Ryan Irvine was the featured guest Oct. 7th plus Full Transcript of Martin Armstrong's Special Extended Interview on Sept. 30th.
Two Stocks Recommended by Ryan Irvine of Keystone Financial
Ryan looks under the radar for great individual businesses that are too small to attract large funds.
That strategy allows him to buy small-cap and mid-cap companies at reasonable prices as they get left behind. As the value in these companies get recognized, they profit long-term. Sometimes when they are included in an index, often when they are taken over by a larger firm. For example one stock, International Road Dynamics was recommended at the World Outlook conference and was taken over 90 days later with an 80% gain. Four others have been taken over from their portfolio this year.
Ryan’s goal is to beat the market. Between 1926 - 2004 Small-cap stocks averaged a 15.9% return compared to only 9.26% for Large Caps and thats the reason Warren Buffet laments he has grown to large to buy them.
“If I was running $1 million today, or $10 million for that matter, I’d be fully invested. Anyone who says that size does not hurt investment performance is selling. The highest rates of return I’ve ever achieved were in the 1950s. I killed the Dow. You ought to see the numbers. But I was investing peanuts then. It’s a huge structural advantage not to have a lot of money. I think I could make you 50 percent a year on $1 million. No, I know I could. I guarantee that.
The universe I can’t play in has become more attractive than the universe I can play in. I have to look for elephants. It may be that the elephants are not as attractive as the mosquitoes. But that is the universe I must live in.”
— Warren Buffett, discussing the advantages of small-cap stocks
Two Stocks recommended on Money Talks Oct. 7th
Full Transcript of Special Extended Interview with Martin Armstrong Sept. 30th
You canListen HERE at the 02:07 - 37:10 mark
I’m am very pleased to welcome back to the show Martin Armstrong of Armstrong Economics. You can probably tell that because I flew from Vancouver to Tampa Bay just to get the chance to talk to the man whose been called the world's top economic and financial forecaster.
Michael: Marty what a pleasure to be here with you in your beautiful home in Tampa.
Martin: Well I'm glad you came down.
Michael: In 1983 I remember going into a Hyatt Regency hotel room in Vancouver where you had a very old big square box computer on your desk. You said I want to show you something. What Marty proceeded to show me was voice recognition, the first time I'd ever heard it. Marty just asked the computer to show me the trading for gold in the last seven days and the computer promptly puts up the different values and the chart. Then Marty asks for the pattern going back a hundred years, then asks it what the price probability is coming into the next week. That was the first time I’d ever seen with model-based investment planning let alone the cyclical analysis.
But that type of analysis, as I've said many times, is only as good as its predictive level. Well the Armstrong economic model is the most accurate predictive model I’ve seen, so let me ask you this quick question Marty. What's the biggest financial problem facing us today? What keeps you up at night worried about the rest of us?
Martin: It's basically the pension funds and people don't quite appreciate that it's mostly the pension funds in the government sector. This is the consequence that every time a government solves one problem it creates another problem for which a future solution will be needed. So we lowered interest rates to stimulate the economy but then what happened? All the pension funds are going bust.
So it's the pension funds largely. Not necessarily the private sector but the government sector largely because they haven't up the funding of them. They just look at us as absolute herds of cattle or sheep as they've never bothered with funding these pensions because they've assumed there were always going to be an endless supply of people to tax if they needed to for future payments.
The problem comes in when birth rates start going down. We see it California, in other countries. In Germany half the municipalities are basically insolvent.
In the US people are just leaving the state of Indiana. This is what the fall of Rome was about. People don't understand why I make a distinction between movable and non movable assets. The non moveable, which is real estate, if they keep raising taxes and taxes and taxes and you can't afford it, what happens is you just pick up and leave. In Rome at the peak of the economy they had a population of 1 million. At the bottom it fell to 15,000. Obviously people just walked away.
Michael: We’re seeing that in Detroit. Their industrial base left, the people left but the pension fund stayed.
Martin: And you're seeing houses that used to be very nice in the 1920s that are just empty and vacant today. That's what's so interesting about this.
