seen as no so powerful. The massive dollar rally that our model has been forecasting is rather straight-forward. The higher the US$ rises, the more deflation will be exported to economies that are out of sync with the USA.
The dollar haters only talk about the $18 to $19 trillion debt and that is the sole reason, they assume, why commodities must rise and the dollar has to crumble. What they fail to see that it just so happens to be the WORLD. The sea of debt out there has exceeded $200 trillion. When you look at the U.S. government, I hate to say it, but it is a drop in the bucket.
Then we have China in a contractionary decline, Europe being torn apart thanks to the refugee crisis that will only get far worse, and emerging markets who assumed China would buy every commodity in sight forever. There is little hope of anything rising right now to offer any sort of an alternative to the US$ federal debt. Believe it or not, there is a SHORTAGE of federal debt when the entire world has only one place to park BIG MONEY.
Consequently, we will see virtually EVERY currency pegged to the dollar break from Hong Kong to the Middle East. Welcome to BIG BANG.
Real Estate Cycles & International Value
QUESTION: Mr. Armstrong, your real estate cycle turned up from 1955. It does not match the Case-Shiller index which peaked in 1890s and bottomed in 1920 and then began to rally after 1940 into the 1955 period. Something seem strange with that index given the huge Florida real estate bubble which burst in 1927. Can you explain why the Case-Shiller seems to be off so much? Here is a chart that has been going around the Web.
Thanks
ANSWER: This is the typical problem with people creating an index and then trying to extend it back in time. They ALWAYS ignore the currency and project purely a domestic view. During the 1890s, J.P. Morgan had to bail out the U.S. Treasury for it was dead broke. As people feared the government would declare bankruptcy, private assets rose in NOMINAL terms. This was matched by the massive exit of foreign capital from the USA.
The Case-Shiller index bottoms in 1920, but this was the point of a massive rise in the dollar’s value. Foreign capital poured into the USA to park because of World War I. This, in turn, led to wild speculation in Florida, which as you correctly stated, burst in 1927. Because rhis isdex is national, it also suppresses regional booms. As real estate peaked in Florida, the hot money then shifted to stocks creating the Phase Transition into 1929. It was this capital flows between asset classes into stocks where that concentration led to the 1929 bubble.
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 avalue 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.
We use international value rather than nominal local currency. If you fail to use the international value, the end result will always be erroneous for you will NEVERsee when foreign capital will rush in or flee. You simply must look at the world in this manner or you will lose your shirt and everything else. Those who thought gold was in a bull market after the 1980 Crash, lost a lot because they failed to graspinternational value.
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