Market Talk — January 25, 2016
Asia’s response to the late U.S. rally in stocks was to play catch-up this morning with all core indices closing up around 1% (roughly where they opened). The ASX followed the surge in oil prices with a gain of almost 2%. Rumors around the market that the BOJ has furthered easing plans helped sentiment, so at least the thinking is positive. As the day progresses, oil is once again flirting with the psychological $30 mark and so we are watching Asian futures down around 1.5% across the board! All core European indices opened firmer but drifted into the close. With all cores recording losses, the mood to take into the U.S. afternoon was anything but positive, and as oil drifted — equities followed. Banks in Europe and the U.S. were some of the biggest losers today with BNP -3%, Lloyds -5.6%, Deutsche Bank -5.5% and Goldman in the States -3.6%.
Although we did see a $12 ($1108 +1.1%) rally in gold, the flight to safety was not that evident in the U.S. Treasury market where 10yr closed 2.00%. Late in the day, we did see buyers taking the yield from 2.04% down to close 2%, but volumes were thin and the front end was rather slow to follow. 2s closed almost unchanged on the day (0.86%) with 5’s 2bp lower (1.44%) and 30’s 2.79% (-4bp).
There is an on-going concern that the “on the runs” (the most current issues) are the only liquid instrument around and so the spreads between “on” and “off” are increasing. This will become a bigger problem further down the road so we will write more on this in due course.
German bunds played in a rather tight range closing 1bp lower at 0.47%. 10yr US/Germany closes +153bp. 10yr Italy (BTP) closed this evening 1.56%. As we approach some interesting times we shall also include Greece (10yr closed 9.04%), Turkey (10.75%), and UK (10yr closed 1.68%).
Digging Out of Global Warming
Can you image how much snow we would get without global warming? They want to tax us to make more of this stuff? I will pay more not to dig myself out.
Advice for Europeans
Advice for Europeans: you should open an account in the United States as your hedge against European banking madness. Europeans can still open accounts in the USA, but Americans cannot open accounts in Europe. This should be the best bet until 2020. Switzerland still has approved bail-ins. Canada is not altogether great either. In Britain, the currency is in a bear market and Cameron has lost his mind. So the best bet, for now, is a U.S. bank account until the cycle reverses probably as we near 2020.
The Fed vs. Congress
QUESTION:
Hi Martin,
How long has the central banking era been going and will it come to an end? How many central banks create liquidity for governments by buying their bonds?
Cheers
SL
ANSWER: I understand that central banks have been demonized and the great conspiracy centers around their ability to create money. Creating money is not really the issue for the amount they have created is peanuts compared to the continued debt created by politicians. Congress just created $1 trillion-plus in December 2015 and nobody noticed.
We need central banks as a clearing mechanism and to maintain reserves of member banks. The problem is that central banks are not all created the same. Jackson destroyed the Bank of the United States, which did not engage in quantitative easing and had no such power to create elastic money. They simply lent money to Jackson’s opponents. The destruction of the central bank resulted in the Panic of 1837 and the sovereign defaults of the states during the 1840s that occurred after the states had issued debt in an attempt to bailout state banks that went nuts without a central bank to control anything.
This constant attack on central banks is really hiding what the problem truly is — government. When the Fed was created, it “stimulated” the economy by purchasing corporate paper. The Fed was NEVER intended to buy government bonds. The politicians did that for World War I and never returned it to its purpose. Then FDR grabbed it and ordered the Fed to buy government bonds at PAR, which was not removed until 1951.
The problem is always politicians. We need to ELIMINATE public debt and outlaw the federal government from borrowing since it never pays anything back. The Fed’s ability to create money to help the economy in a crisis was limited by its design to buy short-term corporate paper. The private sector has to pay its debts. So the right to “create” temporary money made sense for it was eliminated when the corporate paper was redeemed. This was short-term paper.
Even today, the Fed has all this government debt it bought under quantitative easing. It too will be reversed, but they bought long-term debt. That increase in the money supply will contract upon expiration of the debt. Technically, debt is repaid once it expires, and the money created by the Fed vanishes. That is still elastic money.
Eliminating the central banks will not save our future. That would push us over the edge as Jackson did. We need to eliminate government debt and return the Fed to its original design and knock off this manipulation of the Fed for political gain.
Make no mistake about it: the Fed stating interest rates MUST be normalized is not going to help fiscal policy. This is now a war over integrity and we should stop bashing the Fed and start yelling at the real culprits.