Michael: A lot of people, virtually everyone doesn't make the connection. Here's the pension problem and people say yeah, but its not going to be MY pension. Well actually maybe it'll be interest rates, maybe it's going to be your house, or maybe it will be your stocks that will be effected as the Pension Crisis unfolds. There’s a direct correlation that comes right into our livelihoods.
Martin: Well in California, they’re looking at raising taxes to bail out CalPERS because it didn’t make enough money for state government employees. Then there is another aspect to this. As you know I work a lot with governments behind the curtain and you have California, New York and number of states now joining to lobby Washington to basically take all private pension funds and dump them in their control. Then they’ll say that solved our problem.
Michael: Haven’t we seen that in Poland where they confiscated. I’m saying it's not unprecedented.
Martin: Oh no, they've done the same thing in Argentina.
Michael: Let me ask you about the potential impact on a municipal level, where you have people moving out. I mean who wants to move back into Chicago right now when they just raised property taxes 33 percent?
Martin: Nobody, that’s the whole problem. The Census Bureau has shown that in Indiana and Illinois in particular. You're seeing net migration out so they're losing population.
Michael: What about the impact on interest rates?
Martin: Well that infects basically across the board as well. We have major problems. You know I just got back from the Middle East and I've been in Europe three weeks before that where a good stiff wind will blow the European banking system down. Why? Because they never effectively created a national debt. So to be politically correct every bank had to have a piece of everybody's debt within the euro zone. So then if Greece starts to go down they take haircuts, you're basically reducing the reserves of the bank. So then you move to negative interest rates. In the states people don't understand what's been going on but all our major banking clients in Europe they had have a choice. They simply picked up their cash and instead of parking it with the ECB that would give them a half a percent, they thought no, we will ship it to our US branch and they’ll park it at the Fed and I'll earn a half a percent. So you have excess reserves at three trillion dollars.
Michael: A great example of how governments Institute policies without understanding the consequences. You, better than anyone I know, know about all of the historical precedents. But think about it, it's straightforward to understand. I mean the economy survives when more people and more money comes in. That's how things work. Yet in Europe they have instituted a policy that encourages massive amounts of money to leave Europe at a time it's in deflation and a time when there's no growth. It’s their policy that did it.
Martin: Governments decide they're going to stimulate. Okay, how do you stimulate? Well we're going to buy the bonds back from the banks and hopefully the banks will lend money. Hopefully, but they don’t. Then you get all these crazy people and analysts saying all this is going to be hyper inflationary etc. It depends upon where the money goes. Yes, the Fed bought in four trillion dollars. Oh wow that's going to be hyperinflation. No it won’t, all these theories are antiquated. They're based upon the fixed exchange rate system from Bretton Woods. I’m the one that started writing questions for the House Banking Committee because these people don't understand. China said "oh you're gonna buy 30-year bonds"? Gee, thank you very much and they sold theirs. These theories assume it's just a domestic economy, that there isn't anybody on the outside. So if I buy in the bonds will that put more money into the system and ease it? That assumes it is an American who owns the bond you're buying. It’s just not that way.
Michael: Marty I just want to get an update on the other thing that you've been chronicling and predicting, the sovereign debt crisis. At the 1998 World Outlook Conference you started with the prediction that that in 2009/ 2010 Greek bonds will go bust. You were telling us that far in advance, and that it would begin a European crisis. You’ve told our World Outlook audience that the sovereign debt crisis would get another leg and that next leg would become apparent in October 1st 2015. Can we get a quick update on where you see the sovereign debt crisis heading right now?
Martin: Well you have to understand this is an economic collapse, not a market collapse. So it’s like one domino pushing over into the next, and to the next, to the next and the two things you have to understand is where does the sovereign debt crisis begin? First it begins always on a the peripheral, never in the core. So that meant Greece was the external one, then it then it spreads inward. Secondly, within particularly a domestic economy where is it going to begin. It begins at the municipal level, and the state and province level. Why, because they can't print the money and the feds can. All they can do is raise taxes more and more and more.
