Economics

Has Draghi Just Lost It? | Armstrong Economics

Posted on by johnbarleycorn12

QUESTION: Why are long-term yields on risky European debt below that of US Treasuries? Is this the European bubble madness? HN, Frankfurt ANSWER: This is unquestionably a bubble, but the buyer has been the ECB (European Central Bank). Yields on risky European bonds have been driven below the yields of long-dated US securities. The financial system may appear to be riddled with anomalies, distortions and erroneous prices, but all of those labels assume it is the madness of crowds rather than the government. Mario Draghi has created the worst possible financial nightmare perhaps in modern history since governments began borrowing in the 12th century. These are not driven by a free market, but one that is manipulation of a central bank gone absolutely mad. The average return on European junk bonds is below “risk-free” US government bonds. This is completely driven by the insanity of the ECB. In fact, Draghi purchased around $ 2.6 trillion in securities since his Quantitative Easing began in March 2015. He assumed that this would stimulate the economy. However, all it has done is kept the member states on life-support. He is trapped and has no way out, which is why he has come out and said that the ECB will reinvest when the bonds they hold mature. There will be no end to this madness and he has single-handedly wiped out the bond markets. There is no free-market remaining so the question becomes – how will governments ever sell its debt in the future?
— Read on www.armstrongeconomics.com/international-news/europes-current-economy/has-draghi-just-lost-it/

Doubling down

The Dollar is Not Dead After All? | Armstrong Economics

Posted on by johnbarleycorn12

CLICK ON CHART It is amazing how people have simply declared that the dollar is in a perpetual bear market as if the USA is the only nation with a debt. They judge the entire future by a few weeks of price action. That is what is so dangerous – emotional trading. I have been warning that ONLY a dollar’s resurgence would create a monetary crisis. The entire world is free to issue debt in dollars and emerging market have done so. As interest rates were manipulated to a 5,000 historic low by central banks, they never thought about what would happen to pensions. So many pensions ran into the open arms of emerging debt which doubled its issue in less than 8 years. The foolish fund managers ran headstrong into emerging markets seeking HIGH YIELD! The dollar rally is now rippling through emerging markets, sparking steep falls in stocks, bonds, and their currencies wiping out whatever gains they thought were guaranteed. We are looking a devastation around the globe with the Turkish lira falling almost another 6%. Argentina’s peso is also in trouble as the central bank raised the interest rate to 40% trying to support the currency. The MSCI Emerging Markets Index, which measures stock performance, is also down 1.5%. Then there is the JPMorgan index for emerging-market government bonds in their respective local currencies has also dropped almost 4% in the past month. These declines illustrate that there is rising uncertainty about the outlook for emerging-market assets among fund managers. Many have been showing that 2018 would be a Directional Change following the surge many saw during 2017. Since January 2018, this turning point which made many call a bear market in the US shares has also marked the beginning of a shift in worldwide trends. Complexity. You have to Love the interconnections. Keeps the brain awake.
— Read on www.armstrongeconomics.com/markets-by-sector/foreign-exchange/the-dollar-is-not-dead-after-all/

Erdogan Recalls Gold Reserves from New York Fed – Is He Preparing for War? | Armstrong Economics

Posted on by johnbarleycorn12

The Turkish government has withdrawn its reserves of gold from the Federal Reserve. Erdogan clearly is positioning himself to be able to seek its own power that will be contrary to international policy. Erdogan is one of those politicians who still think in the old days of Empire. As a member of NATO, he has constantly been threatening Greece. So what happens if we see a war between two NATO members? Who does NATO then support? When in doubt, bring the gold home in preparation for in time of war, a currency will not suffice.
— Read on www.armstrongeconomics.com/markets-by-sector/precious-metals/gold/erdogan-recalls-gold-reserves-from-mew-york-fed-is-he-preparing-for-war/

The dictator that once ruled Libya 🇱🇾 tried this.

Argentina Raises Interest Rates to Support Currency | Armstrong Economics

Posted on by johnbarleycorn12

Argentina has just raised interest rates to 40% trying to support the currency. I have explained many times that interest rates follow a BELL-CURVE and by no means are they linear. This is one of the huge problems behind attempts by central banks to manipulate the economy by impacting demand-side economics. Raising interest rates to stem inflation will work only up to a point and even that is debatable. The entire interrelationship between markets and interest rates has three main phase transitions and each depends upon the interaction with CONFIDENCE of the people in the survivability of the state. PHASE TWO: Raising interest rates will flip the economy as Volcker did in 1981 ONLY when they exceed the expectation of profits in asset inflation provided there is CONFIDENCE that the government will survive as in the USA back in 1981 compared to Zimbabwe, Venezuela, Russia during 1917 or China back in 1949. In other words, if the nation is going into civil war, then tangible assets will collapse and the solution becomes assets flee the country. In the case of the USA back in 1981, the high interest rates worked because we were only in Phase Two where there was no civil war or revolution so the survivability of the government did not come into question. Hence, Volcker created DELATION as capital then ran away from assets and into bonds to capture the higher interest rates. Then and only then did rates begin to decline between 1981 into 1986 reflecting the high demand for US government bonds, which in turn drove the US dollar to record highs and the British pound to $1.03 in 1985 resulting in the Plaza Accord and the creation of the G5 (now G20). So many people want to take issue with me over how the stock market will rise with higher interest rates. It is a BELL-CURVE and you better begin to understand this. If not, just hand-over all your assets to the New York bankers now, go on welfare and just end your misery. Here are charts of the Argentine share market the currency in terms of US dollars. You can see that the stock market offers TANGIBLE assets that rise in local currency terms because assets have an international value. Here we can see the dollar has soared against the currency and the stock market has risen in proportion the decline in the currency. I do not think there is any other way that is better to demonstrate the BELL-CURVE effect of interest rates than these two charts. To those who doubt that the stock market can rise with rising interest rates, I really do not know what to say. Keep listening to the talking heads of TV and all the pundits who claim only gold will rise and everything else will fall to dust. Then we have the sublime blind idiots who never look outside the USA and proclaim the dollar will crash and burn not the rest of the world so buy gold and cryptocurrency you cannot spend and certainly with no power grid. PHASE THREE Is when no level of interest rate will save the day. Capital simply flees the political state for the risk of revolution or civil war means that tangible assets which are immovable will not hold their value such as companies and real estate. This is the period that Goldbugs envision. At that point, the value of everything will even move into the extreme PHASE FOUR where even gold will decline and the only thing to survive is food. There, the political state completely collapses and a new political government comes into being.
— Read on www.armstrongeconomics.com/markets-by-sector/foreign-exchange/argentina-raises-interest-rates-to-support-currency/

Learn from others mistakes or repeat them.