As far as when the central banks will come to an end from a clearing perspective — hopefully never. As a government tool to manipulate society, their days are numbered and 2020 looks like a good place to start. If the debt collapses, then the central banks can return to their original function. Those who want to shut down the Federal Reserve would only destroy the economy exactly as Andrew Jackson did.
The Insanity of Government & Socialism
I have warned that government expansion reduces economic growth and acts like a black hole that sucks in more and more wealth, thereby reducing economic expansion. If the government keeps growing, ultimately we will end up with 100% government consumption or the equivalent of communism. We should be standing on our soapboxes in the tradition of Speakers Corner at Hyde Park in London, yelling “HEY, WHERE THE HELL ARE WE GOING?”
Here is a chart produced by OECD that nobody pays attention to. This clearly shows what I have been warning about. The higher the tax rate, the lower the economic growth. A reader sent this in commenting that EVERY POLITICIANshould be shown this chart. The problem is that they lack the comprehension to understand what it means. There are two scales and we all know those in government can only see linearly, as in one thing at a time.
I could hold a conference on the forecast of the future and charge $3.95. It will take less than one minute. “Hello. I Martin Armstrong. I am here to tell you that you are all screwed. Thank you very much. Enjoy what freedom you have left before 2017.”
There is NO WAY OUT of this mess. We simply have to crash and burn. The phoenix is the image of this process. Rising from the ashes is ultimately the symbol of the cycle. The phoenix comes from Greek mythology and is reputed to be a long-lived bird that is cyclically regenerated or reborn. The phoenix obtains new life by rising from the ashes of its predecessor. According to some texts, the phoenix could live over 500 years before rebirth. According to the people of Heliopolis in Egypt, the phoenix came to that city once in five hundred years to bury his father. By that, they did not mean an actual father, for this creature was the only creature capable of renewing and reproducing its own being; the process of self-referral – the perfect cycle.
“A chattering crow lives out nine generations of aged men, but a stag’s life is four times a crow’s, and a raven’s life makes three stags old, while the phoenix outlives nine ravens, but we, the rich-haired Nymphs, daughters of Zeus the aegis-holder, outlive ten phoenixes.”
— Hesiod, quoted by Plutarch, Obsolescence of Oracles, 415.
If we assume the average man lives to 80 years of age, then the crow outlives nine generations of men which brings us to 720 years (80 x 9). The stag’s life is then four times that of a crow’s, which would then give us 2880 years (720 x 4). The raven lives as long as three stags, bringing us to 8640 years (2880 x 3). This means the phoenix lives as long as nine ravens, which is 77760 (8640 x 9). Notice the curious relationship to 8.6 and the volatility cycle of 6 years ( 12 x 6 = 72). Just interesting.
They Had No Answers at Davos
COMMENT:
Hi Marty,
Found this on Reuters website in an article entitled ‘Desperate in Davos: policymakers struggle for answers’.
http://uk.reuters.com/article/us-davos-meeting-mood-idUKKCN0V10OL
The most interesting part was this:
‘At a lunch entitled “The End of Political Consensus”, there was broad agreement that rising inequality, and the sense that elites were only looking out for themselves, was fuelling more and more resentment of established politicians, and giving rise to a tide of populism — in the form of politicians like Donald Trump and France’s Marine Le Pen.
However the attendees, including Harvard historian Niall Ferguson and former European Commission President Jose Manuel Barroso, had few answers about how to combat this trend beyond more responsible leadership.
“We are witnessing the decay of power,” Moises Naim of the Carnegie Endowment for International Peace told the audience. “The view is that anything is better than the people in power.”
Chickens are coming home to roost as you have long predicted.
Thank you for all your amazing work and for making it available to ordinary guys like me.
AB
REPLY: Indeed. Everyone looks at the “rich” but nobody pays attention to government. It is so corrupt; this is the very fuel that sparked the Ukrainian uprising — not CIA bullshit. Yanakovich’s sons were acting like the mafia. If you had a business, they would either demand protection money or just steal the business. I had friends who were in the barricades in Maidan. Here is a picture of a protest rally on Kyiv’s Maidan Nezalezhnosti (Independence Square) in early December 2013. Yes, the CIA and others grabbed power afterwards, but they were not able to move the people in such masses to instigate the uprising no matter what they tried. It was the corruption that finally moved the people to rise up. We will see the very same thing throughout the West.
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