No government that I have dealt with and I look at globally has figured out yet "gee this isn't working". They're only interested in “well what am I gonna do next I gotta pay this bill next week". "Alright so we'll just raise taxes." Nobody's stepping back and saying okay, if we keep doing this where are we going? I mean every revolution throughout history has begun with taxation - once you pass a level where people can no longer survive. We're all happy to ignore government and politics if they leave me alone I leave them alone. Okay, you're taking a piece of the action all right we understand that. But when you start impacting the way people can live, now you're into serious problems.
You know all this stuff about socialism and everything sounds great and wonderful but what has actually happened over the course of the years? About 70 percent of the national debts on average globally have been accumulative interest. So the money didn't go to build roads and schools and all that sort of thing, it's just basically regurgitating the debt to keep going.
Then you look and the standard of living has been declining dramatically, this is really what they don't understand. This is why Trump was elected. You had people coming out saying I can't take this anymore. Years ago a family could get by with just the the husband working. Then you put in the payroll tax “oh, we need this for World War two, we will rescind it afterwards” and of course any tax they put in never disappears, it only gets worse. So today you talk about women’s rights, equal pay etc - well women have lost the right to stay home and raise the kids. Starting a young family it takes two salaries just to get by so where is this improving of the standard of living. It's raising these taxes and taxes and taxes and it's just being squandered and wasted on government. You've got your your head of state taking a $500,000 vacation.Hillary Clinton goes and rents a house for a vacation for 150,000 for a month. Who lives this way?
Michael: A fascinating point I hope everyone really focused on was we're starting to see the ripple. It starts in countries and you might say well that's not important to me or that is not important when a city like Stockton California goes bankrupt. Now we're seeing it in two other counties in California recently, Atlantic City, Puerto Rico, before the hurt you know the list starts getting longer. For an individual that warning sign is flashing does that say don’t buy stocks, don't buy bonds, don't like this, don’t buy that?
Martin: Stay away from all municipal bonds. Even if you have one where the city's okay and doing all right in my mind they will all be painted with the same brush. Once they start going down capital acts the way it does in this Herbert Hoover quote:
Michael: 1999 was the year that the article strong economic computer model correctly predicted the date of the low in oil and gold.
Michael:We'v e been talking about the implications of unfunded pensions for years and Marti produced a great report about two years ago. In it he mentioned it's not just retirees who will pay the price, it's going to be taxpayers. Which brings me to this week’s shocking stat. Teachers in Kentucky are demanding each Kentucky household pay $3,200 each for the next two years in order to top up the teachers pension plan. That works out to 5.4 billion over just two years to top up Kentucky's three hundred and sixty five thousand teachers and other public sector employees unfunded pension schemes. Welcome to the future.
Marty as I say you did a special report on pensions can you give us a couple quick notes on it?
Martin: Actually we have been advising a number of pension funds that are coming to us now, one of them is a major Canadian fund. They did what we said and got rid of government bonds and they started moving to the private sector. S&P went in to give them a rating and they said Oh Gee, your jtaking on more risk. They said no, we actually looked at what Armstrong said, we ran our own studies and he's right. AA and AAA Corporate debt don’t basically go belly-up. Government’s always default. S&P didn’t know what to say they just walked out and left them alone.
Michael: Pensions are a little different issue because it's actuarial accounting meets demographics meets very easily predictable payouts. When you look and say uh-uh, not enough and I'm surprised that we haven't seen more action and more concern when it happens. I'm not a public sector worker so I'm not gonna get a pension from them. Fine but I'm a taxpayer and I'm going to be funding any shortfall.
Martin: This is the whole problem. It’s like I said they just look at us as an endless supply revenue for them and it's very very bad but this is the political outlook globally,
Michael: When you look at the volatility now things change so fast. Where are we at, is there more coming, less coming and we're finally going to slow down?
Michael: I just want to fire a couple of things at you and get your comment. What’s your quick take on gold now?
Michael: Let me switch to the Canadian dollar. It hit 83 cents, it bumps right there but can't close there and now we've slid back. What is your model saying.
Marty thank you for having me in your home and thank you for finding time as all as you always do. It’s so much appreciated.